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Thursday, February 26, 2015

Deferred Income Taxes, Form 10 and Winter Weather Advisory...

Dear HHSE Friends - After years of struggle and obstacles, HHSE managers were extremely excited last month to receive back the Audited Financials  (2012 and 2013 Balance Sheets, Income Statements, Cash Flows and Changes in Stockholder's Equity reports).  The Company promptly incorporated these Financials into the Form 10 Registration - along with about 30-pages of disclosure and explanatory write-up and about 20 pages of additionally required corporate documents.

HHSE submitted the Form 10 - missing only footnotes and the auditor's cover letter - to MacReport Media for final formatting into Edgar-friendly structure.  Mac Report Media got these items and Form 10 formatted and submitted last week to the S.E.C. Edgar data base a "test" filing to make sure that all issues of access, file number and formatting would be approved.

With that in hand, HHSE reached back out to the auditors for the final exhibits of the Auditor's Report cover letter and Footnotes to the Financials.  HHSE has been essentially waiting to receive and add-in these final exhibits to the otherwise fully completed Form 10.

On Tuesday afternoon, HHSE was informed of a problem.  The auditors had already required that HHSE add a line item for "deferred income taxes" in 2012 and 2013 (as these periods generated an accrued profit).  But the "starting position" of deferred taxes payable (from prior year
s) and its impact to shareholder equity had not been adjusted to change the starting numbers for Jan. 1, 2012. So in reviewing the final report, the auditor's requested to see support for these 2011 ending balances.

All of yesterday - and into late last night - was a marathon for Fred Shefte, Daniel Ackerman and Eric Parkinson as the modifications to the financials for 2010 and 2011 (to allow for deferred income taxes) had to be incorporated into the Balance Sheets, Income Statements, Cash Flows and Changes in Stockholder's Equity positions.  These adjustments were not previously requested, as the auditors were reliant upon Management provided carry-forward balances for the prior years that were not covered by the audit.  However, in respect that the Company had (erroneously) not been line-listing deferred income taxes for the audit years, a check of the 2010 and 2011 OTC Markets filings showed that this oversight would have an impact to the beginning position of shareholder equity, retained earnings (and the carry-forward of deferred income taxes into the audited years).  So, at a crazy late date in the process, HHSE had been charged with providing modified statements for 2010 and 2011 in order to provide a supported "beginning basis" for the 2012 and 2013 years.

Substantiated "beginning basis" numbers had been requested years ago by a prior auditing firm with respect to the amounts that the Company had capitalized or categorized for Prepaid Producer Royalties, Producer Recoupments and Film Production Investments.  Fulfilling that request was extremely time-consuming and challenging, as it required a review of 20-years of sales history, collections and expenses by item.  So we were glad to have that major, forensic challenge long-ago completed.  But the need to include a line-item for deferred income taxes in prior years had not been requested by any parties until this week.

The updates have now been made, and provided to our auditor.  If the auditor's final report exhibit is released to HHSE (and to MacReport Media) today, there is an expectation that the successful "test" through Edgar of the Form 10 will result in a prompt publication of the statement... ranging from "immediate" to one-business day.  We are pressing hard for this final exhibit so that MRM can hit the send button to Edgar.

Both Parkinson and Shefte have faced a heavy burden of criticism and anger from shareholders due to the persistent delays and obstacles that this Form 10 Registration (and audit) have incurred.  For those of you who have successfully filed a Form 10 Registration in the past - we are confident that, even in the best scenarios, it is not an easy filing to fully comply with.  In the case of HHSE, where the operating company is NOT a start-up - but instead has 21 years of activity history - it's more complex.  Add to the challenge that the public equity vehicle (Ecklan / Mindset) had previously registered, and then filed a Form 15 Termination, and you'll realize that NOTHING about the HHSE Form 10 Registration  has been standard or easy.

BY THE WAY - for those "conspiracy theorists" out there - the Company received the revised, audited financials on Jan. 15, after getting preliminary reports as far back as November, that required responses, and in some cases, adjustments.  The auditor informed us that the Auditor's Report (cover letter) and Footnotes would be ready by Feb. 17th, and we relied on this written verification in proceeding with the XBRL, formatting and test submission.  The planned date from the auditor was not met, despite their intention and prior promise.  We're happy that the Form 10 is done, and happy that the audits are done.  But we have to have the cover letter and footnotes included in the filing.

With respect to excluding a provision for deferred income taxes, this was a HHSE management error in reporting made clear back to 2010.  None of our prior staff accountants (including a CPA) had brought this matter to our attention.  Fortunately, the Auditors caught it, and required these line item adjustments for the audit period years of 2012 and 2013... we only wish that the question for prior periods had arisen weeks ago, as we completely understand the concern over a supportable basis for the carry-forward numbers.

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AND WHEN IT RAINS, IT SNOWS - The National Weather Service is predicting snow-packed and icy / closed highways for Northwest Arkansas due to a Winter Storm Warning that hits tonight and through Saturday.  HHSE has contacted ALL RSVP attendees to the Shareholder's Meeting and determined that a majority are available to attend one week later, after the road conditions are safer. Accordingly, the HHSE Shareholder's Meeting has been moved to Saturday, March 7th.  A full agenda will be posted on the SH Blog on Friday, March 6th.