SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**FORM
      10-K**




**(Mark
      One)**


[X]ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




**FOR
      THE FISCAL YEAR ENDED JUNE 30, 2006**


**OR**





**[   ]
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF**


**THE
      SECURITIES EXCHANGE ACT OF 1934**




For
      the
      period from _____________ t o_____________  .




Commission
      file number 0-17458




**AHPC
                  HOLDINGS, INC.**(Exact
                  name of registrant as specified in its
                  charter)
 
 **Maryland**
                (State
                  of incorporation)
              **73-1326131**
                (I.R.S.
                  Employer Identification No.)**80
                  Internationale Boulevard, Unit A**
                **Glendale
                  Heights, IL 60139**
                (Address
                  of principal executive offices)
 
 **REGISTRANT’S
        TELEPHONE NUMBER, INCLUDING AREA CODE:** (630)
        285-9191
 
 **SECURITIES
        REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:**
  **TITLE
                  OF EACH CLASS**
              **NAME
                  OF EACH EXCHANGE**
                **ON
                  WHICH REGISTERED**Common
                  Stock, par value $0.01 per share
              The
                  Nasdaq Stock Market


**SECURITIES
      REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:** None




Indicate by check mark if the registrant is a well-known seasoned issuer, as
      defined in Rule 405 of the Securities Act.




Yes
      [   ] No [X]





Indicate by check mark if the registrant is not required to file reports
      pursuant to Section 13 or Section 15(d) of the Act.




Yes
      [   ] No [X]




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
      [X]
      No [   ]








Indicate by check mark if disclosure of delinquent filers pursuant to Item
      405
      of Regulation S-K is not contained herein, and will not be contained, to the
      best of Registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. [ ]





Indicate by check mark whether the registrant is a large accelerated filer,
      an
      accelerated filer, or a non-accelerated filer. See definition of "accelerated
      filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
      One);





[    ] Large Accelerated Filer [   
       ] Accelerated Filer   [
      X ]
      Non-Accelerated Filer





Indicate by check mark whether the registrant is a shell company (as defined
      in
      Rule 12b-2 of the Exchange Act).




Yes
      [   ] No [ X ]




The aggregate market value of the voting common stock held by non-affiliates
      of
      the Registrant as of December 31, 2005 (the last business day of the
      registrant's most recently completed second fiscal quarter) was $2,346,181.
      Shares of voting common stock held as of June 30, 2006 by any person who was
      an
      executive officer or director of the registrant as of June 30, 2006 have been
      excluded from this computation because such persons may be deemed to be
      affiliates. This determination of affiliate status is not a conclusive
      determination for other purposes.




At September 12, 2006, 1,375,511 shares of the Registrant's Common Stock and
      30,000 shares of the Registrant's Series B Convertible Preferred Stock were
      outstanding.




As
      used in this report, the terms "we," "us," "our" and the "Company" mean AHPC
      Holdings, Inc. and its subsidiaries, unless the context indicates another
      meaning, and the term "common stock" means our common stock, par value $0.01
      per
      share.








**AHPC
      HOLDINGS, INC.**


**FORM
      10-K**


**FOR
      THE YEAR ENDED JUNE 30, 2006**





**TABLE
      OF CONTENTS**





**PART
                I**
            
            **Page**Item
                1.
            Business
            1Item
                1A.
            Risk
                Factors
            3Item
                1B.
            Unresolved
                Staff Comments
            8Item
                2.
            Properties
            8Item
                3.
            Legal
                Proceedings
            8Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            9**PART
                II**Item
                5.
            Market
                for Registrant's Common Equity, RelatedStockholder
                Matters and Issuer Purchases of Equity Securities
            10Item
                6.
            Selected
                Consolidated Financial Data
            11Item
                7.
            Management's
                Discussion and Analysis of FinancialCondition
                and Results of Operations
            12Item
                7A.
            Quantitative
                and Qualitative Disclosures about Market Risk
            20Item
                8.
            Financial
                Statements and Supplementary Data
            23Item
                9.
            Changes
                In and Disagreements With Accountants onAccounting
                and Financial Disclosure
            23Item
                9A.
            Controls
                and Procedures
            24Item
                9B.
            Other
                Information
            25**PART
                III**Item
                10.
            Directors
                and Executive Officers of the Registrant
            26Item
                11.
            Executive
                Compensation
            28Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            29Item
                13.
            Certain
                Relationships and Related Transactions
            31Item
                14.
            Principal
                Accountant Fees and Services
            31**PART
                IV**Item
                15.
            Exhibits
                and Financial Statement Schedules
            33








**PART
      I**





This
      Form
      10-K contains certain forward-looking statements. For this purpose, any
      statements contained in this Form 10-K that are not statements of historical
      fact may be deemed to be forward-looking statements. Without limiting the
      foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
      "estimate," or "continue" or comparable terminology are intended to identify
      such forward-looking statements. These statements by their nature involve
      substantial risks and uncertainties, and actual results may differ materially
      depending upon a variety of factors, including those set forth in the section
      below entitled "Risks Affecting Forward Looking Statements and Stock
      Prices."




**ITEM
      I.   BUSINESS**




***General***




AHPC
      Holdings, Inc., formerly known as WRP Corporation, through our wholly owned
      subsidiary, American Health Products Corporation ("AHPC"), is a leading marketer
      of foodservice and medical examination gloves and complimentary products in
      the
      United States. Prior to April 30, 2004, we were also a manufacturer of
      disposable latex examination and food service gloves through a formerly 70%
      owned Indonesian manufacturing facility, PT WRP Buana Multicorpora ("PT Buana"),
      which we sold in April 2004. We were reincorporated in Maryland in December
      1995
      and have been involved in several business operations.





From
      March 1998 until April 30, 2004, WRP Asia Pacific Sdn Bhd ("WRP Asia") owned
      a
      majority of our outstanding common stock. As of April 30, 2004, WRP Asia owned
      53.2% of our outstanding securities, which consisted of 833,333 shares of common
      stock and 417,513 "Class A" shares of common stock (the latter of which was
      convertible into our common stock and entitled WRP Asia to elect a majority
      of
      our directors). WRP Asia is one of the world's leading manufacturers of
      disposable gloves, primarily for use by healthcare professionals in the acute
      care, alternative care and foodservice markets, and for critical environments
      in
      the electronics industries, scientific laboratories, pharmaceutical industries
      and other related industries. AHPC had been purchasing the majority of its
      powder-free latex exam gloves from WRP Asia for several years.





On
      April
      30, 2004, pursuant to the terms of our stock redemption and exchange agreement
      with WRP Asia, we redeemed all of WRP Asia's shareholdings in the Company,
      which
      consisted of the 417,513 shares of Class A Common Stock and the 833,333 shares
      of common stock. These share amounts reflected the 1-for-3 reverse stock split
      which occurred on January 20, 2004. As consideration for the redemption we
      conveyed to WRP Asia, our 70% ownership interest in our subsidiary PT Buana
      and
      excused all indebtedness owing to us from WRP Asia and PT Buana, with the
      exception of certain mutually agreed obligations related to certain purchases
      of
      our products. We also entered into a five year supply agreement whereby we
      agreed to purchase certain minimum quantities of our latex glove needs from
      WRP
      Asia. On the closing of the transaction, the three of our seven directors who
      were employees of WRP Asia resigned as our officers and directors.





Under
      the
      Stock Redemption and Exchange Agreement we also agreed to change our corporate
      name from WRP Corporation to AHPC Holdings, Inc. The name change was made
      effective on May 14, 2004.





Additionally,
      during the fiscal year ended June 30, 2004, we made the decision to increase
      our
      presence in the healthcare market. The healthcare market includes dental and
      integrated delivery network/medical distribution channels. With respect to
      the
      healthcare market our focus is on marketing our existing products, including
      the
      development of a separate branding identity for our DermaSafe versus Glovetex
      products. This decision was a reversal of the direction that our organization
      had taken in March 2, 2002 when we decided to substantially reduce our presence
      in the healthcare market.





***Glove
      Products***




Through
      our wholly owned subsidiary, AHPC, we market a full product line of disposable
      gloves including latex, vinyl, synthetic and nitrile examination gloves used
      primarily in the foodservice, non-acute medical, dental, nursing home and retail
      industries. PT Buana, WRP Asia and other third parties manufacture gloves
      marketed by AHPC. Gloves are marketed by AHPC under
      the
      brand names "DermaSafe ® ,"
      "Glovetex ® ,"
      and
      "SafePrep TM "
      to
      foodservice distributors, medical distributors, dental distributors and nursing
      homes. AHPC also sells gloves to other companies, which market the gloves under
      their own brand names or under "private labels." The gloves are sold in cases
      that are generally comprised of ten boxes with 100 gloves per box.







1




For
      the
      year ended June 30, 2006, AHPC's sales ratios of latex powdered, latex
      powder-free and non-latex glove sales were approximately 27%, 26% and 37%,
      respectively. We anticipate that our sales ratio of latex powdered exam gloves
      will continue to decline and be replaced with powder-free and synthetic gloves,
      which is consistent with market trends.




Manufacturing
      Operations .
      The
      production of latex gloves begins with the tapping of raw latex from rubber
      trees located on plantations in Malaysia and Indonesia. Once gathered, the
      raw
      latex is sent to a centrifuge where the latex is concentrated. PT Buana and
      other similar manufacturers of latex gloves purchase the latex concentrate
      and
      ship it to their respective production plants where the latex concentrate is
      compounded in a proprietary formula to enhance glove durability, elasticity
      and
      tactility. A controlled dipping process causes consistency from batch to batch
      and eliminates air bubbles that can create pinholes. Glove-making formers,
      which
      are in five sizes and designed for the American hand, are dipped in the latex
      compound. The formers are cleansed both chemically and mechanically to prevent
      residue buildup which could compromise glove integrity.





The
      PT
      Buana factory, which was 70% owned by us through April 30, 2004, had a
      production capacity of approximately 840,000,000 latex gloves per year. Under
      our Stock Redemption and Exchange Agreement with WRP Asia, we sold our 70%
      interest in PT Buana to WRP Asia and entered into a five year supply agreement.
      We continue to purchase powdered latex exam gloves from PT Buana under the
      supply agreement.





Powdered
      Latex Examination and Foodservice Glove Suppliers .
      Several
      Malaysian and Indonesian glove manufacturers supplied AHPC with its powdered
      latex gloves inventory during the year ended June 30, 2006.





Powder-Free
      Latex Examination and Foodservice, Nitrite and Surgical Glove
      Supplier .
      AHPC
      continues to purchase the majority of its latex powder-free gloves from
      Indonesian and Malaysian suppliers. In addition, AHPC is supplied with its
      nitrile and other synthetic gloves from suppliers located in China.





Non-Latex
      Examination and Foodservice Glove Suppliers .
      AHPC
      purchases its non-latex gloves from two suppliers with facilities in Taiwan,
      China, Vietnam, and Thailand.




***Complimentary
      Products***




The
      foodservice, industrial and retail industries view our current line of product
      offerings as one of a bundle of safety products used by their customers.
      Developing a profitable line of complimentary products will be important to
      the
      future success of our business. During 2003, we diversified our product offering
      with additional synergistic product lines that address the current safety
      requirements of our markets. These additional product offerings include poly
      gloves, heavy-duty gloves, headwear, aprons and bibs, food storage bags and
      educational services. These products are being offered under our SafePrep brand
      and under private label. During our fiscal year ended June 30, 2006, these
      complimentary products represented 9.4% of our total net sales.





Markets
      and Methods of Distribution .
      AHPC
      markets its gloves through a network of national, regional and local
      foodservice, retail and medical distributors that sell primarily to restaurants,
      hotels, hospitals and nursing homes. AHPC also markets to alternate care and
      home health care dealers, dental dealers and major retail outlets. Our principal
      methods of marketing our products are trade shows, advertising, seminars, direct
      mail and brokers, as well as sales representatives. AHPC employs a sales force
      comprised of regional sales managers and representatives, manufacturer sales
      representatives and an in-house sales and marketing staff to cover the United
      States.





FDA
      Regulation of Examination Glove Products .
      The
      quality control procedures for the manufacture of examination gloves marketed
      in
      the United States are regulated by the U.S. Food and Drug Administration
      ("FDA"). Included within such procedures are minimum testing requirements,
      as
      well as FDA current Quality Systems Regulations and American Society for Testing
      and Materials standards.





Competition .
      Our
      business of providing barrier protection products is highly competitive in
      the
      markets in which we operate including healthcare and foodservice. The primary
      basis of competition includes, but is not limited to, price, product quality,
      breadth of product line, service and product availability. Additionally, among
      our direct competitors are several large firms with significantly greater
      resources available than us. Nonetheless, we believe we have certain competitive
      advantages that enable us to compete favorably with larger competitors including
      our ability to provide high service levels and to react quickly to changing
      customer requirements.







2




Customers .
      Our
      customers include leading foodservice distributors and healthcare product
      suppliers. During the year ended June 30, 2006, AHPC's national customer group,
      accounted for 85.9% of its net sales. The customer group is comprised of
      approximately 53 independent customers. The loss of these national customers
      would have a materially adverse effect on us. Our customers
      tend to limit the number of qualified vendors they purchase from in order to
      gain efficiencies across their product lines. We, therefore, expend substantial
      efforts to maintain and grow our relationships with our existing major
      customers. However, our products are ultimately distributed by three diversified
      distribution companies, through their combined networks of over 100 operating
      companies, to thousands of foodservice organizations and medical facilities
      throughout the United States. The ultimate end-users of our products are the
      foodservice organizations and medical facilities, healthcare professionals
      and
      individuals who use our gloves.





Patents
      and Trademarks .
      AHPC
      owns the trademarks "SafePrep," "DermaSafe" and "Glovetex," which are registered
      in the United States.




Segment
      Financial Information .
      Our
      segment information for the year ended June 30, 2006, is included in Note O
      to
      our Consolidated Financial Statements which are attached to this report and
      includes two segments, manufacturing and distribution, for fiscal 2004 and
      one
      segment, distribution, for fiscal 2006 and fiscal 2005.





Inventory .
      Since
      the majority of our products are imported from Southeast Asia, it is our
      practice to maintain a certain level of inventory as safety stock. Inventories
      are accounted for on a first-in, first-out basis and are valued at the lower
      of
      actual cost or market.





**Employees**





As
      of
      June 30, 2006, our U.S. operations employed a total of 26 full-time employees.
      AHPC also uses the services of one manufacturer sales representative
      organization and 32 broker representative organizations that do not work
      exclusively for AHPC and are paid on a commission basis. None of our employees
      are represented by a collective bargaining agreement. We consider relations
      with
      our employees to be good.





***Executive
      Officers***





Our
      executive officers are as follows:





**Name**
            **Age**
            **Position**Alan
                E. Zeffer
            53
            President
                and Chief Executive OfficerDeborah
                Bills
            38
            Chief
                Financial Officer, Secretary and
                Treasurer





Biographies
      for each of the executive officers are included below.





***Alan
      E. Zeffer*** ** has
      been
      Chief Executive Officer and President of the Company since May 2004. He was
      the
      Chief Financial Officer, Secretary/Treasurer for WRP Corporation, our
      predecessor, prior to becoming our Chief Executive Officer and President. He
      joined WRP


Corporation
      in April 2001. Prior to joining ** WRP
      Corporation, Mr. Zeffer was Managing Partner for Quest Capital Corporation,
      a
      corporate finance advisory firm that he founded in 1993. He also served as
      Treasurer for Sybron International Corp, from 1987 until 1993.





***Deborah
      Bills*** has
      been
      our Chief Financial Officer, Secretary and Treasurer since May 1, 2004. Prior
      to
      becoming Chief Financial Officer, Secretary and Treasurer, she served as the
      Company's corporate controller. She joined us in October 2000, as an accounting
      manager. Prior to joining us in October 2000, she served as accounting manager
      for Advanced Dial Company.




**ITEM
      1A.  Risk Factors.**





An
      investment in our common stock is subject to risks inherent in our business,
      including the risks described below. The risks described below are not the
      only
      risks we face. Additional risks that we do not yet know of or that we currently
      think are immaterial may also impair our business operations. If any of the
      events or circumstances described in the following risks actually occur, our
      business, financial condition or results of operations could be materially
      adversely affected . In such cases, the trading price of our common stock could
      decline.






3




Risks
      Related to Our Business




**We
      do not have sufficient cash to satisfy our liquidity needs. Consequently, our
      independent registered public accounting firm has expressed substantial doubt
      in
      our ability to continue as a going concern.**




Our
      independent registered public accounting firms have included an explanatory
      paragraph in their reports dated October 13, 2005 (which was also dual dated
      June 16, 2006) and September 6, 2006 on our financial statements for the fiscal
      years ended June 30, 2005 and June 30, 2006, with respect to our ability to
      continue as a going concern. This means that the auditor questions whether
      we
      can continue in business. Investors in our securities should carefully review
      the report prepared by our auditor. Our ability to continue in the normal course
      of business is dependent upon our line of credit with Greenfield Commercial
      Credit, LLC, our
      ability to increase our cash flow and profitability, and our ability to access
      additional capital. As concluded by our independent auditors, uncertainties
      as
      to these matters raised substantial doubt about our ability to continue as
      a
      going concern at the date of our auditor’s report. For a more detailed
      discussion of these risks, see the risk factors identified below.




**Our
      independent registered public accounting firm’s report regarding our ability to
      continue as a going concern could have a material adverse effect on our
      business, financial condition, and trading price of our common stock.**




The
      issuance by our independent registered public accounting firm of its report
      concerning our ability to continue as a going concern could have a material
      adverse effect on our business, financial condition and stock price. For
      example, among other things, as a result of concerns regarding our financial
      viability, prospective and existing clients may desire the company to present
      its future business plans as a condition to doing business with us, thus, posing
      challenges for us to increase or maintain our customer relationships and our
      level of revenues. Additionally, our suppliers may demand letters of credit,
      or
      accelerated payment terms as a condition to their continuing to provide us
      with
      our supply; thus, increasing our costs of operations. If any of these events
      or
      similar events occur, they could have a material adverse effect on our business,
      financial condition and trading price of our common stock. For a more detailed
      discussion of these risks, see the risk factors below.




**Our
      line of credit may not have sufficient availability to finance our
      operations.**




We
      presently finance our operations through a credit facility with Greenfield
      Commercial Credit, LLC, which is secured by a blanket lien on our assets and
      the
      funding of which is subject to limitation in availability of funding based
      upon
      varying percentages of the levels of our accounts receivable and inventory.
      In
      addition, certain of our suppliers require the posting of letters of credit
      to
      ensure shipment of products, which letters of credit reduce availability under
      our revolving line of credit. Greenfield Commercial Credit, LLC can terminate
      our line of credit at any time, irrespective of whether any default exists
      under
      the line of credit. There can be no assurances that if our credit facility
      is
      terminated we will be able to replace such credit facility, and if we cannot
      replace such credit facility, we will likely not be able to continue our
      operations. In addition, should we lack sufficient availability for draws on
      the
      line of credit, we may be unable to finance operations in the ordinary course
      of
      our business, and we may lack sufficient funds to implement our sales,
      marketing, and product development initiatives.




**Our
      plan to increase sales and profitability may not be successful, which could
      result in our seeking alternatives to our business plan.**




If
      we are
      unsuccessful in implementing our marketing, sales and product development
      initiatives, we may seek alternative ways to maximize shareholder value. Such
      alternatives could include going private or finding a strategic buyer to
      purchase the Company or our core business. There can be no assurance that such
      alternatives, if pursued, would increase the value of the shares of our Common
      Stock.








4




**Our
      plan to increase profitability depends upon our ability to increase our gross
      margin on sale of our products.**




We
      are
      currently almost exclusively engaged in the sale of disposable gloves.
      Accordingly, our results of operations and financial condition are highly
      dependent on the level of supply of, and demand for, disposable gloves.
      Historically, the gross margin on our disposable gloves has been low and our
      ability to raise the prices we charge our customers for these gloves is
      restricted by a number of factors, including the commodity like nature of our
      product, the level of supply of gloves in the marketplace, the level of
      concentration of our customers, and the increasing raw material cost of the
      gloves. Due to these factors, we may not be able to pass on price increases
      to
      our customers in a timely manner or at all. To the extent that these factors
      continue, our gross margins could continue to fluctuate and/or decline, which
      would adversely affect us and our future operating results.




We
      recently have taken action to increase our gross margins by reducing our cost
      of
      supply by diversifying our suppliers of disposable gloves. We hope to increase
      our product sales from higher gross margin products, such as powder-free and
      synthetic gloves. However, there is no assurance that these efforts will be
      successful or will positively affect the trading price of our common
      stock.




**We
      need to develop complimentary products to increase our gross
      margins.**




The
      foodservice, industrial and retail industries look at our current line of
      product offerings as one product of a bundle of safety products used by their
      customers. We have developed and continue to develop additional products that
      can be sold in this market channel and that address the current safety
      requirements of our customers. These additional product offerings include poly
      gloves, heavy-duty gloves, headwear, aprons and bibs, food storage bags and
      educational services. We expect that these products will typically have higher
      gross margins than our glove products. These products are or will be offered
      under our SafePrep brand and under private label. Currently, these products
      represent approximately nine percent 9.4% of our total net sales, and have
      had a
      favorable effect on our overall gross margin.




**We
      face significant competition in the sale of our products.**




The
      various markets in which we operate are becoming increasingly competitive as
      a
      number of other companies develop and sell products that compete with our
      products in these markets. Certain of these competitors have significantly
      more
      financial and technical resources than us. We face additional competitive
      factors besides price, such as product quality, timeliness of delivery, service
      and the size and reliability of the manufacturer. These competitive factors
      may
      result in, among other things, price discounts by us and sales lost by us to
      competitors that may adversely affect our future operating results.




**Our
      business relies heavily on sales to a few distributors.**




During
      the fiscal year ended June 30, 2006, our national customer group accounted
      for
      85.9% of our net sales revenue. These distributors resell our products to the
      end users. The loss of any of these national distributors would likely have
      a
      materially adverse impact on us and our financial results.




**Our
      profitability depends in part on the cost of rubber and latex concentrate.**




Our
      ability to purchase our latex products profitably is entirely dependent upon
      the
      consistent availability, at competitive prices, of raw rubber harvested by
      independent growers in Malaysia, Thailand and Indonesia and locally processed
      by
      others into latex concentrate. Any disruption in the consistent supply of rubber
      for latex concentrate due to weather or other natural phenomena, labor or
      transportation stoppages, shortages or other factors, could cause significant
      adverse effects to our results of operations and financial condition. In
      addition, rubber is a commodity traded on world commodities exchanges and is
      subject to price fluctuations driven by changing market conditions over which
      we
      have no control. During the year ended June 30, 2006, the price of latex
      concentrate increased by as much as 70%, causing us to incur higher levels
      of
      cost of goods sold. Moreover, we were not able to pass on the entire increase
      in
      cost to customers as quickly as we incurred them from our suppliers, resulting
      in significant margin compression in fiscal year 2006.






5




**Our
      supply of product is imported from Asian manufacturers and is susceptible to
      disruption.**




The
      vast preponderance of our products
      are imported from Asian manufacturers. Should there be disruptions in the supply
      chain due to factors such as product shortages, labor unrest or work stoppages,
      we may be unable to continue to supply products on a timely basis, which would
      likely adversely impact our operating results and financial condition. If this
      were to occur, we would need a significant amount of time to establish domestic
      or other alternative suppliers for these products.




Currency
      fluctuations may affect our profitability.




Our cost of goods are affected by foreign currency fluctuations against the
      U.S.
      dollar. A fall in the value of the dollar could adversely impact profit margins
      and/or desirability of foreign manufactured products.




**We
      must properly manage our inventory to maintain our business and profit margin.**




Managing
      our inventory including volume and product mix is a complex task. A number
      of
      factors, including the need to maintain a significant inventory of certain
      sizes
      or products which are in short supply or which must be purchased in bulk to
      obtain favorable pricing, the general unpredictability of demand for specific
      products and customer requests for quick delivery schedules, may result in
      us
      maintaining excess inventory. Other factors, including changes in market demand
      and technology, may cause certain
      of our inventory to become obsolete. Any excess or obsolete inventory could
      result in price reductions and inventory write-downs, which, in turn, could
      adversely affect our operating results.




**We
      may be subject to product liability claims.**




Participants
      in the medical supplies business are potentially subject to lawsuits alleging
      product liability, many of which involve significant damage claims and defense
      costs. A successful claim against us in excess of our insurance coverage could
      have a material adverse effect on our results of operations and financial
      condition. Claims made against us, regardless of their merit, could also have
      a
      material adverse effect on our reputation. There is no assurance that the
      coverage limits of our insurance policies will be adequate or that present
      levels of coverage will be available at affordable rates in the future either
      to
      cover medical-related claims or to qualify us as a supplier to key accounts
      (which may require product liability coverage at limits in excess of what we
      can
      obtain or afford). While we have been able to obtain product liability insurance
      in the past, such insurance varies in cost, is difficult to obtain and may
      not
      be available in the future on acceptable terms or at all. There can be no
      assurance that our insurance will be sufficient to meet any recovery for which
      we may be found liable, that the outcome of such suits will not materially
      adversely affect our results of operations or financial condition, or that
      our
      deductible obligation (to fund a portion of the initial cost of defense and/or
      liability of each such lawsuit) will not prove financially
      burdensome.




**Our
      products are subject to government regulation which could cause disruptions
      to
      our supply.**




Our
      products are subject to regulation by numerous governmental authorities in
      the
      United States and other countries, particularly to safety and adherence to
      Quality System Regulations (“QSR’s”) for medical devices. In the United States,
      examination gloves are classified as a Class I medical device product regulated
      by the Food and Drug Administration (FDA). Noncompliance with these FDA
      regulations can result in administrative enforcement, such as warning letters,
      import alerts, administrative detention or in civil penalties, product bans
      and
      recalls. Periodically, the FDA inspects shipments of medical gloves as they
      arrive in the United States ports. The FDA inspections and reviews may cause
      delays in product delivery and this can result in a loss or delay in recognition
      of sales and income by us. Additionally, if our gloves fail to meet the FDA
      requirements and we become subject to FDA penalties, warnings, or recalls,
      such
      penalties or recalls could have a material adverse effect on our business
      reputation and financial condition.




The
      FDA
      may also inspect our suppliers’ manufacturing facilities for compliance with
      QSR’s, which incorporate pre-production design and development to achieve
      consistency with quality system requirements worldwide. If our suppliers fail
      to
      comply with regulatory requirements, they could be required to shut down, which
      in turn will have a material adverse effect on the supply of our products.
      As a
      result of these events, our business financial condition and results of
      operations could be materially and adversely affected.








6


**We
        depend on key management employees.**
  We
        believe that our current operations and future success depend largely on
        the
        continued services of our management employees, in particular Alan Zeffer,
        our
        president and chief executive officer. Although we have entered into an
        employment agreement with Mr.
        Zeffer ,
        he may
        voluntarily terminate his employment with us at any time. We do not have
“key
        man” life insurance on Mr. Zeffer. The loss of Alan Zeffer's services, or other
        key management personnel, could have a material adverse effect on our financial
        condition and results of operations.




**Risks
      Related to our Common Stock**





**The
      price of our common stock may fluctuate significantly, which may result in
      losses for investors.**




In
      recent
      years, the stock market in general, including shares of our common stock, has
      experienced extreme price fluctuations. The market price of our Common Stock
      may
      be significantly affected by various factors such as: quarterly variations
      in
      our operating results; changes in our revenue growth rates; the loss of a
      significant customer, customer group or sales contract; changes in earnings
      estimates by market analysts; the announcement of new products or product
      enhancements by us or our competitors; speculation in the press or analyst
      community; the inability of the market to absorb selling pressure from one
      or
      more large institutional shareholders; and general market conditions or market
      conditions specific to particular industries. There can be no assurance that
      the
      market price of our common stock will not experience significant fluctuations
      in
      the future.


**Our
      common stock is thinly traded, which may make it more difficult for you to
      resell shares when you want at prices you find attractive.**




Our
      common stock is thinly traded. Securities that are thinly traded often
      experience a significant spread between the market maker's bid and ask prices.
      Therefore, prices for actual transactions in securities may be difficult to
      obtain and holders of our common stock may be unable to resell their shares
      when
      they want at prices they find attractive.




**We
      have never paid dividends on our Common Stock and do not intend to do so in
      the
      future.**




We
      have
      never paid cash dividends on our common stock and do not anticipate paying
      dividends on our common stock in the foreseeable future. In addition, we have
      obtained loan and equity financing under agreements that restrict our ability
      to
      pay dividends or take certain corporate actions. The payment of dividends on
      our
      common stock will depend on our compliance with these provisions and on our
      earnings, capital requirements, financial condition and other factors.




**Our
      shares that are eligible for future sale may have an adverse effect on the
      price
      of our Common Stock.**




As
      of
      September 12, 2006, we had 1,375,511 shares of common stock outstanding. Of
      the
      shares outstanding, approximately all shares were freely tradable without
      substantial restriction or the requirement of future registration under the
      Securities Act. In addition, as of September 12, 2006, options to purchase
      approximately 227,961 shares and warrants to purchase 2,380,466 shares of our
      Common Stock were outstanding. Sales of substantial amounts of Common Stock,
      or
      a perception that such sales could occur, could adversely affect the market
      price of the Common Stock and could impair our ability to raise capital through
      the sale of our equity securities.




**It
      may be more difficult to trade our Common Stock if we cannot maintain our Nasdaq
      listing.**




Our
      common stock is currently listed for trading on the Nasdaq Stock Market. The
      Nasdaq Stock Market maintenance rules require among other things that our common
      stock price remain above $1.00 per share and that we have minimum net tangible
      assets in excess of $2 million. We were required to conduct a 3 to 1 reverse
      stock split in 2004 to maintain a sufficient per share price to preserve our
      listing on the Nasdaq Stock Market. Additionally, we were involved in a
      delisting proceeding with the Nasdaq Stock Market in June 2006 for our failure
      to maintain compliance with certain quantitative listing standards (refer to
      Note R of our consolidated financial statements).




If
      we
      were delisted from the Nasdaq Stock Market, the following could
      occur:




·  broker-dealers
      could be less willing to effect transactions in our common stock;




·  the
      news
      coverage associated with Nasdaq traded stocks would be lost;




·  our
      Common Stock price could decrease; and




·  investors
      could find it difficult to sell or obtain accurate quotations for the market
      value of our common stock and, thus, may hold a highly illiquid
      security.








7




**ITEM
      1B. UNRESOLVED STAFF COMMENTS**





Not
      Applicable.




**ITEM
      2.  PROPERTIES**





On
      April
      7, 2005, we entered into a Lease Agreement with ProLogis to lease warehouse
      and ** office
      space in the building known as 80 Internationale Boulevard, Unit A in Glendale
      Heights, Illinois. This facility includes our executive and administrative
      offices and our primary distribution center. The term of the Lease Agreement
      commenced on May 1, 2005 and will terminate
      on June 30, 2010, subject to our option to extend the lease term for an
      additional term of 5 years. The average base rent for the premises for the
      first
      year of the Lease Agreement is approximately $2.23 per square foot, or
      approximately $176,000. The average rent for the premises during the remaining
      four years of the initial term of the Lease Agreement will be approximately
      $3.88 per square foot, or $306,000 per year. In addition, we expect common
      area,
      real estate taxes, and insurance to approximated $110,000 during the first
      year
      of the lease term and we expect such charges to average approximately $140,000
      per year over the remaining four years of the initial term. For the year ended
      June 30, 2006, our lease expense for this facility was approximately
      $420,000.





Our
      principal executive and administrative office was previously located in Itasca,
      Illinois. The lease for this location was renewed on April 9, 2000, for a term
      of five years, and terminated on September 9, 2005 without renewal. The rental
      expense for this lease, through September 30, 2005, was approximately
      $42,000.





In
      May
      1999, we entered into a five-year lease agreement for a 55,000 square-foot
      warehouse facility located in Itasca, Illinois. The lease term for this location
      commenced on August 1, 1999 and was to expire in July 2004; however we extended
      the term of this lease for one additional year to May 2005. This lease expired
      as of May 31, 2005.





We
      also
      use public warehouse facilities, as needed, to store our inventory in Oakland,
      California and Fond Du Lac, Wisconsin. Public warehouse charges are
      dependent upon the volume of products stored and the frequency of shipping
      or
      receiving products.




**ITEM
      3.  LEGAL PROCEEDINGS**




At
      June
      30, 2006, we were actively involved or otherwise named in one latex glove
      product liability suit pending throughout the United States which we were an
      active defendant in. However, there are no latex glove product liability claims
      pending directly against the Company.





The
      claim
      referred to above involves plaintiffs that have worked in the medical and health
      industries and who allege injuries associated with the continued use and/or
      exposure to latex glove products. In this claim, we are one of several glove
      distributors, manufacturers or users named in the suit. Each of the claimants
      in
      this suit alleges damages of an unspecified amount and the proceeding is in
      the
      discovery or other pre-trial stage.





We
      have
      obtained product liability insurance coverage, which covers the defense costs,
      and certain damage awards associated with the product liability claims against
      us and the indemnity of our customers to the limits of the policies. However,
      there is no assurance that our insurance will be sufficient to meet all damages,
      for which we may be held liable, or the product liability insurance for any
      claims will continue to be available to us or, if available, that it will be
      available in sufficient amounts and at affordable terms. Likewise, there is
      no
      assurance that the outcome of the suit, referred to above, will not adversely
      affect our operations or financial condition. We intend to vigorously contest
      any latex claim initiated against us or one of our indemnities, but will enter
      into a settlement agreement, where, after careful consideration, our management
      determines that our best interests will be served by settling the
      matter.





From time to time we are involved in other litigation relating to claims arising
      out of our operations in the normal course of business. At June 30, 2006, we
      were not a party to any other legal proceedings, the adverse outcome of which,
      in management's opinion, individually or in the aggregate, would have a material
      adverse effect on our financial condition. Management believes all legal claims
      are adequately provided for and if not provided for, are without merit or
      involve such amounts that would not materially adversely affect us.






8




**ITEM
      4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS**




Our
      annual meeting of the shareholders was held on August 14, 2006. The purpose
      of
      the annual meeting was to consider the vote on the following
      matters:





1. To
      elect
      two directors to hold office until their three-year term expires or otherwise
      as
      provided in our by-laws.





Director
      Nominees


Alan
      E.
      Zeffer


Richard
      J. Swanson





Each
      of
      the nominees for directors identified above received the following number of
      votes:





Alan
                E. Zeffer
            Richard
                J. SwansonFor
            1,141,675
            1,137,532Votes
                Withheld
            9,544
            13,687Broker
                Non-votes
            0
            0





Each
      of
      Alan E. Zeffer and Richard J. Swanson were elected as directors by the
      shareholders. Additionally, the terms of each of George Jeff Mennen, Richard
      J.
      Swanson, Robert J. Simmons, and Don L. Arnwine as directors continued for the
      remaining period of their terms.





2. To
      ratify
      the appointment of Plante & Moran, PLLC to serve as our auditors for the
      next fiscal year ending June 30, 2006.





Votes
                For:
            
            1,144,661Votes
                Against:
            
            6,489Abstentions:
            
            69Broker
                Non-votes:
            
            0





The
      ratification of the appointment of Plante & Moran, PLLC to serve as our
      auditors was approved by the shareholders.


9





**PART
      II**





**ITEM
      5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
      ISSUER PURCHASES OF EQUITY SECURITIES**





Our
      common stock is traded on the National Association of Securities Dealers
      Automated Quotation System ("Nasdaq") Stock Market under the symbol "GLOV".
      The
      table below sets forth for each quarter of the fiscal year indicated the
      reported closing high and low sale prices of our common stock.




**COMMON
      STOCK PRICES**





**Period
                Ended**
            **Low**
            **High****June
                30, 2006**4thquarter
            $1.33
            $2.613rdquarter
            $2.05
            $3.622ndquarter
            $2.51
            $4.131stquarter
            $3.33
            $4.49**June
                30, 2005**4thquarter
            $2.90
            $4.403rdquarter
            $3.10
            $4.472ndquarter
            $1.95
            $4.091stquarter
            $3.02
            $4.60





There
      were approximately 270 shareholders of record of our common stock as of June
      30,
      2006. We believe that the number of beneficial owners of our common stock on
      that date was substantially greater.





We
      have
      not paid any cash dividends with respect to our common stock. We expect to
      reinvest any earnings for expansion of our operations and do not intend to
      pay a
      dividend in the foreseeable future. Moreover, our credit facility and our equity
      financing agreements related to the issuance of shares of our series B
      convertible preferred stock restrict or prohibit our ability to pay dividends
      on
      the shares of our common stock.




Nasdaq
      notified us on February 16, 2006 that we did not comply with or satisfy Nasdaq
      Marketplace Rule 413(c)2(B) for the $2.5 million minimum stockholder equity
      requirement for continued listing on the Nasdaq Stock Market and that they
      were
      reviewing our eligibility for continued listing (refer to Note R to our
      consolidated financial statements). On June 26, 2006, we disclosed in a press
      release and on a Form 8-K report that we completed $3 million equity financing
      with M.A.G. Capital, LLC and its affiliates. On July 13, 2006, we received
      notification from the Nasdaq Stock Market that our listing on the Nasdaq Stock
      Market would be continued, conditioned upon two exceptions:





1.
            On
                or before August 15, 2006, we shall hold our annual shareholders
                meeting
                for the fiscal year ended June 30,
                2005


2.
            On
                or before September 30, 2006 we must report in our Form 10-K, for
                the
                fiscal year ended June 30, 2006, actual shareholders’ equity of at least
                $2.5 million.





As
      of the
      date of this report, we have met both conditions.





In
      connection with the M.A.G. Capital, LLC equity financing, we
      completed a private placement of newly issued Series B convertible preferred
      stock, $0.01 par value per share and common stock purchase warrants to purchase
      up to 1,950,000 shares of our common stock for $3 million to M.A.G.
      Capital, LLC and certain of its affiliates.





The
      terms
      of the private placement are governed by a Subscription Agreement among the
      Company and the Purchasers dated as of June 20, 2006. The shares of
      series B convertible preferred stock issued pay preferential, cumulative
      dividends at a rate of the higher of 9% or the prime rate plus 1%, subject
      to a
      maximum rate of 12%. The dividends are payable monthly in arrears on the first
      day of the month while such shares of series B convertible preferred stock
      are outstanding. The holders of the series B convertible preferred stock do
      not have the right to vote on matters that come before the shareholders, except
      in limited circumstances. Furthermore, the holders of the series B
      convertible preferred stock have the option, at any time, to convert their
      shares into shares of our common stock at a fixed conversion rate of $1.60.


10


The warrants issued in connection with the private placement grant the holders
      the right to purchase shares of our common stock at an exercise price of $1.75,
      with respect to 975,000 shares, and $1.85 with respect to the remaining
      975,000 shares.





We
      issued
      the shares of series B convertible preferred stock and the warrants
      pursuant to certain exemptions from registration provided by section 4(2) of
      the
      Securities Act of 1933, as amended, Rule 506 of Regulation D promulgated
      hereunder, certain state securities laws and certain rules and regulations
      promulgated pursuant thereto.




**ITEM
      6.  SELECTED CONSOLIDATED FINANCIAL DATA**





The
      selected consolidated financial data of the Company presented below for the
      years ended June 30, 2006, 2005, 2004, 2003 and 2002 should be read in
      conjunction with the Consolidated Financial Statements, related notes and other
      financial information referred to in Item 8 of this report.





**Year
                Ended June 30,**(In
                thousands except per share amounts)
            
            
            **2006**
            
            
            **2005**
              (as
                restated, refer to Note S)
            
            
            **2004**
              (as
                restated, refer to Note S)
            
            
            **2003**
            
            
            **2002**STATEMENT
                OF OPERATIONS DATA:Net
                sales
            
            $
            25,297
            
            $
            26,553
            
            $
            36,560
            
            $
            36,989
            
            $
            47,357Gross
                profit
            
            
            4,928
            
            
            6,290
            
            
            6,027
            
            
            5,737
            
            
            11,580Selling,
                general & administrative expenses
            
            
            7,802
            
            
            7,674
            
            
            9,134
            
            
            8,939
            
            
            17,640Minority
                interest in loss (income)Of
                subsidiary, net of tax
            
            
            -
            
            
            -
            
            
            243
            
            
            250
            
            
            202Net
                (loss) income
            
            
            ($3,314
            )
            
            ($1,152
            )
            
            ($3,024
            )
            
            ($5,560
            )
            
            ($4,293
            )PER
                SHARE DATA:(Loss)
                earnings per share
            
            
            ($5.04
            )
            
            ($1.13
            )
            
            ($3.15
            )
            
            ($2.51
            )
            
            ($1.94
            )(restated
            )Total
                assets
            
            $
            8,992
            
            $
            7,684
            
            $
            9,983
            
            $
            25,965
            
            $
            32,947Long-term
                debt
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            5
            
            $
            19Total
                shareholders' equity
            
            $
            2,792
            
            $
            3,296
            
            $
            3,837
            
            $
            11,266
            
            $
            16,836








11


**ITEM
      7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF OPERATIONS**





Management's
      discussion and analysis of financial condition and results of operations is
      to
      provide shareholders with an understanding of our financial condition, changes
      in financial condition and results of our operations. We will discuss and
      provide our analysis for the following:




·  Business
        Overview
 ·  Results
        of Operations
 ·  Liquidity
        and Capital Resources
 ·  Capital
        Structure and Resources
 ·  Critical
        Accounting Policies
 ·  Contractual
        Obligations
 ·  New
        Accounting Standards and Announcements
 ·  Information
        Regarding Forward-Looking Statements
 ·  Subsequent
        Events




***Business
      Overview***





Our
      wholly owned subsidiary, American Health Products Corporation ("AHPC"), is
      engaged in the marketing and distribution of high quality medical grade
      examination and, foodservice gloves, and other complimentary items within the
      United States and Canada. We have been in the glove business since our
      incorporation in January 1989. For the year ended June 30, 2006, we recorded
      net
      glove sales of approximately $25.3 million.





We
      formerly owned a 70% interest in a subsidiary, PT WRP Buana Multicorpora ("PT
      Buana"), whose primary operations consisted of an Indonesian glove manufacturing
      plant, which commenced operations in April 1996. PT Buana manufactures high
      quality, disposable powdered and powder-free latex examination gloves. Under
      our
      Stock Redemption and Exchange Agreement with WRP Asia, we conveyed our 70%
      interest in PT Buana to WRP Asia and entered into a five year supply agreement
      with WRP Asia whereby we have agreed to purchase certain minimum quantities
      of
      our latex glove needs from WRP Asia and PT Buana.





This
      analysis of our results of operations and financial condition should be viewed
      in conjunction with the financial statements and other information concerning
      us
      referenced in Item 8 of this report. The consolidated financial statements
      for
      the years ended June 30, 2006, 2005 and 2004 include our results of operations
      and statements of cash flows.





**Results
      of Operations**




The following table summarizes our operating results as a percentage of net
      sales for the periods indicated.




****
              
              **Year
                  Ended June 30,****2006**
              
              
              **2005**
              
              
              **2004**
                (as
                  restated, refer to Note S)
              
              
              **2003**
              
              
              **2002****STATEMENT
                  OF OPERATIONS DATA:**Net
                  sales
              
              
              100
              %
              
              100
              %
              
              100
              %
              
              100
              %
              
              100
              %Cost
                  of goods sold
              
              
              80.5
              
              
              76.3
              
              
              83.5
              
              
              84.5
              
              
              75.5Gross
                  profit
              
              
              19.5
              
              
              23.7
              
              
              16.5
              
              
              15.5
              
              
              24.5Selling,
                  general & administrative expenses
              
              
              30.8
              
              
              28.9
              
              
              25.0
              
              
              24.2
              
              
              37.3(Loss)
                  income from operations
              
              
              (11.4
              )
              
              (5.2
              )
              
              (8.5
              )
              
              (8.7
              )
              
              (12.8
              )Interest
                  (expense) / other income, net
              
              
              (2.1
              )
              
              (0.6
              )
              
              (0.7
              )
              
              (1.9
              )
              
              (0.6
              )Provision
                  for (benefit from) income taxes
              
              
              (0.4
              )
              
              (1.5
              )
              
              (0.3
              )
              
              5.1
              
              
              (3.9
              )Minority
                  interest in loss (income) of subsidiary
              
              
              -
              
              
              -
              
              
              0.7
              
              
              0.7
              
              
              0.4Net
                  loss from discontinued operations
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  (loss) income
              
              
              (13.1
              %)
              
              (4.33
              %)
              
              (8.27
              %)
              
              (15.00
              %)
              
              (9.10
              %)
 12
 **Fiscal
            Year Ended June 30, 2006, Compared to the Fiscal Year Ended June 30,
            2005**
  Our consolidated net sales for the fiscal year ended June 30, 2006 were
          $25,296,530, which represented a decrease in net sales compared to the
          fiscal
          year ended June 30, 2005 of $1,256,711 or 4.7%. The decrease in net sales
          was
          due to competitive price pressures over the past fiscal year within some
          of our
          national account customers for our lower margin products, which resulted
          in a
          decrease in sales volumes. Our net sales are derived from the sales of
          finished
          product net of allowable rebates, discounts and
          returns.





Consolidated
      gross profit decreased $1,361,938 or 21.7% for the fiscal year ended June 30,
      2006 compared to the prior year. In determining gross profit, we calculate
      cost
      of goods sold by including all costs to manufacture and purchase the finished
      product plus the related costs associated with ocean freight, customs duty
      and
      warehousing. The decrease in our consolidated gross profit during fiscal 2006
      over fiscal 2005 was primarily due to the increases in the raw material costs
      associated with the rising cost of latex and oil and competitive price
      pressures. We continue to expect our gross margins to be affected by the cost
      of
      latex, changes in product mix, competition, manufacturing capacity levels and
      other factors. Due to these factors, we may not be able to pass along price
      increases to our customers in a timely manner or at all.  We continuously
      monitor all costs impacting our profitability, including raw material costs
      such
      as latex and poly vinyl chloride.




Operating
      loss increased $1,490,504 or 107.7% for fiscal year ended June 30, 2006 from
      the
      prior fiscal year. In determining operating loss, we calculate selling expenses
      to include all salaries and payroll-related costs for sales and marketing staff
      together with other sales related expenses such as sales commissions, travel
      costs, trade shows, advertising, promotions and delivery costs. During our
      fiscal year ended June 30, 2006, our selling, general, administrative expenses
      increased by $128,566 or 1.7% due to an increase in selling expenses related
      to
      promoting sales into the healthcare markets. As a percentage of net sales,
      selling, general, administrative expenses increased from 28.9% for the year
      ended June 30, 2005, to 30.8% for the year ended June 30, 2006. This increase
      of
      1.9% was primarily due to the decrease in sales we experienced from the
      competitive price pressures.





As
      further discussed in Note A to the financial statements, effective July 1,
      2005
      we adopted the provisions of the FASB Statement of Financial Accounting
      Standards (“SFAS”) No.123, “Share-Based Payment” (Revised 2004) (“SFAS
      123R”) using the modified prospective method for recognizing costs related to
      stock-based compensation. Prior to the adoption of SFAS 123R, we accounted
      for
      stock-based compensation in accordance with Accounting Principles Board (“APB”)
      Opinion No. 25, “ *Accounting
      for Stock Issued to Employees* .”
The
      modified prospective method of adoption for implementing SFAS 123R requires
      the
      recognition of the fair value of stock based compensation commencing on the
      date
      of adoption. Consequently, stock based compensation for the year ended June
      30,
      2006 is recorded using a method of accounting different than the other periods
      presented, which affects the comparability of these financial statements. For
      the years ended June 30, 2006, 2005 and 2004, we recognized expense related
      to
      stock based compensation of $69,000, $0 and $0, respectively. Had we adopted
      SFAS 123R for the years ended June 30, 2005 and 2004, we would have recognized
      $38,000 and $91,000, respectively, of additional costs related to stock-based
      compensation.





Loss
      from
      operations before income taxes increased by $1,869,166 or 121.8%, for the year
      ended June 30, 2006 compared to the prior fiscal year. The increase in our
      loss
      from continuing operations was primarily due to the rising cost in raw material
      related to latex and the competitive price pressures. Included in this
      computation is an increase in interest expense of $379,770 from the prior fiscal
      year. This increase was due to interest expense related to the change in fair
      value of the warrant liability. Also, in this computation is other income which
      primarily consists of rental, interest and miscellaneous income.





The
      benefit for income taxes for the year ended June 30, 2006 and June 30, 2005
      was
      $(89,616) and $(383,160), respectively. The change in tax benefit was due to
      the
      write-down of deferred tax liability due to the fact that we do not expect
      to be
      liable for state or federal income taxes in the near future.





As
      a
      result of the factors discussed above, we reported net loss of $(3,314,259)
      for
      the year ended June 30, 2006, which compares to a net loss of $(1,151,549)
      during the prior year ended June 30, 2005. Loss per share for the years ended
      June 30, 2006 and June 30, 2005, were $(5.04) and $(1.13),
      respectively.





**Fiscal
      Year Ended June 30, 2005, Compared to the Fiscal Year Ended June 30,
      2004**





Our
      consolidated net sales for the fiscal year ended June 30, 2005 were $26,553,241,
      which represented a decrease in net sales compared to the fiscal year ended
      June
      30, 2004 of $10,007,189 or 27.4%. The decrease in net sales was due to the
      redemption of our common stock from WRP Asia and the resulting loss of PT Buana
      sales. Our net sales are derived from the sales of finished product net of
      allowable rebates, discounts and returns.




13




Consolidated
      gross profit increased $263,288 or 4.4% for the fiscal year ended June 30,
      2005
      compared to the prior year. In determining gross profit, we calculate cost
      of
      goods sold by including all costs to manufacture and purchase the finished
      product plus the related costs associated with ocean freight, customs duty
      and
      warehousing. The increase in our consolidated gross profit during fiscal 2005
      over fiscal 2004 was primarily due to the redemption of our common stock from
      WRP Asia resulting in the loss of PT Buana corresponding expenses, improved
      acquisition costs, and reductions in inventory storage at our outside warehouse
      facilities. We continue to expect our gross margins to be affected by the cost
      of latex, changes in product mix, competition, manufacturing capacity levels
      and
      other factors. We continuously monitor all costs impacting our profitability,
      including raw material costs such as latex and poly vinyl chloride.





Operating
      loss decreased $1,723,372 or 55.5% for fiscal year ended June 30, 2005 from
      the
      prior fiscal year. In determining operating loss, we calculate selling expenses
      to include all salaries and payroll-related costs for sales and marketing staff
      together with other sales related expenses such as sales commissions, travel
      costs, trade shows, advertising, promotions and delivery costs. During our
      fiscal year ended June 30, 2005, our selling, general, administrative expenses
      decreased by $1,460,084 or
      16.0%.
      As a percentage of net sales, selling, general, administrative expenses
      increased from 25.0% for the year ended June 30, 2004, to 28.9% for the year
      ended June 30, 2005. This decrease was primarily due to the redemption of our
      common stock from WRP Asia and the resulting loss of PT Buana selling, general,
      administrative and other expenses of $1,289,364 offset with an increase in
      sales
      consulting services due to our strategic decision to increase our market share
      in the healthcare industry.




Loss
      before minority interest and income taxes, operations decreased by $1,842,141
      or
      54.6%, as restated, for the year ended June 30, 2005 compared to the prior
      fiscal year. The decrease in our loss from continuing operations was primarily
      due to better acquisition costs and a reduction in inventory storage at our
      outside warehouse facilities, which was offset by the loss incurred in
      connection with the redemption of our stock from WRP Asia. Included in this
      computation is other income which consists of rental, interest and miscellaneous
      income. Other income decreased $110,221 during the year ended June 30, 2005
      from
      the prior year ended June 30, 2004. This decrease in other income was primarily
      related to the resulting loss of PT Buana, through the redemption of our common
      stock from WRP Asia.





The
      benefit for income taxes for the year ended June 30, 2005 and June 30, 2004
      was
      $(383,160) and $(109,860), respectively. The change in tax benefit was due
      to
      the write-down of expired tax reserves.





As
      a
      result of the factors discussed above, we reported net loss of $(1,151,549)
      for
      the year ended June 30, 2005, which compares to a net loss of $(3,024,304),
      as
      restated, during the prior year ended June 30, 2004. Loss per share for the
      years ended June 30, 2005 and June 30, 2004, were $(1.13) and $(3.15), as
      restated, respectively.





***Business
      Segments***





During
      the year ended June 30, 2005 and 2006, we were engaged solely in the business
      of
      distributing disposable gloves and complimentary products. During the year
      ended
      June 30, 2004 we were engaged in the business of manufacturing, through April
      30, 2004, and distributing disposable gloves and complimentary products.
      Consequently, during the fiscal year ended June 30, 2004, we had two business
      segments, manufacturing (through April 30, 2004), and distribution. During
      the
      fiscal year ended June 30, 2006 and 2005, we had one business segment,
      distribution. These segments were managed as separate strategic business units.
      The manufacturing segment, which represented the Indonesian operations of PT
      Buana, manufactured powdered and powder-free latex gloves and sold them
      primarily to AHPC and WRP Asia. Our distribution segment involves the
      procurement and sale of gloves purchased from the manufacturing segment (prior
      to April 30, 2004) and other glove manufacturers and then sold to national
      and
      regional healthcare, foodservice, retail and other distributors within the
      U.S.
      The distribution segment also includes, to a significantly lesser extent, the
      sale of non-glove disposable products. Discussion of the operations of each
      segment is included throughout the Results of Operations and Liquidity and
      Capital Resources sections of our management's discussion and analysis of
      financial condition and results of operations contained herein.







14




***Liquidity
      and Capital Resources***





***Cash
      Flows***





Set
      forth
      below is a summary of our cash flows during the fiscal years ended June 30,
      2006, 2005 and 2004.





**Fiscal
                Years Ended June 30,****2006**
            
            
            **2005**
            
            
            **2004****(In
                thousands)**Net
                cash (used) provided by operating activities
            
            $
            (3,967.1
            )
            $
            137.5
            
            $
            339.4Net
                cash used in investing activities
            
            $
            (29.8
            )
            $
            (33.2
            )
            $
            (15.9
            )Net
                cash provided (used) in financing activities
            
            $
            4,063.6
            
            $
            (446.9
            )
            $
            (385.4
            )Net
                increase (decrease) in cash and cash equivalents
            
            $
            66.7
            
            $
            (342.6
            )
            $
            (61.9
            )





***Cash
      and Cash Equivalents:*** ** Our
      cash
      and cash equivalents increased from $16,434 to $83,162 in fiscal year 2006.
      We
      experienced an increase in cash flows during the fiscal year ended June 30,
      2006, primarily as a result of cash provided by financing activities which
      largely related to proceeds received from the issuance of our secured
      subordinated promissory note and the proceeds from the issuance of the series
      B
      convertible preferred stock (refer to Note F of our consolidated financial
      statements.




Management
      currently believes that existing cash, funds generated from operations, and
      our
      credit facility, including our subsequent amended credit facility and
      subordinated debt (refer to Note T of our consolidated financial statements),
      will be sufficient to provide for our anticipated requirements for working
      capital for the next 12 months and the foreseeable future.




There
      can
      be no assurance, however, that our business will continue to generate cash
      flow
      at current levels, or that anticipated operational improvements will be
      achieved. Our ability to make debt payments or pay interest on or extend our
      credit facility depends on our future performance and financial results, which,
      to a certain extent, are subject to general conditions in, or affecting, our
      business (refer to Item 7A, Quantitative and Qualitative Disclosure About Market
      Risk).




***Net
      cash provided by operating activities:*** ** Our
      net
      cash used in operating activities was $3,967,075 in fiscal 2006 compared to
      net
      cash provided by operating activities of $137,528 in the prior fiscal year.
      The
      negative cash flows from operating activities in fiscal year 2006 was mainly
      due
      to the increase in raw material costs and an increase in our inventory levels
      along with certain product line extensions. The raw material, natural rubber
      latex price, index increased approximately 73% from June 30, 2005 to June 30,
      2006.




Net
      trade
      accounts receivable at June 30, 2006 increased by 1.3% to 1,867,977 from
      $1,844,349 at June 30, 2005.




Net
      inventories, at June 30, 2006, increased by 29.6% to $6,470,411 from June 30,
      2005 net inventory of $4,992,385. This increase of $1,478,026 was primarily
      due
      to an increase in inventory levels of existing products and product line
      extensions. Inventory levels for our core line of business are maintained at
      levels between six-eight weeks on hand whereas inventory levels on all other
      lines of business vary.




***Net
      cash used in investing activities:*** Our net
      cash used in investing activities was $29,837 in fiscal 2006 compared to cash
      used of $33,236 in fiscal year 2005. This net difference was due to the decrease
      in capital expenditures relating to computer software, leasehold improvements
      and office equipment.








15




***Net*** ** ***cash
      used in financing activities:*** Our
      net
      cash provided from financing activities in fiscal 2006 was $4,063,640 compared
      to net cash used in financing activities of $446,870 during fiscal
      year ** 2005.
      This increase was due to the proceeds received form the issuance of our series
      B
      convertible preferred stock (refer to Note F of the consolidated financial
      statements).




Interest
      rates in many Asian-Pacific countries have been heavily dependent upon
      international trade and are, accordingly, affected by protective trade barriers
      and the economic conditions of our trading partners in these Asian-Pacific
      countries. The enactment by the governments of our principal trading partners
      of
      protectionist trade legislation, reduction of foreign investment or general
      declines in the international securities markets could have a significant
      adverse effect upon the economies of the Asian-Pacific countries from which
      we
      purchase our products.




***Capital
      Structure and Resources***




On
      September 9, 2004, we signed a commitment for a one-year credit facility with
      Greenfield Commercial Credit, LLC, a privately held commercial financing
      company. This credit facility consisted of an asset-based loan and security
      agreement that provided us with a $3 million revolving line of credit.
      Pursuant to the line of credit, we may borrow up to the lesser of (i) $3 million
      or (ii) the sum of 75% of eligible receivables and 35% of eligible inventory,
      with a limit of $1,000,000 on the amount of borrowing availability on the
      eligible inventory. The line of credit borrowings carry an interest rate of
      prime plus 8.0%. At anytime prior to the maturity date, the Lender has the
      unrestricted right to demand payment of all outstanding indebtedness. It
      contains certain penalties for early termination. These bank obligations are
      secured by a security interest in substantially all of AHPC tangible and
      intangible assets. The credit facility contains certain penalties for early
      termination. As of June 30, 2006 and 2005 we had an outstanding balance of
      $2,094,711 and $783,806, respectively, under this credit facility. This credit
      facility was renewed on September 9, 2005 and September 9, 2006.




The
      renewal of our loan and security agreement with Greenfield Commercial Credit,
      LLC, on September 9, 2005, was extended on September 9, 2006 for another one
      year period. The loan and security agreement includes a $5 million revolving
      line of
      credit, in which we may borrow up to the lesser of (i) $5 million or (ii) the
      sum of 80% of eligible receivables and 50% of eligible inventory on hand and
      35%
      of eligible inventory in-transit, with a sub limit of $500,000, and an overall
      inventory cap of $2,500,000. The line of credit borrowings carry an interest
      rate of prime plus 4.5%. The prime rate is the rate published in the Wall Street
      Journal in its “Money Rates” column as the “Prime Rate.” As of June 30, 2006,
      the prime rate was 8.25%. At anytime prior to the maturity date, the Lender
      has
      the unrestricted right to demand payment of all outstanding indebtedness. It
      contains certain penalties for early termination. These bank obligations are
      secured by a security interest in substantially all of AHPC tangible and
      intangible assets and contains certain penalties for early
      termination.




On
      February 2, 2005, we completed a private placement of 220,000 shares of Series
      A
      Convertible Preferred Stock with a closing date of February 1, 2005 (refer
      to
      Note E of the consolidated financial statements). These shares were issued
      at a
      discount price of $2.60 per share. As of June 30, 2006, all of the Series A
      Convertible Preferred Stock has been converted to common stock.




On
      September 29, 2005, we completed a private placement of $1.2 million in
      subordinated promissory notes. Each subordinated promissory note has attached
      a
      Class A and a Class B Warrant granting the holder of the note the right to
      purchase shares of our Common Stock at an exercise price of $3.50 per share
      and
      $4.50 per share, respectively (refer to Note I of the consolidated financial
      statements). There have been no shares converted as of June 30,
      2006.




On
      June
      20, 2006, we completed a $3 million equity financing with M.A.G. Capital, LLC
      and its affiliates (refer to Note F of the consolidated financial statements).
      We issued 30,000 shares of our series B convertible preferred stock at a price
      of $100 per share. We also issued warrants to M.A.G. Capital and its
      affiliates to acquire an aggregate of 1,950,000 shares of our common stock.
      The
      warrants grant the holders the right to purchase shares of our common stock
      at
      the exercise price of $1.75 per share with respect to 975,000 shares, and $1.85
      per share with respect to the remaining 975,000 shares.




We
      have
      prepared the consolidated financial statements under the assumption that we
      are
      a going concern.






16




We
      have
      experienced recurring net losses of $3.314 million, $1.152 million and $3.024
      million during the fiscal years ending June 30, 2006, 2005, and 2004,
      respectively. Although, we have benefited from several cost reduction programs,
      the volatility of raw material costs and rising oil prices together has limited
      the benefits of these programs in our results of operations.




Despite
      the negative cash flow, we have been able to secure short-term financing to
      support future operations (refer to Note T the consolidated financial
      statements). We believe that this short-term financing will be sufficient to
      support our liquidity through June 30, 2007, depending on operating results
      and
      the continued trade support. We expect to continue to consume cash through
      the
      end of fiscal year June 30, 2007. The rate at which cash will be consumed is
      primarily dependent on the revenues realized during such period. We are
      executing a strategy whereby we are introducing additional consumable products
      to the healthcare market that will enable us to achieve higher revenue growth.
      In addition, we are reviewing alternatives including evaluating product line
      and
      customer profitability, evaluating the markets within which we participate,
      further diversification of the product line to include additional non-glove
      products, and expanding into markets where we currently do not participate
      in.
      We are also evaluating several strategies for reducing costs and expenses that
      will enable us to improve our liquidity and reduce our financing requirements.
      If and when effectively implemented, we anticipate these plans will reduce
      and/or eliminate our cash consumption by June 30, 2007. There can be no
      assurances that the current financing will be sufficient and that favorable
      operating results will be achieved, or that additional financing will be
      available to us, or that the terms of any additional financing will be favorable
      to us.




Our
      independent registered public accountants have included a "going concern"
      emphasis paragraph in their audit report accompanying the June 30, 2006
      financial statements.




***Critical
      Accounting Policies***


While all of our accounting policies are important in assuring that we adhere
      to
      current accounting standards, certain policies are particularly important to
      their impact on our financial statements. These are described in detail
      below.




Revenue
      Recognition .
      Revenues from product sales are recognized at the time the product is shipped
      from our warehouse or upon the customer's pick-up receipt of the goods,
      depending upon the terms of the sale. Product sales are stated net of rebates,
      sales returns, and sales discounts and allowances.




We
      record
      a liability for rebates and sales discounts in accordance with the terms of
      such
      rebate or discount as contracted for by the Company and our
      customers.




Reserves
      for Accounts Receivable and Inventory .
      We
      review on an ongoing basis the realizability of our trade receivables and
      the need for establishing reserves. As of June 30, 2006, we have established
      reserves of $61,988 in relation to trade receivables. We determine our
      allowances by considering a number of factors, including, but not limited to,
      the length of time trade accounts receivable are past due, our previous loss
      history, our customers' current ability to pay their obligations, and the
      condition of the general economy and the industry as a whole.




We
      review
      on an ongoing basis the realizability of our inventory value and the need for
      establishing reserves. We established the inventory reserves for valuation,
      shrinkage, excess and obsolete inventory. We determine the excess and obsolete
      inventory as items that potentially will not be sold within the next 12 month
      period, based on a trailing 8-week sales analysis, and reserve a percentage
      against those items based on knowledge and expectations. As of June 30, 2006,
      we
      have established reserves of $203,642.






17




Sales
      Incentives .
      Certain
      customers are granted discounts, rebates or other allowances which are intended
      to assist in the promotion of our products. We record these discounts and
      rebates as our customers earn them. All discounts, rebates and allowances are
      accrued in the month incurred based on a historical percentage and are shown
      as
      a deduction from gross sales to arrive at Net Sales in our consolidated
      statements of income.




Discount
      on Preferred Stock/Beneficial Conversion .
      We
      follow EITF 98-5 “Accounting for Convertible Securities with Beneficial
      Conversion Features or Contingently Adjustable Conversion Ratios” and EITF 00-27
“Application of Issue No.98-5 to Certain Convertible Instruments” to record
      convertible securities with detachable warrants. These EITF’s require that the
      proceeds received from the issuance of convertible debt and equity securities
      with detachable warrants be allocated to each instrument based on the relative
      fair value of the convertible securities and the detachable warrants. A
      beneficial conversion feature exists when the relative value of the convertible
      securities is less than the fair value of the shares issuable upon conversion.
      The aggregate of the relative fair value of the warrants and the fair value
      of
      the beneficial conversion feature is limited to the gross proceeds of the
      offering less any transaction fees paid to or withheld by the investors.





Related
      to convertible preferred stock offerings, the relative fair value of the
      warrants and the beneficial conversion feature are recorded as an addition
      to
      additional paid in capital and an offsetting reduction of retained earnings
      via
      a preferred stock dividend. During 2006 and 2005, we recorded $2,875,000 and
      $143,000 of discount on preferred stock/beneficial conversion related to the
      issuance of the Series B and Series A convertible preferred stock,
      respectively.




***Contractual
      Obligations***




The
      following table summarizes our significant contractual commitments at June
      30,
      2006:




**Payments
                Due by Period****Total**
            **Less
                than****1
                year**
            **1-3
                years**
            **4-5
                years**
            **After
                5****years**Operating
                Leases (1)
            $1,737,348
            $439,661
            $1,297,687
            --
            --Purchase
                Commitments (2)
            $16,526,833
            $5,833,000
            $10,693,833
            --
            --


_______________




(1) On
      March
      31, 2005, we entered into a Lease Agreement with ProLogis to lease warehouse
      and
      office space in the building known as 80 Internationale Boulevard, Unit A in
      Glendale Heights, Illinois. The term of the Lease Agreement commenced on May
      1,
      2005 and will end on June 30, 2010, subject to our option to extend the lease
      term for an additional term of 5 years.




(2) On
      April
      30, 2004, we entered into a five year supply agreement with WRP Asia. This
      agreement calls for us to purchase no less than a minimum of seven forty-foot
      containers of product per month and no less than 125 forty-foot containers
      of
      product per each 12 month period commencing on April 30, 2004. Our estimated
      12
      month liability, for 125 forty-foot containers, would be $5,833,000. However,
      in
      the event that our majority customer ceases purchasing latex gloves from us,
      we
      shall only be obligated to purchase from WRP Asia as many forty-foot containers
      of product per month as needed to meet 100% of our products needs, or the
      minimum annual amount, whichever is less.






18




***New
      Accounting Standards and Pronouncements***




In
      July
      2006, the FASB issued Interpretation No. 48 (“FIN 48”), *Accounting
      for Uncertainty in Income Taxes — an interpretation of FASB Statement
      No. 109* (“SFAS 109”).
      FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in an entity’s financial statements in accordance with SFAS 109 and
      prescribes that a company should use a more-likely-than-not recognition
      threshold based on the technical merits of the tax position taken or expected
      to
      be taken. Tax positions that meet the more-likely-than-not recognition threshold
      should be measured in order to determine the tax benefit to be recognized in
      the
      financial statements. Additionally, FIN 48 provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. FIN 48 is effective for fiscal years
      beginning after December 15, 2006, with early adoption permitted. The
      Company is currently
      evaluating the impact of FIN 48 on its consolidated financial statements,
      which will be adopted beginning fiscal 2008.





In
      March
      2006, FASB issued Statement of Financial Accounting Standard No. 156, *Accounting
      for Servicing of Financial Assets — an Amendment of FASB Statement
      No. 140”* (“SFAS 156”).
      SFAS 156 provides guidance on the accounting for servicing assets and
      liabilities when an entity undertakes an obligation to service a financial
      asset
      by entering into a servicing contract. This statement is effective for all
      transactions at the beginning of fiscal 2008. The adoption of SFAS 156 is
      not expected to have a material impact on the Company’s consolidated financial
      condition or results of operations.





In
      February 2006, the FASB issued SFAS No. 155, *Accounting
      for Certain Hybrid Financial Instruments — an Amendment of FASB Statements
      No. 133 and 140* (“SFAS 155”). SFAS 155 allows financial instruments that contain an
      embedded derivative and that otherwise would require bifurcation to be accounted
      for as a whole on a fair value basis, at the holders’ election. SFAS 155
      also clarifies and amends certain other provisions of SFAS 133 and
      SFAS 140. SFAS 155 is effective beginning fiscal 2008. The adoption of
      SFAS 155 is not expected to have a material effect on the Company’s
      consolidated financial statements.





In
      May
      2005, the FASB issued Statement of Financial Accounting Standard No. 154
      (“SFAS 154”), *Accounting
      Changes and Error Corrections.* SFAS 154 applies to all voluntary changes in accounting principle as well
      as to changes required by an accounting pronouncement that does not include
      specific transition provisions. SFAS 154 eliminates the requirement in
      Accounting Principles Board Opinion No. 20, *Accounting
      Changes,* to
      include the cumulative effect of changes in accounting principle in the income
      statement in the period of change and, instead, requires changes in accounting
      principle to be retrospectively applied. Retrospective application requires
      the
      new accounting principle to be applied as if the change occurred at the
      beginning of the first period presented by modifying periods previously
      reported, if an estimate of the prior period impact is practicable and
      estimable. SFAS 154 is effective for accounting changes and corrections of
      errors made in fiscal years beginning after December 15, 2005. The Company
      does not currently anticipate any changes in accounting principle other than
      the
      adoption of SFAS 123R discussed below, which has its own adoption
      transition provisions and is therefore not included within the scope of
      SFAS 154. As a result, the adoption of SFAS 154 will not have a
      material impact on the Company’s consolidated financial statements.




In
      March
      2005, the FASB issued Interpretation No. 47, *Accounting
      for Conditional Asset Retirement Obligation* (“FIN 47”),
      which is an interpretation of SFAS No. 143, *Accounting
      for Asset Retirement Obligation.* FIN 47 clarifies that an entity is required to recognize a liability for
      the fair value of a conditional asset retirement obligation if the fair value
      can be reasonably estimated even though uncertainty exists about the timing
      or
      method of settlement. The
      adoption of FIN 47 as of June 30, 2006 did not have a material impact on the
      Company’s financial position, results of operations or cash flows.




19




***Information
      Regarding Forward-Looking Statements***




Forward-looking
      statements in this Item 7, Management's Discussion and Analysis of Financial
      Condition and Results of Operations, including statements regarding new products
      and markets, gross margins, selling, general and administrative expenses,
      liquidity and cash needs and our plans and strategies, are all based on current
      expectations, and we assume no obligation to update this information. Numerous
      factors could cause actual results to differ from those described in the
      forward-looking statements, including the factors set forth below under the
      heading "Risks Affecting Forward-Looking Statements and Stock Prices" or
      identified above under Item 1A "Risk Factors.". We caution investors that our
      business is subject to significant risks and uncertainties.




***Subsequent
      Events***




On
      September 9, 2006, we renewed our loan and security agreement with Greenfield
      Commercial Credit, LLC for another one year term. The renewed security agreement
      includes a $5 million revolving line of credit, in which we may borrow up to
      the
      lesser of (i) $5 million or (ii) the sum of 80% of eligible receivables and
      50%
      of eligible inventory on hand and 35% of eligible inventory in-transit, with
      a
      sub limit of $500,000, and an overall inventory cap of $2,500,000. The line
      of
      credit borrowings carry an interest rate of prime plus 4.5%. On September 9,
      2006 we incurred a renewal fee of $50,000 in connection with the renewal of
      this
      credit facility. The security agreement contains certain penalties for early
      termination.




**ITEM
      7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**




We
      are
      exposed to the impact of interest rate changes, foreign currency fluctuations
      and changes in the market value of investments. We have not entered into
      interest rate caps or collars or other hedging instruments.




Our
      exposure to changes in interest rates is limited to borrowings under our
      revolving credit and debt agreements, which have variable interest rates, tied
      to the prime and commercial paper rates. We estimate that the fair value of
      each
      debt instrument approximated its market value at June 30, 2006 and
      2005.




**Risks
      Affecting Forward Looking Statements and Stock Prices**




In
      addition to those matters already set forth in Item 1, Business, Item 1A, Risk
      Factors, and in Item 7, Management's Discussion and Analysis of Financial
      Condition and Results of Operations, our operating results and financial
      position may be adversely affected or fluctuated, on a quarterly basis, as
      a
      result of the following general factors: (1) increases in raw latex and poly
      vinyl chloride pricing can adversely affect our earnings; (2) a decline in
      the
      demand for our products and the ability of our customers to meet their financial
      obligations; (3) competition from other companies, some of which are larger
      and
      more diversified than us; (4) anticipated acquisition cost saving projections
      can be no assurance that such cost savings will be achieved; (5) increased
      competition with respect to pricing could reduce future revenues; (6) ability
      to
      maintain a substantial credit facility to fund the current business and future
      opportunities and other items discussed below and the pricing of such a
      facility. Moreover, the following additional factors may result in us not
      achieving certain results included in any ** statement
      that may be considered a forward looking statement. We caution the reader that
      the following risks may not be exhaustive.




*Variations
      in Quarterly Result* *.* Our
      quarterly operating results are subject to various risks and uncertainties,
      including risks and uncertainties related to: local and international political
      and economic conditions; foreign currency volatility; competitive pressures;
      the
      composition, timing and size of orders from and shipments to major customers;
      variations in product mix and the size mix between sales; variations in product
      cost; infrastructure costs; obsolescence of inventory; and other factors as
      discussed below. Accordingly, our operating results may vary materially from
      quarter to quarter.




We
      operate with little backlog and, as a result, net sales in any quarter are
      substantially dependent on the orders booked and shipped in that quarter.
      Because our operating expenses are based on anticipated revenue levels and
      because a high percentage of our expenses are relatively fixed, if anticipated
      shipments in any quarter do not occur as expected, our operating results may
      be
      adversely affected and may fall significantly short of expectations. Any other
      unanticipated decline in the growth rate of our net revenues, without a
      corresponding and timely reduction in the growth of operating expenses, could
      also have an adverse effect on us and our future operating results.




20


We
      aim to
      prudently control our operating expenses. However, there is no assurance that,
      in the event of any revenue, gross margin or other shortfall in a quarter,
      we
      will be able to control expenses sufficiently to meet profitability objectives
      for the quarter.




*Financing* *.* Our
      credit facility with Greenfield Commercial Credit, LLC, which was due to expire
      in September 9, 2006, has been renewed for an additional year with the same
      terms. The amended loan and security agreement terms and conditions include
      for
      a credit line of up to $5,000,000 of borrowings. Advances under it are subject
      to numerous objective and certain subjective contingencies not fully within
      our
      control. There can be no assurances that such a credit facility will cover
      all
      of our needs.




On
      October 3, 2005, we announced a private placement of $1.2 million in
      subordinated notes effective September 29, 2005. The
      subordinated notes bear interest at a rate of 7% per annum with a maturity
      date of two years after the date of the issuance. As of June 30, 2006, we had
      paid the notes in full.




On
      June
      26, 2006, we announced a $3 million equity financing with M.A.G. Capital, LLC
      and its affiliates effective June 20, 2006. The equity financing consisted
      of
      newly issued series B convertible preferred stock and common stock purchase
      warrants to purchase up to 1,950,000 shares of our common stock. The share
      of
      series B convertible preferred stock issued to the M.A.G. Capital and its
      affiliates pay preferential, cumulative dividends at a rate of the higher of
      9%
      of the prime rate plus 1%, subject to a maximum rate of 12%.




*Dependence
      on Gloves* *.* We
      are
      currently almost exclusively engaged in the sale of disposable gloves.
      Accordingly, our results of operations and financial condition are highly
      dependent on the level of supply of and demand for disposable gloves. There
      can
      be no assurance that the supply of or demand for disposable gloves will continue
      at current levels or that changes in such supply or such demand will not have
      a
      material adverse effect on our results of operations or financial
      condition.




*Dependence
      on Rubber Harvest and Latex Concentrate* *.* Our
      ability to purchase our latex products profitably is entirely dependent upon
      the
      consistent availability, at competitive prices, of raw rubber harvested by
      independent growers in Malaysia, Thailand and Indonesia and locally processed
      by
      others and us into latex concentrate. Any disruption in the consistent supply
      of
      rubber for latex concentrate due to weather or other natural phenomena, labor
      or
      transportation stoppages, shortages or other factors, could cause significant
      adverse effects to our results of operations and financial condition. In
      addition, rubber is a commodity traded on world commodities exchanges and is
      subject to price fluctuations driven by changing market conditions over which
      we
      have no control. During the year ended June 30, 2006, the price of latex
      concentrate increased by as much as 70% from our fiscal year ended June 30,
      2005. There can be no assurance that we will not experience similar margin
      pressures in the future or that we will be able to pass on these increased
      costs
      in the future to our customers.




*Asia
      Pacific Risk Factors* *.* Social,
      political and economic instability may be significantly greater in many of
      the
      Asian-Pacific countries than that typically associated with the United States
      and other industrialized countries. Varying degrees of social, political and
      economic instability could significantly disrupt the source of our supply of
      glove products.




Currencies
      of several Asian-Pacific countries, including Indonesia, Korea, Malaysia,
      Philippines, Singapore, Taiwan, China and Thailand, have experienced significant
      fluctuations against the U.S. dollar. Foreign currency exchange volatility
      may
      continue and could cause us to incur significant price fluctuations to us in
      the
      future with respect to Asian-sourced product.




In
      the
      past, interest rates in many Asian-Pacific countries have been heavily dependent
      upon international trade and were accordingly affected by protective trade
      barriers and the economic conditions of their trading partners, principally,
      the
      United States, Japan, China and the European Union. The enactment by the United
      States or other principal trading partners of protectionist trade legislation,
      reduction of foreign investment in the local economies and general declines
      in
      the international securities markets could have a significant adverse effect
      upon the economies of the Asian-Pacific countries and accordingly impact price
      and availability of products from our suppliers.




Governments
      in certain of the Asian-Pacific countries participate to a significant degree,
      through ownership interests or regulation, in their respective economies. Action
      by these governments could have a significant adverse effect on the economies
      of
      such countries.




21




*Changes
      in Gross Margins* .
      Certain
      of our net product sales are derived from products and markets which typically
      have lower gross margins compared to other products and markets, due to higher
      costs and/or lower prices associated with the lower gross margin products and
      markets. We currently expect that our net product sales from powder-free and
      synthetic gloves will continue to increase as a percentage of total net product
      sales. In addition, we are currently experiencing pricing pressures due to
      a
      number of factors, including competitive conditions, consolidation within
      certain groups of suppliers, excess supply of products, changing technologies
      in
      the production of powder-free gloves and increasing demand for new glove
      products. Additionally, we may not be able to pass on price increases to our
      customers in a timely manner, or at all. To the extent that these factors
      continue, our gross margins could decline, which would adversely affect us
      and
      our future operating results.




Downward
      pressure on our gross margins may be mitigated by other factors, such as a
      reduction in product costs and/or an increased percentage of new product sales
      from higher gross margin products, such as powder-free and synthetic gloves.
      We
      are aiming to reduce our product costs and to increase our percentage of net
      product sales from powder-free, synthetic gloves, and complimentary products.
      However, there is no assurance that these efforts will be
      successful.




*Complimentary
      Products* .
      The
      foodservice, industrial and retail industries look at our current line of
      product offerings as just one of a bundle of safety products used by their
      customers. Developing a profitable line of additional products will be important
      to the future success of our business. During 2003, we diversified our product
      offerings with additional synergistic product lines that address the current
      safety requirements of our markets. These additional product offerings include
      polygloves, heavy-duty gloves, headwear, aprons and bibs, food storage bags
      and
      educational services. These products are being offered under our SafePrep brand
      and under private label, but continue to represent a relatively small portion
      of
      our total sales.




*Growth
      Dependencies* .
      In
      general, our future growth is dependent on our ability to successfully and
      timely enhance existing products, develop and introduce new products, establish
      new distribution channels, develop affiliations with leading market participants
      and continue to develop our relationships with our existing customer
      base.




Our
      inability to achieve these and other objectives could limit future growth and
      have an adverse effect on both us and our future operating results. In addition,
      the pressure to develop and enhance products and to establish and expand markets
      may cause our selling, general, administrative and other expenses to increase,
      which could also have an adverse effect on us and our future operating results.
      In addition, to the extent that customers seek to focus primarily on price,
      versus factors such as service and quality, margins of product sales could
      compress substantially.




*Competition* .
      The
      various markets in which we operate are becoming increasingly competitive as
      a
      number of other companies develop and sell products that compete with our
      products in these markets. Certain of these competitors have significantly
      more
      financial and technical resources than us. We face additional competitive
      factors besides price, such as product quality, timeliness of delivery, service
      and the size and reliability of the manufacturer. These competitive factors
      may
      result in, among other things, price discounts by us and sales lost by us to
      competitors that may adversely affect our future operating results.




*Reliance
      Upon Distributors* .
      We use
      various channels to market and distribute our products to end-users via
      third-party distributors. Third-party distributors are a substantial channel
      for
      distribution to end-users. Accordingly, our ability to market and distribute
      our
      products depends significantly on our relationship with third-party
      distributors, as well as the performance and financial condition of these
      distributors. In the event that our relationship with these distributors
      deteriorates or the performance or financial condition of the distributor
      becomes unsatisfactory, our future operating results could be adversely
      affected.




*Reliance
      Upon Significant Contracts and Customers* .
      During
      the year ended June 30, 2006, 85.9% of net sales came from our national customer
      group. The loss of the national customer group could have a materially adverse
      impact on us.




*Excess
      or Obsolete Inventory* .
      Managing our inventory of various size mix and product mix is a complex task.
      A
      number of factors, including the need to maintain a significant inventory of
      certain sizes or products which are in short supply or which must be purchased
      in bulk to obtain favorable pricing, the general unpredictability of demand
      for
      specific products and customer requests for quick delivery schedules, may result
      in us maintaining excess inventory. Other factors, including changes in market
      demand and technology, may cause inventory to become obsolete. Any excess or
      obsolete inventory could result in price reductions and inventory write-downs,
      which, in turn, could adversely affect our operating results.




22




*Hiring
      and Retention of Employees* *.* Our
      continued growth and success depends to a significant extent on the continued
      service of senior management and other key employees and the hiring of new
      qualified employees. Competition for highly skilled business, technical,
      marketing and other personnel is intense. The loss of one or more key employees
      or our inability to attract additional qualified employees or retain other
      employees could have an adverse effect on our operating results. In addition,
      we
      may experience increased compensation costs in order to compete for skilled
      employees.




*Product
      Liability Insurance* *.* Participants
      in the medical supplies business are potentially subject to lawsuits alleging
      product liability, many of which involve significant damage claims and defense
      costs. A successful claim against us in excess of our insurance coverage could
      have a material adverse effect on our results of operations and financial
      condition. Claims made against us, regardless of their merit, could also have
      a
      material adverse effect on our reputation. There is no assurance that the
      coverage limits of our insurance policy will be adequate or that present levels
      of coverage will be available at affordable rates in the future either to cover
      medical-related claims or to qualify us as a supplier to key accounts (which
      may
      require product liability coverage at limits in excess of what we can obtain
      or
      afford). While we have been able to obtain product liability insurance in the
      past, such insurance varies in cost, is difficult to obtain and may not be
      available in the future on acceptable terms or at all. We are subject to a
      number of lawsuits filed against us and other manufacturers, distributors and/or
      end users. There can be no assurance that our insurance will be sufficient
      to
      meet any recovery for which we may be found liable, that the outcome of such
      suits will not materially adversely affect our results of operations or
      financial condition, or that our deductible obligation (to fund a portion of
      the
      initial cost of defense and/or liability of each such lawsuit) will not prove
      financially burdensome.




*Stock
      Market Fluctuations* .
      In
      recent years, the stock market in general, including our common stock, has
      experienced extreme price fluctuations. The market price of our common stock
      may
      be significantly affected by various factors such as: quarterly variations
      in
      our operating results; changes in our revenue growth rates; the loss of a
      significant customer or sales contract; changes in earnings estimates by market
      analysis; the announcement of new products or product enhancements by us or
      our
      competitors; speculation in the press or analyst community; the inability of
      the
      market to absorb selling pressure from one or more large institutional
      shareholders; and general market conditions or market conditions specific to
      particular industries. There can be no assurance that the market price of our
      common stock will not experience significant fluctuations in the
      future.




*Governmental
      Regulations* .
      Our
      products are subject to regulation by numerous governmental authorities in
      the
      United States and other countries, particularly to safety and adherence to
      Quality System Regulations ("QSR's") for medical devices. In the United States,
      examination gloves are classified as a Class I medical device product regulated
      by the FDA. Noncompliance with these FDA regulations can result in
      administrative enforcement, such as warning letters, import alerts,
      administrative detention or in civil penalties, product bans and recalls.
      Periodically, the FDA inspects shipments of medical gloves as they arrive in
      the
      United States ports.




The
      FDA
      inspections and reviews may cause delays in product delivery and this can result
      in a loss or delay in recognition of sales and income by us. In addition, the
      FDA may inspect the manufacturing facilities for compliance with QSR's, which
      incorporate pre-production design and development to achieve consistency with
      quality system requirements worldwide. Failure to comply with regulatory
      requirements could have a material adverse effect on our business financial
      condition and results of operations.




**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**




Our
      consolidated financial statements and notes thereto are filed under this item
      beginning on page F-I of this report.




**ITEM
      9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL DISCLOSURE**




(a) Previous
        Independent Registered Public Accounting Firm.
  On
        January 6, 2006, the "Company dismissed Grant Thornton LLP ("Grant Thornton")
        as
        its independent registered public accounting firm.
  Grant
        Thornton's reports on the Company's consolidated financial statements for
        each
        of the fiscal years ended June 30, 2005 and June 30, 2004 did not contain
        an
        adverse opinion or disclaimer of opinion, nor were they qualified or modified
        as
        to uncertainty, audit scope or accounting principles, except that in its
        reports
        dated as of October 13, 2005 and October 13, 2004, Grant Thornton expressed
        substantial doubt that the Company could continue as a going
        concern.
   23
  The decision to dismiss Grant Thornton and to retain a new independent
        registered public accounting firm was approved by the Company's Audit Committee
        on January 6, 2006.
 
 During
        the Company's two most recent fiscal years and through January 6, 2006, there
        were no disagreements with Grant Thornton on any matter of accounting principles
        or practices, financial statement disclosure, or auditing scope or procedure
        which, if not resolved to Grant Thornton's satisfaction, would have caused
        them
        to make reference to the subject matter in connection with their report on
        the
        Company's consolidated financial statements for such years; and there were
        no
        reportable events, as listed in Item 304(a)(1)(v) of SEC Regulation S-K,
        except
        that in connection with the filing of the Company's Form 10-K for the fiscal
        year ending June 30, 2005 and the filing of the Company's Form 10-Q for the
        quarter ending September 30, 2005, Grant Thornton advised the Company of
        a
        material weakness in the Company's disclosure controls and procedures relating
        to the lack of formal policies and procedures related to its financial statement
        reporting and regulatory filing process.
  The
        Company has provided Grant Thornton with a copy of the foregoing disclosures
        and
        has requested that Grant Thornton review such disclosures and provide a letter
        addressed to the Securities and Exchange Commission as specified by Item
        304(a)(3) of Regulation S-K. A copy of such letter dated as of January 6,
        2006 is filed as Exhibit 16.1 to this Form 8-K.
 
 (b) New
        Independent Registered Public Accounting Firm.
 
 On
        January 6, 2006, the Company's Audit Committee engaged Plante Moran, LLP
        as the
        Company's independent registered public accounting firm. During the fiscal
        years
        ended June 30, 2005 and June 30, 2004 and the subsequent interim period through
        January 6, 2006, the Company did not consult Plante Moran regarding any of
        the
        matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation
        S-K.
 **ITEM
        9A.  CONTROLS AND PROCEDURES**




As
      of the
      end of the period covered by this report, the Company carried out an evaluation,
      under the supervision and with the participation of the Company's management,
      including the Company's Chief Executive Officer and the Company's Chief
      Financial Officer, of the Company's disclosure controls and procedures (as
      defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
      of
      1934, as amended). Based upon this evaluation and because of the material
      weakness described below, the
      Company's Chief Executive Officer and Chief Financial Officer concluded that,
      as
      of the end of such period, the Company's disclosure controls and procedures
      were
      not effective in recording, processing, summarizing and reporting, on a timely
      basis, information required to be disclosed by the Company in reports that
      the
      Company files with or submits to the Securities and Exchange Commission. It
      should be noted that in designing and evaluating the disclosure controls and
      procedures, management recognized that any controls and procedures, no matter
      how well designed and operated, can provide only reasonable assurance of
      achieving the desired control objectives, and management necessarily was
      required to apply its judgment in evaluating the cost-benefit relationship
      of
      possible controls and procedures. The Company has designed its disclosure
      controls and procedures to reach a level of reasonable assurance of achieving
      the desired control objectives and based upon the evaluation described above,
      the Company's Chief Executive Officer and Chief Financial Officer concluded
      that
      the Company's disclosure controls and procedures were not effective at reaching
      that level of reasonable assurance.






24




During
      the process of responding to a recent SEC comment letter, the Company's
      management identified an error that lead to the identification of a material
      weakness within the Company's financial reporting and disclosure
      controls.




The
      error
      related to the Company's accounting and disclosure of the reverse three for
      one
      stock split effective January 20, 2004 and the calculation of the reported
      basic
      and diluted net loss per share. The Company incorrectly included potential
      common shares in the denominator of a diluted per-share computation that
      resulted in the disclosure of an anti-dilutive per share amount, which is not
      the equivalent of a diluted earnings per share disclosure. Additionally, in
      connection with the reverse three-for-one stock split, the Company failed to
      retroactively adjust its loss per share amounts to reflect the stock split.
      The
      Company also restated its 2005 Form 10-K to correct the recognition of the
      loss
      incurred in a fiscal 2004 stock redemption.




In
      addition, a significant adjustment relating to the accounting treatment for
      accrued warrant liability was proposed by our auditors and recorded by
      management in two of our quarterly reports. A similar adjustment was recorded
      related to prepaid assets in another quarterly report.




The
      material weakness surrounding these corrections relates to the lack of formal
      policies and procedures implemented by the Company in connection with its
      related to the financial statement reporting and regulatory filing process.
      Management is addressing this material weakness by enacting the following
      steps:




·
            Develop
                a formal policy/procedures manual for the financial statement reporting
                and regulatory filing process


·
            Develop
                monthly, quarterly and annual closing procedures checklists and "close"
                binders. These binders should include a draft of the financial statements
                and 10-K/Q with references to supporting schedules or other documentation
                (i.e., agreements)


·
            Utilize
                a Generally Accepted Accounting Principle (GAAP) checklist to help
                ensure
                all relevant disclosures are
                included


·
            Prepare
                white papers to address the accounting for any new account pronouncements
                and any existing and/or new complex or unusual accounting transactions
                and
                consult with an outside firm with special
                projects


·
            Documented
                detail reviews by management and others of regulatory filings and
                financial statements


·
            Implement
                training programs for technical accounting areas and SEC reporting
                requirements


·
            Continue
                to consider with outside legal counsel the filing of an 8-K report
                upon
                the signature of any agreements made on behalf of the
                Company




The
      Company has hired an outside firm to assist in accounting matters. 
However, there was no change in the Company's internal control over financial
      reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
      Exchange Act of 1934, as amended) during the Company's most recently completed
      fiscal quarter that has materially affected, or is reasonably likely to
      materially affect, the Company's internal control over financial
      reporting.




**ITEM
      9B.  OTHER INFORMATION**




None.




25




**PART
      III**




**ITEM
      10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE
      REGISTRANT**




Certain
      information with respect to this item related to our executive officers appears
      at the end of Item I to this Form 10-K.




***Directors***




Our
      board
      of directors consists of the following members and is divided into the following
      three classes:




Class
                1   DirectorsName
            Age
            Director
                SinceAnthony
                F. Alibrio, Sr.
            62
            2004Don
                L. Arnwine
            73
            1995Class
                2   DirectorsName
            Age
            Director
                SinceGeorge
                Jeff Mennen
            65
            1994Robert
                J. Simmons
            63
            1995Class
                3   DirectorsName
            Age
            Director
                SinceRichard
                J. Swanson
            70
            1998Alan
                E. Zeffer
            53
            2004




The
      Class
      3 Directors elected at our 2005 Annual Meeting have a term continuing until
      the
      third annual meeting following their election. The terms of the current Class
      1
      and Class 2 Directors expire at the 2007 and 2008 annual meetings,
      respectively.




The
      following sets forth brief statements of the principal occupations and other
      biographical information of each of the directors.




***George
      Jeff Mennen*** ** was
      elected to the Board of Directors on October 12, 1994. For over five years,
      Mr.
      Mennen has headed the G.J. Mennen Group, a consulting firm specializing in
      family-owned businesses. Mr. Mennen had a distinguished career at the Mennen
      Company, including being the Vice Chairman of that company. The Mennen Company
      was founded by Mr. Mennen's great grandfather in 1878 and remained privately
      owned until it was sold in 1992 to Colgate-Palmolive.




***Richard
      J. Swanson*** ** was
      elected to the Board of Directors in June 1998. Mr. Swanson is presently a
      consultant with The Executive Committee, an international company that focuses
      on strategic coaching and corporate troubleshooting for chief executive
      officer's of public and private companies. Also, since 1980, Mr. Swanson has
      been the president of two Denver, Colorado-based companies: Investment Partners,
      Inc. and Real Estate Associates, Inc. Investment Partners is engaged in the
      restructuring and recapitalization of troubled companies and Real Estate
      Associates focuses on the acquisition and development of real estate
      projects.




***Robert
      J. Simmons*** was
      elected to the Board of Directors in December 1995. He is currently President
      of
      RJS Healthcare, Inc., a healthcare consulting company, founded in 1990. He
      served as Executive Vice President at Baxter International, Inc., from 1987
      until founding RJS in 1990. Mr. Simmons joined Baxter after serving over 20
      years at American Hospital Supply Corporation. His last position at American
      Hospital Supply was vice president of corporate marketing.




26


***Don
      L. Arnwine*** was
      elected to the Board of Directors in December 1995. He is currently President
      of
      Arnwine Associates, a company he formed in 1989 to provide specialized advisory
      services to the health care industry. Mr. Arnwine became President and Chief
      Executive Officer of Voluntary Hospitals of America (VHA) in 1982 and was named
      Chairman and Chief Executive Officer in 1985, in which capacity he served until
      founding Arnwine Associates. From 1972 to 1982, he served as President and
      Chief
      Executive Officer of the Charleston Area Medical Center. From 1961 to 1972,
      Mr.
      Arnwine served as Director of the Hospital at the University of Colorado Medical
      Center.




***Alan
      E. Zeffer*** was
      elected to the Board of Directors in May 2004. He currently is our President
      and
      Chief Executive Officer. He joined




us
      in
      April 2001. Prior to joining us, Mr. Zeffer was Managing Partner for Quest
      Capital Corporation, a corporate finance advisory firm that he founded in 1993.
      He also served as Treasurer for Sybron International Corp from 1987 until 1993.
      Mr. Zeffer is a director of Universal Automotive Industries, Inc.




***Anthony
      F. Alibrio, Sr.*** was
      elected to the Board of Directors in May 2004. He is currently President
      Emeritus of Sodexho Marriot, Inc.'s Health Care Division. Sodexho is the leading
      food and facilities management services company in North America. Mr. Alibrio
      has over 37 years experience in both health care and foodservice. As the
      President of Sodexho Marriott, Inc.'s Health Care Division, he led an
      organization with $3.2 billion in revenue that provided services to over 1,000
      hospitals and long-term care institutions.




***Code
      of Business Ethics***




The
      Company has adopted a Code of Business Ethics that applies to all of the
      Company's employees, including the Company's principal executive officer,
      principal financial officer and principal accounting officer. We will provide
      to
      any person without charge, upon request, a copy of our Code of Business Ethics.
      Requests for a copy of our Code of Business Ethics should be made to our
      Corporate Secretary at 80 Internationale Boulevard, Unit A, Glendale Heights,
      IL
      60139.




***Audit
      Committee Financial Expert***




The
      Board
      has determined that one of the members of the Audit Committee, Richard J.
      Swanson, qualifies as an "audit committee financial expert" as defined by the
      rules of the Securities and Exchange Commission based on his work experience
      and
      education.




The
      Audit
      Committee of our Board of Directors is an "audit committee" for purposes of
      Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of
      the
      Audit Committee are Don L. Arnwine, Richard J. Swanson and George Jeff
      Mennen.




***Compliance
      with Section 16(a) of the Securities Exchange Act of
      1934***




Section
      16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's
      executive officers, directors and beneficial owners of more than 10% of our
      common stock to file with the Securities and Exchange Commission ("SEC") initial
      reports of beneficial ownership on Form 3 and reports of changes in their
      beneficial ownership of our equity securities on Form 4 or 5. The rules
      promulgated by the SEC under section 16(a) of the Exchange Act require those
      persons to furnish the Company with copies of all reports filed with the SEC
      pursuant to section 16(a). Based solely upon a review of such forms actually
      furnished to the Company, and representations of certain of the Company's
      directors and executive officers that no forms were required to be filed, all
      directors, executive officers and 10% shareholders have filed with the SEC
      on a
      timely basis all reports required to be filed under section 16(a) of the
      Securities Exchange Act of 1934, except Mr. Arnwine filed a Form 4 report on
      February 22, 2006 reporting the grant of a stock option on February 17,
      2006.






27




**ITEM
      11.  EXECUTIVE COMPENSATION**




***Compensation
      of Directors***


All directors who were not also our executive officers, which group is comprised
      of Don L. Arnwine, George Jeff Mennen, Richard J. Swanson, Robert J.
      Simmons, and Anthony F. Alibrio, Sr., receive (1) an annual Board member
      retainer of $5,000; (2) compensation of $1,000 for each Board meeting attended;
      (3) compensation of $500 for each committee meeting attended; and (4) an annual
      committee member retainer of $1,000. The non-executive chairman will receive
      an
      additional annual retainer of $5,000, and the chairman of the Audit Committee
      will receive an additional annual retainer of $3,000. Each new director is
      presently entitled to receive stock options under our Omnibus Equity
      Compensation Plan to purchase 2,000 shares of our common stock in connection
      with the election and qualification of such director. Under the terms of the
      Plan, the Compensation Committee shall determine (a) the exercise price of
      each
      director option, provided that the exercise price may not be less than the
      lowest fair market value of our common stock during the six months preceding
      the
      election and qualification of such director and (b) the term and vesting
      criteria for such option. During the fiscal year ended June 30, 2006, each
      of
      the Company's non-empolyee directors were granted options to purchase 3,672
      shares of our common stock at an exercise price of $2.65, the exercise price
      of
      the closing price of the common stock on February 16, 2006. The options were
      immediately exercisable and expire on February 17, 2006. Additionally, all
      directors are reimbursed for expenses incurred in attending Board and committee
      meetings.




***Executive
      Compensation***




The
      following table discloses the compensation paid by us for services rendered
      to
      us during the fiscal years ended June 30, 2006, 2005, and 2004, to (i) our
      Chief
      Executive Officer and (ii) our single other executive officer at June 30, 2006,
      whose aggregate annual salary and bonus exceeded $100,000 for the 2006 fiscal
      year (the "named executive officers").




Annual
                Compensation
            Long-TermCompensationName
                and
              Principal
                Position
            
            
            Year
            
            
            Salary
            
            
            Bonus
            
            
            Other
                Annual
              Compensation
            
            
            Stock
              Options
            
            
            All
                Other
              CompensationAlan
                E. Zeffer,
            
            
            2006
            
            $
            218,341
            
            
            --
            
            
            --
            
            
            90,000
            
            $
            19,200(2
            )President
                and CEO
            
            
            2005
            
            $
            206,000
            
            $
            33,945(1
            )
            
            --
            
            
            --
            
            $
            19,200(2
            )2004
            
            $
            185,000
            
            
            --
            
            
            --
            
            
            20,000
            
            $
            19,200(2
            )Deborah
                J. Bills,
            
            
            2006
            
            $
            117,975
            
            
            --
            
            
            --
            
            
            60,000CFO
                (3)
            
            
            2005
            
            $
            115,408
            
            
            
            
            
            
            
            
            --2004
            
            $
            93,166
            
            
            --
            
            
            --
            
            
            20,000




(1) 
      The bonus recorded was issued to Alan E. Zeffer as common stock of the Company
      and was based upon a closing stock price of $3.10 on the date of grant, as
      reported by the Nasdaq Stock Market.




(2) Includes
      housing, automobile and other expenses, as described below under the section
      "Employment Agreements."




(3) Ms.
      Bills
      became an executive officer with her appointment as the Company's Chief
      Financial Officer, Secretary and Treasurer on May 1, 2004.




***Employment
      Agreements***




On
      October 1, 2002, we entered into an employment agreement with Alan E. Zeffer,
      our President and Chief Executive Officer (the "Zeffer Agreement"). The Zeffer
      Agreement had an initial term of one year, but automatically renewed for
      additional one year terms unless advance notice was provided. The Zeffer
      Agreement was most recently renewed on August 29, 2006. The Zeffer Agreement
      provides for (i) Mr. Zeffer to serve as our Chief Executive Officer;
      (ii) a base salary originally of $140,000 per annum (which was been increased
      by
      the Compensation Committee to $185,000 for fiscal 2004 and to $205,000 for
      fiscal 2005 and to $225,500 for fiscal 2006); (iii) housing expenses not to
      exceed $1,200.00 per month; (iv) a $400.00 per month automobile allowance;
      and
      (v) nonqualified stock options to be determined by the Compensation Committee.
      The Zeffer Agreement also provides for an incentive bonus equal to 25% of Mr.
      Zeffer's base salary, subject to achievement of certain predetermined goals
      set
      by Mr. Zeffer and the Compensation Committee. Additionally, the employment
      agreement provides that the executive officer is eligible to participate in
      any
      medical, health, dental, disability and life insurance policy that is in effect
      for the Company's other employees. Pursuant to the employment agreement, Mr.
      Zeffer has agreed not to solicit the Company's customers, clients and other
      business contacts or encourage them to terminate their relationship with the
      Company during employment and for a period of two years thereafter. Moreover,
      Mr. Zeffer has agreed not to (a) solicit the Company's employees or encourage
      them to terminate their relationship with the Company or (b) compete with the
      Company during employment and for a period of one year
      following termination of employment. Finally, Mr. Zeffer has agreed to
      maintain the confidentiality of the Company's proprietary information and trade
      secrets during the term of employment and thereafter.




28




***Option
      Grants During the Year June 30, 2006***




The
      following table provides certain information regarding stock options granted
      to
      the named executive officers of the Company during the fiscal year ended
      June 30, 2006.




**OPTION
      GRANTS IN LAST FISCAL YEAR**





**Name**
            
            
            **Number
                of**
              **Securities**
              **Underlying**
              **Options**
              **Granted(#)**
            
            
            **%
                of Total**
              **Options**
              **Granted
                to**
              **Employees
                in**
              **Fiscal
                Year**
            
            
            **Exercise
                Price**
              **($/Sh)**
            
            
            **Expiration**
              **Date**
            
            **Potential
                Realizable Value**
              **at
                Assumed Annual Rates of**
              **Stock
                Price Appreciation**
              **For
                Option Term($) (2)**
              **5%****10%**Alan
                E. Zeffer
            
            
            90,000
                (1)
            
            
            52.9%
            
            
            2.05
            
            
            March
                21, 2016
            
            
            116,031
            
            
            294,045Deborah
                Bills
            
            
            60,000
                (1)
            
            
            35.3%
            
            
            2.05
            
            
            March
                21, 2016
            
            
            77,354
            
            
            196,030


_____________________




(1)
            This
                option vests over a three-year period: one-third of the shares vest
                on
                each of March 21, 2007, March 21, 2008 and March 21, 2009.


(2)
            The
                dollar amounts under these columns are the result of theoretical
                calculations at 5% and 10% rates set by the Securities and Exchange
                Commission and, therefore, are not intended to forecast possible
                future
                appreciation, if any, in the common
                stock.




**Aggregate
      Option Exercises During the Year Ended June 30, 2006, and Fiscal Period-End
      Option Values**




The
      following table provides certain information regarding the value of unexercised
      options held by the named executive officers at June 30, 2005 and the value
      realized upon exercise of options during fiscal 2006.




**Aggregated
      Option Exercises in Last Fiscal Year and Fiscal Year-End Option
      Values**


**Name**
            **Shares
                Acquired on**
              **Exercise
                (#)**
            **Value
                Realized**
              **($)**
            **Number
                of Securities Underlying**
              **Unexercised
                Options at**
              **Fiscal
                Year-End (#)**
              **Exercisable/Unexercisable**
            **Value
                of Unexercised**
              **In-the-Money-Options
                at**
              **Fiscal-Year
                End ($)**
              **Exercisable/Unexercisable
                (1)**Alan
                E. Zeffer
            0
            0
            50,000
                / 90,000
            $9,500
                / 0Deborah
                Bills
            8,182
            $25,773
            0/60,000
            0
                /
                0




(1)
      Value
      realized equals the market value of the common stock on the date of exercise,
      minus the exercise price, multiplied by the number of shares acquired on
      exercise.




(2)
      Calculated based on a closing sale price of $1.74 per share on June 30,
      2006.




**ITEM
      12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
      RELATED STOCKHOLDER MATTERS**




The
      following table sets forth certain information regarding the beneficial
      ownership of our common stock as of September 12, 2006, by: (i) each director;
      (ii) each named executive officer; (iii) each person whom we know beneficially
      owns in excess of five (5%) percent of the outstanding shares of our common
      stock; and (iv) all directors and executive officers, as a group.






29




The
      following table is based on information supplied to the Company by the
      directors, officers and shareholders described above. The Company has determined
      beneficial ownership in accordance with the rules of the Securities and Exchange
      Commission. Unless otherwise indicated, the persons and entities included in
      the
      table have sole voting and investment power with
      respect to all shares beneficially owned, except to the extent authority is
      shared by spouses under applicable law. Shares of common stock subject to
      options that are either currently exercisable or exercisable within 60 days
      of
      September 12, 2006 are treated as outstanding and beneficially owned by the
      option holder for the purpose of computing the percentage ownership of the
      option holder. However, these shares are not treated as outstanding for the
      purpose of computing the percentage ownership of any other person. The table
      lists applicable percentage ownership based on 1,509,207 shares of common stock
      outstanding and stock options as of September 12, 2006.




***Title
                of Class***
            ***Name
                of Beneficial Owner***
            ***Amount
                and Nature of
                Beneficial******Ownership***
            ***Percent
                of Total***
              ***Voting
                Stock***Common
                Stock
            M.A.G.
                Capital LLC (1)
            138,872
            1
            138,872
            9.99%Common
                Stock
            George
                Jeff Mennen
            33,672
            2Common
                Stock
            George
                Jeff Mennen
            3,333
            
            37,005
            2.5%Common
                Stock
            Robert
                J. Simmons
            33,672
            2Common
                Stock
            Robert
                J. Simmons
            1,666
            
            35,338
            2.3%Common
                Stock
            Don
                L. Arnwine
            33,672
            2Common
                Stock
            Don
                L. Arnwine
            1,000
            
            34,672
            2.3%Common
                Stock
            Richard
                J. Swanson
            32,672
            2Common
                Stock
            Richard
                J. Swanson
            2,000
            
            34,672
            2.3%Common
                Stock
            Anthony
                L. Alibrio, Sr.
            23,672
            2
            23,672
            1.6%Common
                Stock
            Alan
                E. Zeffer
            50,000
            2Common
                Stock
            Alan
                E. Zeffer
            10,950
            
            60,950
            4.0%Common
                Stock
            Deborah
                J. Bills
            8,182
            
            8,182
            0.5%Common
              Stock
            Total
                Executive Officers & Directors
            207,336
            2as
                a
                group (7 persons)
            27,131
            
            234,491
            15.5%


_____________________




1 M.A.G.
      Capital, LLC and certain of its affiliates (collectively, "MAG") have acquired
      from the Company 30,000 shares of the Corporation's Series B Convertible
      Preferred Stock, $0.01 par value per share (the "Series B Preferred"), and
      common stock purchase warrants to purchase up to 1,950,000 shares of the
      Company's Common Stock (the "Warrant Shares"). Pursuant to the terms of the
      Subscription Agreement for such securities, the number of shares of Common
      Stock
      that MAG may acquire upon (a) conversion of the shares of the Series B Preferred
      and (b) exercise of the Warrant Shares at any time is subject to limitation
      so
      that the aggregate number of shares of common stock, of which MAG and all
      persons affiliated with MAG have beneficial ownership (calculated pursuant
      to
      Rule 13d-3 of the Securities Exchange Act of 1934, as amended), does not at
      any
      time exceed 9.99% of the Company's then outstanding common stock. MAG's address
      is 555 South Flower Street, Suite 4200, Los Angeles, California
      90071.




2 Represents
      shares to be issued upon exercise of options to purchase common stock granted
      under our Omnibus Equity Compensation Plan.






30




***Securities
      Authorized for Issuance Under Equity Compensation
      Plans***




The
      following table provides information about the securities authorized for
      issuance under our equity compensation plans as of June 30, 2006.




**Equity
      Compensation Plan Information**




Plan
                Category
            Number
                of securities to be issued
              upon
                exercise of outstanding
              options,
              warrants
                and rights
            Weighted-average
                exercise price of
              outstanding
                options, warrants and
              rights
            Number
                of securities remaining available
              for
                future issuance under equity
              compensation
                plansEquity
                compensation plans
              approved
                by shareholders
            406,961
            $2.07
            -Equity
                compensation plans not approved by shareholders
            -
            -
            -Total
            406,961
            $2.07
            -




The
      equity compensation plans approved by our shareholders consists solely of our
      Omnibus Equity Compensation Plan.




**ITEM
      13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**




During
      the year ended June 30, 2006, we received consulting services from Healthcare
      Alliance, Inc. ("Alliance"), a company 60% owned by Robert J. Simmons, one
      of
      our directors and sales consulting services from SMS, a company 100% owned
      by
      Robert J. Simmons, JR, the son of our director Robert J. Simmons.




We
      engaged Alliance to assist us in marketing our products with the express purpose
      of negotiating and executing a purchase agreement with various healthcare
      group-purchasing organizations. We paid Alliance $21,000 during the fiscal
      year
      ended June 30, 2006, for its services. As of January 30, 2006, we have cancelled
      our consulting service with Alliance. We believe that the terms for the purchase
      of services from Alliance were no less favorable to the Company than could
      have
      been obtained from an unaffiliated party.




We
      engaged SMS to assist us in the sales process with the purpose of negotiating
      and executing purchase agreements within the Healthcare Markets. We paid SMS
      $166,860 during the fiscal year ended June 30, 2006, for its services. This
      agreement expired August 1, 2006 and we renewed the agreement for another
      one-year term. We believe that the terms for the purchase of services from
      SMS
      were no less favorable to the Company than could have been obtained from an
      unaffiliated party.




**ITEM
      14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES**




The
      following table summarizes the fees the Company was billed for audit and
      non-audit services rendered by the Company's auditors, Plante & Moran, PLLC
      (from December 31, 2005 to current) and Grant Thornton LLP (prior to December
      31, 2005), during fiscal 2006 and 2005:


**Service
                  Type**
              
              
              **Fiscal
                  2006**
              
              
              **Fiscal
                  2005**Audit
                  Fees (1)
              
              $
              196,141
              
              $
              --Audit
                  Fees (2)
              
              
              113,645
              
              
              211,828Audit-Related
                  Fees
              
              
              --
              
              
              --Tax
                  Fees
              
              
              --
              
              
              --All
                  Other Fees
              
              
              --
              
              
              --Total
                  Fees Billed
              
              $
              309,786
              
              $
              211,828




(1)
            Includes
                fees for professional services rendered in connection with the audit
                of
                the Company's financial statements by the Company’s auditor, Plante &
                Moran, PLLC, for the fiscal years ended June 30, 2006; the reviews
                of the
                financial statements included in the Company's quarterly reports
                on Form
                10-Q for the quarters ending December 31, 2005 and March 31, 2006;
                and
                consents and assistance with documents filed by the Company with
                the
                SEC.




(2)
            Includes
                fees for professional services rendered in connection with the audit
                of
                the Company's financial statements by the Company’s predecessor auditor,
                Grant Thornton, LLP, for the fiscal years ended June 30, 2005; the
                reviews
                of the financial statements included in the Company's quarterly reports
                on
                Form 10-Q for the quarter ending September 30, 2005 and for each
                quarterly
                period during fiscal 2005; and consents and assistance with documents
                filed by the Company with the SEC.




31


The Audit Committee of the Board considered that the provision of the services
      and the payment of the fees described above are compatible with maintaining
      the
      independence of Plante & Moran, PLLC during the fiscal year ended June 30,
      2006 and Grant Thornton LLP during the fiscal year ended June 30, 2005. The
      Audit Committee is responsible for reviewing and pre-approving any non-audit
      services to be performed by the Company's independent auditors. The Audit
      Committee has delegated its pre-approval authority to the Chairman of the Audit
      Committee to act between meetings of the Audit Committee. Any pre-approval
      given
      by the Chairman of the Audit Committee pursuant to this delegation is presented
      to the full Audit Committee at its next regularly scheduled meeting. The Audit
      Committee or Chairman of the Audit Committee reviews and, if appropriate,
      approves non-audit service engagements, taking into account the proposed scope
      of the non-audit services, the proposed fees for the non-audit services, whether
      the non-audit services are permissible under applicable law or regulation and
      the likely impact of the non-audit services on the independence of the
      independent auditors.




Since
      the
      effective date of the SEC rules requiring pre-approval of non-audit services
      on
      May 6, 2003, each new engagement of the Company's independent auditors to
      perform non-audit services has been approved in advance by the Audit Committee
      or the Chairman of the Audit Committee pursuant to the foregoing
      procedures.




32




**PART
      IV**




**ITEM
      15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**


(a)
              The
                  following documents are filed as part of this report:1.
              Financial
                  Statements.A
                  list of financial statements for the Company is contained in "Index
                  to
                  Financial Statements of AHPC Holdings, Inc" on page F-1.2.
              Financial
                  Statement Schedules.Report
                  of Independent Registered Public Accounting Firm3.
              Exhibits.
                  The following exhibits are included with this report:3.1
              Certificate
                  of Incorporation of the Company, incorporated herein by reference
                  to
                  Exhibit No. 3.1 to the Company's Form S-1 Registration Statement
                  (Registration No. 33-36206).3.2
              Certificate
                  of Amendment to Certificate of Incorporation of the Company, incorporated
                  herein by reference to Exhibit No. 3.2 to the Company's Form S-1
                  Registration Statement (Registration No. 33-36206).3.3
              Certificate
                  of Amendment to Certificate of Incorporation of the Company, incorporated
                  herein by reference to Exhibit 3.3 to the Company's form 10-K Annual
                  Report for the fiscal year ended December 31, 1991 (File No.
                  0-17458).3.4
              Articles
                  of Amendment to Certificate of Incorporation, incorporated herein
                  by
                  reference to Exhibit 10.42 included in the Company's Form 10-K
                  Annual
                  Report for the fiscal year ended December 31, 1997 (File No.
                  0-17458).3.5
              Articles
                  Supplementary to Certificate of Incorporation of the Company designating
                  the Series B Convertible Preferred Stock.3.6
              Bylaws
                  of the Company, incorporated herein by reference to Exhibit No.
                  3.4 to the
                  Company's Form S-18 Registration Statement (Registration No.
                  33-23164-FW).3.7
              Amendment
                  to Bylaws of the Company, incorporated herein by reference to Exhibit
                  3.5
                  to the Company's Form 10-K Annual Report for the fiscal year ended
                  December 31, 1991 (File No. 0-17458).4.1
              Registration
                  Rights Agreement dated June 20, 2006 between Monarch Pointe Fund,
                  Ltd.,
                  Mercator Momentum Fund, L.P., Mercator Momentum Fund III, L.P.,
                  M.A.G.
                  Capital, LLC and AHPC Holdings, Inc., incorporated herein by reference
                  to
                  Exhibit 99.4 to the Company's Form 8-K report filed on June 26,
                  2006.10.1
              Warrant
                  Agreement with The Liberty National Bank & Trust Company, incorporated
                  by reference to Exhibit No. 4.2 to the Company's Form S-1 Registration
                  Statement (Registration No. 33-36206).10.2
              Warrant,
                  incorporated by reference to Exhibit No. 4.3 to the Company's Form
                  S-1
                  Registration Statement (Registration No. 33-36206).10.3
              Debenture
                  and Warrant Purchase Agreement dated October 12, 1994, between
                  the Company
                  and Wilmington Trust Company and George Jeff Mennen as Co-Trustees
                  U/A
                  dated 11/25/70 with George S. Mennen for Christina M. Andrea incorporated
                  herein by reference to Exhibit 10.37 included in the Company's
                  Form 10-K
                  Annual Report for the fiscal year ended December 31, 1994 (File
                  No. 0-17458).
   33
 
  10.4
              Debenture
                  and Warrant Purchase Agreement dated October 12, 1994, between
                  the Company
                  and Wilmington Trust Company and George Jeff Mennen as Co-Trustees
                  U/A
                  dated 11/25/70 with George S. Mennen for John Henry Mennen incorporated
                  herein by reference to Exhibit 10.38 included in the Company's
                  Form 10-K
                  Annual Report for the fiscal year ended December 31, 1994 (File
                  No. 0-17458).10.5*
              Amended
                  and Restated Omnibus Equity Compensation Plan, incorporated herein
                  by
                  reference to Exhibit 10.43 included in the Company's Form 10-K
                  Annual
                  Report for the fiscal year ended December 31, 1997 (File No.
                  0-17458).10.6
              Loan
                  and Security Agreement dated as of December 1, 1998, between General
                  Electric Capital Corporation and American Health Products Corporation,
                  incorporated herein by reference to Exhibit 10.44 included in the
                  Company's Form 10-K Annual Report for the fiscal year ended December
                  31,
                  1998 (File No. 0-17458).10.7
              GE
                  Waivers and Amendments to the Loan and Security Agreement dated
                  as of
                  December 1, 1998.10.8*
              Employment
                  Agreement between AHPC Holdings, Inc. and Alan Zeffer dated October
                  1,
                  2001 incorporated by reference in Exhibit 10.46 included in the
                  Company's
                  Form 10-K Annual Report for the fiscal year ended June 30, 2002
                  (File No.
                  0-17458).10.9
              Loan
                  and Security Agreement dated as of September 9, 2004 between AHPC
                  Holdings, Inc. and Greenfield Commercial Credit, L.L.C. incorporated
                  by
                  reference to the Company's Form 8-K filed on September 17,
                  2004.10.10
              Second
                  Amendment to Loan and Security Agreement dated as of September
                  9, 2005 by
                  and among Greenfield Commercial Credit L.L.C., AHPC Holdings and
                  American
                  Health Products Corporation incorporated by reference to Exhibit
                  10.10
                  included in the Company's Form 10-K Annual Report for the fiscal
                  year
                  ended June 30, 2005 (File No. 0-17458).10.11
              Amended
                  and Restated Revolving Credit Loan Note dated September 9, 2005
                  in the
                  principal amount of $5,000,000 made payable to Greenfield Commercial
                  Credit, L.L.C. incorporated by reference to Exhibit 10.11 included
                  in the
                  Company's Form 10-K Annual Report for the fiscal year ended June
                  30, 2005
                  (File No. 0-17458).10.12
              Third
                  Amendment to Loan and Security Agreement dated as of September
                  8, 2006 by
                  and among Greenfield Commercial Credit L.L.C., AHPC Holdings and
                  American
                  Health Products Corporation incorporated by reference to Exhibit
                  10.12
                  included in the Company's Form 10-K Annual Report for the fiscal
                  year
                  ended June 30, 2006.10.13
              Subscription
                  Agreement dated June 20, 2006 between Monarch Pointe Fund, Ltd.,
                  Mercator
                  Momentum Fund, L.P., Mercator Momentum Fund III, L.P., M.A.G. Capital,
                  LLC
                  and AHPC Holdings, Inc., incorporated herein by reference to Exhibit
                  99.4
                  to the Company's Form 8-K report filed on June 26, 2006.10.14
              Form
                  of Warrant to Purchase Common Stock dated June 20, 2006 issued
                  by AHPC
                  Holdings, Inc. to Monarch Pointe Fund, Ltd., Mercator Momentum
                  Fund III,
                  L.P., M.A.G. Capital, LLC, incorporated herein by reference to
                  Exhibit
                  99.4 to the Company's Form 8-K report filed on June 26, 2006.10.15
              Letter
                  Agreement dated September 5, 2006 between Monarch Pointe Fund,
                  Ltd.,
                  Mercator Momentum Fund, L.P., Mercator Momentum Fund III, L.P.,
                  M.A.G.
                  Capital, LLC and AHPC Holdings, Inc., incorporated herein by reference
                  to
                  Exhibit 99.1 to the Company's Form 8-K report filed on September
                  11,
                  2006.16.1
              Letter
                  of Grant Thornton LLP dated January 6, 2006 concerning change in the
                  registrant's independent registered public accounting firm, incorporated
                  herein by reference to Exhibit 16.1 to the Company's Form 8-K report
                  filed
                  on January 10, 2006.21
              Subsidiaries
                  of the Company.23.1
              Consent
                  of Grant Thornton LLP, the Company's Independent Registered Public
                  Accounting Firm for the fiscal years ended June 30, 2005 and
                  2004
   34
   23.2
              Consent
                  of Plante & Moran PLLC, the Company's Independent Registered Public
                  Accounting Firm for the fiscal year ended June 30, 2006.31.1
              Certification
                  of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act.31.2
              Certification
                  of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act.32.1**
              Certification
                  of Chief Executive Officer and Chief Financial Officer pursuant
                  to Section
                  906 of the Sarbanes-Oxley Act.*
                  Management contract or compensatory plan or arrangement.
                **
                  This certification is not "filed" for purposes of Section 18 of
                  the
                  Securities Exchange Act of 1934, as amended, or incorporated by
                  reference
                  into any filing under the Securities Act of 1933, as amended, or
                  the
                  Securities Exchange Act of 1934, as amended.(b)
              Exhibits.The
                  response to this portion of Item 15 is submitted as a separate
                  section of
                  this report.(c)
              Financial
                  Statement Schedules.The
                  response to this portion of Item 15 is submitted as a separate
                  section of
                  this report.






35




**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report on form 10-K to be signed
      on
      its behalf by the undersigned, thereunto duly authorized.




**REGISTRANT:**




AHPC
      HOLDINGS,
      INC




Date: 
      September 13, 2006 By: /s/
      Deborah J.
      Bills


Deborah J. Bills, Chief Financial Officer




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant, in the
      capacities and on the dates indicated.




Date: 
      September 13, 2006 By: /s/
      Alan E.
      Zeffer


Alan E. Zeffer, President and Chief


Executive Officer (Principal Executive Officer)




Date: 
      September 13, 2006 By: /s/
      George Jeff
      Mennen


George Jeff Mennen, Director


and Chairman of the Board of Directors




Date: 
      September 13, 2006 By: /s/
      Richard J.
      Swanson


Richard J. Swanson, Director




Date: 
      September 13, 2006 By: /s/
      Robert J.
      Simmons


Robert J. Simmons, Director




Date: 
      September 13, 2006 By: /s/Don
      L.
      Arnwine


Don L. Arnwine, Director




Date: 
      September 13, 2006 By: /s/
      Anthony F. Alibrio,
      Sr.


A nthony
      F.
      Alibrio, Sr., Director




Date: 
      September 13, 2006 By: /s/
      Deborah J.
      Bills


Deborah J. Bills, Chief Financial Officer


(Principal Financial and Accounting Officer)









36







**CONSOLIDATED
      FINANCIAL STATEMENTS**


**AND
      REPORT OF INDEPENDENT**


**CERTIFIED
      PUBLIC ACCOUNTANTS**


**AHPC
      HOLDINGS, INC. AND SUBSIDIARY**


**JUNE
      30, 2006, 2005 AND 2004**

















F-1




**CONTENTS**




**Page**REPORT
                OF PLANTE & MORAN PLLC, INDEPENDENT REGISTERED PUBLIC ACCOUNTING
                FIRM
            F-3REPORT
                OF GRANT THORTON LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING
                FIRM
            F-4CONSOLIDATED
                FINANCIAL STATEMENTSBALANCE
                SHEETS
            F-5STATEMENTS
                OF OPERATIONS
            F-7STATEMENT
                OF SHAREHOLDERS' EQUITY
            F-8STATEMENTS
                OF CASH FLOWS
            F-10NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS
            F-11














F-2





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
        the
        Board of Directors and Shareholders of
 AHPC
        Holdings, Inc. and Subsidiary
 
 We
        have
        audited the accompanying consolidated balance sheet of AHPC Holdings, Inc.
        and
        Subsidiary (the “Company”) as of June 30, 2006 and the related consolidated
        statement of operations, shareholders’ equity and cash flows for the year ended.
        These financial statements are the responsibility of the Company’s management.
        Our responsibility is to express an opinion on these financial statements
        based
        on our audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audit provide a reasonable
        basis for our opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the financial position of AHPC Holdings, Inc. and Subsidiary
        as of June 30, 2006 and the results of its operations and its cash flows
        for the
        year then ended in conformity with accounting principles generally accepted
        in
        the United States of America.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. As discussed in Note B to the
        consolidated financial statements, the Company’s recurring losses and negative
        cash flows from operations raise substantial doubt about its ability to
        continue as a going concern. Management’s plans in regard to these matters are
        also described in Note B. The consolidated financial statements do not include
        any adjustments that might result from the outcome of these
        uncertainties.
  
 /s/
        Plante & Moran, PLLC
 Chicago,
        IL
 September
        6, 2006





F-3






**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




Shareholders
      and Board of Directors of


American
      Health Products Corporation




We
      have
      audited the accompanying consolidated balance sheet of American Health Products
      Corporation (A Maryland corporation) and Subsidiary as of June 30, 2005, and
      the
      related consolidated statements of operations, shareholders' equity, and cash
      flows for the years ended June 30, 2005 and 2004. These consolidated financial
      statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.




We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform an audit of its internal control over
      financial reporting. Our audit included consideration of internal control over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company's internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.




The
      Company has restated its consolidated statement of operations for fiscal 2004
      for the loss associated with the Stock Redemption and Exchange Transaction
      described in Note B. See Note S for further information regarding the
      restatement.




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of American Health Products
      Corporation and Subsidiary as of June 30, 2005, and the results of their
      operations and their cash flows for the years ended June 30, 2005 and 2004
      in
      conformity with accounting principles generally accepted in the United States
      of
      America.




The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note B to the financial
      statements, the Company incurred a net loss of $1,151,549 for the year ended
      June 30, 2005. Recurring losses, among other factors, as discussed in Note
      B to
      the financial statements, raise substantial doubt about its ability to continue
      as a going concern. The financial statements do not include any adjustments
      that
      might result from the outcome of this uncertainty.







/s/
      Grant
      Thornton LLP









Chicago,
      Illinois


October
      13, 2005 (except for


Note
      S,
      as to which the


date
      is
      June 16, 2006)




F-4






**AHPC
      Holdings, Inc. and Subsidiary**


**CONSOLIDATED
      BALANCE SHEETS**


**June
      30,**


**ASSETS**
            
            
            2006
            
            
            2005
              (as
                restated, Refer to Note S)**CURRENT
                ASSETS**Cash
            
            $
            83,162
            
            $
            16,434Accounts
                receivable - trade, net of allowance fordoubtful
                accounts of $61,988 at June 30, 2006and
                $336,351 at June 30, 2005
            
            
            1,867,977
            
            
            1,844,349Inventories,
                net
            
            
            6,470,411
            
            
            4,992,385Prepaid
                expenses
            
            
            440,428
            
            
            488,733Other
                receivables
            
            
            3,694
            
            
            4,694Total
                current assets
            
            
            8,865,672
            
            
            7,346,595**PROPERTY,
                PLANT AND EQUIPMENT**Equipment,
                furniture and fixtures
            
            
            2,618,324
            
            
            2,617,934Building
                improvements
            
            
            35,036
            
            
            25,866Total
                property, plant and equipment
            
            
            2,653,360
            
            
            2,643,800Less
                accumulated depreciation and amortization
            
            
            2,527,940
            
            
            2,307,985Property,
                plant and equipment, net
            
            
            125,420
            
            
            335,815**OTHER
                ASSETS**Other
                assets
            
            
            1,108
            
            
            1,108Total
                other assets
            
            
            1,108
            
            
            1,108$
            8,992,200
            
            $
            7,683,518





The
      accompanying notes are an integral part of these consolidated financial
      statements.








F-5





**AHPC
      Holdings, Inc. and Subsidiary**


**CONSOLIDATED
      BALANCE SHEETS**


**June
      30,**


**LIABILITIES
                AND SHAREHOLDERS' EQUITY**
            
            
            2006
            
            
            
            2005
              (as
                restated, refer to Note S)**CURRENT
                LIABILITIES**Accounts
                payable - trade
            
            $
            2,498,467
            
            
            $
            2,364,366Trade
                notes payable to bank
            
            
            2,094,711
            
            
            
            783,806Other
                notes payable
            
            
            19,101
            
            
            
            8,803Accrued
                rebates
            
            
            241,024
            
            
            
            231,755Accrued
                Warrant Liability
            
            
            272,178
            
            
            
            -Accrued
                expenses
            
            
            987,295
            
            
            
            644,888Total
                current liabilities
            
            
            6,112,776
            
            
            
            4,033,618**DEFERRED
                RENT**
            
            
            87,031
            
            
            
            45,950**DEFERRED
                TAX LIABILITIES**
            
            
            -
            
            
            
            308,291Total
                liabilities
            
            
            6,199,807
            
            
            
            4,387,859**COMMITMENTS
                AND CONTINGENCIES****SHAREHOLDERS'
                EQUITY**Series
                A convertible preferred stock $0.01 par value;220,000
                shares authorized, none issued and outstanding at June 30,
                2006and
                59,350 issued and outstanding at June 30, 2005
            
            
            -
            
            
            
            594Series
                B convertible preferred stock, $0.01 par value;30,000
                shares authorized, 30,000 issued and outstanding atJune
                30, 2006 and none issued and outstanding at June 30, 2005
            
            
            300
            
            
            
            -Common
                stock, $.01 par value; 3,333,333 sharesauthorized;
                1,375,511 shares issued; 1,251,246 shares outstandingat
                June 30, 2006 and 1,285,052 shares issued; 1,160,787
                sharesoutstanding
                at June 30, 2005
            
            
            41,711
            
            
            
            38,551Additional
                paid-in capital
            
            
            24,382,944
            
            
            
            18,699,817Accumulated
                deficit
            
            
            (15,626,386
            )
            
            
            (9,437,127
            )8,798,569
            
            
            
            9,301,835Less
                common stock in treasury, at cost, 124,265 shareson
                June 30, 2006 and June 30, 2005
            
            
            6,006,176
            
            
            
            6,006,176Total
                shareholders' equity
            
            
            2,792,393
            
            
            
            3,295,659$
            8,992,200
            
            
            $
            7,683,518





The
      accompanying notes are an integral part of these consolidated financial
      statements.




F-6





**AHPC
      Holdings, Inc. and Subsidiary**


**CONSOLIDATED
      STATEMENT OF OPERATIONS**


**Fiscal
      Years Ended June 30, 2006, 2005 and 2004**


Fiscal
                Year Ended2006
            
            
            
            2005
            
            
            
            2004
              (as
                restated, refer to Note S)Net
                sales
            
            $
            25,296,530
            
            
            $
            26,553,241
            
            
            $
            36,560,430Cost
                of goods sold
            
            
            20,368,116
            
            
            
            20,262,889
            
            
            
            30,533,366Gross
                profit
            
            
            4,928,414
            
            
            
            6,290,352
            
            
            
            6,027,064Operating
                expensesSelling,
                general and administrative
            
            
            7,802,396
            
            
            
            7,673,830
            
            
            
            9,133,914Loss
                from operations
            
            
            (2,873,982
            )
            
            
            (1,383,478
            )
            
            
            (3,106,850
            )Other
                Income and (Expense)Interest
                expense
            
            
            (522,185
            )
            
            
            (142,415
            )
            
            
            (197,044
            )Other
                income
            
            
            (7,708
            )
            
            
            (8,816
            )
            
            
            101,405Loss
                on stock redemption transaction
            
            
            -
            
            
            
            -
            
            
            
            (174,361
            )Loss
                from operations before provisionfor
                (benefit from) income taxesand
                minority interest
            
            
            (3,403,875
            )
            
            
            (1,534,709
            )
            
            
            (3,376,850
            )Provision
                for (benefit from) income taxes
            
            
            (89,616
            )
            
            
            (383,160
            )
            
            
            (109,860
            )Loss
                from operations before minorityinterest
            
            
            (3,314,259
            )
            
            
            (1,151,549
            )
            
            
            (3,266,990
            )Minority
                interest in loss of subsidiary
            
            
            -
            
            
            
            -
            
            
            
            (242,686
            )NET
                LOSS
            
            $
            (3,314,259
            )
            
            $
            (1,151,549
            )
            
            $
            (3,024,304
            )Discount
                on Preferred Stock/Beneficial Conversion
            
            
            (2,875,000
            )
            
            
            (143,000
            )
            
            
            --**NET
                LOSS Available to Common Shareholders**
            
            $
            (6,189,259
            )
            
            $
            (1,294,549
            )
            
            $
            (3,024,304
            )Basic
                net loss per common share
            
            $
            (5.04
            )
            
            $
            (1.13
            )
            
            $
            (3.15
            )(as
                restated
            )Diluted
                net loss per common share
            
            $
            (5.04
            )
            
            $
            (1.13
            )
            
            $
            (3.15
            )(as
                restated
            )Weighted
                average number of common shares outstanding:Basic
            
            
            1,227,613
            
            
            
            1,143,887
            
            
            
            960,066Diluted
            
            
            1,227,613
            
            
            
            1,143,887
            
            
            
            960,066


The
      accompanying notes are an integral part of these consolidated financial
      statements.


F-7


**AHPC
      Holdings, Inc. and Subsidiary**


**CONSOLIDATED
      STATEMENT OF**


**SHAREHOLDERS'
      EQUITY**





**Fiscal
      Years Ended June 30, 2006, 2005 and 2004**


Series
                  A
              
              
              
              Series
                  A
              
              Series
                  BCommon
                  Stock
              
              Common
                  Stock
              
              Preferred
                  Stock
              
              Preferred
                  StockShares
              
              
              
              Amount
              
              
              
              Shares
              
              
              
              Amount
              
              
              
              Shares
              
              
              
              Amount
              
              
              
              Shares
              
              
              
              AmountBalance,
                  June 30, 2003
              
              
              1,252,538
              
              
              $
              12,525
              
              
              
              5,803,692
              
              
              $
              58,037
              
              
              
              -
              
              
              $
              -
              
              
              
              -
              
              
              $
              -Net
                  loss
              
              
              -
              
              
              $
              -
              
              
              
              -
              
              
              $
              -
              
              
              
              -
              
              
              
              -Stock
                  Redemption & Exchange
              
              
              
              
              
              
              (12,525
              )
              
              
              
              
              
              
              (25,000
              )Warrants
                  ExercisedReverse
                  Stock Split (3-1)
              
              
              (835,025
              )
              
              
              
              
              
              
              (3,861,907
              )Common
                  stock repurchases
              
              
              (417,513
              )
              
              
              
              
              
              
              (833,333
              )Balance,
                  June 30, 2004
                (as
                  restated)
              
              
              -
              
              
              $
              -
              
              
              
              1,108,452
              
              
              $
              33,037
              
              
              
              -
              
              
              $
              -
              
              
              
              -
              
              
              $
              -Net
                  loss
              
              
              -
              
              
              $
              -
              
              
              
              -
              
              
              $
              -
              
              
              
              -
              
              
              
              -Issuance
                  of Series A ConvertiblePreferred
                  Stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              220,000
              
              
              
              2,200Discount
                  on Series A Convertible Preferred StockSeries
                  A Preferred Share Conversion to Common Stock
              
              
              
              
              
              
              
              
              
              
              160,650
              
              
              
              5,036
              
              
              
              (160,650
              )
              
              
              (1,606
              )Issuance
                  of Common Shares
              
              
              
              
              
              
              
              
              
              
              15,950
              
              
              
              478Balance,
                  June 30, 2005
                (as
                  restated)
              
              
              **-**
              
              
              **$**
              **-**
              
              
              
              **1,285,052**
              
              
              **$**
              **38,551**
              
              
              
              **59,350**
              
              
              **$**
              **594**
              
              
              
              **-**
              
              
              **$**
              **-**Net
                  LossSeries
                  A Preferred ShareConversion
                  to Common Stock
              
              
              
              
              
              
              
              
              
              
              59,350
              
              
              
              1,781
              
              
              
              (59,350
              )
              
              
              (594
              )Issuance
                  of Series B
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              30,000
              
              
              $
              300Convertible
                  Preferred StockIssuance
                  of Common Shares
              
              
              
              
              
              
              
              
              
              
              31,109
              
              
              
              1,379Discount
                  on Preferred Stock/Beneficial ConversionShare
                  Issuance CostsStock
                  Compensation ExpenseBalance,
                  June 30, 2006
              
              
              **-**
              
              
              **$**
              **-**
              
              
              
              **1,375,511**
              
              
              **$**
              **41,711**
              
              
              
              **-**
              
              
              **$**
              **-**
              
              
              
              **30,000**
              
              
              **$**
              **300**




The
      accompanying notes are an integral part of these consolidated financial
      statements.







F-8


**AHPC
      Holdings, Inc. and Subsidiary**


**CONSOLIDATED
      STATEMENT OF**


**SHAREHOLDERS'
      EQUITY**





**Fiscal
      Years Ended June 30, 2006, 2005 and 2004**


RetainedAdditional
              
              
              
              Earnings
              
              
              
              Treasurypaid-in
              
              
              
              (accumulated
              
              
              
              Stock
              
              
              
              Shareholders'capital
              
              
              
              deficit)
              
              
              
              Amount
              
              
              
              Equity(as
                  restated)
              
              
              
              (as
                  restated)Balance,
                  June 30, 2003
              
              $
              17,942,471
              
              
              $
              (5,118,274
              )
              
              $
              (1,629,176
              )
              
              $
              11,265,583Net
                  loss
              
              $
              -
              
              
              $
              (3,024,304
              )
              
              
              -
              
              
              $
              (3,024,304
              )Stock
                  Redemption & Exchange
              
              
              (11
              )
              
              
              
              
              
              
              (4,377,000
              )
              
              
              (4,414,536
              )Warrants
                  Exercised
              
              
              10,000
              
              
              
              
              
              
              
              
              
              
              
              10,000Reverse
                  Stock Split (3-1)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Common
                  stock repurchasesBalance,
                  June 30, 2004(as
                  restated)
              
              $
              17,952,460
              
              
              $
              (8,142,578
              )
              
              $
              (6,006,176
              )
              
              $
              3,836,743Net
                  loss
              
              $
              -
              
              
              $
              (1,151,549
              )
              
              
              -
              
              
              $
              (1,151,549
              )Issuance
                  of Series A ConvertiblePreferred
                  Stock
              
              
              569,800
              
              
              
              
              
              
              
              
              
              
              
              572,000Discount
                  on Series A Convertible Preferred Stock
              
              
              143,000
              
              
              
              (143,000
              )
              
              
              
              
              
              
              -Series
                  A Preferred Share Conversion to Common Stock
              
              
              (3,430
              )
              
              
              
              
              
              
              
              
              
              
              -Issuance
                  of Common Shares
              
              
              37,987
              
              
              
              
              
              
              
              
              
              
              
              38,465Balance,
                  June 30, 2005(as
                  restated)
              
              **$**
              **18,699,817**
              
              
              **$**
              **(9,437,127**
              **)**
              
              **$**
              **(6,006,176**
              **)**
              
              **$**
              **3,295,659**Net
                  Loss
              
              
              
              
              
              $
              (3,314,259
              )
              
              
              
              
              
              $
              (3,314,259
              )Series
                  A Preferred ShareConversion
                  to Common Stock
              
              
              (1,187
              )
              
              
              
              
              
              
              
              
              
              
              -Issuance
                  of Series BConvertible
                  Preferred Stock
              
              
              2,999,700
              
              
              
              
              
              
              
              
              
              
              
              3,000,000Issuance
                  of Common Shares
              
              
              4,271
              
              
              
              
              
              
              
              
              
              
              
              5,650Discount
                  on Preferred Stock/Beneficial Conversion
              
              
              2,875,000
              
              
              
              (2,875,000
              )
              
              
              
              
              
              
              -Stock
                  Issuance Cost
              
              
              (263,213
              )
              
              
              
              
              
              
              
              
              
              
              (263,213
              )Stock
                  Compensation Expense
              
              
              68,556
              
              
              
              
              
              
              
              
              
              
              
              68,556Balance,
                  June 30, 2006
              
              **$**
              **24,382,944**
              
              
              **$**
              **(15,626,386**
              **)**
              
              **$**
              **(6,006,176**
              **)**
              
              **$**
              **2,792,393**
  The
      accompanying notes are an integral part of these consolidated financial
      statements.











F-9


**AHPC
      Holdings, Inc. and Subsidiary**


**CONSOLIDATED
      STATEMENT OF CASH FLOWS**


**Fiscal
      Years Ended June 30, 2006, 2005 and 2004**


Year
                Ended2006
            
            
            
            2005
            
            
            
            2004
              (as
                restated, refer to Note S)Cash
                flows from operating activitiesNet
                loss
            
            $
            (3,314,259
            )
            
            $
            (1,151,549
            )
            
            $
            (3,024,304
            )Adjustments
                to reconcile net loss to net cash (used in ) provided byoperating
                activitiesDepreciation
                and amortization
            
            
            240,232
            
            
            
            302,739
            
            
            
            350,069Amortization
                of discount on subordinated notes
            
            
            602,767
            
            
            
            -
            
            
            
            -Provision
                for doubtful accounts
            
            
            (20,000
            )
            
            
            16,500
            
            
            
            (13,774
            )Deferred
                income taxes
            
            
            (89,616
            )
            
            
            (417,681
            )
            
            
            593,795Loss
                on disposition of assets
            
            
            -
            
            
            
            -
            
            
            
            174,361Loss
                on disposal of property, plant and equipment
            
            
            -
            
            
            
            1,120
            
            
            
            -Stock-Based
                compensation
            
            
            68,556
            
            
            
            -
            
            
            
            -Deferred
                rent expense
            
            
            55,081
            
            
            
            45,950Changes
                in operating assets and liabilitiesAccounts
                receivable - trade
            
            
            (3,628
            )
            
            
            (37,700
            )
            
            
            137,781Inventories,
                net
            
            
            (1,478,026
            )
            
            
            1,702,045
            
            
            
            906,456Prepaid
                expenses
            
            
            75,091
            
            
            
            (63,432
            )
            
            
            50,346Other
                assets
            
            
            1,000
            
            
            
            68,986
            
            
            
            -Accounts
                payable - trade
            
            
            134,101
            
            
            
            14,749
            
            
            
            1,194,830Accrued
                rebates
            
            
            9,269
            
            
            
            (57,255
            )
            
            
            73,536Accrued
                expenses
            
            
            (247,643
            )
            
            
            (286,944
            )
            
            
            (103,697
            )Amounts
                due to and from affiliates
            
            
            -
            
            
            
            -
            
            
            
            -Net
                cash (used in) provided by operating activities
            
            
            (3,967,075
            )
            
            
            137,528
            
            
            
            339,399Cash
                flows from investing activitiesCapital
                expenditures
            
            
            (29,837
            )
            
            
            (33,536
            )
            
            
            (15,915
            )Proceeds
                on sales of property, plant and equipment
            
            
            -
            
            
            
            300
            
            
            
            -Net
                cash used in investing activities
            
            
            (29,837
            )
            
            
            (33,236
            )
            
            
            (15,915
            )Cash
                flows from financing activitiesGross
                payments on trade notes payable to bank
            
            
            (26,007,511
            )
            
            
            (23,664,622
            )
            
            
            (24,700,175
            )Gross
                borrowings on trade notes payable to bank
            
            
            27,318,416
            
            
            
            22,635,538
            
            
            
            24,307,543Gross
                payments on notes payable
            
            
            (217,610
            )
            
            
            (216,440
            )
            
            
            (314,396
            )Gross
                borrowings on notes payable
            
            
            227,908
            
            
            
            188,189
            
            
            
            321,607Subordinated
                note payments
            
            
            (1,200,000
            )
            
            
            -
            
            
            
            -Subordinated
                note borrowings
            
            
            1,200,000
            
            
            
            -
            
            
            
            -Proceeds
                from issuance of series A convertible preferred stock
            
            
            -
            
            
            
            572,000
            
            
            
            -Proceeds
                from issuance of series B convertible preferred stock
            
            
            3,000,000
            
            
            
            -
            
            
            
            -Share
                issue costs
            
            
            (263,213
            )
            
            
            -Proceeds
                from issuance of common stock/exercise of options
            
            
            5,650
            
            
            
            38,465
            
            
            
            -Net
                cash provided by (used in) financing activities
            
            
            4,063,640
            
            
            
            (446,870
            )
            
            
            (385,421
            )Net
                decrease in cash
            
            
            66,728
            
            
            
            (342,578
            )
            
            
            (61,937
            )Cash,
                beginning of period
            
            
            16,434
            
            
            
            359,012
            
            
            
            420,949Cash,
                end of period
            
            $
            83,162
            
            
            $
            16,434
            
            
            $
            359,012Supplemental
                disclosure of cash flow informationRedemption
                of common shares
            
            $
            -
            
            
            $
            -
            
            
            $
            (211,897
            )Interest
                Paid
            
            $
            213,781
            
            
            $
            141,972
            
            
            $
            119,416Income
                Taxes Paid
            
            $
            32,662
            
            
            $
            1,384
            
            
            $
            4,228Non
                -cash investing and financing activities:Estimated
                fair value of the accrued warrant liability as of June 30, 2006 in
                connection with the subordinated notes is
                $272,178.





The
      accompanying notes are an integral part of these consolidated financial
      statements.


F-10


**NOTE
      A - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING
      POLICIES**





***Description
      of Business***





AHPC
      Holdings, Inc (formerly WRP Corporation) (the "Company") is a leading marketer
      of medical and food-service gloves in the United States through its wholly
      owned
      subsidiary, American Health Products Corporation ("AHPC"). The Company was
      incorporated in Maryland in December 1995.





***Principles
      of Consolidation***





The
      accompanying consolidated financial statements include the accounts of AHPC
      Holdings, Inc. and AHPC for all periods presented and includes PT Buana
      Multicorpora Indonesia ("PT Buana") through April 30, 2004, the effective
      date of the Company's sale of PT Buana to WRP Asia Pacifica Sdn Bhd ("WRP Asia")
      (refer to Note B). All significant intercompany transactions through the period
      of sale have been eliminated.





***Cash
      Concentration***





The
      Company considers cash in banks and highly liquid debt instruments purchased
      with a maturity of three months or less to be cash equivalents. At June 30,
      2006 and 2005, the Company had approximately $282,435 and $97,383, respectively,
      on deposit at one financial institution in excess of amounts insured by the
      Federal Deposit Insurance Corporation. The Company performs a periodic
      evaluation of this institution for relative credit standing and has not
      experienced any losses in connection with the excess amounts on deposit at
      their
      institution.





***Accounts
      Receivable***





The
      majority of the Company's accounts receivables are due from companies in the
      foodservice, non-acute medical, dental and retail industries. Credit is extended
      based on an evaluation of a customer's financial condition, and generally,
      collateral is not required. Accounts receivable are due in accordance with
      agreed upon terms, and are stated at amounts due from customers net of an
      allowance for doubtful accounts. Accounts outstanding longer than the
      contractual payment terms are considered past due. The Company determines its
      allowance by considering a number of factors, including, but not limited to,
      the
      length of time trade accounts receivable are past due, the Company's previous
      loss history, the customer's current ability to pay its obligation to the
      Company, and the condition of the general economy and the industry as a whole.
      The Company writes off accounts receivable when they become uncollectible,
      and
      payments subsequently received on such receivables are credited to the allowance
      for doubtful accounts.








***Inventories***





Inventories
      are accounted for on a first-in, first-out basis and are valued at the lower
      of
      actual cost or market. The Company established inventory reserves for valuation,
      shrinkage, and excess and obsolete inventory. The Company records provisions
      for
      inventory shrinkage based on historical experience to account for unmeasured
      usage or loss. Actual results differing from these estimates could significantly
      affect the Company's inventories and cost of product sold. The Company records
      provisions for excess and obsolete inventories based upon the difference between
      the cost of inventory and its estimated realizable value using assumptions
      about
      future product demand and market conditions. Actual product demand or market
      conditions could be different than projected by management. Inventories consist
      of the following at June 30, 2006 and 2005:





2006
            
            
            
            2005Finished
                goods
            
            $
            6,674,053
            
            
            $
            5,218,326Reserves
            
            $
            (203,642
            )
            
            $
            (225,941
            )Total
            
            $
            6,470,411
            
            
            $
            4,992,385






F-11


**NOTE
      A - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -
      Continued**





***Property,
      Plant and Equipment***





Property,
      plant and equipment are recorded at cost. Depreciation and amortization are
      accounted for using both the straight-line and accelerated methods over lives
      ranging from 2 to 7 years. Building improvements are amortized on a
      straight-line basis over their estimated useful lives or lease terms, whichever
      is shorter. The useful lives of property, plant and equipment at June 30, 2006
      and 2005 are as follows:





Useful
                livesEquipment,
                furniture and fixtures
            2-7
                yearsBuilding
                improvements
            5
                years





Depreciation
      expense for the fiscal year ended June 30, 2006, 2005, and 2004 was $240,232,
      $302,739 and $350,069, respectively.





When
      property or equipment is retired or otherwise disposed of, the net book value
      of
      the asset is removed from the Company's books, and the net gain or loss is
      included in the determination of income.





***Long-Lived
      Assets***





The
      Company follows SFAS No. 144, *"Accounting
      for the Impairment or Disposal of Long-Lived Assets,"* in
      assessing. SFAS No. 144 addresses financial accounting and reporting for the
      impairment or disposal of long-lived assets.





In
      accordance with SFAS No. 144, long-lived assets are reviewed for impairment
      whenever events or changes in circumstances indicate that the carrying amount
      may not be recoverable. If the fair value of an asset is determined to be less
      than the carrying amount of the asset, a loss is recognized for the
      difference.





***Revenue
      Recognition***





Revenues
      from product sales are recognized at the time the product is shipped from the
      Company's warehouse or upon the customer's pick-up receipt of the goods,
      depending upon the terms of the sale. Product sales are stated net of rebates,
      sales returns, and sales discounts and allowances.





The
      Company records a liability for rebates and sales discounts in accordance with
      the terms of such rebate or discount as contracted for by the Company and its
      customers.





***Shipping
      and Handling***





The
      Company records gross shipping and handling costs within selling and
      administrative expenses. Customers are typically invoiced for shipping costs
      on
      all orders under the Company's 60 cases minimum requirement. The Company's
      shipping and handling costs totaled $376,900, $274,000 and $271,820 during
      the
      fiscal years ended 2006, 2005 and 2004, respectively.





***Income
      Taxes***





The
      Company records income taxes in accordance with SFAS No. 109, *"Accounting
      for Income Taxes."* SFAS
      No.
      109 utilizes the liability method, and deferred taxes are determined based
      on
      the estimated future tax effects of differences between the financial statement
      and tax basis of assets and liabilities given the provisions of enacted tax
      laws. Deferred income tax provisions and benefits are based on the changes
      in
      the deferred tax asset or tax liability from period to period. Due to the
      uncertainty of the realization of the Company's net deferred tax asset, the
      Company has recorded a valuation allowance against it.





***Net
      Loss per Common Share***





Basic
      earnings per share ("EPS") amounts are based on the weighted-average number
      of
      shares of common stock outstanding during each year, while diluted EPS amounts
      are based on the weighted-average number of shares of common stock outstanding
      during the year and the effect of any ** dilutive
      stock options and warrants (common stock equivalents). Diluted earnings per
      share is not applicable during the loss years presented.







F-12


**NOTE
      A - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -
      Continued**





***Net
      Loss per Common Share - Continued***





The
      net
      loss available to common shareholders, weighted-average number of common shares
      and common share equivalents outstanding for the years ended June 30, 2006
      and
      2005, and 2004, are as follows:





2006
            
            
            
            2005
            
            
            
            2004(as
                restated)Net
                Loss
            
            $
            (3,314,259
            )
            
            $
            (1,151,549
            )
            
            $
            (3,024,304
            )Discount
                on Preferred Stock/Beneficial Conversion
            
            
            (2,875,000
            )
            
            
            (143,000
            )
            
            
            -Net
                Loss available to common shareholders
            
            $
            (6,189,259
            )
            
            $
            (1,294,549
            )
            
            $
            (3,024,304
            )Year
                  ended
                June
                  30,2006
            
            
            
            2005
            
            
            
            2004Basic
                weighted-average number of common shares outstanding
            
            
            1,227,613
            
            
            
            1,143,887
            
            
            
            960,066Dilutive
                effect of common share equivalents
            
            
            -
            
            
            
            -
            
            
            
            -Diluted
                weighted-average number of common shares outstanding
            
            
            1,227,613
            
            
            
            1,143,887
            
            
            
            960,066





As
      of
      June 30, 2006, the Company has the following warrants, options, and preferred
      stock outstanding that can be converted to the Company’s common stock and
      aggregate number of potential warrants, options, and preferred stock that can
      be
      converted into shares of the Company’s common stock:





Outstanding
                at June 30, 2006
            Convertible
                in Common StockWarrants
            2,380,466
            2,380,466Options
            397,965
            397,965Series
                B Preferred Stock
            30,000
            1,875,000Total
            2,808,431
            4,653,431





***Use
      of Estimates***





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements, and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those
      estimates.





***Fair
      Value of Financial Instruments***





The
      Company's current assets and current liabilities include cash and cash
      equivalents, receivables, inventories, accounts payable, and trade notes payable
      to the bank. The carrying amount of such financial instruments approximates
      estimated fair values based on the attribute of the instrument or its quoted
      price.





***Litigation***





The
      Company is engaged in one lawsuit either as plaintiff or defendant involving
      product liability. In the opinion of management, the ultimate outcome of this
      lawsuit will not have a material impact on the Company's consolidated financial
      statements (refer to Note J).


F-13


**NOTE
      A - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -
      Continued**




***Stock-Based
      Compensation***





In
      December 2004, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”)  No.123, “Share-Based Payment” (Revised 2004) (“SFAS 123R”). The
      Company adopted the provisions of SFAS No 123R as of July 1, 2005 using the
      modified prospective method. SFAS No. 123R is a revision of SFAS No. 123,
“Accounting for Stock Based Compensation” and supersedes Accounting Principles
      Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”.
      SFAS 123R establishes standards for the accounting for transactions in which
      an
      entity exchanges its equity instruments for goods or services that are based
      on
      the fair value of the entity’s equity instruments or that may be settled by the
      issuance of those equity instruments. The Company has granted stock options
      to
      its employees in connection with the provision of services. Prior to July 1,
      2005, SFAS 123 required the Company to disclose the pro forma effect of
      compensation expense for these stock options. Under SFAS 123R, the Company
      is
      required to record applicable compensation expense in our results of operations.
      The stock-based compensation for the fiscal year ended June 30, 2006 was
      $68,556.





Prior
      to
      the adoption of SFAS 123R, the Company accounted for stock-based compensation
      in
      accordance with Accounting Principles Board (“APB”) Opinion No. 25,
“ *Accounting
      for Stock Issued to Employees* ,”
and
      had previously adopted the disclosure-only provisions of SFAS No. 123,
“ *Accounting
      for Stock-Based Compensation* ,”
      related to options and warrants issued to employees and directors. Exercise
      prices for options to purchase shares of the Company's common stock granted
      under the Company's option plan were not less than the fair market value of
      the
      Company’s common stock on the date of grant.





The
      Company adopted SFAS 123R using the modified prospective method and accordingly,
      results for prior periods were not restated. The following table illustrates
      the
      effect on net earnings and earnings per share if the Company had applied the
      fair value recognition provisions of SFAS No. 123, “ *Accounting
      for Stock-Based Compensation* ,”
to
      stock options for periods prior to the adoption of SFAS 123R.  The table
      below  contains
      restated basic and dilutive net loss per share information for the fiscal years
      ended June 30, 2005 and 2004.




For
                  the Fiscal Years Ended June 30,2005
              
              
              
              2004(as
                  restated)Net
                  loss available to common shareholders*(refer
                  to Net Loss per Common Share in Note A)*
              
              $
              (1,294,549
              )
              
              $
              (3,024,304
              )Deduct:
                  total stock-based employee compensation expense determined under
                  fair
                  value method for awards granted, modified, or settled, net of related
                  tax
                  effects
              
              
              38,322
              
              
              
              90,636Pro
                  forma net loss
              
              $
              (1,332,871
              )
              
              $
              (3,114,940
              )2005
              
              
              
              2004(as
                  restated)Net
                  loss per shareBasic
                  - as reported
              
              $
              (1.13
              )
              
              $
              (3.15
              )Basic
                  - pro forma
              
              $
              (1.17
              )
              
              $
              (3.24
              )Dilutive
                  - as reported
              
              $
              (1.13
              )
              
              $
              (3.15
              )Dilutive
                  - pro forma
              
              $
              (1.17
              )
              
              $
              (3.24
              )


See
      Note
      K for further discussion of our stock option plan.





F-14


**NOTE
      A - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -
      Continued**





***Employee
      Benefit Plans***





All
      employees of the Company who have completed 30 days of service are eligible
      to
      participate in the AHPC Holdings, Inc. 401(k) Profit Sharing Plan & Trust.
      Participants in such plan are allowed to contribute up to 50% of their annual
      compensation, and the Company will match up to the first 8% of the participants'
      contributions. All contributions are made to a trust, which are held for the
      sole benefit of the participant. During the fiscal years ended June 30, 2006,
      2005 and 2004, the Company contributed to the plan $46,846, $49,833 and $37,960,
      respectively. The Company's expense, relating to the plan's administration,
      for
      those years was $6,850.




***Internal
      Use Software Costs***





The
      Company has capitalized or expensed as incurred certain internal use software
      costs as appropriate. As of June 30, 2006, 2005 and 2004, the net book
      value of capitalized software was $82,967, $274,143 and $517,034, respectively.
      These capitalized costs are included in Property, Plant and Equipment in the
      accompanying financial statements and are being amortized over seven
      years.





***Recent
      Accounting Pronouncements***





In
      July
      2006, the FASB issued Interpretation No. 48 (“FIN 48”), *Accounting
      for Uncertainty in Income Taxes — an interpretation of FASB Statement
      No. 109* (“SFAS 109”).
      FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in an entity’s financial statements in accordance with SFAS 109 and
      prescribes that a company should use a more-likely-than-not recognition
      threshold based on the technical merits of the tax position taken or expected
      to
      be taken. Tax positions that meet the more-likely-than-not recognition threshold
      should be measured in order to determine the tax benefit to be recognized in
      the
      financial statements. Additionally, FIN 48 provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. FIN 48 is effective for fiscal years
      beginning after December 15, 2006, with early adoption permitted. The
      Company is currently
      evaluating the impact of FIN 48 on its consolidated financial statements,
      which will be adopted beginning fiscal in 2008.





In
      March
      2006, FASB issued Statement of Financial Accounting Standard No. 156, *Accounting
      for Servicing of Financial Assets — an Amendment of FASB Statement
      No. 140”* (“SFAS 156”).
      SFAS 156 provides guidance on the accounting for servicing assets and
      liabilities when an entity undertakes an obligation to service a financial
      asset
      by entering into a servicing contract. This statement is effective for all
      transactions at the beginning of fiscal 2008. The adoption of SFAS 156 is
      not expected to have a material impact on the Company’s consolidated financial
      condition or results of operations.





In
      February 2006, the FASB issued SFAS No. 155, *Accounting
      for Certain Hybrid Financial Instruments — an Amendment of FASB Statements
      No. 133 and 140* (“SFAS 155”). SFAS 155 allows financial instruments that contain an
      embedded derivative and that otherwise would require bifurcation to be accounted
      for as a whole on a fair value basis, at the holders’ election. SFAS 155
      also clarifies and amends certain other provisions of SFAS 133 and
      SFAS 140. SFAS 155 is effective beginning in fiscal 2008. The adoption
      of SFAS 155 is not expected to have a material effect on the Company’s
      consolidated financial statements.





In
      May
      2005, the FASB issued Statement of Financial Accounting Standard No. 154
      (“SFAS 154”), *Accounting
      Changes and Error Corrections.* SFAS 154 applies to all voluntary changes in accounting principle as well
      as to changes required by an accounting pronouncement that does not include
      specific transition provisions. SFAS 154 eliminates the requirement in
      Accounting Principles Board Opinion No. 20, *Accounting
      Changes,* to
      include the cumulative effect of changes in accounting principle in the income
      statement in the period of change and, instead, requires changes in accounting
      principle to be retrospectively applied. Retrospective application requires
      the
      new accounting principle to be applied as if the change occurred at the
      beginning of the first period presented by modifying periods previously
      reported, if an estimate of the prior period impact is practicable and
      estimable. SFAS 154 is effective for accounting changes and corrections of
      errors made in fiscal years beginning after December 15, 2005. The Company
      does not currently anticipate any changes in accounting principle other than
      the
      adoption of SFAS 123R discussed below, which has its own adoption
      transition provisions and is therefore not in the scope of SFAS 154. As a
      result, the adoption of SFAS 154 will not have a material impact on the
      Company’s consolidated financial statements.





In
      March
      2005, the FASB issued Interpretation No. 47, *Accounting
      for Conditional Asset Retirement Obligation* (“FIN 47”),
      which is an interpretation of SFAS No. 143, *Accounting
      for Asset Retirement Obligation.* FIN 47 clarifies that an entity is required to recognize a liability for
      the fair value of a conditional asset retirement obligation if the fair value
      can be reasonably estimated even though uncertainty exists about the timing
      or
      method of settlement. The
      adoption of FIN 47 as of June 30, 2006 did not have a material impact on the
      Company’s financial position, results of operations or cash flows.





***Reclassification***





Certain
      prior-period balances have been reclassified to conform with the current-year
      presentation.








F-15


**NOTE
      B - LIQUIDITY & THE STOCK REDEMPTION TRANSACTION**





***Going
      Concern***





The
      Company has experienced recurring net losses of $3.314 million, $1.152 million
      and $3.024 million during the fiscal years ending June 30, 2006, 2005, and
      2004,
      respectively. Although, the Company has benefited from several cost reduction
      programs, the volatility of raw material costs and rising oil prices together
      has limited the benefits of these programs in the Company's results of
      operations.





Despite
      the negative cash flow, the Company has been able to secure short-term financing
      to support future operations (refer to Note T). The Company believes that this
      short-term financing will be sufficient to support the company's liquidity
      through June 30, 2007, depending on operating results and the continued
      trade support. The Company expects to continue to consume cash through the
      end
      of fiscal 2007. The rate at which cash will be consumed is primarily dependent
      on the revenues realized during such period. The Company is executing a strategy
      whereby it is introducing additional consumable products to the healthcare
      market that will enable it to achieve higher revenue growth. In addition, the
      Company is reviewing alternatives including evaluating product line and customer
      profitability, evaluating the markets within which it participates, further
      diversification of the product line to include additional non-glove products,
      and expanding into markets where it currently does not participate in. The
      Company is also evaluating several strategies for reducing costs and expenses
      that will enable it to improve its liquidity and reduce its financing
      requirements. If and when enacted, the Company anticipates these plans to
      eliminate its cash consumption by June 30, 2007. There can be no assurances
      that
      the current financing will be sufficient and that favorable operating results
      will be achieved, or that additional financing will be available to the Company,
      or that the terms of any additional financing will be favorable to the
      Company.





The
      Company's independent registered public accountants have included a "going
      concern" emphasis paragraph in their audit report accompanying the June 30,
      2006
      financial statements.





As
      of
      June 30, 2006, the Company had in place a credit facility with Greenfield
      Commercial Credit, LLC, a privately held commercial financing company (refer
      to
      Note H). On September 9, 2006, the Company renewed this credit facility for
      another one year term (refer to Note T).




***WRP
      Asia Financial Restructuring***





On
      July
      8, 2003, WRP Asia announced the completion of its financial restructuring,
      which
      included restructuring and reducing WRP Asia's debt position and obtaining
      additional new funding. Due to the terms of the restructuring, WRP Asia was
      prohibited from repaying certain debt, including the Company's intercompany
      debt
      in the short term.





On
      November 3, 2003, the Company announced the signing of a definitive stock
      redemption and exchange agreement (the "Agreement") with WRP Asia. The Company
      completed the redemption from WRP Asia, which became effective on April 30,
      2004, pursuant to the stock redemption and exchange agreement with WRP Asia.
      Through this transaction the Company redeemed 417,513 shares of its Class A
      Common Stock and 833,333 shares of its Class B Common Stock, which comprised
      all
      of WRP Asia's holdings at the effective date of the redemption. These share
      amounts reflected the 1 for 3 reverse stock split which was effective as of
      January 20, 2004. Collectively, these shares represented approximately 53.2%
      of
      the Company's outstanding capital stock on the effective date of the redemption.
      As consideration for the redemption, the Company conveyed to WRP Asia, its
      70%
      ownership interest in PT Buana and forgave all indebtedness owing to the Company
      from WRP Asia and PT Buana, with the exception of certain mutually agreed
      obligations related to recent purchases of product. The Company also entered
      into a five (5) year supply agreement whereby the Company agreed to purchase
      certain minimum quantities of its latex glove needs from WRP Asia. In connection
      with the redemption, the Company received a fairness opinion from an independent
      professional valuation firm that the transaction was fair to the Company's
      stockholders. On the closing of the transaction, the three of the Company's
      seven directors who were employees of WRP Asia resigned their positions as
      officers and directors of the Company.





As
      of
      April 30, 2004, the market value of the stock redeemed at the closing of the
      stock redemption was $4,377,000. The balance sheet amounts as of April 30,
      2004
      that related to our share of PT Buana financials were assets totaling
      $11,305,439 and liabilities of approximately $2,665,854. For fiscal 2005 the
      portion of net revenues relating to PT Buana was $11,511,161 with a net
      operating loss of $566,268. The Company agreed to forgive all indebtedness
      owing
      to the Company or its subsidiaries from WRP Asia and from PT Buana equal to
      $1,401,322. The loss on this transaction was $174,361, and was recorded as
      a
      loss in the Consolidated Statement of Operations for the fiscal year ending
      June
      30, 2004 (refer to Note S).





In
      connection with the redemption of WRP Asia, the Company also changed its name
      from WRP Corporation to AHPC Holding, Inc, effective May 14, 2004.
      Additionally, the Company's NASDAQ trading symbol changed from WRPC to
      GLOV.




F-16


**NOTE
      C - ACCRUED EXPENSES**





The
      following table summarizes the accrued expense significant balances for the
      fiscal years ended June 30, 2006 and 2005, respectively:





2006
            
            
            
            2005Ocean
                Freight-In
            
            $
            155,920
            
            
            $
            97,652Income
                Taxes
            
            $
            210,662
            
            
            $
            0Professional
                Fees
            
            $
            213,049
            
            
            $
            205,838Marketing
                Fees
            
            $
            113,287
            
            
            $
            151,579Other
            
            $
            294,377
            
            
            $
            189,819Total
            
            $
            987,295
            
            
            $
            644,888




**NOTE
      D - COMMON STOCK**





On
      February 29, 2000, the Company approved a stock repurchase plan, which includes
      the repurchase of up to 10% of the Company's issued and outstanding common
      stock. These purchases may be made in the open market up to an aggregate amount
      of 1,000,000 shares. The program is subject to market conditions and its impact
      on the Company's share price, as well as other investment options that the
      Company may consider to enhance shareholder value. As of June 30, 2006, 254,800
      shares of public common stock have been repurchased by the Company as part
      of
      this plan.





On
      January 20, 2004, the Company's Board of Directors approved a reverse stock
      split on a 1-for-3 basis. All references to per share amounts have been restated
      for this reverse stock split transaction in all periods presented.




The
      Company's credit facility and equity financing
      agreements related to the issuance of shares of our Series B convertible
      preferred stock restrict or prohibit its ability to pay dividends on the shares
      of the Company's common stock.





**NOTE
      E - SERIES A CONVERTIBLE PREFERRED STOCK**





On
      February 2, 2005, the Company completed a private placement of 220,000 shares
      of
      Series A Convertible Preferred Stock (the "Shares") with a closing date of
      February 1, 2005. The Shares were issued at a discount price of $2.60 per share.
      The Shares may be converted on a one-for-one basis into shares of the Company's
      Common Stock. The Company filed a registration statement with the Securities
      and
      Exchange Commission (the "SEC") on March 25, 2005 registering the shares of
      Common Stock issuable upon conversion of the Shares. As of June 30, 2006, all
      of
      the Shares have been converted into shares of the Company's common
      stock.





On
      February 3, 2005 the Company issued the placement company, in connection with
      the private placement of the Shares, warrants to purchase 11,000 shares of
      the
      Company's Common Stock (refer to Note Q).





The
      Company recorded the Series A Convertible Preferred Stock with a beneficial
      conversion feature to additional paid-in-capital and retained earnings. The
      shares were issued at a discount amount of $143,000.





Since
      the
      Shares were sold at a discount to the closing price of the Common Stock and
      in
      order to comply with the Nasdaq Stock Market, Inc., Rule 4351 (which limits
      the
      voting rights allocable to preferred stock), the Shares possess, in the
      aggregate, that number of votes which could be cast had the purchase price
      for
      the Shares been used to purchase shares of common stock at the same closing
      price of the common stock on the business day immediately preceding the closing
      date.





The
      Shares were convertible into the Company's Common Stock by the holders at
      anytime, or by the Company at anytime provided that the closing price of the
      Common Stock equals or exceeds 150% of the closing price per share of the Common
      Stock (i.e. $4.88 per share) for 21 consecutive trading days.





**NOTE
      F - SERIES B CONVERTIBLE PREFERRED STOCK**





On
      June
      20, 2006, the Company completed a $3 million equity financing with
      M.A.G.Capital, LLC and its affiliates (“MAG”). The Company issued 30,000 shares
      of Series B Convertible Preferred Stock (the “Series B Preferred”) to MAG at a
      price of $100 per share.





The
      Series B Preferred shall pay a dividend based on the higher of the Prime Rate,
      as quoted in the Wall Street Journal, plus 1%, or 9% per annum, with a maximum
      of 12% per annum. The dividends are payable monthly in arrears on the first
      day
      of the month while such shares of Series B Preferred are outstanding. The
      holders on the Series B Preferred have the option, at any time, to convert
      their
      shares into shares of the Company’s common stock at a fixed conversion rate of
      $1.60.





In
      addition, the Company issued warrants to MAG to acquire an aggregate of
      1,950,000 shares of Common Stock. The Warrants grant the holders the right
      to
      purchase shares of the Company’s common stock at the exercise price of $1.75 per
      share with respect to 975,000 shares, and $1.85 per share with respect to the
      remaining 975,000 shares. The warrants are exercisable six months after the
      closing date of the issuance of the Series B Preferred and expire on June 20,
      2011.


F-17




**NOTE
      F - SERIES B CONVERTIBLE PREFERRED STOCK - Continued**





Pursuant
      to EITF 98-5 “Accounting for Convertible Securities with Beneficial Conversion
      Features or Contingently Adjustable Conversion Ratios” and EITF 00-27
“Application of Issue No.98-5 to Certain Convertible Instruments”, the Company
      has recorded a discount on preferred stock/beneficial conversion of $2,875,000
      based on the relative fair value of the beneficial conversion feature and the
      warrants. The preferred dividend is limited to the gross proceeds of the Series
      B Preferred less the due diligence and legal fees paid to the investors of
      $125,000.





We
      used
      the following assumptions to determine the fair value of the beneficial
      conversion feature and warrants:





AssumptionsStock
                price on date of issuance
            
            $1.80Risk-free
                interest rates
            
            5.07%Dividend
                yield
            
            -Expected
                volatility
            
            100.00%Expected
                life
            
            5
                years





Flagstone
      Securities, a St. Louis, Missouri based investment bank, acted as placement
      agent in this transaction. On June 20, 2006, the Company issued the placement
      company warrants to purchase 93,750 shares of the Company's Common Stock (refer
      to Note Q).





**NOTE
      G - RELATED-PARTY TRANSACTIONS**





In
      January 1997, the Company entered into a consulting and services agreement
      with
      Healthcare Alliance, Inc. ("Alliance"), a company 60% owned by Robert J.
      Simmons, one of the Company's directors. The agreement engaged Alliance to
      assist the Company in marketing its products with the expressed purpose of
      negotiating and executing a purchase agreement with various healthcare group
      purchasing organizations. The Company paid Alliance $0, $36,000 and $184,612,
      during the years ended June 30, 2006, 2005 and 2004, respectively, for its
      services.





The
      Company engaged SMS, a company owned by Robert J. Simmons, Jr., the son of
      Robert J. Simmons, our director, to assist them in the sales process with the
      purpose of negotiating and executing purchase agreements within the Healthcare
      Markets. The Company paid SMS $183,829 and $173,166 during the fiscal year
      ended
      June 30, 2006 and 2005, respectively, for its services. This agreement expired
      August 1, 2006, the Company renewed the agreement for another one-year term.





**NOTE
      H - TRADE NOTES PAYABLE TO BANK**





Trade
      notes payable to bank consisted of the following as of June 30, 2006 and 2005,
      respectively:




2006
              2005Notes
                  payable to bank, net, bearing interest at the prime rate plus 4.5%
                  at June
                  30, 2006 (12.75% at June 30, 2006) and prime rate plus 8.0% at June
                  30, 2005 (14.25% at June 30, 2005):
              $2,094,711
              $783,806


Trade
      notes payable to bank consisted of amounts financed through letter of credit
      arrangements and a trade note payable which totaled $2,094,711 and $783,806
      at
      June 30, 2006 and 2005, respectively.





As
      of
      September 9, 2004, the Company signed a commitment for a one-year credit
      facility with Greenfield Commercial Credit, LLC (Lender), a privately held
      commercial financing company. This asset based lending loan and security
      agreement includes a $3 million revolving line of credit.





On
      September 9, 2005, the Company extended its loan and security agreement with
      Greenfield Commercial Credit, LLC for an additional one-year term through
      September 9, 2006, with an additional automatic one year renewal term. This
      renewal included an amendment to the loan and security agreement increasing
      the
      revolving line of credit borrowing limit from $3 million to $5 million. Pursuant
      to the terms of the amended loan and security agreement, the Company may borrow
      up to the lesser of (i) $5 million or (ii) the sum of 80% of eligible
      receivables and 50% of eligible inventory on hand and 35% of eligible inventory
      in-transit, with a sub limit of $500,000, and an overall inventory cap of
      $2,500,000. These bank obligations are secured by a security interest in
      substantially all of AHPC tangible and intangible assets. The line of credit
      borrowings carry an interest rate of prime plus 4.5%. At anytime prior to
      maturity date, the Lender has the unrestricted right to demand payment of all
      outstanding indebtedness. It contains certain penalties for early termination.





On
      September 9, 2006, the Company extended the amended loan and security agreement
      with Greenfield Commercial Credit, LLC. through September 9, 2007. These bank
      obligations are secured by a security interest in substantially all of AHPC
      tangible and intangible assets.


F-18


**NOTE
      H - TRADE NOTES PAYABLE TO BANK - Continued**





As
      of
      June 30, 2006 and 2005, the Company was contingently liable for outstanding
      letter of credit liabilities totaling $555,051 and $1,052,337, respectively.
      As
      of June 30, 2006, the Company has $430,051 of contingent letters of credit
      liabilities outstanding, with Greenfield Commercial Credit, LLC, for inventory
      purchases. Also, included in the continent outstanding letters of credit is
      one
      stand by letter of credit for $125,000 which represents our warehouse and office
      space security deposit.





**NOTE
      I - SUBORDINATED NOTES**





On
      October 3, 2005, the Company announced a private placement of $1.2 million
      in
      subordinated promissory notes (the "Secured Notes") effective September 29,
      2005. The Company's obligations under the Secured Note are secured by a Security
      Agreement that generally grants the holder of the Secured Note a secondary
      interest, behind Greenfield Commercial Credit, LLC, in substantially all of
      the
      Company's assets. The Secured Notes bear interest as a rate of 7% per annum
      with
      a maturity date of two years after the date of the issuance of the Secured
      Notes. Each Secured Note has attached a Class A Warrant and a Class B Warrant
      granting the holder of the Secured Note the right to purchase shares of the
      Common Stock at an exercise price of $3.50 per share and $4.50 per share,
      respectively (refer to Note Q). Each of the Class A Warrants and the Class
      B
      Warrants has an exercise term of five years. In connection with the private
      placement, the Company issued an aggregate number of Class A Warrants enabling
      the holders to purchase up to 192,000 shares of the Common Stock and an
      aggregate number of Class B Warrants enabling the holders to purchase up to
      120,000 shares of the Common Stock. For the fiscal year ended June 30, 2006,
      total interest expense recognized relating to the discount was $602,767. As
      of
      June 30, 2006, the Secured Notes were paid in full and are no longer
      outstanding.





**NOTE
      J - COMMITMENTS AND CONTINGENCIES**





***Litigation***





Over
      the
      last several years, numerous product liability lawsuits have been filed against
      suppliers and manufacturers of latex gloves alleging, among other things,
      adverse allergic reactions. The Company is one of numerous defendants that
      have
      been named in such lawsuits. At June 30, 2006, the Company was involved in
      a
      total of one lawsuit as a named defendant, a third-party defendant or an
      indemnitor. During the year ended June 30, 2006, the Company was named in no
      new
      lawsuits and was dismissed from or otherwise settled 8 lawsuits. The Company
      carries product liability insurance. Management believes all legal claims are
      adequately provided for or, if not provided for, are without merit, or involve
      such amounts that would not materially affect the Company's results of
      operations or financial condition.





***Significant
      Customers***





The
      following summary presents the total percentage of sales to the Company's
      significant national customer group for the fiscal years ended June 30,
      2006, 2005 and 2004. The customer group is comprised of approximately 53
      independent customers.





June
                30,2006
            
            2005
            
            2004Significant
                customer's percentage of net sales
            85.9
            
            89.1
            
            86.1





The
      Company's significant national customer group ship products to numerous
      food-service facilities throughout the U.S. The ultimate end users of the
      Company's products are those various food-service organizations and
      professionals who purchase the products from these distributors.





The
      significant national customer group consisted of 73.3%, 74.8%, and 76.0% of
      the
      Company’s receivable balance for the fiscal years ended June 30, 2006, 2005 and
      2004, respectively.





***Operating
      Leases***





The
      Company conducts all of its operations in leased facilities.





Total
      rent expense included in the accompanying consolidated statements of operations
      for the fiscal years ended June 30, 2006, 2005 and 2004, was $463,723,
      $516,647 and $532,605, respectively. The following summary presents future
      minimum rental payments required under the terms of present operating
      leases:





Fiscal
                year ending June 30,2007
            
            $
            439,6622008
            
            
            445,9882009
            
            
            459,3692010
            
            
            392,330$
            1,737,349




F-19


**NOTE
      J - COMMITMENTS AND CONTINGENCIES - Continued**





***Purchase
      Commitments***





On
      April
      30, 2004, the Company entered into a five year supply agreement with WRP Asia.
      This agreement calls for the Company to purchase no less than a minimum of
      seven
      forty-foot containers of product per month and no less than 125 forty-foot
      containers of product per each 12 month period commencing on April 30, 2004.
      The
      Company's estimated 12 month liability, for 125 forty-foot containers, is shown
      below. However, in the event that our majority customer ceases purchasing latex
      gloves from us, we shall only be obligated to purchase from WRP Asia as many
      forty-foot containers of product per month as needed to meet 100% of our
      products needs, or the minimum annual amount, whichever is less. During the
      fiscal years ended June 30, 2006, 2005, and 2004, the Company purchased 24.7%,
      24.7%, and 32.2%, respectively, of its total product from WRP Asia and its
      affiliates. The Company purchases substantially all of its products from Asia.
      The following summary presents approximate future minimum purchases, based
      on an
      average historical cost, required under the terms of the supply
      agreement:





Fiscal
                year ending June 30,2007
            
            $
            5,833,0002008
            
            
            5,833,0002009
            
            
            4,860,833$
            16,526,833


**NOTE
      K - STOCK OPTION PLAN**





On
      June
      12, 1998, the Board of Directors approved an amendment and restatement of the
      Company's Omnibus Equity Compensation Plan (the "Plan"), which authorized and
      adjusted the number of shares issuable under the Plan from 133,333 to 466,667
      (reflective of the 3 for 1 reverse stock split effective on January 20, 2004,
      refer to Note B). Options are issued at the discretion of our compensation
      committee and generally are priced at or above fair market value on the date
      of
      grant, have a vesting period of 3 years and a total term of 10 years.





Effective
      June 13, 2005, the Board of Directors approved the immediate vesting of
      managements remaining stock options, dated February 20, 2004, as recognition
      for
      the Company's performance. As a result 44,000 stock options were immediately
      vested. Of the 282,004 options outstanding at June 30, 2006 all were fully
      vested and exercisable. We have reserved an adequate number of shares of our
      common stock for issuance upon conversion of these options.





A
      summary
      of options outstanding under the Plan as of the respective dates shown below
      is
      as follows:





Outstanding
              Options
            
            
            
            Weighted-
              Average
              Price
            
            
            Expiration
            
            
            Weighted-
              Average
              Remaining
              Contractual
                Life
            
            
            Aggregate
              Intrinsic
              ValueBalance,
                June 30, 2003
            
            
            540,316
            
            
            $
            1.02Grants
            
            
            146,000
            
            
            
            1.13
            
            
            2004-2012Exercised
            
            
            -Rescissions
            
            
            (360,211
            )
            
            
            0.92
            
            
            2004-2012Expirations
            
            
            (1,223
            )
            
            
            1.47
            
            
            2004-2012Balance,
                June 30, 2004
            
            
            324,882
            
            
            $
            2.04Grants
            
            
            20,000
            
            
            
            1.13
            
            
            2014Exercised
            
            
            -Rescissions
            
            
            (62,528
            )
            
            
            0.32
            
            
            2004-2012Expirations
            
            
            (350
            )
            
            
            6.21
            
            
            2005Balance
                June 30, 2005
            
            
            282,004
            
            
            $
            1.81Grants
            
            
            188,360
            
            
            
            2.11
            
            
            2016Exercised
            
            
            (62,692
            )
            
            
            1.55
            
            
            2012-2014Rescissions
            
            
            (9,041
            )
            
            
            2.54
            
            
            2004-2012Expirations
            
            
            (666
            )
            
            
            6.21
            
            
            2006Balance,
                June 30, 2006
            
            
            397,965
            
            
            $
            1.97
            
            
            
            
            
            8.71
            
            $
            81,830Exercisable
                at June 30, 2006
            
            
            227,961
            
            
            $
            1.91
            
            
            
            
            
            8.39
            
            $
            81,830





The
      exercise price of the stock options granted in 2006, 2005 and 2004 was
      established at the market price on the date of the grants. The weighted-average
      fair value, at grant date, of the options granted during fiscal years 2006,
      2005
      and 2004 was $1.97, $1.81 and $2.04, respectively. The total fair value of
      shares vested during the years ended June 30, 2006, 2005 and 2004 was $48,654,
      $49,720 and $115,260, respectively. The total intrinsic value of the options
      exercised during the fiscal years ended June 30, 2006 and 2005 was $90,497
      and
      $0, respectively. During the fiscal year ended June 30, 2006, $77,647 of the
      intrinsic value was related to cashless exercise of the options. The cash amount
      received for the fiscal years ended June 30, 2006 and 2005 was $5,650 and $0,
      respectively.


F-20





**NOTE
      K - STOCK OPTION PLAN - Continued**





The
      fair
      value of each option is estimated on the date of grant based on the
      Black-Scholes option pricing model. Expected volatilities are based on
      historical volatility of the Company’s common stock. The Company uses historical
      data and management’s estimates of future exercises of options and employee
      terminations to estimate the expected life of the options granted. The risk-free
      rate for periods within the contractual life of the option is based on the
      U.S.
      Treasury bond equivalent yields in effect at the time of grant. The assumptions
      used are as follows:


Year
                  ended June 30,Assumption
            
            2006
            2005
            2004Risk-free
                interest rates
            
            4.55%-4.68%
            2.66%
            2.66%Dividend
                yield
            
            -
            -
            -Expected
                volatility
            
            100.00%
            85.00%
            85.00%Expected
                life
            
            3-5
                years
            4
                years
            4
                years




Options
      outstanding and exercisable at June 30, 2006, were as follows:





Range
                of exercise prices
            
            Number
              outstanding
              at
                June 30,
              2006
            
            Remaining
              life
            
            Weighted
              average
              exercise
              price
            
            Number
              exercisable
              at
                June 30,
              2006
            
            Weighted-
              average
              exercise
              price$6.21
            
            15,579
            
            0.5-4
                years
            
            $6.21
            
            15,579
            
            $6.212.65
            
            18,360
            
            9
                years
            
            2.65
            
            18,360
            
            2.652.31
            
            26,668
            
            6
                years
            
            2.31
            
            26,668
            
            2.312.25
            
            37,691
            
            6
                years
            
            2.25
            
            37,691
            
            2.252.05
            
            170,000
            
            10
                years
            
            2.05
            
            -
            
            2.051.13
            
            123,000
            
            8
                years
            
            1.13
            
            123,000
            
            1.130.72
            
            6,667
            
            6
                years
            
            0.72
            
            6,667
            
            0.72$.72-$6.21
            
            397,965
            
            0.5-10
                years
            
            $1.97
            
            227,965
            
            $1.91




A
      summary
      of the status of the Company’s nonvested shares as of June 30, 2006 and changes
      during the year ended June 30, 2006 is as follows:




Nonvested
                Options
            
            
            Outstanding
              options
            
            
            
            Weighted-average
                grant-date fair valueBalance,
                June 30, 2005
            
            
            0
            
            
            $
            -Grants
            
            
            188,360
            
            
            
            1.69Vested
            
            
            (18,360
            )
            
            
            (2.02
            )Expirations
            
            
            (-
            )
            
            
            (-
            )Balance,
                June 30, 2006
            
            
            170,000
            
            
            $
            1.65





During
      the year ended June 30, 2006, the Company recognized compensation expense of
      $68,556 related to the stock options issued. The Company has not recognized
      any
      deferred income tax benefit related to stock-based compensation due to our
      deferred tax asset being fully reserved as of June 30, 2006. The Company did
      not
      recognize any stock-based compensation expense during the years ended June
      30,
      2005 and 2004. As of June 30, 2006, there was $250,576 of total unrecognized
      compensation cost related to nonvested options granted under the Plan. This
      cost
      is expected to be recognized over a weighted average period of 3 years.






F-21


**NOTE
      L - INCOME TAXES**





The
      components of the Company's income tax provision (benefit) from continuing
      operations consisted of:





June
                30,2006
            
            
            
            2005
            
            
            
            2004CurrentFederal
            
            $
            -
            
            
            $
            (134,235
            )
            
            $
            (52,892
            )State
            
            
            -
            
            
            
            -
            
            
            
            -Foreign
            
            
            -
            
            
            
            -
            
            
            
            -Total
                current
            
            
            -
            
            
            
            (134,235
            )
            
            
            (52,892
            )DeferredFederal
            
            
            (89,616
            )
            
            
            (248,925
            )
            
            
            (63,260
            )State
            
            
            -
            
            
            
            -
            
            
            
            -Foreign
            
            
            -
            
            
            
            -
            
            
            
            6,292Total
                deferred
            
            
            (89,616
            )
            
            
            (248,925
            )
            
            
            (56,968
            )Total
                income tax provision (benefit)
            
            $
            (89,616
            )
            
            $
            (383,160
            )
            
            $
            (109,860
            )





A
      reconciliation of the statutory U.S. Federal income tax rate to the effective
      tax rate is as follows:





June
                30,2006
            
            
            
            2005
            
            
            
            2004(as
                restated)Tax
                benefit at statutory rate of 34%
            
            $
            (1,157,318
            )
            
            $
            (521,801
            )
            
            $
            (1,148,129
            )State
                income taxes, net of Federal income tax provision
            
            $
            (163,386
            )
            
            $
            (68,315
            )
            
            
            (118,503
            )Foreign
                tax rate difference
            
            
            -
            
            
            
            -
            
            
            
            278,792Increase
                in deferred tax asset valuation allowance
            
            
            1,175,504
            
            
            
            421,627
            
            
            
            802,095Utilization
                of loss carry forwards
            
            
            -
            
            
            
            -
            
            
            
            -Other
            
            
            55,584
            
            
            
            (214,671
            )
            
            
            75,885Total
                income tax provision (benefit)
            
            $
            (89,616
            )
            
            $
            (383,160
            )
            
            $
            (109,860
            )




Significant
      components of the Company's deferred tax assets and liabilities are as
      follows:




2006
            
            
            
            2005Deferred
                income tax assetAccruals
                not deductible until paid
            
            $
            92,160
            
            
            $
            71,391Net
                operating loss carryforwards
            
            
            3,792,806
            
            
            
            2,459,723Inventory
            
            
            126,958
            
            
            
            124,658Allowance
                for doubtful accounts
            
            
            24,051
            
            
            
            130,504Total
                deferred tax assets
            
            $
            4,035,975
            
            
            $
            2,786,276Deferred
                income tax liabilitiesDifference
                between book and tax basis of property, plant and
                equipment
            
            $
            (74,195
            )
            
            $
            (93,877
            )Other
                noncurrent liabilities
            
            
            -
            
            
            
            (214,414
            )Total
                deferred tax liabilities
            
            $
            (74,195
            )
            
            $
            (308,291
            )Valuation
                allowance
            
            
            (3,961,780
            )
            
            
            (2,786,276
            )Total
                net deferred tax assets (liabilities)
            
            $
            0
            
            
            $
            (308,291
            )





The
      Company had approximately $6.537 million net operating loss carryforwards
      available at June 30, 2006. In accordance with Federal tax regulations, usage
      of
      the net operating loss carryforwards is subject to limitations in future years
      as a direct result of the stock redemption and exchange transaction with WRP
      Asia described herein. The Company will only be able to utilize $2.8 million
      of
      these net operating loss carryforwards over the next 20 years, at which time
      all
      of the net operating loss carryforwards listed above will begin to expire
      in the fiscal year 2022.





The
      Company establishes valuation allowances in accordance with the provisions
      of
      SFAS No. 109. The Company continually reviews the adequacy of the valuation
      allowance and is recognizing these benefits only as reassessment indicates
      that
      it is more likely than not that the benefits will be realized.


F-22


**NOTE
      M - SUPPLEMENTAL CASH FLOW INFORMATION**





Cash
      paid
      for interest on debt outstanding for the years ended June 30, 2006, 2005 and
      2004, was $213,781, $141,972 and $119,416, respectively.





The
      estimated fair value of the accrued warrant liability as of June 30, 2006 in
      connetion with the subordinated notes is $272,178.





The
      following represents significant related-party operating transactions during
      the
      years ended June 30, 2006, 2005 and 2004, which are included in the consolidated
      statements of cash flows as amounts due to affiliate under the cash flows from
      operating activities:


Year
                ended June 30,2006
            
            
            2005
            
            
            2004Operating
                cash transactionsPurchases
                from affiliate
            
            $
            0
            
            $
            0
            
            $
            0Sales
                to affiliate
            
            
            0
            
            
            0
            
            
            (1,086,606
            )Cash
                payments
            
            
            0
            
            
            0
            
            
            0Cash
                receipts
            
            
            0
            
            
            0
            
            
            516,613Amounts
                due to (from) affiliate
            
            $
            0
            
            $
            0
            
            $
            (569,993
            )




**NOTE
      N - VALUATION AND QUALIFYING ACCOUNTS**





The
      following tables summarize the activity of the allowance for doubtful accounts
      and the Company's reserve for excess and obsolete inventory during the fiscal
      years ended June 30, 2006, 2005 and 2004, respectively:





Allowance
                for
              doubtful
                accounts
            
            
            Balance
                at
              beginning
              of
                period
            
            
            Accounts
              Written
              Off
            
            
            
            Additions
              (Reductions)
              to
                account
            
            
            
            Balance
              at
                end
              of
                periodAllowance
                for doubtful accounts activity
              for
                the year ended June 30, 2004
            
            $
            5,919,896
            
            $
            (5,593,045
            )
            
            $
            (7,000
            )
            
            $
            319,851Allowance
                for doubtful accounts activity
              for
                the year ended June 30, 2005
            
            
            319,851
            
            
            0
            
            
            
            16,500
            
            
            
            336,351Allowance
                for it doubtful accounts activity
              for
                the year ended June 30, 2006
            
            
            336,351
            
            
            (254,363
            )
            
            
            (20,000
            )
            
            
            61,988







Reserve
                for
              Obsolete
                Inventory
            
            
            Balance
                at
              beginning
              of
                period
            
            
            Accounts
              Written
              Off
            
            
            
            Additions
              (Reductions)
              to
                account
            
            
            
            Balance
              at
                end
              of
                periodReserve
                for excess and obsolete inventory activity
              for
                the year ended June 30, 2004
            
            $
            364,625
            
            
            (39,180
            )
            
            
            (34,200
            )
            
            
            291,245Reserve
                for excess and obsolete inventory activity
              for
                the year ended June 30, 2005
            
            
            291,245
            
            
            (21,304
            )
            
            
            (44,000
            )
            
            
            225,941Reserve
                for excess and obsolete inventory activity
              for
                the year ended June 30, 2006
            
            
            225,941
            
            
            (12,885
            )
            
            
            (9,414
            )
            
            
            203,642







F-23


**NOTE
      O - SEGMENT REPORTING**





Prior
      to
      the stock redemption and exchange transaction with WRP Asia, the Company had
      two
      business segments: Manufacturing and Distribution. These segments were managed
      as separate strategic business units due to the distinct nature of their
      operations and customer bases. The Manufacturing segment, which represented
      the
      operations of PT Buana, manufactured latex gloves and sold them primarily to
      the
      Company and WRP Asia. All operations of the Manufacturing segment were located
      in Indonesia. The Distribution segment involved the procurement and sale of
      gloves purchased from the Manufacturing segment and other glove vendors and
      then
      sold to national and regional healthcare, food service, retail and other
      distributors. The Distribution segment's significant customers included those
      discussed above in Note J. The operations of the Distribution segment are
      located entirely within the United States. Effective upon completion of the
      stock redemption and exchange transaction, the Company has only one business
      segment: Distribution.





Accounting
      policies for measuring segment assets and earnings are substantially consistent
      with those described in Note A above. The Company evaluates segment performance
      based on income from operations before provision for (benefit from) income
      taxes
      and minority interest ("Pretax (loss) income"). Management believed transactions
      between operating segments were made at prevailing market rates.





The
      following tables provide financial data for the years ended June 30, 2004,
      for
      these segments. The segment information for June 30, 2006 amd 2005 is not
      applicable due to the Company's sale of PT Buana to WRP Asia Pacifica Sdn Bhd
      ("WRP Asia") (refer to Note B). In 2006 and 2005, the Company had only one
      segment, distribution.




June
                30, 2006
            
            Manufacturing
            
            Distribution
            
            
            Eliminations
            
            ConsolidatedRevenues
                from external customers
            
            $
            0
            
            $
            25,296,530
            
            
            $
            -
            
            $
            25,296,530Revenues
                from other operating segments
            
            
            0
            
            
            -
            
            
            
            0
            
            
            -Pretax
                loss
            
            
            0
            
            
            (3,403,875
            )
            
            
            -
            
            
            (3,403,875
            )Depreciation
                and amortization expense
            
            
            -
            
            
            240,232
            
            
            
            -
            
            
            240,232Interest
                income
            
            
            0
            
            
            0
            
            
            
            
            
            
            0Interest
                expense
            
            
            0
            
            
            522,185
            
            
            
            0
            
            
            522,185Total
                assets
            
            
            -
            
            
            8,992,200
            
            
            
            -
            
            
            8,992,200Capital
                expenditures
            
            
            0
            
            
            9,560
            
            
            
            -
            
            
            9,560Long-lived
                assets
            
            
            -
            
            
            126,527
            
            
            
            -
            
            
            126,527




June
                  30, 2005
              
              
              Manufacturing
              
              
              Distribution
              
              
              
              Eliminations
              
              
              ConsolidatedRevenues
                  from external customers
              
              $
              0
              
              $
              26,553,241
              
              
              $
              -
              
              $
              26,553,241Revenues
                  from other operating segments
              
              
              0
              
              
              -
              
              
              
              0
              
              
              -Pretax
                  loss
              
              
              0
              
              
              (1,534,709
              )
              
              
              -
              
              
              (1,534,709
              )Depreciation
                  and amortization expense
              
              
              -
              
              
              302,739
              
              
              
              -
              
              
              302,739Interest
                  income
              
              
              0
              
              
              0
              
              
              
              
              
              
              0Interest
                  expense
              
              
              0
              
              
              142,415
              
              
              
              0
              
              
              142,415Total
                  assets
              
              
              -
              
              
              7,683,517
              
              
              
              -
              
              
              7,683,517Capital
                  expenditures
              
              
              0
              
              
              33,536
              
              
              
              -
              
              
              33,536Long-lived
                  assets
              
              
              -
              
              
              0
              
              
              
              -
              
              
              0




June
                30, 2004
            
            Manufacturing
            
            
            Distribution
            
            
            Eliminations
            
            
            ConsolidatedRevenues
                from external customers
            
            $
            11,511,161
            
            
            $
            25,049,269
            
            
            $
            -
            
            
            $
            36,560,430Revenues
                from other operating segments
            
            
            3,867,695
            
            
            
            -
            
            
            
            (3,867,695
            )
            
            
            -Pretax
                loss (as restated)
            
            
            (802,662
            )
            
            
            (2,574,188
            )
            
            
            -
            
            
            
            (3,376,850
            )Depreciation
                and amortization expense
            
            
            -
            
            
            
            350,069
            
            
            
            -
            
            
            
            350,069Interest
                income
            
            
            28,852
            
            
            
            377,173
            
            
            
            (358,896
            )
            
            
            47,129Interest
                expense
            
            
            450,896
            
            
            
            70,871
            
            
            
            (358,896
            )
            
            
            162,871Total
                assets
            
            
            -
            
            
            
            9,983,118
            
            
            
            -
            
            
            
            9,983,118Capital
                expenditures
            
            
            334,154
            
            
            
            15,914
            
            
            
            -
            
            
            
            350,068Long-lived
                assets
            
            
            -
            
            
            
            676,033
            
            
            
            -
            
            
            
            676,033







F-24


**NOTE
      P - QUARTERLY FINANCIAL SUMMARY (UNAUDITED)**




9/30/05
            
            
            
            12/31/05
            
            
            
            3/31/06
            
            
            
            6/30/06(In
                thousands except for per share data)Net
                revenues
            
            $
            6,914
            
            
            $
            5,869
            
            
            $
            6,113
            
            
            $
            6,401Loss
                from operations
            
            
            (451
            )
            
            
            (830
            )
            
            
            (871
            )
            
            
            (722
            )Net
                income (loss)
            
            
            (499
            )
            
            
            (984
            )
            
            
            (810
            )
            
            
            (1,021
            )Net
                income (loss) per shareBasic.
            
            $
            (0.41
            )
            
            $
            (0.81
            )
            
            $
            (0.66
            )
            
            $
            (3.16
            )Diluted
            
            
            (0.41
            )
            
            
            (0.81
            )
            
            
            (0.66
            )
            
            
            (3.16
            )





9/30/04
            
            
            
            12/31/04
            
            
            
            3/31/05
            
            
            
            6/30/05(In
                thousands except for per share data)Net
                revenues
            
            $
            6,543
            
            
            $
            6,515
            
            
            $
            6,413
            
            
            $
            7,082Loss
                from operations
            
            
            (353
            )
            
            
            (367
            )
            
            
            (439
            )
            
            
            (224
            )Net
                income (loss)
            
            
            (374
            )
            
            
            (419
            )
            
            
            (480
            )
            
            
            121Net
                income (loss) per shareBasic.
            
            $
            (0.39)
            
            
            $
            (0.44
            )
            
            $
            (0.64
            )
            
            $
            0.34(as
                restated
            )Diluted
            
            
            (0.39
            )
            
            
            (0.44
            )
            
            
            (0.64
            )
            
            
            0.34(as
                restated
            )
            
            
            (as
                restated
            )
            
            
            (as
                restated
            )





9/30/03
            
            
            
            12/31/03
            
            
            
            3/31/04
            
            
            
            6/30/04(In
                thousands except for per share data)Net
                revenues
            
            $
            9,786
            
            
            $
            9,528
            
            
            $
            9,341
            
            
            $
            7,905Loss
                from operations
            
            
            (560
            )
            
            
            (929
            )
            
            
            (1,066
            )
            
            
            (552
            )Net
                loss
            
            
            (616
            )
            
            
            (854
            )
            
            
            (981
            )
            
            
            (573
            )Net
                loss per share
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (as
                restated
            )Basic.
            
            $
            (0.27
            )
            
            $
            (0.39
            )
            
            $
            (1.32
            )
            
            $
            (1.17
            )(as
                restated
            )Diluted
            
            
            (0.27
            )
            
            
            (0.39
            )
            
            
            (1.32
            )
            
            
            (1.17
            )(as
                restated
            )




F-25


**NOTE
      Q - WARRANTS**





On
      February 3, 2005, the Company issued to LaSalle St. Securities, LLC, the
      placement agent for the private placement of 220,000 shares of Series A
      Convertible Preferred Stock, warrants to purchase 11,000 shares of its Common
      Stock with an exercise price equal to $3.25 per share. The warrants may be
      converted on a one-for-one basis into our common stock. These warrants will
      be
      exercisable during the period beginning August 5, 2005 and ending February
      2,
      2008.





On
      September 29, 2005, the Company issued warrants to purchase up to 325,714 shares
      of its Common Stock in connection with the private placement of $1.2 million
      in
      subordinated promissory notes (refer to Note I). Each Subordinated Note has
      attached a Class A Warrant and a Class B Warrant granting the holder of the
      Subordinated Note the right to purchase an aggregate of 192,000 and 120,000
      shares, respectively, of the Company’s Common Stock at an exercise price of
      $3.50 per share and $4.50 per share, respectively. In addition, in connection
      with this transaction, the Company issued the placement company a warrant to
      purchase 13,714 shares of its Common Stock at an exercise price of $3.50 per
      share. This warrant has similar rights and terms to the Class A Warrants and
      will also be referred to as a “Class A warrant.” Each of the Class A Warrants
      and the Class B Warrants has an exercise term of five years. The Class A
      Warrants and Class B Warrants shall be automatically exercised in full in a
      cashless exchange if the closing price of our Common Stock as listed on the
      Nasdaq Stock Market exceeds $8.75 and $11.25, respectively, for fifteen (15)
      consecutive trading days. As of June 30, 2006, the Class A Warrants and Class
      B
      Warrants were assigned a fair value of $272,178, which was estimated using
      the
      Black-Scholes valuation model. The following assumptions were used to determine
      the fair value of these warrants using the Black-Scholes valuation model: a
      term
      of 4.5 years, a risk-free rate of 4.8, volatility of 100%, and an expected
      dividend yield of zero.





The
      holders of the Subordinated Notes, referenced in the preceding paragraph, and
      Class A Warrants and Class B Warrants have registration rights that require
      the
      Company to file a registration statement with the Securities and Exchange
      Commission within one year from the date of issuance of the warrants to register
      the resale of the Common Stock issuable upon exercise of the warrants if it
      files a registration statement or if it receives a collective demand for
      registration from the holders of the Class A Warrants and Class B Warrants
      holding in the aggregate at least 51% of the total shares of Common Stock
      issuable upon exercise of all the warrants. Under EITF No. 00-19, *Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock,* the
      ability to register the shares of Common Stock issuable upon exercise of the
      warrants is deemed to be outside of our control. Accordingly, the Company has
      recorded the fair value of the Class A Warrants and Class B Warrants as of
      June
      30, 2006 as $272,178 as an accrued warrant liability on our consolidated balance
      sheet, and this liability will continue to be marked to fair value at the end
      of
      each subsequent reporting period.





On
      June
      20, 2006, we issued to Flagstone Capital, LLC, the placement agent for the
      $3
      million equity financing of 30,000 shares of Series B Convertible Preferred
      Stock, warrants to purchase 93,750 shares of common stock with an exercise
      price
      equal to $1.60 per share. The warrants may be converted on a one-for-one basis
      into shares of our common stock. These warrants will be exercisable during
      the
      period beginning January 20, 2007 and ending June 20, 2011.





**NOTE
      R - NASDAQ LISTING**





The
      Nasdaq Stock Market notified the Company on February 16, 2006, that the Company
      did not comply with or satisfy Nasdaq Marketplace Rule 4310(c)2(B) for the
      $2.5
      million minimum stockholder equity requirement for continued listing on the
      Nasdaq Stock Market and that they were reviewing the Company’s eligibility for
      continued listing.





On
      April
      25, 2006 the Company received a determination from the Listing Qualifications
      Staff of the Nasdaq Stock Market indicating they had determined our Common
      Stock
      would be delisted for the Company’s failure to comply or satisfy the with $2.5
      million minimum stockholder equity requirement.





On
      March
      8, 2006, the Company requested a hearing before the NASDAQ Listing
      Qualifications Panel to review the staff determination and to seek continued
      listing on the Nasdaq Stock Market.





On
      June
      15, 2006 the Company appeared before the NASDAQ Listing Qualifications Panel
      and
      presented its plan to achieve the minimum stockholders equity requirement of
      $2.5 million.





F-26


**NOTE
      R - NASDAQ LISTNG - Continued**




On
        July
        6, 2006, the Company received an additional determination from the Listing
        Qualifications Staff of the Nasdaq Stock Market, Inc. indicating that the
        Company’s failure to solicit proxies and hold an annual meeting for fiscal 2005
        on or before June 30, 2006, as required by Nasdaq Marketplace Rules 4350(e)
        and
        4350(g), could serve as an additional basis for the delisting of the Company’s
        securities from the Nasdaq Stock Market.
 
 The
        Company was aware of the annual meeting requirement and addressed its plan
        for
        regaining compliance with this requirement at the Company’s hearing before the
        Nasdaq Listing Qualifications Panel, which was held on June 15, 2006. Consistent
        with that plan, the Company filed a proxy statement with the U.S. Securities
        and
        Exchange Commission on July 7, 2006 for an annual shareholders meeting to
        be
        held on August 14, 2006.
  On
        July
        6, 2006, the Company received an additional determination from the Listing
        Qualifications Staff of the Nasdaq Stock Market, Inc. indicating that the
        Company’s failure to solicit completion of a $3 million equity financing with
        M.A.G. Capital, LLC and its affiliates. The Company subsequently advised
        the
        Nasdaq Stock Market of the closing of the private placement.
  On
        June
        26, 2006, the Company disclosed in a press release and on a Form 8-K report
        that
        it believed it had regained compliance with the $2.5 million shareholders’
equity requirement upon completion of a $3 million equity financing with
        M.A.G.
        Capital, LLC and its affiliates. The Company subsequently advised the Nasdaq
        Stock Market of the closing of the private placement.
 
 On
        July
        13, 2006 the Company received notification from the Nasdaq Stock Market that
        its
        listing on the Nasdaq Stock Market would be continued, conditioned upon two
        exceptions:




1.
            On
                or before August 15, 2006, the Company shall hold its annual shareholders
                meeting for the fiscal year ended June 30, 2005


2.
            On
                or before September 30, 2006 the Company must report in its Form
                10-K, for
                the fiscal year ended June 30, 2006, actual shareholders’ equity of at
                least $2.5 million.





As
      of the
      date of this report, we have met both conditions. Our annual shareholders’
meeting for fiscal year ended June 30, 2005 was held on August 14, 2006 and
      we
      have filed the fiscal year ended June 30, 2006 with a greater than $2.5 million
      in actual shareholders’ equity.





**NOTE
      S - RESTATEMENT**





This
      Form
      10-K reflects a correction, which was filed on August 18, 2006 on our Form
      10-K/A for fiscal 2005, to our consolidated financial statements of the
      recording of the Stock Redemption Transaction (refer to Note B). Supported
      by
      guidance APB 29 *“Accounting
      for Nonmonetary Transactions”* and
      Emerging Issues Task Force No. 01-2 *“Interpretations
      of APB No. 29”* this
      transaction should be recorded as a loss in net income/loss and not as a capital
      transaction, as previously recorded. The loss on this transaction was $174,361,
      and was originally recorded as a reduction in additional paid-in-capital in
      error for the fiscal year ending June 30, 2004. The restated Form 10-K/A for
      fiscal 2005, filed on August 18, 2006, properly records the loss on this
      transaction through the Consolidated Statement of Operations as a loss on
      disposition of assets for the fiscal year ending June 30, 2004 and this
      restatement also properly reflects this loss in accumulated deficit for the
      fiscal years ending June 30, 2005 and 2004 in the Consolidated Statement of
      Shareholders Equity.







F-27


**NOTE
      S - RESTATEMENT - continued**




The
      impact of the restatement on our Consolidated Statement of Operations for the
      fiscal year ended June 30, 2004 is set forth below:





June 30,
            
            
            June 30,(as
                restated)
            
            
            
            (as
                previously filed)2004
            
            
            
            2004Net
                sales
            
            $
            36,560,430
            
            
            $
            36,560,430Cost
                of goods sold
            
            
            30,533,366
            
            
            
            30,533,366Gross
                profit
            
            
            6,027,064
            
            
            
            6,027,064Operating
                expensesSelling,
                general and administrative
            
            
            9,133,914
            
            
            
            9,133,914Loss
                from operations
            
            
            (3,106,850
            )
            
            
            (3,106,850
            )Other
                Income and (Expense)Interest
                expense
            
            
            (197,044
            )
            
            
            (197,044
            )Other
                income
            
            
            101,405
            
            
            
            101,405Loss
                on stock redemption transaction
            
            
            (174,361
            )
            
            
            -Loss
                from operations beforebenefit
                from income taxesand
                minority interest
            
            
            (3,376,850
            )
            
            
            (3,202,489
            )Benefit
                from income taxes
            
            
            (109,860
            )
            
            
            (109,860
            )Loss
                from operations before minorityinterest
            
            
            (3,266,990
            )
            
            
            (3,092,629
            )Minority
                interest in loss of subsidiary
            
            
            (242,686
            )
            
            
            (242,686
            )**NET
                LOSS**
            
            $
            (3,024,304
            )
            
            $
            (2,849,943
            )Basic
                net loss per common share
            
            $
            (3.15
            )
            
            $
            (2.97
            )Diluted
                net loss per common share
            
            $
            (3.15
            )
            
            $
            (2.97
            )







F-28


**NOTE
        S - RESTATEMENT - continued**




The
      impact of the restatement on our Consolidated Statement of Shareholders’ Equity
      for the fiscal years ended June 30, 2005 and 2004 is set forth
      below:





Retained
            
            
            
            
            
            
            
            RetainedAdditional
            
            
            
            Earnings
            
            
            
            Additional
            
            
            
            Earningspaid-in
            
            
            
            (accumulated
            
            
            
            paid-in
            
            
            
            (accumulatedcapital
            
            
            
            deficit)
            
            
            
            capital
            
            
            
            deficit)(as
                restated)
            
            (as
                previously filed)Balance,
                June 30, 2003
            
            $
            17,942,471
            
            
            $
            (5,118,274
            )
            
            $
            17,942,471
            
            
            $
            (5,118,276
            )Net
                loss
            
            $
            -
            
            
            $
            (3,024,304
            )
            
            $
            -
            
            
            $
            (2,849,941
            )Stock
                Redemption & Exchange
            
            $
            (11
            )
            
            
            
            
            
            
            (174,372
            )Warrants
                Exercised
            
            
            10,000
            
            
            
            
            
            
            
            10,000Reverse
                Stock Split (3-1)Common
                stock repurchasesBalance,
                June 30, 2004
            
            $
            17,952,460
            
            
            $
            (8,142,578
            )
            
            $
            17,778,099
            
            
            $
            (7,968,217
            )Net
                loss
            
            $
            -
            
            
            $
            (1,151,549
            )
            
            $
            -
            
            
            $
            (1,151,549
            )Issuance
                of Series A ConvertiblePreferred
                Stock
            
            
            569,800
            
            
            
            
            
            
            
            569,800Discount
                on Series A Convertible Preferred Stock
            
            
            143,000
            
            
            
            (143,000
            )
            
            
            143,000
            
            
            
            (143,000
            )Series
                A Preferred Share Conversion to Common Stock
            
            
            (3,430
            )
            
            
            
            
            
            
            (3,430
            )Issuance
                of Common Shares
            
            
            37,987
            
            
            
            
            
            
            
            37,987Balance,
                June 30, 2005
            
            **$**
            **18,699,817**
            
            
            **$**
            **(9,437,127**
            **)**
            
            **$**
            **18,525,456**
            
            
            **$**
            **(9,262,766**
            **)**





F-29




**NOTE
      S - RESTATEMENT - Continued**





The
      impact of the restatement on our Condensed Consolidated Balance Sheets for
      the
      quarterly periods ending September 30, 2004, December 31, 2004 and March 31,
      2005 is set forth below:





Retained
            
            
            
            
            
            
            
            RetainedAdditional
            
            
            Earnings
            
            
            
            
            Additional
            
            
            earningspaid-in
            
            
            (accumulated
            
            
            
            
            paid-in
            
            
            (accumulatedcapital
            
            
            deficit)
            
            
            
            
            capital
            
            
            deficit)(as
                restated)
            (as
                previously filed)Balance,
                June 30, 2004
            
            **$**
            **17,952,460**
            
            **$**
            **(8,142,578**
            **)**
            
            
            **$**
            **17,778,099**
            
            **$**
            **(7,968,217**
            **)**Balance,
                September 30, 2004
            
            **$**
            **17,956,980**
            
            **$**
            **(8,516,227**
            **)**
            
            
            **$**
            **17,782,619**
            
            **$**
            **(8,341,867**
            **)**Balance,
                December 31, 2004
            
            **$**
            **17,990,925**
            
            **$**
            **(8,934,887**
            **)**
            
            
            **$**
            **17,816,564**
            
            **$**
            **(8,760,527**
            **)**Balance,
                March 31, 2005
            
            **$**
            **18,703,725**
            
            **$**
            **(9,558,182**
            **)**
            
            
            **$**
            **18,529,363**
            
            **$**
            **(9,383,821**
            **)**





This
      Form
      10-K also reflects a correction, which was filed on August 18, 2006 on our
      Form
      10-K/A for fiscal 2005, of our calculation of the basic and diluted net loss
      per
      share for the quarter ended March 31, 2005. The reported basic and diluted
      net
      loss per share computation for the quarter ended March 31, 2005 did not
      appropriately factor the beneficial conversion feature recognized upon the
      issuance of our Convertible Series A Preferred Stock. In addition, the quarter
      ended March 31, 2005 improperly included potential common shares in the
      denominator of our diluted net loss per share computation, which caused an
      incorrect anti-diluted net loss per share amount. The table below for the
      quarter ending March 31, 2005 reflects the proper computation.





March
                31, 2005
            
            
            
            March
                31, 2005(as
                restated)
            
            
            
            (as
                previously reported)Net
                Loss
            
            
            ($480,295
            )
            
            
            ($480,295
            )Discount
                on preferred stock/beneficial conversion
            
            
            ($143,000
            )
            
            
            --Net
                Loss available to common shareholder
            
            
            ($623,295
            )
            
            
            ($480,295
            )Basic
                net loss per common share
            
            
            ($0.64
            )
            
            
            ($0.50
            )Diluted
                net loss per common share
            
            
            ($0.64
            )
            
            
            ($0.44
            )







F-30


**NOTE
        S - RESTATEMENT - continued**




This
      Form
      10-K also reflects a correction, which was filed on August 18, 2006 on our
      Form
      10-K/A for fiscal 2005, within Note S - Restatements disclosure and language
      within Note P - Quarterly Financial Summary (Unaudited). The previously filed
      10-K for fiscal 2005 had contained restated basic and diluted loss per share
      amounts which were not labeled correctly “as restated” and the reasons for
      restating these amounts were not previously disclosed. The quarters ended March
      31, 2005, December 31, 2004 and September 30, 2004 improperly included potential
      common shares in the denominator of our diluted net loss per share computation,
      which caused an incorrect anti-diluted net loss per share amount. Note P of
      this
      Form 10-K includes properly labeled “as restated” language regarding March 31,
      2005 basic and diluted loss per share, December 31, 2004 diluted loss per share,
      and September 30, 2004 diluted loss per share.




**NOTE
      T - SUBSEQUENT EVENT**





On
      September 9, 2006, the Company extended its loan and security agreement with
      Greenfield Commercial Credit, LLC for an additional one-year term through
      September 9, 2007 with the same terms and conditions.










F-31