CREDIT LINE - Over the next six months, HHSE (and affiliated labels) have a total of 32 new release items hitting the market. The upfront costs for marketing, infrastructure, replication and freight require that the Company obtain new financing.
Funds have to be spent NOW for February and March releases that won't turn into matured collections until May and June. Typically, a direct-to-video movie (such as "GABRIELLE" as an example), requires that HHSE spend about $10,000 upfront in marketing, and about $.80 per DVD for manufacturing and Freight. If initial shipments are 30,000 units (as forecast for "GABRIELLE"), then the total of upfront, out-of-pocket costs for HHSE is about $34,000. However, those 30,000 units average out at about $6.30 each / wholesale. So the gross revenues of $189,000 represent a 5.5X-to-1 R.O.I., excluding third party participants (which are not payable until after revenues are collected). Multiply this upfront cash expenditure by 20 or more HHSE titles, then add in some theatrical and book releasing costs, and it becomes clear that while our MUCH bigger boat can haul a lot more cargo, this bigger boat's going to need a bigger fuel supply.
In respect of how unpopular stock issuances - O/S increases have been with everyone, the Company is instead consummating a receivables-backed credit facility. In order to proceed, the Company had to first free-up liens that were impacting our eligibility (as well as to address cash demands from the same impatient creditors whose liens were impeding the new credit line). That is why the Company did a "debt conversion" with JSJ Investments on December 9. It was painful - and highly unpopular with shareholders. If there had been another way to remove the liens, HHSE management would have done it. In any event...
...the credit line represents a "material development" that counsel said must be disclosed in the Form 10 Registration. While the Company will have the opportunity to make minor corrections in the registration statement for up to 60-days (such as correcting the number of employees, for example, or updating release dates), material activities such as a primary operating credit facility cannot be considered "after-thoughts" to address later.
Timing wise, the closure of the credit line is waiting on one document that Shefte and Parkinson expect to submit Monday morning (a revision of the Company's 2013 Income Tax Return - with activities and revenues from the affiliated corporations split apart from the filing for the pubco, Hannover House, Inc.). The new language, disclosures and details about the credit line issuer and venture are already drafted and incorporated into the Form 10 document. It is HHSE's goal to submit the Form 10 to MacReportMedia on Tuesday, with the plan of S.E.C. Edgar publication on 12-24-2014, as a great Holiday gift to all.
