HENNESSY ADVISORS INC

HENNESSY ADVISORS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

The accompanying unaudited condensed balance sheet as of* September 30, 2024*, which has been derived from audited financial statements, and the unaudited interim condensed financial statements as of and for thethree months ended* December 31, 2024*, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and comprise the accounts of Hennessy Advisors, Inc. (the “Company,” “we,” “us,” or “our”). Certain information and footnote disclosures in these unaudited interim condensed financial statements, that* maybe otherwise included in financial statements presented in our Annual Reports on Form10*-K, have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission for Quarterly Reports on Form10-Q. In the opinion of management, the unaudited interim condensed financial statements reflect all adjustments necessary for a fair statement of the Company’s financial position at* December 31, 2024*, the Company’s operating results for thethree months ended* December 31, 2024and2023*, and the Company’s cash flows for thethree months ended* December 31, 2024and2023*. These unaudited interim condensed financial statements and notes should be read in conjunction with the Company’s audited financial statements and notes thereto for fiscal year2024, which are included in the Company’s Annual Report on Form10‑K for the fiscal year ended* September**30,* 2024.

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

The Company’s operating activities consist primarily of providing investment advisory services to 16 open-end mutual funds andone exchange‑traded fund (“ETF”) branded as the Hennessy Funds. The Company serves as the investment advisor to all classes of the Hennessy Cornerstone Growth Fund, the Hennessy Focus Fund, the Hennessy Cornerstone Mid Cap30 Fund, the Hennessy Cornerstone Large Growth Fund, the Hennessy Cornerstone Value Fund, the Hennessy Total Return Fund, the Hennessy Equity and Income Fund, the Hennessy Balanced Fund, the Hennessy Energy Transition Fund, the Hennessy Midstream Fund, the Hennessy Gas Utility Fund, the Hennessy Japan Fund, the Hennessy Japan Small Cap Fund, the Hennessy Large Cap Financial Fund, the Hennessy Small Cap Financial Fund, and the Hennessy Technology Fund (collectively, the “Hennessy Mutual Funds”), as well as to the Hennessy Stance ESG ETF. The Company also provides shareholder services to investors in the Hennessy Mutual Funds.

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

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The Company earns shareholder service fees from Investor Class shares of the Hennessy Mutual Funds by, among other things, maintaining a toll-free number that the current investors in the Hennessy Funds* may*call to ask questions about their accounts and actively participating as a liaison between investors in the Hennessy Funds and U.S. Bank Global Fund Services.

Investment advisory and shareholder service fee revenues are earned and calculated daily by the Hennessy Funds’ accountants at U.S. Bank Global Fund Services and are subsequently reviewed by management.

The Company recognizes revenues when its obligations related to the investment advisory and shareholder services are satisfied, and it is probable that a significant reversal of the revenue amount wouldnot occur in future periods. Management judgment is required in assessing the probability of significant revenue reversal and in identification of distinct services. Investment advisory and shareholder services are performed over time because investors in the Hennessy Funds are receiving and consuming the benefits as they are provided by the Company. Fees are based on contractual percentages of net asset values of each Hennessy Fund and recognized for services provided during the period, which are distinct from services provided in other periods. Such fees are affected by changes in such net asset values, including market appreciation or depreciation, foreign exchange translation as applicable, and net inflows or outflows of shareholders in each Hennessy Fund. Assets under management represent the broad range of financial assets the Company manages for the Hennessy Funds on a discretionary basis pursuant to investment management and shareholder servicing agreements that are expected to continue for at least12 months. In general, reported assets under management reflect the valuation methodology that corresponds to the basis used for determining revenue. The fees are computed and billed monthly, at which time they are recognized in accordance with Accounting Standards Codification606 — Revenue from Contracts with Customers.

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

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Throughout its history, the Company has completed 12 purchases of the assets related to the management of 33 investment funds, some of which were reorganized into already existing Hennessy Funds. In accordance with Financial Accounting Standards Board (“FASB”) guidance, the Company periodically reviews the carrying value of its management contracts asset to determine if any impairment has occurred. The fair value of the management contracts asset was estimated as of* September**30,* 2024, by applying the income approach and is based on management estimates and assumptions, including third‑party valuations that utilize appropriate valuation techniques. It was determined there wasno impairment as of such date. As of* December 31, 2024*, management performed a qualitative analysis and determined it was more likely thannot that there continued to beno impairment.

Under Accounting Standards Codification350 — Intangibles - Goodwill and Other, intangible assets that have indefinite useful lives arenot amortized but are tested at least annually for impairment. The Company considered various factors, such as likelihood of continued renewal, whether there are foreseeable limits on net cash flows, and whether the Company is dependent on a limited number of investors, in determining the useful life of the management contracts. Based on analysis, the Company considers the management contracts asset to be an intangible asset with an indefinite useful life andno impairment as of the end of the current period.

The Company completed its most recent asset purchases on* November10,* 2023, and* February23,* 2024, when it purchased assets related to the management of the CCM Small/Mid-Cap Impact Value Fund and the CCM Core Impact Equity Fund (each, a “CCM Fund,” and together, the “CCM Funds”), respectively. These asset purchases added approximately $12 million and $59 million to the Company’s assets under management at the time of closing with respect to the CCM Small/Mid-Cap Impact Value Fund and the CCM Core Impact Equity Fund, respectively. Each purchase was consummated in accordance with the terms and conditions of that certain Transaction Agreement, dated as of* April 26, 2023,*between the Company and Community Capital Management, LLC. Upon completion of each transaction, the assets of the applicable CCM Fund were reorganized into the Hennessy Stance ESG ETF.

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

The investment advisory agreements must be renewed annually (except in limited circumstances) by (i) the Funds’ Board of Trustees or the vote of a majority of the outstanding shares of the applicable Hennessy Fund and (ii) the vote of a majority of the trustees of Hennessy Funds Trust who arenot interested persons of the Hennessy Funds. If an investment advisory agreement isnot renewed, it terminates automatically. There aretwo additional circumstances in which an investment advisory agreement terminates. First, an investment advisory agreement automatically terminates if the Company assigns them to another advisor (assignment includes “indirect assignment,” which is the direct or indirect transfer of the Company’s common stock in sufficient quantities deemed to constitute a controlling block). Second, an investment advisory agreement* may*be terminated prior to its expiration upon 60 days’ written notice by either the applicable Hennessy Fund or the Company.

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

The Company has entered into sub-advisory agreements for the Hennessy Focus Fund, the Hennessy Equity and Income Fund, the Hennessy Japan Fund, the Hennessy Japan Small Cap Fund, and the Hennessy Stance ESG ETF. Under each of these sub-advisory agreements, the sub‑advisor is responsible for the investment and reinvestments of the assets of the applicable Hennessy Fund in accordance with the terms of such agreement and the applicable Hennessy Fund’s Prospectus and Statement of Additional Information. The sub‑advisors are subject to the direction, supervision, and control of the Company and the Funds’ Board of Trustees. The sub‑advisory agreements must be renewed annually (except in limited circumstances) in the same manner as, and are subject to the same termination provisions as, the investment advisory agreements.

In exchange for sub-advisory services, the Company (not the Hennessy Funds) pays sub-advisory fees to the sub-advisors out of its own assets. Sub‑advisory fees are calculated as a percentage of the applicable fund’s average daily net asset value.

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The Company applies Accounting Standards Codification820 — Fair Value Measurement for all financial assets and liabilities, which establishes a framework for measuring fair value and expands disclosures about fair value measurements. The standard defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” It also establishes a fair value hierarchy consisting of the followingthree levels that prioritize the inputs to the valuation techniques used to measure fair value:

Based on the definitions, the following tables represent the Company’s assets categorized in the Level1 to Level3 hierarchies:

There wereno transfers between levels during thethree months ended* December 31, 2024*, or the year ended* September 30, 2024*.

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

The fair value of the2026 Notes (see Note7) was approximately $39.0 million as of* December 31, 2024*, based on the last trading price of the notes on that date (Level1). The Company didnot elect to apply the fair value option to the carrying value of the2026 Notes under Accounting Standards Codification825 — Financial Instruments.

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The Company determines if an arrangement is an operating lease at inception. Operating leases are included in operating lease right‑of‑use assets and current and long‑term operating lease liabilities on the Company’s balance sheet. During the fiscal year ended* September 30, 2024,the Company renewed the lease for its office in Novato, California for an additional three years. The renewed lease will expire on July 31, 2027.The renewal created a long‑term operating lease asset recorded during the fiscal year ended September 30, 2024.There wereno other long‑term operating leases as of December 31, 2024*.

Upon renewal of the lease for its office in Novato, California, the Company recorded a right‑of‑use asset of $1.1 million on its balance sheet. Right‑of‑use assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right‑of‑use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The Company’s lease terms* mayinclude options to extend the lease when it is reasonably certain that it will exercise any such options. For its leases, the Company concluded that it isnot* reasonably certain that any renewal options would be exercised, and, therefore, the amounts arenot recognized as part of operating lease right‑of‑use assets or operating lease liabilities. Leases with initial terms of12 months or less, and certain office equipment leases that are deemed insignificant, arenot recorded on the balance sheet and are expensed as incurred and included within rent expense under general and administrative expense. Lease expense related to operating leases is recognized on a straight-line basis over the expected lease terms.

The Company’s most significant leases are real estate leases of office facilities. The Company leases office space under non-cancelable operating leases. Its principal executive office is located in Novato, California, and it has additional offices in Austin, Texas, Dallas, Texas, Boston, Massachusetts, and Chapel Hill, North Carolina. Only the office lease in Novato, California has been capitalized because the other operating leases have terms of12 months or less, including leases that are month‑to‑month in nature. The classification of the Company’s operating lease right-of-use assets and operating lease liabilities and other supplemental information related to the Company’s operating leases are as follows:

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

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

On* October 20, 2021,the Company completed a public offering of 4.875% notes due2026* in the aggregate principal amount of $40,250,000 (the*“2026* Notes”), which included the full exercise of the underwriters’ overallotment option. The initial net proceeds received were approximately $38,607,000 after considering the impact of issuance costs and underwriter discounts. The2026 Notes bear interest at4.875% per annum, payable on the last day of each calendar quarter and at maturity, beginning* December**31,* 2021. The2026 Notes mature on* December 31, 2026.*

The2026 Notes are direct unsecured obligations, rank equally in right of payment with any of the Company’s future unsecured unsubordinated indebtedness, senior to any of the Company’s future indebtedness that expressly provides that it is subordinate to the2026 Notes, effectively subordinate to all of the Company’s future secured indebtedness, and structurally subordinate to all future indebtedness and other obligations of any of the Company’s future subsidiaries.

The Company’s effective income tax rates for thethree months ended* December 31, 2024and2023*, were 28.6% and 27.0%, respectively.

The Company is subject to income tax in the U.S. federal jurisdiction and various state jurisdictions.

In addition to the operating leases discussed in Note5, the Company has contractual expense ratio limitations in place with respect to the Hennessy Midstream Fund, the Hennessy Technology Fund, and the Hennessy Stance ESG ETF. Such contractual expense ratio limitations will expire* February 28, 2025,unless extended. Total fees waived during thethree* months ended* December 31, 2024* and* December 31, 2023*, were $0.03 million and $0.04 million, respectively. To date, the Company has only waived fees based on contractual obligations but has the ability to waive fees at its discretion. Any decision to waive fees would apply only on a going forward basis.

The Company hasno other commitments andno significant contingencies with original terms in excess ofone year.

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2024 Omnibus Incentive Plan

Effective as of* February 8, 2024,the Company adopted, and the Company’s shareholders approved, the2024* Omnibus Incentive Plan (the “Omnibus Plan”). The Omnibus Plan replaced the Amended and Restated2013 Omnibus Incentive Plan. Under the Omnibus Plan, participants* may*be granted restricted stock units (“RSUs”), each of which represents an unfunded, unsecured right to receive a share of the Company’s common stock on the date specified in the recipient’s award. The Company issues new shares of its common stock when it is required to deliver shares to an RSU recipient. The RSUs granted under the Omnibus Plan vest over four years at a rate of 25% per year. The Company recognizes stock‑based compensation expense on a straight‑line basis over thefour-year vesting term of each award.

A summary of RSU activity is as follows:

Additional information related to RSUs is as follows:

Dividend Reinvestment and Stock Purchase Plan

In* January 2024,the Company adopted a Dividend Reinvestment and Stock Purchase Plan (the “DRSPP”), replacing the previous Dividend Reinvestment and Stock Purchase Plan that had been in place since2021.* The DRSPP provides shareholders and new investors with a convenient and economical means of purchasing shares of the Company’s common stock and reinvesting cash dividends paid on the Company’s common stock. Under the DRSPP and its predecessor plan, the Company issued 1,984 and 2,770 shares of common stock during thethree months ended* December 31, 2024and2023*, respectively. The maximum number of shares of common stock that* maybe issued under the DRSPP is 1,530,000, of which 1,518,984 remained available for issuance as of December 31, 2024*.

Stock Buyback Program

In* August2010,* the Company’s Board of Directors adopted a stock buyback program pursuant to which the Company was authorized to repurchase up to 1,500,000 shares of its common stock in the open market, in privately negotiated transactions, or otherwise. The program hasno expiration date. In* August2022,* the Board of Directors increased the number of shares that* maybe repurchased under the program to 2,000,000 shares. As a result,1,096,368 shares remain available for repurchase under the stock buyback program. The Company didnot repurchase any shares of its common stock pursuant to the stock buyback program during thethree* months ended* December 31, 2024*.

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

For thethree months ended* December 31, 2024and2023*, the Company excluded 11,223 and 244,051 common stock equivalents, respectively, from the diluted earnings per share calculations because they werenot dilutive. In each case, the excluded common stock equivalents consisted of non‑vested RSUs.

The Company paid a quarterly cash dividend of $0.1375 per share on* November 27, 2024,to shareholders of record as of November 14, 2024.*

The Company has reviewed accounting pronouncements issued between the filing date of its most recent Form10-K, which was* December 11, 2024,and the filing date of this Form10*-Q and has determined thatno accounting pronouncements issued would have a material impact on the Company’s financial position, results of operations, or disclosures, except as disclosed below.

In* November 2023,the FASB issued Accounting Standards Update ("ASU")2023-07, “Segment Reporting (Topic280*): Improvements to Reportable Segment Disclosures,” which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. The guidance is effective for financial statements issued for annual periods beginning after* December 15, 2023,including interim periods within those fiscal years, with early adoption permitted. The Company is required to adopt this standard in its10*-K filing for fiscal year2025. The Company doesnot believe adoption of this standard will have a material impact on its financial statements.

In* December 2023,the FASB issued ASU2023*-09, “Income Taxes (Topic740): Improvements to Income Tax Disclosures,” which requires more detailed income tax disclosures. The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The guidance is effective for financial statements issued for annual periods beginning after* December 15, 2024,with early adoption permitted. The Company is required to adopt this standard prospectively in fiscal year2026.* The Company is currently in the process of evaluating the impact of adoption on its financial statements.

In* November 2024,the FASB issued ASU2024*-03, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic220-40): Disaggregation of Income Statement Expenses", as amended by ASU2025-01, which requires public business entities to disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. In particular, this amendment requires public business entities to disclose detailed information about specific costs that are presented in commonly referred expense captions, such as general and administrative expenses. The guidance is effective for financial statements issued for annual reporting periods beginning after* December 15, 2026,and interim reporting periods within annual reporting periods beginning after December 15, 2027.*Early adoption is permitted. The Company is currently in the process of evaluating the impact of the adoption on its financial statements.

The Company has evaluated subsequent events through the date these financial statements were issued and has concluded thatno material events occurred during this period that require recognition or disclosure.

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