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Friday, February 28, 2014

One Week Later... where are we now, and where is HHSE going?

Following last Friday's annual meeting, some shareholders expressed anxiety and concern over the unreleased status of the Audit certifications and the Form 10 registration.  A few even predicted that "the sky will fall" and that Armageddon would soon strike our shareholders.  To counteract this anticipated fate, it was suggested that the Company pro-actively and immediately unleash a barrage of press announcements, OTC disclosures and S.E.C. filings.  Failure to do so, they said, could spell the end of HHSE share pricing and volume.

We thought about these concerns long and hard.  While we clearly disagreed with the logic of such fears (i.e., that nothing else about the Company's activities and results mattered except for the satisfaction of a self-imposed target date for the release of the audit letter), we felt that all shareholder concerns merited our consideration. 

Ultimately, we decided that we would allow the strength of the information disseminated at the Shareholder's Meeting to carry its own weight.  We decided to NOT blitz the market with a barrage of news, announcements and filings.  There was no urgency or deadline demands to release anything during the week immediately following the Shareholder's meeting.  So why feed the fear?

Our conclusion was that Shareholder's looking exclusively at any one issue - like the proverbial "single issue voters" in politics - would never be satisfied until their specific single-issue was resolved... and that a barrage of exciting new announcements might attract new shareholders, but would still not satisfy these single-issue thinkers.  Accordingly, Hannover House released no new press announcements, no new OTC Disclosures and no new S.E.C. Edgar filings during this past week.  We felt that the information presented at the Shareholder's Meeting deserved time to germinate and take root within the broader base of HHSE longs.  We felt that solid results and an exciting future represented positive and significant data, and that the Company's goal of up-listing was still on track and progressing positively (despite the unreleased status of the audit letter).

While the "single-issue" shareholders will ultimately be satisfied soon, we are already happy to see that the broader base of shareholders has embraced the big-picture vision of Hannover House.  The enthusiasm of our longs is represented in an INCREASE in share volume this past week of 97% over the five trading days leading up to the Shareholder's Meeting... and a healthy INCREASE in the PPS of 17% over last Friday's closing price.  Positive growth in both volume and price... and without a blitz of new releases or filings.  Pure shareholder demand, fueled by an analysis of everything that is progressing for the Company, the good, the bad and the still-in-progress.  The big picture, the big future and an impressive here-and-now.

We are grateful for those shareholders with vision and insight, and we share your enthusiasm for the many great things that are in the immediate future of HHSE.


HHSE - Volume & PPS
Date Volume Closing
Feb. 28           3,806,796  $     0.0182 Up 17%
Feb. 27           4,841,289  $     0.0180
Feb. 26           1,298,187  $     0.0138
Feb. 25               555,435  $     0.0133
Feb. 24           2,611,468  $     0.0139
5-Day Avg:      2,622,635 Up 97%
Feb. 21           1,860,129  $     0.0155
     
Feb. 21  - SHAREHOLDER'S MEETING DAY
     
Feb. 20               715,422  $     0.0170
Feb. 19           1,856,306  $     0.0185
Feb. 18               182,022  $     0.0170
Feb. 17  Mkt. Closed   N.A. 
Feb. 14           3,143,821  $     0.0174
Feb. 13               754,560  $     0.0165
5-Day Avg:           1,330,426

Sunday, February 23, 2014

Recap of Shareholder's Meeting - Key issues and Q&A from attendees

The 4th annual Hannover House, Inc. meeting of Shareholder's was held on Friday, Feb. 21, 2014 at the Grand Central Hyatt Hotel, New York City.  Attendees representing direct or beneficial control over 163-million shares were in attendance, representing an increase of about 15% over the prior three years of meetings; additionally, 100% of the preferred shareholders were present.

The presentation covered a recap of 2013 results and a forecast of 2014-2015 activities, and was conducted primarily by Eric Parkinson, C.E.O., who spoke for 2-1/2 hours.  D. Frederick Shefte, HHSE President, was called on to elaborate or interject additional information on several occassions during Parkinson's presentation. 

Throughout the presentation, questions from attendees were being addressed prior to moving on to different agenda topics.  For the benefit of shareholders who were unable to attend the meeting, this recap is designed to clarify issues that were of interest and concern to those in attendance.  As some of the strategies and actions certain topics involve complex steps, every effort will be made in this recap report to present the issues and discussions as clearly as possible.

The overall reception was positive, and enthusiasm for current results and anticipated growth into 2014 and 2015 appeared unanimous.  Despite the success of the Company's core and current activities - as well as the prospects for new and significant revenue growth from VODWIZ and MEDALLION INTERNATIONAL PICTURES - concerns were expressed over areas of corporate governance, audits and communications.

1).  STATUS OF AUDITS - Over the past few years, shareholders have placed great importance on the Company's completion of 2-years of financial audits, as a precursor to "uplisting" the stock and thus improving access to a broader shareholder base.  A lengthy discussion was held regarding the status of materials requested and required by Hogan-Taylor for the audits... as well as additional steps, referred to by Parkison as "parallel paths" to earn an uplist of the stock while awaiting the full review of the audits.  The completed audit report binder, containing over 600 pages of financial data and supporting documentation, was made available for attendee review;  however, the audit opinion letter from Hogan-Taylor is not yet ready for release pending revision of the items / issued described at the meeting and below.

1-a).  Back-Up Reports Still Required - on the Company's balance sheets, under assets, are three items for which the back-up support is extraordinarily complex and data intensive.  These items are:  Prepaid Producer Royalties, Producer Marketing Recoupment and Film Distribution Rights.  Here is an example of what each of these line items represents, for clarity in understanding:

1-a-i).  Prepaid Producer Royalties - in order for Hannover House to obtain the rights to distribute "Zombie Warz," the Company paid to the Producer / Licensor an "advance" of $25,000.  This amount is to be recouped from royalties otherwise due (at a future date) from the Producer / Licensor's net share of revenues.  When you add up ALL of the producer advances paid for all 200+ titles (and for 20-years of HH operations!), the number gets pretty significant on the balance sheet.  However, this number is also constantly being reduced as actual royalties are earned for each item, and the balances of the advances are reduced.  The number is also being increased as new advances that were paid-out to license rights are capitalized.

1-a-ii).  Producer Marketing Recoupment - as with most titles, HHSE earns a distribution (or Sales Agency) fee, PLUS, recoupment of marketing costs (which include theatrical P&A, plus all of the costs to release films or products into the marketplace, including video replication and freight).  In the example of "Zombie Warz," the initial Quarterly Report collections of $80,000 would result in a FEE to HHSE of 30% (e.g., $24,000), plus recoupment of marketing costs (which were approximately $18,000 for the release, plus $28,000 in video replication and freight); leaving a balance due to the producer / licensor of $10,000 (which will be "deducted" from the $25,000 advance payment, leaving an unrecouped Producer Royalty balance of $15,000, but a "$0" balance on Producer Marketing Recoupment since 100% of costs were already recovered.  In the case of "Racing Dreams" which involved a theatrical release expenditure of about $150,000, the "Producer Marketng Recoupment" is still showing about $100,000 in favor of Hannover House, and this balance is added with all others in that category to comprise that balance sheet line item.

1-a-iii).  Film Distribution Rights - This line item is very closely related to "Prepaid Producer Royalties" but can include sums paid for multi-title licensing that are cross-collateralized against multiple titles.

In order for Hannover House to provide Hogan-Taylor with back-up support for these, three balance sheet items, it is necessary to have a detailed summary of the "producer statements" for all products released by Hannover House (and for all time).  The creation of producer statements was attacked during late 2012 and early 2013, at which time a more problematic issue was discovered.  While a variety of accounting methodologies are accepted throughout the world, the first-in-first-out method of revenue recognition does not apply in matters involving third party participants.  For approximately 18-months during 2011 and 2012 (and while preparing audit materials for Hogan-Taylor), the company controller had been applying customer payment receipts on a methodology to pay off the oldest open items first (as opposed to using revenues from "Turtle" DVD sales to pay off invoices for "Turtle" DVDs).  While such actions have no impact on the overall balances due to each customer - or on the Company's bottom line and balance sheet - it does create an error in reporting how much was actually collected "per title" as opposed to "per purchaser."  So if the collections were not applied to title-specific invoices, the producer statements cannot be relied upon for 100% accuracy... and the three balance sheet line-items discussed above cannot be supported with 100% confidence.  Accordingly, the task that has occupied the Company's new bookkeeper since the first week of December has been the "correction" of payment applications on a customer-by-customer / invoice-by-invoice basis so that payments for each title are applied against invoices for that specific title, and not "in general" against the overall balances owed to HHSE from a particular purchaser.  Again, these corrections do not impact how much the Company is owed by any purchaser... they impact only "which invoices" were paid and which may still be open. 

When the Company announced the Shareholder's Meeting, it was believed that the reallocation of payments could be completed faster than has proven to be the case.  With over 20,000 invoices to review against payments, the company's new bookkeeper took 8-weeks just to complete the payments from 2012 - and he is now working on payments for 2013 and will move next to 2011 (so that the Company will have a full 3-years of audits).

MEANWHILE, the Company is pursuing "parallel paths" to expedite the uplist process.  Already completed, the Company has resurrected its CIK and Edgar Access issues so that periodic reports can now be filed through the Securities & Exchange Commission.  This is a step some refer to as "quasi-reporting" status.  However, the benefits of such are that many brokers who could not accept HHSE stock before, may now do so... and the stock also now has a signirficantly greater likelihood of approval for electronic share transfer through D.T.C.  Addiitonally, with the support of an attorney's opion letter, HHSE can move for uplist to OCT:QB status at this point.  A second, alternative path to uplisting available to HHSE is to file a form S-1 Registration for a specific share class; however, the timing of such is not necessarily faster than the filing of the already drafted Form 10 Registration (for all classes of shares), which is awaiting only the auditor's letter.

2).   MEDALLION INTERNATIONAL PICTURES - There was great enthusiasm for the financing structure to enable Hannover House to combine international sales, tax incentives, bank financing and private investor equity for funding of a $40-million slate of high-profile, theatrical features. Attendees agreed with management that the structure of Medallion - providing the Company with access to high-profile and extremely commercial films at no risk - was a significant and material development that could spark meteoric growth in revenues and stature.  Despite the amount of time and project details discussed, no additional information of a material nature was disclosed at the SH meeting beyond the overview presented in the launch press release and the pre-SH Meeting blog.  For clarity, "Medallion" is the entity name that at one time was being contemplated for naming under "Revolution;" the recent operation of another entertainment company with "Revolution" in their name suggested a possible market confusion to the new HHSE entity.  Accordingly, it was determined to be a wiser and safer path to select a less visible entity name.

3).   MULTIPACKS - A discussion of the Company's proposed twelve new "multipack" releases transpired, including a clarification of release dates.  Some Shareholder's expressed concern that retail space availabilities - that often result in street-date delays for Hannover House and other studio items - were being misinterpreted by some shareholders as deadline errors on the Company's part.  It was expressed that greater clarification needed to be made in the future to differentiate between the date that HHSE items will be "made available to retailers" as compared to the date that some of those retailers might actually put those products onto their shelves.  Another issue of concern with the recent multipack announcement was the observation that prior success with multipacks does not indicate that similar sales levels will be achieved with the new multipacks... and that such an inference could be confusing to shareholders.

4).   REVIEW OF RELEASE SLATE - A discussion was held over the types of programming that have been selling for Hannover House in the "core" activities of direct-to-DVD products.  Examples of upcoming titles to reach these key genre's were discussed and presented.  About 36 items for 2014 and 2015 were presented, and many were briefly discussed.

5).   VODWIZ activities - Parkinson announced that ten (10) suppliers have now agreed to join VODWIZ, representing approximately 3,000+ title availabilities;  he also reported that the Company is pursuing 12 additional studio suppliers, and hopes to have over 5,500 titles by the end of this year.  The consumer campaign outreach - through ads, PR and social media - will not commence until at least 2,000 titles are available on the site.  Parkinson felt that VODwiz has the proverbial "one-chance to make a first-impression" and that a wide assortment of titles would be essential to convincing consumers to either join-up on the monthly subscription basis, or try out a pay-per-transaction streaming item.




Friday, February 21, 2014

News from New York: HHSE Shareholder's Meeting

Greetings Friends & Shareholders of HHSE - In about 90-minutes, the 4th annual meeting of Hannover House shareholders will commence.  This year, the meeting is being held in New York City, in the Park Ave. Boardroom of the Grand Hyatt Hotel, 42nd St. / Grand Central Terminal.

In respect of the large number of shareholders who were unable to attend the meeting in New York today, listed below is a brief recap of the only "material" event to be discussed today, e.g., the formation and launch of MEDALLION INTERNATIONAL PICTURES to the Hannover House group of companies.

Over the years, Hannover House has been challenged with the goal of trying to acquire the rights to "high-profile" pictures.  The Company has known that we're just "one movie away" from being a major, independent studio... just as "Blair Witch", "Saw" and "Twilight" each transformed IVE /Artisan, Lionsgate and Summit respectively.  The problem has been that "acquiring" the rights requires a major capital investment, and the company has been cash-poor at that level.

The solution was determined through the past year, by leveraging co production opportunities, State and Federal Tax incentives (and in some cases, 'incentives" from foreign countries such as Ireland); and combining these elements with international pre-sales and private investment equity.  The goal for Hannover House is to have 4 to 6 "event-level" films per year without financing the production or acquisition through existing Hannover House means. 

Medallion International Pictures will make its first market presence at the Cannes Film Festival and Marche du Film this spring, in mid-May.  The company will be "pre-selling" three movies for which some aspect of the financing structure requires a presale component;  the company will also be taking direct (non-presale) licenses for several films for which all financing is already secured (e.g., "The Legend of Belle Starr") or completed pictures.  The initial value of the Medallion production slate is $40-million, of which about half is expected to be generated back in sales and licenses from the international markets.  Hannover House will earn a significant "fee" on all such international sales, thus having a substantial and material impact to our revenues and bottom line.  In anticipation of shareholder questions about how these major movies are being financed (and how this will have no impact on share structure of debt-liabilities to Hannover House), we have prepared example flow-charts for two of the "announced" titles, "MOTHER GOOSE" and "LEGEND OF BELLE STARR."  The other initial, high-profile theatrical releases being launched at Cannes under the Medallion venture will be announced prior to that market.

Other agenda items at the SH meeting include a discussion of the "steps-to-uplist" the company's stock, including the filing of the Form 10 registration (and the option of S1 or direct compliance, the latter of which is already in motion and evidenced by the company's approval for Edgar reporting).  The addition of more than ten new supplier studios to VODWIZ will be discussed (as well as the consumer roll-out of that venture), and an overview of approximately 40 titles for DVD release during 2014. 

Lots of amazing and exciting developments... time to grow HHSE into a mainstream name!

 
 
           Feature Film Production / P&A Financing Model
    The Legend of Belle Starr
      Special Purpose Entity / Investors Secure Bank Loan
          (Belle Starr, Inc. / 18-Month Line of Credit)  
           
            $3.5-Million      
     
     
    Special Purpose Entity Produces Film      
     Delivery to Medallion International Pictures for Foreign  
       Delivery to Hannover House, Inc. for North America  
       
       
     First Incoming International      Hannover obtains P&A from  
      Revenues from Medallion     SPE Line of Credit and from first  
    Go To Supplement USA P&A     incoming International Sales  
       
       
     Medallion licenses the film     Hannover generates revenues  
   To applicable territories and     from North American Media,  
   media outside of N. America    Theatrical, Home Video, V.O.D.  
       
       
       Medallion Net Revenues    HHSE Net Revenues after fees &  
      (after first P&A payment)  Costs from N. American Media go  
       Go to SPE to retire bank      to SPE to retire bank loan  
                loan & interest      
                     
    COPYRIGHT OWNERSHIP and FULL EQUITY IN THE FILM 
   Transfers to Hannover House at a pre-determined profitability
level from net revenues in the film (subject to ongoing third party
 participations and guild residuals).      
 
 
           Feature Film Production / P&A Financing Model
Mother Goose: Journey To Utopia
      Special Purpose Entity / Investors Secure Bank Loan
       (Mother Goose, LLC / Ireland / Louisiana / 18-Month Line of Credit)
         
            $12-Million    
   
   
    Special Purpose Entity Produces Film    
     Delivery to Medallion International Pictures for Foreign
       Delivery to Hannover House, Inc. for North America
     
     
                          Elements of the Financing Plan    
       * International Presales / Major Rights License - $5-million
       * EU Location & Post Production Incentive Benefits - $1-million
       * Louisiana Production Incentive Benefits - $3-million    
       * "Gap" Bank Loan secured against unsold territories - $3-million
     
     
     First Incoming International      Hannover obtains P&A from
      Revenues from Medallion     SPE Line of Credit and from first
    Go To Supplement USA P&A     incoming International Sales
     
     
     Medallion licenses the film     Hannover generates revenues
   To applicable territories and     from North American Media,
   media outside of N. America    Theatrical, Home Video, V.O.D.
     
     
       Medallion Net Revenues    HHSE Net Revenues after fees &
      (after first P&A payment)  Costs from N. American Media go
       Go to SPE to retire bank      to SPE to retire bank loan
                loan & interest    
                   
    COPYRIGHT OWNERSHIP and FULL EQUITY IN THE FILM