Focus Company: AHPC Holdings, Inc (GLOV)

By: John Gay - The Quiet Investor - Date: September 3, 2005

Introduction

AHPC Holdings (Stands for American Health Products Corporation) is a company that is finally in charge of its own destiny. It is a leading supplier of both branded and private label disposable gloves and other products to the health care, food service, retail, and industrial markets. Until April 2004, the company was known as WRP Corporation.

Founded in 1989, the company has principally been in the distribution of high quality medical grade gloves in the United States and Canada. In 1996 they became 70% owners of an Indonesian glove manufacturing operation along with two Indonesian partners, each of whom had 15% ownership. Thus, for about eight years, the company was both a manufacturer and distributor of medical grade disposable gloves.

In April 2004, through a complicated process called the Redemption Transaction, the manufacturing operation was swapped for a recovery of some of the capital stock and a forgiveness of $3.5 million owed them by a majority owner of AHPC. The capitalization had been further reduced in January 2004, by a one for three reverse split in order to maintain its NASDAQ listing. There had also been a stock buyback that netted some 270,000 shares before the reverse split. Consequently, there are now about 1.3 million shares outstanding.

The fiscal year ends in June, and sales for the June 2005 fiscal year, not yet reported, probably amounted to about $30 million. Management has given guidance for June 2006 cal yell' of between $33 to 36 million, with a return to profitability. There will be a loss reported for the year just ended, however, though the fourth quarter had positive cash flow.

The Market

The disposable glove business is highly competitive, and the product itself is a commodity. Larger competitors can keep the pressure on AI-IPC, whose gloves are not the cheapest, but are the best for the price. So AHPC competes on quality as well as price, but also prides itself on quick responsiveness to changing customers' needs and requirements.

Gloves are sold in cases generally composed often boxes of 100 gloves to the box. Latex powdered, latex powder free, and non-latex gloves comprised 36%, 26%, and 32% of total sales in fiscal year 2004.

Another competitive element AHPC feels it needs for long term success is breadth of product offerings. Till now, they have principally been selling gloves. Mr Zeffer is now trying to amplify its product line with complimentary items such as disposable aprons and bibs, hair nets, heavy duty gloves, food storage bags, all of which will be marketed under the "SafePrep" brand name as well under private label. All of these items will be manufactured for the company, probably in Asia.

Financials

"Over the last two quarters, we have made improvements to our cost structure, which have helped our profit margins improve to 23.2% from the 16.4% in the year ended June 30,2004. We anticipate seeing continued improvement through year-end, which will allow the Company to have a positive cash flow by the quarter ended June 30, 2005. We anticipate 2005 revenue between $29.0 and $31.0 million, and 2006 revenue between $33.0 and $36.0 million," commented Alan Zeffer, President and CEO.

"This year marked a successful step in the turnaround of our Company. Completing the transaction with WRP Asia Pacific, establishing a new, flexible credit facility and returning to the medical market are fundamental steps needed to insure our future success. These successes will now al low us to place greater focus on continuing to control our costs, expand our markets served and products offered. While we anticipate a loss in the year ended June 30, 2005, our current efforts, if successful, should allow the company to achieve a positive net income for the year ended June 30, 2006." Mr. Zeffer continued.

Conclusion

There are two keys to the attractiveness of AHPC stock. One is the fact that they have dug themselves out of a quagmire of adversity. And two is the tiny capitalization. There are about $30 of sales per share prior to dilution. Even small profit margins will bring sizable earnings to the small number of shares. With continued growth and a more lenient lender, eliminating some of the onerous interest charges, AHPC could deliver robust earnings per share. We think that makes for a good possibility of a triple in price within three years. There have been sellers in the stock, but use caution in buying. You may have to have patience in collecting a position.

General information

Market	NASDAQ
Symbol	GLOV
Price	$3.86
Contact:	AHPC Holdings Inc. - 500 Park Boulevard , Suite 1260 - Itasca, IL 60143
Telephone	630-285-9191
Website	www.ahpc.com

© John Gay - The Quiet Investor

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