|
|
|
|
|
REVENUES
|
|
|
|
|
Product Sales (including International Licenses) *
|
|
$
|
1,153,601
|
|
Additional VOD Revenue-Share Income
|
|
$
|
13,993
|
|
TOTAL REVENUES
|
|
$
|
1,167,594
|
|
|
|
|
|
|
COST OF SALES
|
|
|
|
|
Commissions
|
|
$
|
0
|
|
Sales and Marketing
|
|
$
|
2,922
|
|
Video Manufacturing
|
|
$
|
10,227
|
|
Film and Book Royalties
|
|
$
|
900
|
|
Freight
|
|
$
|
2,547
|
|
Other Expense, Accrued third party participations *
|
|
$
|
750,000
|
|
|
|
|
|
|
TOTAL COST OF SALES
|
|
$
|
766,596
|
|
GROSS PROFIT
|
|
$
|
400,998
|
|
|
|
|
|
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
$
|
69,596
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS
|
|
$
|
331,402
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
$
|
0
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
$
|
331,402
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES **
|
|
$
|
0
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
331,402
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS, BEGINNING OF PERIOD
|
|
$
|
4,138,137
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNING, END OF PERIOD
|
|
$
|
4,469,539
|
|
* International Sales Contracts have
been allocated based on gross revenue amounts, less accrued third party participations or assignments.
** Corporate tax returns are calculated
on a cash basis, while period reports are calculated on an accrual basis.
Page 5
HANNOVER HOUSE, INC.
CONSOLIDATED AND GENERAL & ADMINISTRATIVE
EXPENSES
FOR THE THREE MONTH PERIOD ENDING DEC.
31, 2013 (UNAUDITED)
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
|
|
Auto
|
|
$
|
0
|
|
Bank Charges
|
|
$
|
627
|
|
Consulting
|
|
$
|
0
|
|
Employees
|
|
$
|
38,047
|
|
Entertainment
|
|
$
|
35
|
|
Equipment
|
|
$
|
0
|
|
Fees
|
|
$
|
0
|
|
Insurance
|
|
$
|
0
|
|
Labor
|
|
$
|
0
|
|
Legal and Accounting
|
|
$
|
500
|
|
Miscellaneous
|
|
$
|
3,354
|
|
Office
|
|
$
|
3,101
|
|
Rent
|
|
$
|
9,600
|
|
Taxes (including Payroll Taxes)*
|
|
$
|
8,047
|
|
Telephone**
|
|
$
|
4,867
|
|
Travel
|
|
$
|
0
|
|
Utilities
|
|
$
|
1,418
|
|
TOTAL GENERAL & ADMINISTRATIVE EXPENSES
|
|
$
|
69,596
|
|
* Payroll Taxes include one-time
assessment of $5,585 for unpaid payroll taxes for some of the Screen Actors Guild talent utilized within the "Toys in the
Attic" project.
** Enhanced telephone costs include one-time expense to
upgrade telephone service to accommodate additional phone lines for the VODWIZ operation, as well as to add a fiber-optic service
capable of streaming 4K data to HHSE / VODWIZ offices.
Page 6
HANNOVER HOUSE, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2013 (UNAUDITED)
ASSETS
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
Cash & Cash Equivalents
|
|
$
|
1,476
|
|
Accounts Receivable, Net*
|
|
$
|
2,739,259
|
|
Prepaid Wages
|
|
$
|
0
|
|
Merchandise Inventory
|
|
$
|
150,099
|
|
Prepaid Advertising
|
|
$
|
0
|
|
Prepaid Producer Royalties
|
|
$
|
1,876,191
|
|
Producer Marketing Recoupment
|
|
$
|
2,204,544
|
|
Film Distribution Rights
|
|
$
|
2,314,914
|
|
Film Production Investments**
|
|
$
|
497,166
|
|
Notes Receivable and Net Recoupment
|
|
$
|
0
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
$
|
9,783,649
|
|
|
|
|
|
|
PROPERTY & EQUIPMENT
|
|
|
|
|
Office Furnishings, Fixtures and Equipment
|
|
$
|
155,081
|
|
Less Accumulated Depreciation
|
|
$
|
(39,356)
|
|
Vehicles***
|
|
$
|
15,000
|
|
Less Accumulated Depreciation
|
|
$
|
(5,000)
|
|
Real Property
|
|
$
|
0
|
|
TOTAL PROPERTY & EQUIPMENT
|
|
$
|
125,725
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
FILM & TELEVISION LIBRARY
|
|
$
|
22,315,337
|
|
|
|
|
|
|
TOTAL OTHER ASSETS
|
|
$
|
22,315,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,224,711
|
|
* A.R. includes write-down of $455,000 from Phase 4 Films,
considered to be uncollectible debt; A.R. also includes a total of $1.5-mm in net presales for "Mother Goose" which are
assigned to the special purpose production entity.
** Q3, 2013 Filing erroneously included a Film Production
Investments entry for $750,000 in presales which are assigned to apply towards the production of "Mother Goose: Journey To
Utopia." The contract receivable for the presale was already recognized as part of the A.R. total. Per the terms of the special-purpose
financing for this project, HHSE will recognize the gross sales and fees as received, but will expense out the net amounts as a
"producer payable" until such time that the film has achieved profitability; thereafter, the ownership and asset value
of the film may be capitalized for the benefit of HHSE.
*** Base Value of Company's Grip & Electric Truck (1999
Ford F-80) has been reduced by $10,000 during Q4 to better reflect present market value.
Page 7
HANNOVER HOUSE, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2013 (UNAUDITED)
LIABILITIES AND STOCKHOLDER'S EQUITY
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
Accounts Payable
|
|
$
|
148,522
|
|
Accrued Royalties
|
|
$
|
303,829
|
|
Producer Acquisition Advances Due
|
|
$
|
157,260
|
|
Accrued Wages
|
|
$
|
0
|
|
Payroll Taxes Payable
|
|
$
|
5,585
|
|
NB Cal AFIL P&A Loan
|
|
$
|
334,188
|
|
Hounddog P&A Note (Weinreb)
|
|
$
|
826,624
|
|
Other Bank Note
|
|
$
|
23,843
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
$
|
1,799,851
|
|
|
|
|
|
|
LONG-TERM LIABILILTIES
|
|
|
|
|
Long-Term Payables (including Interstar & Bedrock)
|
|
$
|
2,753,427
|
|
Assignment of Intl. Sales Net to Production
|
|
$
|
1,500,000
|
|
Executive Salary Deferrals
|
|
$
|
1,063,996
|
|
Officer Notes Payable
|
|
$
|
169,840
|
|
|
|
|
|
|
TOTAL LONG-TERM LIABILITIES
|
|
$
|
5,487,263
|
|
|
|
|
|
|
TOTAL OF ALL LIABILITIES
|
|
|
7,287,114
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDER'S EQUITY
|
|
|
|
|
Common Stock (583,732,365 shares
|
|
|
|
|
issued and outstanding)*
|
|
$
|
20,468,058
|
|
Retained Earnings
|
|
$
|
4,469,539
|
|
|
|
|
|
|
TOTAL SHAREHOLDER'S EQUITY
|
|
$
|
24,937,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,224,711
|
|
* Share number does not include 6,200,000 shares
and 1,700,000 shares previously issued to Greenwood Financial, which have since been retired / returned to treasury as unissued
or are in the process of cancellation.
Page 8
HANNOVER HOUSE, INC.
CHANGE IN SHARE STRUCTURE DURING REPORTING
PERIOD
DECEMBER 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
During
|
Share Structure Description
|
|
12/31/2013
|
|
9/30/2013
|
|
Quarter
|
Unrestricted Common Stock*
|
|
|
449,580,622
|
|
|
|
424,437,771
|
|
|
|
25.412.851
|
|
Restricted Common Stock
|
|
|
130,651,743
|
|
|
|
138,651,743
|
|
|
|
(8,000,000)
|
|
COMMON STOCK ISSUED*
|
|
|
580,232,365
|
|
|
|
563,089,514
|
|
|
|
17,142,851
|
|
COMMON STOCK AUTHORIZED
|
|
|
600,000,000
|
|
|
|
600,000,000
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares Issued
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
0
|
|
Preferred Shares Authorized
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Beneficial Owners
|
|
|
342
|
|
|
|
343
|
|
|
|
(1)
|
|
(per Broadridge)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders of Record
|
|
|
183
|
|
|
|
185
|
|
|
|
(2)
|
|
(per Standard Registrar)
|
|
|
|
|
|
|
|
|
|
|
|
|
* Total count of Unrestricted Common Stock does not include
the reduction of 6.2-mm shares and 1.7-mm shares from a cancelled transaction with Greenwood Finance Group, LLC, which was terminated
during Q4, 2013, but not reflected in the share count totals until after Jan. 8, 2014.
Page 9
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
The following discussion should be read
in conjunction with the unaudited interim consolidated financial statements and related notes to the unaudited interim consolidated
financial statements included elsewhere in this report. This discussion contains forward-looking statements that relate to future
events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, levels of activity, performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by these forward-looking statements. These forward-looking
statements are based largely on our current expectations and are subject to a number of uncertainties and risks including the Risk
Factors identified in our Quarterly Form 10-Q for the three-month period ending December 31, 2013. Actual results could differ
materially from these forward-looking statements. Hannover House, Inc. is sometimes referred to herein as "we," "us,"
"our" and the "Company."
The nature of the issuer’s business
is driven by the operating entity, Hannover House, which is a full-service producer and distributor of entertainment products
(i.e.,
feature films for theatrical, video, television and international distribution, and a publisher of books).
Hannover House, Inc., is a Wyoming Corporation.
Truman Press, Inc., d/b/a “Hannover House” is an Arkansas Corporation.
Hannover House, Inc., f/k/a Target Development
Group, Inc. (which was also formerly known as "Mindset Interactive Corp.") was registered as a corporation in Wyoming
on January 29, 2009. Truman Press, Inc., d/b/a “Hannover House” was registered as a corporation in California on September
15, 1993, and re-registered in Arkansas effective June 2008. The Ecklan Corporation, registered on March 25, 1998, in the State
of Texas, was the predecessor entity to Target Development Group, Inc.
The Company, Hannover House, Inc., as
well as Truman Press, Inc., d/b/a “Hannover House” each have an effective fiscal year-end date of December 31.
Neither the Company, Hannover House, Inc.,
nor the operating entity, Truman Press, Inc., d/b/a “Hannover House” have ever been in bankruptcy. To the best of management’s
knowledge, no predecessor entity has ever been in bankruptcy.
Effective January 1, 2010, Target Development
Group, Inc., acquired all of the shares of Truman Press, Inc., d/b/a “Hannover House” in a stock-swap agreement. The
details of this acquisition venture are described in detail within the information statement posted on the OTC Markets Disclosure
Statement of December 14, 2009.
Over the past four years, the Company
has defaulted on several loan or credit obligations, but none representing a material event to the Company or falling outside of
the ordinary course of business. As previously disclosed through the Company's filings with the OTC Markets, the Company had incurred
debt relating to the theatrical releasing costs of the film "Twelve" (debt obligations were accrued with Andersons, AOL,
Bedrock Ventures, 42 West, Technicolor, Tribune Ent. and others). As of December 31, 2013 the Company had reduced the cumulative
total of the outstanding debt balances for this film from an original gross of $4.2-million (inclusive of obligations to the production
company / licensor), down to less than $850,000 as of this reporting period. Other significant obligations of the Company include
"P&A" for the release of the film, "Hounddog" (Weinreb loan), "P&A" for the release of "All's
Faire In Love" (NBCal Loan), producer / licensor obligations to Interstar Releasing, Fantastic Films and E.E. Smith, all of
which are itemized or otherwise included within the Company's financials.
Page 10
As of 12-31-2013, there were no further
changes of “control”.
As of 12-31-2013, there were no increases
of 10% or more of the same class of outstanding equity securities.
During the quarterly reporting period
ending 12-31-2013, the Company issued a total of 17,142,851 shares of stock, of which 13,291,000 were issued to Graham Financial
Services, Inc. (or their assignees), as per a previously disclosed Debt Conversion transaction (principal creditors benefitting
from the proceeds of this transaction include Bedrock Ventures, Delivery Your Audience, Fantastic Films, Hollywood Reporter and
Tribune Entertainment). Also during the quarter, company issued a total of 1,851,851 shares to Maremmano Corp. as a separate Debt
Conversion transaction, proceeds from which were paid by Maremmano to reduce eligible balances due to Shoreline Entertainment/Mainsail
Films and Deluxe Laboratories. One-million each of restricted shares were also issued during Q4 as compensation for outside business
consultants to Mohawk Management and Ahnume Business Consultants. A previously executed contract with Greenwood Financial Services,
LLC for a planned Debt Conversion was cancelled during Q4; the shares issued for that transaction (6.2-million and 1.7-million)
were subsequently cancelled. As of the date of this report, the 6.2-million quantity has been returned to Treasury Stock and the
1.7-million shares are in the process of cancellation.
The Company has not experienced any delisting
of the issuer’s securities. As of the 12-31-2013, there were no current, past, pending or threatened legal proceedings or
administrative actions that could have a material effect on the issuer’s business, financial condition or operations other
than those items specifically described hereunder or otherwise disclosed in OTC Markets Filings. As of 12-31-2013 and remaining
true through the date of this filing, there were no past or pending trading suspensions by a securities regulator. The legal proceedings,
whether past, pending or threatened, all fall under the guidelines of being within the ordinary course of business, and are disclosed
in detail in this filing or incorporated within previously filed disclosures with the OTC Markets.
Business of Issuer
-- The SIC Codes
most closely conforming to the Company’s business activities are: 7822
(Services – Motion Picture & Video Tape
Distribution)
and 2731
(Books: Publishing).
The Company is currently operating. At no time has the Company ever been
a “shell company” as defined in the guidelines.
Through the operating entity of “Hannover
House,” the Company is actively involved with the production, acquisition and distribution of entertainment products into
the USA and Canadian markets, including theatrical films, home video releases, rights licenses of films and videos to Video-On-Demand
platforms and television, as well as book publishing (including printed editions and electronic “E-Book” formats).
FILMS & VIDEOS
– Most
of the film and video titles that are distributed by the Company are “acquired” or otherwise licensed from third-party
suppliers, often production companies or media companies seeking to expand their income and market reach through a relationship
with Hannover House. Some of the properties distributed by the Company are “
sales agency
” ventures, in which
the Company performs certain sales & marketing functions on behalf of the owners of the properties, as opposed to having the
Company actually purchase or otherwise license rights into the property. Historically, most of the titles sold by the Company were
under such “
sales agency
” ventures. However, beginning in 2010 with the merger of Hannover House and Target
Development Group, Inc., the Company began moving away from “
sales agency
” ventures and pursuing actual rights-licensing
/ acquisition structures for new titles. Examples of “
sales agency
” titles would include “
Hounddog
”
from Empire Film Group and “
Grand Champion
” from American Family Movies; examples of rights-licensed titles
would include “
Twelve
” from Gaumont and “
Turtle: The Incredible Journey
” from Sola-Media.
The Company benefits from rights-licensed titles over sales-agency titles in a variety of ways: a). the fees to the Company are
usually higher under rights licenses, b). the duration of the terms of representation rights are usually longer for rights licenses,
and c). titles falling under rights- licenses provide the Company with additional balance sheet and collateral benefits.
Page 11
For the calendar year ending 12-31-2013,
the Company generated over ninety-two percent (92%) of the gross revenues from the sales, distribution and licensing of Film &
Video properties. The average “gross margin” generated for the benefit of the Company from the release of Films &
Videos is twenty-seven percent (27%).
BOOKS / E-BOOKS
– The Company
remains active in the acquisition and licensing of publishing rights to printed books and e-Books. The gross margins earned by
the Company in the release of Books are generally much higher than the margins derived from the release of Film and Video properties;
however, the upside revenue potential for books is usually not as high as the potential for Films. So the Company seeks to maintain
a balance in its release slate of high-margin book properties, with high-revenue Film and Video properties.
The use of the term "Company"
refers to the combined entities, as reported on a consolidated basis, of Hannover House, Inc., Truman Press, Inc., d/b/a “Hannover
House” and Bookworks, Inc. (a special purpose entity utilized for Screen Actors Guild activities and productions). Each of
the corporate entities files separate income tax returns with the federal government and respective states of registration; however,
financial statements and reports, as of January 1, 2010, refer to the combined and consolidated results of all entities. Hannover
House, Inc. is the publicly-traded entity for all operating divisions. Truman Press, Inc., d/b/a “Hannover House” is
the operating and releasing division entity for all consumer products. Bookworks, Inc., is a special purpose entity established
for the servicing of book and publishing ventures, and more recently, used for Screen Actors Guild productions.
As of 12-31-2013 and remaining true through
the date of this filing, the Company does not foresee any probable or existing governmental regulations as having an adverse or
material impact to the operations.
During calendar year 2009 (and specifically
limited to activities for Truman Press, Inc., d/b/a “Hannover House”), the Company invested approximately $15,000 on
activities that could be characterized as ‘research and development.’ During the calendar year of 2010, and under the
consolidated reporting of all entities, the Company invested approximately $20,000 on projects and activities that could be characterized
as ‘research and development.’ During the calendar year of 2011 and under consolidated reporting of all entities, the
Company invested approximately $166,000 on projects and activities that could be characterized as ‘research and development.’
(specifically, the production of feature film / video products). During 2012, the Company invested approximately $287,114 on production
projects / R&D assignable; during 2013, the Company made no new investments in production or activities that would be R&D
assignable.
The Company has not incurred any non-negligible
costs relating to compliance with environmental laws, whether to federal, state or local.
As of 12-31-2013, the Company had 6 full-time
employees.
Page 12
The nature of products and services
offered
:
|
A.
|
The principal products of the Company, and their respective markets are:
|
|
i.
|
Theatrical films – released to theatres in the United States
|
|
ii.
|
Home Video Products (DVDs, Blu-Rays, Digital Copies) – released to video specialty retailers, mass-merchandisers, bookstores, schools, libraries and rental outlets (including kiosks) in the United States and Canada;
|
|
iii.
|
Video-On-Demand releases – films and videos offered for direct ‘in-home viewing’ by consumers via a variety of service providers.
|
|
iv.
|
Books and E-Books – sold through bookstores, schools, libraries, internet retailers and streamed through a variety of e-Book platforms.
|
|
B.
|
The primary distribution methods used by the Company for all consumer product goods can be categorized as: “two-step wholesale” distribution (wherein the Company sells its products to an authorized wholesale distributor, which in turn, resells the products to retailers or consumers) and “direct distribution” wherein the Company sells its products directly to consumers or directly to the end-user retailer.
|
|
C.
|
The Company has announced, and included in previously published disclosures, a listing of some of the principal, upcoming theatrical films that will also be released onto home video formats.
|
|
D.
|
Competitive Position – The Company competes for theatrical screens and retail (home video) shelf space against seven (7) Major Studio suppliers and approximately eight (8) independent studio suppliers. While all of the Major Studio competitors operate their own (in-house) home video distribution divisions, only three of the independent studio suppliers operate both theatrically and in the home video markets. Operating a home video releasing label “in-house” provides the Company with an advantage in the solicitation of titles for acquisition, as well as provides greater control over the Company’s cash-flow and corporate goals.
|
|
E.
|
Materials and Suppliers – The principal service providers to the Company are listed in detail in this disclosure, below. The principal suppliers of new release film and video products include the following production companies and programming sources
(listed alphabetically):
Allegheny Image Factory; American Family Movies; Associated Television; Atlas Films; BerVon Entertainment; Cinetic Media; Daybreak Pictures; Empire Film Group, Inc.; Eurocine International; Gaumont, SA; Origin Motion Pictures; Plaza Entertainment, Inc.; Phoenix Entertainment; Phoenix Releasing Group; Sola-Media, GmbH; Shoreline Entertainment; Studio 3 Entertainment; PWI-Veracruz Entertainment. The principal suppliers of books for the Company to publish include (listed alphabetically): James Danielson, Phil Goodman, Brenda Hancock, Vivian Kaplan, Barr McClellan and Vivian Schilling. The Company sees no shortage of properties available for acquisition in any of the applicable media.
|
|
F.
|
Dependence on Major Customers – Two of the Company's current customers as of 12-31-2013 contributed fifteen percent (15%) or more to the overall, annualized sales revenues. Wal-Mart Stores, Inc. (inclusive of sales to their SAM’S Clubs division), has been purchasing most of the Company's new release DVD titles.. The Company does not see the Wal-Mart market share as an unhealthy dependence on a key customer, as Wal-Mart constitutes a much smaller share of the Company’s overall revenues than for many Major Studios, and the Company does not anticipate that the growth in sales to Wal-Mart Stores, Inc., will grow disproportionately with the Company’s other customers. Revolution International has commenced activities for the international sales and licensing of higher-end properties owned or controlled by the Company, the revenue results for which also exceed the fifteen percent (15%) threshold of total, annualized revenues. The Company does not feel that the rapidly growing sales revenues being realized from the international markets poses an unreasonable or viable threat to operations, as sales are cumulative over multiple licensing agreements for specific territories, media and titles.
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G.
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The Company does not own or control any patents, franchise or concessions. The licenses and royalty agreements fall under the category of being part of the ordinary course of business.
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H.
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The company does not need any government approvals of principal products or services.
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The nature and extent of the
issuer’s facilities
include a primary office and warehouse combo unit (under lease from Elder Properties, Springdale,
AR), comprising approximately 6,000 square feet.