As promised on Sunday - listed below is a mega-blog covering the top ten issues of interest and inquiry by Shareholders:
1). What's the explanation for the late May debt conversions? Pls clarify and specify so that SH's know that the new shares have been absorbed already. As previously disclosed, HHSE managers share the general disdain among the "long" Shareholders against the concept of "Debt Conversion" transactions. This is why we were so excited to file the Form 10 - and become fully reporting, which acted as a trigger for new financing (and "Accounts Receivable-based" structures) that would enable the Company to better manage debt servicing with product sales cash flow (see item # 7 below for more information on how the Form 10 triggered the new financing deal).
When the Company was forced to withdraw the Form 10 prior to fully-active status, this created a delay in accessing the new financing. Unfortunately, the initial financing proceeds were needed to resolve some seriously delayed creditors: TCA Global (as senior, secured lender), Tribune Ent., Bedrock and Fantastic Films (as judgment creditors), and Elder Properties (as a previously, incredibly-patient landlord that had carried a very old balance for 6-years). All of these creditors were promised substantial payment in mid-May from the new funding... which was triggered by the full-registration status. However, as previously disclosed, a circumstance arose in late April that the Company could not have possibly predicted when filing the Form 10 on March 11: the auditor (Terry L. Johnson) lost his PCAOB certification status and ability to sign-off on future public company audits. For HHSE, this meant that the fully-qualified status of Terry Johnson as of the date of filing (March 11), was now headed towards "material deficiency" as of the May 11th automatic registration maturation date.
By May 15, TCA went on a rampage to demand a further payment of $50,000; and Tribune, Elder and other creditors were less-than-pleased to discover that the planned payments of May 15 would be delayed while the Company went through a new audit and a refiling process for the Form 10.
Accordingly, the first shoe to fall was TCA by implementing their legal authority to force a debt conversion if the Company were in default of the May 15 payment. HHSE attempted every means to stop TCA from forcing this debt conversion, but was unable to disavow the authorization documents signed back in May 2013 under the default provisions. The other key creditors went from "patiently cooperative" to "aggressively insistent" on receiving payment within a very short window of time.
With no other recourse available, HHSE authorized one (1) new Debt Conversion transaction (through Macallan Capital), which resulted in the release of 4.1-mm shares on May 27. HHSE did not authorize the TCA venture (through Magna), but it happened anyway, and resulted in the release of 8,437,500 shares on May 29. Further compounding the share issuance activity was a 12-month convertible note to Mohawk Investments (from May, 2014); the Company had planned to pay this off this convertible note in cash (plus the applicable interest premium) on May 15, from proceeds of the new funding. But the withdrawal of the Form 10 delayed the new funding and put the Mohawk note into position for eligibility of conversion into shares. So while this was not a typical "Debt Conversion" by definition, it was, indeed, a debt that was converted into shares. The Mohawk conversion also happened on May 27 (resulting in the issuance of 3,284,567 shares).
A total of 15,822,067 shares were released into the market on Monday, June 1, 2015. By Thursday (we're told by the sellers) all of these shares had been sold. The volume in the HHSE stock for the three-day period of Tuesday through Thursday reflects sales of more than 21-million shares ("net" of double-printed T-Trades), as compared to a 30-day average of about 2-mm shares per day. So it seems likely that their representation of being sold-out is accurate. UPDATE: June 9, 6:00 pm Eastern Time - Mohawk confirmed to HHSE today that they had NOT fully sold out all of their shares and that they intend to slowly sell their remaining balances over the next two weeks.
There is another aged "convertible note" to JSJ Investments that is slated to mature in June. If this note is converted to shares, it could result in approximately 7-million additional shares being issued at the current PPS. JSJ had previously done several debt and convertible note transactions with the Company in 2013 and 2014 - the most recent funding maturing back on May 6 - which had resulted in 8,750,830 shares being issued (and sold-out in two days). The proceeds from the JSJ, Mohawk, Macallan and Magna activities have resulted in the retirement of more than $270,000 worth of debts, against a dilution of 24.5-mm shares. Unfortunately, it all happened during the month of May - and without the joltingly-positive benefit of full reporting status that was expected for May 11.
In full disclosure, HHSE is also considering the possibility of a separate "convertible note" to provide further cash-flow relief from the strain that our enhanced video release schedule has created on cash flow (due to having to pay upfront for the manufacturing and outbound freight costs of a rapidly growing release schedule). Such a convertible note (if obtained) would provide cash flow for immediate marketing / manufacturing needs, but would be expected to be paid off from Accounts Receivable collections before maturation into a "convertible" transaction into shares. No deal has been made; HHSE will disclose the applicable / allowable terms of such a transaction if one is consummated. Future financing needs for the Company are anticipated to be self-funded through the Company's substantial and growing Accounts Receivable / general cash flow / and the access to the new A.R.-based credit line (which simply accellerates access to sales revenues).
While the release of 15.8-mm shares into the market in late May was a painful and unwelcomed experience, it may be relevant to note that the total A/S for HHSE has only increased by 46% over a FIVE-YEAR-PERIOD. That's less than 10% per year annualized. Compare this slow rate of dilution to many other growing OTC companies that often increase their A/S by 300% in a single year. While the dilution for HHSE is never welcomed, we believe that the rate that HHSE has proceeded has been as conservative as possible under the various circumstances of balancing growth with debt management.
2). Revised Form 10 status. The Company is working with the new auditors to complete the 2012, 2013 and 2014 full year reports. Under PCAOB rules, the third-party verifications process must be completed again by the new auditors, and this has been the most time-consuming item. The "rest" of the Form 10 has been revised and prepared for the release. The Company's strategy is to not telegraph the forthcoming filing hour or day, but to simply file the Form 10 and create some surprise impact.
3). Theatrical releases, schedule and strategy. While summer is the biggest season of the year for theatres, it has proven to be the hardest season for finding "good screens" on the dates that HHSE has selected. Accordingly, the release dates for "DARK AWAKENING", "ALGERIAN" and "BONOBOS" have all required some tweaking and shifting. At present, we plan to launch "DARK AWAKENING" at an exclusive engagement June 26 - and at key markets on July 17 - expanding to 65+ key markets between July 24 and August 21. "ALGERIAN" will open NY and LA exclusives on July 10, expanding to 20+ markets between July 24 and August 14. "BONOBOS" will open NY / LA on July 24 and will expand to 20+ markets (including top Natural History Museums) during August 7 - though Aug. 21. "THE PRINCIPLE" will expand its prior release (12 markets) to reach 10 additional key markets on August 21. HHSE has also made a deal for the release of four Christian-themed features for release Sept. - Oct. - Nov. in about 50-theatres each... which will also drive the home video sales for HHSE on these items.
4). Why was "Grim" announced a second time? As is very often the case with secondary / independent studio releases (or any title for that matter which is not "street-date sensitive" due to substantial theatrical success), HHSE's title "GRIM" was selected for placement at Walmart at a time that was more complementary to the competitive market than the date previously selected by HHSE. Last week, we were informed that the title had been accepted for the September modulars at Walmart. We were also informed last week of the critical health status of director Matty Johnson's mother, who had just been moved into hospice. The timing of our press release Friday was designed both formally acknowledge the title's new DVD street date, as well as to enable Matty's mother to see the news. It is relevant to note that news that is posted solely onto the OTC Markets website is generally "not widely seen," as such postings are not directly distributed to outside publications or sites. It is also well-known in the P.R. industry that news posted late on a Friday afternoon is usually intended by the issuer to not be seen. The chat-board suggestion that this announcement of the "GRIM" street date - placed on the OTC markets site late on a Friday - is designed to "pump" the stock represents an opinion of such profound ignorance that it cannot be viewed as viable commentary. Major news that the Company wishes to be broadly and quickly seen is almost always released via the media wire services (through outlets such as PR Newswire, Access Wire, Market Wire, Business Wire, etc..).
5). New Staff and needs. The Company is interviewing for three positions at the Springdale offices. Administrative Assistant is in replacement of Regina Hurst who left the company two weeks ago; Technical Services is a "mastering" job needed due to the huge number of titles that have been signed-up for VODWIZ and the workload that cannot be handled by Caitlin McKenzine and Katherine Mills to onboard these films and metadata. The Film Booker position is also new - designed to help coordinate and implement the operational details of releasing the higher volume of theatrical films that HHSE is now handling (three titles in July, and one-each for Aug - Sept. - Oct. - Nov.). The Admin. Assistant and Technical Services position pay is set "in the middle" of the local-market salary range for such positions (e.g., $25,000 to $35,000 is what Walmart, Tyson and JB Hunt have established in this market). The Film Booker position is likely to be in the $50k range, subject to the qualifications of the candidate. We remind our Shareholders that the cost-of-living in N.W. Arkansas is extremely low compared to many other markets, so a dollar in Fayetteville may have 2-to-3-times the buying power as a dollar in Malibu, CA (as a completely absurd example).
6). Status of criminal prosecution against the chat board trolls; status of separate $10-mm civil action. The Company has assembled a significant dossier of evidence as to the specific identities of the parties involved on illegal manipulation of HHSE trading over the past four years - including the confirmed identities of the principals and the hired trolls to post false and defamatory statements in support of the trading manipulations. This material, along with the Civil litigation case, was presented to the US Attorney's office in April for their consultation and review. A prosecutor was assigned to the case, and a list of additional information was requested. HHSE believes that the additional items will be fully completed and submitted this week. HHSE corporate counsel is suggesting that the Civil damages case be delayed until the newly requested items have been delivered as these items may also assist the Civil action.
7). Why have IR and PR activities stopped? Seems like must companies promote during debt dilutions. Why has HHSE been unusually quiet? It's difficult to adequately describe how disruptive the withdrawal of the Form 10 Registration was to the Company. New financing was arranged that was triggered by the May 11 activation date of the Registration. The new financing is primarily "accounts receivable" based, but contained an upfront release of funding required in order to get the TCA Global Master Fund "U.C.C. Security Interest" released, in order that the new lender could enjoy an unencumbered lien on all titles (at present, TCA has a lien against all titles released prior to May, 2013). Upon activation of the registration's status (May 11), the Company's plan had been to:
a). Pay Off TCA - and announce the new lender / A.R. structure;
b). Immediately implement a full-speed Investor Relations launch (commencing with the May 12 Money Show in Las Vegas, "the very next day");
c). Start unleashing Studio Supplier news on VODWIZ;
d). Start releasing greater detail on new ventures and activities;
e). Begin a corporate outreach to major media investors to look at HHSE as the next, Major Independent.
Following a consultation with the S.E.C., the Company elected to withdraw the Form 10 prior to May 11th, or face "material deficiencies" resulting from the decertification of the auditor by the PCAOB. What this withdrawal meant was that the Company was no longer able to comply with the new financing trigger to pay off TCA and implement all of the new I.R. / P.R. outreach. Compounding this problem to another level, the Compnay did not file year-end reports with the OTC Markets (because as a fully-reporting S.E.C. entity, such annual filings to the OTC would be redundant). So in the middle of this unexpected crisis, the Company's stock temporarily went to "STOP" sign, then to "YIELD" before finally being restored to fully current status. Although it was too-late to stop the announcement and presence at the Money Show, the Company decided that I.R. / P.R. activities in mid-May and early June would be poorly timed. New investors would not be seeing the fully-reporting status of the Company, and old issues - such as the problematic structure of TCA's onerous terms - would still be weighing down the Company's growth.
Accordingly, it was decided that significant news and I.R. activities should be deferred until mid-to-late June, to better correspond with the achievement of those corporate benchmarks that trigger the explosive growth.
8). Cannes acquisitions: 400+ titles for VODWIZ and 35 titles for HHSE DVD release. In respect of the stature of the multi-title VODWIZ agreements, as well as the individual titles that HHSE acquired for DVD / BluRay, VOD and TV rights at Cannes, these items will be announced through a wire service announcement.
9). VODWIZ status - site upgrades, title additions, when will they be visible? What else is happening with this venture? A more specific Blog will be posted on VODWIZ this week; meanwhile, the new items are being uploaded (off-line) at the rate of about 10-titles per day. The new VODWIZ site (with technical gllitches fixed, new graphics and navigation tools - and of course, 100's of new titles) will be published live very soon. This will reignite the consumer outreach campaign.
10). Productions - status updates. Good question, but each of these major titles would require a 3,000+ word blog just for the high-altitude summary. Accordingly, the status of each of the major productions merits its own, separate blog, which will be rolled out contemporaneously with the other corporate governance achievements.