Value Microcaps Free-For-All

[MikeDDKing]

Ham: Re VPHM

I know you asked Bob but I thought I would put in my 2 cents.

All but roughly 5M of the 2009 senior convertible notes are already in the diluted share count. The extra 5M was a purchase option that the existing note holders exercised in April. The extra 5M is small (~10%) in comparison to the 52M outstanding. The last diluted share count was also about 500K shares lower because of averaging. The increase in diluted share count of 5.5M would have happened regardless of whether the conversion occurred. The end result of all of this is that the conversion really has no effect on the diluted share count.

The conversion does greatly improve the balance sheet because the notes are converted to equity and the debt is removed. Since there is no additional dilution, this is a large net positive.

The only negative of the conversion is that VPHM has to pay the remainder of the first 3 years of interest on the notes upon conversion (make whole interest payments). This will impact earnings next quarter.

My take on the overall effect upon the stock is that the conversion will be a positive between now and the next earnings. There will be a bit of a surprise at earnings because some people will not realize the impact to this quarter's earnings. However, I think the stock will quickly overcome that issue. On the other hand, if earnings are great, the make whole interest payments may have little effect on the stock price. Institutional owners will know about the make whole interest payments but many retail investors will not.

Mike