**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-QSB**





**|X|
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**





For
      the
      quarterly period ended March 31, 2007





OR





**|_|
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**





For
      the
      transition period from ___________ to _____________





*Commission
      file number 005-79737*





AVP,
      INC.





(Exact
      name of registrant as specified in its charter)




Delaware
            
            98-0142664(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)







6100
      Center Drive, Suite 900, Los Angeles, CA 90045


(Address
      of principal executive offices - Zip code)





(310)
      426 - 8000


(Registrant's
      telephone number, including area code)








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





Yes
      |_|
      No |X|





As
      of May
      10, 200 7,
      the
      Registrant had 19,824,539 shares
      of common stock outstanding.





Traditional
      Small Business Disclosure Format (check one): Yes |X| No |_|














**AVP,
      INC.**


PagePART
                  I.FINANCIAL
                  INFORMATION
              3ITEM
                  1.FINANCIAL
                  STATEMENTS
              3Consolidated
                  Balance Sheets as of March 31, 2007(Unaudited)
                  and December 31, 2006
              4Consolidated
                  Statements of Operations forthe
                  three months ended March 31, 2007 and 2006(Unaudited)
              5Consolidated
                  Statement of Changes in Stockholders' Equityfor
                  the three months ended March 31, 2007(Unaudited)
              6Consolidated
                  Statements of Cash Flows forthe
                  three months ended March 31, 2007 and 2006(Unaudited)
              7Notes
                  to Consolidated Financial Statements (Unaudited)
              8ITEM
                  2.MANAGEMENT'S
                  DISCUSSION AND ANALYSIS ORPLAN
                  OF OPERATION
              18ITEM
                  3.CONTROLS
                  AND PROCEDURES
              25PART
                  II.OTHER
                  INFORMATIONITEM
                  6.EXHIBITS
                  AND REPORTS ON FORM 8-K
              26


2


**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





**AVP,
      INC.**


**Index
      to Financial Statements**


**Period
      Ended March 31, 2007**








PAGEFinancial
                StatementsConsolidated
                Balance Sheets as of March 31, 2007(Unaudited)
                and December 31, 2006
            4Consolidated
                Statements of Operations forthe
                three months ended March 31, 2007 and 2006(Unaudited)
            5Consolidated
                Statement of Changes in Stockholders' Equityfor
                the three months ended March 31, 2007(Unaudited)
            6Consolidated
                Statements of Cash Flows forthe
                three months ended March 31, 2007 and 2006(Unaudited)
            7Notes
                to Consolidated Financial Statements (Unaudited)
            8


3


**AVP,
      INC.**





**CONSOLIDATED
      BALANCE SHEETS**








**March
                31,**
            
            **December
                31,****2007**
            
            **2006****ASSETS**
            
            **(Unaudited)****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            7,965,514
            
            $
            5,052,636Accounts
                receivable, net of
              allowance
                for doubtful accounts of $25,193 and $49,232
            
            
            626,172
            
            
            2,653,473Prepaid
                expenses
            
            
            889,091
            
            
            242,007Other
                assets - current portion
            
            
            162,820
            
            
            301,477TOTAL
                CURRENT ASSETS
            
            
            9,643,597
            
            
            8,249,593**PROPERTY
                AND EQUIPMENT, net**
            
            
            453,893
            
            
            340,054**OTHER
                ASSETS**
            
            
            87,191
            
            
            105,373TOTAL
                ASSETS
            
            $
            10,184,681
            
            $
            8,695,020**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****CURRENT
                LIABILITIES**Accounts
                payable
            
            $
            451,813
            
            $
            529,331Accrued
                expenses
            
            
            1,288,160
            
            
            1,049,439Deferred
                revenue
            
            
            4,475,915
            
            
            1,056,960TOTAL
                CURRENT LIABILITIES
            
            
            6,215,888
            
            
            2,635,730**NON-CURRENT
                LIABILITIES**
            
            
            162,499
            
            
            190,766TOTAL
                LIABILITIES
            
            
            6,378,387
            
            
            2,826,496**COMMITMENTS
                AND CONTINGENCIES****STOCKHOLDERS’
                EQUITY**Preferred
                stock, 2,000,000 shares authorized:Series
                A convertible preferred stock, $.001 par value, 1,000,000 shares
                authorized, no shares issued and outstanding
            
            
            -
            
            
            -Series
                B convertible preferred stock, $.001 par value, 250,000 shares authorized,
                69,256 and 69,548 shares issued and outstanding
            
            
            70
            
            
            70Common
                stock, $.001 par value, 80,000,000 shares authorized, 19,824,539
                and
                19,751,838 shares issued and outstanding
            
            
            19,825
            
            
            19,752Additional
                paid-in capital
            
            
            39,155,971
            
            
            39,077,065Accumulated
                deficit
            
            
            (35,369,572
            )
            
            (33,228,363
            )TOTAL
                STOCKHOLDERS’ EQUITY
            
            
            3,806,294
            
            
            5,868,524TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            10,184,681
            
            $
            8,695,020




See
      notes
      to financial statements.




4


**AVP,
      INC.**




**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





**(Unaudited)**




**Three
                Months Ended March
                31,****2007**
            
            **2006**REVENUESponsorships/Advertising
            
            $
            -
            
            $
            -Other
            
            
            169,000
            
            
            122,816TOTAL
                REVENUE
            
            
            169,000
            
            
            122,816EVENT
                COST
            
            
            52,299
            
            
            -GROSS
                PROFIT
            
            
            116,701
            
            
            122,816OPERATING
                EXPENSESSales
                and Marketing(1)
            
            
            875,713
            
            
            502,585




Administrative
            
            
            1,446,303
            
            
            1,120,903




TOTAL
                OPERATING EXPENSES
            
            
            2,322,016
            
            
            1,623,488OPERATING
                LOSS
            
            
            (2,205,315
            )
            
            (1,500,672
            )OTHER
                INCOME (EXPENSE)Interest
                expense
            
            
            -
            
            
            (8,213
            )Interest
                income
            
            
            56,457
            
            
            21,139Gain
                on sale of asset
            
            
            8,449
            
            
            -TOTAL
                OTHER INCOME (EXPENSE)
            
            
            64,906
            
            
            12,926LOSS
                BEFORE INCOME TAXES
            
            
            (2,140,409
            )
            
            (1,487,746
            )INCOME
                TAXES
            
            
            (800
            )
            
            (800
            )NET
                LOSS
            
            $
            (2,141,209
            )
            $
            (1,488,546
            )Loss
                per common share:Basic
            
            $
            (0.11
            )
            $
            (0.12
            )Diluted
            
            $
            (0.11
            )
            $
            (0.12
            )Shares
                used in computing loss per share:Basic
            
            
            19,783,309
            
            
            12,468,848Diluted
            
            
            19,783,309
            
            
            12,468,848




(1)
      Sales
      and marketing expenses includes stock based expenses of $72,907 and $0 for
      the
      three months ended March 31, 2007 and 2006, respectively.





See
      notes
      to financial statements.


5




**AVP,
      INC.**




**CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**





**For
      The Three Months Ended March 31, 2007**





**(Unaudited)**





Series
                A
              Preferred
                Stock
            
            Series
                B
              Preferred
                Stock
            
            Common
                StockShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Additional
                Paid-in Capital
            
            Accumulated
                Deficit
            
            Total
                Stockholders’ EquityBalance,
                December 31, 2006
            
            
            -
            
            $
            -
            
            
            69,548
            
            $
            70
            
            
            19,751,838
            
            $
            19,752
            
            $
            39,077,065
            
            $
            (33,228,363
            )
            $
            5,868,524Conversion
                of Series B Preferred Stock to common stock
            
            
            -
            
            
            -
            
            
            (292
            )
            
            -
            
            
            8,138
            
            
            8
            
            
            (8
            )
            
            -
            
            
            -Cashless
                exercise of options
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            64,563
            
            
            65
            
            
            (65
            )
            
            -
            
            
            -Issuance
                of warrants to broker-dealer for services
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            57,619
            
            
            -
            
            
            57,619Expenses
                from issuance of employee options
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            21,360
            
            
            -
            
            
            21,360Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,141,209
            )
            
            (2,141,209
            )Balance,
                March 31, 2007
            
            
            -
            
            $
            -
            
            
            69,256
            
            $
            70
            
            
            19,824,539
            
            $
            19,825
            
            $
            39,155,971
            
            $
            (35,369,572
            )
            $
            3,806,294











See
      notes
      to financial statements.





6


**AVP,
      INC.**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**(Unaudited)**







**Three
                Months Ended March
                31,****2007**
            
            **2006**CASH
                FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIESNet
                loss
            
            $
            (2,141,209
            )
            $
            (1,488,546
            )Adjustments
                to reconcile net loss to net cash flows from operating
                activities:Depreciation
                of property and equipment
            
            
            49,571
            
            
            36,545Interest
                income on investment in sales-type lease
            
            
            -
            
            
            (12,843
            )Amortization
                of deferred commissions
            
            
            72,907
            
            
            -Gain
                on property and equipment
            
            
            -
            
            
            (9,864
            )Gain
                on sale of asset
            
            
            (8,449
            )
            
            -Other
                amortization
            
            
            -
            
            
            2,011Compensation
                from issuance of stock options
            
            
            21,360
            
            
            10,726Decrease
                (increase) in operating assets:Accounts
                receivable
            
            
            2,027,301
            
            
            202,903Prepaid
                expenses
            
            
            (647,084
            )
            
            (492,067
            )Other
                assets
            
            
            -
            
            
            (3
            )Increase
                (decrease) in operating liabilities:Accounts
                payable
            
            
            (77,518
            )
            
            (414,534
            )Accrued
                expenses
            
            
            229,204
            
            
            (446,058
            )Deferred
                revenue
            
            
            3,400,205
            
            
            2,597,165NET
                CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
            
            
            2,926,288
            
            
            (14,565
            )CASH
                FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIESInvestment
                in property and equipment
            
            
            (163,410
            )
            
            (64,216
            )Proceeds
                from investment in sales-type lease
            
            
            150,000
            
            
            92,400Proceeds
                from disposal of property and equipment
            
            
            -
            
            
            19,665NET
                CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
            
            
            (13,410
            )
            
            47,849





CASH
                FLOWS USED IN FINANCING ACTIVITIESDebt
                repayments
            
            
            -
            
            
            (416,737
            )NET
                CASH FLOWS USED IN FINANCING ACTIVITIES
            
            
            -
            
            
            (416,737
            )NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            2,912,878
            
            
            (383,453
            )CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            5,052,636
            
            
            1,143,345CASH
                AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            7,965,514
            
            $
            759,892**SUPPLEMENTAL
                DISCLOSURE OF****CASH
                FLOW INFORMATION**Cash
                paid during the period for:Interest
            
            $
            -
            
            $
            110,447Income
                taxes
            
            $
            800
            
            $
            800**SUPPLEMENTAL
                DISCLOSURE OF NON-CASH****INVESTING
                AND FINANCING INFORMATION**Conversion
                of Series B preferred stock into common stock
            
            $
            8
            
            $
            -Payment
                of accrued registration penalty in common stock
            
            $
            -
            
            $
            935Issuance
                of common stock to non-employees for services
            
            $
            -
            
            $
            1,000,000Issuance
                of warrant to sales agent for services
            
            $
            57,619
            
            $
            -Cashless
                exercise of options
            
            $
            65
            
            $
            -




See
      notes
      to financial statements.




7




**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**1.
      BASIS OF PRESENTATION**




The
      accompanying unaudited interim consolidated financial statements of AVP, Inc.
      (“AVP”) have been prepared in accordance with accounting principles generally
      accepted in the United States of America and the rules of the Securities and
      Exchange Commission ("SEC"), and should be read in conjunction with the audited
      financial statements and notes thereto contained in AVP’s latest Annual Report
      on Form 10-KSB filed with the SEC. In the opinion of management, all
      adjustments, consisting only of normal recurring adjustments, necessary for
      a
      fair presentation of AVP’s financial position and the results of operations for
      the interim periods presented have been reflected herein. The results of
      operations for interim periods are not necessarily indicative of the results
      to
      be expected for the full year. Notes to the consolidated financial statements
      that would substantially duplicate the disclosures contained in the consolidated
      audited financial statements for the most recent fiscal year 2006, as reported
      in the Form 10-KSB as previously filed with the SEC, have been
      omitted.




**2.
      RESCISSION OFFER**




Options
      granted in 2004 to AVP players under AVP's 2002 Stock Option Plan were not
      exempt from registration or qualification under federal and state securities
      laws, and AVP did not obtain the required registrations or qualifications.
      As a
      result, AVP commenced a rescission offer to the holders of these options on
      August 9, 2006. On September 8, 2006, the rescission offer expired. Several
      players accepted the offer totaling approximately $20,000, including interest
      expense. AVP may continue to be liable under federal and state securities laws
      for amounts with respect to which the rescission offer is not
      accepted.




**3.
      NET LOSS PER BASIC AND DILUTED SHARE OF COMMON STOCK**




Basic
      earnings (loss) per share is calculated using the average number of common
      shares outstanding. Diluted earnings (loss) per share is computed on the basis
      of the average number of common shares outstanding during the period increased
      by the dilutive effect of outstanding stock options using the “treasury stock”
method.




The
      following options, warrants and other incremental shares to purchase shares
      of
      common stock were excluded from the computation of diluted earnings (loss)
      per
      share available to common shareholders for the periods presented as their effect
      would be antidilutive.








Three
                Months Ending March 31,2007
            
            2006Options
                and Warrants
            
            
            18,227,220
            
            
            15,482,688Series
                B Preferred Stock
            
            
            1,930,165
            
            
            1,815,404Total
            
            
            20,157,385
            
            
            17,298,092








8





**AVP,
      INC.**





**NOTES
      TO CONSOLIDATED**  **FINANCIAL
      STATEMENTS**


**(Unaudited)**




**4.
      STOCK BASED COMPENSATION**




The
      Company accounts for stock-based compensation in accordance with the provisions
      of SFAS No. 123 (Revised 2004), Share-Based Payment (SFAS No. 123R). Under
      the
      fair value recognition provisions of SFAS No. 123R, stock-based compensation
      cost is estimated at the grant date based on the fair value of the award. The
      fair value of stock options granted is estimated using the Black-Scholes-Merton
      option pricing model and a single option award approach. The fair value is
      amortized on a straight-line basis over the requisite service period of the
      awards, which is generally the vesting period.




Determining
      the appropriate fair value of stock-based awards at the grant date requires
      judgment, including estimating stock price volatility, forfeiture rates and
      expected term. Forfeitures are estimated at the date of grant based on
      historical rates and reduce the compensation expense recognized. The expected
      term of options granted from historical data on employee exercises is not yet
      determinable. The risk-free interest rate is based on the U.S. Treasury yield
      curve in effect at the date of grant. Expected volatility is based on the
      historical volatility of the Company’s stock. As of March 31, 2007, the Company
      had approximately $100,879 of unrecognized compensation expense expected to
      be
      recognized over a weighted average period of approximately 1.41 years. Due
      to
      the inherent uncertainty in valuing awards for publicly-traded stock as of
      the
      grant date, given that such awards will be exercised, purchased or sold at
      indeterminate future dates, the actual value realized by the recipients, if
      any,
      may vary significantly from the value of the awards estimated at the grant
      date.







Three
                Months Ended
              March
                31,2007Risk-free
                interest rate
            4.54%Expected
                life
            3
                yearsExpected
                volatility
            84%Expected
                forfeiture rate
            0%Expected
                dividend yield
            0%








9


**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**5.
      STOCK OPTIONS**




**Stock
      Option Plans**




On
      August
      23, 2005, the stockholders approved the adoption of the 2005 Stock Incentive
      Plan. Under the 2005 Plan, AVP may grant awards of stock options (including
      stock purchase warrants) and restricted stock grants to its officers, directors,
      employees, consultants, players, and independent contractors. AVP may issue
      an
      aggregate of 30,000,000 shares of its common stock under the 2005 Plan,
      including approximately 14,000,000 shares consisting of management warrants,
      as
      well as options previously granted by the Association which were subsequently
      converted to AVP stock options pursuant to the Merger Agreement. AVP may grant
      both incentive stock options intended to qualify under Section 422 of the
      Internal Revenue Code, and options, warrants, and other rights to buy AVP’s
      common stock that are not qualified as incentive stock options. No stock options
      may be granted at an exercise price less than the fair market value of our
      common stock on the date of grant. The exercise price of each optioned share
      is
      determined by the Compensation Committee; however the exercise price for
      incentive stock options and nonqualified stock options will not be less than
      100% of the fair market value of the optioned shares on the date of grant.
      The
      exercise price of incentive stock options granted to holders of more than 10%
      of
      AVP’s Common Stock must be at least 110% of the fair market value of the Common
      Stock on the date of grant.




The
      expiration date of each option shall be determined by the Committee at the
      date
      of grant; however, in no circumstances shall the option be exercisable after
      10
      years from the date of grant. Stock options granted under the 2005 Plan will
      expire no more than ten years from the date on which the option is granted,
      unless the Board of Directors determines an alternative termination date. If
      incentive stock options are granted to holders of more than 10% of AVP’s Common
      Stock, such options will expire no more than five (5) years from the date the
      option is granted. Except as otherwise determined by the Board of Directors
      or
      the Compensation Committee, stock options granted under the 2005 Plan will
      vest
      and become exercisable on the anniversaries of the date of grant of such option
      at a rate of 25% per year over four years from the date of grant.




The
      following table contains information on the stock options under the Plan for
      the
      period ended March 31, 2007 and the year ended December 31, 2006. The
      outstanding options expire from April 2008 to November 2016.




Number
                of Shares
            
            Weighted
                Average Exercise PriceOptions
                outstanding at January 1, 2006
            
            
            12,015,262
            
            $
            0.87Granted
            
            
            150,000
            
            
            0.70Converted
                Othnet options
            
            
            --
            
            
            --Exercised
            
            
            --
            
            
            --Cancelled
            
            
            (87,178
            )
            
            1.67Options
                outstanding at December 31, 2006
            
            
            12,078,084
            
            
            0.86Granted
            
            
            --
            
            
            --Exercised
            
            
            (50,977
            )
            
            0.01Cancelled
            
            
            --
            
            
            --Options
                outstanding at March 31, 2007
            
            
            12,027,107
            
            $
            0.86





10




**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**5.
      STOCK OPTIONS (CONTINUED)**




**Stock
      Option Plans (Continued)**




The
      following table summarizes information about AVP’s stock-based compensation plan
      at March 31, 2007:




Options
      outstanding and exercisable by price range as of March 31, 2007:





Options
                Outstanding
            
            Options
                ExercisableRange
                of Exercise  Prices
            
            Number
              Outstanding
            
            Weighted
                Average
              Remaining
              Contractual
                Life in Years
            
            Weighted
                Average
              Exercise
                Price
            
            Number
              Exercisable
            
            Weighted
                Average
              Exercise
                Price$
                .01 -.30
            
            
            
            6,067,966
            
            
            2.8
            
            $
            0.03
            
            
            6,067,966
            
            $
            0.03.31
                -.90
            
            
            
            1,805,480
            
            
            6.6
            
            
            0.77
            
            
            1,692,877
            
            
            0.77.91
                -1.60
            
            
            
            698,438
            
            
            2.1
            
            
            1.60
            
            
            665,614
            
            
            1.601.61
                -2.80
            
            
            
            3,455,223
            
            
            2.3
            
            
            2.21
            
            
            3,434,974
            
            
            2.21$
                .01 -2.80
            
            
            
            12,027,107
            
            
            3.2
            
            $
            0.86
            
            
            11,861,431
            
            $
            0.86




In
      connection with stock options granted to employees to purchase common stock,
      AVP
      recorded $21,360 of stock-based compensation expense for the period ended March
      31, 2007 and $10,726 for the period ended March 31, 2006.







11


**AVP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**5.
      STOCK OPTIONS (CONTINUED)**




**Other
      Stock Options**





The
      following table contains information on all of AVP’s non-plan stock options for
      the period ended March 31, 2007 and the year ended December 31, 2006.





Number
                of Shares
            
            Weighted
              Average
              Exercise
              PriceOptions
                outstanding at January 1, 2006
            
            
            3,467,425
            
            $
            1.89Granted
            
            
            4,173,506
            
            
            1.16Converted
                Othnet options
            
            
            --
            
            
            --Exercised
            
            
            (20,195
            )
            
            0.30Cancelled
            
            
            (1,403,794
            )
            
            1.76Options
                outstanding at December 31, 2006
            
            
            6,216,942
            
            
            1.44Granted
            
            
            --
            
            
            --Exercised
            
            
            (16,829
            )
            
            0.30Cancelled
            
            
            --
            
            
            --Options
                outstanding at March 31, 2007
            
            
            6,200,113
            
            $
            1.44







The
      following table summarizes information about AVP’s non-qualified stock options
      at March 31, 2007:





Options
      outstanding and exercisable by price range as of March 31, 2007:







Options
                Outstanding
            
            Options
                ExercisableRange
                of Exercise Prices
            
            Number
                Outstanding
            
            Weighted
                Average Remaining Contractual Life in Years
            
            Weighted
                Average Exercise Price
            
            Number
                Exercisable
            
            Weighted
                Average Exercise Price$
                .30 - 1.50
            
            
            
            3,262,193
            
            
            4.0
            
            $
            0.91
            
            
            3,262,193
            
            $
            0.911.60
                - 3.40
            
            
            
            2,937,920
            
            
            2.3
            
            
            2.03
            
            
            2,937,920
            
            
            2.03$
                .30 - 3.40
            
            
            
            6,200,113
            
            
            3.2
            
            $
            1.44
            
            
            6,200,113
            
            $
            1.44





In
      connection with warrants granted to non-employees to purchase common stock,
      AVP
      recorded warrant expense of $54,725 in sales and marketing expenses for the
      period ended March 31, 2007 and $-0- in sales and marketing expenses for the
      period ended March 31, 2006. Such amounts represent, for each non-employee
      stock
      option, the valuation under SFAS 123R on the date of the grant.





12


**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**6.
      COMMITMENTS AND CONTINGENCIES**




**Operating
      Lease**





The
      Company leases its corporate office facilities under a non-cancellable operating
      lease expiring in March 2010. The lease agreement contains a renewal option
      for
      an additional five-year term. In addition, the lease agreement provides for
      rental escalations at defined intervals during the lease term. Rent expense
      is
      recognized on the straight-line method over the term of the lease. The
      difference between rent expense recognized and rent payable under the rental
      escalation clauses is reflected in accrued expenses.




The
      Company also subleases approximately 4,500 square feet of warehouse space
      pursuant to a sublease that expires on February 15, 2008. The space is used
      for
      storing tournament equipment and the company’s trucks.




The
      future minimum rental payments under the non-cancellable operating leases
      commitment are as follows:




Years
      Ending December 31,


2007
            
            $
            275,0802008
            
            
            351,5002009
            
            
            357,0002010
            
            
            90,000Total
            
            $
            1,073,580




Rent
      expense for the corporate office facility charged to operations was $79,853
      and
      $78,157 for the three months ended March 31, 2007 and 2006, respectively.




**Officer
      Indemnification**




Under
      the
      organizational documents, AVP’s directors are indemnified against certain
      liabilities arising out of the performance of their duties to AVP. AVP also
      has
      an insurance policy for its directors and officers to insure them against
      liabilities arising from the performance of their duties required by their
      positions with AVP. AVP’s maximum exposure under these arrangements is unknown
      as this would involve future claims that may be made against AVP that have
      not
      yet occurred. However, based on experience, AVP expects the risk of loss to
      be
      remote.




13


**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**7.
      CAPITAL TRANSACTIONS**




In
      February 2006, AVP entered a production and distribution agreement with Fox
      Broadcasting Company (“FBC”) in connection with two events. Under the agreement,
      FBC had the exclusive right to telecast the finals of two 2006 AVP tournaments
      throughout the U.S., its territories, and possessions. In consideration for
      its
      services valued at $1,000,000, FBC received 666,667 shares of common stock,
      par
      value $0.001 per share, of AVP.




For
      the
      three months ended March 31, 2007, 292 shares of Series "B" preferred stock
      were
      converted into 8,138 shares of AVP’s common stock pursuant to notice of
      conversion from an individual investor.




During
      the three months ended March 31, 2007, AVP issued 13,945 shares of common stock
      pursuant to the cashless exercise of options for 16,829 shares of common stock.
      The exercise price of the options was $0.30 per share.




During
      the three months ended March 31, 2007, AVP issued 50,618 shares of common stock
      pursuant to the cashless exercise of options for 50,977 shares of common stock.
      The exercise price of the options was $0.01 per share.




14


**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)
      .**




**8.
      RECENTLY ISSUED ACCOUNTING STANDARDS**




In
      February 2006, the FASB issued Statement of Financial Accounting Standard No.
      155, “Accounting for Certain Hybrid Instruments,” which is an amendment of SFAS
      No. 133 and 140. SFAS No. 155 allows financial instruments that have embedded
      derivatives to be accounted for as a whole (eliminating the need to bifurcate
      the derivative from its host), if the holder elects to account for the whole
      instrument on a fair value basis. This statement is effective for all financial
      instruments acquired or issued after the beginning of an entity’s first fiscal
      year that begins after September 15, 2006. The adoption of this Statement is
      not
      expected to have any impact on AVP’s financial position or results of
      operations.




In
      March
      2006, the FASB issued SFAS No.156, “Accounting for Servicing of Financial Assets
      - an Amendment of SFAS No.140”. SFAS 156 amends SFAS 140 to clarify the
      accounting for servicing assets and servicing liabilities. Among other
      provisions, the new accounting standard requires all separately recognized
      servicing assets and servicing liabilities to be initially measured at fair
      value, if practicable. SFAS 156 is effective for the fiscal periods beginning
      after September 15, 2006. The adoption of SFAS 156 had no material
      impact on the Company’s financial position, results of operations or cash
      flows.




In
      June
      2006, the EITF reached a consensus on Issue No. 06-03, “How Taxes Collected from
      Customers and Remitted to Governmental Authorities Should Be Presented in the
      Income Statement (That Is, Gross versus Net Presentation)” ( EITF 06-03). EITF
      06-03 applies to taxes assessed by a governmental authority that are directly
      imposed on a revenue-producing transaction between a seller and a customer,
      and
      states that the presentation of such taxes on either a gross basis (included
      in
      revenues and costs) or on a net basis (excluded from revenues) is an accounting
      policy decision that should be disclosed. Additionally, for such taxes reported
      on a gross basis, the amount of such taxes should be disclosed in interim and
      annual financial statements if the amounts are significant. The provisions
      of
      EITF 06-03 are effective for interim and annual reporting periods beginning
      after December 15, 2006. On
      January 1, 2007, AVP adopted EITF 06-03. AVP collects certain excise taxes
      levied by state or local governments. AVP’s excise taxes are accounted for on a
      gross basis and recorded as revenue. For the three months ended March 31, 2007,
      there were no taxes levied by state or local governments.




In
      July
      2006, FASB issued FASB Interpretation No. 48 ( FIN 48), “Accounting for
      Uncertainty in Income Taxes, an interpretation of SFAS No. 109, Accounting
      for
      Income Taxes,” which is effective for fiscal years beginning after December 15,
      2006, and clarifies the accounting for uncertainty in tax positions. FIN48
      requires that we recognize the impact of a tax position in our financial
      statements if that position is more likely than not of being sustained on audit,
      based on the technical merits of the position. The cumulative effect of the
      change in accounting principle is recorded as an adjustment to opening retained
      earnings. Effective January 1, 2007, the Company adopted FIN 48 with no
      significant impact on the Company’s financial position or results of
      operations.




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measures” (SFAS 157).
      SFAS 157 defines fair value, establishes a framework for measuring fair value
      and enhances disclosures about fair value measures required under other
      accounting pronouncements, but does not change existing guidance as to whether
      or not an instrument is carried at fair value. SFAS No. 157 is effective for
      fiscal years beginning after November 15, 2007. The adoption of this accounting
      pronouncement is not expected to have a material effect on the Company’s
      consolidated financial position, results of operations or cash
      flows.





15


**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)
      .**




**8.
      RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)**




On
      September 29, 2006, the FASB issued SFAS No. 158, Employers' Accounting for
      Defined Benefit Pension and Other Postretirement Plans - An Amendment of SFAS
      No. 87, 88, 106, and 132R. This new standard requires an employer to: (a)
      recognize in its statement of financial position an asset for a plan’s
      overfunded status or a liability for a plan’s underfunded status; (b) measure a
      plan’s assets and its obligations that determine its funded status as of the end
      of the employer’s fiscal year (with limited exceptions); and (c) recognize
      changes in the funded status of a defined benefit postretirement plan in the
      year in which the changes occur. Those changes will be reported in comprehensive
      income of a business entity and in changes in net assets of a not-for-profit
      organization. Statement 158 applies to plan sponsors that are public and private
      companies and nongovernmental not-for-profit organizations. The requirement
      to
      recognize the funded status of a benefit plan and the disclosure requirements
      are effective as of the end of the fiscal year ending after December 15, 2006,
      for entities with publicly traded equity securities, and at the end of the
      fiscal year ending after June 15, 2007, for all other entities. The requirement
      to measure plan assets and benefit obligations as of the date of the employer’s
      fiscal year-end statement of financial position is effective for fiscal years
      ending after December 15, 2008.




In
      September 2006, the Securities and Exchange Commission (“SEC”) released Staff
      Accounting Bulletin No. 108, “Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in Current Year Financial
      Statements” (“SAB 108”). SAB 108 provides interpretive guidance on the SEC’s
      views regarding the process of quantifying materiality of financial statement
      misstatements. SAB 108 is effective for the Company’s fiscal year ending October
      31, 2007. The adoption of this accounting pronouncement did not have a
      material effect on the Company’s consolidated financial position, results of
      operations or cash flows.




In
      February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
      Financial Assets and Financial Liabilities," ("SFAS 159"). SFAS 159 permits
      entities to choose to measure many financial instruments and certain other
      items
      at fair value that are not currently required to be measure at fair value.
      Unrealized gains and losses on items for which the fair value option has been
      elected are reporting in earnings. SFAS 159 does not affect any existing
      accounting literature that requires certain assets and liabilities to be carried
      at fair value. SFAS 159 is effective for fiscal years beginning after November
      15, 2007. The Company currently does not believe SFAS 159 will have a material
      impact on its consolidated financial position, results of operations or cash
      flows.


16




**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**9.**  **SUBSEQUENT
      EVENTS**




On
      April
      5, 2007, AVP entered into an Agreement and Plan of Merger (the "Merger
      Agreement") with AVP Holdings, Inc. and AVP Acquisition Corp., affiliates of
      Shamrock Capital Growth Fund II, L.P. ("Shamrock").  Under the terms
      of the Merger Agreement, AVP Acquisition Corp. will be merged with and into
      AVP,
      with AVP continuing as the surviving corporation.  Upon consummation of the
      merger, each outstanding share of AVP common stock and Series B preferred
      stock will be cancelled and converted into the right to receive $1.23 and
      $33.93, respectively, and AVP will become a wholly owned subsidiary of AVP
      Holdings, Inc.  The total value of the transaction is approximately
      $36.9 million.  The transaction, which is expected, but not certain to
      close in the summer of 2007, is subject to certain customary terms and
      conditions, including stockholder approval, but is not subject to any financing
      condition.  If this transaction is completed, AVP will become a privately
      held company and its common stock will no longer be traded on the OTC Bulletin
      Board.


In
        connection with the Merger Agreement, the special committee (“Special
        Committee”) of the board of directors of AVP, Inc. entered into an agreement
        dated January 26, 2007, as amended by an amendment dated April 19, 2007
        (collectively, the “Jefferies Agreement”) with Jefferies & Company, Inc.
        (“Jefferies”) under which Jefferies would provide the Special Committee with
        financial advice and assistance in connection with the Special Committee’s
        review of a possible sale or other business transaction, including merger,
        stock
        purchase, recapitalization, and such, of AVP (a “Transaction”). Pursuant to the
        Jefferies Agreement, Jefferies will render an opinion as to the fairness
        of the
        consideration to be paid to the AVP stockholders in a Transaction. With respect
        to the Merger Agreement, Jefferies has rendered an opinion as to the
        aforementioned $1.23 per share. For its services, Jefferies received in
        accordance with the Jefferies Agreement a non-refundable fee of $250,000
        on
        April 5, 2007 upon delivery of the opinion. In addition, Jefferies is entitled
        to receive a $500,000 transaction fee upon consummation of a Transaction;
        provided, however, that if such Transaction is at a price greater than $1.23
        per
        share, Jefferies is entitled to receive in addition to the $500,000 fee,
        the
        greater of $250,000 or 5% of the aggregate consideration in excess of $1.23
        per
        share. Finally, AVP will reimburse Jefferies for all out-of-pocket expenses
        incurred by Jefferies in connection with the engagement.




17




**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**





**Background**




We
      originally incorporated under the name Malone Road Investments, Ltd., on August
      6, 1990, in the Isle of Man. We re-domesticated in the Turks and Caicos Islands
      in 1992 and subsequently domesticated as a Delaware corporation in 1994.
      Pursuant to Delaware law, we are deemed to have been incorporated in Delaware
      as
      of the date of our formation in the Isle of Man. We changed our name to PL
      Brands, Inc. in 1994; changed our name to Othnet, Inc. in March 2001; and
      changed our name to AVP, Inc. on March 9, 2005. Since December 2001 until the
      Merger (as defined below), we had no business operations other than to attempt
      to locate and consummate a business combination with an operating company.





**AVP's
      Business**




We
      own
      and operate professional beach volleyball tournaments in the United States.
      The
      AVP tour is the sole nationally recognized U.S. professional beach volleyball
      tour. Every top U.S. men’s and women’s beach volleyball professional, including
      the women’s gold and bronze medalists in the 2004 Olympic Games, competes on the
      AVP tour. We have more than 200 of the top professional players under exclusive
      contracts, as well as a growing base of spectators and television viewers that
      we believe represent an attractive audience for national, regional, and local
      sponsors. Our business includes establishing and managing tournaments;
      sponsorship/advertising sales and sales of broadcast, licensing, and trademark
      rights; sales of tickets, food, beverage, and merchandise at the tournaments;
      contracting with players in the tour; and associated activities.




AVP's
      beach volleyball tournament season customarily commences in early April and
      continues until late September or early October. For 2007, we scheduled 18
      men’s
      and 18 women’s events in Miami, FL, Dallas, TX, Huntington Beach, Glendale, AZ,
      Hermosa Beach, CA, Louisville, KY, Tampa, FL, Atlanta, GA, Charleston, SC,
      Seaside Heights, NJ, Long Beach, CA, Chicago, IL, Manhattan Beach, CA, Boston,
      MA, Brooklyn, NY, Cincinnati, OH, Las Vegas, NV, San Francisco, CA. Nine of
      the
      18 cities are the same as last year.





**AVP
      Acquisition**




On
      February 28, 2005, Association of Volleyball Professionals, Inc. (the
“Association”) and a wholly owned subsidiary of AVP, then known as Othnet, Inc.,
      consummated a merger pursuant to a merger agreement, signed in June 2004, as
      amended (the “Merger”). As a result of the Merger, the Association became our
      wholly owned subsidiary, and the Association’s former stockholders (including
      holders of stock options and stock purchase warrants) beneficially owned 61.2%
      of all common stock beneficially owned by all beneficial owners of our capital
      stock. On December 16, 2005, AVP effectuated a 1-for-10 reverse stock split,
      which is reflected in all share amounts referred to in this report.




18


**Results
      of Operations for the three months ended March 31, 2007 and
      2006**




**Revenue**





Three
                Months Ended March 31,
            
            Percentage
              Increase
                (Decrease)**2007**
            
            **2006**Sponsorship/advertising
            
            $
            -
            
            $
            -
            
            
            -Activation
                Fees
            
            
            -
            
            
            -
            
            
            -Local
                Promoter Fees
            
            
            -
            
            
            -
            
            
            -Local
                Revenue
            
            
            -
            
            
            -
            
            
            -Miscellaneous
                Revenue
            
            
            169,000
            
            
            122,816
            
            
            38
            %Total
                Revenue
            
            $
            169,000
            
            $
            122,816
            
            
            38
            %





AVP’s
      business is seasonal, therefore revenue, gross profit and operating income
      amounts and percentages for the first and fourth quarters are not representative
      of our performance. The majority of AVP’s revenues are derived from sponsorship
      and advertising contracts with national and local sponsors. AVP recognizes
      sponsorship revenue during the tour, as the events occur and collection is
      reasonably assured, in the proportion that prize money for an event bears to
      total prize money for the season. AVP's beach volleyball tournament season
      customarily commences in early April and continues until late September or
      early
      October. As mentioned above, our first and fourth quarters have insignificant
      revenue, gross profit, and operating income. We did not produce any beach
      volleyball events in the first quarters of 2007 or 2006. Accordingly, we did
      not
      recognize any sponsorship revenue, activation fees, or local revenue in the
      quarters ended March 31, 2007 and 2006.





The
      38%
      increase in miscellaneous revenue for the three months ended March 31, 2007
      reflects trademark licensing revenue earned in connection with Crocs, Inc.
      for
      AVP branded footwear and ticket sales for an indoor exhibition
      event.




**Event
      Costs**




Event
      costs primarily include the direct costs of producing an event, costs related
      to
      the airing of events on network television, and the cost of servicing our
      sponsors. Event costs are recognized on an event-by-event basis and event costs
      billed and/or paid prior to their respective events are recorded as prepaid
      event costs and expensed at the time the event occurs.







**%
                Revenue**
            
            **Increase****(Decrease)
                as**Three
                Months Ended March 31,
            
            Three
                Months Ended March 31,
            
            **%
                of Revenue****2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **2007
                vs. 2006**Event
                Costs
            
            $
            52,299
            
            $
            -
            
            
            31
            %
            
            0
            %
            
            31
            %




For
      the
      three months ended March 31, 2007, event costs included costs incurred in
      connection with an indoor exhibition event that was held in February 2007.
      There
      was no sponsorship/advertising revenue for this indoor exhibition event. There
      was no event taking place during the three months ended March 31, 2006.







19






**Gross
      Profit**





Three
                Months Ended March 31,**2007**
            
            **2006**Revenue
            
            $
            169,000
            
            $
            122,816Event
                Costs
            
            
            52,299
            
            
            -Gross
                Profit
            
            $
            116,701
            
            $
            122,816Gross
                Profit %
            
            
            69
            %
            
            100
            %




The
      decrease in the gross profit margin is due to the added event costs related
      to
      the indoor exhibition event that took place during the three months ended March
      31, 2007. There was no event cost for the three months ended March 31, 2006.
      As
      mentioned above, AVP’s primary business is seasonal; therefore revenue, gross
      profit and operating income amounts and percentages for the first and fourth
      quarters are not representative of our performance.




**Operating
      Expenses**





**%
                Revenue**Three
                Months Ended
              March
                31,
            
            Three
                Months
              Ended
                March 31,**2007**
            
            **2006**
            
            **2007**
            
            **2006**Administrative
            
            $
            1,446,303
            
            $
            1,120,903
            
            
            856
            %
            
            913
            %Sales
                and Marketing
            
            
            875,713
            
            
            502,585
            
            
            518
            %
            
            409
            %Total
                Costs
            
            $
            2,322,016
            
            $
            1,623,488
            
            
            1374
            %
            
            1322
            %




The
      29%
      or $0.3 million increase in administrative costs was due to the proposed Merger
      Agreement.




The
      74%
      or $0.4 million increase in sales and marketing costs primarily reflects the
      amortization of commission expense paid to external sales agents, marketing
      consultants, and additional headcount in marketing during the three months
      ended
      March 31, 2007.







**Depreciation
                and Amortization Expense****Percentage**Three
                Months Ended March 31,
            
            **Increase****2007**
            
            **2006**
            
            **(Decrease)**Depreciation
                Expense
            
            $
            49,571
            
            $
            36,545
            
            
            36
            %Amortization
                Expense
            
            
            -
            
            
            2,011
            
            
            (100
            %)Total
            
            $
            49,571
            
            $
            38,556
            
            
            29
            %




Depreciation
      expense increased 36% as a result of an increase in depreciable assets,
      including information technology equipment and transportation
      equipment.




20




**Other
              Income
              (Expense)**Three
                Months Ended March 31,
            
            
            **Percentage****2007**
            
            
            **2006**
            
            
            **Increase/(Decrease)**Interest
                Expense
            
            $
            -
            
            $
            (8,213
            )
            
            (100%)Interest
                Income
            
            
            56,457
            
            
            21,139
            
            
            167
            %Gain
                on disposal of asset
            
            
            8,449
            
            
            -
            
            
            -
            %Total
            
            $
            64,906
            
            $
            12,926
            
            
            402
            %




The
      167%
      increase in interest income is due to higher interest rates and a higher cash
      balances realized from the private placement consummated in May and June of
      2006.




**Operating
                Loss and Net Loss**
            
            **%
                Revenue**Three
                Months EndedMarch
                31,
            
            Three
                Months Ended March 312007
            
            2006
            
            2007
            
            2006Operating
                Loss
            
            $
            (2,205,315
            )
            $
            (1,500,672
            )
            
            (1,305
            )%
            
            (1,222
            %)NetLoss
            
            
            (2,141,209
            )
            
            (1,488,546
            )
            
            (1,267
            )%
            
            (1,212
            %)




The
      Company’s net loss of $2.1 million for the three months ended March 31, 2007
      compared to a loss of $1.5 million for the three months ended March 31, 2006
      primarily reflects an increase of $ 0.7 million in operating expense that
      includes costs relating to the proposed Merger Agreement, amortization of
      commission expenses, and additional headcount in marketing. As mentioned above,
      AVP’s primary business is seasonal; therefore revenue, gross profit and
      operating income (loss) amounts and percentages for the first and fourth
      quarters are not representative of our performance.




**Liquidity
      and Capital Resources**





March
                31, 2007
            
            December 31
                , 2006
            
            Increase/
              (Decrease)Cash
                and cash equivalents
            
            $
            7,965,514
            
            $
            5,052,636
            
            $
            2,912,878Percentage
                of total assets
            
            
            78
            %
            
            58
            %





Three
                Months Ended March 31,
            
            Increase/2007
            
            2006
            
            (Decrease)Cash
                flows provided by (used) in operating activities
            
            $
            2,926,288
            
            $
            (14,565
            )
            $
            2,940,853Cash
                flows provided by (used) in investing activities
            
            
            (13,410
            )
            
            47,849
            
            
            (61,259
            )Cash
                flows used in financing activities
            
            
            -
            
            
            (416,737
            )
            
            416,737




As
      of
      March 31, 2007, our primary source of liquidity is comprised of $8.0 million
      of
      cash and cash equivalents.  Over the last two years, our primary sources of
      liquidity have included cash on hand at the beginning of the year, cash flows
      generated from continuing operations, and cash flow provided by financing
      activities.  We have generated significant cash flows from the issuance of
      our common stock through private placements, which are described in more detail
      below in “Cash Flows Provided by Financing Activities.”




21


We
      believe that we have sufficient working capital ($3.4 million at March 31,
      2007)
      to finance our operational requirements for at least the next twelve months,
      including purchases of inventory and equipment and the addition of two more
      events for the 2007 tour season.




Cash
      flows provided by operating activities for the three months ended March 31,
      2007
      were $2.9 million. The increase in cash flows provided by operating activities
      for the three months ended March 31, 2007 is primarily due to a decrease in
      accounts receivable and an increase in deferred revenue. Working capital,
      consisting of current assets less current liabilities, was $3.4 million at
      March
      31, 2007 and $5.6 million at December 31, 2006.




At
      March
      31, 2007 and 2006, accounts receivable decreased $2.0 million and $0.2 million
      as compared to December 31, 2006 and 2005, respectively.  At March 31, 2007
      and 2006, deferred revenues increased $3.4 million and $2.6 million as compared
      to December 31, 2006 and 2005, respectively.  Deferred revenues are
      recorded as AVP collects revenues prior to holding certain events. The decrease
      in accounts receivable and the increase in deferred revenue is the result of
      improved collections.




Capital
      expenditures for the three months ended March 31, 2007 and 2006 were $0.2
      million and $0.06 million, respectively. During the three months ended March
      31,
      2007, AVP purchased two trailers and information technology equipment in
      preparation for the 2007 tour season. During the three months ended March 31,
      2006, AVP purchased a scoreboard, a trailer and computer equipment in
      preparation for the 2006 tour season.




Cash
      flows used in financing activities for 2007 and 2006 were $0 and $0.4 million,
      respectively. In February 2006, AVP paid the remaining principal amount due
      on
      the promissory note to MPE with whom Leonard Armato, the Chief Executive Officer
      and Chairman of the Board of Directors of the Company, was affiliated. This
      note
      constituted the purchase price delivered by AVP to MPE for the interests in
      MPE
      Sponsorship, LLC in connection with sponsorship sales services previously
      provided by MPE to the Association.




In
      February 2006, we entered a production and distribution agreement with Fox
      Broadcasting Company (“FBC”) in connection with two events. Under the agreement,
      FBC telecast the finals of two 2006 AVP tournaments throughout the U.S., its
      territories, and possessions. In consideration for its services valued at
      $1,000,000, FBC received 666,667 shares of common stock, par value $0.001 per
      share, of AVP.




**Critical
      Accounting Policies**




**Revenue
      and Expense Recognition**




The
      majority of AVP’s revenues are derived from sponsorship and advertising
      contracts with national and local sponsors. AVP recognizes national
      sponsorship/advertising revenue and activation fees during the tour season,
      as
      the events occur and collection is reasonably assured, in the proportion that
      prize money for an event bears to total prize money for the season. Cash
      collected before the related events are recorded as deferred revenue. Event
      costs are recognized on an event-by-event basis. Event costs billed and/or
      paid
      before the related events are recorded as deferred costs and expensed at the
      time the event occurs.




AVP
      also
      derives additional revenue from local sponsorships/advertising, promoter fees,
      event ticket sales, concession rights, event merchandising, and licensing.
      Revenues and expenses from the foregoing ancillary activities are recognized
      on
      an event-by-event basis as the revenues are realized and collection is
      reasonably assured. Licensing revenue is recognized as royalties are earned
      and
      collection is reasonably assured.




**Income
      Taxes**




AVP
      accounts for income taxes under the asset and liability method. Deferred tax
      assets and liabilities are recognized for the future tax consequences
      attributable to the differences between the financial statement carrying amounts
      of existing assets and liabilities and their respective tax basis. The effect
      on
      deferred tax assets and liabilities of a change in tax rates is recognized
      in
      income in the period that includes the enactment date. A valuation allowance
      is
      recorded to reduce deferred taxes to the amount that is more likely than not
      to
      be realized.




22


**Recently
      Issued Accounting Standards**




In
      February 2006, the FASB issued Statement of Financial Accounting Standard No.
      155, “Accounting for Certain Hybrid Instruments,” which is an amendment of SFAS
      No. 133 and 140. SFAS No. 155 allows financial instruments that have embedded
      derivatives to be accounted for as a whole (eliminating the need to bifurcate
      the derivative from its host), if the holder elects to account for the whole
      instrument on a fair value basis. This statement is effective for all financial
      instruments acquired or issued after the beginning of an entity’s first fiscal
      year that begins after September 15, 2006. The adoption of this Statement is
      not
      expected to have any impact on AVP’s financial position or results of
      operations.




In
      March
      2006, the FASB issued SFAS No.156, “Accounting for Servicing of Financial Assets
      - an Amendment of SFAS No.140”. SFAS 156 amends SFAS 140 to clarify the
      accounting for servicing assets and servicing liabilities. Among other
      provisions, the new accounting standard requires all separately recognized
      servicing assets and servicing liabilities to be initially measured at fair
      value, if practicable. SFAS 156 is effective for the fiscal periods beginning
      after September 15, 2006. The adoption of SFAS 156 had no material impact
      on the Company’s financial position, results of operations or cash
      flows.




In
      June
      2006, the EITF reached a consensus on Issue No. 06-03, “How Taxes Collected from
      Customers and Remitted to Governmental Authorities Should Be Presented in the
      Income Statement (That Is, Gross versus Net Presentation)” ( EITF 06-03). EITF
      06-03 applies to taxes assessed by a governmental authority that are directly
      imposed on a revenue-producing transaction between a seller and a customer,
      and
      states that the presentation of such taxes on either a gross basis (included
      in
      revenues and costs) or on a net basis (excluded from revenues) is an accounting
      policy decision that should be disclosed. Additionally, for such taxes reported
      on a gross basis, the amount of such taxes should be disclosed in interim and
      annual financial statements if the amounts are significant. The provisions
      of
      EITF 06-03 are effective for interim and annual reporting periods beginning
      after December 15, 2006. On
      January 1, 2007, AVP adopted EITF 06-03. AVP collects certain excise taxes
      levied by state or local governments. AVP’s excise taxes are accounted for on a
      gross basis and recorded as revenue. For the three months ended March 31, 2007,
      there were no taxes levied by state or local governments.


In
      July
      2006, FASB issued FASB Interpretation No. 48 ( FIN 48), “Accounting for
      Uncertainty in Income Taxes, an interpretation of SFAS No. 109, Accounting
      for
      Income Taxes,” which is effective for fiscal years beginning after December 15,
      2006, and clarifies the accounting for uncertainty in tax positions. FIN48
      requires that we recognize the impact of a tax position in our financial
      statements if that position is more likely than not of being sustained on audit,
      based on the technical merits of the position. The cumulative effect of the
      change in accounting principle is recorded as an adjustment to opening retained
      earnings. Effective January 1, 2007, the Company adopted FIN 48 with no
      significant impact on the Company’s financial position or results of
      operations.




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measures” (SFAS 157).
      SFAS 157 defines fair value, establishes a framework for measuring fair value
      and enhances disclosures about fair value measures required under other
      accounting pronouncements, but does not change existing guidance as to whether
      or not an instrument is carried at fair value. SFAS 157 is effective for fiscal
      years beginning after November 15, 2007. The adoption of this accounting
      pronouncement is not expected to have a material effect on the Company’s
      consolidated financial position, results of operations or cash
      flows.




On
      September 29, 2006, the FASB issued SFAS No. 158, Employers' Accounting for
      Defined Benefit Pension and Other Postretirement Plans - An Amendment of SFAS
      No. 87, 88, 106, and 132R. This new standard requires an employer to: (a)
      recognize in its statement of financial position an asset for a plan’s
      overfunded status or a liability for a plan’s underfunded status; (b) measure a
      plan’s assets and its obligations that determine its funded status as of the end
      of the employer’s fiscal year (with limited exceptions); and (c) recognize
      changes in the funded status of a defined benefit postretirement plan in the
      year in which the changes occur. Those changes will be reported in comprehensive
      income of a business entity and in changes in net assets of a not-for-profit
      organization. Statement 158 applies to plan sponsors that are public and private
      companies and nongovernmental not-for-profit organizations. The requirement
      to
      recognize the funded status of a benefit plan and the disclosure requirements
      are effective as of the end of the fiscal year ending after December 15, 2006,
      for entities with publicly traded equity securities, and at the end of the
      fiscal year ending after June 15, 2007, for all other entities. The requirement
      to measure plan assets and benefit obligations as of the date of the employer’s
      fiscal year-end statement of financial position is effective for fiscal years
      ending after December 15, 2008.




23


In
      September 2006, the Securities and Exchange Commission (“SEC”) released Staff
      Accounting Bulletin No. 108, “Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in Current Year Financial
      Statements” (“SAB 108”). SAB 108 provides interpretive guidance on the SEC’s
      views regarding the process of quantifying materiality of financial statement
      misstatements. SAB 108 is effective for the Company’s fiscal year ending October
      31, 2007. The adoption of this accounting pronouncement did not have a
      material effect on the Company’s consolidated financial position, results of
      operations or cash flows.




In
      February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
      Financial Assets and Financial Liabilities," ("SFAS 159"). SFAS 159 permits
      entities to choose to measure many financial instruments and certain other
      items
      at fair value that are not currently required to be measure at fair value.
      Unrealized gains and losses on items for which the fair value option has been
      elected are reporting in earnings. SFAS 159 does not affect any existing
      accounting literature that requires certain assets and liabilities to be carried
      at fair value. SFAS 159 is effective for fiscal years beginning after November
      15, 2007. The Company currently does not believe SFAS 159 will have a material
      impact on its consolidated financial position, results of operations or cash
      flows




**Off-Balance
      Sheet Arrangements**




We
      have
      no off-balance sheet arrangements as defined in Item 303(c) of Regulation S-B.





24


**ITEM
      3. CONTROLS AND PROCEDURES**





AVP's
      management has evaluated, with the participation of its principal executive
      and
      financial officers, the effectiveness of AVP's disclosure controls and
      procedures (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) as of
      the
      end of the period covered by this report. Based on this evaluation, these
      officers have concluded, that, as of March 31, 2007, AVP's disclosure controls
      and procedures are effective to provide reasonable assurance that information
      required to be disclosed by AVP in reports that it files or submits under the
      Exchange Act is accumulated and communicated to AVP's management, including
      its
      principal executive and principal financial officers, or persons performing
      similar functions, as appropriate to allow timely decisions regarding required
      disclosure.








25


**PART
      II. OTHER INFORMATION**





**ITEM
      6. EXHIBITS**





10.1
      -
      Agreement and Plan of Merger, dated as of April 5, 2007, by and among AVP,
      Inc.
      AVP Holdings, Inc. and AVP Acquisition Corp., incorporated herein by reference
      to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed on April
      9, 2007





31.1
      -
      Certification of President Pursuant to Section 302 of the Sarbanes-Oxley Act
      of
      2002





31.2
      -
      Certification of Interim Chief Financial Officer Pursuant to Section 302 of
      the
      Sarbanes-Oxley Act of 2002





32
      -
      Certification of President and Interim Chief Financial Officer Pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002





26




**SIGNATURE**





Pursuant
      to the requirements of Section 13 or 15 or 15(d) of the Securities Exchange
      Act
      of 1934, the registrant has duly caused this report to be signed on its behalf
      by the undersigned, thereunto duly authorized on the 14th day of May, 2007.




**AVP,
              INC.**(Registrant)By:
            /s/ William
              ChardavoyneWilliam
              ChardavoyneInterim
              Chief Financial Officer


27
 EXHIBIT
            INDEX
  10.1
          -
          Agreement and Plan of Merger, dated as of April 5, 2007, by and among AVP,
          Inc.
          AVP Holdings, Inc. and AVP Acquisition Corp., incorporated herein by reference
          to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed on April
          9, 2007
 
 31.1
          -
          Certification of President Pursuant to Section 302 of the Sarbanes-Oxley
          Act of
          2002
 
 31.2
          -
          Certification of Interim Chief Financial Officer Pursuant to Section 302
          of the
          Sarbanes-Oxley Act of 2002
 
 32
          -
          Certification of President and Interim Chief Financial Officer Pursuant
          to
          Section 906 of the Sarbanes-Oxley Act of 2002