Welcome to the Hannover House Investor Relations Blog

Tuesday, June 7, 2016

So much in motion, but there's still only 24-hours in a day!

Greetings HHSE Friends & Followers - If HHSE management works through the night, does that blur the lines between successive days?  Or does it just blur their short-term ability to focus on a computer screen?  We will leave question to the philosophers.

Regardless - there's so much in motion, so little time, it sometimes feels like HHSE is existing in one, continuously long day!

With (literally) hundreds of follow-up emails and responses due from CANNES... plus FIVE (5) new release video titles shipping for Walmart this week, plus REMARKABLE LIFE in theatres (expanding) and HOMELESS BILLIONAIRE (opening June 17) - on top of Corporate issues of Film Library / Audit / Form 10 / Legal Resolutions and more - the current workload is quite demanding.  So apologies for not updating the blog more regularly, or responding to Shareholder emails more promptly (or in some cases, responding at all!).

Here are some updates of items requested from Shareholder emails:

1).  NOW SHIPPING TO WALMART - "Dark Awakening" - "Brutal Colors" - "Salvation" - "Union Bound" - "Linda Vista Project."  It's an understatement to note that any single supplier - esepcially an independent distributor - would have successfully placed FIVE titles in Walmart at one time.  This bodes very well for Q4 cash flows. Someone asked, how does this impact Q2 / Q3 revenues? The answer is that the Company is now working on CASH-BASIS accounting rather than accrual accounting. The prior policy of "accruing" sales as they become activated (rather than when they are paid), has created some issues of confusion in reconciling the Company's A.R. vs Available Cash (as well as the dual issue of cash-basis tax returns vs accrual basis pubco filings).  As previously disclosed, contracts such as NETFLIX and SHOWTIME are paid over the length of the licensing term.  So for HHSE to book three-years of receivables (against Netflix, for instance) during the specific revenue quarter that the sale was activated does not conform to the cash-flow from the contract. Yes, booking a contract "immediately" is allowed under GAAP rules, because it's essentially "credit terms" as opposed to executory performance issues. It was decided that cash-basis accounting would reduce our work load and simplify future reporting and auditing requirements.  TO BE CLEAR, for those of you who have not had the benefit of multiple meetings with our auditors, HHSE is now accounting for consignment sales shipments on a CASH basis as described above.  We are also accounting for long-term, executory contacts on a CASH basis now.  Why?  Because until HHSE actually receives payment for shipments to retailers (such as Walmart), there is a contingent possibility that shipments made to them might be returned as unsold product.  So how do you account for shipments that might be returned?  Do you "book the shipment as a sale" immediately and then "estimate" a projected returns exposure?  What happens if LESS units are returned?  What happens if MORE units are returned?  Does the company need to retroactively re-state the prior revenue reportings to reflect the ultimate difference? And if retailers like Walmart are empowered to return unsold DVD merchandise, does that mean that HHSE should keep the INVENTORY of such shipments on the balance sheet as an asset, until it's actually purchased and no longer subject to potential return?  Obviously, many items must continue to be accrued on our reporting - how could "payables" be accounted for on a cash basis?  They are debt, not yet paid...  (one would THINK that accrual of certain items goes without explanation?). No corporation can adhere to GAAP without some elements of accrual activity. But with respect to the recognition of sales - especially consignment DVD shipments and long-term contracts - the Company's decision to recognize these "as paid" (cash-basis recognition) is a wise policy that conforms to other GAAP elective requirements.

2).  THEATRICAL ACTIVITIES - "Remarkable Life" has played in five cities thus far, with 12-more on tap for June 17 / June 26.  "The Homeless Billionaire" opens in a single screen, Special SNEAK PEEK engagement at the Regal E-Walk Cinema in NYC on June 17.  "Homeless Billionaire" will open across the nation on Labor Day Weekend.  This Special Engagement is designed to build awareness and to enable HHSE to focus marketing efforts onto a single screen launch as a methodology to maximize results per theatre as initial positioning.

3).  FORM 10 FILING STATUS - The completion of the Film Library analysis report is occupying a large amount of the attention for this major corporate governance project.  HHSE management is not being allowed to "ignore" the many titles acquired over the past few years - which collectively tip the film & video library to 418 titles. Factors impacting the completion are the needs to generate reasonable and realistic forecasts for titles "yet-to-be-released" - and as such, without the benefit of a prior sales history, HHSE has been required to generate release analysis summaries for all new titles, referencing "comparable" prior releases.  It's been a frustratingly time-consuming requirement - but one which we feel will be completed (on HHSE's side) by next week, as we have only 47 more (unreleased) titles requiring release overviews and analysis reports.  The addition of the Film Library report will be added to the Audits and the Form 10 for the S.E.C. Filing.

4).  VODWIZ - Still awaiting third-party approval to announce a major venture covering VODWIZ. We have discovered that the bigger the partner, the slower their legal departments tend to move...

5).  CANNES ACQUISITIONS - We plan to start releasing news of each of the new title acquisitions from Cannes beginning this week.

6).  TCA - Someone wrote to ask if the withdrawal of the TCA Lawsuit means that their UCC lien against specific assets is automatically relieved?  Unfortunately, the answer is "no," as HHSE counsel will now need to file dismissal forms to negate the UCC filings. But from a practical standpoint, "yes," the end of the lawsuit means that the UCC cannot be used against HHSE without serious legal repercussions to TCA.

Someone also asked if the end of the TCA matter means that they will suddenly be SELLING the 10-mm HHSE restricted collateral shares?  The answer is "No."  We can confidently state that position due to several mitigating factors:  1).  TCA does not have actual possession of the share certificate: it was issued in the name of Caledonian Bank and that entity is now in bankruptcy, under the jurisdiction of a Trustee who has frozen all assets. 2).  The S.E.C. has suspended Caledonian from making any securities transactions, thus freezing the asset value of the HHSE Certificate even if they wanted to liquidate it.  3).  Caledonian would need to "remove" the Rule 144 Sale Restriction through the HHSE Transfer Agent (Standard Registrar), who have represented to HHSE that, if so requested to proceed, they will not remove the sale restriction without a court order authorizing such an action - due to HHSE's overpayment to TCA, which was evidenced in the court filings.  That's where it stands at present.  It's possible that someday the issue of the 10-mm share certificate will resurface, but not in the foreseeable future.

... more to follow...