Greetings HHSE Friends & Followers - Management has been very focused on the build-up and launch of Myflix, plus post-Cannes follow-ups, ongoing theatrical releas activities and the build up of an impressive Q3 and Q4 video release slate through SONY and CINEDIGM (which will transform our physical distribution structure and revenues). However, there are corporate and legal housekeeping issues of concern or interest to Shareholders. Accordingly, we are drafting a rather voluminous BLOG to address a variety of issues that Shareholders have presented. Specifically:
1). Status of Q1 filings - we have elected to proceed and file the Q1's despite our frustrating inability to receive a detailed ledger from the IRS of funds received against our prior garnishments (which information - or lack of - directly impact the accuracy of our balance sheet listing of Accounts Receivable). We have received verification from the IRS that our principal balance of taxes are fully paid - but not a ledger of the starting balance amount and which payments from HHSE and customers were applied to wipe out this principal balance. Accordingly, the Q1 filing will have this item addressed on a balance sheet footnote. HHSE is seeking to obtain IRS verification of three payments not currently showing in their system as credits for HHSE, specifically, one Netflix payment, one cashier's check paid in 2015 and an overpayment in 2015 - collectively totaling approximately $82,000 - which would put HHSE well into the "over-payment" category.
2). Resolution of Nuisance Legal Matters - HHSE has already prevailed in one nuisance producer lawsuit, and is now facing three nearly identical claims which we feel are basic math matters. We believe that our filings in the next few days will move to oppose or otherwise dismiss inaccurate claims in the UPTONE matter ("Union Bound"), the ORIGIN FILMS matter ("Brian Jaynes films" from 2012) and the Crimson Forest matter (for which HHSE has not yet been served, but we plan to file a response based on the court filing on line - NOTE: HHSE has just been informed that a process server left a copy of the lawsuit with an office temp while the principals were out of the country at the Cannes Festival - which action does NOT constitute proper, legal service!). The Producer statements issued by HHSE to our various suppliers lists the Gross Shipments, actual net unit sales revenues, less HHSE distribution fee, less HHSE costs, with the remaining balances going to the producer/licensor. A prior case (AMITYVILLE) attempted to circumvent the structure of the agreements and ignore these contractually agreed costs and product returns. HHSE ultimately prevailed in that case. We feel the same contract structure and math will apply to these other current matters - and that these nuisance lawsuits from small titles will no longer be an issue in the future under the new HHSE plan (which concentrates on higher-profile, better selling titles, as well as digital streaming over physical video units as the preferred revenue model). With our proper and timely responsive filings, none of the current legal matters poses a material threat to the business operations of HHSE or will impede our Registration filing. It should be noted that once HHSE is fully registered and fully reporting, that the company will be required to make more frequent and detailed disclosure filings for future legal matters if they meet the qualification of having a material impact to the business. At present, as an OTC Pinksheets equity, all disclosures are fully voluntary or to the standards as required by the OTC Markets listing service.
3). Status of Form 10-Registration - With Q1 accounts receivable balance to be filed under a footnote as described above, we can complete the audit document package for the PCAOB auditors and submit to them on Monday. We do not see the auditor as requiring a lengthy process due to the organization of the materials to be submitted.
4). Prognostications? - The elimination of nuisance lawsuits, the elimination of significant balance sheet debts, and the filing of a registration statement should have a positive impact on the company's credibility, profile and investor confidence. Add to this mix the launch of what could be the #2 streaming site in North America (in terms of total quantities of programming available), the Myflix venture could be the rocket that propels HHSE to far greater heights than the old model of film distribution even anticipated. Clearly, the old-model of distributing low-budget films to video is no longer a solid basis for HHSE or any distributor. Retailers are still willing to put up 25,000 copies of micro-budget films onto their shelves... but with multiple other delivery means and entertainment options, consumers are no longer supporting the purchase of such secondary home video releases (and a majority of shipped units end up as "returns"). The solution? Only handle higher profile theatrical titles... move physical distribution to outside wholesale partners... and concentrate on the low-cost, high-margin delivery medium accessible through the Myflix streaming venture... a three-pronged strategy for success!
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