☒ |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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California
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68-0176227
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer
Identification No.)
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7250 Redwood Blvd., Suite 200
Novato
, California
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94945
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(Address of principal executive office)
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(Zip code)
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Title of each class
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Trading
symbol
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Name of each exchange
on which registered |
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Common stock, no par value
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HNNA
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The Nasdaq Stock Market LLC
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4.875% Notes due 2026
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HNNAZ
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The Nasdaq Stock Market LLC
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Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
Emerging growth company | ☐ |
PART I
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Item 1
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1
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Item 1A
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20
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Item 2
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29
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Item 3
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29
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Item 4
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29
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Part II
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Item 5
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30
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Item 7
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30
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Item 8
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39
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Item 9
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58
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Item 9A
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58
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Item 9B
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59
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Item 9C
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59
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Part III
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Item 10
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59
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Item 11
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59
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Item 12
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59
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Item 13
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60
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Item 14
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60
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Part IV
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Item 15
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61
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Item 16
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64
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65
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ITEM 1.
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BUSINESS
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1989
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In February, we were founded as a California corporation under our previous name, Edward J. Hennessy, Inc., and registered as a broker-dealer with the Financial Industry Regulatory Authority. | |
1996
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In March, we launched our first mutual fund, the Hennessy Balanced Fund. | |
1998
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In October, we launched our second mutual fund, the Hennessy Total Return Fund. |
2000
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In June, we successfully completed our first asset purchase by purchasing the assets related to the management of two funds previously managed by Netfolio, Inc. (“Netfolio”) and changed the fund names to the Hennessy Cornerstone Growth Fund and the Hennessy Cornerstone Value Fund. The amount of the purchased assets as of the closing date totaled approximately $197 million. | |
2002
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In May, we successfully completed a self-underwritten initial public offering of our stock by raising $5.7 million at an offering price of $1.98 (HNNA.OB) and changed our firm name to Hennessy Advisors, Inc. Our total assets under management at the time of our initial public offering was approximately $358 million. | |
2003
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In September, we purchased the assets related to the management of a fund previously managed by SYM Financial Corporation and reorganized the assets of such fund into the newly created Hennessy Cornerstone Mid Cap 30 Fund. The amount of the purchased assets as of the closing date was approximately $35 million. | |
2004
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In March, we purchased the assets related to the management of five funds previously managed by Lindner Asset Management, Inc. and reorganized the assets of such funds into four of our existing Hennessy Funds. The amount of the purchased assets as of the closing date totaled approximately $301 million. | |
2005
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In July, we purchased the assets related to the management of a fund previously managed by Landis Associates LLC and changed the fund name to the Hennessy Cornerstone Growth, Series II Fund. The amount of the purchased assets as of the closing date was approximately $299 million. | |
2007
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In November, we launched the Hennessy Micro Cap Growth Fund, LLC, a
non-registered
private pooled investment fund.
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2009
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In March, we purchased the assets related to the management of two funds previously managed by RBC Global Asset Management (U.S.) Inc. and reorganized the assets of such funds into the newly created Hennessy Cornerstone Large Growth Fund and the Hennessy Large Value Fund. In conjunction with the completion of the transaction, RBC Global Asset Management (U.S.) Inc. became the
sub-advisor
to the Hennessy Large Value Fund. The amount of the purchased assets as of the closing date totaled approximately $158 million.
In September, we purchased the assets related to the management of two funds previously managed by SPARX Investment & Research, USA, Inc. and
sub-advised
by SPARX Asset Management Co., Ltd. and changed the fund names to the Hennessy Japan Fund and the Hennessy Japan Small Cap Fund. In conjunction with the completion of the transaction, SPARX Asset Management Co., Ltd. became the
sub-advisor
to both funds. The amount of the purchased assets as of the closing date totaled approximately $74 million.
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2011
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In October, we reorganized the assets of the Hennessy Cornerstone Growth, Series II Fund into the Hennessy Cornerstone Growth Fund. | |
2012
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In October, we purchased the assets related to the management of 10 funds previously managed by FBR Fund Advisers (the “FBR Funds”). We reorganized the assets of three of the FBR Funds into existing Hennessy Funds and reorganized the assets of the seven other FBR Funds into newly created series of the Hennessy Funds. In conjunction with the completion of the transaction, Broad Run Investment Management, LLC became the
sub-advisor
to the Hennessy Focus Fund, FCI Advisors became the
sub-advisor
to the Hennessy Equity and Income Fund (fixed income allocation) and the Hennessy Core Bond Fund, and The London Company of Virginia, LLC became the
sub-advisor
to the Hennessy Equity and Income Fund (equity allocation). The amount of the purchased assets as of the closing date was approximately $2.2 billion.
In December, we closed the Hennessy Micro Cap Growth Fund, LLC.
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2014
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In April, our common stock began trading on The Nasdaq Capital Market. |
2015
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In September, we completed a self-tender offer, under which we repurchased 1,500,000 shares of our common stock at $16.67 per share.
In June, we launched Institutional Class shares for the Hennessy Japan Small Cap Fund and the Hennessy Large Cap Financial Fund.
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2016
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In September, we purchased the assets related to the management of two funds previously managed by Westport Advisers, LLC and reorganized the assets of such funds into the Hennessy Cornerstone Mid Cap 30 Fund. The amount of the purchased assets as of the closing date totaled approximately $435 million. | |
2017
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In February, we liquidated the Hennessy Core Bond Fund and reorganized the Hennessy Large Value Fund into the Hennessy Cornerstone Value Fund. Additionally, for the Hennessy Technology Fund, we implemented changes to the investment strategy and the portfolio management team.
In March, we launched Institutional Class shares for the Hennessy Gas Utility Fund.
In December, we purchased the assets related to the management of two funds previously managed by Rainier Investment Management, LLC (“Rainier”) and reorganized the assets of such funds into the Hennessy Cornerstone Large Growth Fund and the Hennessy Cornerstone Mid Cap 30 Fund. The amount of the purchased assets as of the closing date totaled approximately $122 million.
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2018
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In January, we purchased the assets related to the management of a third fund previously managed by Rainier and reorganized the assets of such fund into the Hennessy Cornerstone Mid Cap 30 Fund. The amount of the purchased assets as of the closing date totaled approximately $253 million.
In October, we purchased the assets related to the management of the two funds previously managed by BP Capital Fund Services, LLC and reorganized the assets of such funds into the newly created Hennessy BP Energy Transition Fund and the Hennessy BP Midstream Fund. In connection with the transaction, BP Capital Fund Services, LLC became the
sub-adviser
to both funds. The amount of the purchased assets as of the closing date totaled approximately $200 million.
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2019
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During the year, we repurchased an aggregate of 560,734 shares of our common stock pursuant to our stock buyback program. | |
2020
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In the first three months of the year, we repurchased an aggregate of 206,109 shares of our common stock pursuant to our stock buyback program. | |
2021
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In October, we transferred listing of our common stock from The Nasdaq Capital Market to The Nasdaq Global Market. Also in October, the Company completed a public offering of 4.875% notes due 2026 (the “2026 Notes”) in the aggregate principal amount of $40,250,000, which included the full exercise of the underwriters’ overallotment option. |
The Hennessy Funds Family
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Domestic Equity
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Multi-Asset
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Sector and Specialty
|
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Hennessy Cornerstone Growth Fund
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Hennessy Total Return Fund
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Hennessy BP Energy Transition Fund
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Hennessy Focus Fund
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Hennessy Equity and Income Fund
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Hennessy BP Midstream Fund
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Hennessy Cornerstone Mid Cap 30 Fund
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Hennessy Balanced Fund
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Hennessy Gas Utility Fund
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Hennessy Cornerstone Large Growth Fund
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Hennessy Japan Fund
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Hennessy Cornerstone Value Fund
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Hennessy Japan Small Cap Fund
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Hennessy Large Cap Financial Fund
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Hennessy Small Cap Financial Fund
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Hennessy Technology Fund
|
• |
Hennessy Cornerstone Growth Fund
one-year
price appreciation that also have
price-to-sales
six-month
periods.
|
• |
Hennessy Focus Fund
above-average
rates. This fund’s holdings are conviction-weighted.
|
• |
Hennessy Cornerstone Mid Cap 30 Fund
mid-cap
growth-oriented
common stocks using a quantitative formula. From the investable common stocks of public companies in the S&P Capital IQ Database with market capitalizations between $1 billion and $10 billion, this fund invests in the 30 common stocks with the highest
one-year
price appreciation that also have
price-to-sales
three-month
and
six-month
periods.
|
• |
Hennessy Cornerstone Large Growth Fund
price-to-cash-flow
one-year
return on total capital.
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• |
Hennessy Cornerstone Value Fund
above-average
market capitalizations,
above-average
number of shares outstanding,
12-month
sales that are 50% greater than the average, and
above-average
cash flows.
|
• |
Hennessy Total Return Fund
|
• |
Hennessy Equity and Income Fund
high-quality
corporate, agency, and government bonds.
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• |
Hennessy Balanced
Fund
|
• |
Hennessy BP Energy Transition Fund
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• |
Hennessy BP Midstream Fund
top-down
deductive reasoning approach with a detailed
bottom-up
analysis of individual companies.
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• |
Hennessy Gas Utility Fund
capitalization-weighted
index that consists of publicly traded member companies of the AGA whose securities are traded on a U.S. stock exchange. The index is adjusted monthly for the percentage of natural gas assets on each company’s balance sheet.
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• |
Hennessy Japan Fund
in-depth
analysis and
on-site
research, the portfolio managers focus on stocks with a potential “value gap” by screening for companies that they believe have strong businesses and management and are trading at attractive prices. The portfolio managers limit the portfolio to what they consider to be their best ideas and maintain a concentrated number of holdings.
|
• |
Hennessy Japan Small Cap Fund
in-depth
analysis and
on-site
research, the portfolio managers focus on stocks with a potential “value gap” by screening for
small-cap
companies that the portfolio managers believe have strong businesses and management and are trading at attractive prices. The portfolio managers limit the portfolio to what they consider to be their best ideas and is unconstrained by its benchmarks.
|
• |
Hennessy Large Cap Financial Fund
large-cap
companies principally engaged in the business of providing financial services, including information technology companies that are primarily engaged in providing products or services to financial services companies.
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• |
Hennessy Small Cap Financial Fund
small-cap
companies principally engaged in the business of providing financial services.
|
• |
Hennessy Technology Fund
sector-leading
cash flows and profits, a history of delivering returns in excess of cost of capital, attractive relative valuations, ability to generate cash, attractive balance sheet risk profiles, and prospects for sustainable profitability.
|
Hennessy Cornerstone Growth Fund
|
One Year | Three Years | Five Years | Ten Years | ||||||||||||
Institutional Class Share—HICGX
|
44.24 | % | 8.74 | % | 10.11 | % | 14.63 | % | ||||||||
Investor Class Share—HFCGX
|
43.72 | % | 8.37 | % | 9.74 | % | 14.28 | % | ||||||||
Russell 2000
®
Index
(1)
|
47.68 | % | 10.54 | % | 13.45 | % | 14.63 | % | ||||||||
S&P 500
®
Index
(2)
|
30.01 | % | 15.99 | % | 16.90 | % | 16.63 | % |
Hennessy Focus Fund*
|
One Year | Three Years | Five Years | Ten Years | ||||||||||||
Institutional Class Share—HFCIX
|
36.07 | % | 15.24 | % | 14.23 | % | 15.95 | % | ||||||||
Investor Class Share—HFCSX
|
35.56 | % | 14.82 | % | 13.81 | % | 15.55 | % | ||||||||
Russell 3000
®
Index
(3)
|
31.88 | % | 16.00 | % | 16.85 | % | 16.60 | % | ||||||||
Russell Midcap
®
Growth Index
(4)
|
30.45 | % | 19.14 | % | 19.27 | % | 17.54 | % |
Hennessy Cornerstone Mid Cap 30 Fund
|
One Year | Three Years | Five Years | Ten Years | ||||||||||||
Institutional Class Share—HIMDX
|
39.83 | % | 11.88 | % | 10.48 | % | 13.10 | % | ||||||||
Investor Class Share—HFMDX
|
39.34 | % | 11.50 | % | 10.09 | % | 12.72 | % | ||||||||
Russell Midcap
®
Index
(5)
|
38.11 | % | 14.22 | % | 14.39 | % | 15.52 | % | ||||||||
S&P 500
®
Index
(2)
|
30.01 | % | 15.99 | % | 16.90 | % | 16.63 | % |
Hennessy Cornerstone Large Growth Fund
|
One Year | Three Years | Five Years | Ten Years | ||||||||||||
Institutional Class Share—HILGX
|
35.39 | % | 12.96 | % | 13.84 | % | 13.79 | % | ||||||||
Investor Class Share—HFLGX
|
35.07 | % | 12.63 | % | 13.51 | % | 13.51 | % | ||||||||
Russell 1000
®
Index
(6)
|
30.96 | % | 16.43 | % | 17.11 | % | 16.76 | % | ||||||||
S&P 500
®
Index
(2)
|
30.01 | % | 15.99 | % | 16.90 | % | 16.63 | % |
Hennessy Cornerstone Value Fund
|
One Year | Three Years | Five Years | Ten Years | ||||||||||||
Institutional Class Share—HICVX
|
38.32 | % | 5.75 | % | 9.14 | % | 10.72 | % | ||||||||
Investor Class Share—HFCVX
|
38.02 | % | 5.55 | % | 8.91 | % | 10.49 | % | ||||||||
Russell 1000
®
Value Index
(7)
|
35.01 | % | 10.07 | % | 10.94 | % | 13.51 | % | ||||||||
S&P 500
®
Index
(2)
|
30.01 | % | 15.99 | % | 16.90 | % | 16.63 | % |
Hennessy Total Return Fund
|
One Year | Three Years | Five Years | Ten Years | ||||||||||||
Investor Class Share—HDOGX
|
15.99 | % | 3.40 | % | 5.46 | % | 7.89 | % | ||||||||
75/25 Blended DJIA/Treasury Index
(8)
|
17.92 | % | 8.83 | % | 12.14 | % | 11.23 | % | ||||||||
Dow Jones Industrial Average
(9)
|
24.15 | % | 11.00 | % | 15.68 | % | 14.72 | % |
Hennessy Equity and Income Fund*
|
One Year | Three Years | Five Years | Ten Years | ||||||||||||
Institutional Class Share—HEIIX
|
15.39 | % | 8.38 | % | 9.24 | % | 9.09 | % | ||||||||
Investor Class Share—HEIFX
|
14.99 | % | 7.97 | % | 8.83 | % | 8.72 | % | ||||||||
70/30 Blended Balanced Index
(10)
|
20.29 | % | 12.88 | % | 12.70 | % | 12.44 | % | ||||||||
60/40 Blended Balanced Index
(11)
|
17.16 | % | 11.79 | % | 11.28 | % | 11.03 | % | ||||||||
S&P 500
®
Index
(2)
|
30.01 | % | 15.99 | % | 16.90 | % | 16.63 | % |
Hennessy Balanced Fund
|
One Year | Three Years | Five Years | Ten Years | ||||||||||||
Investor Class Share—HBFBX
|
11.67 | % | 2.96 | % | 4.31 | % | 5.21 | % | ||||||||
50/50 Blended DJIA/Treasury Index
(12)
|
11.87 | % | 6.84 | % | 8.71 | % | 7.85 | % | ||||||||
Dow Jones Industrial Average
(9)
|
24.15 | % | 11.00 | % | 15.68 | % | 14.72 | % |
Hennessy BP Energy Transition Fund*
|
One Year | Three Years | Five Years |
Since
Inception (12/31/13) |
||||||||||||
Institutional Class Share— HNRIX
|
104.63 | % | -7.22 | % | -2.39 | % | -1.52 | % | ||||||||
Investor Class Share—HNRGX
|
103.85 | % | -7.50 | % | -2.66 | % | -1.77 | % | ||||||||
S&P 500
®
Energy Index
(13)
|
82.99 | % | -6.80 | % | -1.57 | % | -2.87 | % | ||||||||
S&P 500
®
Index
(2)
|
30.01 | % | 15.99 | % | 16.90 | % | 13.75 | % |
Hennessy BP Midstream Fund*
|
One Year | Three Years | Five Years |
Since
Inception (12/31/13) |
||||||||||||
Institutional Class Share— HMSIX**
|
74.04 | % | -4.91 | % | -4.54 | % | -3.21 | % | ||||||||
Investor Class Share—HMSFX
|
73.63 | % | -5.12 | % | -4.77 | % | -3.45 | % | ||||||||
Alerian Midstream Index
(14)
|
86.20 | % | 1.14 | % | 1.30 | % | 0.19 | % | ||||||||
S&P 500
®
Index
(2)
|
30.01 | % | 15.99 | % | 16.90 | % | 13.75 | % |
Hennessy Gas Utility Fund*
|
One Year | Three Years | Five Years | Ten Years | ||||||||||||
Institutional Class Share— HGASX**
|
17.34 | % | 4.83 | % | 4.36 | % | 8.94 | % | ||||||||
Investor Class Share—GASFX
|
16.99 | % | 4.51 | % | 4.05 | % | 8.77 | % | ||||||||
AGA Stock Index
(15)
|
18.20 | % | 5.63 | % | 5.26 | % | 9.81 | % | ||||||||
S&P 500
®
Index
(2)
|
30.01 | % | 15.99 | % | 16.90 | % | 16.63 | % |
Hennessy Japan Fund
|
One Year | Three Years | Five Years | Ten Years | ||||||||||||
Institutional Class Share—HJPIX
|
15.12 | % | 9.55 | % | 12.66 | % | 13.40 | % | ||||||||
Investor Class Share—HJPNX
|
14.67 | % | 9.11 | % | 12.20 | % | 13.03 | % | ||||||||
Russell/Nomura Total Market
TM
Index
(16)
|
20.74 | % | 7.00 | % | 9.33 | % | 8.64 | % | ||||||||
Tokyo Stock Price Index (TOPIX)
(17)
|
20.61 | % | 6.87 | % | 9.28 | % | 8.63 | % |
Hennessy Japan Small Cap Fund
|
One Year | Three Years | Five Years | Ten Years | ||||||||||||
Institutional Class Share—HJSIX**
|
17.15 | % | 5.97 | % | 12.54 | % | 13.57 | % | ||||||||
Investor Class Share—HJPSX
|
16.62 | % | 5.53 | % | 12.11 | % | 13.32 | % | ||||||||
Russell/Nomura Small Cap
TM
Index
(18)
|
12.41 | % | 2.73 | % | 7.44 | % | 8.48 | % | ||||||||
Tokyo Stock Price Index (TOPIX)
(17)
|
20.61 | % | 6.87 | % | 9.28 | % | 8.63 | % |
Hennessy Large Cap Financial Fund*
|
One Year | Three Years | Five Years | Ten Years | ||||||||||||
Institutional Class Share—HILFX**
|
41.42 | % | 14.90 | % | 18.59 | % | 16.03 | % | ||||||||
Investor Class Share—HLFNX
|
40.85 | % | 14.50 | % | 18.17 | % | 15.76 | % | ||||||||
Russell 1000
®
Index Financials
(19)
|
58.32 | % | 17.30 | % | 18.25 | % | 18.11 | % | ||||||||
Russell 1000
®
Index
(6)
|
30.96 | % | 16.43 | % | 17.11 | % | 16.76 | % |
Hennessy Small Cap Financial Fund*
|
One Year | Three Years | Five Years | Ten Years | ||||||||||||
Institutional Class Share—HISFX
|
116.14 | % | 12.67 | % | 12.53 | % | 14.76 | % | ||||||||
Investor Class Share—HSFNX
|
115.09 | % | 12.28 | % | 12.11 | % | 14.38 | % | ||||||||
Russell 2000
®
Index Financials
(20)
|
65.84 | % | 7.98 | % | 10.49 | % | 14.12 | % | ||||||||
Russell 2000
®
Index
(1)
|
47.68 | % | 10.54 | % | 13.45 | % | 14.63 | % |
Hennessy Technology Fund*
|
One Year | Three Years | Five Years | Ten Years | ||||||||||||
Institutional Class Share—HTCIX**
|
39.10 | % | 19.49 | % | 18.39 | % | 14.98 | % | ||||||||
Investor Class Share—HTECX
|
38.71 | % | 19.18 | % | 18.08 | % | 14.66 | % | ||||||||
NASDAQ Composite Index
(21)
|
30.26 | % | 22.67 | % | 23.37 | % | 20.96 | % | ||||||||
S&P 500
®
Index
(2)
|
30.01 | % | 15.99 | % | 16.90 | % | 16.63 | % |
* |
Performance information from prior to the date that we acquired the assets related to the management of the fund is included because the previous investment manager managed the fund using a similar investment strategy.
|
** |
Performance shown for periods prior to the inception of Institutional Class shares represents the performance of Investor Class shares of the fund and includes expenses that are not applicable to, and are higher than, those of Institutional Class shares.
|
(1) |
The Russell 2000
®
Index comprises the smallest 2,000 companies in the Russell 3000
®
Index based on market capitalization, representing approximately 8% of the Russell 3000
®
Index in terms of total market capitalization.
|
(2) |
The S&P 500
®
Index is a
capitalization-weighted
index that is designed to represent the broad domestic economy through changes in the aggregate market value of 500 stocks across all major industries.
|
(3) |
The Russell 3000
®
Index comprises the 3,000 largest U.S. companies based on market capitalization, representing approximately 98% of the investable U.S. equities market.
|
(4) |
The Russell Midcap
®
Growth Index comprises approximately 65% of the total market value of the Russell Midcap
®
Index and includes companies with higher
price-to-book
|
(5) |
The Russell Midcap
®
Index comprises approximately 800 of the smallest securities of the Russell 1000
®
Index based on a combination of market capitalization and current index membership.
|
(6) |
The Russell 1000
®
Index comprises the 1,000 largest companies in the Russell 3000
®
Index based on market capitalization.
|
(7) |
The Russell 1000
®
Value Index comprises those Russell 1000
®
companies with lower
price-to-book
|
(8) |
The 75/25 Blended DJIA/Treasury Index consists of 75% common stocks represented by the Dow Jones Industrial Average and 25% short-duration Treasury securities represented by the ICE BofAML U.S.
3-Month
Treasury Bill Index, which comprises U.S. Treasury securities maturing in three months.
|
(9) |
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the NYSE or The Nasdaq Stock Market LLC.
|
(10) |
The 70/30 Blended Balanced Index consists of 70% common stocks represented by the S&P 500
®
Index and 30% bonds represented by the Bloomberg Intermediate U.S. Government/Credit Index, which measures the performance of
U.S. dollar-denominated
Treasury securities and government-related and
investment-grade
corporate securities that have $250 million or more of outstanding face value, are fixed rate and
non-convertible,
and have remaining maturities of greater than or equal to one year and less than 10 years.
|
(11) |
The 60/40 Blended Balanced Index consists of 60% common stocks represented by the S&P 500
®
Index and 40% bonds represented by the Bloomberg Intermediate U.S. Government/Credit Index, which measures the performance of
U.S. dollar-denominated
Treasury securities and government-related and
investment-grade
corporate securities that have $250 million or more of outstanding face value, are fixed rate and
non-convertible,
and have remaining maturities of greater than or equal to one year and less than 10 years.
|
(12) |
The 50/50 Blended DJIA/Treasury Index consists of 50% common stocks represented by the Dow Jones Industrial Average and 50% short-duration Treasury securities represented by the ICE BofAML
1-Year
U.S. Treasury Note Index, which comprises U.S. Treasury securities maturing in approximately one year.
|
(13) |
The S&P 500
®
Energy Index comprises those companies included in the S&P 500
®
that are classified in the Energy sector.
|
(14) |
The Alerian US Midstream Energy Index comprises companies that earn a majority of their cash flow from midstream activities involving energy commodities.
|
(15) |
The AGA Stock Index is a
capitalization-weighted
index consisting of members of the American Gas Association whose securities are traded on a U.S. stock exchange.
|
(16) |
The Russell/Nomura Total Market
™
Index contains the top 98% of all stocks listed on Japan’s stock exchanges and registered on Japan’s
over-the-counter
|
(17) |
The Tokyo Stock Price Index (TOPIX) is a capitalization-weighted index of all of the companies listed on the First Section of the Tokyo Stock Exchange.
|
(18) |
The Russell/Nomura Small Cap
™
Index contains the bottom 15% of the Russell/Nomura Total Market
™
Index based on market capitalization.
|
(19) |
The Russell 1000
®
Index Financials is a subset of the Russell 1000
®
Index that measures the performance of the securities classified in the Financials sector of the
large-cap
U.S. equity market.
|
(20) |
The Russell 2000
®
Index Financials is a subset of the Russell 2000
®
Index that measures the performance of the securities classified in the Financials sector of the
small-cap
U.S. equity market.
|
(21) |
The NASDAQ Composite Index is a broad-based capitalization-weighted index of all common stocks listed on The Nasdaq Stock Market LLC.
|
• |
We screen the appropriate universe of stocks with a set of parameters that we believe identifies stocks that will produce higher long-term returns with lower associated risk than their relative indices, and we then introduce the new investment strategy into the marketplace by opening and directly marketing a new mutual fund;
|
• |
We purchase the assets related to the management of an existing mutual fund that we then manage ourselves;
|
• |
We purchase the assets related to the management of an existing mutual fund and then engage the existing portfolio managers or strategic firm to act as a
sub-advisor
to manage the fund; or
|
• |
We purchase the assets related to the management of an existing mutual fund and then employ the existing portfolio management team to manage the fund.
|
Fiscal Years Ended September 30,
|
||||||||||||
2021
|
2020
|
2019
|
||||||||||
(In thousands)
|
||||||||||||
Beginning assets under management
|
$ | 3,564,597 | $ | 4,873,839 | $ | 6,197,617 | ||||||
Acquisition inflows
|
— | — | 194,948 | |||||||||
Organic inflows
|
818,358 | 571,195 | 825,541 | |||||||||
Redemptions
|
(1,345,371 | ) | (1,771,127 | ) | (2,374,734 | ) | ||||||
Market appreciation (depreciation)
|
1,028,338 | (109,310 | ) | 30,467 | ||||||||
|
|
|
|
|
|
|||||||
Ending assets under management
|
$ | 4,065,922 | $ | 3,564,597 | $ | 4,873,839 | ||||||
|
|
|
|
|
|
Fiscal Years Ended September 30,
|
||||||||||||
2021
|
2020
|
2019
|
||||||||||
(In thousands)
|
||||||||||||
Investment advisory fees
|
$ | 30,367 | $ | 30,831 | $ | 39,357 | ||||||
Shareholder service fees
|
2,393 | 2,558 | 3,358 | |||||||||
|
|
|
|
|
|
|||||||
Subtotal
|
32,760 | 33,389 | 42,715 | |||||||||
Sub-advisory
fees
|
(7,332 | ) | (7,573 | ) | (9,228 | ) | ||||||
|
|
|
|
|
|
|||||||
Revenue, net of
sub-advisory
fees
|
$ | 25,428 | $ | 25,816 | $ | 33,487 | ||||||
|
|
|
|
|
|
• |
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;
|
• |
performing a daily reconciliation of portfolio positions and cash for the fund;
|
• |
monitoring the liquidity of the fund;
|
• |
monitoring the fund’s compliance with its investment objectives and restrictions and federal securities laws;
|
• |
maintaining a compliance program (including a code of ethics), conducting ongoing reviews of the compliance programs of the fund’s service providers (including any
sub-advisor),
including their codes of ethics, as appropriate, conducting onsite visits to the fund’s service providers (including any
sub-advisor)
as feasible, monitoring incidents of abusive trading practices, reviewing fund expense accruals, payments, and fixed expense ratios, evaluating insurance providers for fidelity bond, directors and officers and errors and omissions insurance, and cybersecurity insurance coverage, managing regulatory examination compliance and responses, conducting employee compliance training, reviewing reports provided by service providers, and maintaining books and records;
|
• |
if applicable, overseeing the selection and continued employment of the fund’s
sub-advisor,
reviewing the fund’s investment performance, and monitoring the
sub-advisor’s
adherence to the fund’s investment objectives, policies, and restrictions;
|
• |
overseeing service providers that provide accounting, administration, distribution, transfer agency, custodial, sales, marketing, public relations, audit, information technology, and legal services to the fund;
|
• |
maintaining
in-house
marketing and distribution departments on behalf of the fund;
|
• |
preparing or directing the preparation of all regulatory filings for the fund, including writing and annually updating the fund’s prospectus and related documents;
|
• |
for each annual report of the fund, preparing or reviewing a written summary of the fund’s performance during the most recent
12-month
period;
|
• |
monitoring and overseeing the accessibility of the fund on third-party platforms;
|
• |
paying the incentive compensation of the fund’s compliance officers and employing other staff such as legal, marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as management executives;
|
• |
providing a quarterly compliance certification to the 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.
|
Hennessy Fund
(All Class Shares) |
Investment Advisory Fee
(as a % of fund assets) |
|||
Hennessy Cornerstone Growth Fund
|
0.74 | % | ||
Hennessy Focus Fund
|
0.90 | % | ||
Hennessy Cornerstone Mid Cap 30 Fund
|
0.74 | % | ||
Hennessy Cornerstone Large Growth Fund
|
0.74 | % | ||
Hennessy Cornerstone Value Fund
|
0.74 | % | ||
Hennessy Total Return Fund
|
0.60 | % | ||
Hennessy Equity and Income Fund
|
0.80 | % | ||
Hennessy Balanced Fund
|
0.60 | % | ||
Hennessy BP Energy Transition Fund
|
1.25 | % | ||
Hennessy BP Midstream Fund
|
1.10 | % | ||
Hennessy Gas Utility Fund
|
0.40 | % | ||
Hennessy Japan Fund
|
0.80 | % | ||
Hennessy Japan Small Cap Fund
|
0.80 | % | ||
Hennessy Large Cap Financial Fund
|
0.90 | % | ||
Hennessy Small Cap Financial Fund
|
0.90 | % | ||
Hennessy Technology Fund
|
0.74 | % |
• |
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;
|
• |
ensuring that its compliance programs include policies and procedures relevant to the fund and the
sub-advisor’s
duties as a portfolio manager to the fund;
|
• |
for each annual report of the fund, preparing a written summary of the fund’s performance during the most recent
12-month
period; and
|
• |
providing a quarterly certification to Funds’ Board of Trustees regarding trading and allocation practices, supervisory matters, the
sub-advisor’s
compliance program (including its code of ethics), compliance with the fund’s policies, and general firm updates.
|
Hennessy Fund
(All Class Shares) |
Sub-Advisor
|
Sub-Advisory
Fee
(As a % of Fund Assets) |
||
Hennessy Focus Fund | Broad Run Investment Management, LLC | 0.29% | ||
Hennessy Equity and Income Fund
|
FCI Advisors
(fixed income allocation)
|
0.27% | ||
The London Company of Virginia, LLC
(equity allocation)
|
0.33% | |||
Hennessy BP Energy Transition Fund
|
BP Capital Fund Advisors, LLC | 0.40% | ||
Hennessy BP Midstream Fund
|
BP Capital Fund Advisors, LLC | 0.40% | ||
Hennessy Japan Fund
|
SPARX Asset Management Co., Ltd. |
$0-$500
million: 0.35%
Above $500 million-$1 billion: 0.40%
Above $1 billion: 0.42%
|
||
Hennessy Japan Small Cap Fund
|
SPARX Asset Management Co., Ltd. |
$0-$500
million: 0.35%
Above $500 million-$1 billion: 0.40%
Above $1 billion: 0.42%
|
•
|
Seeking to deliver strong investment performance of the Hennessy Funds
|
• |
result in an increase in the value of existing assets of the Hennessy Funds;
|
• |
encourage more investors to buy shares of the Hennessy Funds and decrease the number of investors who redeem their shares and leave the Hennessy Funds; and
|
• |
motivate current investors to invest additional money in the Hennessy Funds.
|
•
|
Utilizing our branding and marketing campaign to attract assets
|
•
|
Expanding our distribution network to additional distribution platforms
|
•
|
Increasing our current base of financial advisors and investment professionals
|
•
|
Securing participation on the platforms of national full-service firms
|
•
|
Pursuing strategic purchases of management agreements for additional mutual funds
|
•
|
Delivering strong,
high-quality
financial results.
|
• |
the investment performance of the Hennessy Funds;
|
• |
the expense ratios of the Hennessy Funds;
|
• |
the array of our product offerings;
|
• |
industry rankings of the Hennessy Funds;
|
• |
the quality of our services;
|
• |
our ability to further develop and market our brand;
|
• |
our commitment to placing the interests of investors first; and
|
• |
our general business reputation.
|
ITEM 1A.
|
RISK FACTORS
|
• |
the potential unavailability of attractive acquisition opportunities;
|
• |
a high level of competition from other companies that may have greater financial resources than we do;
|
• |
our inability to value potential asset purchases accurately and negotiate acceptable purchase terms;
|
• |
our inability to obtain quorum and secure enough affirmative votes to gain approval of the proposed fund reorganization from the target fund’s shareholders;
|
• |
the loss of mutual fund assets paid for in an asset purchase through redemptions by shareholders of the mutual funds involved in the asset purchase;
|
• |
higher than anticipated asset purchase expenses;
|
• |
our inability to successfully integrate and maintain adequate infrastructure to support business growth;
|
• |
increasing our leverage;
|
• |
the potential diversion of our management’s time and attention;
|
• |
dilution to our shareholders if we fund an asset purchase in whole or in part with our common stock; and
|
• |
adverse effects on our earnings if purchased intangible assets become impaired.
|
ITEM 2.
|
PROPERTIES.
|
ITEM 3.
|
LEGAL PROCEEDINGS.
|
ITEM 4.
|
MINE SAFETY DISCLOSURES.
|
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Period
|
Total Number of
Shares Purchased |
Average Price Paid per
Share |
Total Number of Shares
Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of
Shares that May Yet Be Purchased Under the Plans or Programs (1) |
||||||||||||
July
1-31,
2021
|
— | $ | — | — | 596,368 | |||||||||||
August
1-31,
2021
(2)
|
2,490 | 10.00 | — | 596,368 | ||||||||||||
September
1-30,
2021
(2)
|
30,002 | 9.91 | — | 596,368 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total
|
32,492 | $ | 9.92 | — | 596,368 | |||||||||||
|
|
|
|
|
|
|
|
(1) |
We are authorized to purchase a maximum of 1,500,000 shares under our stock buyback program. We announced the stock buyback program in August 2010, and the program has no expiration date. We temporarily suspended the stock buyback program as of March 24, 2020, so we did not repurchase any shares pursuant to the stock buyback program during the three months ended September 30, 2021.
|
(2) |
The shares that we repurchased in August and September 2021 are not subject to a maximum per plan or program because we did not repurchase them pursuant to a plan or program.
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Fiscal Years Ended September 30,
|
||||||||||||
2021
|
2020
|
2019
|
||||||||||
(In thousands)
|
||||||||||||
Beginning assets under management
|
$ | 3,564,597 | $ | 4,873,839 | $ | 6,197,617 | ||||||
Acquisition inflows
|
— | — | 194,948 | |||||||||
Organic inflows
|
818,358 | 571,195 | 825,541 | |||||||||
Redemptions
|
(1,345,371 | ) | (1,771,127 | ) | (2,374,734 | ) | ||||||
Market appreciation (depreciation)
|
1,028,338 | (109,310 | ) | 30,467 | ||||||||
|
|
|
|
|
|
|||||||
Ending assets under management
|
$ | 4,065,922 | $ | 3,564,597 | $ | 4,873,839 | ||||||
|
|
|
|
|
|
Fiscal Years Ended September 30,
|
||||||||||||
2021
|
2020
|
2019
|
||||||||||
(In thousands)
|
||||||||||||
Average assets under management—Investor Class
|
$ | 2,394,194 | $ | 2,556,875 | $ | 3,357,813 | ||||||
Average assets under management—Institutional Class
|
1,595,106 | 1,541,529 | 1,826,929 | |||||||||
|
|
|
|
|
|
|||||||
Total
|
$ | 3,989,300 | $ | 4,098,404 | $ | 5,184,742 | ||||||
|
|
|
|
|
|
Fiscal Years Ended September 30,
|
||||||||||||||||
2021
|
2020
|
|||||||||||||||
Amounts
|
Percent of
Total Revenue |
Amounts
|
Percent of
Total Revenue |
|||||||||||||
(In thousands, except percentages)
|
||||||||||||||||
Revenue
|
||||||||||||||||
Investment advisory fees
|
$ | 30,367 | 92.7 | % | $ | 30,831 | 92.3 | % | ||||||||
Shareholder service fees
|
2,393 | 7.3 | 2,558 | 7.7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue
|
32,760 | 100.0 | 33,389 | 100.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating expenses
|
||||||||||||||||
Compensation and benefits
|
9,078 | 27.7 | 8,820 | 26.4 | ||||||||||||
General and administrative
|
4,754 | 14.5 | 4,961 | 14.9 | ||||||||||||
Mutual fund distribution
|
485 | 1.5 | 477 | 1.4 | ||||||||||||
Sub-advisory
fees
|
7,332 | 22.4 | 7,573 | 22.7 | ||||||||||||
Depreciation
|
232 | 0.7 | 239 | 0.7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses
|
21,881 | 66.8 | 22,070 | 66.1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income
|
10,879 | 33.2 | 11,319 | 33.9 | ||||||||||||
Interest expense
|
— | — | 447 | 1.3 | ||||||||||||
Other income
|
(2 | ) | (0.0 | ) | (89 | ) | (0.2 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income tax expense
|
10,881 | 33.2 | 10,961 | 32.8 | ||||||||||||
Income tax expense
|
2,979 | 9.1 | 3,120 | 9.3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income
|
$ | 7,902 | 24.1 | % | $ | 7,841 | 23.5 | % | ||||||||
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2021
|
||
Fund Name
|
Amount
|
|
Hennessy Japan Fund
|
$ 42 million | |
Hennessy Small Cap Financial Fund
|
$ 35 million | |
Hennessy Japan Small Cap Fund
|
$ 13 million |
Fiscal Year Ended September 30, 2021
|
||||
Fund Name
|
Amount
|
|||
Hennessy Focus Fund
|
$ | (339) million | ||
Hennessy Gas Utility Fund
|
$ | (134) million | ||
Hennessy Cornerstone Mid Cap 30 Fund
|
$ | (76) million |
Fiscal Years Ended
September 30, |
||||||||
2021
|
2020
|
|||||||
(In thousands)
|
||||||||
Net cash provided by operating activities
|
$ | 10,386 | $ | 10,623 | ||||
Net cash used in investing activities
|
(249 | ) | (882 | ) | ||||
Net cash used in financing activities
|
(4,256 | ) | (24,473 | ) | ||||
|
|
|
|
|||||
Net increase (decrease) in cash and cash equivalents
|
$ | 5,881 | $ | (14,732) | ||||
|
|
|
|
/s/ Marcum LLP | ||
Marcum LLP |
Hennessy Advisors, Inc.
|
|
|||||||
Statements of Income
|
|
|||||||
(In thousands, except share and per share amounts)
|
Fiscal Years Ended September 30,
|
||||||||
2021
|
2020
|
|||||||
Revenue
|
||||||||
Investment advisory fees
|
$ | 30,367 | $ | 30,831 | ||||
Shareholder service fees
|
2,393 | 2,558 | ||||||
|
|
|
|
|||||
Total revenue
|
32,760 | 33,389 | ||||||
|
|
|
|
|||||
Operating expenses
|
||||||||
Compensation and benefits
|
9,078 | 8,820 | ||||||
General and administrative
|
4,754 | 4,961 | ||||||
Mutual fund distribution
|
485 | 477 | ||||||
Sub-advisory
fees
|
7,332 | 7,573 | ||||||
Depreciation
|
232 | 239 | ||||||
|
|
|
|
|||||
Total operating expenses
|
21,881 | 22,070 | ||||||
|
|
|
|
|||||
Net operating income
|
10,879 | 11,319 | ||||||
Interest expense
|
— | 447 | ||||||
Other income
|
(2 | ) | (89 | ) | ||||
|
|
|
|
|||||
Income before income tax expense
|
10,881 | 10,961 | ||||||
Income tax expense
|
2,979 | 3,120 | ||||||
|
|
|
|
|||||
Net income
|
$ | 7,902 | $ | 7,841 | ||||
|
|
|
|
|||||
Earnings per share
|
||||||||
Basic
|
$ | 1.07 | $ | 1.07 | ||||
|
|
|
|
|||||
Diluted
|
$ | 1.07 | $ | 1.06 | ||||
|
|
|
|
|||||
Weighted average shares outstanding
|
||||||||
Basic
|
7,367,948 | 7,352,495 | ||||||
|
|
|
|
|||||
Diluted
|
7,409,112 | 7,378,729 | ||||||
|
|
|
|
|||||
Cash dividends declared per share
|
$ | 0.55 | $ | 0.55 | ||||
|
|
|
|
|
|
Common Stock
|
|
|
Retained
|
|
|
Total
Stockholders’ |
|
|||||||
|
|
Shares
|
|
|
Amount
|
|
|
Earnings
|
|
|
Equity
|
|
||||
Balance at September 30, 2019
|
7,527,040 | $ | 17,673 | $ | 57,855 | $ | 75,528 | |||||||||
Net income
|
— | — | 7,841 | 7,841 | ||||||||||||
Dividends paid
|
— | — | (4,040 | ) | (4,040 | ) | ||||||||||
Employee and director restricted stock vested
|
125,750 | — | — | — | ||||||||||||
Repurchase of vested employee restricted stock for tax withholding
|
(34,887 | ) | (311 | ) | (3 | ) | (314 | ) | ||||||||
Shares issued for auto-investments pursuant to the 2018 Dividend Reinvestment and Stock Purchase Plan
|
2,065 | 22 | — | 22 | ||||||||||||
Shares issued for dividend reinvestment pursuant to the 2018 Dividend Reinvestment and Stock Purchase Plan
|
7,750 | 73 | — | 73 | ||||||||||||
Shares repurchased pursuant to a stock buyback program
|
(270,896 | ) | (534 | ) | (2,180 | ) | (2,714 | ) | ||||||||
Stock-based compensation
|
— | 1,782 | — | 1,782 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at September 30, 2020
|
7,356,822 | $ | 18,705 | $ | 59,473 | $ | 78,178 | |||||||||
Net income
|
— | — | 7,902 | 7,902 | ||||||||||||
Dividends paid
|
— | — | (4,049 | ) | (4,049 | ) | ||||||||||
Employee and director restricted stock vested
|
132,588 | — | — | — | ||||||||||||
Repurchase of vested employee restricted stock for tax withholding
|
(32,492 | ) | (294 | ) | (28 | ) | (322 | ) | ||||||||
Shares issued for auto-investments pursuant to the 2018 Dividend Reinvestment and Stock Purchase Plan
|
958 | 9 | — | 9 | ||||||||||||
Shares issued for dividend reinvestment pursuant to the 2018 Dividend Reinvestment and Stock Purchase Plan
|
2,165 | 19 | — | 19 | ||||||||||||
Shares issued for auto-investments pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan
|
3,219 | 29 | — | 29 | ||||||||||||
Shares issued for dividend reinvestment pursuant to the 2021 Dividend Reinvestment and Stock Purchase Plan
|
6,324 | 58 | — | 58 | ||||||||||||
Stock-based compensation
|
— | 1,438 | — | 1,438 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at September 30, 2021
|
7,469,584 | $ | 19,964 | $ | 63,298 | $ | 83,262 | |||||||||
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended September 30,
|
|
|||||
|
|
2021
|
|
|
2020
|
|
||
Cash flows from operating activities
|
||||||||
Net income
|
$ | 7,902 | $ | 7,841 | ||||
Adjustments to reconcile net income to net cash provided by operating activities
|
||||||||
Depreciation
|
232 | 239 | ||||||
Change in
right-of-use
|
(59 | ) | (62 | ) | ||||
Deferred income taxes
|
921 | 1,247 | ||||||
Deferred offering costs
|
(11 | ) | — | |||||
Stock-based compensation
|
1,438 | 1,782 | ||||||
Unrealized gains on marketable securities
|
(1 | ) | — | |||||
Interest expense associated with debt issuance cost
|
— | 125 | ||||||
Change in operating assets and liabilities:
|
||||||||
Investment fee income receivable
|
(392 | ) | 888 | |||||
Prepaid expenses
|
(151 | ) | (4 | ) | ||||
Other accounts receivable
|
101 | 14 | ||||||
Other assets
|
(33 | ) | 1 | |||||
Accrued liabilities and accounts payable
|
338 | (1,725 | ) | |||||
Income taxes payable
|
101 | 277 | ||||||
|
|
|
|
|||||
Net cash provided by operating activities
|
10,386 | 10,623 | ||||||
|
|
|
|
|||||
Cash flows from investing activities
|
||||||||
Purchases of property and equipment
|
(249 | ) | (172 | ) | ||||
Payments related to management contracts
|
— | (710 | ) | |||||
|
|
|
|
|||||
Net cash used in investing activities
|
(249 | ) | (882 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities
|
||||||||
Principal payments on bank loan
|
— | (17,500 | ) | |||||
Shares repurchased pursuant to stock buyback program
|
— | (2,714 | ) | |||||
Repurchase of vested employee restricted stock for tax withholding
|
(322 | ) | (314 | ) | ||||
Proceeds from shares issued pursuant to the 2018 Dividend Reinvestment and
Stock Repurchase Plan
|
9 | 22 | ||||||
Proceeds from shares issued pursuant to the 2021 Dividend Reinvestment and
Stock Repurchase Plan
|
29 | — | ||||||
Dividend payments
|
(3,972 | ) | (3,967 | ) | ||||
|
|
|
|
|||||
Net cash used in financing activities
|
(4,256 | ) | (24,473 | ) | ||||
|
|
|
|
|||||
Net increase (decrease) in cash and cash equivalents
|
5,881 | (14,732 | ) | |||||
Cash and cash equivalents at the beginning of the period
|
9,955 | 24,687 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at the end of the period
|
$ | 15,836 | $ | 9,955 | ||||
|
|
|
|
|||||
Supplemental disclosures of cash flow information
|
||||||||
Cash paid for income taxes
|
$ | 1,957 | $ | 1,596 | ||||
Cash paid for interest
|
$ | — | $ | 381 |
(1)
|
Organization and Description of Business and Significant Accounting Policies
|
|
(a)
|
Organization and Description of Business
|
|
•
|
|
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;
|
|
•
|
|
performing a daily reconciliation of portfolio positions and cash for the fund;
|
|
•
|
|
monitoring the liquidity of the fund;
|
|
•
|
|
monitoring the fund’s compliance with its investment objectives and restrictions and federal securities laws;
|
|
•
|
|
maintaining a compliance program (including a code of ethics), conducting ongoing reviews of the compliance programs of the fund’s service providers (including any
sub-advisor),
including their codes of ethics, as appropriate, conducting onsite visits to the fund’s service providers (including any
sub-advisor)
as feasible, monitoring incidents of abusive trading practices, reviewing fund expense accruals, payments, and fixed expense ratios, evaluating insurance providers for fidelity bond, directors and officers and errors and omissions insurance, and cybersecurity insurance coverage, managing regulatory examination compliance and responses, conducting employee compliance training, reviewing reports provided by service providers, and maintaining books and records;
|
|
•
|
|
if applicable, overseeing the selection and continued employment of the fund’s
sub-advisor,
reviewing the fund’s investment performance, and monitoring the
sub-advisor’s
adherence to the fund’s investment objectives, policies, and restrictions;
|
|
•
|
|
overseeing service providers that provide accounting, administration, distribution, transfer agency, custodial, sales, marketing, public relations, audit, information technology, and legal services to the fund;
|
|
•
|
|
maintaining
in-house
marketing and distribution departments on behalf of the fund;
|
|
•
|
|
preparing or directing the preparation of all regulatory filings for the fund, including writing and annually updating the fund’s prospectus and related documents;
|
|
•
|
|
for each annual report of the fund, preparing or reviewing a written summary of the fund’s performance during the most recent
12-month
period;
|
|
•
|
|
monitoring and overseeing the accessibility of the fund on
third-party
platforms;
|
|
•
|
|
paying the incentive compensation of the fund’s compliance officers and employing other staff such as legal, marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as management executives;
|
|
•
|
|
providing a quarterly compliance certification to the Board of Trustees of Hennessy Funds Trust (the “Funds’ Board of Trustees”); and
|
|
•
|
|
preparing or reviewing materials for the Funds’ Board of Trustees, presenting to or leading discussions with the Funds’ Board of Trustees, preparing or reviewing all meeting minutes, and arranging for training and education of the Funds’ Board of Trustees.
|
|
(b)
|
Cash and Cash Equivalents
|
|
(c)
|
Fair Value of Financial Instruments
|
(d) |
Investments
|
|
(e)
|
Property and Equipment
|
(f)
|
Management Contracts Purchase
d
|
|
(g)
|
Income Taxes
|
Year
|
Number of State
Tax Jurisdictions |
|||
2021
|
22 | |||
2020
|
22 | |||
2019
|
19 | |||
2018
|
17 | |||
2017
|
16 |
|
(h)
|
Earnings per Share
|
|
(i)
|
Equity
|
Fiscal Years Ended September 30,
|
||||||||||||||||
2021
|
2020
|
|||||||||||||||
Shares
|
Weighted Average
Grant Date Fair Value per Share |
Shares
|
Weighted Average
Grant Date Fair Value per Share |
|||||||||||||
Non-vested
balance at beginning of year
|
322,181 | $ | 9.76 | 313,669 | $ | 12.22 | ||||||||||
Granted
|
134,625 | 8.64 | 134,625 | 8.13 | ||||||||||||
Vested
(1)
|
(132,996 | ) | (10.81 | ) | (126,113 | ) | (14.13 | ) | ||||||||
Forfeited
|
—
|
—
|
— | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Non-vested
balance at end of year
|
323,810 | $ | 8.87 | 322,181 | $ | 9.76 | ||||||||||
|
|
|
|
|
|
|
|
(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.
|
September 30, 2021
|
||||
(In thousands, except years)
|
||||
Total expected compensation expense related to RSUs
|
$ | 16,905 | ||
Recognized compensation expense related to RSUs
|
(14,034 | ) | ||
|
|
|||
Unrecognized compensation expense related to RSUS
|
$ | 2,871 | ||
|
|
|||
Weighted average remaining period to expense for RSUs
|
3.0 |
|
(j)
|
Use of Estimates
|
(2)
|
Fair Value Measurements
|
|
•
|
|
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.
|
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 | ||||||||
|
|
|
|
|
|
|
|
September 30, 2020
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Money market fund deposits
|
$ | 6,053 | $ | — | $ | — | $ | 6,053 | ||||||||
Mutual fund investments
|
9 | — | — | 9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total
|
$ | 6,062 | $ | — | $ | — | $ | 6,062 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Amounts included in
|
||||||||||||||||
Cash and cash equivalents
|
$ | 6,053 | $ | — | $ | — | $ | 6,053 | ||||||||
Investments in marketable securities
|
9 | — | — | 9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total
|
$ | 6,062 | $ | — | $ | — | $ | 6,062 | ||||||||
|
|
|
|
|
|
|
|
(3)
|
Investments
|
|
|
Cost
|
|
|
Gross
Unrealized Gains |
|
|
Gross
Unrealized Losses |
|
|
Total
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
(In thousands)
|
|
|||||||||||||
2021
|
|
|
|
|
||||||||||||
Mutual fund investments
|
$ | 4 | $ | 24 | $ | (18 | ) | $ | 10 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Total
|
4 | 24 | (18 | ) | 10 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
2020
|
||||||||||||||||
Mutual fund investments
|
$ | 4 | $ | 23 | $ | (18 | ) | $ | 9 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Total
|
4 | 23 | (18 | ) | 9 | |||||||||||
|
|
|
|
|
|
|
|
(4) |
Property and Equipment, Net
|
September 30,
|
||||||||
2021
|
2020
|
|||||||
(In thousands)
|
||||||||
Equipment
|
$ | 599 | $ | 538 | ||||
Leasehold improvements
|
154 | 154 | ||||||
Furniture and fixtures
|
391 | 391 | ||||||
IT infrastructure
|
84 | 71 | ||||||
Software
|
933 | 758 | ||||||
|
|
|
|
|||||
Property and equipment, gross
|
2,161 | 1,912 | ||||||
Accumulated depreciation
|
(1,850 | ) | (1,618 | ) | ||||
|
|
|
|
|||||
Property and equipment, net
|
$ | 311 | $ | 294 | ||||
|
|
|
|
(5)
|
Management Contracts
|
(6)
|
Investment Advisory Agreements
|
(7)
|
Leases
|
September 30, 2021
|
||||
(In thousands,
except years and percentages) |
||||
Operating lease
right-of-use
|
$ | 1,010 | ||
Current operating lease liability
|
$ | 359 | ||
Long-term operating lease liability
|
$ | 646 | ||
Weighted average remaining lease term
|
2.8 | |||
Weighted average discount rate
|
0.90 | % |
September 30,
2021
|
||||
(In thousands)
|
||||
Fiscal year 2022 undiscounted cash flows
|
363 | |||
Fiscal year 2023
|
374 | |||
Fiscal year 2024
|
286 | |||
|
|
|||
Total undiscounted cash flows
|
1,023 | |||
|
|
|||
Present value discount
|
(18 | ) | ||
|
|
|||
Total operating lease liabilities
|
$ | 1,005 | ||
|
|
(8)
|
Accrued Liabilities and Accounts Payable
|
September 30
|
||||||||
2021
|
2020
|
|||||||
(In thousands)
|
||||||||
Accrued bonus liabilities
|
$ | 2,738 | $ | 2,571 | ||||
Accrued
sub-advisor
fees
|
628 | 552 | ||||||
Other accrued expenses
|
785 | 690 | ||||||
|
|
|
|
|||||
Total accrued expenses
|
$ | 4,151 | $ | 3,813 | ||||
|
|
|
|
(9) |
Bank Loan
|
(10) |
Commitments and Contingencies
|
(11) |
Retirement Plan
|
(12) |
Income Taxes
|
Fiscal Years Ended
September 30,
|
||||||||
2021
|
2020
|
|||||||
(In thousands)
|
||||||||
Beginning year balance
|
$ | 608 | $ | 608 | ||||
Decrease related to prior year tax positions
|
— | — | ||||||
Increase related to current year tax positions
|
— | — | ||||||
Settlements
|
— | — | ||||||
Lapse of statutes of limitations
|
— | — | ||||||
|
|
|
|
|||||
Ending year balance
|
$ | 608 | $ | 608 | ||||
|
|
|
|
Fiscal Years Ended
September 30,
|
||||||||
2021
|
2020
|
|||||||
Federal statutory income tax rate
|
21.0 | % | 21.0 | % | ||||
State income taxes, net of federal benefit
|
4.1 | 4.3 | ||||||
Permanent and other differences
|
0.3 | 0.2 | ||||||
Difference due to executive compensation
|
1.3 | 1.1 | ||||||
Tax return to provision adjustments
|
0.1 | (0.1 | ) | |||||
Uncertain tax position allowance
|
0.3 | 0.4 | ||||||
Stock-based compensation
|
0.3 | 1.6 | ||||||
|
|
|
|
|||||
Effective income tax rate
|
27.4 | % | 28.5 | % | ||||
|
|
|
|
Fiscal Years Ended
September 30,
|
||||||||
2021
|
2020
|
|||||||
(In thousands)
|
||||||||
Deferred tax assets
|
||||||||
Accrued compensation
|
$ | 60 | $ | 47 | ||||
Stock compensation
|
2 | 13 | ||||||
State taxes
|
266 | 245 | ||||||
Capital loss carryforward
|
7 | 7 | ||||||
ROU asset/lease liability
|
(1 | ) | — | |||||
|
|
|
|
|||||
Gross deferred tax assets
|
334 | 312 | ||||||
Disallowed capital loss
|
(7 | ) | (7 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets
|
327 | 305 | ||||||
Deferred tax liabilities
|
||||||||
Property and equipment
|
(33 | ) | (28 | ) | ||||
Management contracts
|
(12,731 | ) | (11,793 | ) | ||||
|
|
|
|
|||||
Total deferred tax liabilities
|
(12,764 | ) | (11,821 | ) | ||||
|
|
|
|
|||||
Net deferred tax liabilities
|
$ | (12,437 | ) | $ | (11,516 | ) | ||
|
|
|
|
(13)
|
Earnings per Share
|
September 30,
|
||||||||
2021
|
2020
|
|||||||
Weighted average common stock outstanding, basic
|
7,367,948 | 7,352,495 | ||||||
Dilutive impact of RSUs
|
41,164 | 26,234 | ||||||
|
|
|
|
|||||
Weighted average common stock outstanding, diluted
|
7,409,112 | 7,378,729 | ||||||
|
|
|
|
(14)
|
Concentration of Credit Risk
|
(15)
|
Recently Issued and Adopted Accounting Standards
|
(16)
|
Subsequent Events
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
ITEM 9A.
|
CONTROLS AND PROCEDURES
|
ITEM 9B.
|
OTHER INFORMATION
|
ITEM 9C.
|
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
September 30, 2021
|
||||||||||||
Plan Category
|
Number of Securities to
Be Issued upon Exercise of Outstanding Options, Warrants, and Rights |
Weighted-Average
Exercise Price of Outstanding Options, Warrants, and Rights |
Number of Securities
Remaining for Issuance Under Compensation Plans
(2)
|
|||||||||
Equity compensation plans approved by security holders
(1)
|
328,150 | — | 1,352,012 | |||||||||
Equity compensation plans not approved by security holders
|
— | — | — | |||||||||
|
|
|
|
|
|
|||||||
Total
|
328,150 | — | 1,352,012 | |||||||||
|
|
|
|
|
|
(1) |
Securities to be issued pursuant to outstanding RSUs that vest over four years at a rate of 25% per year, for which the weighted average exercise price is zero.
|
(2) |
Excludes securities to be issued upon the vesting of outstanding RSUs. The maximum number of shares of common stock that may be issued under the Omnibus Plan is 50% of our outstanding common stock, or 3,734,792 shares, as of the end of fiscal year 2021.
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
|
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
ITEM 15.
|
EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
|
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 Annual Report on Form
10-K
of the registrant for the year ended September 30, 2021, filed on November 24, 2021, formatted in XBRL: (i) the Balance Sheets; (ii) the Statements of Income and Comprehensive Income; (iii) the Statements of Changes in Stockholders’ Equity; (iv) the Statements of Cash Flows; and (v) the Notes to Financial Statements.
|
|
104 | The Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document). |
* |
The related schedules to the agreement are not being filed herewith. The registrant agrees to furnish supplementally a copy of any such schedules to the Securities and Exchange Commission upon request.
|
(1) |
Management contract or compensatory plan or arrangement.
|
(2) |
Incorporated by reference from the Company’s
Form SB-2
registration statement (SEC File
No. 333-66970)
filed August 6, 2001.
|
(3) |
Incorporated by reference from the Company’s Form
10-K
for the fiscal year ended September 30, 2009 (SEC File
No. 000-49872),
filed December 4, 2009.
|
(4) |
Incorporated by reference from the Company’s
Form 10-Q
for the quarter ended December 31, 2012 (SEC File
No. 000-49872),
filed January 17, 2013.
|
(5) |
Incorporated by reference from the Company’s Current Report on Form
8-K
(SEC File
No. 000-49872)
filed September 18, 2013.
|
(6) |
Incorporated by reference to Annex A of the Company’s definitive proxy statement on Schedule 14A for the Company’s Special Meeting of Shareholders held on March 26, 2015 (SEC File
No. 000-49872),
filed February 21, 2014.
|
(7) |
Incorporated by reference from the Company’s
Form 10-Q
for the quarter ended June 30, 2014 (SEC File
No. 001-36423),
filed August 6, 2014.
|
(8) |
Incorporated by reference from the Company’s Form
10-K
for the fiscal year ended September 30, 2015 (SEC File
No. 001-36423),
filed November 30, 2015.
|
(9) |
Incorporated by reference from the Company’s Current Report on Form
8-K
(SEC File
No. 001-36423)
filed October 13, 2016.
|
(10) |
Incorporated by reference from the Company’s Form
10-K
for the fiscal year ended September 30, 2016 (SEC File
No. 001-36423),
filed December 1, 2016.
|
(11) |
Incorporated by reference from the Company’s Current Report on Form
8-K
(SEC File
No. 001-36423)
filed March 7, 2017.
|
(12) |
Incorporated by reference from the Company’s Current Report on Form
8-K
(SEC File
No. 001-36423)
filed May 11, 2017.
|
(13) |
Incorporated by reference from the Company’s Current Report on Form
8-K
(SEC File
No. 001-36423)
filed January 25, 2018.
|
(14) |
Incorporated by reference from the Company’s
Form 10-Q
for the quarter ended March 31, 2018 (SEC File
No. 001-36423),
filed May 2, 2018.
|
(15) |
Incorporated by reference from the Company’s Form
10-K
for the fiscal year ended September 30, 2018 (SEC File
No. 001-36423),
filed November 28, 2018.
|
(16) |
Incorporated by reference from the Company’s Current Report on
Form 8-K
(SEC File
No. 001-36423)
filed February 25, 2019.
|
(17) |
Incorporated by reference from the Company’s Current Report on
Form 8-K
(SEC File
No. 001-36423),
filed October 20, 2021.
|
ITEM 16.
|
FORM
10-K
SUMMARY
|
Date: | November 24, 2021 | |||||
By: |
/s/
Teresa M. Nilsen
|
|||||
Teresa M. Nilsen | ||||||
President, Chief Operating Officer, and Director | ||||||
(As a duly authorized officer on behalf of the registrant and as | ||||||
Principal Executive Officer) |
By:
|
/s/ Kathryn R. Fahy
|
Date: | November 24, 2021 | |||
Kathryn R. Fahy | ||||||
Chief Financial Officer and Senior Vice President | ||||||
(Principal Financial and Accounting Officer) | ||||||
By: |
/s/ Neil J. Hennessy
|
Date: | November 24, 2021 | |||
Neil J. Hennessy | ||||||
Chief Executive Officer and Chairman of the Board of Directors | ||||||
By: |
/s/ Daniel B. Steadman
|
Date: | November 24, 2021 | |||
Daniel B. Steadman | ||||||
Executive Vice President and Director | ||||||
By: |
/s/ Henry Hansel
|
Date: | November 24, 2021 | |||
Henry Hansel | ||||||
Director | ||||||
By: |
/s/ Brian A. Hennessy
|
Date: | November 24, 2021 | |||
Brian A. Hennessy | ||||||
Director | ||||||
By: |
/s/ Daniel G. Libarle
|
Date: | November 24, 2021 | |||
Daniel G. Libarle | ||||||
Director | ||||||
By: |
/s/ Rodger Offenbach
|
Date: | November 24, 2021 | |||
Rodger Offenbach | ||||||
Director | ||||||
By: |
/s/ Susan W. Pomilia
|
Date: | November 24, 2021 | |||
Susan W. Pomilia | ||||||
Director | ||||||
By: |
/s/ Thomas L. Seavey
|
Date: | November 24, 2021 | |||
Thomas L. Seavey | ||||||
Director |
Exhibit 4.1
DESCRIPTION OF THE REGISTRANTS SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Hennessy Advisors, Inc. (the Company, we, our, or us) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the Exchange Act), common stock, no par value per share (Common Stock).
DESCRIPTION OF COMMON STOCK
The following is a description of the rights of the Common Stock and related provisions of the Companys Amended and Restated Articles of Incorporation (the Articles) and Fifth Amended and Restated Bylaws (the Bylaws) and applicable California law. This description is qualified in its entirety by, and should be read in conjunction with, the Articles, Bylaws, and applicable California law.
Common Stock
The Company is authorized to issue up to 22,500,000 shares of Common Stock.
Fully Paid and Nonassessable
All of the outstanding shares of Common Stock are fully paid and nonassessable.
Voting Rights
The holders of shares of Common Stock are entitled to one vote per share on all matters to be voted on by such holders. Holders of shares of Common Stock are not entitled to cumulative voting rights.
Dividends
Subject to preferences to which holders of any preferred stock the Company may issue may be entitled, the holders of shares of Common Stock are entitled to receive such dividends, if any, as may be declared from time to time by the Companys Board of Directors, in its discretion, from funds legally available therefor.
Right to Receive Liquidation Distributions
In the event of a liquidation, dissolution, or winding up of the Company, holders of shares of Common Stock would be entitled to share in the Companys assets remaining after the payment of liabilities and the satisfaction of any liquidation preference granted to the holders of any outstanding shares of preferred stock. The rights, preferences, and privileges of the holders of shares of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that the Company may issue in the future.
No Preemptive or Similar Rights
Common Stock has no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions with respect to shares of Common Stock.
Anti-Takeover Provisions of the Bylaws and California Law
Provisions of the Bylaws may delay or discourage transactions involving an actual or potential change in control of the Company or change in its management, including transactions in which shareholders might otherwise receive a premium for their shares or transactions that its shareholders might otherwise deem to be in their best interests. Among other things, the Bylaws:
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provide that, except for a vacancy caused by the removal of a director as provided in the Bylaws, a vacancy on the Companys Board of Directors may be filled by a person selected by a majority of the remaining directors then in office, whether or not less than a quorum, or by a sole remaining director; and |
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provide that shareholders seeking to present proposals before a meeting of shareholders or to nominate candidates for election as directors at a meeting of shareholders must provide advance notice in writing in a timely manner. |
In addition, as a California corporation, the Company is subject to the provisions of Section 1203 of the California General Corporation Law, which requires the Company to provide a fairness opinion to its shareholders in connection with their consideration of certain proposed interested party reorganization transactions.
Listing
The Companys Common Stock is listed on The Nasdaq Stock Market LLC under the trading symbol HNNA.
DESCRIPTION OF THE NOTES
The following description of our 4.875% notes due 2026 (the Notes) summarizes certain material terms of the Notes. This description is qualified in its entirety by reference to the base indenture (as defined below) and supplemental indenture (as defined below), which are filed as exhibits to the Annual Report on Form 10-K of which this Exhibit 4.1 is a part.
The Notes were issued under, and are governed by, an indenture, dated as of October 20, 2021 (the base indenture), as supplemented by the first supplemental indenture, dated as of October 20, 2021 (the supplemental indenture), entered into between us and U.S. Bank National Association, as trustee (the trustee) (the base indenture, together with the supplemental indenture, the indenture).
General, Principal and Interest
On October 20, 2021, we completed a public offering of $40,250,000 aggregate principal amount of the 2026 Notes. The Notes mature on December 31, 2026. The principal payable at maturity will be 100% of the aggregate principal amount. The interest rate of the Notes is 4.875% per year and will be paid every March 31, June 30, September 30, and December 31, beginning December 31, 2021, and the regular record dates for interest payments will be every March 15, June 15, September 15, and December 15 beginning December 15, 2021. If an interest payment date falls on a non-business day, the applicable interest payment will be made on the next business day and no additional interest will accrue as a result of such delayed payment. The initial interest period will be the period from and including October 20, 2021, to, but excluding, the initial interest payment date, and the subsequent interest periods will be the periods from and including an interest payment date to, but excluding, the next interest payment date or the stated maturity date, as the case may be.
The indenture does not limit the amount of debt (including secured debt) that may be issued by us or our subsidiaries under the indenture or otherwise, but does contain a covenant regarding our maintenance of a certain net consolidated debt to equity ratio. See Covenants below. Other than restrictions described under Merger or Consolidation below, the indenture does not contain any covenants or other provisions designed to afford holders of the Notes protection in the event of a highly leveraged transaction involving us or if our credit rating declines as the result of a takeover, recapitalization, highly leveraged transaction, or similar restructuring involving us.
Covenants
In addition to standard covenants relating to payment of principal and interest, maintaining an office where payments may be made or securities can be surrendered for payment, and related matters, the following covenants apply to the Notes:
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If, at any time, we are not subject to the reporting requirements of Sections 13 or 15(d) of the Exchange Act to file any periodic reports with the SEC, we agree to furnish to holders of the Notes and the trustee, for the period of time during which the Notes are outstanding, our audited annual consolidated financial statements, within 90 days of our fiscal year end, and unaudited interim consolidated financial statements, within 45 days of our fiscal quarter end (other than our fourth fiscal quarter). All such financial statements will be prepared, in all material respects, in accordance with GAAP. GAAP means generally accepted accounting principles in effect from time to time in the United States; provided, notwithstanding the foregoing, if any change in such generally accepted accounting principles or in the application thereof after the issue date would affect the computation of any financial ratio or requirement set forth in the Notes or the indenture, then we may deliver notice to the trustee that such change will not apply for any determinations thereafter under the Notes or the indenture. |
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We agree to not permit the Net Consolidated Debt to Equity Ratio, measured as of the last day of each fiscal quarter, to be greater than 2 to 1. Net Consolidated Debt to Equity Ratio means the ratio of Net Consolidated Debt to our total shareholders equity as shown on our most recent consolidated balance sheet. Net Consolidated Debt means, as of any determination date, without duplication, an amount equal to (a) the aggregate principal amount of outstanding indebtedness for borrowed money of us and our subsidiaries, plus (b) Capital Lease Obligations we and/or our subsidiaries may have outstanding as of such date, minus (c) the aggregate amount of cash and cash equivalents included on our most recent consolidated balance sheet; provided that the cash proceeds of any proposed incurrence of indebtedness shall not be included in this clause (c) for purposes of calculating Net Consolidated Debt; provided further that Net Consolidated Debt shall not include (1) any indebtedness that has been defeased, discharged, and/or redeemed, provided that funds in an amount equal to all such indebtedness (including interest and any other amounts required to be paid to the holders thereof in order to give effect to such defeasance, discharge or redemption) have been irrevocably deposited with a trustee or agent for the benefit of the relevant holders of such indebtedness, (2) interest, fees, make-whole amounts, premium, charges, or expenses, if any, relating to the principal amount of Net Consolidated Debt, and (3) any indebtedness owing to us by any subsidiary or any indebtedness owing to any subsidiary by us or another subsidiary. Capital Lease Obligation means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized and reflected as a liability on a balance sheet (excluding the footnotes thereto) in accordance with GAAP; provided that obligations of us or any subsidiaries we may acquire or establish in the future, or of a special purpose or other entity not consolidated with us and any subsidiaries we may acquire or establish in the future that (x) initially were not included on our consolidated balance sheet as capital lease obligations and were subsequently characterized as capital lease obligations or, in the case of such a special purpose or other entity becoming consolidated with us and our subsidiaries were required to be characterized as capital lease obligations upon such consolidation, in either case, due to a change in accounting treatment or otherwise, or (y) did not exist on the issue date and were required to be characterized as capital lease obligations but would not have been required to be treated as capital lease obligations on the issue date had they existed at that time, shall for all purposes not be treated as Capital Lease Obligations; provided further, notwithstanding the foregoing, Capital Lease Obligations shall not include obligations relating to a lease that was (or would be) classified and accounted for by us and our subsidiaries as an operating lease under GAAP as in effect prior to the effectiveness of Accounting Standards Codification 842. |
Optional Redemption
The Notes 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, upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price of 100% of the outstanding principal amount of the Notes to be redeemed plus accrued and unpaid interest payments otherwise payable thereon for the then-current quarterly interest period accrued to, but excluding, the date fixed for redemption.
If we redeem only some of the Notes, the trustee or, with respect to global securities, DTC, will determine the method for selection of the particular Notes to be redeemed, in accordance with the indenture and in accordance with the rules of any national securities exchange or quotation system on which the Notes are listed. Unless we default in payment of the redemption price, on and after the date of redemption, interest will cease to accrue on the Notes called for redemption.
Conversion and Exchange
The Notes are not convertible into or exchangeable for other securities.
Events of Default
An event of default with respect to the Notes occurs if:
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we do not pay the principal of any Note when due and payable at maturity; |
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we do not pay interest on any Note when due and payable, and such default is not cured within 30 days of its due date; |
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we remain in breach of any other covenant in respect of the Notes for 60 days after we receive a written notice of default stating we are in breach (the notice must be sent by either the trustee or holders of at least 25% of the principal amount of the outstanding Notes (with a copy to the Trustee)); or |
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we file for bankruptcy or certain other events of bankruptcy, insolvency, or reorganization occur and remain undischarged or unstayed for a period of 90 days. |
If an Event of Default has occurred and is continuing, the trustee or the holders of not less than 25% in principal amount of the Notes (with a copy to the trustee) may declare the entire principal amount of all the Notes to be due and immediately payable, but this does not entitle any holder of Notes to any redemption payout or redemption premium. This is called a declaration of acceleration of maturity. In certain circumstances, a declaration of acceleration of maturity may be canceled by the holders of a majority in principal amount of the Notes if (1) we have deposited with the trustee all amounts due and owing with respect to the Notes (other than principal or any payment that has become due solely by reason of such acceleration) and certain other amounts, and (2) any other Events of Default have been cured or waived.
Merger or Consolidation
Under the terms of the indenture, we are generally permitted to consolidate or merge with another entity. We are also permitted to sell all or substantially all of our assets to another entity. However, we may not take any of these actions unless all the following conditions are met:
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where we merge out of existence or convey or transfer our assets substantially as an entirety, the resulting entity must agree to be legally responsible for our obligations under the Notes; |
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immediately after giving effect to the transaction, no default or Event of Default shall have occurred and be continuing; and |
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we must deliver certain certificates and documents to the trustee. |
Modification or Waiver
There are three types of changes we can make to the indenture and the Notes issued thereunder.
Changes Requiring the Approval of the Noteholders
First, there are changes that we cannot make to the Notes without approval from each holder directly and adversely affected thereby. The following is a list of those types of changes:
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changing the stated maturity of the principal of (or premium, if any, on) or any installment of principal of or interest on the Notes; |
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reducing any amounts due on the Notes or reduce the rate of interest on the Notes; |
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reducing the amount of principal payable upon acceleration of the maturity of a Note during the continuance of an Event of Default; |
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changing the place or currency of payment on a Note; |
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impairing noteholders right to sue for payment in respect of a Note; |
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reducing the percentage of holders of Notes whose consent is needed to modify or amend the indenture; and |
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reducing the percentage of holders of Notes whose consent is needed to waive compliance with certain provisions of the indenture or to waive certain defaults or reduce the percentage of holders of Notes required to satisfy quorum or voting requirements at a meeting of holders of the Notes. |
Changes Not Requiring Approval of the Noteholders
The second type of change does not require any vote by the holders of the Notes. This type is limited to clarifications and certain other changes that would not adversely affect holders of the Notes in any material respect.
Changes Requiring Majority Approval
Any other change to the indenture and the Notes would require the following approval:
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if the change affects only the Notes, it must be approved by the holders of a majority in principal amount of the Notes; and |
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if the change affects more than one series of debt securities issued under the same indenture, it must be approved by the holders of a majority in principal amount of all of the series affected by the change, with all affected series voting together as one class for this purpose. |
In each case, the required approval must be given by written consent. The holders of a majority in principal amount of all of the series of debt securities issued under the indenture, voting together as one class for this purpose, may waive our compliance with some of our covenants in that indenture. However, we cannot obtain a waiver of a payment default or of any of the matters covered by the bullet points included above under Changes Requiring Approval of the Noteholders.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect with respect to the Notes when:
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either: |
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all the Notes that have been authenticated have been delivered to the trustee for cancellation; or |
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all the Notes that have not been delivered to the trustee for cancellation: |
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have become due and payable, or |
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will become due and payable at their stated maturity within one year, or |
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are to be called for redemption within one year, |
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and we, in the case of the first, second and third sub-bullets above, have irrevocably deposited or caused to be deposited with the trustee as trust funds in trust solely for the benefit of the holders of the Notes, in amounts as will be sufficient, to pay and discharge the entire indebtedness (including all principal, premium, if any, and interest) on such Notes not previously delivered to the trustee for cancellation (in the case of Notes that have become due and payable on or prior to the date of such deposit) or to the stated maturity or redemption date, as the case may be; |
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we have paid or caused to be paid all other sums payable by us under the indenture with respect to the Notes; and |
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we have delivered to the trustee an officers certificate and legal opinion, each stating that all conditions precedent provided for in the indenture relating to the satisfaction and discharge of the indenture and the Notes have been complied with. |
Defeasance
The following provisions will be applicable to the Notes. Defeasance means that, by depositing with a trustee an amount of cash and/or government securities sufficient to pay all principal and interest, if any, on the Notes when due and satisfying any additional conditions noted below, we will be deemed to have been discharged from our obligations under the Notes. In the event of a covenant defeasance, upon depositing such funds and satisfying similar conditions discussed below, we would be released from certain covenants under the indenture relating to the Notes.
Covenant Defeasance
Under the indenture, we can make the deposit described below and be released from some of the restrictive covenants in the indenture under which the Notes were issued. This is called covenant defeasance. In that event, noteholders would lose the protection of those restrictive covenants but would gain the protection of having money and government securities set aside in trust to repay the Notes. In order to achieve covenant defeasance, the following must occur:
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since the Notes are denominated in U.S. dollars, we must deposit in trust for the benefit of all holders of the Notes a combination of cash and U.S. government or U.S. government agency notes or bonds that will generate enough cash to make interest, principal and any other payments on the Notes on their various due dates; |
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we must deliver to the trustee a legal opinion of our counsel confirming that, under current U.S. federal income tax law, we may make the above deposit without causing noteholders to be taxed on the Notes any differently than if we did not make the deposit; |
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we must deliver to the trustee a legal opinion and officers certificate stating that all conditions precedent to covenant defeasance have been complied with; |
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defeasance must not result in a breach or violation of, or result in a default under, the indenture or any of our other material agreements or instruments; and |
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no default or Event of Default with respect to the Notes shall have occurred and be continuing and no defaults or Events of Default related to bankruptcy, insolvency or reorganization shall occur during the next 90 days. |
If we accomplish covenant defeasance, noteholders can still look to us for repayment of the Notes if there were a shortfall in the trust deposit or the trustee is prevented from making payment. In fact, if one of the remaining Events of Default occurred (such as our bankruptcy) and the Notes became immediately due and payable, there might be a shortfall. Depending on the event causing the default, noteholders may not be able to obtain payment of the shortfall.
Full Defeasance
The Notes are subject to full defeasance. Full defeasance means that we can legally release ourselves from all payment and other obligations on the Notes, subject to the satisfaction of certain conditions, including, but not limited to that (a) we have received from, or there has been published by, the Internal Revenue Service, or the IRS, a ruling, or (b) there is a change in U.S. federal income tax law, in either case to the effect that the holders of the Notes and any coupons appertaining thereto will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred (called full defeasance), and that we put in place the following other arrangements for noteholders to be repaid:
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since the Notes are denominated in U.S. dollars, we must deposit in trust for the benefit of all holders of the Notes a combination of money and U.S. government or U.S. government agency notes or bonds that will generate enough cash to make interest, principal, and any other payments on the Notes on their various due dates; |
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we must deliver to the trustee a legal opinion confirming that there has been a change in current U.S. federal tax law or an IRS ruling that allows us to make the above deposit without causing noteholders to be taxed on the Notes any differently than if we did not make the deposit; |
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we must deliver to the trustee a legal opinion and officers certificate stating that all conditions precedent to defeasance have been complied with; |
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defeasance must not result in a breach or violation of, or constitute a default under, the indenture or any of our other material agreements or instruments; and |
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no default or Event of Default with respect to the Notes shall have occurred and be continuing and no defaults or Events of Default related to bankruptcy, insolvency, or reorganization shall occur during the next 90 days. |
If we ever did accomplish full defeasance, as described above, noteholders would have to rely solely on the trust deposit for repayment of the Notes. Noteholders could not look to us for repayment in the unlikely event of any shortfall. Conversely, the trust deposit would most likely be protected from claims of our lenders and other creditors if we ever became bankrupt or insolvent.
Governing Law
The indenture and the Notes will be governed by and construed in accordance with the laws of the State of New York.
Indenture Provisions - Ranking
The Notes are our direct unsecured obligations and rank:
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pari passu with any of our existing and future unsecured, unsubordinated indebtedness; |
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senior to any of our future indebtedness that expressly provides it is subordinated to the Notes; |
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effectively subordinated to all of our existing and future secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant security), to the extent of the value of the assets securing such indebtedness; and |
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structurally subordinated to all existing and future indebtedness and other obligations of any future subsidiaries of ours. |
The Trustee under the Indenture
U.S. Bank National Association serves as the trustee, paying agent, and security registrar under the indenture.
Book-Entry Procedures
The Notes were issued in book-entry form and are represented by global notes deposited and registered in the name of DTC or its nominee. Except as set forth in this description, certificated notes will not be issued in exchange for beneficial interests in the global notes. The Notes will be issued as fully registered securities registered in the name of Cede & Co. (DTCs partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered certificate will be issued for each issuance of the Notes, in the aggregate principal amount thereof, and will be deposited with DTC.
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement of Hennessy Advisors, Inc. on Form S-3 (No. 333-251201) and Form S-8 (No. 333-188439) of our report dated November 24, 2021, with respect to our audits of the financial statements of Hennessy Advisors, Inc. as of September 30, 2021 and 2020, and for the years ended September 30, 2021 and 2020, which report is included in this Annual Report on Form 10-K of Hennessy Advisors, Inc. for the year ended September 30, 2021.
/s/ Marcum LLP |
Marcum LLP |
Costa Mesa, California |
November 24, 2021 |
Exhibit 31.1
Rule 13a 14a Certification of the Principal Executive Officer
I, Teresa M. Nilsen, certify that:
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I have reviewed this annual report on Form 10-K of Hennessy Advisors, Inc.; |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
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The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ Teresa M. Nilsen |
Teresa M. Nilsen, President |
Hennessy Advisors, Inc. |
Date: November 24, 2021 |
Exhibit 31.2
Rule 13a 14a Certification of the Principal Financial Officer
I, Kathryn R. Fahy, certify that:
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I have reviewed this annual report on Form 10-K of Hennessy Advisors, Inc.; |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
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The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ Kathryn R. Fahy |
Kathryn R. Fahy, Chief Financial Officer |
Hennessy Advisors, Inc. |
Date: November 24, 2021
Exhibit 32.1
Written Statement of the Principal Executive Officer
Pursuant to 18 U.S.C. § 1350
Solely for the purposes of complying with 18 U.S.C. § 1350, I, the undersigned President of Hennessy Advisors, Inc. (the Company), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the year ended September 30, 2021 (the Report), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Teresa M. Nilsen |
Teresa M. Nilsen, President |
Hennessy Advisors Inc. |
Date: November 24, 2021
Exhibit 32.2
Written Statement of the Principal Financial Officer
Pursuant to 18 U.S.C. § 1350
Solely for the purposes of complying with 18 U.S.C. § 1350, I, the undersigned Chief Financial Officer of Hennessy Advisors, Inc. (the Company), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the year ended September 30, 2021 (the Report), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Kathryn R. Fahy |
Kathryn R. Fahy, Chief Financial Officer |
Hennessy Advisors, Inc. |
Date: November 24, 2021