SOURCE: Hannover House, Inc.

Hannover House - 10-Q

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

_________________

FORM 10-Q

_________________

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2012

 

Hannover House, Inc.

(Exact name of registrant as specified in its charter)

_________________

Wyoming

000-28723

91-1906973

(State or Other Jurisdiction

(Commission

(I.R.S. Employer

of Incorporation or Organization)

File Number)

Identification No.)

1428 Chester Street, Springdale, AR 72764
(Address of Principal Executive Offices) (Zip Code)

479-751-4500
(Registrant’s telephone number, including area code)

f/k/a "Target Development Group, Inc."

f/k/a "Mindset Interactive Corp."

330 Clematis Street, Suite 217, West Palm Beach, Florida 33401 (561) 514-0936
(Former name or former address and former fiscal year, if changed since last report)

_________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ?     No  ?

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ?     No  ?

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer  ?

Accelerated filer  ?

Non-accelerated filer  ?

Smaller reporting company  ?

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes  ?     No  ?

 

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by SectionS 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes  ?     No  ?

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 

 

 

 

 

 

 

The Company’s stock is traded on the OTC “Pinksheets” Markets under the trading symbol: HHSE. The Cusip number for the Company is: 410686 101. The following is true and correct, per our transfer agent, as of and at the period ending on Sept. 30, 2012:

a.

 

Total Common Stock Shares in issue as of Sept. 30, 2012:              483,739,217

 

b.

 

Above Shares Restricted From Sale:               106,951,743

 

TOTAL

 

COMMON STOCK SHARES IN ISSUE:              483,739,217

 

c.

 

Series “A” Preferred Shares:              1,000,000

Shareholders of Record: 183 (Standard Registrar count)

Total Beneficial Shareholders: 346 (Broadridge, ICS count)

Total Authorized Common Stock Shares: 700,000,000

Total Authorized Series "A" Preferred Shares: 10,000,000

(Note: Total Authorized Common Stock Shares has been decreased to 600,000,000 by action of the Board of Directors,

which reduction takes effect as of January 1, 2013. Notification of this reduction in Total Authorized Shares has been

filed with the Wyoming Secretary of State).

 

The Transfer Agent for the Company’s stock is:

Standard Registrar & Transfer Company, Inc.

12528 South 1840 East

Draper, UT 84020

Tel. 801-571-8844 / Fax 801-571-2551

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page

PART I.  FINANCIAL INFORMATION

 

 

 

 

 

 

ITEM 1.  

FINANCIAL STATEMENTS

 

 

 

 

 

 

 

Consolidated Balance Sheets

 

 

 

 

 

 

 

Consolidated Statements of income and retained earnings

 

 

 

 

 

 

 

Consolidated and General and Administrative Expenses

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

ITEM 2.  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

8

 

 

 

 

 

ITEM 3.  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

9

 

 

 

 

 

ITEM 4.  

CONTROLS AND PROCEDURES

9

 

 

 

 

PART II.  OTHER INFORMATION

 

 

 

 

 

 

ITEM 1.       

LEGAL PROCEEDINGS

10

 

 

 

 

 

ITEM 1A.

RISK FACTORS

11

 

 

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

12

 

 

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

12

 

 

 

 

 

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

12

 

 

 

 

 

ITEM 5.      

OTHER INFORMATION

12

 

 

 

 

 

ITEM 6.       

EXHIBITS

12

 

 

 

 

SIGNATURES

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FORWARD-LOOKING STATEMENTS

 

This disclosure statement contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases you can identify forward-looking statements by terms such as “may”, “intend”, “will”, “could”, “would”, “expects”, “believe”, “estimate”, or the negative of these terms, and similar expressions intended to identify forward-looking statements.               These forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Also, these forward-looking statements present our estimates and assumptions only as of the date of this disclosure statement. Except for our ongoing obligation to disclose material information as required by federal securities laws, we do not intend to update you concerning any future revisions to any forward-looking statements to reflect events or circumstances occurring after the date of this disclosure statement.

 

Actual results in the future could differ materially and adversely from those described in the forward-looking statements as a result of various important factors, including the substantial investment of capital required to produce and market films and television series, increased costs for producing and marketing feature films, budget overruns, limitations imposed by our credit facilities, unpredictability of the commercial success of our motion pictures and television programming, the cost of defending our intellectual property, difficulties in integrating acquired businesses, and technological changes and other trends affecting the entertainment industry.

 

PART I — FINANCIAL INFORMATION

The Company's Financial Statements for the three-month period ending September 30, 2012 are contained within the following pages. In compliance with regulations governing FORM 10-Q reports, the information contained within these financial statements is unaudited.

 

 

HANNOVER HOUSE, INC.

CONSOLIDATED STATEMENT OF INCOME & RETAINED EARNINGS

FOR THE THREE-MONTH PERIOD ENDING SEPT. 30, 2012 (UNAUDITED)

 

 

 

 

 

 

REVENUES

 

 

 

 

Product Sales

 

$

746,376

 

 

 

 

 

 

TOTAL REVENUES

 

$

746,376

 

 

 

 

 

 

COST OF SALES

 

 

 

 

Commissions

 

$

11,955

 

Sales and Marketing

 

$

22,578

 

Video Manufacturing

 

$

1,504

 

Film and Book Production *

 

$

0

 

Freight

 

$

10,564

 

Other Expense, Accrued third party participations

 

$

172,614

 

 

 

 

 

 

TOTAL COST OF SALES

 

$

219,215

 

GROSS PROFIT

 

$

527,161

 

 

 

 

 

 

GENERAL AND ADMINISTRATIVE EXPENSES

 

$

95,071

 

 

 

 

 

 

INCOME (LOSS) FROM OPERATIONS

 

$

432,090

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

$

0

 

 

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

 

$

432,090

 

 

 

 

 

 

PROVISION FOR INCOME TAXES

 

$

0

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

432,090

 

 

 

 

 

 

 

 

 

 

 

RETAINED EARNINGS, BEGINNING OF PERIOD

 

$

2,876,071

 

 

 

 

 

 

 

 

 

 

 

RETAINED EARNING, END OF PERIOD

 

$

3,308,161

 

 

 

 

* Q3 Production investments incurred for the title,“Toys in the Attic” are recoupable against existing sales contracts, and therefore have not been expensed.

1

 

HANNOVER HOUSE, INC.

CONSOLIDATED AND GENERAL & ADMINISTRATIVE EXPENSES

FOR THE THREE MONTH PERIOD ENDING SEPT. 30, 2012 (UNAUDITED)

 

 

GENERAL AND ADMINISTRATIVE EXPENSES

 

 

 

 

Auto

 

$

0

 

Bank Charges

 

$

1,209

 

Consulting

 

$

0

 

Employees

 

$

41,484

 

Entertainment

 

$

0

 

Equipment

 

$

2,825

 

Fees

 

$

0

 

Insurance

 

$

0

 

Labor

 

$

0

 

Legal and Accounting

 

$

16,400

 

Miscellaneous

 

$

1,892

 

Office

 

$

15,141

 

Rent

 

$

9,750

 

Taxes

 

$

2,120

 

Telephone

 

$

3,774

 

Travel

 

$

0

 

Utilities

 

$

476

 

TOTAL GENERAL & ADMINISTRATIVE EXPENSES

 

$

95,071

 

 

 

 

2

 

 

HANNOVER HOUSE, INC.

 

CONSOLIDATED BALANCE SHEET

SEPTEMBER 30, 2012 (UNAUDITED)

 

 

ASSETS

 

 

 

 

CURRENT ASSETS

 

 

 

 

Cash & Cash Equivalents

 

$

17,537

 

Accounts Receivable, Net

 

$

2,116,207

 

Prepaid Wages

 

$

0

 

Merchandise Inventory

 

$

90,728

 

Prepaid Advertising

 

$

0

 

Prepaid Producer Royalties

 

$

1,707,026

 

Producer Marketing Recoupment

 

$

2,175,513

 

Film Distribution Rights

 

$

2,182,500

 

Film Production Investments

 

$

428,532

 

Notes Receivable and Net Recoupment

 

$

0

 

 

 

 

 

 

TOTAL CURRENT ASSETS

 

$

8,718,043

 

 

 

 

 

 

PROPERTY & EQUIPMENT

 

 

 

 

Office Furnishings, Fixtures and Equipment

 

$

153,178

 

Less Accumulated Depreciation

 

$

(34,356)

 

Vehicles

 

$

22,500

 

Less Accumulated Depreciation

 

$

(5,000)

 

Real Property (Contract for Sale, See Footnote 1)

 

$

95,000

 

TOTAL PROPERTY & EQUIPMENT

 

$

231,322

 

 

 

 

 

 

OTHER ASSETS

 

 

 

 

FILM & TELEVISION LIBRARY

 

$

22,315,337

 

 

 

 

 

 

TOTAL OTHER ASSETS

 

$

22,315,337

 

 

 

 

 

 

 

 

 

 

 

 

 

$

31,264,702

 

 

 

 

 

Footnote 1: Pending Probate of the Estate of the Manager of the Owner, LLC

 

3

 

HANNOVER HOUSE, INC.

 

CONSOLIDATED BALANCE SHEET

SEPTEMBER 30, 2012 (UNAUDITED)

 

LIABILITIES AND STOCKHOLDER'S EQUITY

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Accounts Payable

 

$

282,861

 

Accrued Royalties

 

$

50,316

 

Producer Acquisition Advances Due

 

$

680,907

 

Accrued Wages

 

$

3,500

 

Payroll Taxes Payable

 

$

0

 

NB Cal AFIL P&A Loan

 

$

383,403

 

Hounddog P&A Note (Weinreb)

 

$

800,401

 

Other Bank Note

 

$

22,410

 

 

 

 

 

 

TOTAL CURRENT LIABILITIES

 

$

2,223,798

 

 

 

 

 

 

LONG-TERM LIABILILTIES

 

 

 

 

Long-Term Payables

 

$

1,606,658

 

Real Property Contract for Purchase

 

$

50,000

 

Executive Salary Deferrals

 

$

946,361

 

Officer Notes Payable

 

$

221,882

 

 

 

 

 

 

TOTAL LONG-TERM LIABILITIES

 

$

2,824,901

 

 

 

 

 

 

SHAREHOLDER'S EQUITY

 

 

 

 

Common Stock (483,739,217 shares

 

 

 

 

issued and outstanding)

 

$

22,907,842

 

Retained Earnings

 

$

3,308,161

 

 

 

 

 

 

TOTAL SHAREHOLDER'S EQUITY

 

$

26,216,003

 

 

 

 

 

 

 

 

 

 

 

 

 

$

31,264,702

 

 

4

 

 

 

HANNOVER HOUSE, INC.

 

CHANGE IN SHARE STRUCTURE DURING REPORTING PERIOD

SEPTEMBER 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change

 

 

 

 

 

 

During

Share Structure Description

 

9/30/2012

 

6/30/2012

 

Quarter

Unrestricted Common Stock

 

 

376,787,474

 

 

 

376,787,474

 

 

 

0

 

Restricted Common Stock

 

 

106,951,743

 

 

 

114,451,743

 

 

 

(7,500,000)

 

COMMON STOCK ISSUED

 

 

483,739,217

 

 

 

491,239,217

 

 

 

(7,500,000)

 

COMMON STOCK AUTHORIZED

 

 

700,000,000

 

 

 

700,000,000

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Shares Issued

 

 

1,000,000

 

 

 

1,000,000

 

 

 

0

 

Preferred Shares Authorized

 

 

10,000,000

 

 

 

10,000,000

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Beneficial Owners

 

 

346

 

 

 

346

 

 

 

0

 

(per Broadridge)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Shareholders of Record

 

 

183

 

 

 

170

 

 

 

13

 

(per Standard Registrar)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

  

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 September 30, 2012. 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 two 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 originally incurred a total of $550,000 worth of debt (cumulative from four, separate parties) which has been identified as a portion of the “Prints and Ads” expenditure for the theatrical release of the movie, “Twelve.” As of September 30, 2012 the Company had reduced the outstanding balances cumulatively owed to three of these lenders by a cumulative amount of $245,000. The Company made a settlement agreement for the discharge of rights to the film “Racing Dreams,” and has made a total of $15,000 in payments against this agreement. The Company continues to report as long-term payables the debts for the Hounddog P&A and for remaining revenue guarantees to Gaumont (for the licensing of the movie “Twelve”), collectively totaling approximately $1.3-million dollars. Other debts, including Technicolor Labs, Kalmbach Publishing, Interstar Releasing and Deluxe Labs, are all subject to performing settlement agreements. Litigation still pending response or resolution, including AOL, 42 West and Bedrock Ventures are described in greater detail in this disclosure filing.

 

As of 9-30-2012, there were no further changes of “control”.

 

As of 9-30-2012, there were no increases of 10% or more of the same class of outstanding equity securities.

6

 

 

As of 3-31-2012, the Company had issued a total of 23-million shares of stock to Graham Financial Services, Inc., as described in greater detail below. The cumulative total issuance of shares to Graham Financial Services, Inc. at any given time always constituted a less-than-five percent (5%) sum of the total A/S for the Company. As of 6-30-2012, Company issued an additional 14,727,272 shares to Graham Financial under a debt conversion agreement. As of September 30, 2012, and remaining true as of the date of this filing, there are no other pending or anticipated stock splits, dividends, recapitalizations, mergers, acquisitions, spin-offs or reorganizations. The Debt Conversion agreement with Graham Financial occurred during the prior, quarterly reporting period, but called for the conversion of qualified debts into equity shares in consideration for Graham’s assumption of and responsibility to pay $300,000 worth of debt obligations of the Company. Debts that were serviced (in part) from the proceeds of this Debt Conversion transaction include Fantastic Films International, Technicolor Labs and Kalmbach Publishing.

 

The Company has not experienced any delisting of the issuer’s securities.

 

As of the 9-30-2012, there were not 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. As of 9-30-2012 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 later in this filing. The two most significant matters impacting the Company, as described herein, are the remaining licensing fee balance still due to Gaumont, SA for the rights to the film “Twelve” (which is a performing obligation being reduced quarterly through new revenues), and the balance of Prints & Ads funding due to Michael Weinreb, a private investor in the specific venture release of “Hounddog.”

 

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 has been 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.

 

7

 

For the calendar year ending 12-31-2012, the Company forecasts that approximately ninety-two percent (92%) of the gross revenues will be derived 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-two percent (22%).

 

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 9-30-2012 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).

 

The Company has not incurred any non-negligible costs relating to compliance with environmental laws, whether to federal, state or local.

 

As of 9-30-2012, the Company had 8 full-time employees.

 

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 this disclosure below, a listing of 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, Brenda Hancock, Vivian Kaplan, Barr McClellan, Diony Monestine and Vivian Schilling. The Company sees no shortage of properties available for acquisition in any of the applicable media.

 

8

 

 

 

 

 

F.

Dependence on Major Customers – The only current customer for the Company that constitutes a greater-than fifteen percent (15%) contribution to gross revenues is Wal-Mart Stores, Inc. (inclusive of sales to their SAM’S Clubs division). 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.

 

 

G.

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.

 

 

H.

The company does not need any government approvals of principal products or services.

 

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; and an additional, off-site warehouse and expansion acreage in Washington County, Arkansas, consisting of 4.5-acres and a 2,900 square foot warehouse building. The lease for the primary office and warehouse was entered into as of March 2008 under a three (3) year lease, which has since converted to a month-by-month automatically extended term; the off-site warehouse and expansion acreage is subject to an offer and acceptance by the mortgage note holder, pending final title transfer after clearance of the transaction through the probate estate of the sole member of the owner LLC.

 

 

Item 3              Quantitative and Qualitative Disclosures About Market Risk

 

Investment in the Company's Stock bears similar risks as may exist with other stocks trading on the OTC Markets board. The trading price for Company's Stock Shares can vary significantly based upon a variety of factors unrelated to the Company's actual value or revenue achievements. On an accrual basis, the Company is generating profits each quarter, with regular DVD and Blu-Ray product sales supplemented with long-term receivables for Subscription Video-On-Demand and Television sales. However, on a cash-flow basis, the Company's cash resources are often strained by immediate and long-term debt obligations. Some investors and shareholders have expressed discomfort with the Company's persistently tight cash position, which has been the result of balancing ongoing operational needs with debt management and new release activities against product cash flows. Conversely, many shareholders have also expressed resistance to the concept of issuing equity shares under "debt conversion" structures, which would relieve much of the cash-flow burdens but would result in a dilution of shareholder equity. Accordingly, management has worked to find the best balance of maximizing shareholder value and return, while minimizing equity dilution activities. There can be no assurance that ongoing cash flow from product sales will, by itself, be sufficient to meet the Company's combined operational, debt-management and growth needs. To address the Company's cash position, management has initiated an agreement with an Accounts Receivable-based lender, to accelerate cash flow from current product sales and thus facilitate faster growth into new areas (such as the Company's "VODwiz.com" streaming venture), as well as to provide working capital to enable the Company's Film and Television Rights Library to be more efficiently exploited.

 

While there are no material threats at present to the Company's ongoing viability, there can be no assurance that the majority of long-term creditors will continue to comply with debt reduction and installment payment agreements. And while the Company continues to generate DVD and Blu-Ray sales to major retailers (and Video-On-Demand contracts through the major VOD portals), there can be no assurance that current and past sales performance will continue into the future. The remedies available to the Company for continued viability and growth are revenues from product sales and licenses, credit arrangements (both with lenders and suppliers) and stock-equity opportunities (ranging from shelf-registration of new shares to "debt-conversion" ventures to alleviate the cash-flow burden from older, qualifying payables). Investment in the Company's Stock Shares bears significant risks, as well as significant upside potential. The "Price-Earnings Ratio" for publicly-traded entertainment stocks in the Company's area of activity results in an average P/E rate of 20-times. The current P/E ratio for Company's s(Hannover House's) is 3.67, suggesting that the shares are currently trading at a price that is undervalued by a factor of more than 5-times when compared to the industry average.

 

Trading volume in Company's stock is averages approximately 600,000 shares per day, suggesting that investments in the Company's stock may not be as easily or quickly resold as some other stock offerings.

 

 

9

 

 

 

Item 4.              Controls and Procedures - Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as amended (the “Exchange Act”). These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within required time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

As of September 30, 2012 , the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of our Chief Executive Officer and President of the effectiveness of our disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures were effective as of September 30, 2012 .

 

Item 4T.              Controls and Procedures

 

Changes in Internal Control over Financial Reporting

As required by Rule 13a-15(d) of the Exchange Act, the Company, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, also evaluated whether any

changes occurred to the Company’s internal control over financial reporting during the period covered by this report that have

materially affected, or are reasonably likely to materially affect, such control. Based on that evaluation, there has been no such

change during the period covered by this report.

 

 

PART II - OTHER INFORMATION

 

Item 1.              Legal Proceedings

 

As of September 30, 2012, the Company was currently involved in legal actions and proceedings as follows:

 

 

a)

Fantastic Films International, LLC – Truman Press, Inc., d/b/a “Hannover House” – as of March 31, 2012, Company had worked out an amiable settlement with Fantastic Films for the retirement of this acquisitions license obligation. To date, Company has rendered a cumulative total of approximately $260,000 in payments against the total principal sum of $328,000, and Company continues to make monthly payments against this balance. The balance on this obligation is included in the payables totals reflected in the Company’s financial filings. The dispute arose over a disagreement regarding completion of physical delivery of the film, “Thru the Moebius Strip.” Fantastic Films, Inc. asserted that sufficient delivery had been made, but Company disagreed, stating that the master delivered was not suitable for “film-out” to 35mm format. The matter was heard before an arbitrator, and a ruling against Company was rendered, thus obligating Company to pay the contracted licensing fee which otherwise would have been due had proper delivery of the film not been disputed.

 

 

b)

Evelyn Smith – Ms. Smith is an author who hired Company on a servicing venture to release her book, “Boardinghouse Stew,” with Ms. Smith advancing the costs for advertising and printing. Despite Company’s best efforts to market the book, major retailers (including Barnes & Noble, and Borders – still active in 2010) passed on carrying the item. When sales for the title did not meet Ms. Smith’s expectations, she filed an action against the Company. The amount of Ms. Smith’s investment in her book is approximately $32,000. The structure of the servicing agreement did not guarantee to Ms. Smith a specific sales performance and did not include any provision or guarantee for repayment of her investment if the books did not sell. As of September 30, 2012, Company has included a payables amount for this matter in the current financial filings.

 

10

 

 

 

c)

Interstar Releasing, LLC / Dawn of the Living Dead – Counsel hired to represent the Company in this matter in April of 2011, did not file a defensive response and as a result, a judgment was entered against Company by plaintiff, Interstar Films. Company hired new counsel to file a motion to dismiss the default judgment, which was denied by the court. Company is now working with plaintiff on a payment schedule and financial settlement. The actual, accrued royalties due to Interstar for this title are approximately $25,000 and have been included in the payables balances reflected in the Company’s financial filings; however, the default judgment amount was entered at an arbitrary and highly inflated number that the Company has objected to, and has requested a 473 hearing under representation from new counsel. The adjusted balance (including legal fees, interest and penalties) will be reconciled and updated in the Company’s 12-31-2012 year-end reports.

 

 

d)

Technicolor,Inc. – A dispute between Company and Technicolor Labs occurred over invoices, prices and payments relating to the August, 2010 release of the film, “Twelve.” Company believes that some of the payments made by Company to Technicolor divisions (i.e., film lab, digital prints and distribution) were not properly credited against the balance on the account, including wire transfers, check payments, a large credit card authorization, and a direct payment from Fox Home Entertainment. Company also believes that some of the amounts being charged for services exceed those specified in the project quote. A settlement agreement has been met with Technicolor for approximately $66,000, which is being retired through a performing payment schedule.

 

 

e)

Kalmbach Publishing Co. – Company was notified of a default judgment in Wisconsin regarding an advertising matter with Kalmbach. As of June 30, 2012, Company had completed a settlement agreement and installment payments in this matter, leaving a balance of approximately $15,000 due as of the date of this filing.

 

 

f)

America Online – Company is aware of a lawsuit from America Online for internet advertising support of the release of the film, “Twelve.” Discussions are occurring between company counsel and the attorney for America Online. As previously disclosed and incorporated within Company’s prior filings and financials, the amount of this claims is approximately $77,000.

 

 

g)

Bedrock Ventures vs. Hannover House – Bedrock Ventures, a corporation believed to be owned and controlled by Fotis Georgiadis, filed a lawsuit in July, and served the Company in September, with a demand to be repaid $500,000 based upon a contract agreement with the Company for the acquisition of the movie “Twelve.” Company entered into good-faith settlement discussion with Mr. Georgiadis during the month of September, including multiple emails, text messages and telephone conferences. During these settlement discussions, unbeknownst to Company and in conflict with the good-faith nature of the negotiations, Bedrock pursued in stealth a filing of a default judgment against Company. In response, Company’s counsel immediately filed a Motion to Vacate the judgment, which matter is presently being considered by the judge. Based on the “Consulting Services Agreement,” document which comprised part of the overall, integrated nature of the transactions with Bedrock and Hannover House, Company feels it has meritorious claims against Bedrock valued at significantly more than the Bedrock claims. Company’s claims against Bedrock will either be pursued within the existing case, or through subsequent legal actions. As of the date of the filing of this FORM 10-Q report, Company and Bedrock had reached a settlement in this matter.

 

 

h)

Andersons vs. Hannover House – Subsequent to the close of the Sept. 30 reporting quarter, Company was served with a complaint from two of the investors that provided private “Prints & Ads” loans for the movie “Twelve” in August of 2010. Counsel has been hired to make a timely response in this matter; additionally, Company has made a significant offer to Plaintiff’s counsel to withdraw the lawsuit and implement a monthly installment agreement. The case has been set to proceed to trial in April, subject to a settlement not being reached beforehand.

 

Item 1A.              Risk Factors

 

Other than as set forth in this FORM 10-Q filing, there are no specific risk factors relating to the Company's securities that are not universally applicable to other equities trading on the OTC Markets.

 

11

 

Key Man / Principals - The Company is reliant upon the continued employment and work performance of the two, principal managers, Eric Parkinson (CEO) and D. Frederick Shefte (President). As an accommodation to benefit the Company's cash flow, both Parkinson and Shefte have been deferring a majority of their salaries. Additionally, as has been required by many third-party program suppliers, Parkinson has often been listed as a "key man" to the rights licenses or sales venture agreements for specific acquisitions, due to his successful home video sales track record. The cessation of employment by either Parkinson or Shefte could have a material and negative impact on the Company, as current cash flows would not facilitate the hiring of comparably qualified executives, and the loss of Parkinson as "key man" could result in multiple title agreement cancellations.

 

Item 2.              Unregistered Sales of Equity Securities and Use of Proceeds.

 

Not applicable to Issuer.

 

Item 3.              Defaults Upon Senior Securities

 

Not applicable to Issuer.

Item 4.              Submission of Matters to a Vote of Security Holders.

 

Not applicable to Issuer.

 

 

Item 5.              Other Information.

 

None.

Item 6.              Exhibits

 

None.

 

 

12

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 Date: January 29, 2013

Hannover House, Inc.

 

By: /s/ Eric F. Parkinson

 

Eric F. Parkinson,
Chairman & Chief Executive Officer

 

 

13

 

 

CERTIFICATION

I, Eric F. Parkinson certify that:

1.

 

I have reviewed this quarterly report on Form 10-Q of Hannover House, Inc.;

 

2.

 

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

 

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

 

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

 

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

 

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

 

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

 

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

 

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

(a)

 

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

 

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 Date:  January 29, 2013

Hannover House, Inc

 

By: /s/ Eric F. Parkinson

 

Eric F, Parkinson
Chairman Chief Executive Officer