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Saturday, January 30, 2016

Update On Form 10, Audits, Ventures and other HHSE Matters

Dear HHSE Friends & Followers - In response to shareholder requests, a substantial blog / disclosure is presented below, covering a wide range of issues:

1).  TCA RESOLUTION STATUS / UPDATE - As disclosed recently, the attorneys for HHSE filed a motion to set-aside the TCA judgment against HHSE (and related parties), due to obvious errors and demonstrably false statements in their filing for a judgment - as well as the undisputed, mathematical evidence that HHSE has actually  - significantly - overpaid TCA well past the amounts that TCA is legally allowed to collect (including maximum, legal default interest rates).  As of Friday, Jan. 29, TCA's attorney's had not filed a response to the HHSE motion.  While HHSE's attorneys are confident in the Company's position, until the default is formally "set-aside" or vacated, HHSE will still be encumbered from obtaining traditional corporate credit lines.

To be clear:

a).  TCA has acknowledged in writing the receipt of all of the HHSE payments;

b).  The amount of the acknowledged payments made by HHSE (or on HHSE's behalf) to TCA is $396,896.00;

c).  The total amount of loan proceeds that HHSE received from TCA in May of 2013 was $245,000;

d).  If HHSE decides to concede on the point that TCA is actually entitled to receive an additional $55,000 in "origination" fees and costs (and therefore, the "starting amount" for the calculation of interest would be $300,000 instead of $245,000) - then HHSE has STILL OVERPAID TCA by $28,439.65, which assumes 18% (maximum legal interest) as of January, 2014 (which conforms to the TCA Auditors letter received by HHSE).

e).  If the court decides that TCA is entitled to receive an additional $100,000 as an "Investment Advisory Fee" for advisory services never performed - and that this terminology is not merely an attempt to circumvent the maximum legal usury rates - then HHSE has STILL overpaid TCA by virtue of issuing 10-mm shares in June (2013) which were valued at $123,000.  However, HHSE Attorneys feel that the case law for inventing different "terms" for nonexistent services are "interest by another name" and will likely not be deemed enforcable (or payable).

f).  HHSE has requested that TCA return the 10-mm shares that were issued in June (2013) as "collateral" or "payment" for the "Investment Advisory Fee" to TCA.  However, TCA has not returned the shares, and had been previously attempting to force payment from HHSE in cash or this issue. HHSE believes that TCA is unable to return the shares because (at TCA's request), the stock certificate was issued to Caledonian Bank, Cayman Islands, and that subsequent to the S.E.C. filing enforcement actions against them, Caledonian Bank filed for bankruptcy. Therefore, it seems likely that the 10-mm HHSE share certificate is not accessible to TCA - which under law would constitute constructive payment for the "Investment Advisory Fee" disregarding whether or not TCA is legally entitled to charge fees to a loan for services never performed.

g).  If the Court rules that TCA is NOT entitled to an additional $100,000 in interest (under the disguise of "Investment Advisory Fees"), then TCA will need to return the shares (likely NOT possible) or pay back to HHSE the value of the shares as of date of issuance. If the court rules against the validity of this "fee" then then entire amount will have been illegal "usurious" interest, which is subject to statutory 200% penalties. So HHSE would be entitled to get paid back DOUBLE the total amount of usurious interest paid.

h).  TCA will likely adopt the position that they are entitled to receive the $100,000 for "Investment Advisory Fees" because Hannover House signed the document with this provision.  They may also try to cite as "services" provided that they repeatedly demanded that HHSE dump low-priced shares to a specific "toxic debt conversion" company that met "TCA's approval," and that this demand (to pay them back through a horrible methodology) constituted "advice" to the Company. However, there is also an issue of fiduciary conflict if they are both the senior creditor AND separately being compensated for "Investment Advisory" services, especially if the advice is self-serving to the detriment of the Company.  TCA will not want the court to rule that this fee is simply "interest by another name," but it's very difficult to envision any form of winning argument for TCA. The case law against predatory lenders has dealt with all of these "tricks" to try and circumvent the maximum legal interest rate laws.

i).  ALL COLLECTION ENFORCEMENT ACTIONS and TCA attempts to execute on the Judgment in Arkansas have been HALTED, due to the preponderance of evidence that HHSE has overpaid TCA.

2).  FORM 10 STATUS - HHSE Form 10 Registration document is completed, subject only to the updated items as described below.

3).  2014 / 2015 FULL YEAR AUDITS - The new auditors for HHSE are PCAOB Certified with a spotless record for accuracy and compliance. There are two major issues that impacted the completion of this task in January.

a).  HHSE has been informed that the Company must complete the internal controls & compliance documentation on the accounting of activities for the Company in a format that will fully conform to the Sarbanes-Oxley Act 404, or face the likelihood of significant footnotes to the auditor's report. While this internal procedure standard does not require that HHSE do anything differently than the methodologies used at present, it does require a voluminous set of internal documents describing each procedure (from how a cost is applied to a specific title or expenditure account, to how the company recognizes contract-receivables from financing ventures such as the manner that Netflix pays out over 2-year terms). 

b).  The HHSE Film Library Report is missing over 220 titles that have been added since 2010 (the last date that the library was reviewed and evaluated by an outside party).  The new auditors have encouraged HHSE to immediately complete a current (12-31-2015) Library Valuation Report - and to utilize one of the top six specialty firms in that industry. HHSE has already commenced this engagement and new library report.

Both items (3a and 3b above) are expected to be completed in the next few weeks, and will become items referenced within (or directly included within, either fully or in abbreviated formats) to the Company's Form 10-registration statement and Auditors report. Company asks shareholders to note that once HHSE's work portions are submitted to the Auditors and Film Library Valuation Company, that the control over completion timing is no longer under Company's control.

c).  NEW AUDITING COMPANY and NEW LIBRARY VALUATION COMPANY - Some shareholders have asked if HHSE is going to formally announce the new auditors and the new Library Valuation firm prior to the filing of the Form 10 registration.  HHSE counsel informs management that since HHSE is not yet fully reporting and fully registered, that such a disclosure in advance of the Form 10 Registration is not required. In respect of prior "interventions" by shareholders in contacting auditors, HHSE prefers to minimize these unprofessional distractions and enable our service providers to do their work without interference.

       3a).  2015 YEAR END RESULTS - Full year (2015 results) are expected to be released on or before February 12, 2016.

4).  UPDATED LIBRARY VALUATION STUDY - The addition of 220+ titles not currently carrying any value to the HHSE library, is expected to more than offset any write-downs due to a general decline in catalog sales for DVDs over the past five years. Other revenue streams (most notably Video-On-Demand) have offset much of the decline in physical goods sales, but only for certain genres of movies (and for current theatrical releases); older direct-to-video titles have, for the most part, under-performed at the income levels previously forecasted... while theatrical titles have over-performed. HHSE management will be looking at these market trends, as well as title-specific sales histories for the past three-to-five years, in order to extrapolate a realistic and achievable value for each of the titles in the Hannover House / Medallion Releasing film libraries.


5a).  "ENCOUNTER" - Beginning on January 22nd, HHSE released the "found-footage" horror-thriller, "ENCOUNTER" to theatres in Key (primarily in the top 25 DMA) markets.  The film has already played in New York, Los Angeles, Atlanta, Tampa-St. Petersburg, Minneapolis-St. Paul, Orlando, Sacramento, Charlotte, Raleigh, Columbus (OH) and Cincinnati.  Over the next two weeks, the film will be expanded into Chicago, Dallas, Detroit, Seattle, Portland, San Antonio, Oklahoma City and Memphis.  "ENCOUNTER" will be released onto home video and V.O.D. Streaming Platforms on April 26.  Walmart and Netflix deals are completed... Redbox, Best Buy and Target placements are in discussions / pending buyer's final approval.  HHSE plans to work with the director of "ENCOUNTER" (Susannah O'Brien of Sahara Vision Production), on additional films she is making, including "HALLUCINOGEN" and "THE DOLL."

5b).  "BORRAR DE LA MEMORIA" - This title had a single screen test market in the Los Angeles metro area on Jan. 22nd.  The theatrical release is now being expanded into Phoenix, Tucson, San Antonio, Houston, Dallas-Ft. Worth and Denver.  This film had a 200+ theatre theatrical release in Mexico (it's country of origin).

5c).  "UNION BOUND" - In order to better coordinate cross-promotional activities (involving over 50 mega-church promotions, plus the World Net Daily website and publishing divisions), "UNION BOUND" has been expanded, and delayed for theatrical release until April 22nd.  A formal press release will be posted this coming week (Feb. 1 - 5); previously, HHSE and Uptone Pictures planned to release the film on February 12, to coordinate with Black History Month promotions.

6).  INTERNATIONAL SALES - CANNES MARCHE DU FILM - As will become evident over the next few weeks of press announcements, HHSE / Medallion Releasing will have a significant, high-profile line-up of theatrical productions for sale to international buyers.  The best forum to launch this aggressive International Licensing activity will be the Cannes Film Festival / Marche Du Filme in Cannes, France, May 9 - 22.  HHSE / Medallion will have a sizable "seller's booth" at the Palais Convention Center - and will be screening completed films and "promo reels" (of films already in production) for major buyers.

7).  CORPORATE DEBTS / BALANCE SHEET IMPROVEMENTS - As will be seen with the OTC markets 12-31-2015 filings (and reiterated on the Form 10 / audited filings), HHSE significantly reduced its total debts during 2015 - and most notably during Q4.  The reductions in debt during Q4 - cumulatively totalling over $400,000 - were from non-stock related transactions, including straight cash payments from the company's improving revenue streams.  HHSE management wants shareholders to recognize the unanimous commitment to grow the company and improve the balance sheet - which is finally being completed without new dilution equity issuances.

8).  DVD / BLU-RAY & V.O.D. RELEASE SCHEDULE UPDATES - As a lengthy list of new release titles have already been formally announced to the trade (key buyers), HHSE will also be releasing a summary of new releases through June (2016) to shareholders and general media in the next few days.