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BLOG-11/4 Business Model, Form 10 & S-1 Registrations

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speckulater   Monday, 12/03/18 04:37:16 PM
Re: speckulater post# 277241
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BLOG-11/4 Business Model, Form 10 & S-1 Registrations

I have been informed there was a third Addition (not just two) made to the Original BLOG. All 3 Updates are highlighted in red below.

Sunday, November 4, 2018

HHSE / MYFLIX - Outline of Key Events & Business Model

Greetings HHSE Friends & Followers - Several different versions of BLOG POSTS have been created in the past two weeks - as requested by Shareholders and "longs" wanting updates on a wide variety of issues. But, the operational distractions from current product shipments - combined with some management uncertainty about the ongoing medical status of Fred Shefte - created enough of a demand for focus as to distract from such corporate communications and shareholder updates.

With Fred Shefte now back at the office full-time, the company is able to redirect attentions towards the current issues and long-term direction. So, what are the current issues and long term goals? We will outline these as briefly as possible - as the detailed answers would comprise more than 60-pages of disclosures for a Form 10 or S-1 filing.


HHSE continues to service those titles that were produced, acquired or otherwise released in some manner under what management is now calling "the old business model." These title are what many in the industry would characterize as lower-tier Independent Releases - despite most having some level of theatrical visibility prior to home video or digital release.

The current titles include this TUESDAY's release of "GETTING GRACE" - which enjoyed theatrical exposure on more than 95-theatres in 35 of the top 40 markets this past Spring. Next up are the December home video releases of "RIDE UNITED" (Redbull Media House) and "AMERICA UNITED" (ABC Television), followed by a January 1st home video release of "SLEEPER CELL: THE ALGERIAN" and a February release of "THE LENNON REPORT." Three additional titles that had some level of theatrical release will follow in March, April and May - and these collectively represent "the end" of the older business model for HHSE to handle films with limited theatrical releases. Due to contractual obligations made to these producers, HHSE will follow-thru on the home video marketing of each, despite the longer term goal of phasing out of such titles.

SIDE NOTE: DVDs of "GETTING GRACE" can be pre-ordered on-line now via AMAZON or WALMART, and we encourage shareholders to help us achieve a strong week-one sales through the purchase of a copy!

AMAZON.com listing (currently at # 198 Best Seller):


WALMART.com listing (currently WM's # 38 BEST SELLER!

OTHER IMMEDIATE ISSUES include jump-starting some LEGAL responses that were put onto hold during Shefte's 7-week absence from the office. Specific items include: Stay of enforcement and re-opening of cases for JSJ and Bedrock; Catch-Up on structured settlement payments with CD Video, GDC, and Ackerman; Countersuit against Crimson and pre-Form 10 settlements with other significant creditors (including Graham, Andersons and Southwinds).

HHSE / MYFLIX ONGOING BUSINESS MODEL? With management having determined that the lower-end titles are cash-intensive, time-consuming and deliver only a very marginal revenue upside, the goal has been to identify specific areas within the entertainment industry where a company such as Hannover House can excel. For this reason, the company determined that the best strategy for maximizing revenues and bottom line results is a two-pronged approach: Major Films for HHSE and MyFlix as a one-stop digital streaming store.

By "Major Films" we mean that the company plans to release FOUR (4) features per year that have high-profile casts and which deserve (and get) broad theatrical distribution (500 or more locations). The first of these "Major Films" is a feature that's 95% completed at this time, and which HHSE plans to release in early MARCH, 2019. This title has NOT yet been announced.

It is management's belief that MOST of the titles comprising these four annual tent-poles will ultimately need to be PRODUCED by (or with the assistance of), HHSE in the Studio capacity. This is because at the film festival circuit level - generally speaking - any film of commercial merit has either been pre-sold to the major studios or ends up sparking a bidding for for the acquisition of rights (and HHSE cannot realistically expect to compete against the current acquisitions funding of Amazon, Netflix or the Major Studio specialty divisions). To get these "Major Films" - HHSE is likely going to have to act as a catalyst to spark the production. A good example of how this might occur is listed below (see "MELTDOWN").

With respect to MYFLIX - while the on-boarding of titles continues at full speed (now at 1,168 titles) -
FULLY WITH MASTERS, as opposed to 2,100 with "only Metadata" and not fully with conformed masters) - and acquisition of more studio supplier partners continues (now representing well in excess of 10,000 titles) - the actual consumer launch of the site does not look likely for the next few weeks. We are now going into the insane HOLIDAY season for ads and digital media, creating both a shortage of promotional inventories and a spike in costs. The cost for 30-second TV Ads on national cable (for instance), drops by more than 50% after January 1st... which also corresponds with terrific cold-weather, indoors-type seasonality (perfect for our MyFlix launch - and also corresponds with when we will surpass the 2,500 titles ON BOARDED level).

FINANCING FOR "MAJOR FILMS & MYFLIX" - Some shareholders have asked (rightfully so) how a company (that has been horribly cash-strapped from its stubborn focus on indie films for video release) anticipates financing this ambitious involvement in the "Major Films" as well as in the competitive world of launching a major MyFlix site?

Here's how:

1). FORM 10 REGISTRATION - The long-awaited filing of the company's registration statement is the first step in the company's overall new launch. Large funds and investors that have been hesitant (or prohibited) from supporting HHSE as a Pinksheet stock will now be able to invest in HHSE shares. Management anticipates that the act of filing the Form 10 could (and should) result in a PPS of $.03 or higher. The Form 10 may be filed in the next few weeks, and the impact to the HHSE share price might be seen immediately - even though the S.E.C. has 60-days to provide "comments" requiring the issuer's response.

2). P&A FUNDS SECURED AGAINST VIDEO / V.O.D. - HHSE has been working with a proven P&A funder for a structure which provides substantial (multi-million dollar) traunches of theatrical release support for qualifying titles under a major studio Video / V.O.D. assignment. HHSE will enjoy the benefits (and upfront fees) from the marketing of titles under this P&A structure - as well as earned sales fees from theatrical settlements. Furthermore, the assignment of video rights to the major studio partner relieves HHSE of the need for substantial video staff and manufacturing funds.

3). CO-PRODUCTION PARTNERS, INTERNATIONAL PRE-SALES, INCENTIVES AND "GAP" - With respect to the facilitation of a major feature film - such as "MELTDOWN" - the assembly of financing for this $10-mm production in many ways is easier than raising $500,000 for a small indie production. Why? Well, first of all, having three major stars in "MELTDOWN" provides pre-sale interest for the receipt of bankable licensing agreements. Next, the higher stature also encourages greater support from State Incentive programs, and finally the existence of significant pre-sales can be leveraged to obtain what is known as "Gap" financing in the entertainment industry (e.g., a bank loan for "the gap still needed" - secured against the unsold territories). We also may bring in "co-production partners" for a portion of financing or in-kind services, as a variation on the pre-sale model.

For Major feature films structured in this manner - in which HHSE has essentially "packaged" the financing elements and performed the Executive Producer or Studio function - there will be significant fees paid to HHSE upfront... as well as certain assignable allocated overhead expenses. Additionally, after completion of the production, HHSE will launch the films to theatres under the P&A structure described above - also generating operating overhead through marketing fees, booking services and sales settlements.

4). S-1 REGISTRATION - HHSE has been in discussions with three significant parties that have expressed support of buying HHSE shares under a S-1 Shelf Registration (simultaneous with the Form 10, or almost immediately thereafter). As presently envisioned, the S-1 would be launched in January with a total potential sale of up to 90-mm HHSE shares made available, with a base price anticipated in the $.045 range, and going all the way up to $.10 for the final traunch of shares. HHSE anticipates raising about $4.5-mm in direct operating capital - while only diluting the total A/S by 10% or less. These direct funds will provide marketing support for MyFlix - as well as cash-flow flexibility for assisting with the development of the tent-pole Major Films and other ongoing operations. The anticipated buyers of the S-1 offering are long-term, strategic partners, and are not expected to sell any of their shares in the first year or two. The structure of the S-1 incentivizes earlier subscribers, as the price per share increases as the inventory of S-1 shares is diminished. The base price of the first traunch of S-1 shares is being established to be at a level estimated to start at 150% of the VWAP of the HHSE shares - which means that these new shareholders are buying equity at a significant premium "above" market. The S-1 Registration will be filed shortly after the Form 10, as the company will await any initial feedback and comments to the registration statement.

As stated above - the more specific details for each of these major activities for HHSE requires more than a summary blog. But the information above provides a good outline of where we are, and where we are going.

Yes, it's GREAT that a movie like "GETTING GRACE" is listed as a BEST SELLER for Walmart.com... who knows? Maybe it will hold its shelf placements through Black Friday (as per the HHSE marketing plan), and ultimately deliver a wonderful Q4 for HHSE? But long-term, it's the expectation that FOUR "Major Films" could deliver $100-mm in revenues... as can MYFLIX... that is the driving force for this well-planned reinvention of the company's operating model!



The GETTING GRACE international sales activities launched this week at the AMERICAN FILM MARKET in Santa Monica, CA. To better conform to international packaging tastes, a different key art campaign was developed.



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