Statements of Cash Flows

Nine Months Ended June 30, 2021


Total


Common Stock

Retained

Stockholders’


Shares

Amount

Earnings

Equity

Balance at September 30, 2020
   7,356,822    $ 18,705    $ 59,473 $ 78,178
Net income
   —      —      1,773 1,773
Dividends declared
   —      —      (1,011 ) (1,011 )
Shares issued for auto-investments pursuant to the 2018 Dividend Reinvestment and Stock Purchase Plan
   652    6    —   6
Shares issued for dividend reinvestment pursuant to the 2018 Dividend Reinvestment and Stock Purchase Plan
   2,165    19    —   19
Stock-based compensation
   —      352    —   352






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






Net income
   —      —      1,886 1,886
Dividends declared
   —      —      (1,012 ) (1,012 )
Shares issued for auto-investments pursuant to the 2018 Dividend Reinvestment and Stock Purchase Plan
   306    3    —   3
Shares issued for auto-investments pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan
   838    7    —   7
Shares issued for dividend reinvestment pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan
   2,298    19    —   19
Stock-based compensation
   —      351    —   351






Balance at March 31, 2021
   7,363,081    $ 19,462    $ 61,109 $ 80,571






Net income
   —      —      2,244 2,244
Dividends declared
   —      —      (1,013 ) (1,013 )
Shares issued for auto-investments pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan
   1,424    13    —   13
Shares issued for dividend reinvestment pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan
   2,144    20    —   20
Stock-based compensation
   —      351    —   351






Balance at June 30, 2021
   7,366,649    $ 19,846    $ 62,340 $ 82,186

(In thousands)

(Unaudited)


	Three Months Ended December 31,
	2022			2021
Cash flows from operating activities
Net income	$	1,119		$	1,913
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		49			53
Unrealized gain on marketable securities		(1	)		—
Change in right-of-use asset and operating lease liability		(1	)		—
Amortization of note issuance costs		73			55
Deferred income taxes		262			570
Employee restricted stock forfeiture		—			(3	)
Stock-based compensation		262			388
Change in operating assets and liabilities
Investment fee income receivable		(24	)		(31	)
Prepaid expenses		91			225
Other accounts receivable		—			(111	)
Other assets		(1	)		(11	)
Accrued liabilities and accounts payable		(1,989	)		(1,687	)
Income taxes payable		128			(202	)

Net cash (used in) provided by operating activities		(32	)		1,159

Cash flows from investing activities
Purchases of property and equipment		(64	)		(57	)
Payments related to management contracts		(317	)		—

Net cash used in investing activities		(381	)		(57	)

Cash flows from financing activities
Proceeds from issuance of notes, net of underwriting discount		—			39,042
Payment of issuance costs on notes		—			(435	)
Repurchase of vested employee restricted stock for tax withholding		—			(37	)
Proceeds from shares issued pursuant to the 2021 Dividend Reinvestment and Stock Repurchase Plan		2			2
Dividend payments		(1,026	)		(1,008	)

Net cash (used in) provided by financing activities		(1,024	)		37,564

Net (decrease) increase in cash and cash equivalents		(1,437	)		38,666
Cash and cash equivalents at the beginning of the period		58,487			15,836

Cash and cash equivalents at the end of the period	$	57,050		$	54,502

Supplemental disclosures of cash flow information
Cash paid for interest	$	491		$	387
Dividend reinvestment issued in shares	$	15		$	19

See Notes to Unaudited Condensed Financial Statements

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~~Statements of Cash Flows~~

~~(In thousands)~~

~~(Unaudited)~~

Nine Months Ended June 30,


2022

2021

Cash flows from operating activities

Net income
   $ 4,816 $ 5,903
Adjustments to reconcile net income to net cash provided by operating activities

Depreciation    155 181
Unrealized gain on marketable securities
   —   (1 )
Change in
right-of-use
asset and operating lease liability
   2 (60 )
Amortization of note issuance costs
   192 —
Deferred income taxes
   1,253 882
Deferred offering costs
   —   (7 )
Employee restricted stock forfeiture
   (15 ) —
Stock-based compensation
   974 1,054
Change in operating assets and liabilities

Investment fee income receivable
   627 (418 )
Prepaid expenses
   252 309
Other accounts receivable
   (6 ) 18
Other assets
   35 (10 )
Accrued liabilities and accounts payable
   (1,408 ) (435 )
Income taxes payable
   (626 ) (202 )


Net cash provided by operating activities
   6,251 7,214


Cash flows from investing activities

Purchases of property and equipment
   (156 ) (182 )


Net cash used in investing activities
   (156 ) (182 )


Cash flows from financing activities

Proceeds from issuance of notes, net of underwriting discount
   39,042 —
Payment of issuance costs on notes
   (435 ) —
Repurchase of vested employee restricted stock for tax withholding
   (37 ) —
Proceeds from shares issued pursuant to the 2018 Dividend Reinvestment and Stock Repurchase Plan
   —   9
Proceeds from shares issued pursuant to the 2021 Dividend Reinvestment and Stock Repurchase Plan
   4 20
Dividend payments
   (3,025 ) (2,978 )


Net cash provided by (used in) financing activities
   35,549 (2,949 )


Net increase in cash and cash equivalents
   41,644 4,083
Cash and cash equivalents at the beginning of the period
   15,836 9,955


Cash and cash equivalents at the end of the period
   $ 57,480 $ 14,038


Supplemental disclosures of cash flow information

Cash paid for income taxes
   $ 810 $ 1,427
Cash paid for interest
   $ 1,368 $ —
Dividend reinvestment issued in shares
   $ 58 $ 58

~~See Notes to Unaudited Condensed Financial Statements~~

~~Table of Contents~~

HENNESSY ADVISORS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

~~(1) Basis of Financial Statement Presentation~~

(1)	Basis of Financial Statement Presentation

The accompanying condensed balance sheet as of September 30, ~~2021,~~2022, which has been derived from audited financial statements, and the

unaudited interim condensed financial statements as of and for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2022, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and include the accounts of Hennessy Advisors, Inc. (the “Company,” “we,” “us,” or “our”). Certain information and footnote disclosures in these unaudited interim condensed financial statements, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission for Quarterly Reports on Form

10-Q.

In the opinion of management, the unaudited interim condensed financial statements reflect all adjustments necessary for a fair statement of the Company’s financial position at ~~June 30,~~December 31, 2022, the Company’s operating results for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2022 and 2021, and the Company’s cash flows for the ~~nine~~three months ended ~~June 30,~~December 31, 2022 and 2021. These unaudited interim condensed financial statements and notes should be read in conjunction with the Company’s audited financial statements and notes thereto for fiscal year ~~2021,~~2022, which are included in the Company’s Annual Report on

Form 10-K

for the fiscal year ended September 30, ~~2021.~~2022.

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

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

open-end

mutual funds and one

exchange-traded

fund (“ETF”) branded as the Hennessy Funds. The Company serves as the investment advisor to all classes of the Hennessy Cornerstone Growth Fund, the Hennessy Focus Fund, the Hennessy Cornerstone Mid Cap 30 Fund, the Hennessy Cornerstone Large Growth Fund, the Hennessy Cornerstone Value Fund, the Hennessy Total Return Fund, the Hennessy Equity and Income Fund, the Hennessy Balanced Fund, the Hennessy Energy Transition Fund, the Hennessy Midstream Fund, the Hennessy Gas Utility Fund, the Hennessy Japan Fund, the Hennessy Japan Small Cap Fund, the Hennessy Large Cap Financial Fund, the Hennessy Small Cap Financial Fund, and the Hennessy Technology ~~Fund.~~Fund (collectively, the “Hennessy Mutual Funds”), as well as to the Hennessy Stance ESG Large Cap ETF. The Company also provides shareholder services to investors in the Hennessy Mutual Funds.

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

acting as portfolio manager for the fund or overseeing the

sub-advisor

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

~~Table of Contents~~

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

monitoring the liquidity of the fund;

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

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

sub-advisor),

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

sub-advisor)

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

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

sub-advisor,

reviewing the fund’s investment performance, and monitoring the

sub-advisor’s

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

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

maintaining

in-house

marketing and distribution departments on behalf of the fund;

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

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

12-month

period;

monitoring and overseeing the accessibility of the fund on

third-party

platforms;

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

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

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

~~Table of Contents~~

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

toll-free

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

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

going-forward

basis.

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

(2) ~~Management Contracts Purchased~~

Management Contracts Purchased

Throughout its history, the Company has completed 1011 purchases of the assets related to the management of 30 different mutual funds and one ETF, some of which were reorganized into already existing Hennessy Funds. In accordance with Financial Accounting Standards Board (“FASB”) guidance, the Company periodically reviews the carrying value of its management contracts asset to determine if any impairment has occurred. The fair value of the management contracts asset was estimated as of September 30, ~~2021,~~2022, by applying the income approach and is based on management estimates and assumptions, including

third-party

valuations that utilize appropriate valuation techniques. It was determined there was 0no impairment as of such date. As of ~~June 30,~~December 31, 2022, management performed a qualitative analysis and determined it was more likely than not that there continued to be 0no impairment.

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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 completed its most recent asset purchase on December 22, 2022, when it purchased certain assets related to the management of the Stance Equity ESG Large Cap Core ETF (the “Stance ETF”). This asset purchase added approximately

~~Table~~$43 million to the Company’s assets under management at the time of ~~Contents~~

~~(3)~~closing. The purchase was consummated in accordance with the terms and conditions of the Transaction Agreement, dated as of August 29, 2022, among the Company, Stance Capital, LLC, and Red Gate Advisers, LLC, among others. Upon completion of the transaction, the assets related to the management of the Stance ETF were reorganized into a newly formed series of Hennessy Funds Trust named the Hennessy Stance ESG Large Cap ETF. In connection with the transaction, Stance Capital, LLC and Vident Investment Advisory, ~~Agreements~~LLC became

sub-advisors

to the Hennessy Stance ESG Large Cap ETF.

(3)	Investment Advisory Agreements

The Company has investment advisory agreements with Hennessy Funds Trust under which it provides investment advisory services to all classes of the 16 Hennessy ~~Funds.~~Mutual Funds and the Hennessy Stance ESG Large Cap ETF.

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

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

The Company has entered into

sub-advisory

agreements for the Hennessy Focus Fund, the Hennessy Equity and Income Fund, the Hennessy Japan Fund, ~~and~~ the Hennessy Japan Small Cap ~~Fund. Prior to January 31, 2022, the Company also had a~~

~~sub-advisory~~

~~agreement for the Hennessy Energy Transition~~ Fund, and the Hennessy ~~Midstream Fund.~~Stance ESG Large Cap ETF. Under each of these

sub-advisory

agreements, the

sub-advisor

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

sub-advisors

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

sub-advisory

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

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In exchange for the

sub-advisory

services, the Company (not the Hennessy Funds) pays

sub-advisory

fees to the

sub-advisors

out of its own assets.

Sub-advisory

fees are calculated as a percentage of the applicable

sub-advised

fund’s average daily net asset value.

~~Effective January 31, 2022, the Company and BP Capital Fund Services, LLC mutually agreed to terminate the~~

~~sub-advisory~~

~~agreement for the Hennessy Energy Transition Fund and the Hennessy Midstream Fund. Those funds are now managed internally by the Company.~~

(4)	~~(4)~~ Fair Value Measurements

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

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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); and

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

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


	December 31, 2022
	Level 1		Level 2		Level 3		Total

	(In thousands)
Money market fund deposits	$	54,613	$	—	$	—	$	54,613
Mutual fund investments		10		—		—		10

Total	$	54,623	$	—	$	—	$	54,623

Amounts included in:
Cash and cash equivalents	$	54,613	$	—	$	—	$	54,613
Investments in marketable securities		10		—		—		10

Total	$	54,623	$	—	$	—	$	54,623


	June 30, 2022
	Level 1		Level 2		Level 3		Total		September 30, 2022
									Level 1		Level 2		Level 3		Total
			(In thousands)
									(In thousands)
Money market fund deposits	$	54,116	$	—	$	—	$	54,116	$	54,225	$	—	$	—	$	54,225
Mutual fund investments		10		—		—		10		9		—		—		9

Total	$	54,126	$	—	$	—	$	54,126	$	54,234	$	—	$	—	$	54,234

Amounts included in:
Cash and cash equivalents	$	54,116	$	—	$	—	$	54,116	$	54,225	$	—	$	—	$	54,225
Investments in marketable securities		10		—		—		10		9		—		—		9

Total	$	54,126	$	—	$	—	$	54,126	$	54,234	$	—	$	—	$	54,234


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

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

There were 0no transfers between levels during the ~~nine~~three months ended ~~June 30,~~December 31, 2022, or the year ended September 30, ~~2021.~~2022.

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

The fair value of the 2026 Notes (see Note 7) was approximately ~~$39.8~~$38.16 million as of ~~June 30,~~December 31, 2022, based on the last trading price of the notes on that date (Level 1).

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(5) ~~Leases~~

Leases

The Company determines if an arrangement is an operating lease at inception. Operating leases are included in operating lease

right-of-use

assets and current and

long-term

operating lease liabilities on the Company’s balance sheet. During the quarter ended March 31, 2021, the Company renewed the lease for its office in Novato, California for an additional three years, which created a

long-term

operating lease as of such date. Upon renewal of the lease, the Company recorded a

right-of-use

asset of $1.1 million on its balance sheet. The renewed lease expires on July 31, 2024. There were no other

long-term

operating leases as of ~~June 30,~~December 31, 2022, and September 30, ~~2021.~~2022.

~~Right-of-use~~

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Right

-of-use

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

right-of-use

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

right-of-use

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

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

non-cancelable

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

month-to-month

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

right-of-use

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

June 30, 2022


(In thousands,


except years and


percentages)

Operating lease
right-of-use
assets
   $ 740
Current operating lease liability
   $ 365
Long-term operating lease liability
   $ 372
Weighted average remaining lease term
   2.1
Weighted average discount rate
   0.90 %


	December 31, 2022
	(In thousands, except years and percentages)
Operating lease right-of-use assets	$	561
Current operating lease liability	$	369
Long-term operating lease liability	$	186
Weighted average remaining lease term		1.6
Weighted average discount rate		0.90	%

For the ~~nine~~three months ended ~~June 30,~~December 31, 2022, ~~total~~ rent expense for all offices, which is recorded under general and administrative expense in the statements of income, totaled ~~$0.4~~ $0.1

million.

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The undiscounted cash flows for future maturities of the Company’s operating lease liabilities and the reconciliation to the balance of operating lease liabilities reflected on the Company’s balance sheet are as follows:


	December 31, 2022
	(In thousands)
Remainder of fiscal year 2023	$	281
Fiscal year 2024		286

Total undiscounted cash flows		567

Present value discount		(12	)

Total operating lease liabilities	$	555

June 30, 2022


(In thousands)

Remainder of fiscal year 2022
   $ 93
Fiscal year 2023
   374
Fiscal year 2024
   286


Total undiscounted cash flows
   753


Present value discount
   (16 )


Total operating lease liabilities
   $ 737

~~(6) Accrued Liabilities and Accounts Payable~~

(6)	Accrued Liabilities and Accounts Payable

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


	December 31, 2022		September 30, 2022

	(In thousands)
Accrued bonus liabilities	$	515	$	2,207
Accrued sub-advisor fees		324		336
Other accrued expenses		492		777

Total accrued liabilities and accounts payable	$	1,331	$	3,320

June 30, 2022

September 30, 2021



(In thousands)

Accrued bonus liabilities
   $ 1,760    $ 2,738
Accrued
sub-advisor
fees
   364    628
Other accrued expenses
   619    785




Total accrued liabilities and accounts payable
   $ 2,743    $ 4,151

~~(7) Debt Outstanding~~

(7)	Debt Outstanding

On October 20, 2021, the Company completed a public offering of 4.875% notes due 2026 in the aggregate principal amount of $40,250,000 (the “2026 Notes”), which included the full exercise of the underwriters’ overallotment option. The initial net proceeds received were approximately $38,607,000 after considering the impact of issuance costs and underwriter discounts. The 2026 Notes bear interest at 4.875% per annum, payable on the last day of each calendar quarter and at maturity, beginning December 31, 2021. The 2026 Notes mature on December 31,

2026.

The

2026

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

~~(8) Income Taxes~~

(8)	Income Taxes

The Company’s effective income tax rates for the ~~nine~~three months ended ~~June 30,~~December 31, 2022 and 2021, were ~~23.0%~~25.8% and ~~26.3%~~16.1%, respectively. For the ~~nine~~three months ended ~~June 30, 2022,~~December 31, 2021, the effective income tax rate was lower than the federal statutory rate due to the recognition of a tax benefit related to a California tax refund of $0.2 million.

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The

Company is subject to income tax in the U.S. federal jurisdiction and various state jurisdictions. As of ~~June 30,~~December 31, 2022, the Company has identified 22 state tax jurisdictions in which it is subject to income tax.

(9)	Commitments and Contingencies

~~(9) Commitments and Contingencies~~

~~Other than~~In addition to the operating leases discussed in Note 5, the Company has contractual expense ratio limitations in place with respect to the Hennessy Midstream Fund, the Hennessy Technology Fund, and the Hennessy Stance ESG Large Cap ETF. The contractual expense ratio limitations with respect to the Hennessy Midstream Fund and the Hennessy Technology Fund expire February 28, 2024. The contractual expense ratio limitation with respect to the Hennessy Stance ESG Large Cap ETF expires December 31, 2024. Total fees waived during each of the quarters ended December 31, 2022 and 2021 were $0.03 million. To date, the Company has only waived fees based on contractual obligations but has the ability to waive fees at its discretion. Any decision to waive fees would apply only on a going

forward basis.

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

~~(10) Equity~~

(10)

Equity

Amended and Restated 2013 Omnibus Incentive Plan

The Company has adopted, and the Company’s shareholders have approved, the Amended and Restated

2013

Omnibus

Incentive Plan (the “Omnibus Plan”).

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

stock-based

compensation expense on a

straight-line

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

A summary of RSU activity is as follows:

Nine Months Ended June 30, 2022


Shares

Weighted Average Grant

Date Fair Value per Share

Non-vested
balance at beginning of period
   323,810    $ 8.87
Granted
   —      —
Vested
(1)
   (102,958 )    (9.46 )
Forfeited
   (7,917 )    (8.76 )




Non-vested
balance at end of period
   212,935    $ 8.58


	Three Months Ended December 31, 2022
	Shares			Weighted Average Grant Date Fair Value per Share
Non-vested balance at beginning of period		315,561		$	8.15
Granted		—			—
Vested (1)		(31,753	)		(8.39	)
Forfeited		—			—

Non-vested balance at end of period		283,808		$	8.14

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

Table of Contents

Additional information related to RSUs is as follows:

June 30, 2022


(In thousands,


except years)

Total expected compensation expense related to RSUs
   $ 17,117
Recognized compensation expense related to RSUs
   (15,289 )


Unrecognized compensation expense related to RSUs
   $ 1,828


Weighted average remaining years to expense for RSUs
   2.5

~~Table of Contents~~


	December 31, 2022
	(In thousands, except years)
Total expected compensation expense related to RSUs	$	18,143
Recognized compensation expense related to RSUs		(15,833	)

Unrecognized compensation expense related to RSUs	$	2,310

Weighted average remaining years to expense for RSUs		2.8

Dividend Reinvestment and Stock Purchase Plan

In January 2021, the Company adopted a Dividend Reinvestment and Stock Purchase Plan (the “DRSPP”), replacing the previous Dividend Reinvestment and Stock Purchase Plan that had been in place since 2018. The DRSPP provides shareholders and new investors with a convenient and economical means of purchasing shares of the Company’s common stock and reinvesting cash dividends paid on the Company’s common stock. Under the DRSPP and its predecessor plans, the Company issued ~~6,002~~1,965 and ~~9,827~~1,922 shares of common stock during the ~~nine~~three months ended ~~June 30,~~December 31, 2022 and 2021, respectively. The maximum number of shares that may be issued under the DRSPP is 1,470,000, of which ~~1,454,455~~1,450,880 shares remained available for issuance as of ~~June 30,~~December 31, 2022.

Stock Buyback Program

In August 2010, the ~~Company~~Company’s Board of Directors adopted a stock buyback ~~program. The~~ program ~~provides that~~pursuant to which the Company ~~may~~was authorized to 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. AThe program has no expiration date. In August 2022, the Board of Directors increased the number of shares that may be repurchased under the program to 2,000,000 shares. As a result, a total of ~~596,368~~1,096,368 shares remains available for repurchase under the stock buyback program. The Company did not repurchase any shares of its common stock pursuant to the stock buyback program during the ~~nine~~three months ended ~~June 30,~~December 31, 2022.

~~(11) Earnings per Share and Dividends per Share~~

(11)	Earnings per Share and Dividends per Share

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

For the three months ended ~~June 30,~~December 31, 2022 and ~~June 30, 2021, all common stock equivalents were dilutive and therefore included in the diluted earnings per share calculation. For the nine months ended June 30, 2022 and June 30,~~ 2021, the Company ~~exclud~~

~~ed 241~~excluded 165,858 and ~~73,852~~694 common

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

non-vested

RSUs.

The Company paid a quarterly cash dividend of $0.1375 per share on ~~June 2,~~November 30, 2022, to shareholders of record as of ~~May 23,~~

November 15, 2022.

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(12)	~~(12)~~ Recently Issued and Adopted Accounting Standards

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

10-K,

which was ~~November 24, 2021,~~December 7, 2022, and the filing date of this Form

10-Q

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

~~Table of Contents~~

~~(13) Subsequent Events~~

(13)	Subsequent Events

The Company has evaluated subsequent events through the date these financial statements were issued and has concluded that no material events occurred during this period that require recognition or

disclosure.

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

Item 2.

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

Forward-Looking

Statements

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

forward-looking

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

Forward-looking

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

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

Form 10-K

for the fiscal year ended September 30, ~~2021.~~2022. Unforeseen developments could cause actual performance or results to differ substantially from those expressed in or suggested by the forward-looking statements. Management does not assume responsibility for the accuracy or completeness of these forward-looking statements. There is no regulation requiring an update of any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations.

Our business activities are affected by many factors, including, without limitation, redemptions by ~~mutual fund shareholders,~~investors in the Hennessy Funds, taxes, general economic and business conditions, interest rate movements, inflation, the personal savings rate, competitive conditions, industry regulation, and fluctuations in the stock market, many of which are beyond the control of our management. Further, the business and regulatory environments in which we operate remain complex, uncertain, and subject to change. We expect that regulatory requirements and developments will cause us to incur additional administrative and compliance costs. Notwithstanding the variability in our economic and regulatory environments, we remain focused on the investment performance of the Hennessy Funds and on providing

high-quality

customer service to investors.

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

Form 10-K

for the fiscal year ended September 30, ~~2021.~~2022. All statements regarding our business strategy, as well as statements regarding market trends and risks and assumptions about changes in the marketplace, are forward-looking by their nature.

~~Table of Contents~~

Overview

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

16 open-end

mutual funds and one ETF branded as the Hennessy Funds. We manage 12 of the 1617 Hennessy Funds internally. For the remaining ~~four~~five funds, we have delegated the

day-to-day

portfolio management responsibilities to

sub-advisors,

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

sub-advisor,

review each fund’s investment performance, and monitor each

sub-advisor’s

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

sub-advisors

and make onsite visits to

sub-advisors,

as feasible. Our secondary business activity is providing shareholder services to investors in the Hennessy Funds.

~~Prior to January 31, 2022, the~~

~~day-to-day~~

~~management of two Hennessy Funds, the Hennessy Energy Transition Fund and the Hennessy Midstream Fund, was performed by a~~

~~sub-advisor,~~

~~BP Capital Fund Services, LLC. Effective as of that date, we mutually agreed with BP Capital Fund Services, LLC to terminate the~~

~~sub-advisory~~

~~agreement for those funds.~~

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

~~The~~

On a total return basis, the Dow Jones Industrial Average ~~(the “Dow”) posted total returns of~~

~~-10.78%~~

~~and~~

~~-7.71%~~

was up 16.01% for the three ~~and nine~~ months ended ~~June 30, 2022, respectively. After setting a record high~~December 31, 2022. During the most recent quarter, equity prices rallied as investors started to take comfort in ~~early January 2022, equities have declined as~~ the ~~reality of persistent and elevated inflation has prompted~~idea that the Federal Reserve may moderate its hawkish stance toward interest rate hikes. After several 75 basis point rate hikes, it looks increasingly likely that, in the near term, interest rate hikes are more likely to ~~raise interest rates. Fears~~come in 50 basis point increments, reflecting the idea that inflation is starting to moderate. Despite a sharp rally in the fourth quarter, the economy continues to face headwinds with expectations for real GDP growth in 2023 being close to zero. While unemployment now stands at 3.5%, continued weakness in residential and commercial real estate and an unwinding of ~~higher interest rates and~~the wealth effect created by the sharp decline in the value of risk assets portends the potential for weak economic growth in the coming year. With the slowing of the economy has come the prospect of a slowing economy have given investors pause. Yet, unemployment remains at multi-year lows as a result of both new job creation and fewer people in the workforce. While real gross domestic product (GDP) advanced 5.7% in 2021, consensus estimates for 2022 and 2023, according to Bloomberg, forecast growth of 2.4% and 1.8%, respectively. Estimated growth rates forrecession sometime this year ~~have been revised down several times in recent months prompting some investors to be concerned~~and the idea that the ~~economy may go into recession. As economies across the globe wrestle with high energy prices, the effects on corporate spending and consumer confidence~~Federal Reserve could ~~be meaningful, especially as the Russian and Ukrainian conflict shows no signs of abating.~~eventually consider cutting interest rates to bolster a weaker economy. The ~~uncertainty that comes with~~sharp increase in interest rates in 2022 has made this ~~conflict and its prospective effects on inflation could likely result in continued interest rate hikes by the Federal Reserve.~~

possible.

Long-term U.S. bond yields increased ~~dramatically~~slightly during the three months ended ~~June 30,~~December 31, 2022, ~~with~~as elevated rates of inflation have persisted and unemployment trends continue to argue for the Federal Reserve ~~most recently increasing its benchmark federal funds rate by three quarters~~to remain in tightening mode. The economy continues to create jobs, job vacancies remain at high levels, and average hourly earnings growth continues to show marked strength. With all that in mind, consensus expectations for economic growth call for only modest real growth this year and the idea of a percentage point in June 2022. This was the largest Federal Reserve rate increase since 1994. The Federal Reserve continues to indicate that it will likely continue raising rates so long as inflation remains above target. Federal Funds futures, according to Bloomberg, are pricing in about seven more rate hikes by the end of 2022.

~~Table of Contents~~

coming recession is taking hold.

The Japanese equity market was up 13.28% in U.S. dollar terms over the three months ended December 31, 2022, as measured by the Tokyo Stock Price ~~Index (the “TOPIX”), posted total returns~~Index. During the period, Japanese equities traded higher on news of a substantial fiscal package meant to bolster the economy. In addition, the Bank of Japan widened the band within which it has been maintaining 10-year government bond yields. The timing of this decision came as a surprise to the market and equities rallied higher.

~~-13.92%~~

~~and~~

~~-23.12%~~

~~(in U.S. dollar terms) for~~

In the three months ended December 31, 2022, all 17 Hennessy Funds generated positive returns, as the overall market, and in particular, value stocks, recovered from a tough first nine months ended June 30, 2022, respectively. Despite Japanese stocks trading at roughly 12x 2022 estimated earnings, investors continued to grapple with global inflationary pressures, the prospect of slowing growth, and continued lockdowns throughout parts of China.

~~In the nine-month period ended June 30, 2022, six~~ of the ~~16 Hennessy Funds (Investor Class shares) generated positive returns.~~calendar year. Over the longer term, all Hennessy Funds with at least 10 years of operating history posted positive returns for the ten-year period ended December 31, 2022. In each of the three-year and five-year periods ended December 31, 2022, 14 of the Hennessy Funds posted positive annualized returns, ~~in each of the three-year, five-year,~~

~~ten-year~~

~~(where available), and~~

~~since-inception~~

~~periods ended June 30, 2022,~~ with the exception ~~of the Hennessy Midstream Fund, which posted slightly~~being negative ~~annual~~three-year and five-year total returns of

~~-0.41%,~~

~~-2.42%~~

~~and~~

~~-2.08%~~

~~in the~~

~~three-year,~~

~~five-year, and since inception periods, respectively;~~for the Hennessy Japan Fund ~~with an annualized return of~~

~~-4.17%~~

~~for the three-year period ended June 30, 2022;~~ and the Hennessy Japan Small Cap ~~Fund, with an annualized return of~~

~~-1.93%~~

~~for the three-year period ended June 30, 2022.~~

Fund.

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

buy-and-hold

philosophy that rejects the idea of market timing. Our goal is to provide products that investors can have confidence in, knowing their money is invested as promised and with their best interests in mind. Accordingly, we continually seek new and improved ways to support investors in the Hennessy Funds, including by providing market insights, sector highlights, and other resources to help them manage their ~~mutual~~ fund investments with confidence. We operate a robust and

leading-edge

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

We provide service to ~~over 150,000 mutual~~nearly 145,000 fund accounts nationwide, including accounts held by investors who employ financial advisors to assist them with investing as well as accounts held by retail investors who invest directly with us. We serve approximately ~~12,600~~12,200 financial advisors who utilize the Hennessy Funds on behalf of their clients, including over ~~260~~150 who purchased one of our Funds for the first time during the most recent quarter. Approximately 17% of such advisors own two or more Hennessy Funds, and ~~over~~approximately 400 advisors hold a position of over $500,000. ~~These~~While numbers have ~~been declining~~declined in recent years, ~~but~~ we ~~will~~ continue to focus significant efforts on financial advisors who own two or more Hennessy Funds or hold a position of over $500,000 in an effort to build and maintain brand loyalty among ~~the~~our top tier of advisors.

Total assets under management as of ~~June 30,~~December 31, 2022, was ~~$3.2~~$3.0 billion, a decrease of ~~$0.96~~$1.1 billion, or ~~23.4%~~26.1%, compared to ~~June 30,~~December 31, 2021. The decrease in total assets was attributable to market depreciation and net outflows of the Hennessy ~~Funds and market depreciation.~~Funds.

~~Table of Contents~~

The following table illustrates the

quarter-by-quarter

changes in our assets under management since ~~June 30,~~December 31, 2021:

Fiscal Quarter Ended


June 30,
2022

March 31,
2022

December 31,
2021

September 30,
2021

June 30,
2021


(In thousands)

Beginning assets under management
   $ 3,804,028 $ 4,072,849 $ 4,065,922 $ 4,117,560 $ 4,023,364
Acquisition inflows
   —   —   —   —   —
Organic inflows
   183,662 209,842 147,461 94,871 301,731
Redemptions
   (351,556 ) (346,572 ) (240,160 ) (222,467 ) (351,897 )
Market appreciation (depreciation)
   (480,568 ) (132,091 ) 99,626 75,958 144,362


Ending assets under management
   $ 3,155,566 $ 3,804,028 $ 4,072,849 $ 4,065,922 $ 4,117,560


	Fiscal Quarter Ended
	December 31, 2022			September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021
							(In thousands)
Beginning assets under management	$	2,895,717		$	3,155,566		$	3,804,028		$	4,072,849		$	4,065,922
Acquisition inflows		43,088			—			—			—			—
Organic inflows		130,721			115,526			183,662			209,842			147,461
Redemptions		(314,704	)		(209,600	)		(351,556	)		(346,572	)		(240,160	)
Market appreciation (depreciation)		254,636			(165,775	)		(480,568	)		(132,091	)		99,626

Ending assets under management	$	3,009,458		$	2,895,717		$	3,155,566		$	3,804,028		$	4,072,849

As stated above, the fees we receive for providing investment advisory and shareholder services are based on average assets under management. The following table shows average assets under management ~~by share class~~ for each quarter since ~~June 30,~~December 31, 2021:

Fiscal Quarter Ended


June 30,

2022

March 31,
2022

December 31,
2021

September 30,
2021

June 30,

2021


(In thousands)

Investor Class
   $ 2,141,224    $ 2,265,309    $ 2,365,152    $ 2,385,204    $ 2,505,402
Institutional Class
   1,297,907    1,564,037    1,734,121    1,717,046    1,646,013










Total
   $ 3,439,131    $ 3,829,346    $ 4,099,273    $ 4,102,250    $ 4,151,415


	Fiscal Quarter Ended
	December 31, 2022		September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021
					(In thousands)
Hennessy Mutual Funds
Investor Class	$	1,949,185	$	2,026,122	$	2,141,224	$	2,265,309	$	2,365,152
Institutional Class		1,090,937		1,185,369		1,297,907		1,564,037		1,734,121
Hennessy Stance ESG Large Cap ETF		4,125		—		—		—		—

Average assets under management	$	3,044,247	$	3,211,491	$	3,439,131	$	3,829,346	$	4,099,273

The principal asset on our balance sheet, management contracts, represents the capitalized costs incurred in connection with the purchase of the assets related to the management of ~~mutual~~investment funds. As of ~~June 30,~~December 31, 2022, this asset had a net balance of ~~$80.6~~$81.0 million, ~~unchanged since~~compared to $80.9 million as of September 30, ~~2021.~~

2022. The increase was due to the purchase of assets related to the management of the Stance ETF.

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

The 2026 Notes are the principal liability on our balance sheet at ~~$38.8~~$38.9 million, net of issuance costs.

~~Table of Contents~~

Results of Operations

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

Three Months Ended June 30,


2022

2021


Amounts

Percent of Total
Revenue

Amounts

Percent of Total
Revenue



(In thousands, except percentages)

Revenue

Investment advisory fees
   $ 6,375    92.3 % $ 7,903    92.7 %
Shareholder service fees
   534    7.7 624    7.3






Total revenue
   6,909    100.0 8,527    100.0






Operating expenses

Compensation and benefits
   1,987    28.8 2,330    27.3
General and administrative
   1,227    17.7 1,124    13.2
Mutual fund distribution
   117    1.7 118    1.4
Sub-advisory
fees
   1,195    17.3 1,863    21.8
Depreciation
   52    0.8 56    0.7






Total operating expenses
   4,578    66.3 5,491    64.4






Net operating income
   2,331    33.7 3,036    35.6
Interest expense
   562    8.1 —      —
Other income
   (17 )    (0.2 ) (1 )    (0.0 )






Income before income tax expense
   1,786    25.8 3,037    35.6
Income tax expense
   485    7.0 793    9.3






Net income
   $ 1,301    18.8 % $ 2,244    26.3 %







Nine Months Ended June 30,


2022

2021


Amounts

Percent of Total
Revenue

Amounts

Percent of Total
Revenue



(In thousands, except percentages)

Revenue

Investment advisory fees
   $ 21,499    92.7 % $ 22,458    92.6 %
Shareholder service fees
   1,689    7.3 1,792    7.4






Total revenue
   23,188    100.0 24,250    100.0






Operating expenses

Compensation and benefits
   6,360    27.4 6,686    27.6
General and administrative
   3,790    16.4 3,564    14.7
Mutual fund distribution
   450    1.9 359    1.5
Sub-advisory
fees
   4,642    20.0 5,452    22.5
Depreciation
   155    0.7 181    0.7






Total operating expenses
   15,397    66.4 16,242    67.0






Net operating income
   7,791    33.6 8,008    33.0
Interest expense
   1,560    6.7 —      —
Other income
   (20 )    (0.1 ) (2 )    (0.0 )






Income before income tax expense
   6,251    27.0 8,010    33.0
Income tax expense
   1,435    6.2 2,107    8.7






Net income
   $ 4,816    20.8 % $ 5,903    24.3 %

~~Table of Contents~~


	Three Months Ended December 31,
	2022						2021
	Amount			Percent of Total Revenue			Amount			Percent of Total Revenue
				(In thousands, except percentages)
Revenue
Investment advisory fees	$	5,654			92.0	%	$	7,938			93.0	%
Shareholder service fees		491			8.0			596			7.0

Total revenue		6,145			100.0			8,534			100.0

Operating expenses
Compensation and benefits		1,858			30.2			2,262			26.5
General and administrative		1,569			25.5			1,400			16.4
Fund distribution and other		95			1.5			155			1.8
Sub-advisory fees		969			15.8			1,877			22.0
Depreciation		49			0.9			53			0.6

Total operating expenses		4,540			73.9			5,747			67.3

Net operating income		1,605			26.1			2,787			32.7
Interest expense		563			9.2			508			6.0
Interest income		(467	)		(7.6	)		(2	)		(0.0	)

Income before income tax expense		1,509			24.5			2,281			26.7
Income tax expense		390			6.3			368			4.3

Net income	$	1,119			18.2	%	$	1,913			22.4	%

Revenue – Investment Advisory Fees and Shareholder Service Fees

Total revenue comprises investment advisory fees and shareholder service fees. Comparing the three months ended ~~June 30,~~December 31, 2021, to the three months ended ~~June 30,~~December 31, 2022, total revenue decreased by ~~19.0%~~28.0%, from $8.5 million to ~~$6.9~~$6.1 million, investment advisory fees decreased by ~~19.3%~~28.8%, from $7.9 million to ~~$6.4~~$5.7 million, and shareholder service fees decreased by ~~14.4%~~17.6%, from ~~$0.62~~$0.60 million to ~~$0.53~~$0.50 million.

Comparing the nine months ended June 30, 2021, to the nine months ended June 30, 2022, total revenue decreased by 4.4%, from $24.3 million to $23.2 million, investment advisory fees decreased by 4.3%, from $22.5 million to $21.5 million, and shareholder service fees decreased by 5.7% from $1.8 million to $1.7 million.

~~In both the three and nine month periods ended June 30, 2022, the~~ The decrease in investment advisory fees was due mainly to decreased average daily net assets of the Hennessy Funds, and the decrease in shareholder service fees was due to a decrease in the average daily net assets held in Investor Class shares of the Hennessy Mutual Funds. Assets held in Investor Class shares of the Hennessy Mutual Funds are subject to a shareholder service fee, whereas assets held in Institutional Class shares of the Hennessy Mutual Funds are not subject to a shareholder service fee. In each case, the decrease in average daily net assets was attributable about equally to market depreciation and to net outflows.

We collect investment advisory fees from each of the Hennessy Funds at differing annual rates. These annual rates range between 0.40% and 1.25% of average daily net assets. Average daily net assets of the Hennessy Funds for the three months ended ~~June 30,~~December 31, 2022, was ~~$3.4~~$3.0 billion, which represents a decrease of ~~$0.7~~$1.1 billion, or ~~17.2%~~25.7%, compared to the three months ended June 30, 2021, and average daily net assets for the nine months ended June 30, 2022, was $3.8 billion, which represents a decrease of $0.2 billion, or 4.1%, compared to the nine months ended June 30,December 31, 2021. The Hennessy Fund with the largest average daily net assets for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2022, was the Hennessy Focus Fund, with ~~$0.91 billion and $1.1 billion, respectively.~~$0.7 billion. We collect an investment advisory fee from the Hennessy Focus Fund at an annual rate of 0.90% of average daily net assets. However, we pay a

sub-advisory

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

sub-advisor,

which reduces the net operating profit contribution of the fund to our financial operations. The Hennessy Fund with the second largest average daily assets for the three months ended ~~June 30,~~December 31, 2022, was the Hennessy Gas Utility Fund, with ~~$0.6~~$0.5 billion. We collect an investment advisory fee from the Hennessy Gas Utility Fund at an annual rate of 0.40% of average daily net assets. The Hennessy Fund with the second largest average daily assets for the nine months ended June 30, 2022, was the Hennessy Japan Fund, with $0.7 billion. We collect an investment advisory fee from the Hennessy Japan Fund at an annual rate of 0.80% of average daily net assets. However, we pay a

~~sub-advisory~~

~~fee at an annual rate in the range of 0.35% to 0.42% (depending on asset level) to the fund’s~~

~~sub-advisor,~~

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

Total assets under management as of ~~June 30,~~December 31, 2022, was ~~$3.2~~$3.0 billion, a decrease of ~~$0.96~~$1.1 billion, or ~~23.4%~~26.1%, compared to ~~June 30,~~December 31, 2021. The decrease was attributable about equally to market depreciation and to net ~~outflows of the Hennessy Funds and market depreciation.~~

~~Table of Contents~~

outflows.

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


Three Months Ended ~~June 30,~~December 31, 2022
Fund Name	Amount
Hennessy ~~Cornerstone Growth~~Japan Small Cap Fund	$	~~17 million~~
~~Hennessy Gas Utility Fund~~	$	~~13 million~~
~~Hennessy Cornerstone Value Fund~~	$	4 million


~~Nine Months Ended June 30, 2022~~
~~Fund Name~~	~~Amount~~
~~Hennessy Cornerstone Value Fund~~	$	~~17 million~~
Hennessy Cornerstone Growth Fund	$	~~7 million~~
~~Hennessy Midstream Fund~~	$	3 million
Hennessy Total Return Fund	$	1 million

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


Three Months Ended ~~June 30,~~December 31, 2022
Fund Name	Amount
Hennessy ~~Japan~~Focus Fund	$~~(113)~~	(109) million
Hennessy ~~Focus~~Gas Utility Fund	$ ~~(37)~~	(36) million
Hennessy ~~Small Cap Financial~~Japan Fund	$ ~~(36)~~	(21) million


~~Nine Months Ended June 30, 2022~~
~~Fund Name~~		~~Amount~~
~~Hennessy Japan Fund~~		~~$(198) million~~
~~Hennessy Focus Fund~~		~~$(150) million~~
~~Hennessy Small Cap Financial Fund~~		~~$ (34) million~~

Redemptions as a percentage of assets under management increased from an average of ~~2.8%~~2.0% per month during the three months ended ~~June 30,~~December 31, 2021, to an average of ~~3.2%~~3.4% per month during the three months ended ~~June 30,~~December 31, 2022. Redemptions as a percentage of assets under management decreased from an average of 3.2% per month during the nine months ended June 30, 2021, to an average of 2.7% per month during the nine months ended June 30, 2022.

Operating Expenses

Comparing the three months ended ~~June 30,~~December 31, 2021, to the three months ended ~~June 30,~~December 31, 2022, total operating expenses decreased by ~~16.6%~~21.0%, from ~~$5.5~~$5.7 million to ~~$4.6~~$4.5 million. The decrease in operating expenses was due to decreases in all expense categories other than general and administrative ~~expense, which moderately increased.~~expense. As a percentage of total revenue, total operating expenses increased 6.6 percentage points to 73.9%. Although the dollar value decreased, operating expenses increased as a percentage of total revenue ~~increased 1.9 percentage points to 66.3%~~ because fixed expenses have become a larger portion of total operating expenses.

~~Comparing the nine months ended June 30, 2021, to the nine months ended June 30, 2022, total operating expenses decreased by 5.2%, from $16.2 million to $15.4 million. Decreases in~~

~~sub-advisory~~

fees, compensation and benefits, and depreciation expense offset slight increases in other expense categories. As a percentage of total revenue, total operating expenses decreased 0.6 percentage points to 66.4%.

Compensation and Benefits Expense

: Comparing the three months ended ~~June 30,~~December 31, 2021, to the three months ended ~~June 30,~~December 31, 2022, compensation and benefits expense decreased by ~~14.7%~~17.9%, from $2.3 million to ~~$2.0~~$1.9 million. As a percentage of total revenue, compensation and benefits expense increased ~~1.5~~3.7 percentage points to ~~28.8%~~30.2%.

~~Comparing the nine months ended June 30, 2021, to the nine months ended June 30, 2022,~~ The dollar value decrease in compensation and benefits expense ~~decreased by 4.9%, from $6.7 million to $6.4 million. As a percentage of total revenue, compensation and benefits expense decreased 0.2 percentage points to 27.4%.~~

~~The decrease in dollar value of compensation and benefits expense for both periods~~ was due ~~primarily~~ to a decrease in incentive-based ~~compensation.~~ compensation in the current period.

~~Table of Contents~~

General and Administrative Expense

: Comparing the three months ended ~~June 30,~~December 31, 2021, to the three months ended ~~June 30,~~December 31, 2022, general and administrative expense increased by ~~9.2%~~12.1%, from ~~$1.1~~$1.4 million to ~~$1.2~~$1.6 million. As a percentage of total revenue, general and administrative expense increased ~~4.5~~9.1 percentage points to ~~17.7%~~25.5%.

Comparing the nine months ended June 30, 2021, to the nine months ended June 30, 2022, general and administrative expense increased by 6.3% from $3.6 million to $3.8 million. As a percentage of total revenue, general and administrative expense increased 1.7 percentage points to 16.4%.

~~In both the three and nine month periods ended June 30, 2022, the~~ The increase in general and administrative expense was ~~primarily~~ due to ~~an increase in conference~~increased professional services expense during the period.

Fund Distribution and Other Expense: Fund distribution and other ~~industry event attendance, as well as increased employee business travel~~ expense ~~(though still below~~

~~pre-pandemic~~

~~levels).~~

~~Mutual~~consists primarily of third-party fees incurred by us for distribution of the Hennessy Funds and also for the operations of the Hennessy Stance ESG Large Cap ETF. Fund ~~Distribution Expense~~

~~: Mutual~~distribution and other expense does not include sub-advisory fees, which are shown separately.

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

asset-based

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

~~Comparing the three months ended June 30, 2021, to the three months ended June 30, 2022, mutual~~

The distribution component of fund distribution ~~expense remained flat at $0.12 million. As a percentage of total revenue, mutual fund distribution expense increased 0.3 percentage points to 1.7%.~~

Comparing the nine months ended June 30, 2021, to the nine months ended June 30, 2022, mutual fund distribution expense increased by 25.3% from $0.4 million to $0.5 million. As a percentage of total revenue, mutual fund distribution expense increased 0.4 percentage points to 1.9%.

~~Mutual fund distribution~~and other expenses ~~are~~is affected by many factors, including the following:

average daily net assets held by financial institutions;

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

fee minimums at various financial institutions.

~~In the three-month period ended June 30, 2022, mutual~~

The other component of fund distribution and other expense ~~remained flat despite lower average daily net assets held at financial institutions due to fixed expenses, such as minimum fees. In~~consists of fees incurred by us for the ~~nine-month period ended June 30, 2022, the increase in mutual fund distribution expenses was primarily due to recently expanding a relationship with a financial institution for which we pay a portion~~operations of the ~~fees.~~

~~Table~~Hennessy Stance ESG Large Cap ETF. We receive a unitary investment advisory fee from the Hennessy Stance ESG Large Cap ETF and then pay all of ~~Contents~~

~~Sub-Advisory~~

~~Fees Expense~~

: its operating expenses (with limited exceptions), including for fund administration, fund accounting, transfer agency, custody, licensing, audit, and tax services.

Comparing the three months ended ~~June 30,~~December 31, 2021, to the three months ended ~~June 30,~~December 31, 2022,

~~sub-advisory~~

~~fees~~ fund distribution and other expense decreased by ~~35.9%~~38.7%, from ~~$1.9~~$0.16 million to ~~$1.2~~$0.1 million. As a percentage of total revenue,

~~sub-advisory~~

~~fees~~ fund distribution and other expense decreased ~~4.5~~0.3 percentage points to ~~17.3%~~1.5%.

Sub-Advisory Fees Expense: Comparing the ~~nine~~three months ended ~~June 30,~~December 31, 2021, to the ~~nine~~three months ended ~~June 30,~~December 31, 2022,

sub-advisory

fees expense decreased by ~~14.9%~~48.4%, from ~~$5.5~~$1.9 million to ~~$4.6~~$1.0 million. As a percentage of total revenue,

sub-advisory

~~fees~~ expense decreased ~~2.5~~6.2 percentage points to ~~20.0%~~15.8%.

~~In both the three and nine month periods ended June 30, 2022, the~~ The decrease in

sub-advisory

~~fees~~ expense was due to decreased average daily net assets ~~held in~~of the

sub-advised

Hennessy Funds, with ~~a slight~~an additional decrease as a result of ~~the Company~~us no longer paying

sub-advisory

fees with respect to the Hennessy Energy Transition Fund and the Hennessy Midstream Fund after January 31, 2022.

Depreciation Expense

: Comparing the three months ended ~~June 30,~~December 31, 2021, to the three months ended ~~June 30,~~December 31, 2022, depreciation expense ~~decreased by 7.1%, from $0.06 million to~~remained flat at $0.05 million. As a percentage of total revenue, depreciation expense ~~remained at 0.7%.~~

Comparing the nine months ended June 30, 2021, to the nine months ended June 30, 2022, depreciation expense decreased by 14.4%, from $0.18 million to $0.16 million. As a percentage of total revenue, depreciation expense increased ~~0.1~~0.3 percentage points to ~~0.8%~~0.9%.

~~In both the three and nine month periods ended June 30, 2022, the decrease in depreciation expense resulted from fewer fixed asset purchases.~~

Interest Expense

Comparing the three months ended ~~June 30,~~December 31, 2021, to the three months ended ~~June 30,~~December 31, 2022, interest expense increased by 10.8% from $0$0.5 million to $0.6 million. ~~Comparing the nine months ended June 30, 2021, to the nine months ended June 30, 2022, interest expense increased from $0 to $1.6 million.~~

~~In both the three and nine month periods ended June 30, 2022, the~~The increase in interest expense was due to ~~our issuance~~a full period of interest expense in the current period. The 2026 Notes were issued on October 20, 2021, ~~for which we make~~and therefore incurred a partial period of interest ~~payments quarterly, with~~expense in the ~~first~~prior comparable period.

Interest Income

Interest income consists of interest ~~payment made~~earned on ~~December 31, 2021.~~

~~Income Tax Expense~~

cash and cash equivalents. Comparing the three months ended ~~June 30,~~December 31, 2021, to the three months ended ~~June 30,~~December 31, 2022, other income increased from $0.002 million to $0.5 million. The increase in other income was due to rising interest rates and an increased cash balance. The proceeds from the 2026 Notes were received on October 20, 2021, and therefore earned a partial period of interest income in the prior comparable period.

Income Tax Expense

Comparing the three months ended December 31, 2021, to the three months ended December 31, 2022, income tax expense ~~decreased~~increased by ~~38.8%~~6.0%, from ~~$0.8~~$0.37 million to ~~$0.5~~$0.39 million. ~~Comparing the nine months ended June 30, 2021, to the nine months ended June 30, 2022, income tax expense decreased by 31.9%, from $2.1 million to $1.4 million.~~

~~Table of Contents~~

~~In both the three and nine month periods ended June 30, 2022, the decrease~~The increase in income tax expense was due primarily to ~~lower net operating income~~the recognition of a portion of the uncertain tax position related to a California tax refund in the ~~current~~prior comparable period. During the period ended December 31, 2021, management determined that the position is certain as the apportionment method has been audited, the tax refund has been received, and ~~secondarily to a lower effective income~~there have been no further inquiries received from the state tax ~~rate as previously discussed in the notes to the financial statements.~~

jurisdiction.

Net Income

Comparing the three months ended ~~June 30,~~December 31, 2021, to the three months ended ~~June 30,~~December 31, 2022, net income decreased by ~~42.0%~~41.5%, from ~~$2.2~~$1.9 million to ~~$1.3~~$1.1 million. ~~Comparing the nine months ended June 30, 2021, to the nine months ended June 30, 2022, net income decreased by 18.4%, from $5.9 million to $4.8 million.~~

~~In the three-month period ended June 30, 2022, the~~The decrease in net income was ~~primarily~~ due to lower net operating income in the current ~~period and secondarily due to the interest expense related to the 2026 Notes in the current~~ period. ~~In the nine-month period ended June 30, 2022, the decrease in net income was primarily due to the interest expense related to the 2026 Notes in the current period.~~

Critical Accounting Policies

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

Form 10-K

for the fiscal year ended September 30, ~~2021.~~

2022.

Liquidity and Capital Resources

We continually review our capital requirements to ensure that we have funding available to support our business model. Management anticipates that cash and other liquid assets on hand as of ~~June 30,~~December 31, 2022, will be sufficient to meet our capital requirements for one year from the issuance date of this report, as well as our longer-term capital requirements for periods beyond one year from the issuance date of this report. To the extent that liquid resources and cash provided by operations are not adequate to meet long-term capital requirements, management plans to raise additional capital by either, or both, seeking ~~to increase our borrowing capacity~~bank financing or accessing the capital ~~markets, or by pursuing both of these options.~~markets. There can be no assurance that we will be able to raise additional capital.

~~Table~~

On October 20, 2021, we completed a public offering of ~~Contents~~

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

Our total assets under management as of ~~June 30,~~December 31, 2022, was ~~$3.2~~$3.0 billion, a decrease of ~~$0.96~~$1.1 billion, or ~~23.4%~~26.1%, compared to ~~June 30,~~December 31, 2021. The primary sources of our revenue, liquidity, and cash flow are our investment advisory fees and shareholder service fees, which are based on and generated by our average assets under management. Our average assets under management for the ~~nine~~three months ended ~~June 30,~~December 31, 2022, was ~~$3.8~~$3.0 billion, a decrease of ~~$0.2~~$1.1 billion, or ~~4.1%~~25.7%, compared to the ~~nine~~three months ended ~~June 30,~~December 31, 2021. As of ~~June 30,~~December 31, 2022, we had cash and cash equivalents of ~~$57.5~~$57.1 million.

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

For the Nine Months
Ended June 30,


2022

2021



(In thousands)

Net cash provided by operating activities
   $ 6,251    $ 7,214
Net cash used in investing activities
   (156 )    (182 )
Net cash provided by (used in) financing activities
   35,549    (2,949 )




Net increase in cash and cash equivalents
   $ 41,644    $ 4,083


	For the Three Months Ended December 31,
	2022			2021
	(In thousands)
Net cash (used in) provided by operating activities	$	(32	)	$	1,159
Net cash used in investing activities		(381	)		(57	)
Net cash (used in) provided by financing activities		(1,024	)		37,564

Net (decrease) increase in cash and cash equivalents	$	(1,437	)	$	38,666

The decrease in cash provided by operating activities of ~~$0.9~~$1.2 million was ~~primarily~~mainly due to decreased ~~operating income.~~

net income in the current period.

The ~~decrease~~increase in cash used in investing activities of ~~$0.03~~$0.3 million was due to ~~decreased purchases~~the purchase of ~~property and equipment~~assets related to the management of the Stance ETF in the current period.

The ~~increase~~decrease in cash ~~provided by~~from financing activities of ~~$38.5~~$38.6 million was due to the issuance of the 2026 Notes ~~on October 20, 2021.~~in the prior comparable period.

~~Item 4. Controls and Procedures~~

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Rules 13a-15(e)

and

15d-15(e)

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

Changes in Internal Control over Financial Reporting

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

Rules 13a-15(f)

of the Exchange Act that occurred during the fiscal quarter ended ~~June 30,~~December 31, 2022, and that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Table of Contents~~

PART II: OTHER INFORMATION

~~Item 1A. Risk Factors~~

~~There have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form~~

~~10-K~~

~~for the year ended September 30, 2021, except for the addition of the risk factor set forth below.~~

~~Global or regional catastrophic events may adversely impact our business and financial performance.~~

~~Our business could be adversely affected by terrorist acts, widespread outbreaks of infectious diseases (such as the~~

~~COVID-19~~

pandemic), changes in trade policies, military conflicts, and disruptions in the financial markets. The occurrence of such events can adversely affect the global economy or specific markets, which could have an adverse impact on our business, financial condition, or results of operations.

~~Item 6. Exhibits~~

Item 6.

Exhibits

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

Form 10-Q.


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

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

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

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

101		Financial statements from the Quarterly Report on Form 10-Q of Hennessy Advisors, Inc. for the quarter ended ~~June 30,~~December 31, 2022, filed on ~~August 3, 2022,~~February 9, 2023, formatted in XBRL: (i) the Condensed Balance Sheets; (ii) the Condensed Statements of Income; (iii) the Condensed Statements of Changes in Stockholders’ Equity; (iv) the Condensed Statements of Cash Flows; and (v) the Notes to Unaudited Condensed Financial Statements.

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

~~Table of Contents~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized:


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

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


Title of each class	Trading symbol	Name of each exchange on which registered

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



Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐


	June 30,		September 30,
	2022		2021
	(Unaudited)

Assets
Current assets
Cash and cash equivalents	$	57,480	$	15,836
Investments in marketable securities, at fair value		10		10
Investment fee income receivable		2,168		2,795
Prepaid expenses		536		788
Other accounts receivable		283		277

Total current assets		60,477		19,706

Property and equipment, net of accumulated depreciation of $2,005 and $1,850, respectively		312		311
Operating lease right-of-use asset		740		1,010
Management contracts		80,643		80,643
Other assets		200		235

Total assets	$	142,372	$	101,905

Liabilities and Stockholders’ Equity
Current liabilities
Accrued liabilities and accounts payable	$	2,743	$	4,151
Operating lease liability		365		359
Income taxes payable		424		1,050

Total current liabilities		3,532		5,560

Notes payable, net of issuance costs		38,799		—
Long-term operating lease liability		372		646
Net deferred income tax liability		13,690		12,437

Total liabilities		56,393		18,643

Commitments and contingencies (Note 9)		0		0
Stockholders’ equity
Common stock, 0 par value, 22,500,000 shares authorized; 7,482,128 shares issued and outstanding as of June 30, 2022, and 7,469,584 as of September 30, 2021		20,954		19,964
Retained earnings		65,025		63,298

Total stockholders’ equity		85,979		83,262

Total liabilities and stockholders’ equity	$	142,372	$	101,905


	December 31, 2022		September 30, 2022

Assets
Current assets
Cash and cash equivalents	$	57,050	$	58,487
Investments in marketable securities, at fair value		10		9
Investment fee income receivable		2,075		2,051
Prepaid expenses		762		853
Other accounts receivable		257		257

Total current assets		60,154		61,657

Property and equipment, net of accumulated depreciation of $2,106 and $2,057, respectively		335		320
Operating lease right-of-use asset		561		651
Management contracts		81,012		80,868
Other assets		157		156

Total assets	$	142,219	$	143,652

Liabilities and Stockholders’ Equity
Current liabilities
Accrued liabilities and accounts payable	$	1,331	$	3,320
Accrued management contract payment		37		210
Operating lease liability		369		367
Income taxes payable		948		820

Total current liabilities		2,685		4,717

Notes payable, net of issuance costs		38,943		38,870
Long-term operating lease liability		186		279
Net deferred income tax liability		13,750		13,488

Total liabilities		55,564		57,354

Commitments and contingencies (Note 9)
Stockholders’ equity
Common stock, no par value, 22,500,000 shares authorized; 7,573,706 shares issued and outstanding as of December 31, 2022, and 7,571,741 as of September 30, 2022		21,230		20,951
Retained earnings		65,425		65,347

Total stockholders’ equity		86,655		86,298

Total liabilities and stockholders’ equity	$	142,219	$	143,652


PART I	Financial Information

Item 1	Unaudited Condensed Financial Statements	1

	Balance Sheets	1

	Statements of Income	2

	Statements of Changes in Stockholders’ Equity	3

	Statements of Cash Flows	4

	Notes to Unaudited Condensed Financial Statements	5

Item 2	~~Notes to Unaudited Condensed Financial Statements~~	6

~~Item 2~~	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1516

Item 4	Controls and Procedures	25

~~PART II Other Information~~

~~Item 1A~~	~~Risk Factors~~	26

~~Item 6~~ PART II	Other Information

Item 6	Exhibits	2627

	Signatures	2728


	Three Months Ended June 30,						Nine Months Ended June 30,
	2022			2021			2022			2021

Revenue
Investment advisory fees	$	6,375		$	7,903		$	21,499		$	22,458
Shareholder service fees		534			624			1,689			1,792

Total revenue		6,909			8,527			23,188			24,250

Operating expenses
Compensation and benefits		1,987			2,330			6,360			6,686
General and administrative		1,227			1,124			3,790			3,564
Mutual fund distribution		117			118			450			359
Sub-advisory fees		1,195			1,863			4,642			5,452
Depreciation		52			56			155			181

Total operating expenses		4,578			5,491			15,397			16,242

Net operating income		2,331			3,036			7,791			8,008
Interest expense		562			—			1,560			—
Other income		(17	)		(1	)		(20	)		(2	)

Income before income tax expense		1,786			3,037			6,251			8,010
Income tax expense		485			793			1,435			2,107

Net income	$	1,301		$	2,244		$	4,816		$	5,903

Earnings per share
Basic	$	0.17		$	0.30		$	0.64		$	0.80

Diluted	$	0.17		$	0.30		$	0.63		$	0.80

Weighted average shares outstanding
Basic		7,480,796			7,364,716			7,477,372			7,361,165

Diluted		7,577,134			7,431,925			7,548,851			7,387,356

Cash dividends declared per share	$	0.14		$	0.14		$	0.41		$	0.41


	Three Months Ended December 31, 2022
	Common Stock				Retained Earnings			Total Stockholders’ Equity
	Shares		Amount		Retained Earnings			Total Stockholders’ Equity

Balance at September 30, 2022		7,571,741	$	20,951	$	65,347		$	86,298
Net income		—		—		1,119			1,119
Dividends paid		—		—		(1,041	)		(1,041	)
Shares issued for auto-investments pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan		215		2		—			2
Shares issued for dividend reinvestment pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan		1,750		15		—			15
Stock-based compensation		—		262		—			262

Balance at December 31, 2022		7,573,706	$	21,230	$	65,425		$	86,655


	Nine Months Ended June 30, 2022
										Total
	Common Stock						Retained			Stockholders’
	Shares			Amount			Earnings			Equity

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

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

Net income		—			—			1,602			1,602
Dividends paid		—			—			(1,028	)		(1,028	)
Shares issued for auto-investments pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan		64			1			—			1
Shares issued for dividend reinvestment pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan		1,952			19			—			19
Stock-based compensation		—			295			—			295
Employee restricted stock forfeiture		—			(12	)		—			(12	)

Balance at March 31, 2022		7,480,064		$	20,642		$	64,752		$	85,394

Net income		—			—			1,301			1,301
Dividends paid		—			—			(1,028	)		(1,028	)
Shares issued for auto-investments pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan		145			1			—			1
Shares issued for dividend reinvestment pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan		1,919			20			—			20
Stock-based compensation		—			291			—			291

Balance at June 30, 2022		7,482,128		$	20,954		$	65,025		$	85,979


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

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

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


	Nine Months Ended June 30, 2021
								Total
	Common Stock				Retained			Stockholders’
	Shares		Amount		Earnings			Equity

Balance at September 30, 2020		7,356,822	$	18,705	$	59,473		$	78,178
Net income		—		—		1,773			1,773
Dividends declared		—		—		(1,011	)		(1,011	)
Shares issued for auto-investments pursuant to the 2018 Dividend Reinvestment and Stock Purchase Plan		652		6		—			6
Shares issued for dividend reinvestment pursuant to the 2018 Dividend Reinvestment and Stock Purchase Plan		2,165		19		—			19
Stock-based compensation		—		352		—			352

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

Net income		—		—		1,886			1,886
Dividends declared		—		—		(1,012	)		(1,012	)
Shares issued for auto-investments pursuant to the 2018 Dividend Reinvestment and Stock Purchase Plan		306		3		—			3
Shares issued for auto-investments pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan		838		7		—			7
Shares issued for dividend reinvestment pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan		2,298		19		—			19
Stock-based compensation		—		351		—			351

Balance at March 31, 2021		7,363,081	$	19,462	$	61,109		$	80,571

Net income		—		—		2,244			2,244
Dividends declared		—		—		(1,013	)		(1,013	)
Shares issued for auto-investments pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan		1,424		13		—			13
Shares issued for dividend reinvestment pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan		2,144		20		—			20
Stock-based compensation		—		351		—			351

Balance at June 30, 2021		7,366,649	$	19,846	$	62,340		$	82,186


	June 30, 2022
	(In thousands,
	except years and
	percentages)

Operating lease right-of-use assets	$	740
Current operating lease liability	$	365
Long-term operating lease liability	$	372
Weighted average remaining lease term		2.1
Weighted average discount rate		0.90	%


	June 30, 2022
	(In thousands)
Remainder of fiscal year 2022	$	93
Fiscal year 2023		374
Fiscal year 2024		286

Total undiscounted cash flows		753

Present value discount		(16	)

Total operating lease liabilities	$	737


	Nine Months Ended June 30, 2022
	Shares			Weighted Average Grant Date Fair Value per Share

Non-vested balance at beginning of period		323,810		$	8.87
Granted		—			—
Vested (1)		(102,958	)		(9.46	)
Forfeited		(7,917	)		(8.76	)

Non-vested balance at end of period		212,935		$	8.58


	June 30, 2022
	(In thousands,
	except years)

Total expected compensation expense related to RSUs	$	17,117
Recognized compensation expense related to RSUs		(15,289	)

Unrecognized compensation expense related to RSUs	$	1,828

Weighted average remaining years to expense for RSUs		2.5


	Fiscal Quarter Ended
	June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021		June 30, 2021
					(In thousands)
Investor Class	$	2,141,224	$	2,265,309	$	2,365,152	$	2,385,204	$	2,505,402
Institutional Class		1,297,907		1,564,037		1,734,121		1,717,046		1,646,013

Total	$	3,439,131	$	3,829,346	$	4,099,273	$	4,102,250	$	4,151,415


	For the Nine Months Ended June 30,
	2022			2021

	(In thousands)
Net cash provided by operating activities	$	6,251		$	7,214
Net cash used in investing activities		(156	)		(182	)
Net cash provided by (used in) financing activities		35,549			(2,949	)

Net increase in cash and cash equivalents	$	41,644		$	4,083

HENNESSY ADVISORS, INC.

Date: ~~August 3, 2022~~February 9, 2023

/s/ Teresa M. Nilsen

Teresa M. Nilsen