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Tuesday, July 21, 2015

Quick Update - Various HHSE Matters

Good Morning HHSE Friends - There's so much activity underway, that no time has been open for blog updates; apologies for being temporarily absent from this update site!

In respect of time - here's a quick summary of key items of interest or as requested by shareholders:

1).  NY MEDIA DAY - response and attendance was superb, especially for the upcoming "BONOBOS" release.  There were only a few reviewers present for "Dark Awakening" (and response was mixed to negative - but hey, horror films RARELY get good critical acclaim!); critical feedback on "THE ALGERIAN" was almost unanimously positive, and critical feedback on "BONOBOS" was unanimous and enthusiastic.  Feature stories and reviews on "ALGERIAN" and "BONOBOS" will begin appearing in publications and websites during the intial weeks of release.  As for broadcast / television at NY Media Day, four major (national) shows were represented, which should generate a lot of free airtime to support "ALGERIAN" and "BONOBOS."

2).  DARK AWAKENING BOX OFFICE - The opening weekend of "Dark Awakening" at the Red Cinema in Greensboro, NC (June 26 - 28) was reasonably successful at $3,800+ in ticket sales.  However, many of these were for locally-based cast and crew, and as such, this result (which was #3 overall out of 12 films in that multiplex), did not represent the broader national audience.  The addition of twelve (12) theatres last weekend, primarily in smaller markets, did not fare well, with only $1,000 per screen averages, and rankings generally in the middle of the pack to lower echelon in each multiplex (e.g., "Dark Awakening" was # 6 out of 12 films at most multiplexes).  This level of box office is generally not good enough for "hold-overs" - although four locations of these twelve did agree to a second week.  More crucially, these locations add to the overall requirement for the Showtime cable sale requirement - and with new locations on July 31 and August 7, that commitment will be fully satisfied.  While it's easy for HHSE management to say, "wow, it only grossed $1,000 per theatre," it's important to note that our local market spend averaged only $200 per location.  So mathematically, this is the first time in HHSE theatrical history that the opening weekend grosses exceeded the cost to achieve them.  We are still haunted by the spend of nearly $3-million in 2010 for "TWELVE" to gross only $183,000.  That was a revenue loss-ratio of 99-to-1.  So to spend $200 per location to gross $1,000 is still small dollars, at least it's positive dollars and indicates that focused targeting around theatre zones may be more efficient than national shotgun blasts.  And again, let's not lose focus that these limited release theatricals are designed first-and-foremost to satisfy lucrative presales for Showtime and Netflix.  Yes, it would be great to pop a million bucks at the box office on one of these... but the business model is not based on generating any box office results, other than the actual release of the films being what is required to satisfy the presales.

3).  FORM 10 AND NEW AUDITS - Yes, the company is working with a new auditing firm, as previously reported.  This process is moving ahead and could be finished very quickly - enabling a prompt refiling of the Form 10.  Yes, there was a meeting in NYC on this last week and HHSE received a full update.

4).  CASH FLOW AND TCA GLOBAL - The loan that HHSE received in May, 2013 from TCA Global Master Fund continues to haunt the company and impede our operations with legal and cash flow encumbrances.  Collections from Q1 sales have been sluggish, due in large part to the sale of wholesaler Anderson Merchandisers to Alchemy / MMS (with Anderson fulfilling Walmart orders for HHSE and Medallion titles, and thus representing the largest portion of packaged goods receivables).  In the meantimeTCA has been pushing for default conversions of due to HHSE's current inability to meet their monthly payment demands (which are at $50,000 per month - but when added to a cash flow cycle that requires significant monthly funding for for new release video manufacturing and fulfillment - the available resources to HHSE management have been crunched).  The Security Liens and Encumbrances imposed by the TCA deal are effectively like "handcuffs" onto HHSE management, making it nearly impossible to "juggle" and manage while one's hands are tied.

The TCA structure has been a horrible experience and one that we would not wish onto any reasonable persons.  In many respects, the deal structure appears to be designed to impede the borrower's ability to repay with cash, in favor of TCA's default bonus provisions and mandatory share conversions. Their U.C.C. lien creates a cloud over the company's ability to secure new lending, and their claim to be eligible to all receivables (as opposed to just those specific titles listed in the loan agreement), casts a shadow over each collected deposit.  Maybe someday, federal regulators will be stricter or prohibit such lending practices? One can only hope. Meanwhile, HHSE became trapped under this structure, and is still about $150,000 away from managerial freedom (we've paid over $300,000 already).  TCA is pushing hard right now for another $50,000 forced debt conversion transaction.  So on the eve of a positive story in the Wall Street Journal, HHSE is being held down in the muck to wrestle out a prompt ending to the TCA woes.  It's been exhausting.  But fortunately, we're near the end of that venture.

5).  VODWIZ - Many of the masters that HHSE delivered to Nanotech for uploading to the VODWIZ site hit technical approval or suitability issues.  Katherine Mills and Caitlin McKenzie are working with Nanotech and their outside service providers, to deliver suitable elements to get the next major round of titles published.  There will be a more detailed update on this early next week after a title count of "technically acceptable" films is determined.


Fair question.  For the past few years, this Blog has concentrated only on the upbeat developments, and tended to provide little attention to some of the less-than-shiny parts of the company.  Yes, there is a tremendous amount of positive activity for HHSE and much to be excited about.  But we cannot also ignore that TCA has been like a ball-and-chain around management's necks... and we cannot pretend that our cash flow is superb when it's actually challenging due to TCA, corporate mergers and general market conditions that happen when a small supplier goes from 6-titles per year to 90-titles in the same amount of time.  Throughout the past few years, a barrage of positively-spun blogs has had no measurable impact to the stock volume or pricing.  In fact, the more positive our blogs have been worded, the more pressure that seemed to arrive against the PPS.  Almost like a challenge to the good news?  Who are we kidding?  It's DEFINITELY a challenge to the good news... the chat board trolls BRAG about pushing hard against HHSE whenever press releases come out.  So rather than focus on only the shiny bits, we felt that a more candid blog - with the less than exciting parts exposed - offered a new approach to corporate communications.  Maybe we're wrong?  Guess we'll find out.  But there's a logical conclusion if you think it through... there is "a method to the madness" to coin a phrase.