**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 June 30, 2007





OR





**o 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
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              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 xNo
o





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





Yes
oNo
x





As
      of
      July 19, 2007, the Registrant had 20,440,577 shares of common stock
      outstanding.





Traditional
      Small Business Disclosure Format (check one): Yes xNo o





1




**AVP,
      INC.**




INDEX


PagePART
                  I.
              
              
              FINANCIAL
                  INFORMATION
              
              
              3ITEM
                  1.
              
              
              FINANCIAL
                  STATEMENTS.
              
              
              3Consolidated
                  Balance Sheets as of June 30, 2007 (Unaudited) and December 31,
                  2006
              
              
              4Consolidated
                  Statements of Operations for the three and six months ended June
                  30, 2007
                  and 2006 (Unaudited)
              
              
              5Consolidated
                  Statement of Changes in Stockholders' Equity for the six months
                  ended June
                  30, 2007 (Unaudited)
              
              
              6Consolidated
                  Statements of Cash Flows for the six months ended June 30, 2007
                  and 2006
                  (Unaudited)
              
              
              7Notes
                  to Consolidated Financial Statements (Unaudited)
              
              
              9ITEM
                  2.
              
              
              MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
              
              
              21ITEM
                  3.
              
              
              CONTROLS
                  AND PROCEDURES
              
              
              33PART
                  II.
              
              
              OTHER
                  INFORMATION
              
              
              34ITEM
                  6.
              
              
              EXHIBITS
                  AND REPORTS ON FORM 8-K
              
              
              34




2




**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





**AVP,
      INC.**


**Index
      to Financial Statements**


**Period
      Ended June 30, 2007**






PAGEFinancial
                Statements
            
            
            3Unaudited
                and Audited Consolidated Balance Sheets
            
            
            4Unaudited
                Consolidated Statements of Operations
            
            
            5Unaudited
                Consolidated Statements of Changes in Stockholders’ Equity
            
            
            6Unaudited
                Consolidated Statements of Cash Flows
            
            
            7-8Unaudited
                Notes to Consolidated Financial Statements
            
            
            9





3




**AVP,
      INC.**





**CONSOLIDATED
      BALANCE SHEETS**





(Unaudited)
                June
                  30,
                2007
              
              December
                  31,
                2006**ASSETS****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              6,168,302
              
              $
              5,052,636Accounts
                  receivable, net ofallowance
                  for doubtful accounts of $77,897 and $25,193
              
              
              4,185,440
              
              
              2,653,473Prepaid
                  expenses
              
              
              841,588
              
              
              242,007Other
                  current assets - current portion
              
              
              176,158
              
              
              301,477TOTAL
                  CURRENT ASSETS
              
              
              11,371,488
              
              
              8,249,593**PROPERTY
                  AND EQUIPMENT, net**
              
              
              464,153
              
              
              340,054**OTHER
                  ASSETS**
              
              
              69,925
              
              
              105,373TOTAL
                  ASSETS
              
              $
              11,905,566
              
              $
              8,695,020**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              1,677,774
              
              $
              529,331Accrued
                  expenses
              
              
              1,867,540
              
              
              1,049,439Deferred
                  revenue
              
              
              3,553,762
              
              
              1,056,960TOTAL
                  CURRENT LIABILITIES
              
              
              7,099,076
              
              
              2,635,730**NON-CURRENT
                  LIABILITIES**
              
              
              131,722
              
              
              190,766TOTAL
                  LIABILITIES
              
              
              7,230,798
              
              
              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,
                  47,152 and 69,548 shares issued and outstanding
              
              
              48
              
              
              70Common
                  stock, $.001 par value, 80,000,000 shares authorized, 20,440,577
                  and
                  19,751,838 shares issued and outstanding
              
              
              20,441
              
              
              19,752Additional
                  paid-in capital
              
              
              39,122,514
              
              
              39,077,065Accumulated
                  deficit
              
              
              (34,468,235
              )
              
              (33,228,363
              )TOTAL
                  STOCKHOLDERS’ EQUITY
              
              
              4,674,768
              
              
              5,868,524TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY
              
              $
              11,905,566
              
              $
              8,695,020




See
      notes
      to financial statements.




4




**AVP,
      INC.**




**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





**(Unaudited)**


Three
                    Months Ended June 30,
                
                Six
                    Months Ended June 30,**2007**
                
                **2006**
                
                **2007**
                
                **2006**REVENUESponsorships/Advertising(1)
                
                $
                8,990,790
                
                $
                6,233,090
                
                $
                8,990,790
                
                $
                6,233,090Other
                
                
                1,857,611
                
                
                1,078,062
                
                
                2,026,611
                
                
                1,200,878TOTAL
                    REVENUE
                
                
                10,848,401
                
                
                7,311,152
                
                
                11,017,401
                
                
                7,433,968EVENT
                    COSTS(2)
                
                
                7,185,169
                
                
                5,360,237
                
                
                7,237,468
                
                
                5,360,237GROSS
                    PROFIT
                
                
                3,663,232
                
                
                1,950,915
                
                
                3,779,933
                
                
                2,073,731OPERATING
                    EXPENSESSales
                    and Marketing(3)
                
                
                862,503
                
                
                721,210
                
                
                1,738,216
                
                
                1,223,796Administrative(4)
                
                
                1,958,237
                
                
                1,317,281
                
                
                3,404,540
                
                
                2,448,046TOTAL
                    OPERATING EXPENSES
                
                
                2,820,740
                
                
                2,038,491
                
                
                5,142,756
                
                
                3,671,842OPERATING
                    INCOME (LOSS)
                
                
                842,492
                
                
                (87,576
                )
                
                (1,362,823
                )
                
                (1,598,111
                )OTHER
                    INCOME (EXPENSE)Interest
                    expense
                
                
                -
                
                
                (3,718
                )
                
                -
                
                
                (11,931
                )Interest
                    income
                
                
                57,520
                
                
                33,807
                
                
                113,977
                
                
                54,946Gain
                    on disposal of asset
                
                
                1,325
                
                
                -
                
                
                9,774
                
                
                9,863Gain
                    on warrant derivative
                
                
                -
                
                
                111,042
                
                
                -
                
                
                111,042TOTAL
                    OTHER INCOME (EXPENSE)
                
                
                58,845
                
                
                141,131
                
                
                123,751
                
                
                163,920INCOME
                    (LOSS) BEFORE INCOME TAXES
                
                
                901,337
                
                
                53,555
                
                
                (1,239,072
                )
                
                (1,434,191
                )INCOME
                    TAXES
                
                
                -
                
                
                -
                
                
                (800
                )
                
                (800
                )NET
                    INCOME (LOSS)
                
                
                901,337
                
                
                53,555
                
                
                (1,239,872
                )
                
                (1,434,991
                )Deemed
                    Dividend to Series B Preferred Stock Shareholders
                
                
                -
                
                
                91,973
                
                
                -
                
                
                91,973Net
                    Income (Loss) Available to Common Shareholders
                
                $
                901,337
                
                $
                (38,418
                )
                $
                (1,239,872
                )
                $
                (1,526,964
                )Earnings
                    (loss) per common share:Basic
                
                $
                0.05
                
                $
                (0.00
                )
                $
                (0.06
                )
                $
                (0.11
                )Diluted
                
                $
                0.03
                
                $
                (0.00
                )
                $
                (0.06
                )
                $
                (0.11
                )Shares
                    used in computing earnings (loss) per share:Basic
                
                
                19,960,250
                
                
                15,885,300
                
                
                19,872,269
                
                
                14,098,748Diluted
                
                
                27,596,052
                
                
                15,885,300
                
                
                19,872,269
                
                
                14,098,748




(1)
        Sponsorship/advertising includes $0 and $ 94,346 in stock base contra revenue
        for the three and six months ended June 30, 2007 and 2006,
        respectively.




(2)
        Event
        costs include stock based expenses of $0 and $1,000,000 for the three and
        six
        months ended June 30, 2007 and 2006, respectively.




(3)
        Sales
        and marketing expenses includes stock based expenses of $9,313 and $33,974
        for
        the three months ended June 30, 2007 and 2006, respectively, and $82,220
        and
        $33,974 for the six months ended June 30, 2007 and 2006,
        respectively.




(4)
        Administrative expenses includes stock based expenses of $21,596 and $203,241
        for the three months ended June 30, 2007 and 2006, respectively, and $42,956
        and
        $213,967 for the six months ended June 30, 2007 and 2006,
        respectively.




See
      notes
      to financial statements.




5




**AVP,
      INC.**




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





**For
      The Six Months Ended June 30, 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
            
            
            -
            
            
            -
            
            
            (22,396
            )
            
            (22
            )
            
            624,176
            
            
            624
            
            
            (602
            )
            
            -
            
            
            -Cashless
                exercise of options
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            64,563
            
            
            65
            
            
            (65
            )
            
            -
            
            
            -Issuance
                of warrants to broker-dealer for services
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,160
            
            
            -
            
            
            3,160Expenses
                from issuance of employee options
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            42,956
            
            
            -
            
            
            42,956Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,239,872
            )
            
            (1,239,872
            )Balance,
                June 30, 2007
            
            
            -
            
            $
            -
            
            
            47,152
            
            $
            48
            
            
            20,440,577
            
            $
            20,441
            
            $
            39,122,514
            
            $
            (34,468,235
            )
            $
            4,674,768




See
      notes
      to financial statements.





6


**AVP,
      INC.**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**(Unaudited)**




**Six
                  Months Ended June 30,****2007**
              
              **2006**CASH
                  FLOWS PROVIDED BY OPERATING ACTIVITIESNet
                  income (loss)
              
              $
              (1,239,872
              )
              $
              (1,434,991
              )Adjustments
                  to reconcile net income (loss) to net cash flows from operating
                  activities:Depreciation
                  of property and equipment
              
              
              109,260
              
              
              76,144Interest
                  income on investment in sales-type lease
              
              
              -
              
              
              (25,018
              )Amortization
                  of deferred commissions
              
              
              82,220
              
              
              33,973Gain
                  on disposal of assets
              
              
              (9,774
              )
              
              (9,864
              )Other
                  amortization
              
              
              -
              
              
              4,022Stock
                  based event costs
              
              
              -
              
              
              1,000,000Contra-revenue
                  from the issuance of warrant
              
              
              -
              
              
              94,346Compensation
                  from issuance of stock options and warrants
              
              
              42,956
              
              
              213,967Change
                  in fair value of derivative financial instrument
              
              
              -
              
              
              (111,042
              )Decrease
                  (increase) in operating assets:Accounts
                  receivable
              
              
              (1,531,967
              )
              
              (1,690,166
              )Prepaid
                  expenses
              
              
              (599,581
              )
              
              (783,718
              )Other
                  assets
              
              
              (59,844
              )
              
              (166,745
              )Increase
                  (decrease) in operating liabilities:Accounts
                  payable
              
              
              1,148,443
              
              
              (128,945
              )Accrued
                  expenses
              
              
              796,557
              
              
              (155,973
              )Deferred
                  revenue
              
              
              2,459,302
              
              
              3,672,913NET
                  CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
              
              
              1,197,700
              
              
              588,903CASH
                  FLOWS USED IN INVESTING ACTIVITIESInvestment
                  in property and equipment
              
              
              (232,034
              )
              
              (173,225
              )Proceeds
                  from investment in sales-type lease
              
              
              150,000
              
              
              113,866Proceeds
                  from disposal of property and equipment
              
              
              -
              
              
              19,665NET
                  CASH FLOWS USED IN INVESTING ACTIVITIES
              
              
              (82,034
              )
              
              (39,694
              )




See
      notes
      to financial statements.




7




**AVP,
      INC.**




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**(Unaudited)**





(CONTINUED)




**Six
                  Months Ended June 30,****2007**
              
              **2006**CASH
                  FLOWS PROVIDED BY FINANCING ACTIVITIESProceeds
                  from sale of capital stock
              
              $
              -
              
              $
              5,500,002Offering
                  costs
              
              
              -
              
              
              (466,000
              )Debt
                  repayments
              
              
              -
              
              
              (416,737
              )NET
                  CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
              
              
              -
              
              
              4,617,265NET
                  INCREASE IN CASH AND CASH EQUIVALENTS
              
              
              1,115,666
              
              
              5,166,474CASH
                  AND CASH EQUIVALENTS, BEGINNING OF PERIOD
              
              
              5,052,636
              
              
              1,143,345CASH
                  AND CASH EQUIVALENTS, END OF PERIOD
              
              $
              6,168,302
              
              $
              6,309,819**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
              
              $
              624
              
              $
              583Payment
                  of accrued registration penalty in common stock
              
              $
              -
              
              $
              935Issuance
                  of warrants to title sponsor
              
              $
              -
              
              $
              252,842Issuance
                  of common stock to sales agent for services
              
              $
              -
              
              $
              200,000Issuance
                  of warrant to sales agent for services
              
              $
              3,160
              
              $
              117,039Cashless
                  exercise of warrant
              
              $
              65
              
              $
              14




See
      notes
      to financial statements.




8




**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 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 which would
        substantially duplicate the disclosures contained in the consolidated audited
        financial statements for the most recent fiscal year, as reported in the
        latest
        Form 10-KSB have been omitted.




**2.
      MERGER**




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 Holdings ("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 will be cancelled and converted into
        the
        right to receive $1.23, and AVP will become a wholly owned subsidiary of
        AVP
        Holdings, Inc.  The transaction, which is expected 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 (“Committee”) of the
        board of directors of AVP entered into an agreement with Jefferies &
Company, Inc. (“Jefferies”) under which Jefferies provided the Committee with
        financial advice and assistance in connection with the Committee’s review of the
        merger with Shamrock (the "Transaction”).  In addition, Jefferies provided
        an opinion as to the fairness of the consideration to be paid to AVP
        stockholders in the transaction.  For its services, Jefferies received a
        non-refundable fee of $250,000 on April 5, 2007 upon delivery of its opinion,
        and will receive a $500,000 transaction fee upon consummation of the
        Transaction.  In addition to any fees, AVP will reimburse Jefferies for all
        out-of-pocket expenses incurred by Jefferies in connection with the
        engagement.




**3.
      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.





9




**AVP,
      INC.**





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


**(Unaudited)**




**4.
      NET INCOME (LOSS) PER BASIC AND DILUTED SHARE OF COMMON
      STOCK**




Basic
      earnings per common share is computed by dividing income available to common
      shareholders by the weighted-average number of shares of common stock
      outstanding during the period. Diluted earnings per common share is computed
      by
      dividing income available to common shareholders by the weighted-average number
      of shares of common stock outstanding during the period increased to include
      the
      number of additional shares of common stock that would have been outstanding
      if
      the dilutive potential shares of common stock had been issued. The dilutive
      effect of outstanding options and warrants is reflected in diluted earnings
      per
      share by application of the “treasury stock” method. The dilutive effect of
      outstanding convertible preferred stocks is reflected in diluted earnings per
      share by application of the “if-converted” method. Under the treasury stock
      method, an increase in the fair market value of the Company’s common stock can
      result in a greater dilutive effect from outstanding options and
      warrants.




The
      following table sets forth the computation of basic and diluted earnings per
      share:





Three
                Months Ended June 30, 2007Numerator:Net
                income available to common shareholders
            
            $
            901,337Denominator:Weighted-average
                shares outstanding
            
            
            19,960,250Effect
                of dilutive options, warrants and convertible preferred
                stocks
            
            
            7,635,802Denominator
                for diluted earnings per share
            
            
            27,596,052Basic
                earnings per share
            
            $
            0.05Diluted
                earnings per share
            
            $
            0.03




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 stockholders for the six months ended June 30,
        2007
        and 2006 as their effect would be antidilutive.







Six
                  Months Ended June 30,
              
              
              Three
                  Months Ended June 30,2007
              
              
              2006
              
              
              2006Options
                  and Warrants
              
              
              18,227,220
              
              
              18,412,466
              
              
              18,412,466Series
                  B Preferred Stock
              
              
              1,314,126
              
              
              1,979,327
              
              
              1,979,327Total
              
              
              19,541,346
              
              
              20,391,793
              
              
              20,391,739






10




**AVP,
      INC.**





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


**(Unaudited)**




**5.
      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 June 30, 2007, the Company
        had approximately $79,282 of unrecognized compensation expense expected to
        be
        recognized over a weighted average period of approximately 1.18 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




Six
                Months Ended
              June
                30,
            
            Six
                Months Ended
              June
                30,2007
            
            2006Risk-free
                interest rate
            
            
            4.89
            %
            
            4.91
                - 5.30
            %Expected
                life
            
            
            3
                years
            
            
            4
                - 6 yearsExpected
                volatility
            
            
            79.94
            %
            
            90
                - 95
            %Expected
                forfeiture rate
            
            
            0
            %
            
            0
            %Expected
                dividend yield
            
            
            0
            %
            
            0
            %




11




**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**6.
      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 AVP's wholly owned subsidiary, Association
        of Volleyball Professionals, Inc. (the "Association"), which were subsequently
        converted to AVP stock options upon the Association's acquisition by AVP.
        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
        six months ended June 30, 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
              
              
              0.70Exercised
              
              
              --
              
              
              --Cancelled
              
              
              (87,178
              )
              
              1.67Options
                  outstanding at December 31, 2006
              
              
              12,078,084
              
              
              0.86Granted
              
              
              --
              
              
              --Exercised
              
              
              (50,977
              )
              
              0.01Cancelled
              
              
              --
              
              
              --Options
                  outstanding at June 30, 2007
              
              
              12,027,107
              
              $
              0.86




No
        stock
        options were granted in the second quarters of 2007 or
        2006.




12




**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**6.
      STOCK OPTIONS (CONTINUED)**




**Stock
      Option Plans (Continued)**




The
      following table summarizes information about AVP’s stock-based compensation plan
      at June 30, 2007:




Options
      outstanding and exercisable by price range as of June 30, 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
              
              
              2.5
              
              $
              0.03
              
              
              6,067,966
              
              $
              0.03.31
                  -.90
              
              
              1,805,480
              
              
              6.4
              
              
              0.77
              
              
              1,711,576
              
              
              0.77.91
                  -1.60
              
              
              698,438
              
              
              1.8
              
              
              1.60
              
              
              669,634
              
              
              1.601.61
                  -2.80
              
              
              3,455,223
              
              
              2.1
              
              
              2.21
              
              
              3,441,506
              
              
              2.21$
              .01
                  -2.80
              
              
              12,027,107
              
              
              2.9
              
              $
              0.86
              
              
              11,890,682
              
              $
              0.86


In
        connection with stock options granted to employees to purchase common stock,
        AVP
        recorded $42,956 of stock-based compensation expense for the six months ended
        June 30, 2007 and $21,453 for the six months ended June 30, 2006.




13




**AVP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**6.
      STOCK OPTIONS (CONTINUED)**




**Other
      Stock Options**





The
      following table contains information on all of AVP’s non-plan stock options for
      the period ended June 30, 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
              
              
              1.16Exercised
              
              
              (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 June 30, 2007
              
              
              6,200,113
              
              $
              1.44








The
      weighted average fair value of options granted was $-0- in 2007 and $0.65 in
      2006.





The
      following table summarizes information about AVP’s non-qualified stock options
      at June 30, 2007:





Options
      outstanding and exercisable by price range as of June 30, 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
                
                
                3.7
                
                $
                0.91
                
                
                3,262,193
                
                $
                0.911.60
                    - 3.40
                
                
                2,937,920
                
                
                2.0
                
                
                2.03
                
                
                2,937,920
                
                
                2.03$
                .30
                    - 3.40
                
                
                6,200,113
                
                
                2.9
                
                $
                1.44
                
                
                6,200,113
                
                $
                1.44




In
        connection with warrants granted to non-employees to purchase Common Stock,
        AVP
        recorded warrant expense of $45,857 in sales and marketing expenses for the
        period ended June 30, 2007 and $15,792 in sales and marketing expenses, $192,514
        in administrative expenses, and $94,346 in contra-revenue for the six months
        ended June 30, 2006. Such amounts represent, for each non-employee stock
        option,
        the valuation under SFAS 123R on the date of the grant.





14




**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**7.
      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
        are as
        follows:




Years
                Ending December 31,2007
            
            $
            183,3862008
            
            
            351,5002009
            
            
            357,0002010
            
            
            90,000Total
            
            $
            981,886




Rent
      expense for the corporate office facility charged to operations was $81,391
      and
      $81,312 for the three months ended June 30, 2007 and 2006, respectively. Rent
      expense was $161,243 and $159,470 for the six months ended June 30, 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.




**Legal
      proceedings**




A
        complaint was filed on June 6, 2007 in the United States Circuit Court of
        Cook
        County, Illinois, in which the plaintiff seeks damages for personal injuries
        relating to a fall the plaintiff suffered during a volleyball tournament
        taking
        place at the Hard Rock Hotel & Casino in Las Vegas, Nevada on
        September 7, 2005. Discovery is still being completed and therefore management
        is unable to determine or predict the outcome of this claim or the impact
        on the
        Company’s financial condition or results of operations. Accordingly, the Company
        has not recorded a provision for this matter in its financial
        statements.




15




**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**8.
      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 $1.0 million, FBC received 666,667 shares of common stock,
      par value $0.001 per share, of AVP.




On
        March
        24, 2006, AVP entered an agreement with Wall Street Communications Group,
        Inc.
        ("Sales Agent") pursuant to which Sales Agent performed sales services for
        AVP
        in connection with a sponsorship/advertising agreement with Crocs, Inc.
        ("Crocs") which currently serves as title sponsor for the AVP Tour. For its
        services, the Sales Agent received 250,000 shares of AVP common stock valued
        at
        $200,000 and a warrant to purchase up to 200,000 shares of AVP common stock.
        The
        exercise price of the warrant is $.80. On June 30, 2006, the warrants had
        a
        value of $117,039, which was determined using the Black-Scholes valuation
        method. The assumptions utilized in computing the fair value of the warrants
        were as follows: expected life of 4 years, estimated volatility of 95% and
        a
        risk free interest rate of 5.10%. For the six months ended June 30, 2006,
        we
        expensed $15,792 related to the warrants. AVP agreed to file a registration
        statement for resale of the shares and the shares underlying the warrant
        by
        April 12, 2007. The registration statement became effective on June 30, 2006.
        The expiration date of the warrant is April 12, 2010 (the fourth anniversary
        of
        the signing of the Crocs Sponsorship/Advertising Agreement).




On
        April
        12, 2006, AVP entered a multi-year sponsorship/advertising agreement
        ("Agreement") with Crocs pursuant to which Crocs became the title sponsor
        of the
        AVP Tour through the final event of the 2008 AVP Tour season. In the Agreement,
        AVP agreed to issue warrants to purchase up to 1,000,000 shares of common
        stock
        of AVP. The vesting period is as follows: (i) 200,000 shares on April 12,
        2006
        and (ii) 200,000 shares on each January 15 th for the
        years 2007 through 2010; however no shares shall be granted in 2008, 2009
        or
        2010 if Crocs reduces its sponsorship in 2008, or in either 2009 or 2010
        if the
        Agreement is not extended beyond 2008 or in such earlier years if the Agreement
        is terminated by either party for breach prior to the final event of the
        2008
        AVP Tour season. The exercise price of the warrants is $.80. The
        warrants were recorded with a value of $252,842, which was determined using
        the
        Black-Scholes valuation method. The assumptions utilized in computing the
        fair
        value of the warrants were as follows: expected life of 6 years, estimated
        volatility of 95% and a risk free interest rate of 4.92%. The fair value
        of the
        warrants was recorded through the Consolidated Statement of Operations as
        contra-revenue. For the six months ended June 30, 2006, we recognized $94,346
        related to these warrants. AVP filed a registration statement for resale
        of the
        shares underlying the warrants, which became effective on June 30,
        2006. The expiration date of the warrant is April 12, 2012 (sixth
        anniversary of the execution of the Agreement).




In
        April
        2006, the Board of Directors of AVP agreed to extend the warrants included
        in
        the 10% convertible notes issued in the second half of 2004, which were
        scheduled to expire in June 2006, for an additional 18-month period through
        December 2007. The warrants were recorded with a value of $99,379, which
        was
        determined using the Black-Scholes valuation method. The assumptions utilized
        in
        computing the fair value of the warrants were as follows: expected life of
        1.7
        years, estimated volatility of 90% and a risk free interest rate of 3.52%.
        For
        the six months ended June 30, 2006, we expensed $99,379.




16




**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**8.
      CAPITAL TRANSACTIONS (CONTINUED)**




Pursuant
      to a Securities Purchase Agreement dated May 4, 2006, AVP sold 2,941,180 shares
      of common stock and five-year warrants to purchase 588,236 shares of common
      stock at an exercise price of $1.00 per share for a total price $2,500,003.
      Oppenheimer & Co., Inc. acted as the placement agent and in addition to its
      commission, received a warrant to purchase 282,353 shares of common stock on
      substantially the same terms as the warrants sold to investors. Warrants issued
      to the placement agent were capitalized as part of the offering costs.




Pursuant
      to a Securities Purchase Agreement dated June 9, 2006, AVP sold 3,529,410 shares
      of common stock and five-year warrants to purchase 705,882 shares of common
      stock at an exercise price of $1.00 per share, to an accredited investor, for
      a
      total price $2,999,998.50. Oppenheimer & Co., Inc. acted as the placement
      agent and in addition to its commission, received a warrant to purchase 338,824
      shares of common stock on substantially the same terms as the warrants sold
      to
      the investor. Warrants issued to the placement agent were capitalized as part
      of
      the offering costs.




The
      Securities Purchase Agreements in May and June of 2006 ("May and June 2006
      Financing") required AVP to file a re-sale registration statement within 10
      business days from closing of the June 9, 2006 Securities Purchase Agreement
      and
      gave the investors rights of first negotiation regarding future issuances of
      common stock, subject to exceptions. The registration statement became effective
      on June 30, 2006.




Under
      EITF 00-19 "Accounting for Derivative Financial Instruments Indexed to, and
      Potentially Settled in, a Company's Own Stock" (EITF 00-19"), the fair value
      of
      the warrants issued at the close of the May and June 2006 Financing have been
      reported as a liability due to the requirement to net-cash settle the
      transaction in the event that the shares underlying the warrant are not
      registered for sale. The warrant provides that the holder is entitled to
      liquidated damages, payable in cash, of 1% of the gross proceeds per month
      ($55,000) should the Company fail to achieve effectiveness of the registration
      statement. The warrants were recorded as a derivative financial instrument
      with
      a value of $875,513, and they were later reclassified as equity on the date
      the
      registration statement became effective. On the effective date, the warrants
      had
      a value of approximately $764,471, which was determined using the Black-Scholes
      valuation method. The assumptions utilized in computing the fair value of the
      warrants were as follows: expected life of 5 years, estimated volatility of
      90%
      and a risk free interest rate of 5.10%. The change in fair value of the warrants
      was recorded through the Consolidated Statement of Operations as Other Income
      (Expense). For the six months ended June 30, 2006, we recorded a gain of
      $111,042 associated with the fair value adjustment of the warrants.




As
        a
        result of the shares of common stock sold in May and June 2006, the conversion
        rate of the outstanding Series B Convertible Preferred Stock increased from
        24.3
        to 27.87 in accordance with the anti-dilution provision from the private
        placement of units of Series B Convertible Preferred Stock closed in February
        2005 ("February 2005 Financing"). Each unit sold in the February 2005 Financing
        consisted of 4 shares of AVP's Series B Preferred Stock (each Preferred Stock
        was originally convertible into 24.3 shares of common stock), and a five-year
        warrant to purchase up to 24.3 shares of the AVP's common stock. In accordance
        with the February 2005 Financing anti-dilution provisions, the number of
        shares
        of common stock for which the warrants were exercisable was adjusted. The
        warrant agreement entitles Series B Preferred Stock holders to purchase 131,521
        additional shares of common stock--for accounting purposes, the additional
        warrants were treated as a dividend. All outstanding shares of Series B
        Convertible Preferred Stock are now convertible into 27.87 shares of common
        stock.




17




**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**8.
      CAPITAL TRANSACTIONS (CONTINUED)**




In
        addition, as a result of the new shares sold in May and June 2006, AVP also
        issued to Maxim, broker-dealer and underwriter for the February 2005 Financing,
        a warrant to purchase 122,898 additional shares of common stock in accordance
        with its anti-dilution provision. The warrants were recorded through the
        Consolidated Statement of Operations as an administrative expense with a
        value
        of $93,135, which was determined using the Black-Scholes valuation method,
        for
        the six months ended June 30, 2006.




For
      the
      six months ended June 30, 2006, 23,688 shares of Series "B" preferred stock
      were
      converted into 583,439 shares of AVP's common stock pursuant to notices of
      conversions from two individual investors.




During
      the six months ended June 30, 2006, AVP issued 13,614 shares of common stock
      pursuant to the cashless exercise of options for 20,195 shares of common stock.
      The exercise price of the options was $0.30 per share.




Warrants
        granted on the May and June 2006 Financing include an anti-dilution provision
        that could increase common shares outstanding. The Company analyzed the
        anti-dilutive provision on the warrant agreements under EITF 00-19 and concluded
        the warrants were not a liability.




For
        the
        six months ended June 30, 2007, 22,396 shares of Series "B" preferred stock
        were
        converted into 624,176 shares of AVP’s common stock.




During
      the six months ended June 30, 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 six months ended June 30, 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.




18




**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**9.
      RECENTLY ISSUED ACCOUNTING STANDARDS**




In
        February 2006, the FASB issued Statement of Financial Accounting Standard
        No.
        155, “Accounting for Certain Hybrid Instruments” (SFAS 155), 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. Effective January
        1,
        2007, AVP adopted SFAS 155 with no significant impact on the Company'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). 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. Effective January 1, 2007, AVP adopted SFAS 156
        with
        no significant impact on the Company's financial position or results of
        operations.




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
        excise taxes are accounted for on a gross basis and recorded as revenue.
        For the
        six months ended June 30, 2007, total excise taxes levied on ticket sales
        were
        not significant.




In
        July
        2006, FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
        Income Taxes, an Interpretation of SFAS No. 109, Accounting for Income Taxes”
(FIN 48), which is effective for fiscal years beginning after December 15,
        2006, and clarifies the accounting for uncertainty in tax positions. FIN
        48
        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.





19




**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)
      .**




**9.
      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" (SFAS 158). 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. SFAS 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 is not expected to
        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.





20




**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 have scheduled
        18
        men’s and 18 women’s events in Miami, FL, Dallas, TX, Huntington Beach, CA,
        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, and 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.




21




**Results
      of Operations for the three months ended June 30, 2007 and
      2006**




**Revenue**




**Summary
                  Revenue**Three
                  Months Ended June 30,
              
              
              Percentage
                  Increase**2007**
              
              
              **2006**
              
              
              (Decrease)Sponsorship/advertising
              
              $
              8,990,790
              
              $
              6,233,090
              
              
              44
              %Activation
                  Fees
              
              
              706,744
              
              
              148,447
              
              
              376
              %Local
                  Promoter Fees/Profit Share
              
              
              11,606
              
              
              146,000
              
              
              (92
              %)Local
                  Revenue
              
              
              485,656
              
              
              497,770
              
              
              (2
              %)Miscellaneous
                  Revenue
              
              
              653,605
              
              
              285,845
              
              
              129
              %Total
                  Revenue
              
              $
              10,848,401
              
              $
              7,311,152
              
              
              48
              %




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 sponsors. AVP recognizes national
      sponsorship/advertising revenue and activation fees 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. Local
      sponsorship/advertising revenue, local promoter fees and local revenue are
      recognized as the applicable events occur. AVP's beach volleyball tournament
      season customarily commences in early April and continues until late September
      or early October.




Sponsorship/advertising
        revenue for the three months ended June 30, 2007 increased 44% or $2.8 million
        as compared to the three months ended June 30, 2006, due to an increase in
        annual contracted sponsorship/advertising revenue from, $17.4 million in
        2006 to
        $19.9 million in 2007, and the Company recognizing a greater percentage of
        annual contracted national sponsorship/advertising revenue, as nine events
        took
        place in the three months ended June 30, 2007 (out of 18 events in 2007)
        compared to only six events taking place in the three months ended June 30,
        2006
        (out of 16 events in 2006). For the three months ended June 30, the average
        sponsorship/advertising revenue per event for 2007 and 2006 were $1.0 million
        and $1.0 million, respectively.




The
        376%
        increase in activation fees was primarily due to an increase in annual gross
        activation revenue as a result of adding a new sponsor for a fully integrated
        activation services program. The increase in activation is also due to nine
        events taking place in the three months ended June 30, 2007 (out of 18 events
        in
        2007) compared to only six events taking place in the three months ended
        June
        30, 2006 (out of 16 events in 2006). The average activation revenue per event
        for the three months ended June 30, 2007 and 2006 were approximately $79
        thousand and $25 thousand, respectively.




Local
        promoter fees/profit share for the three months ended June 30, 2007
        decreased 92% or $0.1 million as compared to the three months ended June
        30,
        2006. For the three months ended June 30, 2007, the majority of the 2006
        promoter agreements were restructured to a profit-share model that the event
        promoter is responsible for certain specified event costs (“approved event
        budget”) including the stadium, sand, various operational costs (e.g., phone
        lines, certain event personnel, and security), event permits, and/or marketing
        costs, and the parties share local revenue on a 50-50 basis after recoupment
        of
        the approved event budget. The new 2007 promoter agreements were based on
        the
        profit-share model. Maintaining the 2006 promoter fee model increased the
        risk
        of losing event promoters in 2007 and forward. For the three months ended
        June
        30, 2006, we entered a promoter agreement pursuant to which the promoter
        paid
        AVP a promoter fee in exchange for the right to exploit local revenue, including
        ticket sales, local sponsorships, parking, and concessions.




22




Local
      revenue was flat year over year; however, the average local revenue by
      non-promoter event increased as a result of an increase in sales of corporate
      luxury suites.




The
      129%
      or $0.4 million increase in miscellaneous revenue includes the addition of
      a
      marketing services program, an increase in AVPNext revenue and an increase
      in
      international television licensing revenue.




**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.





**Summary
                Costs**
            
            **%
                Revenue****Increase
                (Decrease) as**Three
                Months Ended June 30,
            
            Three
                Months Ended June 30,
            
            **%
                of Revenue****2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **2007
                vs. 2006**Event
                Costs
            
            $
            7,185,169
            
            $
            5,360,237
            
            
            66
            %
            
            73
            %
            
            (7
            %)




The
        increase of 34% or $1.8 million in total event costs was attributable to
        three
        additional events taking place during the three months ended June 30, 2007
        (nine
        events compared to six events taking place during the three months ended
        June
        30, 2006). For the three months ended June 30, the average event cost for
        2007
        decreased to $0.8 million from an average event cost of $0.9 million for
        2006.
        The decrease in the average event cost for the three months ended June 30,
        2007
        is attributable to the cost savings resulting from five promoter events (out
        of
        nine events in the quarter) as compared to one event promoter (out of six)
        for
        the three months ended June 30, 2006. The event promoters were responsible
        for
        certain operational costs of the events. In addition, no network broadcast
        time
        cost and television production costs were incurred for the three months ended
        June 30, 2007, however there are network broadcasts scheduled for the three
        months ended September 30, 2007.




**Gross
      Profit**





**Gross
                Profit**Three
                Months Ended June 30,**2007**
            
            **2006**Revenue
            
            $
            10,848,401
            
            $
            7,311,152Event
                Costs
            
            
            7,185,169
            
            
            5,360,237Gross
                Profit
            
            $
            3,663,232
            
            $
            1,950,915Gross
                Profit %
            
            
            34
            %
            
            27
            %




AVP’s
      gross profit margin for the three months ended June 30, 2007 was 34% compared
      to
      27% for the three months ended June 30, 2006. The increase in the gross profit
      margin is due to an increase in sponsorship/advertising revenue of $2.8 million,
      an increase in activation fees of $0.6 million, no network broadcast time costs
      and television production costs ($0 compared to $1.0 million in 2006), and
      a
      decrease in average event costs.




Our
      quarterly results of operations and gross margins vary depending on the number
      of events scheduled each quarter, the number of agreements with local event
      promoters, and the mode of television distribution of our events. Events
      broadcast on network television carry significant costs compared to cable
      broadcasts and cause quarterly fluctuations, based on the timing of these events
      throughout the year.




23




**Operating
      Expenses**





**Summary
                  Costs**
              
              **%
                  Revenue**Three
                  Months Ended
                June
                  30,
              
              Three
                  Months Ended June 30,
              
              **Increase
                  (Decrease) as**
                **%
                  of Revenue****2007**
              
              **2006**
              
              **2007**
              
              **2006**
              
              **2007
                  vs. 2006**Administrative
              
              $
              1,958,237
              
              $
              1,317,281
              
              
              18
              %
              
              18
              %
              
              0
              %Sales
                  and Marketing
              
              
              862,503
              
              
              721,210
              
              
              8
              %
              
              10
              %
              
              (2
              %)Total
                  Costs
              
              $
              2,820,740
              
              $
              2,038,491
              
              
              26
              %
              
              28
              %
              
              (2
              %)




The
        49%
        or $0.6 million increase in administrative costs was primarily due to
        transaction costs as a result of the proposed Shamrock transaction, additional
        headcount, and salary increases.




The
      20%
      or $0.1 increase in sales and marketing costs reflects an increase in recruiting
      costs related to new sales personnel. For the three months ended June 30, 2007,
      total sales and marketing costs decreased as a percentage of revenue due to
      the
      increase in revenue.




**Depreciation
                and Amortization Expense****Percentage**Three
                Months Ended June 30,
            
            **Increase****2007**
            
            **2006**
            
            **(Decrease)**Depreciation
                Expense
            
            $
            59,689
            
            $
            39,599
            
            
            51
            %Amortization
                Expense
            
            
            -
            
            
            2,011
            
            
            (100
            %)Total
            
            $
            59,689
            
            $
            41,610
            
            
            43
            %




The
      51%
      increase in depreciation expense resulted from an increase in depreciable
      assets, including information technology equipment and rotational signage
      equipment.




**Other
                  Income (Expense)**Three
                  Months Ended June 30,**2007**
              
              
              **2006**
              
              
              **Percentage**
                **Increase**Interest
                  Expense
              
              $
              -
              
              $
              (3,718
              )
              
              (100
              %)Interest
                  Income
              
              
              57,520
              
              
              33,807
              
              
              70
              %Gain
                  on disposal of asset
              
              
              1,325
              
              
              -
              
              
              -
              %Derivative
                  financial instrument gain
              
              
              -
              
              
              111,042
              
              
              (100
              %)Total
              
              $
              58,845
              
              $
              141,131
              
              
              (58
              %)




The
        70%
        increase in interest income reflects interest earned at a
        higher rate on our higher cash balance realized from the May and June
        2006 Financing.




For
        the
        three months ended June 30, 2006, we recorded a gain of $0.1 million associated
        with the fair value adjustment of the warrants issued in connection with
        the May
        and June 2006 Financing. Pursuant to the May and June 2006 Financing, we
        sold
        6,470,590 shares of common stock and five-year warrants to purchase 1,294,118
        shares of common stock at price of $1.00 per share, to accredited investors.
        Under EITF 00-19 "Accounting for Derivative Financial Instruments Indexed
        to,
        and Potentially Settled in, a Company's Own Stock" (EITF 00-19), the fair
        value
        of the warrants issued under the May and June 2006 Financing was originally
        recorded as a liability due to the requirement to net-cash settle the
        transaction in the event that the shares underlying the warrant were not
        registered for sale. Pursuant to the warrant agreement, the warrant holder
        was
        entitled to liquidated damages, payable in cash, of 1% of the gross proceeds
        per
        month ($55 thousand) should the Company fail to achieve timely effectiveness
        of
        the registration statement. The warrants were considered a derivative financial
        instrument with a value of $0.9 million, and they were later reclassified
        as
        equity on the date the registration statement became effective. On the effective
        date, the warrants had a value of approximately $0.8 million, which was
        determined using the Black-Scholes valuation method. The assumptions utilized
        in
        computing the fair value of the warrants were as follows: expected life of
        5
        years, estimated volatility of 90% and a risk free interest rate of 5.10%.




24




**Operating
                Income (Loss) and Net Income**
            
            **%
                Revenue**Three
                Months EndedJune
                30,
            
            Three
                Months Ended June 30,2007
            
            2006
            
            2007
            
            2006Operating
                Income (Loss)
            
            $
            842,492
            
            $
            (87,576
            )
            
            8
            %
            
            (1
            %)Net
                Income
            
            $
            901,337
            
            $
            53,555
            
            
            8
            %
            
            1
            %




The
        increase in operating income and net income primarily reflects an increase
        of
        $2.8 million in sponsorship/advertising revenue, an increase of $0.6 million
        in
        activation fees, a decrease in network broadcast costs of $1.0 million, and
        a
        decrease in warrant expenses of $0.2 million, which offset increases in total
        event costs and transactions costs in connection to the proposed Shamrock
        transaction.




**Results
      of Operations for the Six Months Ended June 30, 2007 and
      2006**




**Revenue**




**Summary
                  Revenue**Six
                  Months Ended June 30,
              
              Percentage
                Increase**2007**
              
              **2006**
              
              (Decrease)Sponsorship/advertising
              
              $
              8,990,790
              
              $
              6,233,090
              
              
              44
              %Activation
                  Fees
              
              
              706,744
              
              
              148,447
              
              
              376
              %Local
                  Promoter Fees/Profit Share
              
              
              11,606
              
              
              146,000
              
              
              (92
              %)Local
                  Revenue
              
              
              485,656
              
              
              497,770
              
              
              (2
              %)Miscellaneous
                  Revenue
              
              
              822,605
              
              
              408,661
              
              
              101
              %Total
                  Revenue
              
              $
              11,017,401
              
              $
              7,433,968
              
              
              48
              %





Sponsorship/advertising
        revenue for the six months ended June 30, 2007 increased 44% or $2.8 million
        as
        compared to the six months ended June 30, 2006, due to an increase in annual
        contracted sponsorship/advertising revenue from $17.4 million in 2006 to
        $19.9
        million in 2007, and the Company recognizing a greater percentage of annual
        contracted national sponsorship/advertising revenue as nine events took place
        in
        the six months ended June 30, 2007 (out of 18 events in 2007) compared to
        only
        six events taking place in the six months ended June 30, 2006 (out of 16
        events
        in 2006). For the six months ended June 30, the average sponsorship/advertising
        revenue per event for 2007 and 2006 were $1.0 million and $1.0 million,
        respectively.




25




The
        376%
        increase in activation fees was primarily due to an increase in annual gross
        activation revenue as a result of adding a new sponsor for a fully integrated
        activation services program. The increase in activation is also due to nine
        events taking place in the six months ended June 30, 2007 (out of 18 events
        in
        2007) compared to only six events taking place in the six months ended June
        30,
        2006 (out of 16 events in 2006). The average activation revenue per event
        for
        the six months ended June 30, 2007 and 2006 were approximately $79 thousand
        and
        $25 thousand, respectively.




Local
        promoter fees/profit share for the six months ended June 30, 2007 decreased
        92% or $0.1 million as compared to the three months ended June 30, 2006.
        For the
        six months ended June 30, 2007, the majority of the 2006 promoter agreements
        were restructured to a profit-share model that the event promoter is responsible
        for certain specified event expenses (“approved event budget”) including the
        stadium, sand, various operational costs (e.g., phone lines, certain event
        personnel, and security), event permits, and/or marketing costs, and the
        parties
        share local revenue on a 50-50 basis after recoupment of the approved event
        budget. The new 2007 promoter agreements were based on the profit-share model.
        Maintaining the 2006 promoter fee model increased the risk of losing the
        event
        promoters in 2007 and forward. For the six months ended June 30, 2006, we
        entered a promoter agreement pursuant to which the promoter paid AVP a promoter
        fee in exchange for the right to exploit local revenue, including ticket
        sales,
        local sponsorships, parking, and concessions.




Local
      revenue was flat year over year; however, the average local revenue by
      non-promoter event increased as a result of an increase in sales of corporate
      luxury suites.




The
      101%
      or $0.4 million increase in miscellaneous revenue primarily includes the
      addition of a marketing services program, an increase in AVPNext revenue, and
      an
      increase in international television licensing revenue.




**Event
      Costs**




**Summary
                Costs**
            
            **%
                of Revenue****Increase**
              **(Decrease)
                in**Six
                Months Ended June 30,
            
            Six
                Months Ended June 30,
            
            **%
                of Revenue****2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **2007
                vs. 2006**Event
                Costs
            
            $
            7,237,468
            
            $
            5,360,237
            
            
            66
            %
            
            72
            %
            
            (6
            %)




The
        increase of 35% or $1.9 million in total event costs was attributable to
        three
        additional events taking place during the six months ended June 30, 2007
        (nine
        events compared to six events taking place during the six months ended June
        30,
        2006). For the six months ended June 30, the average event cost for 2007
        decreased to $0.8 million from an average event cost of $0.9 million for
        2006.
        The decrease in the average event cost for the six months ended June 30,
        2007 is
        attributable to the cost savings resulting from five promoter events (out
        of
        nine events in the period) as compared to one event promoter (out of six)
        for
        the six months ended June 30, 2006. The event promoters were responsible
        for
        certain operational costs of the events. In addition, no network broadcast
        time
        cost and television production costs were incurred during the six months
        ended
        June 30, 2007.




26




**Gross
      Profit**




**Gross
                Profit**Six
                Months Ended June 30,**2007**
            
            **2006**Revenue
            
            $
            11,017,401
            
            $
            7,433,968Event
                Costs
            
            
            7,237,468
            
            
            5,360,237Gross
                Profit
            
            $
            3,779,933
            
            $
            2,073,731Gross
                Profit %
            
            
            34
            %
            
            28
            %




AVP’s
      gross profit margin for the six months ended June 30, 2007 was 34% compared
      to
      28% for the six months ended June 30, 2006. The increase in the gross profit
      margin is due to an increase in sponsorship/advertising revenue of $2.8 million,
      an increase in activation fees of $0.6 million, no network broadcast time and
      television production costs ($0 compared to $1.0 million in 2006), and a
      decrease in average event cost.




**Operating
      Expenses**




**Summary
                  Costs**
              
              **%
                  of Revenue****Increase**
                **(Decrease)
                  in**Six
                  Months Ended June 30,
              
              Six
                  Months Ended June 30,
              
              **%
                  of Revenue****2007**
              
              **2006**
              
              **2007**
              
              **2006**
              
              **2007
                  vs. 2006**Administrative
              
              $
              3,404,540
              
              $
              2,448,046
              
              
              31
              %
              
              33
              %
              
              (2
              %)Sales
                  and Marketing
              
              
              1,738,216
              
              
              1,223,796
              
              
              16
              %
              
              16
              %
              
              0
              %Total
                  Costs
              
              $
              5,142,756
              
              $
              3,671,842
              
              
              47
              %
              
              49
              %
              
              (2
              %)




The
          39%
          or $1.0 million increase in administrative costs was primarily due to
          transaction costs as a result of the proposed Shamrock transaction, additional
          headcount, and salary increases.


The
        42%
        or $0.5 million increase in sales and marketing costs primarily reflects
        an
        increase in commission expense paid to external sales agents, increase in
        recruiting costs related to new sales personnel, engaging an outside consultant
        for licensing consulting services, and salary increases.




**Depreciation
                  and Amortization Expense**Six
                  Months Ended June 30,
              
              **Percentage**
                **Increase****2007**
              
              **2006**
              
              **(Decrease)**Depreciation
                  Expense
              
              $
              109,260
              
              $
              76,144
              
              
              43
              %Amortization
                  Expense
              
              
              -
              
              
              4,022
              
              
              (100
              %)Total
              
              $
              109,260
              
              $
              80,166
              
              
              36
              %




The
      43%
      increase in depreciation expense resulted from an increase in depreciable
      assets, including information technology equipment; transportation equipment
      (e.g., truck, flat bed trailer); and rotational signage
      equipment.




27




**Other
                Income (Expenses)**Six
                Months Ended June 30,
            
            
            **Percentage**
              **Increase****2007**
            
            
            **2006**
            
            
            **(Decrease)**Interest
                Expense
            
            $
            -
            
            $
            (11,931
            )
            
            (100
            %)Interest
                Income
            
            
            113,977
            
            
            54,946
            
            
            107
            %Gain
                on disposal of asset
            
            
            9,774
            
            
            9,863
            
            
            (1
            %)Derivative
                financial instrument gain
            
            
            -
            
            
            111,042
            
            
            (100
            %)Total
            
            $
            123,751
            
            $
            163,920
            
            
            (25
            %)




The
107%
        increase in interest income reflects interest earned at a higher rate on
        our higher cash balance realized from the May and June 2006
        Financing.




For
        the
        six months ended June 30, 2006, we recorded a derivative financial instrument
        gain on reclassification of warrants sold in the May and June 2006 Financing,
        upon effectiveness of the registration of the underlying
        shares.




**Operating
      Loss and Net** **Loss**




**Operating
                Loss and Net Loss**
            
            **%
                of Revenue**Six
                Months Ended June 30,
            
            Six
                Months Ended June 30,**2007**
            
            **2006**
            
            **2007**
            
            **2006**Operating
                Loss
            
            $
            (1,362,823
            )
            $
            (1,598,111
            )
            
            (12
            )%
            
            (21
            )%Net
                Loss
            
            $
            (1,239,872
            )
            $
            (1,434,991
            )
            
            (11
            )%
            
            (19
            )%




The
        improvement in operating loss primarily reflects an increase of $2.8 million
        in
        sponsorship/advertising revenue, an increase in activation fees of $0.6 million,
        a decrease in network broadcast costs of $1.0 million, and a decrease in
        warrant
        expense of $0.2 million, which offset increases in total event costs and
        transaction costs as a result of the proposed Shamrock transaction. Excluding
        warrant expense, transaction costs resulting from the proposed Shamrock
        transaction, the contra-revenue expense resulting from the issue of warrants
        to
        the title sponsor of the AVP Tour, and the gain on warrant derivative, non-GAAP
        net loss for the six months ended June 30, 2007 would have been $(0.3) million
        compared to net loss of $(1.2) million for the six months ended June 30,
        2006.




28




**Liquidity
      and Capital Resources**





**Sources
                of Liquidity**June
                30, 2007
            
            December
                31, 2006
            
            Increase/
              (Decrease)Cash
                and cash equivalents
            
            $
            6,168,302
            
            $
            5,052,636
            
            $
            1,115,666Percentage
                of total assets
            
            
            52
            %
            
            58
            %





Six
                Months Ended June 30,
            
            Increase/2007
            
            2006
            
            (Decrease)Cash
                flows provided by operating activities
            
            $
            1,199,025
            
            $
            588,903
            
            $
            610,122Cash
                flows used in investing activities
            
            
            (83,359
            )
            
            (39,694
            )
            
            (43,665
            )Cash
                flows provided by financing activities
            
            
            -
            
            
            4,617,265
            
            
            (4,617,265
            )




As
      of
      June 30, 2007, our primary source of liquidity is comprised of $6.2 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 placement which are described in more detail
      below in “Cash Flows Provided by Financing Activities.”




We
      believe that we have sufficient working capital ($4.3 million at June 30, 2007)
      to finance our operational requirements for at least the next 12
      months.




Cash
        flows provided by operating activities for the six months ended June 30,
        2007
        and 2006 were $1.2 million and $0.6 million, respectively. The increase in
        cash
        flows provided by operating activities for the six months ended June 30,
        2007 is
        primarily due to increases in accounts payable and deferred revenue, which
        offset the increase in accounts receivable. Working capital, consisting of
        current assets less current liabilities, was $4.3 million at June 30, 2007
        and
        $4.2 million at June 30, 2006.




At
      June
      30, 2007 and 2006, accounts receivable had increased $1.5 million and $1.7
      million as compared to December 31, 2006 and 2005, respectively. At June 30,
      2007 and 2006, deferred revenues had increased $2.5 million and $3.7 million
      as
      compared to December 31, 2006 and 2005, respectively. Deferred revenues are
      recorded as AVP collects revenues prior to holding certain events.




Capital
      expenditures for the six months ended June 30, 2007 and 2006 were $0.2 million
      and $0.2 million, respectively. During the six months ended June 30, 2007,
      AVP
      purchased information technology equipment, vehicles, and rotational signage
      equipment. During the six months ended June 30, 2006, AVP purchased a
      scoreboard, activation equipment, banners and flags in preparation for the
      2006
      tour season.




Cash
        flows provided by financing activities for 2007 and 2006 were $0 and $4.6
        million, respectively. During the second quarter of 2006, pursuant to the
        May
        and June 2006 Financing, we completed a private placement of common stock
        and warrants which generated net proceeds of $5.0 million, net of offering
        costs
        of $0.5 million. Oppenheimer
        & Co., Inc. acted as the placement agent and in addition to its commission,
        received warrants to purchase common stock on substantially the same
        terms as the warrants sold to investors. The sale of the securities was exempt
        from registration pursuant under Securities Act section
        4(2).


29




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
      million, FBC received 666,667 shares of Common Stock, par value $0.001 per
      share, of AVP.




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 Sales, LLC in connection with sponsorship sales
        services previously provided by MPE to the Asscociation.




**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 is 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**




As
        discussed in Note 9, AVP adopted the provisions of FASB Interpretation No.
        48 on
        January 1, 2007. There was no material effect on the Company's financial
        condition or results of operation as a result of implementing FIN 48. 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.




**Recently
      Issued Accounting Standards**




In
        February 2006, the FASB issued Statement of Financial Accounting Standard
        No.
        155, “Accounting for Certain Hybrid Instruments” (SFAS 155), 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. Effective January
        1,
        2007, AVP adopted SFAS 155 with no significant impact on the Company's financial
        position or results of operations.




30




In
        March
        2006, the FASB issued SFAS No.156, “Accounting for Servicing of Financial Assets
        - an Amendment of SFAS No.140” (SFAS 156). 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. Effective January 1, 2007, AVP adopted SFAS 156
        with
        no significant impact on the Company's financial position or results of
        operations.




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 excise
        taxes are accounted for on a gross basis and recorded as revenue. For the
        six
        months ended June 30, 2007, total excise taxes levied on ticket sales were
        not significant.




In
        July
        2006, FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
        Income Taxes, an Interpretation of SFAS No. 109, Accounting for Income Taxes”
(FIN 48),  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.




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" (SFAS 158). 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. SFAS 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 is not expected to
        have
        a material effect on the Company’s consolidated financial position, results of
        operations or cash flows.




31




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.





32




**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 June 30, 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.





33




**PART
      II. OTHER INFORMATION**








**ITEM
      6. EXHIBITS**





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





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





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





34





**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 August, 2007.




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




35