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Friday, April 1, 2016

Comments & Questions - Post "SH MEETING" Take-Away...

Good Morning HHSE Friends & Followers - The Hannover House Shareholder's Live Streaming presentation yesterday afternoon has sparked a volume of follow-up questions and comments that require further response.  By far, a statement made by Fred Shefte has generated the greatest level of shareholder concern or confusion.


After an update was provided by Eric Parkinson on the status of the Audits, Film Library Valuation and Form 10 Registration - Shefte added some additional comments that were clearly, at best, misunderstood or at worst, simply erroneous.

Shefte stated (correctly) that the auditors told us that the full process would take 60-days.

What Shefte neglected to say, was that the process commenced after the satisfactory completion of our second interview and the auditor's private investigator's report into the Company and officers (which items and final interview were completed in February). 

Shefte then stated something to the effect that "it would have happened today, but we told them not to come in" (which was a reference to the HHSE warehouse crew being in the midst of packing / fulfilling a significant order of 108,000 DVD units that have a pending shipment date).  

What Shefte neglected to clearly communicate was that the auditors requested to come into the HHSE offices as of YESTERDAY, to start the PHYSICAL INVENTORY COUNT of products and equipment. While it's correct to state that the inventory verification step has not yet started, it's not correct that the overall audit process has not yet started.  As for yesterday's requested site visitation, HHSE managers determined that it would be chaotic to have them counting pallets in the middle of us live-streaming a Shareholder's Meeting and asking them to maneuver around the 108,000 DVD unit order that is currently blocking aisles and obscuring access to count products. 

The full 2014 Financials and first three quarters of 2015 financials were delivered to the auditors over a month ago, following the final agreement and mutual acceptance of the engagement. Yes, at that time, HHSE was told that the entire process will likely take 60-days for completion, but not 60-days from NOW,  because the process is already well underway.

As previously blogged, HHSE has been told that certain steps will minimize the auditor's notes on the Form 10, and HHSE would be required to conform to certain standards in order to receive limited footnotes from the auditors - and likely - limited commentary from the S.E.C. review of the Form 10-12(g).  Those "recommendations" include:

a). Updated Film Library Report;
b). 2015 Tax Returns; and
c). Internal Procedures / Controls under Sarbanes-Oxley Act 404 Guidelines.

Over the past few weeks, HHSE completed the management tables elements for the updated Film Library Report (worksheets and presentation), and this item is already under third party review for a current valuation.  Also, over the past few weeks, HHSE has begun assembly of a Controls Procedures Workbook for all operational and financial steps and strategies pursued by the Company. Lastly, the completion of the 2015 Tax Returns can only now commence, due to the timing of the year-end results (which took longer than management had hoped for due to the need to verify key third party payables and judgment balances).

The 60-day process with our auditors is well underway - and we are confident that the Form 10-12(g) will be filed prior to the Company's jaw-dropping line-up of major titles and major stars are revealed at Cannes.  As will be demonstrated within the Auditor's Report portion of the Form 10, the commencement of date of the audit review and process will show the February (2016) timeline.


In engaging the new auditors, HHSE has made a long-term commitment that is not limited simply to the 2014 and 2015 years and a Form 10 auditor's letter / report.  We have asked the auditors to become a long-term member of the company's compliance and reporting team.  As such, we have already included within the scope of services a Quarterly "review" of all 10-Q reports - which will make future year-end audits a far faster and simpler process.  It has been determined that the Q1 results COULD also be subjected to the higher standards of "audit" as opposed to "review" if necessary, and that this additional step would be pursued if - and only if - something occurs that looks to jeopardize the planned Form 10 filing (which HHSE wants to occur prior to the Cannes Film Festival in May). The 2015 audit will go "stale" under S.E.C. rules at some point in mid-May (the precise date is subject to interpretations of guidelines).  If the Form 10 is not filed by this S.E.C. "stale" financials date, then the Q1 results will be added to the Form 10 filing so that the financials meet the 135-day aging requirement.  The Form 10 must contain the two, most recent years of full audited results... AND... the most recent ending period cannot be older than 135 days "aged".

So, unless an asteroid strikes Los Angeles and wipes out the firm that is review the Film Library Valuation company... or if Parkinson and Shefte are abducted by outer-space aliens and restrained from completing the SOX 404 report... or if the auditing company's building is sucked into a sinkhole... or any other such unforeseen (and extraordinarily unlikely) circumstance... then the HHSE Form 10 will include 2014, 2015 AND the full audited Q1, 2016 financials . Otherwise, we're on track.  HHSE MANAGEMENT HAVE MADE THE COMMITMENT THAT THE COMPANY WILL NOT miss the filing of the Form 10 in the next few weeks.  The CANNES title line up of high-profile productions is TRANSFORMATIVE and is the "Lionsgate" moment to take this company to heights that even the most optimistic of longs have not dreamed.  We have made the commitment to make certain that the Company's shares are fully registered - to correspond with that time that the world's media and the world's major investment community - are looking directly at HHSE.


As stated in the meeting, HHSE has spent tens-of-thousands of dollars over the past five years, hiring a wide range of "promoters" to help spread the word about the Company's achievements and opportunities - with the expectation that these activities will draw in new shareholders and ultimately impact the PPS.  While these prior efforts HAVE generated results, the sustainability has never been long, as the charts show only a "spike" in PPS change after I.R.  We have determined that sustained PPS growth is unlikely to occur UNTIL the Company files the Form 10.

HHSE is the only publicly-traded, full-service entertainment distributor whose shares are NOT yet fully registered.  Accordingly, the PPS is suffering a horrible penalty of only trading at 3.2X Price-Earnings Ratio.... when the P/E for this market sector is 22X. There are a lot of major entertainment investor groups that have contacted HHSE with various opportunities for investment capital, growth opportunities and more. But without fail, the present lack of registration and auditing procedures stalls such deals. Fortunately, we are only a few weeks away from achieving this level of "Compliance Credibility." There is a widespread expectation that the HHSE PPS will jump rapidly following the Form 10 filing - and if this is contemporaneously timed with the major title reveals at Cannes - management believes that there are going to be some VERY, VERY HAPPY Shareholders at that time.  And of course, the implementation of I.R. / P.R. to the investment community might finally make sense for that time frame as well.


One shareholder emailed that the SH Presentation was "a bunch of excuses."  This comment ignores that the Company achieved RECORD REVENUES, RECORD PROFITS, massive DEBT REDUCTIONS and NO NEW STOCK EQUITY Transactions for the past eight months.  Clearly, this individual - and possibly others - are single-issue shareholders.  "If the Form 10 is not filed by the SH Meeting, then I'm selling my HHSE Shares."  That's certainly the prerogative of any shareholder... to make an emotional decision to their own detriment.  But, it is management's belief that selling shares NOW will create massive regret in just a few weeks time.  Some shareholders are going to benefit wildly if:

*  The filing of the Form 10 brings HHSE to industry P/E levels (6-X higher than current PPS trading);

*  The Cannes major titles and stars generate X-millions in new sales for HHSE / MEDALLION;

*  The momentum enables HHSE to "close" the funding and strategic partnerships that have been circling the Company for over a year; and,

*  The consumer launch of VODWIZ  is simultaneously launched, and quite realistically with 6,500+ titles ready to stream live to consumers this summer;

Shareholders are people, and people can be emotional.  Accordingly, it would not be surprising if some shareholder's decided to throw-in-the-towel over the next few days because "we're not there yet."  We get it. Target goal dates were not achieved, it's happened before, there always seems to be some unforeseen issue arise. We see how some Shareholders could grow weary.  So what happens if someone decides to sell?  Well, if they bought shares for more than $.01 each, that person will lose money on the sale....sort of a "self-inflicted wound" that only hurts them, and makes someone else very happy when the above achievements simultaneously occur. Selling shares now does not in any way "punish" HHSE management or impact the Company's operations.  There are NO STOCK issuances in motion or even PLANNED.  The Company is not selling shares and the management are not selling shares.  Selling shares right NOW, just a few weeks from the "Lionsgate" A-HA moment for HHSE would be in management's opinion a move of "stupidity on an epic scale."  But it's always a shareholder's prerogative to sell - or buy - whenever they want to, and for whatever reason they select.  For every angry seller that hurts themselves by selling how.. there will be a super-happy (and arguably much smarter) shareholder taking their place.

The corporate achievements and major title growth are not years or months into the future.  They are just a matter of weeks.  So HHSE management advises shareholders to make whatever decision they feel is best suited for their needs or mood.

Despite having a record year of sales and profits in 2015, the HHSE stock PPS has still not seen much growth in recent months.  Will this change with the achievement of the above benchmarks?  Management certainly thinks so.  But we don't control the market's reaction, so it's always possible that the stock price will not see a major and sustainable growth.  It's the risk and evaluation that shareholder's need to make when selecting stocks for investment.  Management's opinion is that HHSE stock SHOULD be trading at $.10 or higher.  Management is taking the steps to make this pricing justifiable within the market.  Will it occur?  Only time will tell... but we won't have to wait long to find out.