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Item 8. Financial Statements and Supplementary Data

2021-11-24 compared with 2020-12-01 · 297 added, 407 removed, 259 unchanged (73% of the section changed)

9 unchanged sentences

To the Stockholders and Board of Directors

Advisors, Inc.:

of Hennessy Advisors, Inc.:

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Hennessy Advisors, Inc.

(the Company) as of September 30, 2020 and 2019, and the related

statements of income, changes in stockholders equity and cash flows for each of the two years in the period ended September 30, 2020, and the related notes (collectively referred to as the financial statements).

opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period

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.

(the “Company”) as of September 30, 2021 and 2020, the related statements of income, changes in stockholders’ equity and cash flows for each of the two years in the period ended September 30, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the

responsibility of the Companys management.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s 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 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 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.

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

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 control over financial reporting.

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.

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

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

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the account or disclosures to which it relates.

Valuation of Management Contract Assets – Impairment Consideration

As described in Note 1(f) to the financial statements, the Company has historically capitalized the cost of purchasing management contracts as intangible assets.

These intangible assets are considered to have indefinite useful lives and are therefore not amortized, but rather tested at least annually for impairment.

As part of this annual test, management (i) evaluates whether events and circumstances indicate that it is more likely than not that impairment exists, and/or (ii) estimates the fair value of such intangible assets and compares it to the cost of the assets to determine whether impairment has occurred.

Management’s estimate of the fair value of management contract assets involves subjective assumptions that include stock market returns and weighted average cost of capital.

We have determined that the valuation of management contract assets constitutes a critical audit matter for the following reasons:

(i) it is a matter that should be communicated to the audit committee, since it involves a significant management estimate;

(ii) it involves a material account balance;

and (iii) it involves especially subjective auditor judgment.

We have addressed this critical audit matter by performing appropriate audit procedures.

These procedures included (i) performing an independent evaluation of whether events or circumstances indicate that it is more likely than not that impairment exists;

(ii) evaluating the reasonableness of management’s fair value estimate assumptions;

and (iii) testing the mathematical accuracy of management’s valuation model.

Professionals with specialized skills and knowledge were used to assist in evaluating of the measurement of the Company’s estimated fair value of the management contract assets.

/s/ Marcum LLP

1 unchanged sentence

Costa Mesa, CA

December 1, 2020

November 24, 2021

Hennessy Advisors, Inc.

2 unchanged sentences

September 30,

Current assets

5 unchanged sentences

Total current assets

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

Operating lease

right-of-use asset

Property and equipment, net of accumulated depreciation of $ 1,850 and $ 1,618 , respectively

Operating lease right-of-use

Management contracts

2 unchanged sentences

Accrued liabilities and accounts payable

Accrued purchase consideration payable

Operating lease liability

Income taxes payable

Deferred rent

Current portion of long-term debt, net of debt issuance costs

Total current liabilities

Long-term debt, net of debt issuance costs and current portion

Deferred income tax liability, net

Long-term operating lease liability

Net deferred income tax liability

Total liabilities

2 unchanged sentences

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

7,356,822 shares issued and outstanding

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

7,469,584 shares issued and outstanding as of September 30, 2021, and 7,356,822 as of September 30, 2020

Retained earnings

13 unchanged sentences

Mutual fund distribution

Sub-advisory fees

Total operating expenses

9 unchanged sentences

Statements of Changes in Stockholders’ Equity

Fiscal Years Ended September 30, 2020 and 2019

(In thousands, except share data)

4 unchanged sentences

Repurchase of vested employee restricted stock for tax withholding

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

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

Employee restricted stock forfeiture

Balance at September 30, 2020

2 unchanged sentences

Repurchase of vested employee restricted stock for tax withholding

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

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

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

Shares issued for auto-investments pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan

Shares issued for dividend reinvestment pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan

Stock-based compensation

7 unchanged sentences

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

right-of-use asset and operating lease liability

Change in right-of-use

asset and operating lease liability

Deferred income taxes

Deferred offering costs

Stock-based compensation

Unrealized gains on marketable securities

Interest expense associated with debt issuance cost

Employee restricted stock forfeiture

Change in operating assets and liabilities:

4 unchanged sentences

Income taxes payable

Deferred rent

Net cash provided by operating activities

5 unchanged sentences

Principal payments on bank loan

Payment of debt issuance costs on bank loan amendment

Shares repurchased pursuant to stock buyback program

2 unchanged sentences

Stock Repurchase Plan

Proceeds from shares issued pursuant to the 2021 Dividend Reinvestment and

Stock Repurchase Plan

Dividend payments

Net cash used in financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at the beginning of the period

3 unchanged sentences

Cash paid for interest

Purchase consideration payable

See Accompanying Notes to Financial Statements

3 unchanged sentences

Hennessy Advisors, Inc.

(the Company) was founded on February 1, 1989, as a California corporation under the

name Edward J.

(the “Company”) was founded on February 1, 1989, as a California corporation under the name Edward J.

Hennessy, Incorporated.

In 1990, the Company became a registered investment advisor, and on April 15, 2001, the Company changed its name to Hennessy Advisors, Inc.

The Companys operating activities consist primarily of providing investment advisory services to 16 open-end mutual funds branded as the Hennessy Funds.

The Company serves as the investment advisor to all classes of the Hennessy Cornerstone Growth Fund, the Hennessy Focus Fund, the Hennessy Cornerstone Mid Cap 30

Fund, the Hennessy Cornerstone Large Growth Fund, the Hennessy Cornerstone Value Fund, the Hennessy Total Return Fund, the Hennessy Equity and Income Fund, the Hennessy Balanced Fund, the Hennessy BP Energy Fund, the Hennessy BP Midstream Fund, the

Hennessy Gas Utility Fund, the Hennessy Japan Fund, the Hennessy Japan Small Cap Fund, the Hennessy Large Cap Financial Fund, the Hennessy Small Cap Financial Fund, and the Hennessy Technology Fund.

The Company also provides shareholder services to

The Company’s operating

activities consist primarily of providing investment advisory s e

rvices to 16 open-end

mutual funds branded as the Hennessy Funds.

The Company serves as the investment advisor to all classes of the Hennessy Cornerstone Growth Fund, the Hennessy Focus Fund, the Hennessy Cornerstone Mid Cap 30 Fund, the Hennessy Cornerstone Large Growth Fund, the Hennessy Cornerstone Value Fund, the Hennessy Total Return Fund, the Hennessy Equity and Income Fund, the Hennessy Balanced Fund, the Hennessy BP Energy Transition Fund, the Hennessy BP Midstream Fund, the Hennessy Gas Utility Fund, the Hennessy Japan Fund, the Hennessy Japan Small Cap Fund, the Hennessy Large Cap Financial Fund, the Hennessy Small Cap Financial Fund, and the Hennessy Technology Fund.

The Company also provides shareholder services t o

shareholders of the Hennessy Funds.

The Companys operating revenues consist of contractual investment advisory and

shareholder service fees paid to it by the Hennessy Funds.

The Company’s operating revenues consist of contractual investment advisory and shareholder service fees paid to it by the Hennessy Funds.

The Company earns investment advisory fees from each Hennessy Fund by, among other things:

acting as portfolio manager for the fund or overseeing the sub-advisor

acting as portfolio manager for the fund, which includes managing the composition of the funds portfolio (including the purchase, retention, and disposition of portfolio securities in accordance with the funds investment objectives,

policies, and restrictions), seeking best execution for the funds portfolio, managing the use of soft dollars for the fund, and managing proxy voting for the fund;

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

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 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

restrictions;

overseeing service providers that provide accounting, administration, distribution, transfer agency, custodial,

sales, marketing, public relations, audit, information technology, and legal services to the fund;

maintaining in-house marketing and distribution departments on behalf of

preparing or directing the preparation of all regulatory filings for the fund, including writing and annually

updating the funds prospectus and related documents;

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;

paying the incentive compensation of the funds compliance officers and employing other staff such as legal,

marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as management executives;

providing a quarterly compliance certification to the Board of Trustees of Hennessy Funds Trust (the

Funds Board of Trustees);

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 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.

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

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

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

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

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

reviewing the fund’s investment performance, and monitoring the sub-advisor’s

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

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

maintaining in-house

marketing and distribution departments on behalf of the fund;

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

for each annual report of the fund, preparing or reviewing a written summary of the fund’s performance during the most recent 12-month

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

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

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

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 a toll-free

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

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

Bank Global Fund Services and are subsequently reviewed by management.

The fees are computed and billed monthly, at which

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

The fees are computed and billed monthly, at which time they are recognized in accordance with Accounting Standards Codification 606 — Revenue from Contracts with Customers.

The Company waived a portion of its fees with respect to the Hennessy Cornerstone Large Growth Fund and the Hennessy BP Energy Transition Fund through the expiration of each fund’s expense limitation agreement on November 30, 2019, and October 25, 2020, respectively.

The Company continues to waive a portion of its fees with respect to the Hennessy BP Midstream Fund and the Hennessy Technology Fund to comply with contractual expense ratio limitations.

The fee waivers are calculated daily by the Hennessy Funds’ accountants at U.S.

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

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

aggregate amount of advisory fees the Company receives from such fund in the subsequent month.

Each waived fee is then deducted from investment advisory fee income and reduces the aggregate amount of advisory fees the Company receives from such fund in the subsequent month.

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

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

The Companys

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.

Any decision to waive fees would apply only on a going-forward

The Company’s contractual agreements for investment advisory and shareholder services prove that a contract exists with fixed and determinable fees, and the services are rendered daily.

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

Cash and Cash Equivalents

Cash and cash equivalents include all cash balances and highly liquid investments with original maturities of three months or

less that are readily convertible into cash.

Cash and cash equivalents include all cash balances and highly liquid investments with original maturities of three months or less that are readily convertible into cash.

Fair Value of Financial Instruments

The Financial Accounting Standards Board (FASB) guidance on Disclosures about Fair Value of Financial

Instruments requires disclosures regarding the fair value of all financial instruments for financial statement purposes.

The estimates presented in these financial statements are based on information available to management as of the end of

fiscal years 2020 and 2019.

Accordingly, the fair values presented in the Companys financial statements as of the end of fiscal years 2020 and 2019 may not be indicative of amounts that could be realized on disposition of the

financial instruments.

The Financial Accounting Standards Board (“FASB”) guidance on “Disclosures about Fair Value of Financial Instruments” requires disclosures regarding the fair value of all financial instruments for financial statement purposes.

The estimates presented in these financial statements are based on information available to manage m

ent as of the end of fiscal years 2021 and 2020.

Accordingly, the fair values presented in the Company’s financial statements as of the end of fiscal years 2021 and 2020 may not be indicative of amounts that could be realized on disposition of the financial instruments.

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 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.

lue 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

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 2021 and 2020.

Dividend income is recorded on the ex-dividend date.

Purchases and sales of marketable

securities are recorded on a trade-date basis, and realized gains and losses recognized on sale are determined on a specific identification/average cost basis.

Dividend income is recorded on the ex-dividend

Purchases and sales of marketable securities are recorded on a trade-date

basis, and realized gains and losses recognized on sale are determined on a specific identification/average cost ba s

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.

Depreciation is computed using the straight-line

method over the estimated useful lives of the assets, generally one to ten years.

Management Contracts Purchased

Throughout its history, the Company has completed 10 purchases of the assets related to the management of 30 different mutual

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

In accordance with 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,

respectively.

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.

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.

Property and equipment are stated at cost less accumulated

depreciation.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally between one and ten years.

Management Contracts Purchase d

Throughout its history, the Company has completed 10 purchases of the assets related to the management of 30 different mutual funds, some of which were reorganized into already existing Hennessy Funds.

In accordance with FASB guidance, the Company periodically reviews the carrying value of its management contract asset t o

determine if any impairment has occurred.

The fair 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 was determined that there was no impairment as of the end of fiscal years 2021 and 202 0

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 year 2021.

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 (the “BP Funds”), which were reorganized into the Hennessy BP Energy Transition Fund and the Hennessy BP Midstream Fund, respectively, two new series of Hennessy Funds Trust .

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 company’s 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 its 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 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 Company’s 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 Company’s 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.

federal jurisdiction and

multiple state jurisdictions.

Following is a list of jurisdictions that the Company has identified as its major tax jurisdictions with the tax years that remain open and subject to examination by the appropriate governmental agencies marked:

Tax Jurisdiction

United States

District of Columbia

Massachusetts

New Hampshire

North Carolina

Total State Jurisdictions

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

open indefinitely.

federal jurisdiction and multiple state jurisdictions.

The Company’s U.S.

federal income taxes for 2017 through 2021 remain open and subject to examination.

The Company has identified 22 major state tax jurisdictions in which it is subject to income tax, which include California, Colorado, Connecticut, Illinois, Indiana, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Texas, and Wisconsin.

For tax years that remain open, the below chart shows the number of such state tax jurisdictions that remain subject to examination by the appropriate governmental agencies:

Number of State

Tax Jurisdictions

For state tax jurisdictions with unfiled tax returns, the statutes of limitations remains open indefinitely.

Earnings per Share

Basic earnings per share is determined by dividing net earnings by the weighted average number of shares of common stock

outstanding, while diluted earnings per share is determined by dividing net earnings by the weighted average number of shares of common stock outstanding adjusted for the dilutive effect of common stock equivalents, which consist of restricted stock

units (RSUs).

For 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.

Basic earnings per share is determined by dividing net earnings by the weighted average number of shares of common stock outstanding, while diluted earnings per share is determined by dividing net earnings by the weighted average number of shares of common stock outstanding adjusted for the dilutive e f

fect of common stock equivalents, which consist of restricted stock units (“RSUs”).

Amended and Restated 2013 Omnibus Incentive Plan

The Company has adopted, and the Companys shareholders have approved, the Amended and Restated 2013 Omnibus Incentive

Plan (the Omnibus Plan), providing for the issuance of options, stock appreciation rights, restricted stock, RSUs, performance awards, and other equity awards for the purpose of attracting and retaining executive officers, key employees,

and outside directors and advisors and increasing shareholder value.

The maximum number of shares that may be issued under the Omnibus Plan is 50% of the number of outstanding shares of common stock of the Company, subject to adjustment by the

compensation committee of the Companys Board of Directors upon the occurrence of certain events.

The 50% limitation does not invalidate any awards made prior to a decrease in the number of outstanding shares, even if such awards have result or

may result in shares constituting more than 50% of the outstanding shares being available for issuance under the Omnibus Plan.

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.

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.

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

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.

The Company has adopted, and the Company’s shareholders have approved, the Amended and Restated 2013 Omnibus Incentive Plan (the “Omnibus Plan”), which provides for the issuance of options, stock appreciation rights, restricted stock, RSUs, performance awards, and other equity awards for the purpose of attracting and retaining executive officers, key employees, and outside directors and advisors and increasing shareholder value.

The maximum number of shares that may be issued under the Omnibus Plan is 50 % of the number of outstanding shares of common stock of the Company, subject to adjustment by the compensation committee of the Company’s Board of Directors upon the occurrence of certain events.

The 50% limitation does not invalidate any awards made prior to a decrease in the number of outstanding shares, even if such awards have result or may result in shares constituting more than 50% of the outstanding shares being available for issuance under the Omnibus Plan.

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 Company’s 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

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

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 $

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 Company’s common stock on the date specified in the recipient’s award.

The Company issues new shares of its common stock when it is required to deliver shares t o

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 2021 and 2020 have been recognized in the financial statements.

The Company has available up to 3,734,792 shares of the Company’s common stock in respect of granted stock awards, in accordance with terms of the Omnibus Plan.

A summary of RSU activity is as follows:

6 unchanged sentences

Value per Share

Non-vested balance at beginning of year

Non-vested balance at end of year

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.

balance at beginning of year

balance at end of year

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:

September 30, 2021

(In thousands,

except years)

(In thousands, except years)

Total expected compensation expense related to RSUs

3 unchanged sentences

Dividend Reinvestment and Stock Purchase Plan

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.

In January 2021, the Company adopted an updated Div i

dend Reinvestment and Stock Purchase Plan (the “DRSPP”), replacing the previous Dividend Rei n

vestment and Stock Purchase Plan that had been in place since 2018.

The DRSPP provides shareholders and new investors with a convenient and economical means of purchasing shares of the Company’s common stock and reinvesting cash dividends paid on the Company’s common stock.

Under the DRSPP and its predecessor plan, the Company issued 12,666 and 9,815 shares of common stock in fiscal years 2021 and 2020, respectively.

The maximum number of shares that may be issued under the DRSPP is 1,470,000 , of which 1,460,457 shares remained available for issuance as of September 30, 2021.

Stock Buyback Program

In August 2010, the Company adopted a stock buyback program.

The program provides that the Company may repurchase up to

1,500,000 shares of its common stock and has no expiration date.

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 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,

The Company temporarily suspended repurchases under the stock buyback program as of March 24, 2020, so the Company did not repurchase any shares of its common stock pursuant to the stock buyback program during fiscal year 2021.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States

requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and

expenses during the reporting periods.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Actual results could differ from those estimates.

Fair Value Measurements

The Company applies Accounting Standards Codification 820 Fair Value Measurement for all financial assets and

liabilities, which establishes a framework for measuring fair value and expands disclosures about fair value measurements.

The standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in

an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy consisting of the following three levels that prioritize the inputs to the valuation techniques used to measure fair value:

Level 1 Unadjusted, quoted prices in active markets for identical assets or liabilities that an

entity has the ability to access at the measurement date;

Level 2 Other significant observable inputs (including, but not limited to, quoted prices in active

markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, and model-derived valuations in which all significant inputs and

significant value drivers are observable in active markets);

Level 3 Significant unobservable inputs (including the entitys own assumptions about what

market participants would use to price the asset or liability based on the best available information) when observable inputs are not available.

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

Level 3 hierarchies:

The Company applies Accounting Standards Codification 820 — Fair Value Measurement for all financial assets and liabilities, which establishes a framework for measuring fair value and expands disclosures about fair value measurements.

The standard defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” It also establishes a fair value hierarchy consisting of the following three levels that prioritize the inputs to the valuation techniques used to measure fair value:

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

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

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

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

Based on the definitions, th e

following table represents the Company’s assets categorized in the Level 1 to Level 3 hierarchies:

September 30, 2021

13 unchanged sentences

There were no transfers between levels during fiscal years 2021 or 2020.

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

The cost, gross unrealized gains, gross unrealized losses, and fair market value of the Company’s trading investments were as follows:

(In thousands)

1 unchanged sentence

Mutual fund investments

The mutual fund investments are included as a separate line item in current assets on the

Companys balance sheets.

The mutual fund investments are included as a separate line item in current assets on the Company’s balance sheets.

Property and Equipment, Net

8 unchanged sentences

Property and equipment, net

During fiscal years 2020 and 2019, depreciation expense was $0.239 million and

$0.225 million, respectively.

During each of fiscal year 2021 and fiscal year 2020, depreciation expense was $ 0.2 million.

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.

The costs related to the Company’s 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 2021, unchanged from the end of fiscal year 2020.

The Company considers the management contracts asset to be an intangible asset per Accounting Standards Codification 350 — Intangibles—Goodwill 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 16 Hennessy Funds.

The investment advisory agreements must be renewed annually (except in

limited circumstances) by (a) the Funds Board of Trustees or the vote of a majority of the outstanding shares of the applicable Hennessy Fund and (b) the vote of a majority of the trustees of Hennessy Funds Trust who are not

interested persons of the Hennessy Funds.

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

stment advisory agreements must be renewed annually (except in limited circumstances) by (a) the Funds’ Board of Trustees or the vote of a majority of the outstanding shares of the applicable Hennessy Fund and (b) the vote of a majority of the trustees of Hennessy Funds Trust who are not interested persons of the Hennessy Funds.

If an investment advisory agreement is not renewed, it terminates automatically.

There are two additional circumstances in which an investment advisory agreement 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).

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 Company’s common stock in sufficient quantities deemed to constitute a controlling block).

Second, an investment advisory agreement may be terminated prior to its expiration upon 60 days’ written notice by either the applicable Hennessy Fund or the Company.

As provided in each investment advisory agreement, the Company receives investment advisory fees monthly based on a percentage

of the applicable 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.

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

The Company has entered into sub-advisory

agreements for the Hennessy Focus Fund, the Hennessy Equity and Income Fund, the Hennessy BP Energy Transition 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 of the assets of the applicable Hennessy Fund in accordance with the terms of such agreement and the applicable Hennessy Fund’s Prospectus and Statement of Additional Information.

The sub-advisors

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

The sub-advisory

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

In exchange for the sub-advisory

services, the Company (not the Hennessy Funds) pays sub-advisory

fees to the sub-advisors

out of its own assets.

fees are calculated as a percentage of the applicable sub-advised

fund’s 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 Company’s balance sheet.

During the quarter ended March 31, 2021, the Company renewed the lease for its office in Novato, California for an additional three years .

The renewed lease expires on July 31, 2024 .

The lease renewal created a long-term operating lease as of March 31, 2021, and the Company recorded a right-of-use

asset of $ 1.1 million on the balance sheet.

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

Operating lease right-of-use

assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

In determining the present value of lease payments, the Company uses its incremental borrowing rate based on th e

information available at the lease commencement date.

The Company’s lease terms ma y

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

The Company leases office space

under non-cancelable operating leases.

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:

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

The classification of the Company’s operating lease right-of-use

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

September 30, 2021

1 unchanged sentence

and percentages)

Operating lease

right-of-use assets

Operating lease liability

Weighted average remaining lease term years

Operating lease right-of-use

Current operating lease liability

Long-term operating lease liability

Weighted average remaining lease term

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:

For fiscal years 2021 and 2020, the Company’s lease payments related to its operating lease right-of-use

assets totaled $ 0.43 million and

million, respectively, and total

rent expense for all offices, which is recorded under general and administrative expense in the statements of income, totaled $ 0.51 million and

$ 0.57 million, respectively.

The undiscounted cash flows for future maturities of the Company’s operating lease liabilities and the reconciliation to the balance of operating lease liabilities reflected o n

the Company’s balance sheet are as follows:

September 30,

1 unchanged sentence

Fiscal year 2022 undiscounted cash flows

Fiscal year 2023

Fiscal year 2024

Total 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

Accrued Liabilities and Accounts Payable

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

(In thousands)

Accrued bonus liabilities

Accrued sub-advisor fees

Accrued sub-advisor

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.

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.

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

The Company has a 401(k) retirement plan covering eligible employees.

Employees are eligible to participate if they are over 21

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 was $0.6 million.

Employees are eligible to participate if they are over 21 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 $ 0.2 million in each of the fiscal years 2021 and 2020.

To be eligible for the discretionary profit-sharing contribution, an employee must be eligible to participate in the 401(k) retirement plan and must complete at least 501 hours of service during the calendar year or be employed as of the last day of the calendar year.

As of the end of each of fiscal

years 2021 and 2020, the Company’s gross liability for unrecognized tax benefits related to uncertain tax positions was $ 0.6 million.

If the tax benefits of such amounts were recognized, $ 0.50 million of such amounts would decrease the Company’s 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 Company’s net liability for accrued interest and penalties was $ 0.30 million and $ 0.27 million as of September 30, 2021, and September 30, 2020, 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, 2021, and September 30, 2020, the Company recognized approximately $ 0.03 million and $ 0.04 million in interest and penalties, respectively.

The Company’s activity was as follows:

Fiscal Years Ended September 30,

Fiscal Years Ended

September 30,

(In thousands)

4 unchanged sentences

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,

The total amount of unrecognized ta x

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 Company’s 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,

Total Current

Total Deferred

The principal reasons for the differences from the federal statutory income tax rate and the Company’s effective tax rate were as follows:

Fiscal Years Ended

September 30,

Federal statutory income tax rate

2 unchanged sentences

Difference due to executive compensation

Adjustment to beginning deferred taxes

Tax return to provision adjustments

Uncertain tax position allowance

Amendment of prior period tax return

Stock-based compensation

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:

Fiscal Years Ended September 30,

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)

3 unchanged sentences

Capital loss carryforward

ROU asset/lease liability

Gross deferred tax assets

7 unchanged sentences

Earnings per Share

The weighted average common shares outstanding used in the calculation of basic earnings per share and weighted average common

shares outstanding, adjusted for common stock equivalents, used in the computation of diluted earnings per share were as follows:

The weighted average common shares outstanding used in the calculation of basic earnings per share and weighted average common shares outstanding, adjusted for common stock equivalents, used in the computation of diluted earnings per share were as follows:

September 30,

2 unchanged sentences

Weighted average common stock outstanding, diluted

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.

For fiscal years 2021 and 2020, the Company excluded 65,098 and 186,520 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.

Concentration of Credit Risk

The Company maintains its cash accounts with three commercial banks that, at times, may exceed federally insured limits.

amount on deposit at September 30, 2020, exceeded the insurance limits of the Federal Deposit Insurance Corporation by approximately $3.8 million.

In addition, total cash and cash equivalents include $6.0 million held in the

First American U.S.

The Company m a

its cash accounts with three com m

ercial banks that, at times, may exceed federally insured limits.

The amount on deposit at September 30, 2021, exceeded the insurance limits of the Federal Deposit Insurance Corporation by approximately $ 4.0 million.

In addition, total cash and cash equivalents include $ 11.5

million held in the First American U.S.

Government Money Market Fund that is not federally insured.

1 unchanged sentence

Recently Issued and Adopted Accounting Standards

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. 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):

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 (the Companys fiscal year 2021), with early adoption

permitted for any eliminated or modified disclosures.

The Company is currently evaluating the impact of adopting this update, but does not expect it to have a material impact on the Companys financial condition, results of operations, cash

flows, or related disclosures.

There have been no other significant changes to the Companys critical accounting

policies and estimates during fiscal year 2020.

The Company has reviewed accounting pronouncements issued between December 1, 2020, the filing date of its most recent previously filed Annual Report on Form 10-K,

and November 24, 2021, the filing date of this Annual Report on Form 10-K,

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

There have been no other significant changes to the Company’s critical accounting policies and estimates during fiscal year 2021.

Subsequent Events

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 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.

As of November

24, 2021, the filing date of this Annual Report on Form 10-K, management evaluated the existence of events occurring subsequent to the end of fiscal year 2021, and determined the following to be subsequent events:

On October 20, 2021, the Company completed a public offering of 4.875 % notes

due 2026 in the aggregate principal amount of $ 40,250,000 , which included the full exercise of the underwriters’ overallotment option.

The 2026 Notes bear interest at 4.875% per annum, payable on the last day of eac h

calendar quarter and at maturity, beginning December 31, 2021 .

The 2026 Notes mature on December 31, 2026 .

On October 29, 2021 , the Company announced a quarterly cash dividend of $ 0.1375 per share paid on November 23, 2021 , to shareholders of record as of November 11, 2021 .

The declaration and payment of dividends to holders of the Company’s common stock, if any, are subject to the discretion of the Company’s 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.

The Company’s Board of Directors will take into account such matters as general economic and business conditions, the Company’s strategic plans, the Company’s financial results and condition, contractual, legal, and regulatory restrictions on the payment of dividends by the Company, and such other factors as the Company’s 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