Welcome to the Hannover House Investor Relations Blog

Friday, March 22, 2013

So what happened? Why no updates?

Good afternoon HHSE friends & shareholders -- we have received a lot of emails this past week asking about a variety of issues, from the year-end filings to sales updates.  HH CEO (Eric Parkinson) and Presidnt (Fred Shefte) have been even busier than normal, pursuing major new ventures for growth, while also structuring cash-strategies to deal with key debt issues.  An update is merited.

1).  Year End and Q4 Filings -- While originally planned for March 15, the company elected to wait until closer to the actual due date of April 1st, to allow for greater analysis of strategic decisions impacting the financials.  For instance, with a significantly positive and profitable year, the opportunity to write-down or reserve for certain matters may be beneficially times;  Additionally, with a multi-studio distribution pact now being assembled, the need to update the library to include titles acquired over the past two years has become more urgent.  Accordingly, these extra days since March 15 have been utilized to best strengthen and adjust the company's balance sheet and title listings for the coming quarters and years.

2).  Domestic (North American) Distribution Pacts -- Hannover is spearheading a venture to combine sales activities among three additional, independent studios;  the goal is to increase the market presence and strength of the combined product slates, and at the same time, save on field sales and fulfillment costs.  The company hopes to have this venture and structure finalized by mid-April, and ready for a major announcement.  This venture, however, does not impact the company's equity / stock structure, as it's an operational venture to improve sales volume and reduce sales costs.

3).  Production Financing / International / New Titles -- Further to the company's releasing strategy, there will be new (high-profile) productions ready to announce at the Cannes Film Festival in mid-May.  These titles are all being funded through third-party ventures (i.e., private equity and pre-sales combined with tax benefits). As such, Hannover House is not investing or risking capital; but will benefit as the distributor and sales agency for rights.  The structuring of the deals for these new productions has been very time-consuming for both Parkinson and Shefte over the past several weeks, but necessary, due to the imminent announcements and commencement of pre-sales planned for the Cannes Festival.

... will update more early next week...

Friday, March 15, 2013

College football is not that far off, believe it or not!

HHSE Friends & Shareholders -- Hannover House is proud to announce a production and distribution partnership for six S.E.C. FOOTBALL PREVIEW 2013 DVD's, for release to retailers on August 6th.  Teams covered include:

Alabama Crimson Tide * Arkansas Razorbacks
Florida 'Gators * Georgia Bulldogs 
South Carolina Gamecocks * Texas A&M Aggies

Individual team videos will be sold at WalMart and other retail outlets in the respective markets for each of these major, collegiant teams ($14.95 suggested retail -- "Minimum Advertised Price" will be $9.96), and a "S.E.C. Power Six-Pack" will be made available featuring all six programs at $29.95 srp (M.A.P. $17.96).  Based on retailer reaction and support, this product line looks well-positioned to generate DVD sales equivalent to "Twelve" and "Toys in the Attic" combined! 

Was pleased with the footage from the terrific interview this morning with Coach Bret Bielema of Arkansas.  With respect to some of the other teams, we're excited about a one-on-one with Johnny "Football" Manziel of Texas A&M (a potential dark-horse team for #1 in 2013), and as always, the Alabama Crimson Tide with Coach Nick Saban. 

College Football fans -- especially S.E.C. fans -- have insatiable appetites for the sport and a desire to be "in-the-know" about the coming season, new players and prospects for the year.  The S.E.C. FOOTBALL PREVIEW series could be a very popular selling line of DVDs from early August until mid-September this year!

Monday, March 11, 2013

Stock Buy Back Plan

Good afternoon -- THIS IS A PROPOSAL FOR THE "NEAR-TERM FUTURE", not for today!  In any event, HHSE Managers have been looking into an idea presented by a shareholder that seems to have solid merit.  The concept is to begin "buying back" HHSE stock shares (off the open market) and retiring them into treasury, under a formula of "x-percentage" of the Company's earnings each quarter.  The merits are based on the mutual goals of raising short-term capital for debt-conversions (as we had recently done), with the longer term goal of minimizing shareholder dilution through equity issuances.  Functionally, on a recent quarter (let's use 09/30/2012 for this analysis), earnings of $527,161 might have resulted in these buy-backs (depending upon what percentage of earnings were allocated towards this endeavor/ assumes an average stock purchase price of $.02 / share):

At 5% of Earnings:     1,317,000 shares

At 10% of Earnings:     2,634,000 shares

At 20% of Earnings:     5,268,000 shares

While the Company is always stretching our cash resources for maximum value (and we strive to keep all revenues "working" for the Company, rather than sitting idle), if we agreed to such a buy-back structure, it would be treated as part of our operating costs.

What are your thoughts?  We welcome feedback to:  HannoverPR@aol.com

Misc Updates / Requested from Shareholders

Good afternoon HHSE Friends and Shareholders -- here's a quick update on issues that Shareholders have requested.

1).  FORM 10 FILING -- We did not complete all of the table / financial line-item formatting on Friday, but are working on it today and plan to submit this revised Form 10 to our S.E.C. / Edgar project manager tomorrow. 

2).  10K / YEAR-END FILING -- This is due on the 15th and will be posted to the OTC Markets site on time.

3).  AUDIT STATUS -- This is the next focus project this week.  In the six weeks that have transpirsed since our shareholder's meeting, we had been focusing on product shipments, corporate financing and Edgar reporting issues as slightly more critical priorities than the audit back-up.  However, Leigha and Nate are back in the warehouse, sorting historic files for data relating to the Producer Recoupment line-item entry, and will assemble this final report for Hogan Taylor this week.

4).  NATIONAL BANK OF CALIFORNIA -- Frankly, both our L.A. counsel (Marc Hankin) and Hannover House management were perplexed to have been served notice of a lawsuit by NBCAL regarding the "All's Faire In Love" P&A loan.  A loan extension agreement was negotiated (and executed on Nov. 27), and significant payments have been made (and accepted by the bank), so there is definitely a communications disconnect somewhere.  Hankin will file a response, then we'll contact the bank and ask why they are ignoring the extension agreement.

5).  SIGNIFICANT CORPORATE ACTIONS -- There has been some interest and encouragement for Hannover House to publicly disclose details of a variety of activities (new financing for productions, new distribution pacts and sales updates on current releases).  A detailed "Management Discussion" covering these issues will be posted immediately following the release of the year-end (10k) filings this week.

6).  TOYS IN THE ATTIC VOD ACTIVITIES -- We have been told by our digital distribution partner that "Toys in the Attic" has been the top (or "one of the top five") most popular downloads during the past five days since its V.O.D. launch on I-Tunes, Amazon, Hulu, Time Warner Cable and others.  That's exciting, since (as you know), V.O.D. revenues do not require the company to manufacture, store, ship, invoice and wait for payment (as is the dynamic for DVD and Blu-Ray sales).

Wednesday, March 6, 2013

Currently not winning the Popularity Contest... but HHSE is winning the war.

Guest Blog from Hannover House CEO Eric Parkinson:

Good evening HHSE Shareholders and Blog Followers.  My email in box was overflowing this evening with curse and unhappy shareholder comments to the announcement of a $300,000 Debt Conversion transaction.  In respect of the mutual investments each of us has in HHSE, I feel it's appropriate to address this matter immediately and as clearly as possible.  Please bear with me while I first repeat some history and information as disseminated at the Shareholder's Meeting (Jan. 26).

When Hannover House "merged" into (was acquired by) Target Development Group, Inc. in December, 2009 (effective Jan. 1, 2010), the Company had minimal debts and no active lawsuits from creditors, producers or any other source.  But the Company was in need of working capital, and the contractual promise of $1.5-mm from an investment banking source looked like a good path to stepping up as an independent distributor.  Within two weeks, Hannover House was at the Sundance Film Festival and the Company had successfully acquired the Joel Schumacher drama, "Twelve", for $1.75-million (to be paid out over a manageable release life schedule).  The first $500,000 was remitted, but shortly thereafter, the investment banking funds stopped.  By summer of 2010, Hannover House was deeply committed to a national theatrical release of "Twelve" and the associated costs to effect such an opening.

The Company scrambled to arrange almost $2-million in P&A costs for "Twelve," ranging from $550,000 in private lender notes, to $250,000 in lab credit, $500,000 in ads and $400,000 in publicity, marketing and internet. The film bombed at the theatres, but had a successful home video release through 20th Century Fox, and subsequent revenues from sell-thru video, Video-On-Demand and Television.  Essentially, these sales revenues have substantially retired the balance due to the licensor (and are expected to have the full $1.75-mm fee retired this year).  But Hannover House was stuck with managing the $2-mm (approx) in releasing cost debts.

Quite possibly, the debt burden might have been less painful had Hannover House also continued an agressive home video release slate during 2010 and early 2011.  However, the logistics of coordinating the 50-market simultaneous theatrical release of "Twelve" monopolized all management time, from March of 2011 through the end of the year.  Pretty much "no other release" got the level of attention that we prefer to extend to titles that are added to our schedule.  So suddenly, the Company was sitting on a big pile of debt, and very little in "unpledged" sales revenues with which to manage.  It was an easy decision to let "HappyThankYouMorePlease" go back to the producers, as they insisted on the same level of release as "Twelve," and we would not even entertain such a thought.  Instead, we decided to refocus on the core activities of direct-to-video titles -- items that could be acquired for little or no advance, marketed for little or no cost, and sold for a predictable and profitable return.  That's what the Company's focus has been, pretty much since January of 2011 -- with the exception of the "sponsored" release of "Turtle: The Incredible Journey" and the Regal Entertainment exclusive venture for "All's Faire In Love" to theatres.  The biggest theatrical effort since then has been for "Toys in the Attic" which was tailored to fulfill the specific release levels required for ancillary market output contracts (home video and subscription VOD).  So we think the Company has gotten conservative and smart, in equal measure, with respect to our release strategy to maximize revenues.

Over the past two years, Fred Shefte and I have struggled to manage the "three-legged-stool" of our financial foundational needs:  a).  Funds for Ongoing Operations;  b).  Funds for New Release Activities; and c).  Funds for Debt Management and "Twelve" matters.  Frankly, we have not been consistently successful in properly managing all three needs with the resources at hand.  As sales revenues are collected, decisions are made daily and weekly as to how to allocate among these three areas of need.  If we don't pay the Ongoing Operations (staff, rent, utilities), then the Company could not operate.  If we don't pay for New Release Activities, then the Company will not have sales revenues from which to continue operating.  If we don't deal with the Debt Management and "Twelve" matters, then the Company will have lawsuits, judgments and major distractions.

Finding the balance of how to best manage the Company on the resources at hand has been the main area of conflict with shareholders.  Many have told us to focus all energies towards New Release Activities... in order to build revenues, earnings (and then utilize the cash flow from same to deal with Debts).  Sounds like a good idea, except when put it to an actual timeline, the net result is a lot of really angry creditors who don't want to wait for 15-months while a title like "Toys in the Attic" is prepped for market and eventually released to positive cash flow.  As for Operations, Fred and I are already deferring our salaries, and utilizing a tiny (and overworked) support staff, in a low-cost facility.  You can't pay less than the $0 dollars that Fred and I have each taken home for the past six months.  So there doesn't seem to be a lot of austerity opportunity in the overhead arena.  Which leaves us with the Debts and the increasingly impatient creditors. 

At the Shareholder's Meeting, it was discussed and stated that during 2013, the Company WOULD be pursuing additional Debt Conversion activities in order to ease the issues of creditors and lawsuits.  None of the shareholders present expressed any surprise or objection to this announcement.  The Company has also been pursuing a $350,000 term note (which was slated to close clear back in October, but to this date has not funded), and the Company has pursued a variety of other private funding opportunities and other forms of financing.  Several key shareholders were asked directly if they were interested in providing secured loans to the Company, rather than having the Company do a Debt Conversion.  All of them said "no."  Additionally, three times in the past 60-days, the Company has gotten down to the "closing" process for Accounts Receivable Financing, only to have the existence of judgments (from "Twelve" creditors!) kill the deal (which is ironic, as the proceeds from the Accounts Receivable financing that we were pursuing were intended to create a funding mechanism for these same judgment debts!).  Fred and I see the retirement of these "Twelve" debts as being essential to improving our productivity and bottom line results.

We have entered into a time-staged agreement with Graham Financial to retire $300,000 worth of debts over the next four months.  While the Company is hopeful that our current sales activities for "Toys in the Attic" and other d-t-v releases will enable us to stop from pursuing future Debt Conversions, we cannot state that no others will occur.  We can remind everyone that the A/S has been significantly reduced already, so the "sky is falling" mongers cannot justify claims of a big, impending dilution.

Fred and I do not know what will happen to the stock price and trading over the next few days, weeks or months. Perhaps some will sell now, at very low pricing, to the benefit of others who view our management steps to eliminate debt and focus on revenues as a positive move.  Neither of us are stupid guys, neither of us are liars and neither of us are incompetent.  We have a good business plan already performing,  tempered against some toxic debt that we need to eliminate.  We'll do as much as we can from cash revenues, and we will continue to pursue "better" funding deals (such as the $350,000 note from back in October).  But what we cannot do any longer is permanently "wait" for third party financing actions to help us with these debts.  The responsible action is to deal with them now, suffer the short-term impact from the marketplace, and know that the result is ultimately a better, stronger Company.

I acknowledge that I'm clearly not winning the HHSE Popularity Contest right now.  But Fred and I are making the tough but necessary steps to keep this Company healthy and growing.  For some shareholders, maybe this is too much reality and too much detail, "they only want the desert."  We understand such sentiments, but hope they choose to stick around for what we believe is a deserving bounce-back.

Having now addressed comments on the Form 10 Filing, we plan to resubmit it on Friday.  Will the elevation of HHSE to fully-reporting status bring in new shareholders?  Probably.  Will the share price benefit?  It should, if logic still prevails.  But we do recognize that Fred and I are not making decisions that are unilaterally popular (or agreeable) to all shareholders, and therefore cannot expect all to ignore their emotions and view the success strategy as we see it.  But we're committed to the cause and believe in our plan.  We will win the war... even if we're not the most popular guys of the moment.

Crystal Ball...

HHSE managers were asked at the Shareholder's Meeting to prognosticate on the activities for 2013 and the predicted impact that such activities might have on the Company's share price.

While neither Parkinson nor Shefte could be considered psychics, both had a bullish forecast for HHSE in the coming year, and did make some predictions:

a).  Revenue Growth -- Both predicted significant overall revenue growth in 2013 both in terms of gross sales and net pre-tax income;

b).  Debt Reductions -- Both predicted that the management of debts would become less of a corporate distraction as ongoing cash flow revenues -- combined with properly timed debt-conversion actions under improved PPS levels -- would help control the problematic creditor matters.  In anticipation of improving conditions as well as the ongoing need for debt management, the Company has initiated a conversion agreement with Graham Financial to retire $300,000 in aged debts, and has authorized the release of 14.5-mm shares.  While the shares have been authorized and issued, it's important to note that NONE have been sold, and this debt conversion issuance is fully intact.

c).  Authorized Shares -- Both confirmed that the A/S reduction of 100-mm shares was effective Jan. 1, 2013, and that the Company felt that the existing treasury stock was sufficient to handle equity activities.

d).  Salaries & Debts -- Both confirmed the reduction of more than 50% of base salaries for Parkinson and Shefte, and an additional reduction in overhead of approx. $10,000 per month going into Q1;  additionally, subject to a tax impact opinion, both Parkinson and Shefte agreed to significantly waive and forgive "deferred salaries" otherwise accrued but not paid out to them.

e).  Operational Improvements -- Both expressed enthusiasm for a variety of operational developments including an expansion of Video-on-Demand activities, improvements in the wholesale and direct distribution of home entertainment products, and joint-ventures for the financing of major productions (and theatrical releases) through non-recourse structures.

It's only fair to report that both Parkinson and Shefte also expressed concern over the Company's debt load from the film "Twelve" and the myriad of creditor lawsuits that were spawned from that under-performing release.  While settlements have been made with all major creditors, the maintainence of said payment plans has been an ongoing challenge to manage, and often, a distraction of management time and resources.  The retirement of these old debts will free management to focus on growing the company's revenues, maintaining  timely reporting and maximizing shareholder value.

What will happen to the PPS of HHSE in the next 30-to-90 days?  Who has a crystal ball or a direct telephone line to Kreskin?  What we do know is that the daily fundamentals of HHSE operations are moving in the right direction -- and that logically, the PPS should follow.

Tuesday, March 5, 2013

Zombie Warz takes Japan by Storm!

Holy Emperor!  There was a stunned silence in the office this morning when we saw the outstanding art campaign created by InterFilm for the release of Zombie Warz: Falls the Shadow in Japan!  Sort of has that "I AM LEGEND" epic feel to it...  As much as we liked our "big zombie looming over armed fighters" approach, we have to concede that the campaign in Japan is better.  Obviously, we would have to replace the text with English;  but layout wise, we think this is very elegantly executed.  If you have any thoughts or comments in this matter, please email them to:  Leigha@HannoverHouse.com

Friday, March 1, 2013

Payables & Debt Management Progress...

In anticipation of our year end (10K) report and filing (due March 15), the Company will be providing a detailed blog post today regarding the resolution / settlement and activitities relating to the debt burden incurred as a result of the 2010 acquisition and release of "Twelve."  As those who actually read the filings will know, ALL of the company's problematic debts since 2010 are directly tied-into the massive licensing fee and massive theatrical P&A expense incurred with this one title.  Accordingly, resolving the major "Twelve" debts into manageable payment plans has been an important achievement for HHSE, and will facilitate focus onto the more profitable product lines and activities. 



1).   GAUMONT (Film Rights Licensor) - Due to ongoing revenue streams from 20th Century Fox, added with recent TV licenses and a new Subscription Video-on-Demand contract, the parties are now confident that the balance of the Gaumont license fee will be retired this year from sales revenues.  The total amount of the license fee was $1.75-million.

2).    ANDERSONS (Partial P&A Lenders) -- A settlement agreement has been reached to retire the principal balance still due ($180,000) and applicable interest.  The court date for April will be mutually taken off calendar.

3).    SOUTHERN STAR (Partial P&A Lenders) -- A term payment agreement has been reached to resolve the principal balance due ($60,000) and applicable interest.

4).    42 WEST -- A settlement agreement was reached regarding their claim for publicity fees beyond the contracted amount, and the matter is being taken off the court calendar.

5).    BEDROCK VENTURES -- A settlement agreement has been reached regarding the funds advanced by Bedrock towards the Gaumont licensing fee for "Twelve."  Company anticipates payments to commence next week under a structured note with a term of approximately two years.

6).    TECHNICOLOR -- A settlement agreement was made with Technicolor, with a balance still due of approximately $50,000 (comprised of three more, quarterly installments).

7).    TRIBUNE ENTERTAINMENT NEWSPAPERS -- Company is still working on a structured payment plan to retire approximately $50,000 in debts still owed for "Twelve" newspaper ads, of which the L.A. Times represents about $30,000.

When all the "TWELVE" debts are completed, the Company will have paid a $1.75-million licensing fee, and over $2-million in marketing and releasing costs.  Ouch!  Thankfully, the core business of (mostly) direct-to-video titles is high-margin and has enabled the Company to maintain a good market presence and functional cash-flow over the past two years.  Once freed of this distraction and debt burden, we think the Company will soar, as we will be able to reallocate resources to more profitable activities than debt retirement.  Future "big theatrical releases" will NOT be internally funded for release!