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Saturday, December 20, 2014

Ahh... the Politics of Posting...

Good afternoon HHSE Friends & Shareholders - We hope that you're enjoying your holidays / pre-holidays and taking time off for the enjoyment of life.  For Fred Shefte and Eric Parkinson, time off is not an option at the moment - and both have been working throughout the day on a variety of issues of urgency.  Here's a quick summary for those who care:

1).  MEDALLION STUDIO PARTNERS PRESS RELEASE - On Thursday, HHSE prepared and submitted to three (3) new studio partners what we thought was a kick-ass announcement of new suppliers and product for the multi-studio venture.  The plan was to release this news on Friday (yesterday). To our surprise, all three suppliers requested individual announcements (as they did not want to be "lumped-in" with other suppliers).  We agreed, as each of these label affiliations represents a minimum of $2-mm in annualized video revenues (and potentially much more).  So, we have agreed to put out individual news releases for GREEN APPLE FILMS, FEVER DREAMS and GDC ENTERTAINMENT on Monday, Tuesday and Wednesday of next week.  Yes, it's politics, but understandable. The politics goes a step further as "certain titles" from each supplier need priority listing in the releases, and other titles need to be withheld entirely (as their higher-profile statures merit a free-standing announcement).  Ahh...well if what we're doing was easy to do, ostensibly, others would be doing it.

2).  CREDIT LINE - Over the next six months, HHSE (and affiliated labels) have a total of 32 new release items hitting the market.  The upfront costs for marketing, infrastructure, replication and freight require that the Company obtain new financing.

Funds have to be spent NOW for February and March releases that won't turn into matured collections until May and June.  Typically, a direct-to-video movie (such as "GABRIELLE" as an example), requires that HHSE spend about $10,000 upfront in marketing, and about $.80 per DVD for manufacturing and Freight. If initial shipments are 30,000 units (as forecast for "GABRIELLE"), then the total of upfront, out-of-pocket costs for HHSE is about $34,000.  However, those 30,000 units average out at about $6.30 each / wholesale.  So the gross revenues of $189,000 represent a 5.5X-to-1 R.O.I., excluding third party participants (which are not payable until after revenues are collected).  Multiply this upfront cash expenditure by 20 or more HHSE titles, then add in some theatrical and book releasing costs, and it becomes clear that while our MUCH bigger boat can haul a lot more cargo, this bigger boat's going to need a bigger fuel supply.

In respect of how unpopular stock issuances - O/S increases  have been with everyone (except for the caged monkeys), the Company is instead consummating a receivables-backed credit facility.  In order to proceed, the Company had to first free-up liens that were impacting our eligibility (as well as to address cash demands from the same impatient creditors whose liens were impeding the new credit line).  That is why the Company did a "debt conversion" with JSJ Investments on December 9.  It was painful - and highly unpopular with shareholders (except for the caged monkeys).  If there had been another way to remove the liens, HHSE management would have done it.  In any event...

...the credit line represents a "material development" that counsel said must be disclosed in the Form 10 Registration.  While the Company will have the opportunity to make minor corrections in the registration statement for up to 60-days (such as correcting the number of employees, for example, or updating release dates), material activities such as a primary operating credit facility cannot be considered "after-thoughts" to address later.

Timing wise, the closure of the credit line is waiting on one document that Shefte and Parkinson expect to submit Monday morning (a revision of the Company's 2013 Income Tax Return - with activities and revenues from the affiliated corporations split apart from the filing for the pubco, Hannover House, Inc.).  The new language, disclosures and details about the credit line issuer and venture are already drafted and incorporated into the Form 10 document.  It is HHSE's goal to submit the Form 10 to MacReportMedia on Tuesday, with the plan of S.E.C. Edgar publication on 12-24-2014, as a great Holiday gift to all (except for the caged monkeys).  

3).   DARK AWAKENING - For those of you that are not followers of the Hannover House FaceBook page, a teaser announcement was released last night about director Dean C. Jone's epic thriller, "DARK AWAKENING."  HHSE will release this film on March 27, 2015 - two weeks after Paramount's "PARANORMAL ACTIVITY" sequel, and three weeks before Universal's "UNFRIENDED" - a "sweet spot" with no theatrical competition in the horror-thriller genre.  It's a very well-made horror-thriller, from the Executive Producer of "THE RING" and starring Lance Henriksen ("Terminator", "Aliens", "Millennium"). Director Dean C. Jones is best known for his award winning visual and make-up effects on sci-fi and horror classics, including "X-MEN", "STAR TREK" and "PIRATES OF THE CARIBBEAN."

When looking at the "seminal moments" in the history of up-and-coming indie studios, the successful release of a major HORROR film into theatres has always opened the door.  The release of "BLAIR WITCH PROJECT" moved Artisan Entertainment into the spotlight (and facilitated the merger with Lionsgate).  The release of "SAW" pushed Lionsgate from indie-to-watch into a "major independent" (and now, without question, a major studio).  New Line Cinema went from a two-man operation run out of Bob Shaye's garage, to a top-power status after the release of "A NIGHTMARE ON ELM STREET."

Will "DARK AWAKENING" mark an impressive step-up for HHSE in terms of Box Office Revenues, consumer credibility and industry stature?  It certainly has all the right elements...

There's much more to share, but time is at a premium at the moment.  Have a great weekend.