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Saturday, January 17, 2015

Saturday, Jan. 17 - Various updates

Greetings HHSE Followers - per prior commitments and as requested by some shareholders, here are some updates on a variety of key matters.

1).  RECENT SHARE ISSUANCE - HHSE received an email with five document attachments (prior agreements and their interpretations thereof), with respect to the issuance of shares to JSJ last week that the Company was otherwise unaware of and did not authorize.  The review of these documents will occur this weekend, and steps will be made to reconcile the dispute with JSJ and with Standard Registrar.

2)   FORM 10 FILING - HHSE management has received much criticism regarding the "missed deadlines" for filing of the Form 10 Registration statement.  Not hitting target dates has been met with gleeful exuberance by one specific HHSE critic, who has speculated on a wide variety of increasingly absurd reasons for the delay. 

To be clear, here is the status:

a).  HHSE completed a very detailed Form 10 Registration document weeks ago.

b).  The Registration contained several core values and goals for the Company, the most crucial of which was to NOT issue new shares for debt reductions, but instead, to generate far greater revenues and use these to retire old debts.

c).  To go from 6 new release titles in 2014 to 42 new release titles in 2015 (of which 26 are already in solicitation), requires substantial, upfront marketing expenditures for mastering, packaging, promotions and ads.  It also requires substantial DVD and Blu-Ray replication expenditures and freight costs.

d).  To meet these substantial revenue growth goals, the Company needs access to new capital.  NOT debt capital (which goes to third parties and does not benefit the Company for new activities), but NEW capital for marketing & releasing costs.

e).  The FORM 10 assumes that the Company will have sufficient funding to meet the ambitious release slate and to pay off old debts WITHOUT having to resort to the widely unpopular debt conversion transactions.

f).  In late December, the Company closed (signed) agreements for three separate fundings which collectively meet all of the Company's goals and needs for the greatly enhanced release slate and new growth plans.

g).  The first of these was slated to "fund" 11 days ago.  The stated reason this did not fund in a timely manner was a concern for the attorney for this particular lender that some "old" U.C.C. liens were still on file against HHSE, despite these old loans having been paid off and evidenced as same.  This was a surprising concern to HHSE since the terms of this funding did not relate to "old" catalog titles for HHSE, and would not be impacted if any of these old liens were exercised (if they were still valid, which they are not).  As the need for immediate shipment of new titles could not wait for such issues any longer, HHSE instead structured a credit agreement with the lab directly, details which will be disclosed in a Form 8 filing next week.  The need for this first element of the funding was replaced, and the Company has sent a termination notice to the lender.

h).  The other two funding arrangements provide capital for new theatrical releases (including several "much larger" releases);  however, no unusual demands or delays have been presented to suggest that these will not occur.

i).  There is also a fourth major funding arrangement - specifically for the $12-mm "MOTHER GOOSE" project.  But the cash flows and debt reduction schedules included in the Form 10 do not rely upon any revenues from "MOTHER GOOSE" to meet corporate targets.

j).  If the Company files the Form 10 WITH all credit arrangements detailed, then this details a very clear road-map to great success and growth WITHOUT any need for old debts to be converted into shares.

k).  If the Company files the Form 10 WITHOUT all credit arrangements assured, then the roadmap is less certain... the number of releases the Company could fund without outside capital is limited, and the patience of old creditors to wait for payments from smaller revenue income is less certain.  There is only one person who would gleefully wish that the Company filed a Form 10 that included all of the mandatory disclosures and disclaimers about the Company's limitations under a tight-cash situation. 

l).  Shefte returns from L.A. Monday night.  Over the next few days, a determination will be made as to the Company's confidence in the other funding structures - in order to enable the Form 10 with the credit arrangements to be published.

To avoid further criticism about "missing deadlines", there we be no further predictions of specific hours and days that the Form 10 will be released.  We'll just DO IT and then everyone can see it.  Our previous policy of being extremely open with information and internal goals, has been widely criticized because target dates cannot always be controlled solely by HHSE plans.

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