1). AUDIT STATUS - Last Thursday we received back four pages of notes from the outside CPA firm that has been engaged to help us in preparing the PCAOB Audit format for our 2-years (and one quarter) of financials that are part of the Form 10 registration filing. Comments received back include, among other items:
a). INCOME TAXES - Restatement of provision for income taxes ("estimated accruals" to be reconciled against actual taxes and new tax rates... with balance returned to balance sheet at retained earnings).
b). INCOME STATEMENT - Recognition of costs not previously expensed on all quarterly income statements, most notably ongoing interest expense and accrueed (but deferred) officer and staff salaries.
c). EXPENSE TRACKING AND ALLOCATIONS - A review of the A.P. Chart of Accounts by project title, and a verification that grouped expenses (e.g., freight for multi-title shipments, ads for multi-title layouts, etc...) have been properly allocated and not replicated.
We have made a lot of progress over the weekend on these items, and plan to resubmit by Thursday. That will result in about a three-to-five day review, after which time we should be able to submit the financials to our PCAOB auditors.
2). MYFLIX UPDATE - We are working on a variety of pre-launch activities for Myflix, including website development, mastering and uploading of titles, long-lead P.R. campaigns, launch ads and videos and strategic positioning and goals. However, for competitive reasons, we cannot publicly disclose more than just these broad strokes at this time. The total inventory of available content from our current suppliers is over 10,000 programs (feature films and or television episodics). About 800 of the initial 2,500 titles set for our July 27 launch date are already properly formatted / mastered for streaming access. The others will require some degree of mastering attention, most commonly the addition of closed-captions or reformatting into streaming compatible media.
3). TITLE STATUS - Here's a few quick notes on current titles and activities, listed ALPHABETICALLY:
AMERICA UNITED - This acclaimed concert video (and salute to the U.S. Troops), is still languishing in the pool of music rights clearances. However, we have determined a "plan B" option which will allow us to edit out uncleared tracks and proceed with the title's release to dibital and home video in October (Janet Jackson, Snoop Dogg, Jessica Simpson, Clint Black, ZZ Top and many others).
BLOOD FEAST - We are working with five theatre circuits to launch an "Alternative Cinema" night around BLOOD FEAST for mid-July... details to follow.
BONOBOS - The digital streaming and physical DVD / BluRay release are being handled through Sony for a September release.
DAISY WINTERS - Now set for an October home video through Sony, we are looking at the possibility of an "Encore Theatrical Release" through Regal Entertainment in late September, right before the home video date....
DEATH HOUSE - After opening the film in ten markets, we have analyzed the box office results and looked at the balance of expenditures required to fulfill the producer's target of opening the film into approximately 100 total theatres. We have determined that this title does not fit into our current release strategy, and as such, we have withdrawn from further release activities and reverted the distribution rights back to the producers. We wish them the best of luck and success as they pursue their specific release goals.
DINOSAURS OF THE JURASSIC - With a new Jurassic Park movie opening later this month, we have assigned an editor to complete the updates and revisions to make this title suitable for mass merchant physical video and digital streaming.
GETTING GRACE - After 10-weeks in theatres, this title continues to earn theatrical playdates and visibility. However, we are working diligently with the Sony team on the forthcoming digital and physical video release.
LENNON REPORT, THE - Terrific movie about the incredible, true story of the E.R. activities the night of John Lennon's murder... looking at a November home video release.
RIDE UNITED - Working on DVD packaging that will satisfy comments from Walmart and Best Buy.
RIOT ACT, THE - The Cannes Screening went well, with buyers from U.K., Italy, France, Spain, India and a Sony Pictures International representative. The USA Release is presently set for August 24 - however, we may find value in moving this to late September in order to mobilize the support of high school and college history departments and film studies groups.
SLEEPER CELL, THE ALGERIAN - Sony remains enthusiastic about this title, subject to the completion of strong DVD / BluRay packaging art. We are working with the design team on new art submissions for later this week.
4). I.R.S. LEVY - At this time, we have received verification that the principal taxes due (the "trust fund") is fully paid, and that the interest and penalties will be adjusted downward to match the actual tax liability (as opposed to the "estimated" liability under which the levies were issued last Fall). The company is now utilizing an outside payroll service for all reporting requirements, so that we do not step into this issue in the future.
5). LEGAL MATTERS - Updated disclosure of the status and resolution of all legal matters is included in the Q1 filing, which we anticipate filing later this week (this quarterly filing was delayed in order to incorporate comments from our outside CPA, which were received last Thursday).
6). NEW PRODUCTIONS - Progress is occurring for the productions of TRUE FRESHMAN and LAST CHANCE FOR HONOR; alternative financing partners are being sought for the MOTHER GOOSE International Pre-sale portion previously contracted for by Odyssey Entertainment (they are now no longer operating).
7). PROGNOSTICATION? - HHSE Managers have been getting a lot of emails from shareholders and stock investors, based on the "buzz" that the MYFLIX venture is generating. We are being asked to predict HOW HIGH WILL THE HHSE STOCK BE by year's end?
Obviously, the answer to such a question would require either a crystal ball, time-travel, great psychic ability or a general disregard for securities protocols which discourage public company officers from making stock price prognostications. There is a widespread belief that the filing of a registration statement will ease many of the stock trading issues that have been obstacles for HHSE shareholders; there is also widespread enthusiasm that if a company such as RLJ ACORN.TV can launch a streaming site of indie products that is already grossing over $80-mm per year - that the Myflix site could be equally successful... maybe even more.
But as HHSE shareholders know, many factors can impact the market's pricing of shares... ranging from ridiculous rumors to actual screw-ups. It is the opinion of HHSE management that the industry buzz around Myflix is providing us with a timely opportunity to be a pioneer in the digital streaming land-grab... and that this could mark a transformative moment for HHSE. We will all know much more before the end of this year, as the impact of registration, Myflix launch, new distribution pacts and the resolution of legal issues will all have combined to create an exciting opportunity for the company.
