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Tuesday, April 21, 2015

Why increase the HHSE A/S now?

Good Morning HHSE Friends - There has been some immediate concern and trepidation over the Company's increase in Authorized Share count (which was "upped" by almost 15% from 700-mm to 800-mm).

First of all, let's be clear that the Company is not issuing 100-mm new shares for release into the marketplace. 

The Company has increased the A/S after discussions with the S.E.C. concerning conversion provisions for notes and officer loans which were disclosed in the Form 10, but for which no provision existed to address.  Increasing the A/S now, during the registration review period (prior to May 11), saves the company the cost and time distraction of having to file a second registration document later; additionally, the contingent liability of conversion option needed to be addressed.

Back in February, the Company posed the question of increasing the A/S to Shareholders.  This issue was brought up again at the Shareholder's Meeting in early March.  The number of shareholders who called or emailed their feelings (whether "for" or "against" the concept of a modest A/S increase) represented approximately 10% of the outstanding shares  (about 65-mm total count, based on our shareholder's list).  The consensus was fairly evenly "split" between those who were against any form of A/S increase, and those who recognized that the company would need to have some degree of management flexibility.  After 45-days, the Preferred Shareholders voted to approve the A/S increase.

How many new shares are about to hit the market?  None

When might new shares start to appear?  It's possible that the company's full registration approval (May 11), could provide a basis for a $25,000 convertible note issued last year to mature more quickly.  But the share quantity if exercised on that $25,000 note would be a very modest amount, and would not take the Company much closer to the previous 700-mm A/S/ ceiling.  Also keep in mind that there's a 10-mm certificate from TCA that's scheduled to be retired next month, thus lowering the A/S by that amount.

So while a change in corporate A/S structure is assuredly going to be unpopular to some shareholders, the actual "real world impact" of new shares hitting the market is a false-impression, put forward only by those hoping to motivate low-priced sales.  HHSE is on a tremendous fast-track for growth and volume.  Just watch what happens over the coming month...