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Sunday, August 2, 2015

How do you get to there from here?

Greetings HHSE Friends, Shareholders & Followers - Whoever first coined the phrase "be careful of what you wish for," may have been forecasting the outrageous workload that has be vested upon HHSE Management as a result of the Company's dramatic increase of activities in 2015. The physical and logistical requirements of fulfilling all of our new DVD and BluRay orders - along with theatrical release activities, corporate governance and new ventures - has left little time for our customary blogging... which has fallen from nearly a daily basis in the recent past, to only about once a week at present.

We believe that the last of the big time-suck hurdles are about to be cleared, and that this will create more time for shareholder outreach, blogging, communications, IR and PR.

Speaking of blogging - Friday's planned blog got pushed into Saturday, which got pushed into Sunday - all in favor of the 7-days-a-week schedule now required for the maintenance of theatrical releases, video slate, the VODWIZ launch and the corporate filings.

Meanwhile - and in specific response to Shareholder emails on topics - here's a brief recap of items listed in order of quantity of emails received about each topic. It seems that what the Company has been posting and PR'ing about the MOST (which has been our aggressive video and theatrical schedule - as well as our impressive results!), has been fairly thoroughly answered... leaving only a few projects in the dark as far as shareholder updates:

1).  RE-FILING OF FORM 10 AND NEW AUDITS.  Yes, this is still the #1 Corporate Governance priority. Yes, we have a great PCAOB Certified Firm. Yes, they are 'almost done.'  No, there are no obstacles or issues impacting the project's completion and filing. No, the new auditors did not complete their work by our internal target date of July 31st. But we are told that the completion is 'very close,' and we will re-file the new-and-improved Form 10 very soon.

2).  VODWIZ.  The process of uploading and on-boarding titles has proven to be about as fast for HHSE as the rate that Netflix can add new titles... which is slower than we had hoped for.  We want to launch the consumer campaign with 'as many titles live on the site as possible.' It is our feeling that we only have one chance to make a first impression on consumers... and that 100, 200, 300, even 400 titles will not be as powerful of a draw for signing up (and returning to the site) as a much larger library of titles. While it's comforting and exciting to know that deals have been made for literally 1,000's of films and TV episodes... and the on-boarding of masters and meta data has been more labor intensive and time-consuming than hoped for. Would the on-boarding and subsequent consumer launch go faster if we threw more money at it? Assuredly, and this is a topic of discussion and prioritization.

3).  THEATRICAL RELEASES.  At present, HHSE has two titles in theatrical release, and as of this Friday, we will (for the first time ever!) have THREE titles playing in multiple theatres at the same time ("Dark Awakening", "Bonobos" and "The Algerian"). For the time being, HHSE has elected to keep our theatrical grosses confidential and not released to the trade publications. Is this because our grosses are incredibly huge? Of course not. It's because our grosses are EXACTLY as forecasted, which when measured by themselves look tiny compared to "Mission Impossible: Rogue Nation" on 4,000 screens... Our theatrical releases have been designed with three primary tasks in mind:

a).  To Satisfy the Release Requirements for obtaining the large license fees from Netflix and Showtime;

b). To elevate the stature and awareness of the releases to help with DVD and BluRay placements; and

c). To create the opportunity for titles to surprise us, break-out, and genuinely hit a nice box office revenue number.

To date, only "a" and "b" above apply for HHSE titles. We have not yet had a break-out theatrical hit.  But as long as "a" and "b" apply, it really doesn't matter. Our success is being measured by the bottom-line performance of these titles from all media revenues. .. not by how much a single-screen exclusive engagement can make. When will HHSE have our breakout title? Hard to say. How many years did it take before New Line Cinema hit with "A Nightmare On Elm Street?" - how many years before Artisan launched "The Blair Witch Project?" - how many years before Summit came out with "Twilight?" Each of those companies were only "one-title away" from becoming major media players.

4).  TCA GLOBAL MASTER FUND.  HHSE Management continues to strive to maintain a reasonable working relationship and resolution with TCA. It has been difficult as the structure of the deal contained onerous default provisions that some would classify as toxic, usurious or intentional. The HHSE balance has already been reduced by more than 50%, and the pay off and satisfaction could be just three months away from internal cash flows or a combination of conversions (which is not the HHSE management preferred payment manner). A much faster resolution for TCA than a three month workout is in motion:  there is a discussion underway with two separate parties to create a mega-fund for HHSE - a small portion of which would be used to immediately retire the TCA balance, and to also wipe out $3.5-mm of total debts. As it is being structured, this mega-fund would be repaid from revenue cash flow, but would include a conversion options triggered after 12-months and based upon preset PPS pricing thresholds. HHSE would have the ability (but not the mandatory obligation) to repay the mega-fund prior to the note maturation.

The financial analysis of the release schedule and current cash flows indicates that the elimination of the debt burden and managerial distraction of dealing with the old debt - when combined with the Company's dramatically increasing revenue flows - will enable the mega-fund note to be fully paid off in a year, without triggering a diluting stock conversion option. Both of the funding parties that are offering this plan have indicated that they will require that HHSE make some changes:  a). The hiring of an experienced public-company Chief Financial Officer;  b). The requirement that the Form 10 be filed expeditiously, but not prior to the closing and funding; c). The HHSE Board be increased to at least three (and preferably five) members;  d). That a separate "President" and general manager for the VODWIZ division be hired and paid for with a portion of the funding proceeds.

Way too much managerial time has been spent struggling and juggling with very old debts - most from the "Twelve" fiasco in 2010, and some pre-dating the Target Development Group, Inc. merger with Hannover House in December, 2009. The company has already eliminated over $3.5-million in debts, with another $600,000 in debt reductions during the first half of this year alone... but some small vendor issues remain as annoyances and time-distractions that stop the HHSE management from completing the important high-altitude goals and ventures for the company. Some small vendor issue here-and-there arise to the gleeful exuberance of stock-bashers, but none of which have EVER created anything more than a temporary distraction from the road map for the company's successful course. The sky never has been falling, but the debt burden could be likened to drizzle, rain and occasional pieces of hail onto our HHSE parade and march to success.

The concept of bringing in a top CFO, eliminating almost all debt, creating a revolving releasing fund, upscaling the Board size and stature and treating VODWIZ like the $100-Million Dollar division it is capable of becoming all make great sense... provided that the deal for such a mega-fund is reasonable and not toxic in structure.  In this respect, HHSE Management will seek sage counsel to analyze any such venture before proffering for a general shareholder response.

Each of the Company's core activities (except for book publishing) have been profitable during the past five years. There have been notable losses (such as the acquisition and release of "Twelve"), but the concept of limited release theatricals (with limited expenditure) makes financial sense, as do the numbers for our DVD / BluRay and V.O.D. release activities. New ventures into original (theatrical-caliber) productions make sense from the revenue potentials for theatrical, physical and digital both domestically and internationally - while also providing a longer-term asset for the balance sheet and film library. And the VODWIZ concept of "we have 1,000's of hard-to-find titles" (combined with an offering of theatrical hits for sizzle), could become the tail that wagged the dog. But all of these profitable activities require CASH for growth... and if most of the current cash-flow collections are being allocated or attached to pay off old debts, then the Company's growth is slowed tremendously. Eliminating these old debts would free up the cash flow to be reinvested in creating value and more revenues... and the enhanced revenues could be used to pay off the mega-fund debt. It's a long-term solution to totally fix the structure, instead of a short-term band-aid of pursuing unpopular "debt conversions" that wipe out only tiny bits of distraction at $50,000 to $100,000 at a time. The mega-fund structure offers a real solution instead of more-of-the same. That's why it's being so seriously considered and pursued by HHSE management.

There are some really smart and really well-funded finance & media people looking at strategic partnerships with HHSE right now. They see a company with a $100-million dollar revenue potential that could significantly benefit from the availability of resources for growth. We agree.

5).  HHSE STOCK PRICE.  Last but not least, some shareholder emails have expressed great concern about the HHSE Stock Price. As major shareholders, both Parkinson and Shefte would also prefer that the stock be trading at $.10 per share rather than $.01 (or less). There has been a lot of evidenced gathered about stock-boxing and other manipulative practices, usually timed with the periodic covering of short-sale interests. All it takes is a little buying pressure to pop those fake walls. And if those working to box-the-stock price get hurt enough times with forced-to-covers, their enthusiasm to scavenge on HHSE longs will be transferred over to another OTC equity. We know what the company is worth and what the company is doing to become a major media enterprise. The HHSE PPS pricing right now is completely illogical and not based on any real-world values.

A very smart HHSE LONG wrote to share the following thoughts, paraphrased hereunder for anonymity:

"The only people who will lose now are those who react on emotion and "sell" to the manipulators at below their cost... instead of the smarter strategy of breaking the backs of the manipulators and quickly pushing HHSE past $.05. I say STAND UP to the school yard punks. Punch them in their parasitic faces and let them know that anybody that screws with your stock portfolio is by proxy messing with your family's future. All of the HHSE longs should "go Liam Neeson" against the basher-manipulators and hurt them HARD by forcing them to cover their shorts.  Show them the power of a "special set of skills" that can be unleashed when someone messes with your stocks and your family!"

Well said advice that HHSE managers hope might be "TAKEN" by many!  Much more to come...