Good Afternoon HHSE Friends & Followers – On Monday, we posted an invitation for an open forum for questions to the company and management. We expected to get maybe a dozen. However, we received a total of 216 questions – and this idea for a quick blog suddenly became a massive project and time-suck at a moment when management did not have unlimited hours to allocate. Accordingly, our plan to respond by Wednesday got pushed forward. In any event, listed below is a “consolidation” of questions (because most were about the same issues). There were some questions for which the answer would require either a breach of public company rules, or a compromise if a legal position or business strategy. So those questions will not be answered through this forum. But most questions addressed basic activities, strategies and projects, and can therefore be answered now. We are NUMBERING the questions and answers below simply for referral purposes, and not to imply order of corporate priority or frequency of shareholder requests.
HHSE BLOG – SHAREHOLDER QUESTIONS – SEPT. 16, 2015
1). How close is the film library, new valuation to completion?
In order for the new Library Valuation Study to proceed, HHSE had to first prepare the new title additions (to the prior film library report), and edit out titles and media rights that are no longer current. Next, a review of title and media-specific sales from the past four years needed to be compared against forecasts in order to revise the new 7-year projections against current data and trends (for instance, the existing library report predicted a much faster decline in DVD sales and a much slower growth in streaming revenues… both of which, in retrospect, were proven wrong… DVD sales have held in solid and streaming has grown faster than valued). The new Library Valuation Study will show a net increase of about 120 more titles than the prior report. The forecasts in general represent a 7-year catalog value reduction across the board of about 20% to 25%. However, the significant increase in titles more than offsets the reductions on a per-title basis. Accordingly, management feels that the balance sheet value of the Library will increase quite a bit after the new study is completed. Timing wise, HHSE is waiting until late November for three primary reasons: 1). Revenue Forecasts for four current theatrical titles include significant Subscription Video-On-Demand licenses and Cable TV sales, but only after achieving certain release thresholds which will be achieved by late November – and thus impact the long-term value of those titles; 2). Management is still revising some of the “deep-catalog” titles, with a view as to whether or not some of the older or less-commercial product can be repurposed for budget bin DVD, or multi-pack configuration, or for Television, V.O.D. or even international. Some of the titles in the “comedy” genre, for example, have almost no catalog value if they are missing a name star. On the other hand, some horror titles, even if sub-marginal in production and star value, have been selling continuously, every week for years, to the surprise and delight of HHSE management. So the 7-year projections for each title require some marketing analysis, which is only about 75% completed at this time. 3). The Valuation firm is expensive, and this timing works better for the Company’s cash flow, especially in respect of the commitment to pay of primary debt holders through cash resources instead of debt-conversion / stock issuances. If we meet the target date of providing the complete Management-prepared study to the Valuation Firm by late December, we are told that the report and opinion letter will be ready by early January. The Valuation Firm that we have selected is highly credible (does two of the Major Studios), and their opinion on Valuation is accepted by the top entertainment banks as collateral value.
2). What films are in pre-production, actual production or post production?
For simplicity in answering this broad question, we will first define what was see each of these three production category terms to mean:
a). PRE-PRODUCTION – Projects for which HHSE – or a Special Purpose Entity for which HHSE has control of distribution rights (or the option to acquire control) – for which the “rights” to proceed as a production have been secured, and for which current activities are occurring in preparation for actual production:
2a-I – MOTHER GOOSE: JOURNEY TO UTOPIA – The Company’s Crown-Jewel, an outstanding live-action, family-fantasy-adventure featuring beloved characters and cast commitments from Shirley MacLaine and Samuel L. Jackson. A prior plan to shoot the film in Louisiana (utilizing tax incentives and a facilities deferral arrangement) grew uncertain over the past few months as cast scheduling began to encroach into 2016, after the tax eligibility expired. HHSE hired a line-producer for the film last week (separate announcement pending), and location exterior scouting trips have now occurred in Germany and Ireland, with the principal photography of interiors and “Utopia” (on a massive soundstage), being researched for Georgia, Arkansas or New York State (to access those tax incentives in lieu of Louisiana). Although HHSE wanted to shoot this film in 2014, obtaining cast approval over a director was an unexpectedly difficult task, only to be followed by the next task of finding a window-of-time that accommodated all key talent. It appears that the magic moment for key cast occurs in mid-February (2016), so we are moving towards that timeframe for all other production issues.
2a-II – LEGEND OF BELLE STARR – HHSE was informed of the availability and interest from a significant female lead for the title role, requiring filming to commence in February (2016).
2a-III – THE SUMMONING – Although also a privately funded production, the loss of the Louisiana tax credits have pushed producer-director Steven Rumbelow towards a Georgia production in October.
2a-IV – CLOWN TOWN – Great “premise” for a low-budget horror film, but HHSE has not yet hired a screenwriter to expand the treatment into a script.
2a-V – SHUCK AND JIVE – Private funding is on offer for a production shoot in Kansas; discussions are underway with a significant L.A. based director for the film, and the potential of a significant star “cameo” role for a pivotal opening (and closing) sequence. If the director commits, then the funding can proceed. If this director candidate does not commit by Nov. 1st, then the plan is to move on to other options for this key position. Despite its edgy title, the film is a heart-warming, true story of a man’s redemption in the face of obstacles, criticism and self-doubt. It’s the sort of film that HHSE can see meriting serious awards consideration if it turns out as brilliantly as the script.
2a-VI – PRIMATE – This screenplay is a formulaic monster-movie, of college kids researching a series of “bigfoot-creature” sightings in the remote Ozark Mountains near the Buffalo River in Arkansas. But monster movies ALWAYS do well, and seem to sell forever in all media. HHSE’s current plan is to find a talented but hungry producer-director team to do the heavy lifting of this production next Spring (April) for an October, 2016 Theatrical Release. A discussion is also underway for a TV license with the SyFy Channel.
2b). PRODUCTION – Films for which actual “filming” is occurring.
2b-1 – EXTREME OPERATIVE – Now Filming. Details via a separate release, pending wording approval of the army of agents, managers and handlers that seem to surround pretty much every known star nowadays.
2b-II – SHADOW VISION – This is an “in production” and “not in production” venture. Let us explain. The premise of the movie is that a woman loses her eyesight after a car accident into a frozen lake, followed by a prolonged coma. To restore her vision, doctors try an experimental therapy utilizing a mixture of herbs and pharmacy which (over several years) has the unexpected side-effect of enabling her to “visualize” remotely occurring incidents. What startles her is a vision of a mysterious man who gasses-to-death a van full of “day laborers” in what appears to be a trial-run for a planned terrorist attack on a nuclear reactor facility. When she reports her “visions” to the local authorities, she is dismissed as a wacko on experimental drugs. However, one of the cops takes a liking to her, and becomes convinced of her story and the accuracy of her skills. This production has encountered some problems. Most crucially, despite support from the Arkansas Film Commission and representatives of Entergy Arkansas, Inc. (parent company of the Arkansas One Nuclear Reactor Facility near Russellville, AR), approval could not be obtained from Federal Nuclear Regulatory Authorities or the Liability Insurance underwriter for the film, to “shoot” at the reactor site… especially considering the storyline which was viewed as an inadvertent explanation to potential real-life terrorists as to how to break-into and destroy a nuclear facility! So, what the woman “sees” now in the film is no longer a terrorist attack on a nuclear facility… but an equally impressive vision (which we’re keeping under wraps for competitive reasons until the first theatrical trailer is released). So - with the required script changes, scheduling, casting and other logistics issues arose, including HHSE CEO Eric Parkinson (as director) having more pressing corporate priorities that suggest now that a different director is probably going to be more available to complete this film. The on-again, off-again production history for this film will make for an interesting Press Kit item, and DVD Bonus Feature, to say the least.
2c). POST-PRODUCTION – Films (or videos) for which filming is completed and which are otherwise being “edited” or “mixed” at this time.
2c-I – DINOSAURS OF THE JURASSIC – Excited about how well this one has turned out. Three separate production shoots on locations, plus nearly a dozen of the world’s top dinosaur experts, and clips from quite a few major motion pictures make this item both entertaining and educational. The 3-D Lenticular DVD packaging should help it pop off the shelf and achieve its greatness as a companion title to the upcoming “JURASSIC WORLD” home video release.
2c-II – CHAMPIONSHIP SOCCER, VOLUME ONE: GOALKEEPER – There’s only one reason that this video is not completed, and it’s the insanely busy schedule of the host and instructor, Kendall Spencer. HHSE has shot more than 40-hours of classes, instructions, training drills and demonstrations with Kendall and students in both indoor and outdoor soccer arenas. All that remains is narration to introduce the graphics cards for the openings / closings of each segment of the program, followed by the final edit-assembly tweaks that are being performed by Earl Hale.
3). Wild Oats film is completed, did or when will Hannover House receive their buyout?
HHSE receives a significant cash payment and profit participation in the film, but receipt of these amounts is subordinate to the recoupment of the advance provided by the Weinstein Company for the film’s production. The preview screening last month was well received by the audience; however, there is not yet an official USA theatrical release date set by the Weinstein Company.
4). Update/status on audit, audit letter, F10 filing and uplist
The revised Form-10 12(g) Registration Statement is ready, and awaiting the final audit letter. Upon filing of the statement, the engagement of the new auditor becomes effective and recorded; thereafter, any future changes in auditor will require a Form 8k information statement. As for an “uplist” of the Company off the OTC Pinksheets, the first step would be OTC: QB, which becomes automatically eligible after SEC approval of the Form 10 filing, or 60-days after filing, whichever occurs first. HHSE has decided to not assist the stock naysayers by forecasting a filing date of the Form 10.
5) Explanation for the 2.9M increase in OS on 9/10. Who got those shares and why? How did the TA issue those shares again without CEO's knowledge?
Mohawk Capital provided a loan to HHSE in May of 2014 to cover market attendance and promotional costs associated with the Cannes Film Festival and the launch of direct international sales activities. The note matured in May of 2015. It was our understanding that the entire note had been satisfied with a stock issuance of 3,284,567 shares on May 29, 2015. Under the terms of the note with Mohawk, Hannover House was alerted by Mohawk in a timely manner and given 10 days to pay off the loan in cash, with the understanding that failure to do so would result in Mohawk’s pre-authorization to convert the note into shares being enacted. The company was cash poor in May, as we had just utilized all of our working capital to cover new release DVD orders for June Modular placements, as well as dealing with ongoing operational overhead costs and debt servicing. So we were unable to pay the note in cash at that time. We have since been informed by our Transfer Agent, Standard Registrar & Transfer Co., Inc., that a portion of the Mohawk Capital loan had not been redeemed on May 29, and that they exercised their conversion right last week (Sept. 10) when the stock was at an absurdly low PPS. HHSE was unable to stop this transaction. However, we are appealing the quantity of shares issued based on a dispute over the conversion rate formula. HHSE managers have made the commitment to pay off any remaining, existing Convertible Notes with cash, now that the Company is beginning to turn the table on receivables collections.
6). Update on VODwiz. Timeline? Obstacles? Are studio partners still being patient?
Compound question. VODWIZ has been progressing at a rate that HHSE managers find unsatisfactory. It is the company’s hope that the current efforts to hire a senior manager / VP level executive will help all issues be better addressed, obstacles removed and timelines re-established. Studio partners are all still on board, and the two “major studio” partners have agreed to provide approximately fifty (50) titles each once the consumer campaign is live (which is planned for launch at the 500-title threshold).
7) Update on Mother Goose. Production timeline? Obstacles?
See answer 2a-I) above.
8) Update on IR outreach. How will the word about HHSE get out to the investment community?
The following means and activities are expected to impact awareness of HHSE, and to correct the false-narrative of the stock-naysayers; in doing so, it is expected that new interest in the stock will be nurtured, and that this will help the PPS rise to a level that’s closer to the actual value and the reality of the Company’s activities.
8a-I). IR. Four “Investor Relations” firms have agreed to perform various forms of outreach and promotion to help expand awareness of HHSE to legitimate shareholders. Over the past week, only one of these has launched (MicrocapAdvantage), and a second is about to launch (Hotstoqx Canada). The last two (plus Hotstoqx) are imminent.
8a-II). PR. The Company has a number of press releases on new acquisitions and activities that will be released over the next few days and weeks.
8a-III). ADS. The Company is currently placing over $1-million worth of ads for “DANCIN’ IT’S ON” in a wide range of publications, ranging from Hollywood Trade papers, to teeny-bopper websites. The ads in higher-end outlets will each feature the HHSE logo and (OTC: HHSE) ticker symbol, which will help with awareness of the Company and stock.
8a-IV). FILINGS. The Company will be making additional S.E.C. Filings over the next few weeks which should have a very positive impact on the market’s perception and support.
8a-V). LITIGATION & ENFORCEMENT. The Company has been working for some time with the FBI and US Attorney’s Office regarding their current investigations and activities to prosecute those that have been clearly identified as engaging in HHSE Stock Price Manipulation – timed with corporate interference meant to sabotage dealings, and timed with the publication of false, defamatory and actionable statements about HHSE and its managers. It is HHSE management’s belief that the enforcement actions (both Civil and Criminal) that have been progressing behind-the-scenes (and which now also involve the S.E.C.’s assistance), will have a chilling effect in completely and permanently stopping the manipulation that has driven the HHSE stock price down by $15-mm in value.
8a-VI). MAJOR NEW ACQUISITIONS. As is currently being demonstrated, a single new acquisition such as “DANCIN’ IT’S ON” can result in over $5-mm in revenues and $1.5-mm in fees for HHSE. Accordingly, it is management’s belief that the news of two additional titles under similar releasing structures will both spike interest among the existing shareholders, as well as provide new visibility and ads to continue promoting the HHSE name.
8a-VII). PRODUCTION UPDATES. With several “AAA” caliber cast members attached to HHSE productions (but not yet announced), management believes that the news of their participation in these films will have a positive impact on the marketplace.
9). Update on OS increase by 9.8M
In the past two weeks, two debt conversions occurred, one for approx. 5.8-mm and another for approx. 2.9-mm. The 5.8-mm was for TCA Global Master Fund through Magna. Contrary to TCA’s erroneous court filing (which misstated that TCA was unable to get HHSE shares in satisfaction of their debt), TCA’s actions over the past year have proven that they PREFER to receive HHSE shares over cash payments (otherwise, the liens against receivables could have been removed to create a cash resource for payments). From April 24, 2015 through Sept. 10, 2015, TCA (Magna) received approximately 17.7-mm shares of HHSE stock which was sold and applied against the loan/judgment amount. The Florida Court filing for TCA neglected to disclose both that these shares had been received and sold, as well as that the balance due had been markedly reduced below the amount in their filing. HHSE could appeal the filing on the basis of these material errors. However, as a payment plan has been agreed (with the correct dollar amounts), the cost for opposing the judgment based on filing errors seems both unnecessary and counterproductive. The second debt issuance of approx. 2.9-mm shares was answered in item 5 above.
10). Update on AS decrease from 900m to 800M.
The change in A/S from 800-mm to 900-mm occurred unnecessarily; and while Standard Registrar had been legally empowered by the HHSE Board of Directors to take such actions that the Board is authorized to pursue “as may be necessary,” there was no reason for the A/S to be increased. Accordingly, the corporate articles have been amended back to clearly state the 800-mm A/S. The filing was sent about a week ago; as of this morning the $50 check to the Wyoming Secretary of State had not been presented to the Company’s bank account… suggesting that the filing has not yet been processed.
11) Are the two megafund deals stated in the blog still active?
Yes on one, “maybe” on the second. The first is from a significant, NY-Based capital firm. The first transaction that was documented for their funding was completed this morning. The plan is to perform a series of major deals together, which create significant cash resources for the Company, from which the largest or most problematic aged debts can be retired (and in some cases, significantly reduced as a result of a one-time cash payment). The second entity that expressed interest in the same sort of structure requested some documentation that was not readily available… so as a result, that potential venture has not yet been pursued.
12) Bashers are always harping on Shadow Vision which was blogged as being 30% complete about a year ago. Any progress on that?
Answered in item 2b-II above.
13) Can proof be provided to the shareholders that Mindset was in error in filing that they have no revs or a business in 2005, thus making the "HHSE was once a shell" issue go away for good?
Mindset made a filing many years back that contained a factual misstatement. Their filing stated that the Company “had no business.” However, as has been clearly demonstrated, and reviewed to the consensus of FINRA and three separate S.E.C. approved attorneys, the actual statement should have said that the company “had no revenues” at that time, which has a significantly different implication than the verbiage used. Subsequent activities for the Company proved the error of the filing, and the issue has been resolved ad nauseum (every time someone new just skims the surface and doesn’t look further). Regardless, HHSE will ask FINRA for approval to release the opinion generated in this matter back in 2011 when FINRA completed their historic review of TDGI in preparation for approving the ticker symbol change to HHSE. The correspondence from FINRA contains standard disclaimers limiting the republication and redistribution of the communication without their expressed, written approval.
14) Why do shareholders hear about most lawsuits from the bashers before they hear it from company?
The bashers (under the guidance of their primary puppet-master) are desperate to profit from short-sales of HHSE as well as to hurt the PPS as punishment for HHSE management refusing to participate in their demand for advanced knowledge of material events. This extortion from them, the promise to “tank the stock” if HHSE refused to cooperate, is the basis of the criminal investigation activities underway for the FBI and US Attorney’s office. The good news is that all of these bashers / boxers / manipulators are readily identifiable and easy for legitimate persons to figure out who these people are… just visit InvestorsHub, which allows them to flourish, unchecked, regardless of the obvious criminality of their ventures (and watch for news involving IHUB as well). So, while the bashers like to think “they own HHSE” the truth of the matter is that we have taken over their lives with a myriad of mundane tasks that comprise the time that they otherwise could have utilized to make money. For instance, every day, these guys contact the Transfer Agent, in gleeful hopes that the A/S has changed and they can scream that “the sky is falling.” Every day, these guys search and scan for any possible typo in any possible draft of any possible letter, ad or document, in hopes that they can call HHSE “liars” or worse for any perceived inconsistency. (Almost) every day, these guys try to contact HHSE suppliers and customers to try to sabotage business relations through misinformation (we have records of such contacts), and lastly, every day, these guys visit the free-on-line access Court Records at Washington, County, Arkansas, where court filings appear, often times days or weeks before HHSE is actually “served” with notice of a complaint. We figure that they are wasting at least six hours per week, which means that they are not making money for themselves during this time. It’s possible that this lengthy Q&A blog will distract them for five or more hours as they pursue a futile scramble to try to find any modicum of perceived inconsistency. Smart use of time! Yeah, they're REAL smart cookies.
15) Any progress on the FBI investigation? What about HHSE's blogged civil lawsuit against the perps? Timeline on either?
Yes, both are progressing, but we cannot comment further than what has been disclosed herein.
16) Any share buyback plans?
If the stock price is still under $.02 by year’s end, HHSE management will ask for a proxy vote to use cash to buy-back a large block of shares that will be retired to treasury. We cannot realistically take such an action at this time because all of our cash is being utilized for operations, growth and debt management. If we had enough surplus cash to buy back shares, it would be difficult to persuade a major creditor to accept a discount on their notes in exchange for a one-time cash payment. HHSE management feels that the stock is worth $.06 to $.10 depending upon year-end results and valuations. Shares for sale on the open market at $.02 or less could be an arguably good use of the surplus capital that is forecasted from current sales activities.
17) What percentage of their new salary are CEO and CFO actually taking home considering the Form 10 registration hasn't gone through yet?
Neither Parkinson nor Shefte are currently drawing cash salaries. However, the sums due to them are continuing to be accrued as deferred salaries. It is anticipated that both will agree to significant reductions in both deferred salaries and cash loans provided to the Company, if the mega-funding discussions come to a close.
18) Are there ANY outstanding lawsuits? Or are they ALL settled?
HHSE is aware of a complaint from the producers of AMITYVILLE ASYLUM. It’s for a very small dollar amount, and to date, the plaintiffs have not followed proper court protocol. We have agreed to what is due to them, and in fact paid (via cashier’s check) the initial amount that they agreed to accept. So the financial exposure to HHSE is inconsequential and this matter should be expeditiously removed from our agenda.
19) Are there ANY plans for additional debt conversion (dilution) in 2015?
There are no new deals in place or in discussion involving any new debt conversions. There are still unpaid notes that could be converted to shares if HHSE did not pay them in cash under the terms of the note. The only stock issuance that HHSE was unable to stop was the TCA-Magna transaction for shares, as they love that HHSE stock (much to our dismay). As previously disclosed – and based on current, artificially manipulated and low PPS – it is possible that Magna could convert in the near future for approximately 5-mm shares. We wish this were not the case, but the cash-payments settlement with TCA required that HHSE allow the July 2nd TCA-Magna conversion to survive.
20). Ahnume Business Consultants, LLC were given 1,000,000 restricted shares of HHSE stock at one time and then issued another 26,000,000 shares of restricted common shares on another date. What have shareholders received for all of these shares ?
At the time that we were approached by Ahnume, HHSE had hit a financial wall with VODWIZ. We had two mid-level workers (Tim Ellis and Garrett Krier) working full-time to determine the operational, technical and financial needs for creating a server network as the back-room functions for VODWIZ. The best pricing we could determine was more than $1-mm in cash – to create a clean-room, temperature controlled servers, fiber-optic distribution lines to key internet data distribution points, back-up power supplies and a massive list of equipment and personnel to operate the system. HHSE would have been challenged to commit $100,000 at that time, let alone $1-million. So the proposal from Ahnume – to implement the website creation, the title uploads, and to handle all of the technical back-room operational and delivery functions – for no cash, but restricted shares instead, seemed like a smart solution. However, as of today, we don’t have much to show for it, even though absolutely no blame could be attributed to Ahnume, and even though HHSE acknowledges that much of the responsibility for delayed uploads comes from the HHSE and Supplier side for masters, meta data and formatting requirements. As of today, the VODWIZ website is perfunctory and the titles that are uploaded are insufficient in total quantity count to justify a consumer outreach campaign. As stated above, it is HHSE’s hope that the hiring of an internet / streaming executive to handle VODWIZ will help navigate the various issues that have impeded the official launch of this otherwise very exciting venture.
21). What is the status of the relationship between VODWIZ and NanoTech?
Nanotech has contracted with HHSE to handle the website creation, maintenance, title uploads and digital distribution (back-room) services for VODWIZ, in consideration of an off-the-top fee from revenues. There has been no formal change in the terms of the agreement entered into by the companies two years ago.
22). What is the Company’s biggest theatrical movie you foresee in the next 3-6 months? Mother Goose; Legend of Belle Starr; Shadow Vision??
“Dancin’ It’s On” is slated for approximately 600 theatres next month. That’s a very big screen count for an independent studio. So that’s definitely going to be a big one. Our next “big” release (600+ screens) is planned for FEBRUARY and our third is planned for APRIL. However, those two titles have not yet been announced. As for the three productions listed in the question, the setting of a theatrical date needs to be deferred until principle photography is underway – because there are too many scheduling factors that could affect the completion (and release) dates. There’s an additional issue with “MOTHER GOOSE” in that a major fast-food-restaurant chain has offered to participate in a multi-million dollar consumer advertising and marketing promotion around the film’s theatrical launch… so with that substantial resource on the line, the selection of a release date must be made in concert with the cross-promotional partners.