QA on multiple issues from HHSE

Greetings HHSE Friends & Shareholders. Over the past two weeks, we have received a high volume of emails and inquiries from Shareholders, friends and followers with some questions recurring and needing to be addressed. Listed below are the top 10 current questions for HHSE management, and the answers as to their status, etc...

1). Are the Q1 results ever going to be released?

A: Yes, promptly.

2). Will the release of Q1 results enable the OTC Markets "Yield" sign to be removed from the stock listing?

A: Yes.

3). Is the company ever going to release two-years of financial audits so that the stock can become fully reporting?

A: Yes, and as required for Edgar / SEC status (and Form 10 acceptance) the two years of audits must be the "two most recent" years, which in our case are 2011 and 2012. The company had previously completed all worksheets and backup for 2010 and 2011; but for 2012, there are still some items requiring backup support or third party verifications (which are in process and almost complete). Under the TCA credit agreement, the company is required to have these audits completed and posted quickly, and we see no impediments to satisfying this requirement. As a Pinksheet OTC-Markets security, HHSE has not been required to complete audits, even though it has been a corporate goal for the past two years. Now, however, the completion of audits is required for compliance with the Company's senior lender, and as such, must become top priority.

4). Is the Film Library value the cause of audit delays?

A: No. The value of the Company's Film Library is not under question or review. The Film Library is one of the audit items already fully addressed during the past two-years (approx.) that the Company has been working with auditors on this project. The current audit issues (relating to the 2012 year-end) are customary items of back-up review, third-party verifications and analysis of capitalized items relative to ultimate revenues.

5). What's the update on "Mother Goose"? How can HHSE finance a $12-mm production when the Company is otherwise tightly managing cash flow?

A: There's a lot of exciting activities happening with this production, from distribution partnerships and presales, to an amazing cast of box-office superstars. HHSE is not "financing" the movie with existing credit lines, cash flow or debt. The film is being financed primarily through a bank structure that includes a direct assignment of international presales, tax incentives, rebates and a senior lien on the asset and revenue streams. The announcement of distribution partners will be withheld until its deemed most beneficial for the partners (perhaps timed for a major festival or market, or timed to correspond with a theatrical and network broadcast debut of the first teaser-trailer). The announcement of cast members will be subject to the approval of the agents, managers and publicists for the principal stars, as required.

6). Is HHSE involved with the new Terminator 5 feature production?

A: No. But the Company has continued to develop the T3K ("Terminator 3000") concept for an animated feature, which would be a complementary and supporting title to the T5 project.

7). Is the Company still pursuing "higher-profile" titles, or is the business model now strictly indie films for the direct-to-video / VOD market?

A: The "meat-and-potatoes" business model for the Company at present is to acquire and release easily placed films for DVD and VOD, while pursuing "tent-pole" / event-level releases to drive the visibility and revenues for each year. The direct-to-video titles are highly profitable with great return-on-investment (i.e., an average upfront cost of $10,000 plus replication & freight can predictably return $150,000 to $250,000 in gross sales per title). However, there is a revenue-limit to this model in that the Company's key accounts usually cannot absorb more than two (possibly three) new titles from an indie studio like Hannover House per month. So for the Company to break a respectable revenue goal of $50-million per year, one or more titles like "Mother Goose" would be required to generate these front-line / mainstream results.

7). Why has there been such a heavy volume of "short" sales in the stock the past three days (approx. 2,106,112 shares)?

A: There are some traders that would like to control the HHSE share price through misinformation and fear. We think that their efforts cannot be sustained against the wave of pressure that the Company's back-log of information and activities is now beginning to generate. It would not take very much buying pressure to force the short squeeze and chase them away to other equities.

8). What are the terms of the deal and relationship between Hannover House and Nanotech (NTEK) regarding the VODwiz.com Video-On-Demand site and Roku IPTV Channel?

A: NTEK is handling the technical and operational infrastructure for both streaming outlets, with Hannover House acquiring and accumulating programming (both from our own library as well as from a long-list of supplier partners and studios). There is a revenue split agreement with NTEK. Hannover determined that the upfront costs (both in terms of technical infrastructure and engineering expertise) were significant, and instead agreed to the NTEK deal to enable HHSE to focus on the programming and not the hardware. Additional details will be released under mutually approved announcements.

9). Is the Company still involved with book publishing? There haven't been any new releases in a long while.

A: Yes, new publishing activities are in place now, even though prior plans for 2012 were delayed. "ONE OF THE LUCKY ONES" ships from the printer today, and will hit book stores next month. "SABLE SHORE" and "BLIND VISION" will print next week for August on-sale dates. All three items will be widely available on e-Book formats. The Company temporarily stopped new release activities of publishing projects in 2012 due to uncertainty in the marketplace. The Company's largest book retail customer, Borders Group, Inc., went completely out of business, and sales to the Company's primary book wholesaler, NBN Books, ground to a halt. With e-Books emerging as the dominant media, Hannover decided to wait-and-see before investing in large print runs or promotions. The Company is now comfortable with a strategy of modest print runs and a more aggressive effort to develop the e-Book formats.

10). How come I couldn't find "Toys in the Attic" at some Wal-Mart locations?

A: In January of this year, the Company's relationship with the Vendor-Manager / distribution partner that had been placing our products into Wal-Mart deteriorated over a sales and cash dispute; a prior agreement for this vendor to remit monthly payments to Hannover House, as well as an agreement for direct payment to the replication lab, were both ignored by this distribution partner. These actions caused a disruption in the product flow and nationwide roll-out of units to Wal-Mart on the initial street date. The dispute with this former distribution partner continues, and may result in litigation by Hannover House with our Company's demand that they render payment. Accordingly, HH would be remiss to publicly release additional details at this time. Hannover House has since replaced this former distribution partner with a much larger entity with greater placement strength and higher per-unit net pricing to Hannover House. This new distribution relationship is one of the exciting and pending new announcements for the Company.