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Saturday, November 21, 2015

HHSE Responds to Shareholder Questions

Greetings HHSE Friends & Followers.  In response to our Thursday blog post, the Company received a surprising number of shareholder "questions" for us to answer: 28 emails with a total of 42 separate items of inquiry. There were a surprising number of questions seeking information on issues not previously addressed - or updates for projects in process.  Accordingly, the Company's ability to respond expeditiously is a bit impeded for some questions - as a response now (in a blog) would usurp either the value of a formal (coordinated and planned) press announcement - or would require the approval of third parties or key advisors (auditors, attorneys or S.E.C.).  Accordingly, the Company will respond to those questions not requiring previously non-disclosed information, or material new information.

The questions and answers below are in random order, unrelated to relevance or significance.  Also, in some cases, the questions below have been reworded for clarity:

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1).  WHAT IS THE STATUS OF THE TWO "MEGA FUND" DEALS? - The Company has been involved in discussions with two separate funding groups / investors regarding the possibility of what we are referring to as a "Mega Fund."  Both ventures continue to progress.  Both involve the achievement of specific corporate goals and results, and the Company's priority has been to satisfy these requirements.

The concept of a "Mega Fund" type venture is to provide the Company with sufficient funding (quickly) to eliminate all problematic debts and to promptly expand the release and sales-generating ventures that will elevate the revenues and stature of Hannover House.  Unlike the small "convertible" notes that HHSE had entered into during 2012, 2013 and early 2014 with JSJ Investments and Mohawk Ventures, the concept of a "Mega Fund" is not to create a new debt liability that has a contingent stock conversion option... but instead... to genuinely clean up the Company's balance sheet and capitalize the Company to a level that "convertible notes" are never needed (as debts - including the Mega Fund principal and interest - can be paid from the enhanced revenues resulting from the expansion of corporate activities).  

2).  WHAT I.R. ACTIVITIES ARE CURRENTLY IN PROCESS OR ABOUT TO LAUNCH - As of today (Sat., Nov. 21), there are NO I.R. ("Investor Relations") activities currently in process. Over the past few months, "outreach" activities have been attempted by several suppliers, including MicroAdvantage, HotStoqx and Twitter Marketing Service. There has not been a noticeable impact to either the stock volume or PPS as a result of those particular activities.  However, there are mitigating factors of late or non-performance of corporate goals at HHSE which may have tempered some of the market's enthusiasm.  There are some pending I.R. support plans few weeks.  However, HHSE Management believes that the best I.R. will be the publication of the Form 10 registration and the renewal of support from existing shareholders - as well as the expansion outreach to new followers.

3).  PLEASE SPECIFY THE SEPARATE (INDIVIDUAL) TITLE RESULTS FOR "THE ALGERIAN", "BONOBOS" AND "DARK AWAKENING." - During Q3, each of these three titles began their theatrical release cycles ("Dark Awakening" in June, and "Algerian" and "Bonobos" in late July).  None of these three titles generated box office levels that the Company felt were significant enough to merit a pounding-of-the-chest sort of announcement or platform.  However, none of these releases were expected to perform at the box office.  In all three cases, the theatrical releases were designed to fulfill "ancillary" sales obligations (enhancement of the video and V.O.D. values, Subscription Video-On-Demand and / or Showtime Networks).  During Q3, only the theatrical revenues for "Bonobos" and "Algerian" were posted.  However, the Q3 results for "Dark Awakening" include both home video shipments and SVOD / Cable TV sales.  As per Company policy (and almost uniformly practiced throughout the film distribution industry), specific dollar results for individual titles contributing less than 10% ("material") impact to the Company's annualized results, are kept in confidence in respect of the program suppliers and participants.

4).  WHY ARE MOST OF THE VODWIZ MOVIES "SO OLD" AND "NOT WORTH WATCHING?" - That's sort of a "favorite color" question, in that there is no answer to what is - or is not - worth watching.  However, at present VERY FEW titles have been uploaded to VODWIZ.  This is an issue that the Company feels will be worked out in the next few days, and blogged about separately.  There are a LOT of "new" titles for VODWIZ, and many that (based on commercial success at theatres or home video), could arguably be classified as "worth watching."  Stay tuned.... VODWIZ could quickly prove to become the "tail that wagged the dog."

5).  DOES HHSE HAVE OFFICES IN CALIFORNIA AND NEW YORK? - Not at present.  The Company has in the past had an office and presence in L.A., and a temporary space in New York. But not as of today.  Back in 1950, having field offices was pretty much a requirement for all film distributors.  But in today's internet and digital world, HHSE can be headquartered pretty much "anywhere," and still have the same visibility at retail stores or in theatres (or at film festivals and markets).  If the release slate or market conditions in the future suggest that the Company would be better served by having a physical presence in NY, LA or other locations (and employee representation there), the Company will certainly look at such opportunities and reevaluate.  Meanwhile, being headquartered in N.W. Arkansas has proven to be a competitive advantage over other DVD suppliers, in that HHSE has frequent interaction with a wide range of Walmart executives (and Walmart continues to dominate the packaged-goods business with a 51% market share in the USA for DVD / BluRay unit sales).

6).  IS TOM SIMS ON THE BOARD OF DIRECTORS? - The Company's VP of Sales is Tom Sims.  He has agreed to join the Board of Directors, effective with the activation of a Director's & Officers Liability Policy that the Company has arranged for activation beginning January, 2016. There are two other, extremely high profile individuals that have agreed to join the Board of Directors in January - and all new Board Members will be announced separately.

7).  WHY DOES THE WYOMING SECRETARY OF STATE'S A/S LISTING FOR HHSE STILL SHOW 900-MILLION SHARES AUTHORIZED? - HHSE finally received a response back yesterday (Friday, Nov. 20) by the Wyoming SOS office on this subject. Back in April, when the mechanism for "reserve shares" was written into the Articles of Incorporation for the Company, the Wyoming Secretary of State's office interpreted this action as being a request to immediately increase the A/S to 900-million shares. While this was not what HHSE was requesting, the result of the filing was an immediate increase of the A/S to 900-million (instead of a simple reserve mechanism "in case it was ever needed").  When HHSE sent them the corrected Articles of Incorporation to properly correct the A/S back to 800-million shares, the filing was held, pending review. Both the original request and the corrected / revised request fell outside of the customary boiler-plate requests handled by their offices, according to their representative.  In order to correct the A/S to 800-million shares, HHSE was asked to write-up a clarifying statement about the original intent of the April amendment, and the purpose of the correction that has been requested (for several months now).  This narrative was immediately completed and sent via Fed-Ex to the Wyoming Secretary of State's office, for arrival on Monday (Nov. 23).  We anticipate that the A/S will be adjusted as promptly as their office can accommodate - to properly reflect the correct A/S level of 800-mm shares.

8).  WHY IS TCA'S JUDGMENT SHOWING OVER $300,000 DUE, AND DOES THIS MEAN THAT A HUGE STOCK CONVERSION TRANSACTION IS GOING TO HAPPEN?  - The TCA Balance is approximately $61,000 at this time, due to payments made since June (2015) of over $275,000. HHSE plans to utilize its growing cash resources to pay off the TCA balance in December, as previously stated.  The Company does not have any plans for creating "debt conversion" shares. As will be seen in the Q3 filings, the results of the Company's more active release slate and new activities have provided greater cash-flow for the payment of such debts.

9).  SOME OF THE STATEMENTS BY THE TCA ATTORNEY IN THEIR JULY COURT FILINGS ARE CONFUSING AND MAKE IT SOUND LIKE SOMETHING IS WRONG WITH THE ISSUANCE OF HHSE STOCK.  PLEASE CLARIFY - There were numerous factual errors contained within the TCA court filings, ranging from the obvious to the irrefutable. Obviously, nothing had ever impeded the issuance of HHSE Shares to TCA (via MAGNA) for prior payments - even though their attorney's filing stated the opposite. The issuance of shares to TCA / Magna is not a matter of opinion.  It's a matter of fact.  Also - and obviously - HHSE would need to get credit for prior payments, even though their attorney's filing made it appear that no prior payments had been made.  As a point of factual history, HHSE received $245,000 in proceeds from TCA in May, 2013.  The Company has since paid out approximately $493,000 against this venture, and still "owes" $61,000. Most would say, "there's something wrong there," and they would arguably be right.  But what's wrong is not what the TCA attorney's filings have stated.  Regardless, HHSE was advised by counsel to save the money to protest the verbiage in the TCA court filings, and to simply pay off the balance, get the UCC Lien released, and collect back the 10-mm "collateral shares" (returning them to treasury).  The Company has not waived any of its rights and remedies by paying off the amount as required.

10).  WHAT'S THE STATUS OF THE AUDIT AND THE TIMING OF THE FORM 10 FILING? - As stated previously, HHSE has been advised to file the Form 10 registration as quickly as possible and in a format that will be best positioned for expeditious approval by the S.E.C. Because so many shareholders view the filing of the registration as a critical issue - and because the Company has missed so many other self-imposed deadlines with this rather complex filing - the Board remains steadfast in the prior position to simply file the Form 10 the moment the applicable audit periods are completed - and to make the filing without any further advanced notification or fanfare. The Company has engaged a reputable, PCAOB auditing company that has a perfect compliance record with all applicable licensing and regulatory agencies.

11).  WHAT IS THE NAME OF THE AUDITING COMPANY AND THE SPECIFIC PERSONNEL HANDLING THE HHSE AUDITS AND FORM 10 FINANCIAL DISCLOSURES? - As previously stated, in response to the intentional harassment that usurped the audit completion with the Company's originally designated auditing firm (Hogan-Taylor), HHSE will not provide advanced notification of the auditing firm. The auditors will be specifically disclosed within the Form 10 registration filing, which will be too late for the "friendly little helpers" to continue their losing battle to stop the growth, progress and uplisting of HHSE.

12).  WHEN WILL HHSE BEGIN BUYING BACK SHARES OFF THE OPEN MARKET? - Management has discussed this opportunity, and feels that currently growing surplus cash reserves could be effectively used to buy up HHSE Common Stock Shares off the open market at the current (absurdly low) stock prices.  However, management has been advised to defer such activities until after full retirement of TCA balance (December) and the implementation of structured payment plans with four remaining creditors (also planned for December). To use cash resources NOW for stock retirement, prior to having payment agreements for these key vendors, could appear disingenuous or inconsistent with the veracity of the structured payment plans.

13).  WHAT BIG (NEW) RELEASES DOES THE COMPANY HAVE FOR Q1 AND INTO 2016? HHSE and Medallion have 12 theatrical titles for 2016, and approximately 36 DVD / BluRay physical video releases.  The Company also has closed deals for VODWIZ representing over 3,500 titles, including over 200 recent theatrical releases. The theatrical titles consist of FOUR titles expected to open on more than 500 screens, with the other EIGHT titles being more limited (approx. 20-to-50 locations, primarily designed to meet release requirements for enhanced home video sales, cable TV or Subscription Video-On-Demand presale contracts).  In respect of the stature of the higher end releases, a quick blog title listing would be disrespectful to our program suppliers. Accordingly, the releases will be individually announced, usually about 90 days prior to first media-window release.

14).  WHAT IS THE STATUS OF THE CIVIL AND CRIMINAL ACTIONS AGAINST THE "BASHERS?" - HHSE has previously discussed this matter in blog filings. Counsel has asked management to not comment further at this time, but to publish the long-form complaint when so instructed.

15).  WILL HHSE IMPLEMENT "CONFERENCE CALLS" WITH SHAREHOLDERS? - We think so, but nothing specific has been decided or implemented.

16).  WILL THERE BE A SHAREHOLDER'S MEETING DURING Q1, 2016? - Yes.  Date and time to be determined, and will be announced a minimum of thirty-days prior to the meeting.

17).  WHAT IS THE REPLICATION CAPACITY FOR HHSE WITH THE NEW MANUFACTURING LINES, AND WILL THIS BECOME AN INCOME SOURCE? - The DVD and BluRay replication capacity for the HHSE in-house line is modest, at approx. 65,000 units per month.  However, this is more than sufficient for the Company's "catalog" replication needs for older titles and short-run quantities. For mass-quantities of new releases, the Company has been utilizing SONY DADC and Encore Media Services. But these (and comparable) front-end manufacturing suppliers usually require "minimum runs" of 1,000 or more per title. The HHSE DVD catalog / library currently has over 200 titles in active release... many selling only a few hundred DVD copies annually.  Ordering a minimum run of 1,000 units from a front-end supplier was proving to be bad cash management, because such a quantity in some cases might represent a 5-year product supply. The HHSE in-house replication line now enables us to create orders as small as fifty-units per title (and fully printed and packaged in less than 1-hour). So it's a move to save time, preserve working capital and improve order fulfillment of catalog titles. Revenue wise, the Company will make a little tiny bit of extra money as well, because the titles will continue to be charged at the established industry standard replication rates.

18).  PLEASE UPDATE SHAREHOLDERS ON THE STATUS OF THE BIGGER PRODUCTION ACTIVITIES, INCLUDING MOTHER GOOSE - Exciting topic, but one which requires separate announcements and updates.  Accordingly, this question will be deferred temporarily.

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