Welcome to the Hannover House Investor Relations Blog

Wednesday, June 29, 2016

General Update on HHSE Corporate Matters

Greetings HHSE Friends & Followers:

Yes, it's been a very busy period for the Company, with post-Cannes follow-ups combined with a wide variety of "ramped-up" activities for new releases, new productions, VODWIZ, television & video sales, and general corporate governance & filings.  We have made diligent attempts to be more timely in our shareholder blog updates... but find that the Company's daily operations keep demanding full attention.

While some shareholders might disagree with management's selection of time priorities, every item that needs to be pursued and followed-up is being handled in descending order of mandatory sensitivity.

1).   INTERNATIONAL SALES / CANNES FOLLOW-UPS - The additional workload following Cannes has been back-breaking, and the Company definitely needs to hire a full-time "international" (or Ancillary Rights) Sales Director. To add to the pressure, the New Release Submission work duties - previously handled by Caitlin McKenzie (who left last month to assume a position with Universal), has been magnified due to the strong support that Cinedigm has demonstrated for HHSE and Medallion new release videos. So we are in need of one, possibly two, quality middle-managers to help with these tasks. Meanwhile, follow-ups continue with sales for 15 of the 32 titles presented at Cannes, and into these key territories: Australia/NZ, China, Colombia, France, Germany, Italy, Japan, Malaysia, Phillipines, Poland, Singapore, South Africa, South Korea, Spain and the U.K.

2).   NEW RELEASE SHIPMENTS (DVD / BLURAY) - The wholesale distribution pact with Cinedigm continues to thrive (and expand). Titles placed a key mass merchants (e.g., Walmart, Target, Best Buy) include (alphabetically):  A Remarkable Life, Brutal Colors, Dark Awakening, Day of Redemption, Dinosaurs of the Jurassic, Hear Me Move, Identity Crisis, Linda Vista Project, Revelations, Salvation and Union Bound.  This volume of new release placements has resulted in the heaviest 90-day DVD replication and shipment status in the 23-year history of the Company.  With new theatrical titles in queue, the pace for physical and digital releases does not look likely to slow down over the next 12-months.

3).  THEATRICAL ACTIVITIES - HHSE's single-screen exclusive engagement of "THE HOMELESS BILLIONAIRE" last week in New York City (Regal E-Walk) has been the highest per-screen grossing independent film of the year (over $40,000 in one week!).  Company feels that this initial week test is a good sign for the film's forthcoming expansion to approx. 100 locations on Labor Day Weekend (Sept. 2 - 5).  HHSE / Medallion are also opening another romantic-comedy in mid-September that is currently being prepared for release.  Details of this Cannes acquisition have not yet been posted to the trade, public or shareholders.  "A REMARKABLE LIFE" continues to open in top 30 DMA markets; and "TOYS IN THE ATTIC" has an encore theatrical re-launch in October.

4).   VODWIZ STATUS - HHSE met in NYC two weeks ago with a new portal management / distribution partner company to finalize terms of negotiations that had been occurring over the prior six months. Due to the stature (and public company status) of this venture partner, details of the VODWIZ relationship and launch will be made via public and joint announcement.

5).   FORM 10 ISSUES - The HHSE / Medallion film library (now over 455 titles) is requiring more time for valuation (and more costs) than previously anticipated, due to PCAOB requirements for the Form 10 audit opinion letter. Each title requires a five-year forecast for gross and "net to HHSE" revenues from all applicable media under license for that title (which in most cases is physical video, digital video and television... and in other cases, international and / or theatrical rights are added in).  With respect to titles already released, a 3-year prior sales history is used as the benchmark to support the five-year sales forecasts.  With respect to unreleased new titles, HHSE is required to provide a "comparable" title (and their sales history) in order to justify the five-year sales forecasts. The management labor-hours required have thus far been in excess of 300 (which translates to roughly 7-1/2 weeks of full-time work, if no other task were also addressed). Accordingly, HHSE Managers have not been able to be as accessible or communicative to shareholders over the past few weeks / months of this process.  On a positive note, we will NOT need to have a new Library Valuation for another five years.  On a negative note, we cannot file the Form 10 until all of this is completed.  But it's a painful, time-consuming process which must be completed due to the value of the Library relative to the overall assets of the Company's balance sheet.

We are cognizant that many shareholders want us to file the Form 10 "yesterday."  However, it is essential that we file the Form 10 in a manner which is likely to be approved by the S.E.C. with minimal comments.  Assuredly, HHSE is not "sitting" on the project.

6).  LEGAL ISSUES - Legal counsel for HHSE have made beneficial settlements or prevailed in several matters over the past two months.

a).  Redbull Media House - The lawsuit in which Redbull was attempting to enforce payment for home video rights which HHSE did not license has been settled.

b).  Amityville Asylum - Settlement negotiations are continuing in this royalty dispute.

c).  DC Photographer - HHSE was named in a vendor lawsuit for an event photographer engaged as a work-for-hire by the Algerian producers at a DC-area theatre. HHSE has decided to tender the services payment ($1,000) on behalf of the production company, and otherwise respond and defend as may be appropriate.

d).  Accutrak, Tribune - These older judgments, which were recently reinvigorated with garnishment filings, have been settled, and the garnishment activities withdrawn.

7).  MAJOR PRODUCTION MATTERS - There was a bit of a panic last Friday with respect to a 25% portion of the funding on "MOTHER GOOSE." The plan to access EU benefits by shooting the castle-sequences in Wales was impacted by the unexpected, self-inflicted wound of U.K. voters choosing to withdraw from the EU.  Fortunately, we were able to reinstate a prior discussion involving an Irish castle location, as the Republic of Ireland is an EU member nation.  There has been some significant forward progress in the past few weeks on the financing of a slate of smaller features which would be shot in the State of Arkansas, utilizing a wide-range of incentives through the film office and the Arkansas Economic Development Commission.  Details will be released if, as and when these exciting discussions turn into executed agreements.