Hannover House Inc (HHSE)

[poster44ny]

NEWS: Hannover House Provides Update On Filings, Registration, MyFlix and Venture StatusPress Release | 03/14/2022

https://www.otcmarkets.com/stock/HHSE/news/Hannover-House-Provides-Update-On-Filings-Registration-MyFlix-and-Venture-Status?id=347545
Eric Parkinson, President and C.E.O. of independent entertainment company Hannover House, Inc., (OTC: HHSE) released the following statement to shareholders and principals:



"As our loyal shareholders know, the past few months of the past few years have been the most challenging and difficult times in the 29-year history of Hannover House. While video marketplace changes in the past five years bankrupted many other independent companies, Hannover House has persevered and evolved to meet each of the new realities as they have manifested. Rather than belabor the details of these industry trends, I will instead remind our shareholders - and prospective new followers of what the company is doing to survive and prosper in this new, entertainment delivery world.



We are in the midst of a historic paradigm change in the way consumers view entertainment. Yes, there is still a robust business for certain films at theatres or onto DVD and BluRay media. But the vast majority of films are now launching directly to streaming (or launching simultaneously with theatrical release), due to audiences worldwide now preferring the variety, immediacy and convenience of Video-On-Demand.



This past weekend, Netflix by-passed theatres and launched the $175-million-dollar, star-studded adventure 'The Adam Project' onto their subscription streaming platform. Viewers in the United States and twenty-five other major territories (representing more than half of all entertainment households on the planet), could simply click 'on' to see this impressive, audience-friendly adventure. This is a jaw-dropping achievement that simply could not have happened in recent years. But the proliferation of high-capacity internet service, big-screen TVs and common-sense home economics have now made it possible to launch an event-level film instantly and at only a fraction of the releasing costs required for prior releasing models. The bottom-line is that this is a great time to be in the streaming business, and a horrible time to be a DVD distributor.



At our peak employment, Hannover House had 22 employees working on marketing, promotions and booking of films to theatres. The company's goal at that time was to build on this theatrical visibility to enhance a film's DVD sales - and to make these releases more attractive to streaming services, including Netflix. It worked for a few years, until the DVD market collapsed and the streaming services started selecting films based on box-office performance (and not merely the accolade of having been released to theatres). These two changes left Hannover House with some failed releases in 2016, 2017 and 2018, wherein the theatrical results did not drive ancillary sales or where the program rights owners prematurely terminated their ventures with Hannover House before the lucrative streaming platforms could be launched.



The company was in search of a business model that would work in this new environment. Although Hannover House had shown interest in direct-to-home streaming since the announcement of the VODWIZ division, it wasn't until 2018 that MyFlix was born.



'MyFlix' is the right business at the right time. With access to more than 15,000 programs from over forty independent studios, film libraries and rights owners, MyFlix can compete with the top, brand-name streaming services in offering consumers thousands of titles that are de facto exclusives to MyFlix. The name is catchy, with a personal appeal, and the concept is flexible enough to allow for growth in a variety of directions (educational, interactive games, self-loading of personal videos and more).



Hannover House announced MyFlix to the entertainment industry at the Cannes Film Festival in 2018. Full page ads in multiple trade publications were the catalyst for dozens of meetings and commitments from participating suppliers. Since 2018, the streaming market has continued to grow, while the MyFlix service continues its path of development and pre-launch activites.



So, why hasn't Hannover House flipped-the-switch and turned-on the official MyFlix consumer website? Simple answer: financing. To launch the site without proper marketing, advertising, publicity and social media support would doom the venture to lackluster traffic and disgruntled rights owners. Even with the clever use of bartered web ads, publicity focus and viral videos, launching MyFlix will require far more money than Hannover House currently has available. What the company has structured is a four-million-dollar line of credit from a MyFlix supplier-partner but with the requirement that Hannover House become a fully reporting, fully-registered company with the Securities and Exchange Commission.



Accordingly, our focus has been to meet the requirements for a successful Form 10-12(g) registration to meet credit line conditions, to enhance the companys credibility and to improve our transparency to the market.



So, why hasn't Hannover House filed this registration document? What has been the hold up? The primary obstacles that Hannover has been dealing with have been: 1). Going Concern status, 2). Major Litigation Resolution, and 3). PCAOB Auditors and their specific and evolving requirements.



Since 2018 - while developing MyFlix the company has had minimal new business activity. There have been no new product releases, and the revenues received have been from catalog business (primarily for those HHSE titles offered onto other steaming platforms). While these catalog revenues are enough to sustain the companys minimal operating costs, they are not enough to also deal with payables management, including major default judgments that were entered against HHSE in 2018 and 2019. This imbalance poses the problem of "going concern," in that Hannover must either dramatically increase its revenues, or seek to discharge or settle the default judgments that created the imbalance.



In the past year, Hannover House resolved, discharged or settled five of seven significant legal disputes or judgments. There remain two matters that are on the cusp of final settlement perhaps as soon as this Tuesday. In addition to addressing these legal obstacles, Hannover has also implemented new release schedule for three titles onto DVD / BluRay and one new book item. These are not expected to generate significant revenues. But, they will support the narrative in the Form 10 filing that the company is remaining active in the media formats that originally built the business.



Resolving the legal disputes and continuing with new release activities resolves registration items 1 and 2. However, Item 3 has been more challenging.



Hannover House has hired and lost three different auditing companies over the years. The first was Hogan & Taylor, who declined to proceed with HHSE as a client after a 'stock basher' organized campaign to harass their phone lines and support staff. The second auditor lost his PCAOB status days after HHSE first filed the Form 10 in March of 2015. The third auditor who we purposely chose to not disclose prior to registration withdrew their PCAOB status just weeks after receiving the HHSE retainer. So, we're now working with a much larger PCAOB firm, and feel very comfortable with this relationship.



The only issue that has delayed the completion of the audit is the film library valuation, which is a qualified forecast of the projected value of rights owned by the company over the life of each title or applicable timeframe. The last time this report was completed was in 2010 about twelve years ago. Since that time, many titles have been added, many titles have been lost, and all have suffered the paradigm shift of streaming surpassing physical disc home video sales. As the library valuation comprises the largest line items asset on the Hannover House balance sheet it cannot be excluded from an audit. But the stale-aging of the previous report is also not acceptable.



That's why Hannover House stopped everything about two weeks ago to revise the titles, rights and status of the film library report and to secure and expedite a qualified, third-party valuation report. This is expected within the next few days and will be incorporated into the rest of the audit package as required for the registration filing.



Some shareholders have lost patience during the resolution of these issues and the general process for stock registration. This is understandable as it has taken far longer than anticipated and has been far more difficult than hoped. Some might sell because of an emotional response; some might sell out of a real need. Some might buy HHSE stock because the value of a post-MyFlix HHSE is expected to be enormous. Neither scenario (buying or selling) has any real-world impact on what HHSE is doing to complete the Form 10 filing. The majority of financing for MyFlix (which is potentially all of the financing needed) is expected from the debt line-of-credit and not from the issuance of stock shares. While we prefer happy shareholders and a rising share price often achieves that goal the current and upcoming activities for registration and for the launch of MyFlix are not dependent upon any specific, common stock share price.



In the next two days, HHSE will be filing the 12-31-2021 Annual Report with the OTC Markets. If the new film library valuation is not yet ready, we will file with the prior valuation and a detailed footnoted explanation. We need to file the OTC report now in order to maintain our "current reporting" status. We will also make a formal announcement about the annual shareholder's meeting. We cancelled the idea of holding the meeting on March 11th in New York City due to limited attendance response (and the large cost), and will instead hold a virtual meeting on a live-stream mode from the companys office in Fayetteville, AR. It has been managements goal to hold the shareholders meeting as a post Form-10 event. But we are currently held hostage by the final settlements in the two remaining legal matters and the updated library report. These are being addressed with the greatest of urgency, and we will hold the shareholders meeting as quickly as possible.



The HHSE blog will provide updates on these two registration-related issues by Wednesday and the timing of the company's shareholder meeting. Thank you for allowing me to clarify these complex issues." ERIC PARKINSON, President & C.E.O., Hannover House, Inc.