Good Morning HHSE Friends - as previously disclosed in press releases and blogs, HHSE stopped utilizing Alchemy Entertainment as a key wholesaler back in December, with the last new release (mass merchant DVD) product placements already locked-in as of that date. The most recent post about Alchemy was last Thursday, June 23.
We mention this issue today due to increased film industry speculation in current trade journals, that Alchemy may finally be on the verge of filing for bankruptcy.
Already, some shareholders have asked if an Alchemy BK filing will hurt HHSE's cash flow or revenues? While we certainly would prefer to receive payment for shipments made through Alchemy, the worst-case scenario was already anticipated. When Alchemy stopped paying HHSE / Medallion (OCT. 2015), we responded by holding Alchemy sales in "reserve" as potential bad debt - and not adding-in the value of these shipments onto the Company's calculation of quarterly revenues. As described in this blog, following the advice of our CPA team (and triggered specifically by Alchemy's cessation of payments for consignment merchandise), HHSE is now only recognizing such shipments on a "cash-basis" instead of accrual. Accordingly, all Alchemy sales since OCT 2015 have already been reserved or otherwise withheld from HHSE revenue reporting.
What will happen if Alchemy ultimately files for bankruptcy (as HHSE predicted more than six months ago when we replaced them as our primary wholesaler)? We don't know - but we can very accurately quantify the value of our unpaid sales, and as such, would be one of their major creditors.
HHSE has already navigated the "rough" waves from the Alchemy operational problems. As disclosed last week, they caused us to lose a significant component of our prior, monthly cash flow, and it took us several months to replace them with a reliable-paying master distributor. As a result of being proactive, HHSE is months ahead of other suppliers in this regard, as we are now placing two to three new releases per month into Walmart, Target and Best Buy through Cinedigm; and yes, they have been paying us!). It's refreshing to find that the advice given to HHSE from outside CPA advisors has put us into a proactive "safe seat" in this matter. We anticipated this possible occurrence, reserved for it properly, and made course corrections months ahead of other distribution suppliers (many of which are just now entering the Alchemy crisis zone).
More to follow on this topic - and several other items of a far more positive nature.