Friday, January 18, 2019

Odd Happenings in Texas...

Greetings HHSE Friends & Followers - Well, the Dallas Texas Civil Court that has been handling the ORIGIN VS. HANNOVER HOUSE litigation made the unusual (if not Draconian) move to approve the assignment of a "Receiver." This is odd at best because Hannover House has no offices in Texas, no assets in Texas and no customers with headquarters in Texas. The appointment of a receiver in Texas has the same "real world impact" as appointing a receiver to attach Hannover House assets on the Moon.

Hannover's counsel in this matter feels that what the attorneys for Origin are hoping for is that the appointment of a receiver in Texas will somehow create "unencumbered cash and receivables" to apply against the settlement agreement. Certainly, as clearly communicated to Origin, their counsel and the court, there are NO unencumbered assets or receivables for Hannover House / Medallion... and any attempt to circumvent prior security interests will hit a wall.

We understand Origin's frustration and anger; we are sympathetic to this situation because HHSE management is genuinely working to create a mechanism to pay them the settlement agreement.  If we were NOT wanting to honor the settlement agreement, the "unmarked" distribution contacts would be a good basis to work to halt enforcement actions. But we do not disagree that Origin is owed monies... Hannover House "received the benefit" of sales for Origin predecessor titles, even though Phase 4 did not actually render cash payments to Hannover House (Phase 4 used the "positive cash flow" revenues from titles owned by the Origin predecessor to OFFSET revenue losses on other Hannover House releases such as PINK SKIES and ANIMAL CLINIC). From a GAAP accounting standpoint, this resulted in a ROYALTY PAYABLE even though no cash passed through to Hannover House.  Subsequent changes in Hannover's customers (and a general decline in the sales of indie films on DVD), meant that Hannover was unable to rectify an accounting journal entry and render payment to the Origin predecessor. We get it. We understand that this would be frustrating and upsetting to the new owners of these films (Origin Releasing). We also understand that there is no TRUST basis for Origin to study our situation and truly understand our proposal for the settlement funds. Why should they trust us?  After all, Hannover House did NOT pay them royalties that were technically owed under GAAP rules for the past five years!  Hannover House has not yet EARNED the presumption of trust to the Origin owners.

However, this is not the first time that Hannover House has faced a situation of dealing with an acrimonious and uncooperative creditor. The company endured (and prevailed) with prior significant matters - such as Fantastic Films and TCA Global - both of which started out as "angry adversarial matters" and ultimately became resolved and fully paid only after deferring to a Hannover House work-out plan.

A friendly work-out plan with Hannover House is what we are hoping will eventually be agreed to by Origin. They might be feeling "victorious" today, having won a judgment good in the State of Texas. But the enforcement - and hoped for "collection of funds" against Hannover House in other states is not an automatic acceptance, especially with U.C.C. and prior lien holders that could file a motion to stay enforcement (or file in the Dallas court for a motion to vacate the receiver appointment).  It may take several months of angry efforts before Origin realizes the futility of such a strategy... and accepts the value of the Hannover plan to create these settlement funds. HHSE management is patient... we will await with hope that they come back to the table and enable this matter to be resolved (just like we have succesfully paid-off other, legitimate and major debts over the years). 

MEANWHILE - Parkinson and Shefte recall the "gleeful" predictions that I-Hub short-sellers made many times in the past that incorrectly anticipated "the end of the world" for Hannover House. In fact, eight separate instances (ALL SINCE RESOLVED IN HANNOVER'S FAVOR!) come to mind.

The bottom line is that Hannover House has a definitive methodology to retire the Origin Releasing balance... and it does NOT involve any of the ineffective methods that they are currently pursuing to attach assets. We have communicated this methodology to Origin as well as to the court. Over the next few months, the viability of our strategy will become evident and we think that calmer heads will prevail in that Origin will likely grow exhausted from pursuit of their current, adversarial collection efforts.

SO, stay tuned... the future is ahead for HHSE, and is clearly not with releasing more B-minus horror films into today's marketplace. What we are doing with high-end films, the development of MyFlix site and the registration of the company's shares all mark the beginning of an exciting new era. The Origin matter is a vestige of a former time and business model when micro-budget films were still viable in the DVD marketplace. These small, direct-to-video films are not the level of programming that HHSE management sees in the company's future.

ONWARD!!!


Downtown Dallas, Texas skyline - overlooking the West End Entertainment District.