Dear HHSE Friends & Followers - What an amazing moment-in-time we are now witnessing!
The North American Film Industry is in the middle of the greatest paradigm shift since the invention of the VCR. None of the "old rules" apply anymore and the new media markets are in many ways comparable to the Oklahoma Land Rush of 1889.
So many industry pundits predicted a revenue disaster when release-time windows between theatrical openings and home-streaming started shrinking. But the doom and gloom did not occur - and now a movie like "HALLOWEEN KILLS" can open #1 at the USA Box Office (with an opening weekend gross of $50-million) and launch on the same day direct to homes via Peacock streaming. Instead of a revenue disaster, the rights holders and studios are now experiencing a revenue bonanza... as streaming revenues are paid almost immediately and do not have the traditional 50-50 (or greater) splits with theatrical exhibitors. More money and faster payment: it's hard not to love this new media distribution model.
Which brings us to Hannover House and MyFlix. The MyFlix multi-studio streaming service combines the best of subscription models with the broad selection and pay-as-you-go options of the transactional sites. The MyFlix portal also plans to include an educational channel, a gaming channel and a personal-access channel (similar to the YouTube service). Already, over 40-supplier studios and film libraries representing over 15,000 titles have committed to participate with MyFlix, Over 2,500 programs have already been fully mastered and formatted. It's the right business model and the right time.
So, what does HHSE need to do to LAUNCH this site and make the service active, public and revenue positive?
For over two years, HHSE management has been responsive to shareholder enthusiasm to get MyFlix launched as-soon-as-possible. We have set - and missed - several internally-scheduled launch dates, and always missed for the exact same reason that is unrelated to the merits or status of the MyFlix venture. It's always been impeded due to the costs to properly launch this service.
HHSE calculates that the company needs about $500,000 in final on-boarding, design, consumer branding and pre-launch costs for MyFlix. The venture will then need about $500,000 more for the initial consumer outreach of publicity, P.R., bartered ads, paid ads and social media. Then, our post-launch activities to keep-the-train-rolling (and hopefully accelerating), will need another $1.5-mm over the six-months following the initial 90-day cycle (these ongoing funds will be going for continued and enhanced ads, promotions and new title on-boarding costs). At that point - approximately 9-months from initial launch - MyFlix could and should be cash-flow positive. So, it's a $2.5-mm investment in a venture that could turn into a $100-mm revenue machine.
This is why the company's focus for more than two years has been on the steps needed in order for the necessary fund-raising to occur. We lost a lot of momentum in 2020 due to COVID shut downs impeding the legal resolutions as well as the sort of face-to-face relationship meetings that are needed when raising significant capital. But over the past six months, most of these obstacles have been removed and the pathway for completion has finally been simplified.
The high-altitude view of the road map looks simple:
1). File the Form 10 Registration for HHSE;
2). Use the new "fully-reporting" status as the basis for a S1 Offering to sophisticated investors that prefer to invest in fully-reporting equities.
With respect to item "2" above, HHSE has been in communication with major investors and feels confident that the first-tranche raising of the S1 ($1.5-mm) is fully committed, and that the second tranche ($2.5-mm) is very close to being fully committed.
With respect to item "1" above, securities counsel for HHSE has advised the company to resolve "legal issues and financial obligations that meet the standards for material impact" in order that the company's registration not be subject to "going concern" issues by the Securities and Exchange Commission.
Three legal disputes were identified as issues requiring that HHSE take action, based on the dollar value of the claims: Lewin vs. HHSE (N,Y,), UPTONE vs. HHSE (CA Fed) and Daisy Winters / Shuttlewoods vs. HHSE (L.A.). HHSE was informed that the filing of affirmative defenses in these actions would be sufficient to address the "going concern" issue; the filing of the Form 10 registration would not need to be delayed until each matter was actually adjudicated, but only delayed until the filing of legally meritorious responses.
The Lewin case has now moved into settlement mode; the Uptone case has been filed, and the Daisy Winters filings are in final preparation for filing in California within days. Accordingly, the Form 10 is being updated to reflect the modified status of these items - and will be ready to release upon verification of the final legal response filings (and the acknowledgment of the legal merits of the filings).
Back at ground-level, the details and documentation required to properly respond to these legal claims (or the time and resources required to make a settlement), can be all-consuming. If HHSE focused 24/7 solely on the legal issues, then operational issues (such as MyFlix onboarding, Wildfire post-production and Belle Starr prep - which are essential to show the S.E.C. current activities and revenue generation), would stop. But until the Form 10 and S1 are filed, HHSE does not have the cash resources to hire a big enough staff to handle all projects simultaneously. So, despite management's good intentions and competencies, pretty much everything has been progressing these past few months at 2/3rds of our preferred speed.
So, when will the Form 10 and S1 be filed? Is it the same day as the filing of the final legal dispute... or is it a few days later, following securities counsel's review of the going concern actions? Will the 2019 and 2020 audits be sufficient if also supplemented with review statements for recent quarters? How quickly will the S1 fund since HHSE has already been in communication with funding parties? When will MyFlix go "LIVE" so that the site / portal and APP can be accessed by consumers? When will WILDFIRE start to monetize revenues back to HHSE? How much in production fees will HHSE earn from "Belle Starr" and when will this be paid? What's the status of "Meltdown?" Can you release the names of the four cable / streaming / broadcast networks that are interested in licensing Season One of "Cowboys of Cannabis?"
These are all questions that have been posed to HHSE management within the past two weeks by Shareholders. They are all good questions, and we understand the curiosity and excitement among our shareholders for these answers and the applicable timing of these activities. So, let's jump back to the high-altitude vantage for a clearer view of the roadmap.
1). Legal Filings & Review of going-concern items. This triggers...
2). Form 10 / S1 Filings. These trigger...
3). Initial S1 proceeds (Tranche's 1 and 2). These trigger...
4). MyFlix Consumer Launch - promotion, growth and into positive cash flow.
Item 3, S1 Proceeds also trigger: enhanced HHSE and MyFlix support staff; up to 30% of new revenues for payables / debt management; development of additional income-generating production ventures.
HHSE cannot neglect any of these items or issues. Nor can we deviate from the orderly implementation of each without jeopardizing the success of each step. We know that we cannot properly launch MyFlix without proper funding... and while raising this funding, we must still show current operational viability to minimize S.E.C. commentary on the filings. We recognize and acknowledge that some shareholders have lost patience and that all shareholders wish we were already "there" at the finish line. In response to the many shareholder questions, what we can pledge is to update this blog over the next few days as the final legal issues are attacked and filed... which triggers the more exciting S.E.C. filings and activities resulting funding and new ventures resulting from the filings.
We believe that MyFlix and the HHSE model for creating production revenues with the facilitation of locomotive-level titles provide a reliable, two-tiered business model that will maximize revenues and value for our shareholders. This is not blue-sky hopes: these are activities and ventures already in motion. We believe that as awareness of the HHSE / MyFlix business model expands, that the volume and pricing of HHSE shares will reflect this enhanced profile. We see significant rewards for those betting on our success.
Watch this space...
