**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 September 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
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)




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


(Address
      of principal executive offices - Zip code)





(310)
      426 - 8000


(Registrant's
      telephone number, including area code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15 (d) of the Securities Exchange Act during the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.





Yes x
      No o





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





Yes o
      No x





As
      of
      November 14, 2007, the Registrant had 20,490,096 shares of common stock
      outstanding.





Transitional
      Small Business Disclosure Format (check one): Yes o No x










**AVP,
      INC.**





INDEX





PagePART I.
            FINANCIAL
                INFORMATION
            
            3ITEM 1.
            FINANCIAL
                STATEMENTS
            
            3Consolidated
                Balance Sheets as of September 30, 2007 (Unaudited)
                and December 31, 2006
            
            4Consolidated
                Statements of Operations for the
                three and nine months ended September 30, 2007 and 2006 (Unaudited)
            
            5Consolidated
                Statement of Changes in Stockholders' Equity for
                the nine months ended September 30, 2007 (Unaudited)
            
            6Consolidated
                Statements of Cash Flows for the
                nine months ended September 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
            
            32PART II.
            OTHER
                INFORMATION
            
            33ITEM 6.
            EXHIBITS
                AND REPORTS ON FORM 8-K
            
            33





2


**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





**AVP,
      INC.**


**Index
      to Financial Statements**


**Period
      Ended September 30, 2007**





PAGEFinancial
                StatementsUnaudited
                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**




September
                30,
              2007
            
            December
                31,
              2006**ASSETS**
            
            
            (Unaudited)**CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            3,739,212
            
            $
            5,052,636Accounts
                receivable, net of
              allowance
                for doubtful accounts of $232,269 and $25,193
            
            
            5,479,284
            
            
            2,653,473Prepaid
                expenses
            
            
            237,941
            
            
            242,007Other
                current assets - current portion
            
            
            162,355
            
            
            301,477TOTAL
                CURRENT ASSETS
            
            
            9,618,792
            
            
            8,249,593**PROPERTY
                AND EQUIPMENT, net**
            
            
            413,301
            
            
            340,054**OTHER
                ASSETS**
            
            
            133,678
            
            
            105,373TOTAL
                ASSETS
            
            $
            10,165,771
            
            $
            8,695,020**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****CURRENT
                LIABILITIES**Accounts
                payable
            
            $
            2,878,334
            
            $
            529,331Accrued
                expenses
            
            
            2,682,217
            
            
            1,049,439Deferred
                revenue
            
            
            84,369
            
            
            1,056,960TOTAL
                CURRENT LIABILITIES
            
            
            5,644,920
            
            
            2,635,730**NON-CURRENT
                LIABILITIES**
            
            
            100,945
            
            
            190,766TOTAL
                LIABILITIES
            
            
            5,745,865
            
            
            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, 20,490,096
                and
                19,751,838 shares issued and outstanding
            
            
            20,490
            
            
            19,752Additional
                paid-in capital
            
            
            39,626,548
            
            
            39,077,065Accumulated
                deficit
            
            
            (35,227,180
            )
            
            (33,228,363
            )TOTAL
                STOCKHOLDERS’ EQUITY
            
            
            4,419,906
            
            
            5,868,524TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            10,165,771
            
            $
            8,695,020




See
      notes
      to consolidated financial statements.




4


**AVP,
      INC.**




**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




**(Unaudited)**


Three
                  Months Ended
                September
                  30,
              
              Nine
                  Months Ended
                September
                  30,**2007**
              
              **2006**
              
              **2007**
              
              **2006**REVENUESponsorships/Advertising(1)
              
              $
              10,228,458
              
              $
              11,155,368
              
              $
              19,219,248
              
              $
              17,388,458Other
              
              
              2,577,980
              
              
              2,654,724
              
              
              4,604,591
              
              
              3,855,602TOTAL
                  REVENUE
              
              
              12,806,438
              
              
              13,810,092
              
              
              23,823,839
              
              
              21,244,060EVENT
                  COSTS(2)
              
              
              10,761,071
              
              
              9,292,516
              
              
              17,998,538
              
              
              14,652,753GROSS
                  PROFIT
              
              
              2,045,367
              
              
              4,517,576
              
              
              5,825,301
              
              
              6,591,307OPERATING
                  EXPENSESSales
                  and Marketing(3)
              
              
              919,872
              
              
              814,098
              
              
              2,658,089
              
              
              2,037,892Administrative(4)
              
              
              1,919,833
              
              
              1,200,724
              
              
              5,324,373
              
              
              3,648,772TOTAL
                  OPERATING EXPENSES
              
              
              2,839,705
              
              
              2,014,822
              
              
              7,982,462
              
              
              5,686,664OPERATING
                  INCOME (LOSS)
              
              
              (794,338
              )
              
              2,502,754
              
              
              (2,157,161
              )
              
              904,643OTHER
                  INCOME (EXPENSE)Interest
                  expense
              
              
              (745
              )
              
              (7,823
              )
              
              (745
              )
              
              (19,754
              )Interest
                  income
              
              
              44,748
              
              
              72,173
              
              
              158,725
              
              
              127,118Gain
                  on disposal of asset
              
              
              -
              
              
              -
              
              
              9,774
              
              
              9,863Gain
                  on warrant derivative
              
              
              -
              
              
              -
              
              
              -
              
              
              111,042TOTAL
                  OTHER INCOME (EXPENSE)
              
              
              44,003
              
              
              64,350
              
              
              167,754
              
              
              228,269INCOME
                  (LOSS) BEFORE INCOME TAXES
              
              
              (750,335
              )
              
              2,567,104
              
              
              (1,989,407
              )
              
              1,132,912INCOME
                  TAXES
              
              
              (8,610
              )
              
              -
              
              
              (9,410
              )
              
              (800
              )NET
                  INCOME (LOSS)
              
              
              (758,945
              )
              
              2,567,104
              
              
              (1,998,817
              )
              
              1,132,112Deemed
                  Dividend to Series B Preferred Stock Shareholders
              
              
              -
              
              
              -
              
              
              -
              
              
              91,973Net
                  Income (Loss) Available to Common Shareholders
              
              $
              (758,945
              )
              $
              2,567,104
              
              $
              (1,998,817
              )
              $
              1,040,139Earnings
                  (loss) per common share:Basic
              
              $
              (0.04
              )
              $
              0.13
              
              $
              (0.10
              )
              $
              0.07Diluted
              
              $
              (0.04
              )
              $
              0.09
              
              $
              (0.10
              )
              $
              0.04Shares
                  used in computing earnings (loss) per share:Basic
              
              
              20,443,269
              
              
              19,672,889
              
              
              20,064,693
              
              
              15,978,091Diluted
              
              
              20,443,269
              
              
              27,718,609
              
              
              20,064,693
              
              
              24,199,242




(1)
      Sponsorship/advertising includes $507,800 and $158,496 in stock based
      contra-revenue for the three months ended September 30, 2007 and 2006,
      respectively and $507,800 and $252,842 for the nine months ended September
      30,
      2007 and 2006, respectively.




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




(3)
      Sales
      and marketing expenses includes stock based expenses of $19,045 and $27,575
      for
      the three months ended September 30, 2007 and 2006, respectively, and $101,266
      and $61,549 for the nine months ended September 30, 2007 and 2006,
      respectively.




(4)
      Administrative expenses includes stock based expenses of $21,236 and $40,656
      for
      the three months ended September 30, 2007 and 2006, respectively, and $64,192
      and $254,623 for the nine months ended September 30, 2007 and 2006,
      respectively.




See
      notes
      to consolidated financial statements.





5




**AVP,
      INC.**




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





**For
      The Nine Months Ended September 30, 2007**





**(Unaudited)**


Series
                  A Preferred Stock
              
              Series
                  B
                Preferred
                  Stock
              
              Common
                  Stock
              
              Additional
                  Paid-in
              
              Accumulated
              
              Total
                  Stockholders’Shares
              
              Amount
              
              Shares
              
              Amount
              
              Shares
              
              Amount
              
              Capital
              
              Deficit
              
              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
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              114,082
              
              
              114
              
              
              (114
              )
              
              -
              
              
              -Issuance
                  of warrants to broker-dealer for services
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (21,793
              )
              
              -
              
              
              (21,793
              )Expenses
                  from issuance of employee options
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              64,192
              
              
              -
              
              
              64,192Contra-revenue
                  from issuance of warrants to national sponsor
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              507,800
              
              
              -
              
              
              507,800Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,998,817
              )
              
              (1,998,817
              )Balance,
                  September 30, 2007
              
              
              -
              
              $
              -
              
              
              47,152
              
              $
              48
              
              
              20,490,096
              
              $
              20,490
              
              $
              39,626,548
              
              $
              (35,227,180
              )
              $
              4,419,906





See
      notes
      to consolidated financial statements.





6


**AVP,
      INC.**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**(Unaudited)**





**Nine
                Months Ended**
              **September
                30,****2007**
            
            **2006**CASH
                FLOWS USED IN OPERATING ACTIVITIESNet
                income (loss)
            
            $
            (1,998,817
            )
            $
            1,132,112Adjustments
                to reconcile net income (loss) to net cash flows from operating
                activities:Depreciation
                of property and equipment
            
            
            169,507
            
            
            123,099Bad
                debt expense
            
            
            112,811
            
            
            (17,435
            )Interest
                income on investment in sales-type lease
            
            
            -
            
            
            (36,508
            )Amortization
                of deferred commissions
            
            
            101,266
            
            
            61,547Gain
                on disposal of assets
            
            
            (9,774
            )
            
            (9,864
            )Other
                amortization
            
            
            -
            
            
            6,073Stock
                based event costs
            
            
            -
            
            
            1,000,000Contra-revenue
                from the issuance of warrant
            
            
            507,800
            
            
            252,842Compensation
                from issuance of stock options and warrants
            
            
            64,192
            
            
            225,837Change
                in fair value of derivative financial instrument
            
            
            -
            
            
            (111,042
            )Compensation
                from issuance of common stock
            
            
            -
            
            
            28,786Decrease
                (increase) in operating assets:Accounts
                receivable
            
            
            (2,938,621
            )
            
            (4,657,190
            )Prepaid
                expenses
            
            
            4,066
            
            
            (139,875
            )Other
                assets
            
            
            (153,793
            )
            
            (83,409
            )Increase
                (decrease) in operating liabilities:Accounts
                payable
            
            
            2,349,003
            
            
            237,729Accrued
                expenses
            
            
            1,599,207
            
            
            173,484Deferred
                revenue
            
            
            (1,028,841
            )
            
            (92,290
            )NET
                CASH FLOWS USED IN OPERATING ACTIVITIES
            
            
            (1,221,994
            )
            
            (1,906,104
            )CASH
                FLOWS USED IN INVESTING ACTIVITIESInvestment
                in property and equipment
            
            
            (241,430
            )
            
            (255,747
            )Proceeds
                from investment in sales-type lease
            
            
            150,000
            
            
            153,465Proceeds
                from disposal of property and equipment
            
            
            -
            
            
            19,665NET
                CASH FLOWS USED IN INVESTING ACTIVITIES
            
            
            (91,430
            )
            
            (82,617
            )




See
      notes
      to consolidated financial statements.





7


**AVP,
      INC.**




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**(Unaudited)**





(CONTINUED)





**Nine
                Months Ended**
              **September
                30,****2007**
            
            **2006**CASH
                FLOWS PROVIDED BY FINANCING ACTIVITIESProceeds
                from sale of capital stock
            
            $
            -
            
            $
            5,500,002Offering
                costs
            
            
            -
            
            
            (466,000
            )Debt
                repayments
            
            
            -
            
            
            (416,737
            )Payments
                for rescission of player options
            
            
            -
            
            
            (13,185
            )NET
                CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
            
            
            -
            
            
            4,604,080NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (1,313,424
            )
            
            2,615,359CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            5,052,636
            
            
            1,143,345CASH
                AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            3,739,212
            
            $
            3,758,704**SUPPLEMENTAL
                DISCLOSURE OF****CASH
                FLOW INFORMATION**Cash
                paid during the period for:Interest
            
            $
            -
            
            $
            113,478Income
                taxes
            
            $
            9,410
            
            $
            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 common stock to sales agent for services
            
            $
            -
            
            $
            200,000Issuance
                of warrant to sales agent for services
            
            $
            (21,793
            )
            $
            $
                88,148Cashless
                exercise of warrant
            
            $
            114
            
            $
            14




See
      notes
      to consolidated 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’s latest Annual Report
      on Form 10-KSB filed with the SEC. In the opinion of management, all
      adjustments, consisting only of normal recurring adjustments, necessary for
      a
      fair presentation of AVP’s financial position and the results of operations for
      the interim periods presented have been reflected herein. AVP’s business is
      seasonal; therefore, the revenue and 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.
      PROPOSED 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. was to 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 would have been cancelled and converted into the right
      to
      receive $1.23, and AVP would have become a wholly owned subsidiary of AVP
      Holdings, Inc. The transaction was expected to close in late September 2007,
      but
      it was subject to certain customary terms and conditions, including stockholder
      approval.




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. In addition to those
      fees, AVP reimbursed Jefferies for all out-of-pocket expenses incurred by
      Jefferies in connection with the engagement.




Due
      to
      strong opposition from many of the stockholders of AVP, on September 5, 2007,
      AVP and Shamrock terminated the Merger Agreement. Upon termination, AVP
      reimbursed Shamrock the sum of two hundred forty thousand dollars ($240,000)
      for
      certain expenses related to the transaction incurred by Shamrock. In addition,
      upon the earlier of the date one year after the date of the termination
      agreement or the date upon which AVP consummates a transaction or series of
      related transactions pursuant to which AVP raises at least $5,000,000, AVP
      will
      pay Shamrock $150,000.




**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.
      EARNINGS (LOSS) PER BASIC AND DILUTED SHARE OF COMMON
      STOCK**




Basic
      earnings (loss) 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 stock 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 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 three and nine months ended
      September 30, 2007 as their effect would be antidilutive.




Options
                and Warrants
            
            
            18,770,020Series
                B Preferred Stock
            
            
            1,314,126Total
            
            
            20,084,146




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





Three
                Months Ended September 30, 2006
            
            Nine
                Months Ended September 30, 2006Numerator:Net
                income available to common shareholders
            
            $
            2,567,104
            
            $
            1,040,139Denominator:Weighted-average
                shares outstanding
            
            
            19,672,889
            
            
            15,978,091Effect
                of dilutive options, warrants and convertible preferred
                stock
            
            
            8,045,720
            
            
            8,221,151Denominator
                for diluted earnings per share
            
            
            27,718,609
            
            
            24,199,242Basic
                earnings per share
            
            $
            0.13
            
            $
            0.07Diluted
                earnings per share
            
            $
            0.09
            
            $
            0.04





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 September 30, 2007, the
      Company had approximately $53,805 of unrecognized compensation expense expected
      to be recognized over a weighted average period of approximately 0.95 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





Nine
                Months Ended
              September
                30,
            
            Nine
                Months Ended
              September
                30,2007
            
            2006Risk-free
                interest rate
            
            4.03
                - 4.95%
            
            4.80
                - 5.30%Expected
                life
            
            3
                -
                5 years
            
            4
                -
                10 yearsExpected
                volatility
            
            77
                - 80%
            
            85
                - 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. 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
      nine months ended September 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
            
            
            (100,977
            )
            
            0.01Cancelled
            
            
            (7,200
            )
            
            2.40Options
                outstanding at September 30, 2007
            
            
            11,969,907
            
            
            0.86




The
      weighted average fair value of options granted was $-0- in 2007 and $0.59 in
      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 September 30, 2007:




Options
      outstanding and exercisable by price range as of September 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
            
            
            6,017,966
            
            
            2.3
            
            $
            0.03
            
            
            6,017,966
            
            $
            0.03.31
                -.90
            
            
            1,805,480
            
            
            6.1
            
            
            0.77
            
            
            1,730,480
            
            
            0.77.91
                -1.60
            
            
            696,035
            
            
            1.6
            
            
            1.60
            
            
            671,986
            
            
            1.601.61
                -2.80
            
            
            3,450,426
            
            
            1.8
            
            
            2.21
            
            
            3,445,152
            
            
            2.21.01
                -2.80
            
            
            11,969,907
            
            
            2.7
            
            
            0.86
            
            
            11,865,584
            
            
            0.86




In
      connection with stock options granted to employees to purchase common stock,
      AVP
      recorded $64,192 of stock-based compensation expense for the nine months ended
      September 30, 2007 and $33,323 for the nine months ended September 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 September 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
            
            
            600,000
            
            
            0.80Exercised
            
            
            (16,829
            )
            
            0.30Cancelled
            
            
            —
            
            
            —Options
                outstanding at September 30, 2007
            
            
            6,800,113
            
            
            1.38




The
      weighted average fair value of options granted was $0.85 in 2007 and $0.65
      in
      2006.





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





Options
      outstanding and exercisable by price range as of September 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
            
            
            3,862,193
            
            
            3.6
            
            $
            0.89
            
            
            3,862,193
            
            $
            0.891.60
                - 3.40
            
            
            2,937,920
            
            
            1.8
            
            
            2.03
            
            
            2,937,920
            
            
            2.03.30
                - 3.40
            
            
            6,800,113
            
            
            2.8
            
            
            1.38
            
            
            6,800,113
            
            
            1.38




In
      connection with warrants granted to non-employees to purchase Common Stock,
      AVP
      recorded warrant expense of $46,720 in sales and marketing expenses and $507,800
      in contra-revenue for the period ended September 30, 2007 and $25,185 in sales
      and marketing expenses, $192,514 in administrative expenses, and $252,842 in
      contra-revenue for the nine months ended September 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
            
            $
            91,6932008
            
            
            351,5002009
            
            
            357,0002010
            
            
            90,000Total
            
            $
            890,193




Rent
      expense for the corporate office facility charged to operations was $93,496
      and
      $79,579 for the three months ended September 30, 2007 and 2006, respectively.
      Rent expense was $254,739 and $239,049 for the nine months ended September
      30,
      2007 and 2006, respectively.




**Officer
      Indemnification**




Under its
      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, if any, 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 September 30, 2006, the warrants
      had a
      value of $88,148, 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 3.5 years, estimated volatility of 83.3% and a risk
      free interest rate of 4.62%. For the nine months ended September 30, 2006,
      we
      expensed $25,185 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 are $.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 nine months ended September 30, 2006, we recognized $252,842 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 nine months ended September 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 nine months ended September 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 nine months ended September 30, 2006.




For
      the
      nine months ended September 30, 2006, 23,468 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 nine months ended September 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 in 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.




On
      April
      20, 2006, the Board of Directors approved fees for outside directors for their
      services. The fees are to be paid in common stock until AVP is cash flow
      positive and/or reaches profitability. For the nine months ended September
      30,
      2006, AVP issued 34,680 common stock shares to directors for services
      rendered.




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




During
      the nine months ended September 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 nine months ended September 30, 2007, AVP issued 100,137 shares of common
      stock pursuant to the cashless exercise of options for 100,977 shares of common
      stock. The exercise price of the options was $0.01 per share.




Pursuant
      to the April 12, 2006 Title Sponsorship Agreement with Crocs, in which, AVP
      agreed to issue warrants to purchase up to 1,000,000 shares of common stock
      of
      AVP as follows: a warrant for 400,000 shares on April 12, 2006 and for 200,000
      shares for each of the years 2008 through 2010. However, no warrants would
      be
      issued in 2008, 2009, or 2010 if Crocs relinquished the “Title” sponsorship and
      reduced its sponsorship to a “Platinum” level sponsorship following the 2007
      season, or if the agreement was not extended for two more years, or if the
      agreement was terminated for breach prior to the final event of the 2008 AVP
      Tour season. Crocs had the option to reduce its sponsorship level until July
      15,
      2007. As of July 15, 2007, Crocs did not exercise its option to reduce its
      sponsorship level for 2008; therefore, Crocs was granted a warrant to purchase
      additional 200,000 shares. The warrants were valued using Black-Scholes method
      and recorded through the Consolidated Statement of Operations as contra-revenue.
      The warrants were recorded with a value of $174,600. The assumptions utilized
      in
      computing the fair value of the warrants were as follows: expected life of
      4.75
      years, estimated volatility of 79.32% and a risk free interest rate of 4.95%.




18




**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**8.
      CAPITAL TRANSACTIONS (CONTINUED)**




On
      August
      12, 2007, Crocs extended the term of its Title Sponsorship Agreement through
      2012, which triggered a warrant grant for 400,000 shares for years 2009 and
      2010
      pursuant to the April 12, 2007 agreement. The warrants were valued at
      $333,200 using the Black-Scholes method and recorded through the
      Consolidated Statement of Operations as contra-revenue.  The assumptions
      utilized in computing the fair value of the warrants were as follows: expected
      life of 4.67 years, estimated volatility of 78.15% and a risk free interest
      rate
      of 4.57%.




**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 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 nine
      months ended September 30 2007, total excise taxes levied on tickets 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.




19


**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**9.
      RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)**




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 ended 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
      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 measured at fair value.
      Unrealized gains and losses on items for which the fair value option has been
      elected are reported 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.




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.





**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 held 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 were the same as last year.




21




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




**Revenue**


**Summary
                  Revenue**
              
              PercentageThree
                  Months Ended September 30,
              
              Increase**2007**
              
              **2006**
              
              (Decrease)Sponsorship/advertising
              
              $
              10,228,458
              
              $
              11,155,368
              
              
              (8
              %)Activation
                  Fees
              
              
              862,629
              
              
              450,038
              
              
              92
              %Local
                  Promoter Revenue
              
              
              600,000
              
              
              1,093,250
              
              
              (45
              %)Local
                  Revenue
              
              
              663,776
              
              
              609,283
              
              
              9
              %Miscellaneous
                  Revenue
              
              
              451,575
              
              
              502,153
              
              
              (10
              %)Total
                  Revenue
              
              $
              12,806,438
              
              $
              13,810,092
              
              
              (7
              %)




AVP’s
      business is seasonal; substantially all revenue is recorded in the second and
      third quarters. 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 September 30, 2007 decreased 8% or $0.9
      million as compared to the three months ended September 30, 2006, due to the
      Company recognizing a lower percentage of annual contracted national
      sponsorship/advertising revenue, as nine events took place in the three months
      ended September 30, 2007 (out of 18 events in 2007) compared to ten events
      taking place in the three months ended September 30, 2006 (out of 16 events
      in
      2006). Sponsorship/advertising revenue includes stock based contra-revenue
      as a
      result of non-employee warrants valued under SFAS 123R for warrants granted
      during the three months ended September 30, 2007 and 2006, $0.5 million and
      $0.2
      million, respectively. For the three months ended September 30, 2007 and 2006,
      the average sponsorship/advertising revenue per event was $1.1 million.




The
      92%
      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 average activation revenue per event for the
      three months ended September 30, 2007 and 2006 was approximately $96 thousand
      and $45 thousand, respectively.




Local
      promoter revenue for the three months ended September 30, 2007 decreased
      45% or $0.5 million as compared to the three months ended September 30, 2006.
      For the three months ended September 30, 2007, the majority of the 2006 promoter
      agreements were restructured to a profit-share model, in which 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 event promoters in 2007 and forward. For the three months ended
      September 30, 2006, we entered agreements with seven event promoters 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 for the three months ended September 30, 2007 increased 9% as a result
      of an increase in sales of corporate luxury suites.




Miscellaneous
      revenue for the three months ended September 30, 2007 decreased 10% or $0.1
      million. The decrease is primarily due to a decrease in AVPNext revenue and
      a
      decrease in trademark 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.





**Increase****Summary
                Costs**
            
            **%
                Revenue**
            
            **as**Three
                Months EndedSeptember
                30,
            
            Three
                Months EndedSeptember
                30,
            
            **%
                of Revenue****2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **2007
                vs. 2006**Event
                Costs
            
            $
            10,761,071
            
            $
            9,292,516
            
            
            84
            %
            
            67
            %
            
            17
            %




The
      increase of 16% or $1.5 million in total event costs was attributable to an
      increase in network broadcast cost and cable television production costs. For
      the three months ended September 30, 2007, five events were broadcast on network
      television; however, four events were broadcast on network television for the
      three months ended September 30, 2006. For the three months ended September
      30,
      2007, $0.3 million was incurred in cable production costs, however, no cable
      television production costs were incurred for the three months ended September
      30, 2006.




**Gross
      Profit**





**Gross
                Profit**Three
                Months Ended
              September
                30,**2007**
            
            **2006**Revenue
            
            $
            12,806,438
            
            $
            13,810,092Event
                Costs
            
            
            10,761,071
            
            
            9,292,516Gross
                Profit
            
            $
            2,045,367
            
            $
            4,517,576Gross
                Profit %
            
            
            16
            %
            
            33
            %




AVP’s
      gross profit margin for the three months ended September 30, 2007 was 16%
      compared to 33% for the three months ended September 30, 2006. The decrease
      in
      the gross profit margin is due to a decrease in sponsorship/advertising revenue
      of $0.9 million, an increase in network broadcast cost of $0.8 million, an
      increase in television production costs of $0.5 million, and an increase in
      activation costs of $0.2 million.




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**





**Increase****Summary
                Costs**
            
            **%
                Revenue**
            
            **as**Three
                Months EndedSeptember
                30,
            
            Three
                Months EndedSeptember
                30,
            
            **%
                of Revenue****2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **2007
                vs. 2006**Administrative
            
            $
            1,919,833
            
            $
            1,200,724
            
            
            15
            %
            
            9
            %
            
            6
            %Sales
                and Marketing
            
            
            919,872
            
            
            814,098
            
            
            7
            %
            
            6
            %
            
            1
            %Total
                Costs
            
            $
            2,839,705
            
            $
            2,014,822
            
            
            22
            %
            
            15
            %
            
            7
            %




The
      60%
      or $0.7 million increase in administrative costs was primarily due to $0.6
      million of transaction costs from the agreement and plan of merger with Shamrock
      Holdings, Inc. (“Shamrock Transaction”) and SEC compliance costs related to the
      Sarbanes Oxley Act of 2002.




The
      13%
      or $0.1 million increase in sales and marketing costs reflects an increase
      in sales personnel and bad debt expense resulting from an allowance for doubtful
      account.





**Depreciation
                and Amortization Expense**Three
                Months Ended
              September
                30,
            
            **Percentage**
              **Increase****2007**
            
            **2006**
            
            **(Decrease)**Depreciation
                Expense
            
            $
            60,248
            
            $
            46,956
            
            
            28
            %Amortization
                Expense
            
            
            -
            
            
            2,051
            
            
            (100
            %)Total
            
            $
            60,248
            
            $
            49,007
            
            
            23
            %




The
      28%
      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
                September
                  30,
              
              **Percentage****2007**
              
              **2006**
              
              **Decrease**Interest
                  Expense
              
              $
              (745
              )
              $
              (7,823
              )
              
              (90
              %)Interest
                  Income
              
              
              44,748
              
              
              72,173
              
              
              (38
              %)Total
              
              $
              44,003
              
              $
              64,350
              
              
              (32
              %)




The
      90%
      decrease in interest expense reflects a reduction in short-term
      debt.




The
      38%
      decrease in interest income is due to a lower cash balance for the three months
      ended September 30, 2007 as compared to the three months ended September 30,
      2006.




24






**Operating
      Income (Loss) and Net Income** **(Loss)**


**Operating
                  Income (Loss) and Net Income****(Loss)**
              
              **%
                  Revenue**Three
                  Months Ended
                September
                  30,
              
              Three
                  Months Ended
                September
                  30,2007
              
              2006
              
              2007
              
              2006Operating
                  Income (Loss)
              
              $
              (794,338
              )
              $
              2,502,754
              
              
              (6
              %)
              
              18
              %Net
                  Income(Loss)
              
              $
              (758,945
              )
              $
              2,567,104
              
              
              (6
              %)
              
              19
              %




The
      Company’s operating loss and net loss for the three months ended September 30,
      2007 primarily reflects a decrease of $0.9 million in sponsorship/advertising
      revenue, an increase in network broadcast and television production costs of
      $1.3 million, and costs related to the Shamrock Transaction.





**Results
      of Operations for the Nine Months Ended September 30, 2007 and
      2006**




**Revenue**




**Summary
                Revenue**Nine
                Months Ended
              September
                30,
            
            Percentage
              Increase**2007**
            
            **2006**
            
            (Decrease)Sponsorship/advertising
            
            $
            19,219,248
            
            $
            17,388,458
            
            
            11
            %Activation
                Fees
            
            
            1,569,373
            
            
            598,485
            
            
            162
            %Local
                Promoter Revenue
            
            
            611,606
            
            
            1,239,250
            
            
            (51
            %)Local
                Revenue
            
            
            1,149,432
            
            
            1,107,054
            
            
            4
            %Miscellaneous
                Revenue
            
            
            1,274,180
            
            
            910,813
            
            
            40
            %Total
                Revenue
            
            $
            23,823,839
            
            $
            21,244,060
            
            
            12
            %




Sponsorship/advertising
      revenue for the nine months ended September 30, 2007 increased 11% or $1.8
      million as compared to the nine months ended September 30, 2006, due to an
      increase in annual contracted sponsorship/advertising revenue from $17.4 million
      in 2006 to $19.2 million in 2007. Sponsorship/advertising revenue includes
      contra-revenue as a result of non-employee warrants valued under SFAS 123R
      for
      warrants granted during the nine months ended September 30, 2007 and 2006,
      $0.5
      million and $0.3 million, respectively. For the nine months ended September
      30,
      2007 and 2006, the average sponsorship/advertising revenue per event was $1.1
      million.




The
      162%
      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 average activation revenue per event for the
      nine months ended September 30, 2007 and 2006 was approximately $87 thousand
      and
      $37 thousand, respectively.




Local
      promoter revenue for the nine months ended September 30, 2007 decreased 51%
      or
      $0.6 million as compared to the nine months ended September 30, 2006. For the
      nine months ended September 30, 2007, the majority of the 2006 promoter
      agreements were restructured to a profit-share model, in which 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 nine months ended
      September 30, 2006, we entered agreements with eight event promoters 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.




25




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
      40%
      or $0.4 million increase in miscellaneous revenue primarily includes the
      addition of a marketing services program.




**Event
      Costs**





**Summary
                Costs**
            
            **%
                of Revenue**
            
            **Increase**Nine
                Months Ended
              September
                30,
            
            Nine
                Months Ended
              September
                30,
            
            **in**
              **%
                of Revenue****2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **2007
                vs. 2006**Event
                Costs
            
            $
            17,998,538
            
            $
            14,652,753
            
            
            76
            %
            
            69
            %
            
            7
            %




The
      increase of 23% or $3.3 million in total event costs was attributable to two
      additional events taking place during the nine months ended September 30, 2007
      (18 events compared to 16 events taking place during the nine months ended
      September 30, 2006). For the nine months ended September 30, the average event
      cost for 2007 increased to $1.0 million from an average event cost of $0.9
      million for 2006. The increase in the average event cost for the nine months
      ended September 30, 2007 is attributable to increases in network broadcast
      time
      and television production costs of $0.7 million, in prize money of $0.7 million,
      in court construction of $0.2 million, in power of $0.1 million, and barter
      advertising-television spots of $0.3 million. In addition, activation costs
      increase a result of adding a new sponsor for a fully integrated activation
      services program during the nine months ended September 30, 2007.




**Gross
      Profit**




**Gross
                Profit**Nine
                Months Ended
              September
                30,**2007**
            
            **2006**Revenue
            
            $
            23,823,839
            
            $
            21,244,060Event
                Costs
            
            
            17,998,538
            
            
            14,652,753Gross
                Profit
            
            $
            5,825,301
            
            $
            6,591,307Gross
                Profit %
            
            
            24
            %
            
            31
            %




AVP’s
      gross profit margin for the nine months ended September 30, 2007 was 24%
      compared to 31% for the nine months ended September 30, 2006. The decrease
      in
      the gross profit margin is due to an increase in prize money of $0.7 million,
      increase in cable television production costs of $0.7 million, and increase
      in
      activation costs, which resulted in an increase in average event
      cost.




**Operating
      Expenses**


**Summary
                Costs**
            
            **%
                of Revenue**
            
            **Increase**Nine
                Months Ended
              September
                30,
            
            Nine
                Months Ended
              September
                30,
            
            **in**
              **%
                of Revenue****2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **2007
                vs. 2006**Administrative
            
            $
            5,324,373
            
            $
            3,648,772
            
            
            22
            %
            
            17
            %
            
            5
            %Sales
                and Marketing
            
            
            2,658,089
            
            
            2,037,892
            
            
            11
            %
            
            10
            %
            
            1
            %Total
                Costs
            
            $
            7,982,462
            
            $
            5,686,664
            
            
            33
            %
            
            27
            %
            
            6
            %




26




The
      46%
      or $1.7 million increase in administrative costs was primarily due to the
      Shamrock Transaction of $1.4 million, additional headcount, salary increases,
      and SEC compliance costs related to the Sarbanes Oxley Act of 2002.




The
      30%
      or $0.6 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, increase in consulting
      services, salary increases, and increase in bad debt expense.





**Depreciation
                and Amortization Expense**Nine
                Months Ended
              September
                30,
            
            **Percentage**
              **Increase****2007**
            
            **2006**
            
            **(Decrease)**Depreciation
                Expense
            
            $
            169,507
            
            $
            123,099
            
            
            38
            %Amortization
                Expense
            
            
            -
            
            
            6,073
            
            
            (100
            %)Total
            
            $
            169,507
            
            $
            129,172
            
            
            31
            %




The
      38%
      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.


**Other
                  Income (Expense)**Nine
                  Months Ended
                September
                  30,
              
              **Percentage**
                **Increase****2007**
              
              **2006**
              
              **(Decrease)**Interest
                  Expense
              
              $
              (745
              )
              $
              (19,754
              )
              
              (96
              %)Interest
                  Income
              
              
              158,725
              
              
              127,118
              
              
              25
              %Gain
                  on disposal of asset
              
              
              9,774
              
              
              9,863
              
              
              (1
              %)Derivative
                  financial instrument gain
              
              
              -
              
              
              111,042
              
              
              (100
              %)Total
              
              $
              167,754
              
              $
              228,269
              
              
              (27
              %)




The
      96%
      decrease in interest expense reflects a reduction in short-term
      debt.




The
      25%
      increase in interest income reflects interest earned at a higher rate on our
      higher cash balance for the nine months ended September 30, 2007.




For
      the
      nine months ended September 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** **Income
      (Loss) and Net Income (Loss)**




**Operating
                Income (Loss) and Net Income (Loss)**
            
            **%
                of Revenue**Nine
                Months Ended
              September
                30,
            
            Nine
                Months Ended
              September
                30,**2007**
            
            **2006**
            
            **2007**
            
            **2006**Operating
                Income (Loss)
            
            $
            (2,157,161
            )
            $
            904,643
            
            
            (9
            )%
            
            4
            %Net
                Income (Loss)
            
            $
            (1,998,817
            )
            $
            1,132,112
            
            
            (8
            )%
            
            5
            %




The
      Company’s net loss primarily reflects an increase of in prize money, in network
      broadcast time and television production costs, activation costs, and costs
      related to the Shamrock Transaction.




27




**Liquidity
      and Capital Resources**





**Sources
                of Liquidity**September
                30, 2007
            
            December
                31, 2006
            
            (Decrease)Cash
                and cash equivalents
            
            $
            3,739,212
            
            $
            5,052,636
            
            $
            (1,313,424
            )Percentage
                of total assets
            
            
            37
            %
            
            58
            %





Nine
                Months Ended
              September
                30,
            
            Increase/2007
            
            2006
            
            (Decrease)Cash
                flows used in operating activities
            
            $
            (1,221,994
            )
            $
            (1,906,104
            )
            $
            (684,110
            )Cash
                flows used in investing activities
            
            
            (91,430
            )
            
            (82,617
            )
            
            8,813Cash
                flows provided by financing activities
            
            
            -
            
            
            4,604,080
            
            
            (4,604,080
            )




As
      of
      September 30, 2007, our primary source of liquidity is comprised of $3.7 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 ($4.0 million at September
      30,
      2007) to finance our operational requirements for at least the next 12 months.




Cash
      flows used in operating activities for the nine months ended September 30,
      2007
      and 2006 were $1.2 million and $1.9 million, respectively. The variance in
      cash
      flows used in operating activities for the nine months ended September 30,
      2007
      is primarily due to increases in accounts payable and accrued liabilities,
      which
      offset the increase in accounts receivable. Working capital, consisting of
      current assets less current liabilities, was $4.0 million at September 30,
      2007
      and $6.7 million at September 30, 2006.




At
      September 30, 2007 and 2006, accounts receivable had increased $2.9 million
      and
      $4.7 million as compared to December 31, 2006 and 2005, respectively. At
      September 30, 2007 and 2006, deferred revenues had decreased $1.0 million and
      $0.1 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 nine months ended September 30, 2007 and 2006 were $0.2
      million and $0.3 million, respectively. During the nine months ended September
      30, 2007, AVP purchased information technology equipment, vehicles, and
      rotational signage equipment. During the nine months ended September 30, 2006,
      AVP purchased a scoreboard, activation equipment, and banners and
      flags.




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 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).




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
      Association.




28




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.




On
      April
      20, 2006, the Board of Directors approved fees for outside directors for their
      services. For the nine months ended September 30, 2006, AVP issued 34,680 common
      stock shares to directors for services rendered, in lieu of cash
      payments.




**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 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.




29




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 nine
      months ended September 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.




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 ended 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.




30




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 measured at fair value.
      Unrealized gains and losses on items for which the fair value option has been
      elected are reported 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.





31


**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 September 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.





32





**PART
      II. OTHER INFORMATION**





**ITEM
      6. EXHIBITS**





10.1
      -
      Termination of Agreement and Mutual Release dated September 5, 2007, between
      AVP, Shamrock Growth Fund II, L.P., AVP Holdings, Inc. and AVP Acquisition
      Corp., incorporated by reference from Exhibit 10.1 to AVP current report on
      Form
      8-K dated September 10, 2007





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





33





**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 November,
      2007.




**AVP,
                INC.**
              (Registrant)By:
            /s/
              Tom
              ToriiTom
                Torii
              Interim
                Chief Financial Officer




34