**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-Q**





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


**EXCHANGE
      ACT OF 1934**





For
      the
      quarterly period ended June 30, 2008





OR





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


**EXCHANGE
      ACT OF 1934**





For
      the
      transition period from ___________ to _____________





*Commission
      file number 005-79737*





AVP,
      INC.





(Exact
      name of registrant as specified in its charter)





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





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


(Address
      of principal executive offices - Zip code)





(310)
      426 - 8000


(Registrant's
      telephone number, including area code)





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





Yes x No  ̈


Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer.


Large Accelerated Filer o
              Accelerated Filer o
              Non-Accelerated Filer x




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





Yes  ̈ No x





As
      of
      August 14, 2008, the Registrant had 21,089,626 shares of common stock
      outstanding.





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








**AVP,
      INC.**





INDEX





PagePART
                I.
            FINANCIAL
                INFORMATION
            3ITEM
                1.
            FINANCIAL
                STATEMENTS
            3Consolidated
                Balance Sheets as of June 30, 2008 (Unaudited) and December 31,
                2007
            4Consolidated
                Statements of Operations for the three and six months ended June
                30, 2008
                and 2007 (Unaudited)
            5Consolidated
                Statement of Changes in Stockholders' Equity (Deficit) for the six
                months
                ended June 30, 2008 (Unaudited)
            6Consolidated
                Statements of Cash Flows for the six months ended June 30, 2008 and
                2007
                (Unaudited)
            7Notes
                to Consolidated Financial Statements (Unaudited)
            9ITEM
                2.
            MANAGEMENT'S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS
            20ITEM
                4T.
            CONTROLS
                AND PROCEDURES
            29PART
                II.
            OTHER
                INFORMATIONITEM
                6.
            EXHIBITS
            30


2


**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





**AVP,
      INC.**


**Index
      to Financial Statements**


**Period
      Ended June 30, 2008**





PAGEFinancial
                StatementsConsolidated
                Balance Sheets as of June 30, 2008 (Unaudited) and December 31,
                2007
            4Consolidated
                Statements of Operations for the three and six months ended June
                30, 2008
                and 2007 (Unaudited)
            5Consolidated
                Statement of Changes in Stockholders' Equity (Deficit) for the six
                months
                ended June 30, 2008 (Unaudited)
            6Consolidated
                Statements of Cash Flows for the six months ended June 30, 2008 and
                2007
                (Unaudited)
            7-8Notes
                to Consolidated Financial Statements (Unaudited)
            9


3


**AVP,
      INC.**





**CONSOLIDATED
      BALANCE SHEETS**





(Unaudited)
              June 30,
              2008
            
            December 31,
              2007**ASSETS****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            1,468,212
            
            $
            2,257,453Accounts
                receivable, net of allowance for doubtful accounts of $252,347 and
                $149,748
            
            
            3,283,899
            
            
            2,008,253Prepaid
                expenses
            
            
            823,631
            
            
            388,649Other
                current assets
            
            
            38,882
            
            
            116,393TOTAL
                CURRENT ASSETS
            
            
            5,614,624
            
            
            4,770,748**PROPERTY
                AND EQUIPMENT, net**
            
            
            438,501
            
            
            392,447**OTHER
                ASSETS**
            
            
            42,562
            
            
            115,496TOTAL
                ASSETS
            
            $
            6,095,687
            
            $
            5,278,691**LIABILITIES
                AND STOCKHOLDERS’ EQUITY (DEFICIT)****CURRENT
                LIABILITIES**Accounts
                payable
            
            $
            1,439,047
            
            $
            908,020Accrued
                expenses
            
            
            2,495,424
            
            
            1,663,975Deferred
                revenue
            
            
            2,470,435
            
            
            101,245TOTAL
                CURRENT LIABILITIES
            
            
            6,404,906
            
            
            2,673,240**OTHER
                NON-CURRENT LIABILITIES**
            
            
            69,857
            
            
            96,419TOTAL
                LIABILITIES
            
            
            6,474,763
            
            
            2,769,659**COMMITMENTS
                AND CONTINGENCIES****STOCKHOLDERS’
                EQUITY (DEFICIT)**Preferred
                stock, 2,000,000 shares authorized:Series
                B convertible preferred stock, $.001 par value, 250,000 shares authorized,
                44,944 and 47,152 shares issued and outstanding
            
            
            46
            
            
            48Common
                stock, $.001 par value, 80,000,000 shares authorized, 21,089,626
                and
                20,490,096 shares issued and outstanding
            
            
            21,090
            
            
            20,490Additional
                paid-in capital
            
            
            40,085,313
            
            
            39,732,837Accumulated
                deficit
            
            
            (40,485,525
            )
            
            (37,244,343
            )TOTAL
                STOCKHOLDERS’ EQUITY (DEFICIT)
            
            
            (379,076
            )
            
            2,509,032TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
            
            $
            6,095,687
            
            $
            5,278,691




See
      notes
      to consolidated financial statements.




4


**AVP,
      INC.**




**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




**(Unaudited)**


Three Months Ended June 30,
              
              Six Months Ended June 30,**2008**
              
              **2007**
              
              **2008**
              
              **2007**REVENUESponsorships/Advertising
              
              $
              6,192,498
              
              $
              8,990,790
              
              $
              7,068,018
              
              $
              8,990,790Other
              
              
              1,635,636
              
              
              1,857,611
              
              
              1,751,106
              
              
              2,026,611TOTAL
                  REVENUE
              
              
              7,828,134
              
              
              10,848,401
              
              
              8,819,124
              
              
              11,017,401EVENT
                  COSTS
              
              
              5,716,951
              
              
              7,185,169
              
              
              6,761,185
              
              
              7,237,468GROSS
                  PROFIT
              
              
              2,111,183
              
              
              3,663,232
              
              
              2,057,939
              
              
              3,779,933OPERATING
                  EXPENSESSales
                  and marketing(1)
              
              
              800,109
              
              
              862,503
              
              
              2,071,764
              
              
              1,738,216Administrative(2)
              
              
              1,570,616
              
              
              1,958,237
              
              
              3,241,329
              
              
              3,404,540TOTAL
                  OPERATING EXPENSES
              
              
              2,370,725
              
              
              2,820,740
              
              
              5,313,093
              
              
              5,142,756OPERATING
                  INCOME (LOSS)
              
              
              (259,542
              )
              
              842,492
              
              
              (3,255,154
              )
              
              (1,362,823
              )OTHER
                  INCOME (EXPENSE)Interest
                  income
              
              
              6,014
              
              
              57,520
              
              
              17,203
              
              
              113,977Gain
                  on disposal of asset
              
              
              3,500
              
              
              1,325
              
              
              3,500
              
              
              9,774Foreign
                  exchange loss
              
              
              (5,581
              )
              
              -
              
              
              (5,581
              )
              
              -TOTAL
                  OTHER INCOME
              
              
              3,933
              
              
              58,845
              
              
              15,122
              
              
              123,751INCOME
                  (LOSS) BEFORE INCOME TAXES
              
              
              (255,609
              )
              
              901,337
              
              
              (3,240,032
              )
              
              (1,239,072
              )INCOME
                  TAXES
              
              
              -
              
              
              -
              
              
              (1,150
              )
              
              (800
              )NET
                  INCOME (LOSS)
              
              $
              (255,609
              )
              $
              901,337
              
              $
              (3,241,182
              )
              $
              (1,239,872
              )Earnings
                  (loss) per common share:Basic
              
              $
              (0.01
              )
              $
              0.05
              
              $
              (0.16
              )
              $
              (0.06
              )Diluted
              
              $
              (0.01
              )
              $
              0.03
              
              $
              (0.16
              )
              $
              (0.06
              )Shares
                  used in computing earnings (loss) per share:Basic
              
              
              21,089,626
              
              
              19,960,250
              
              
              20,812,392
              
              
              19,872,269Diluted
              
              
              21,089,626
              
              
              27,596,052
              
              
              20,812,392
              
              
              19,872,269




(1)
      Sales
      and marketing expenses includes stock-based expenses of $18,182 and $9,313
      for
      the three months ended June 30, 2008 and 2007, respectively, and $36,364 and
      $82,220 for the six months ended June 30, 2008 and 2007,
      respectively.




(2)
      Administrative expenses include stock-based expenses of $150,051 and $21,596
      for
      the three months ended June 30, 2008 and 2007, respectively, and $353,074 and
      $42,956 for the six months ended June 30, 2008 and 2007,
      respectively.





See
      notes
      to consolidated financial statements.





5




**AVP,
      INC.**




**CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)**





**For
      The Six Months Ended June 30, 2008**





**(Unaudited)**





Series B
              Preferred Stock
            
            Common Stock
            
            Additional
            
            Accumulated
            
            Total
              Stockholders’
              EquityShares
            
            Amount
            
            Shares
            
            Amount
            
            Paid-in Capital
            
            Deficit
            
            (Deficit)Balance,
                December 31, 2007
            
            
            47,152
            
            $
            48
            
            
            20,490,096
            
            $
            20,490
            
            $
            39,732,837
            
            $
            (37,244,343
            )
            $
            2,509,032Conversion
                of Series B Preferred Stock to common stock
            
            
            (2,208
            )
            
            (2
            )
            
            61,537
            
            
            62
            
            
            (60
            )
            
            -
            
            
            -Cashless
                exercise of option and warrants
            
            
            -
            
            
            -
            
            
            537,993
            
            
            538
            
            
            (538
            )
            
            -
            
            
            -Stock-based
                compensation expense
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            353,074
            
            
            -
            
            
            353,074Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,241,182
            )
            
            (3,241,182
            )Balance,
                June 30, 2008
            
            
            44,944
            
            $
            46
            
            
            21,089,626
            
            $
            21,090
            
            $
            40,085,313
            
            $
            (40,485,525
            )
            $
            (379,076
            )





See
      notes
      to consolidated financial statements.




6


**AVP,
      INC.**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**(Unaudited)**





**Six
                Months Ended June 30,****2008**
            
            **2007**CASH
                FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIESNet
                loss
            
            $
            (3,241,182
            )
            $
            (1,239,872
            )Adjustments
                to reconcile net loss to net cash flows provided by (used in) operating
                activities:Depreciation
                of property and equipment
            
            
            128,799
            
            
            109,260Bad
                debt expense
            
            
            102,599
            
            
            -Amortization
                of deferred commissions
            
            
            36,364
            
            
            82,220Gain
                on disposal of assets
            
            
            (3,500
            )
            
            (9,774
            )Stock-based
                compensation expense
            
            
            353,074
            
            
            42,956Decrease
                (increase) in operating assets:Accounts
                receivable
            
            
            (1,378,245
            )
            
            (1,531,967
            )Prepaid
                expenses
            
            
            (434,981
            )
            
            (599,581
            )Other
                assets
            
            
            32,146
            
            
            (59,844
            )Increase
                (decrease) in operating liabilities:Accounts
                payable
            
            
            531,027
            
            
            1,148,443Accrued
                expenses
            
            
            799,306
            
            
            796,557Deferred
                revenue
            
            
            2,369,191
            
            
            2,459,302NET
                CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
            
            
            (705,402
            )
            
            1,197,700CASH
                FLOWS USED IN INVESTING ACTIVITIESInvestment
                in property and equipment
            
            
            (92,920
            )
            
            (232,034
            )Proceeds
                from investment in sales-type lease
            
            
            -
            
            
            150,000Proceeds
                from disposal of property and equipment
            
            
            3,500
            
            
            -NET
                CASH FLOWS USED IN INVESTING ACTIVITIES
            
            
            (89,420
            )
            
            (82,034
            )





See
      notes
      to consolidated financial statements.





7


**AVP,
      INC.**




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**(Unaudited)**





(CONTINUED)





**Six
                Months Ended June 30,****2008**
            
            **2007**CASH
                FLOWS PROVIDED BY FINANCING ACTIVITIES
            
            $
            -
            
            $
            -Effect
                of exchange rates on cash and cash equivalents
            
            $
            5,581
            
            $
            -NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (789,241
            )
            
            1,115,666CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            2,257,453
            
            
            5,052,636CASH
                AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            1,468,212
            
            $
            6,168,302**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION**Cash
                paid during the period for:Income
                taxes
            
            $
            1,150
            
            $
            800**SUPPLEMENTAL
                DISCLOSURE OF NON-CASH INVESTING AND FINANCING
                INFORMATION**Conversion
                of Series B preferred stock into common stock
            
            $
            62
            
            $
            624Issuance
                of warrant to sales agent for services
            
            $
            -
            
            $
            3,160Cashless
                exercise of options and warrants
            
            $
            538
            
            $
            65Reclassification
                of deposits into property and equipment
            
            $
            81,934
            
            $
            -




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. The results of
      operations for interim periods are not necessarily indicative of the results
      to
      be expected for the full year. Notes to the consolidated financial statements
      that would substantially duplicate the disclosures contained in the consolidated
      audited financial statements for the most recent fiscal year 2007, as reported
      in the Form 10-KSB as previously filed with the SEC, have been
      omitted.




**2.
      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 to purchase shares of common stock and other
      incremental shares were excluded from the computation of diluted earnings (loss)
      per share for the periods presented as their effect would be
      antidilutive:





Six Months Ended June 30,
            
            Three Months Ended June 30,2008
            
            2007
            
            2008Options
                and Warrants
            
            
            20,355,272
            
            
            18,227,220
            
            
            20,355,272Series
                B Preferred Stock
            
            
            1,252,589
            
            
            1,314,126
            
            
            1,252,589Total
            
            
            21,607,861
            
            
            19,541,346
            
            
            21,607,861




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





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





9


**AVP,
      INC.**





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


**(Unaudited)**




**3.
      STOCK BASED COMPENSATION**




On
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      SFAS No. 123 (Revised 2004). Prior to January 1, 2006, the Company had accounted
      for stock-based payments under the recognition and measurement provisions of
      Accounting Principles Board (“APB”) Opinion 25 and related interpretations, as
      permitted by SFAS No. 123, “Accounting for Stock-Based Compensation.” In
      accordance with APB 25, no compensation expense was required to be recognized
      for options granted that had an exercise price equal to the market value of
      the
      underlying common stock on the date of grant.




Under
      the
      modified prospective method of SFAS No. 123(R), compensation expense was
      recognized during the year ended December 31, 2006 and included compensation
      expense for all stock-based payments granted prior to, but not yet vested as
      of
      January 1, 2006, based on the grant date fair value, estimated in accordance
      with the original provisions of SFAS No. 123.




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. The fair value is amortized on a straight-line basis
      over
      the requisite service period of the awards, which is generally the vesting
      period.




The
      table
      below sets forth the pricing assumptions used in determining the fair values
      for
      the common stock options using the Black Scholes model:





Six Months Ended June 30,2008
            
            2007Risk-free
                interest rate
            2.08
                - 3.26%
            
            4.89%Expected
                life
            1
                -
                5.76 years
            
            3
                yearsExpected
                volatility
            75
                - 78.33%
            
            79.94%Expected
                dividend yield
            0%
            
            0%




Determining
      the appropriate fair value of stock-based awards at the grant date requires
      judgment, including estimating stock price volatility, and expected term. The
      Company uses its own stock price to compute estimated volatility, as it believes
      that historical volatility is a fair representation of future volatility.
      Historical forfeitures have been immaterial; therefore, the Company is not
      recognizing forfeitures prior to their occurrences. The expected term of options
      granted from historical data on employee exercises is not yet determinable.
      The
      Company does not have sufficient historical exercise data to provide a
      reasonable basis upon which to estimate expected term, due to the limited period
      of time its equity shares have been publicly traded. When more relevant detailed
      information becomes available, the Company intends to make more refined
      estimates of expected term. In December 2007, the SEC issued SAB 110, Shared
      Based Payment, to amend the SEC’s views discussed in SAB 107 regarding the use
      of the simplified method in developing an estimate of expected life of share
      options in accordance with SFAS 123 (R). In accordance with SAB 107, as amended
      by SAB 110, the Company used the simplified method in developing an estimate
      of
      expected term for the "plain vanilla" share options granted on February 5,
      and
      June 4, 2008. The risk-free interest rate is based on the U.S. Treasury yield
      curve in effect at the date of grant. As of June 30, 2008, the Company had
      approximately $1,316,273 of unrecognized compensation expense expected to be
      recognized over a weighted average period of approximately 2.26
      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 values realized by the recipients, if
      any, may vary significantly from the values of the awards estimated at the
      grant
      dates.




10




**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**4.
      STOCK OPTIONS**




**Stock
      Option Plans**




Under
      AVP’s 2005 Stock Incentive 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 underlying 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 Compensation 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.




In
      connection with stock options granted to employees to purchase common stock,
      AVP
      recorded $150,051 of stock-based compensation expense for the three month period
      ended June 30, 2008, and $21,596 for the three month period ended June 30,
      2007,
      and $353,074 and $42,956 for the six month period ended June 30, 2008 and 2007,
      respectively.




The
      following table contains information on the stock options under the 2005 Plan
      for the six months ended June 30, 2008 and the year ended December 31, 2007.
      The
      outstanding options expire from November 2008 to June 2018.




Number of Shares
            
            Weighted
              Average
              Exercise Price
            
            Weighted
              Average
              Remaining
              Contractual
              Life (Years)
            
            Aggregate
              Intrinsic Value(1)Options
                outstanding at January 1, 2007
            
            
            12,078,084
            
            $
            0.86Granted
            
            
            3,450,000
            
            
            1.00Exercised
            
            
            (100,977
            )
            
            0.01Cancelled
            
            
            (8,081
            )
            
            2.31Options
                outstanding at December 31, 2007
            
            
            15,419,026
            
            
            0.90Granted
            
            
            1,347,240
            
            
            0.70Exercised
            
            
            (895,646
            )
            
            0.32Cancelled
            
            
            (1,842,450
            )
            
            1.02Options
                outstanding at June 30, 2008
            
            
            14,028,170
            
            $
            0.89
            
            
            3.5
            
            $
            2,619,611Options
                exercisable at June 30, 2008
            
            
            11,750,886
            
            $
            0.90
            
            
            2.3
            
            $
            2,619,611Options
                exercisable at June 30, 2008 and expected to vest
            
            
            13,992,149
            
            $
            0.89
            
            
            3.4
            
            $
            2,619,611




11




**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**4.
      STOCK OPTIONS (CONTINUED)**




**Stock
      Option Plans (Continued)**




(1)
      The
      aggregate intrinsic value is calculated as the difference between the exercise
      price of the underlying awards and the $0.50 closing stock price of our Common
      Stock on June 30, 2008, the last trading date of our quarter ended June 30,
      2008. The intrinsic value was computed for only those awards that are in the
      money.




The
      weighted average fair value of options granted was $0.43 and $0 during the
      six
      months ended June 30, 2008 and 2007, respectively.




The
      total
      intrinsic values of stock options exercised during the six months ended June
      30,
      2008 and 2007 were $439,052 and $71,878, respectively. No cash was received
      as
      the options were exercised in cashless exercises. The Company did not recognize
      any tax benefit related to these exercises.




The
      following table summarizes information about AVP’s options outstanding and
      exercisable by price range as of June 30, 2008:




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
            
            
            5,324,273
            
            
            1.5
            
            $
            0.01
            
            
            5,324,273
            
            $
            0.01.31
                -.90
            
            
            2,825,099
            
            
            7.3
            
            
            0.73
            
            
            1,782,651
            
            
            0.76.91
                -1.60
            
            
            2,478,372
            
            
            6.7
            
            
            1.16
            
            
            1,243,536
            
            
            1.321.61
                -2.80
            
            
            3,400,426
            
            
            1.0
            
            
            2.22
            
            
            3,400,426
            
            
            2.22$        .01
                -2.80
            
            
            14,028,170
            
            
            3.5
            
            $
            0.89
            
            
            11,750,886
            
            $
            0.90




12


**AVP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**4.
      STOCK OPTIONS (CONTINUED)**




**Other
      Stock Options/Warrants**





In
      connection with warrants granted to non-employees to purchase common stock,
      AVP
      recorded warrant expense of $0 in sales and marketing expenses for the three
      months ended June 30, 2008 and ($8,868) in sales and marketing expenses for
      the
      three months ended June 30, 2007, and $0 and $45,857 for the six months ended
      June 30, 2008 and 2007, respectively. Such amounts represent, for each
      non-employee stock option or warrants, the valuation determined using the Black
      Scholes Model at the time of grant.





The
      following table contains information on all of AVP’s non-plan stock options and
      warrants for the period ended June 30, 2008 and the year ended December 31,
      2007.





Number of Shares
            
            Weighted
              Average
              Exercise Price
            
            Weighted
              Average
              Remaining
              Contractual
              Life (Years)
            
            Aggregate
              Intrinsic Value(1)Options
                outstanding at January 1, 2007
            
            
            6,216,942
            
            $
            1.44Granted
            
            
            600,000
            
            
            0.80Exercised
            
            
            (16,829
            )
            
            0.30Cancelled
            
            
            (473,011
            )
            
            2.10Options
                outstanding at December 31, 2007
            
            
            6,327,102
            
            
            1.33Granted
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -Cancelled
            
            
            -
            
            
            -Options
                outstanding at June 30, 2008
            
            
            6,327,102
            
            $
            1.33
            
            
            2.2
            
            $
            53,181Options
                exercisable at June 30, 2008
            
            
            6,327,102
            
            $
            1.33
            
            
            2.2
            
            $
            53,181





No
      options or warrants were granted during the six months ended June 30, 2008
      or
      2007.





The
      total
      intrinsic value of stock options/warrants exercised during the six months ended
      June 30, 2008 and 2007 were $0 and $24,402, respectively. No cash was received
      as the options/warrants were exercised in a cashless exercise. The Company
      did
      not recognize any tax benefit in connection with these exercises.





The
      following table summarizes information about options/warrants outstanding and
      exercisable by price range as of June 30, 2008:


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
              
              
              3,862,192
              
              
              2.8
              
              $
              0.89
              
              
              3,862,192
              
              $
              0.891.60
                  - 3.40
              
              
              2,464,910
              
              
              1.3
              
              
              2.01
              
              
              2,464,910
              
              
              2.01$        .30
                  - 3.40
              
              
              6,327,102
              
              
              2.2
              
              $
              1.33
              
              
              6,327,102
              
              $
              1.33





13


**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**5.
      COMMITMENTS AND CONTINGENCIES**




**Operating
      Lease**




The
      Company leases its corporate office facilities under a non-cancellable operating
      lease expiring in March 2010. The lease contains a renewal option for an
      additional five-year term. In addition, the lease 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 28, 2009. 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 31,2008
            
            $
            190,0002009
            
            
            362,4002010
            
            
            90,000Total
            
            $
            642,400




Rent
      expense for the corporate office facility charged to operations was $88,020
      and
      $81,391 for the three months ended June 30, 2008 and 2007, respectively. Rent
      expense was $176,207 and $161,243 for the six months ended June 30, 2008 and
      2007, 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.




**Employment
      Agreements**




AVP
      has
      entered into “at will” employment agreements with two officers. In addition to
      base salary, the employment agreements provide for performance bonuses. The
      performance bonuses will be 50% of the respective officer’s base salary. The
      performance bonuses awarded, if any, will be based upon achieving certain
      milestones and targets as determined by the Board of Directors’ Compensation
      Committee. One of the agreements also provides for an additional cash
      performance bonus ranging from $25,000 to $125,000 in the event the Company
      achieves positive EBITDA. In the event the officers are terminated by AVP,
      their
      authority is diminished, or AVP breaches the employment agreements, the officers
      will continue to receive their annual base salary and their Annual Performance
      Bonus and benefits for periods of six months to two years following the
      termination, depending on the circumstances of the termination.




**Legal
      proceedings**




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




14


**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**5.
      COMMITMENTS AND CONTINGENCIES (CONTINUED)**




**Service
      Contingency**




On
      March
      31, 2008, the Company accrued additional costs to accommodate a vendor who
      requested additional consideration for services rendered in 2007. The Company
      is
      not obligated to make such additional payment, but to preserve the relationship
      and receive future services, AVP recorded an accrual of approximately $0.3
      million for such service contingency. As of June 30, 2008, the parties have
      not
      yet reached an agreement.




**6.
      CAPITAL TRANSACTIONS**




For
      the
      six months ended June 30, 2007, 22,396 shares of Series "B" preferred stock
      were
      converted into 624,176 shares of AVP’s common stock pursuant to notice of
      conversion from an individual investor.




During
      the six months ended June 30, 2007, AVP issued 13,945 shares of common stock
      pursuant to the cashless exercise of options for 16,829 shares of common stock.
      The exercise price of the options was $0.30 per share.




During
      the six months ended June 30, 2007, AVP issued 50,618 shares of common stock
      pursuant to the cashless exercise of options for 50,977 shares of common stock.
      The exercise price of the options was $0.01 per share.




For
      the
      six months ended June 30, 2008, 2,208 shares of Series "B" preferred stock
      were
      converted into 61,537 shares of AVP’s common stock pursuant to notice of
      conversion from an individual investor.




During
      the six months ended June 30, 2008, AVP issued 49,865 shares of common stock
      pursuant to the cashless exercise of options for 50,488 shares of common stock.
      The exercise price of the options was $0.01 per share.




During
      the six months ended June 30, 2008, AVP issued 485,635 shares of common stock
      pursuant to the cashless exercise of options for 643,205 shares of common stock.
      The exercise price of the options was $0.20 per share.




During
      the six months ended June 30, 2008, AVP issued 2,493 shares of common stock
      pursuant to the cashless exercise of options for 201,953 shares of common stock.
      The exercise price of the options was $0.80 per share.




15




**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**7.
      SEGMENT REPORTING**




The
      Company follows the provisions of SFAS No. 131, "Disclosures about Segments
      of
      an Enterprise and Related Information." This statement establishes standards
      for
      the reporting of information about operating segments in annual and interim
      financial statements. Operating segments are defined as components of an
      enterprise for which separate financial information is available that is
      evaluated regularly by the chief operating decision makers in deciding how
      to
      allocate resources and in assessing performance.




Our
      chief
      operating decision-makers (i.e., our chief executive officer and his direct
      reports) review financial information presented on a consolidated basis,
      accompanied by disaggregated information about revenues by geographic region
      for
      purposes of allocating resources and evaluating financial performance. There
      are
      no segment managers who are held accountable by our chief operating
      decision-makers, or anyone else, for operations, operating results and planning
      for levels or components below the consolidated unit level. Accordingly, in
      the
      opinion of management, the Company considers itself to be in a single reporting
      segment and operating unit structure and all revenues from its services are
      earned in this segment.




The
      Company has two geographic regions for its operations, the United States and
      Australia. Revenues are attributed to geographic areas based on the location
      where the events take place. The following table depicts the geographic
      information expected by SFAS 131:


**Three Months Ended June 30,**
            
            **Six Months Ended June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Revenues:United
                States
            
            $
            7,828,134
            
            
            10,848,401
            
            $
            7,943,604
            
            $
            11,017,401Australia
            
            
            -
            
            
            -
            
            
            875,520
            
            
            -Total
                Revenue
            
            $
            7,828,134
            
            
            10,848,401
            
            $
            8,819,124
            
            $
            11,017,401**June 30,****2008**
            
            
            **2007**Long-lived
                assets:United
                States
            
            
            
            
            
            
            
            $
            438,501
            
            $
            464,153Australia
            
            
            
            
            
            
            
            
            -
            
            
            -Total
                long-lived assets
            
            
            
            
            
            
            
            $
            438,501
            
            $
            464,153




16




**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**8.
      RECENTLY ISSUED ACCOUNTING STANDARDS**




In
      September 2006, the FASB issued SFAS 157, “Fair Value Measures.” 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. In February 2008, the FASB issued FSP 157-2,
      “Effective Date of FASB Statement No. 157” which permits a one-year deferral for
      the implementation of SFAS 157 with regard to non-financial assets and
      liabilities that are not recognized or disclosed at fair value in the financial
      statements on a recurring basis (at least annually). The Company elected to
      defer adoption of SFAS 157 for such items and it does not currently anticipate
      that full adoption in 2009 will materially impact the Company’s results of
      operations or financial condition.




On
      September 29, 2006, the FASB issued SFAS 158, “Employers' Accounting for Defined
      Benefit Pension and Other Postretirement Plans – An Amendment of SFAS No.
      87, 88, 106, and 132R.” This new standard requires an employer to: (a) recognize
      in its statement of financial position an asset for a plan’s overfunded status
      or a liability for a plan’s underfunded status; (b) measure a plan’s assets and
      its obligations that determine its funded status as of the end of the employer’s
      fiscal year (with limited exceptions); and (c) recognize changes in the funded
      status of a defined benefit postretirement plan in the year in which the changes
      occur. Those changes will be reported in comprehensive income of a business
      entity and in changes in net assets of a not-for-profit organization. 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
      for the fiscal year ended after December 15, 2006, for entities with publicly
      traded equity securities, and at the end of the fiscal year ended 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 yearend statement of
      financial position is effective for fiscal years ending after December 15,
      2008.
      The adoption of this accounting pronouncement is not expected to have a material
      effect on the Company’s consolidated financial position, results of operations
      or cash flows.




In
      February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial
      Assets and Financial Liabilities." 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, as the
      Company has elected not to apply the fair value option for any of its eligible
      financial instruments and other items.





17


**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




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




In
      December 2007, the FASB issued SFAS 141R, “Business Combinations-Revised.” This
      new standard replaces SFAS 141 “Business Combinations”. SFAS 141R requires that
      the acquisition method of accounting, instead of the purchase method, be applied
      to all business combinations and that an “acquirer” be identified in the
      process. The statement requires that fair market value be used to recognize
      assets and assumed liabilities instead of the cost allocation method where
      the
      costs of an acquisition are allocated to individual assets based on their
      estimated fair values. Goodwill would be calculated as the excess purchase
      price
      over the fair value of the assets acquired; however, negative goodwill will
      be
      recognized immediately as a gain instead of being allocated to individual assets
      acquired. Costs of the acquisition will be recognized separately from the
      business combination. The end result is that the statement improves the
      comparability, relevance and completeness of assets acquired and liabilities
      assumed in a business combination. SFAS 141R is effective for business
      combinations which occur in fiscal years beginning on or after December 15,
      2008. The adoption of SFAS 141R will impact the accounting for business
      combinations completed, if any, by the Company on or after January 1,
      2009.




In
      December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
      Consolidated Financial Statements-an amendment of ARB No. 51”. This new standard
      requires that ownership interests held by parties other than the parent be
      presented separately within equity in the statement of financial position;
      the
      amount of consolidated net income be clearly identified and presented on the
      statements of income; all transactions resulting in a change of ownership
      interest whereby the parent retains control to be accounted for as equity
      transactions; and when controlling interest is not retained by the parent,
      any
      retained equity investment will be valued at fair market value with a gain
      or
      loss being recognized on the transaction. SFAS 160 is effective for business
      combinations which occur in fiscal years beginning on or after December 15,
      2008. The Company does not expect this statement to have an impact on its
      results of operations or financial condition.




In
      December 2007, the SEC issued SAB 110, “Certain Assumptions Used in Valuation
      Methods - Expected Term.” According to SAB 110, under certain circumstances the
      SEC staff will continue to accept beyond December 31, 2007 the use of the
      simplified method in developing an estimate of the expected terms of share
      options that possess certain characteristics in accordance with SFAS 123(R)
      beyond December 31, 2007. The Company adopted SAB 110 effective January 1,
      2008
      and will continue to use the simplified method in developing the expected term
      used for our valuation of stock-based compensation.




In
      March
      2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and
      Hedging Activities - an Amendment of SFAS 133.” This new standard enhances
      required disclosures regarding derivatives and hedging activities to provide
      greater transparency about (i) how and why an entity uses derivative
      instruments, (ii) how derivative instruments and related hedge items are
      accounted for under SFAS 133 and its related interpretations, and
      (iii) how derivative instruments and related hedged items affect an
      entity's financial position, results of operations and cash flows. To meet
      those
      objectives, SFAS 161 requires qualitative disclosures about objectives and
      strategies for using derivatives, quantitative disclosures about fair value
      amounts of gains and losses on derivative instruments and disclosures about
      credit-risk-related contingent features in derivative agreements. SFAS 161
      is effective for fiscal years beginning after November 15, 2008. The Company
      does not expect this statement to have an impact on its results of operations
      or
      financial condition.




18


**AVP,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




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




In
      May
      2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted Accounting
      Principles.” This standard is intended to improve financial reporting by
      identifying a consistent framework, or hierarchy, for selecting accounting
      principles to be used in preparing financial statements that are presented
      in
      conformity with U.S. GAAP for nongovernmental entities. SFAS 162 is effective
      for fiscal years beginning after December 15, 2008. The Company does not
      expect this statement to have a material impact on our overall results of
      operations, financial position, or cash flows.




In
      May
      2008, the FASB issued SFAS 163, “Accounting for Financial Guarantee Insurance
      Contracts – an interpretation of SFAS 60.” SFAS 163 clarifies SFAS 60,
“Accounting and Reporting by Insurance Enterprises,” by requiring expanded
      disclosures about financial guarantee insurance contracts. Additionally, it
      requires that an insurance enterprise recognize a claim liability prior to
      an
      event of default (insured event), when there is evidence that credit
      deterioration has occurred in an insured financial obligation. SFAS 163 is
      effective for financial statements issued for fiscal years beginning after
      December 15, 2008, and all interim periods within those fiscal years, except
      for
      some disclosures about the insurance enterprise’s risk-management activities,
      which are effective the first period (including interim periods) beginning
      after
      May 23, 2008. Except for those disclosures, earlier application is not
      permitted. SFAS 163 is not expected to have a material impact on our
      consolidated financial statements.




19





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





**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 and the reigning
      world champions, competes on the AVP tour. The top two men and women teams
      on
      the AVP tour will be competing in the 2008 Beijing Olympic Games. We have more
      than 200 of the top professional players under exclusive contracts, as well
      as a
      growing base of spectators 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 2008, we scheduled 18
      men’s
      and 18 women’s events in Miami, FL; Dallas, TX; Huntington Beach, CA;
      Charleston, SC; Louisville, KY; Atlanta, GA; Hermosa Beach, CA; Belmar, NJ;
      Boulder, CO; Chicago, IL; Brooklyn, NY; Long Beach, CA; San Diego, CA;
      Cincinnati, OH; Santa Barbara, CA; San Francisco, CA; Manhattan Beach, CA;
      and
      Glendale, AZ. Fourteen of the 18 cities are the same as last year’s. Eight
      events were held in the second quarter and ten events are scheduled to be held
      in the third quarter.




We
      partnered with Anschutz Entertainment Group (AEG) to produce the first-ever
      indoor beach volleyball national tour, the Hot Winter Nights Tour, from January
      10 to February 23, 2008. The 2008 AVP Hot Winter Nights Tour brought the
      excitement and experience of an AVP beach volleyball tournament indoors for
      the
      very first time with each stop consisting of a three hour competition and 'beach
      festival.' The 2008 AVP Hot Winter Nights Tour schedule included 19 stops in
      many snowbound cities in the Midwest and Northeast United States. We held indoor
      beach volleyball tournaments in Oklahoma City, OK; St. Louis, MO; Kansas City,
      MO; Milwaukee, WI; Madison, WI; LaCrosse, WI; Minneapolis, MN; Columbus, OH;
      Albany, NY; Trenton, NJ; Norfolk, VA; Charlottesville, VA; Omaha, NE; Rosemont,
      IL; Bloomington, IL; Spokane, WA; Everett, WA; Portland, OR; and Las Vegas
      NV.




We
      entered a five-year agreement with the Australian Volleyball Federation (AVF)
      to
      promote the national beach volleyball tour in Australia. The 2008 AVF tour
      schedule included five events in prominent beach locations throughout Australia:
      Gold Coast in Surfers Paradise, Queensland; Manly Beach in Sydney, New South
      Wales; Port Macquarie, New South Wales; Perth, Scarborough Beach, Western
      Australia; and Adelaide in Glenelg, South Australia.




20




**Results
      of Operations for the** **Three
      Months Ended June 30, 2008 and 2007**




**Revenue**





**Summary
                Revenue**Three
                Months Ended June 30,
            
            Percentage
              Increase**2008**
            
            **2007**
            
            (Decrease)Sponsorship/advertising
            
            $
            6,192,498
            
            $
            8,990,790
            
            
            (31
            )%Activation
                Fees
            
            
            519,346
            
            
            706,744
            
            
            (27
            )%Local
                Revenue
            
            
            548,786
            
            
            497,262
            
            
            10
            %Miscellaneous
                Revenue
            
            
            567,504
            
            
            653,605
            
            
            (13
            )%Total
                Revenue
            
            $
            7,828,134
            
            $
            10,848,401
            
            
            (28
            )%




AVP's
      beach volleyball tournament season customarily commences in early April and
      continues until late September or early October. Thus, AVP’s business is
      primarily seasonal; substantially all revenue is recorded in the second and
      third quarters. The majority of revenues are derived from sponsorship and
      advertising contracts with national sponsors of the AVP Tour. 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.




Sponsorship/advertising
      revenue for the three months ended June 30, 2008 decreased $2.8 million as
      compared to the three months ended June 30, 2007 due to a decrease in annual
      contracted sponsorship/advertising revenue, which is the result of the current
      weak advertising economy. The decrease in sponsorship/advertising revenue is
      also due to the Company’s recognizing a decreased percentage of annual
      contracted national sponsorship/advertising revenue of the AVP Tour, as eight
      events took place in the three months ended June 30, 2008 (out of 18 events),
      compared to nine events taking place in the three months ended June 30, 2007
      (out of 18 events). For the three months ended June 30, the average
      sponsorship/advertising revenue per event for 2008 and 2007 were $0.8 million
      and $1.0 million, respectively.




The
      27%
      decrease in activation fees was also due to a decrease in annual gross
      activation revenue as a result of two sponsors from 2007 who utilized AVP’s
      activation services not returning as sponsors in 2008. The decrease in
      activation is also due to eight events taking place in the three months ended
      June 30, 2008 compared to nine events taking place in the three months ended
      June 30, 2007. The average activation revenue per event for the three months
      ended June 30, 2008 and 2007 were approximately $65 thousand and $79 thousand,
      respectively.




Local
      revenue increased 10% mainly due to an increase in the number promoter
      agreements. For the three months ended June 30, 2008, we entered into seven
      promoter agreements, compared to five promoter agreements for the three months
      ended June 30, 2007. Two of the seven agreements were structured as a promoter
      fee model pursuant to which the event promoter paid AVP a promoter fee in
      exchange for the right to exploit local revenue, including ticket sales, local
      sponsorships, parking, and concessions. All promoter agreements entered into
      during the three months ended June 30, 2007 were restructured as a profit-share
      model pursuant to which the event promoter was 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.




21




Miscellaneous
      revenue for the three months ended June 30, 2008 decreased 13% primarily due
      to
      a decrease in revenue generated from the marketing/interactive service program.




**Event
      Costs**





**Summary Costs**
            
            **% Revenue****Increase as**Three Months Ended June 30,
            
            Three Months Ended June 30,
            
            **% of Revenue****2008**
            
            **2007**
            
            **2008**
            
            **2007**
            
            **2008 vs. 2007**Event
                Costs
            
            $
            5,716,951
            
            $
            7,185,169
            
            
            73
            %
            
            66
            %
            
            7
            %




AVP
      Tour
      event costs primarily include the direct costs of producing an event, costs
      related to the production and the airing of events on network television, and
      the cost of servicing our sponsors. AVP Tour 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.




The
      decrease of $1.5 million in total event costs was attributable to one less
      event
      taking place during the three months ended June 30, 2008 (eight events compared
      to nine events taking place during the three months ended June 30, 2007). In
      addition, event costs also decreased due to decreases in activation costs and
      sponsorship costs mainly due to two sponsors from 2007 who did not return as
      sponsors in 2008. For the three months ended June 30, the average event cost
      for
      2008 decreased to $0.7 million from an average event cost of $0.8 million for
      2007. The decrease in average event cost is attributable to the cost savings
      resulting from seven promoter events as compared to five promoter events for
      the
      three months ended June 30, 2007. The event promoters were responsible for
      certain operational costs of the events.





**Gross
                Profit**Three Months Ended June 30,**2008**
            
            **2007**Revenue
            
            $
            7,828,134
            
            $
            10,848,401Event
                Costs
            
            
            5,716,951
            
            
            7,185,169Gross
                Profit
            
            $
            2,111,183
            
            $
            3,663,232Gross
                Profit %
            
            
            27
            %
            
            34
            %




The
      decrease in gross profit margin for the three months ended June 30, 2008 is
      primarily due to the decrease in sponsorship/advertising revenue, in activation
      fees and in marketing/interactive service revenue.




As
      mentioned above, our primary business is seasonal; therefore revenue, gross
      profit and operating income amounts and percentages for the first and fourth
      quarters are not representative of our performance. Our quarterly results of
      operations and gross margins vary depending on the number of events scheduled
      each quarter, the number of agreements with local promoters, and the mode of
      television distribution of our events.




22




**Operating
      Expenses**





**Summary Costs**
            
            **% Revenue**Three Months Ended
              June 30,
            
            Three Months Ended
              June 30,
            
            **Increase as**
              **% of Revenue****2008**
            
            **2007**
            
            **2008**
            
            **2007**
            
            **2008
                vs. 2007**Administrative
            
            $
            1,570,616
            
            $
            1,958,237
            
            
            20
            %
            
            18
            %
            
            2
            %Sales
                and Marketing
            
            
            800,109
            
            
            862,503
            
            
            10
            %
            
            8
            %
            
            2
            %Total
                Costs
            
            $
            2,370,725
            
            $
            2,820,740
            
            
            30
            %
            
            26
            %
            
            4
            %




The
      20%
      or $0.4 million decrease in administrative costs was due primarily to the fact
      that no transaction costs were incurred during the three months ended June
      30,
      2008; compared to $0.6 million in transaction costs incurred during the three
      months ended June 30, 2007, which were related to the plan of merger with
      Shamrock Holdings, Inc. The decrease was partially offset by an increase in
      stock-based compensation expenses as a result of employee options valued under
      SFAS 123R for stock options granted to employees in 2007 and during the six
      months ended June 30, 2008 and an increase in public company expenses a result
      of conducting an Annual Meeting and electing a new Board of Directors during
      the
      three months ended June 30, 2008. No Annual Meeting was scheduled during the
      three months ended June 30, 2007.




The
      7% or
      $0.1 million decrease in sales and marketing costs mainly reflects a decrease
      in
      recruiting fees and website expenses. Website expenses decreased as a result
      of
      adjusting the estimated payment recorded in the first quarter of 2008 to
      preserve the relationship with a vendor. Such decrease was partially offset
      by
      an increase in marketing/interactive service-related expenses.





**Depreciation and Amortization Expense**Three Months Ended June 30,
            
            **Percentage****2008**
            
            **2007**
            
            **Increase**Depreciation
                Expense
            
            $
            62,137
            
            $
            59,689
            
            
            4
            %Total
            
            $
            62,137
            
            $
            59,689
            
            
            4
            %




The
      4%
      increase in depreciation expense resulted from an increase in depreciable
      assets, including information technology equipment and software and signage
      equipment.




**Other
      Income (Expense)**


Three Months Ended June 30,
              
              **Percentage****2008**
              
              **2007**
              
              **(Decrease)**Interest
                  Income
              
              $
              6,014
              
              $
              57,520
              
              
              (90
              )%Gain
                  on disposal of asset
              
              
              3,500
              
              
              1,325
              
              
              164
              %Foreign
                  exchange loss
              
              
              (5,581
              )
              
              -
              
              
              -
              %Total
              
              $
              3,933
              
              $
              58,845
              
              
              (93
              )%




The
      90%
      decrease in interest income is due to a lower cash balance for the three months
      ended June 30, 2008 as compared to the three months ended June 30, 2007.




23




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


**% Revenue**Three Months Ended June 30,
              
              Three Months Ended June 30,2008
              
              2007
              
              2008
              
              2007OperatingIncome
                  (Loss)
              
              $
              (259,542
              )
              $
              842,492
              
              
              (3
              )%
              
              8
              %NetIncome
                  (Loss)
              
              $
              (255,609
              )
              $
              901,337
              
              
              (3
              )%
              
              8
              %




The
      Company’s net loss of $0.3 million for the three months ended June 30, 2008
      compared to net income of $0.9 million for the three months ended June 30,
      2007
      primarily reflects a decrease in sponsorship/advertising revenue, a decrease
      in
      activation fees, a decrease in marketing/interactive service revenue, and an
      increase in stock-based compensation costs.




**Results
      of Operations for the** **Six
      Months Ended June 30, 2008 and 2007**




**Revenue**





**Summary Revenue**Six Months Ended June 30,
            
            Percentage
              Increase**2008**
            
            **2007**
            
            (Decrease)Sponsorship/advertising
            
            $
            7,068,018
            
            $
            8,990,790
            
            
            (21
            )%Activation
                Fees
            
            
            519,346
            
            
            706,744
            
            
            (27
            )%Local
                Revenue
            
            
            548,786
            
            
            497,262
            
            
            10
            %Miscellaneous
                Revenue
            
            
            682,974
            
            
            822,605
            
            
            (17
            )%Total
                Revenue
            
            $
            8,819,124
            
            $
            11,017,401
            
            
            (20
            )%




Sponsorship/advertising
      revenue for the six months ended June 30, 2008 decreased $1.9 million as
      compared to the six months ended June 30, 2007 mainly due to a decrease in
      annual contracted sponsorship/advertising revenue, which is the result of the
      current weak advertising economy. The decrease in sponsorship/advertising
      revenue is also due to the Company’s recognizing a decreased percentage of
      annual contracted national sponsorship/advertising revenue, as eight events
      took
      place in the six months ended June 30, 2008 (out of 18 events) compared to
      nine
      events taking place in the six months ended June 30, 2007 (out of 18 events).
      For the six months ended June 30, the average sponsorship/advertising revenue
      per event for 2008 and 2007 were $0.8 million and $1.0 million,
      respectively.




The
      27%
      decrease in activation fees was also due to a decrease in annual gross
      activation revenue as a result of two sponsors from 2007 who utilized AVP’s
      activation services not returning as sponsors in 2008. The decrease in
      activation fees is also due to eight events taking place in the six months
      ended
      June 30, 2008 compared to nine events taking place in the six months ended
      June
      30, 2007. The average activation revenue per event for the six months ended
      June
      30, 2008 and 2007 was approximately $65 thousand and $79 thousand,
      respectively.




Local
      revenue increased 10% mainly due to an increase in the number promoter
      agreements. For the six months ended June 30, 2008, we entered into seven
      promoter agreements compared to five promoter agreements for the six months
      ended June 30, 2007. Two of the seven agreements were structured as a promoter
      fee model pursuant to which the event promoter paid AVP a promoter fee in
      exchange for the right to exploit local revenue, including ticket sales, local
      sponsorships, parking, and concessions. All promoter agreements entered into
      during the six months ended June 30, 2007 were restructured as a profit-share
      model pursuant to 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.




24




Miscellaneous
      revenue for the six months ended June 30, 2008 decreased 17% primarily due
      to a
      decrease in marketing/interactive service revenue. The decrease in miscellaneous
      revenue is also due to a decrease in AVPNext revenue and the elimination of
      ticket sales for an indoor exhibition event. In 2007, we produced an indoor
      exhibition event; however, in 2008, we entered a five-year agreement with an
      event promoter pursuant to which the event promoter is responsible for the
      event
      expenses for indoor exhibition events, the Hot Winter Nights Tour, and the
      promoter shares local revenue on a 50-50 basis after recoupment of the event
      costs. For 2008, there was no profit sharing resulting from the Hot Winter
      Night
      Tour.




**Event
      Costs**





**Summary Costs**
            
            **% Revenue****Increase as**Six Months Ended June 30,
            
            Six Months Ended June 30,
            
            **% of Revenue****2008**
            
            **2007**
            
            **2008**
            
            **2007**
            
            **2008 vs. 2007**Event
                Costs
            
            $
            6,761,185
            
            $
            7,237,468
            
            
            77
            %
            
            66
            %
            
            11
            %




Event
      costs primarily include the direct costs of producing an event, costs related
      to
      the production and 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.




The
      decrease of $0.5 million in total event costs was attributable to one less
      event
      taking place during the six months ended June 30, 2008 (eight events compared
      to
      nine events taking place during the six months ended June 30, 2007). In
      addition, event costs also decreased due to decreases in activation costs and
      sponsorship costs mainly as a result of two sponsors from 2007 who did not
      return as sponsors in 2008. The decrease in total event costs for the summer
      AVP
      tour was partially offset by the additional event costs incurred in connection
      with five outdoor events that took place in Australia during the six months
      ended June 30, 2008. During the six months ended June 30, 2007, no Australian
      event was held. For the six months ended June 30, the average event cost for
      2008 decreased to $0.7 million from an average event cost of $0.8 million for
      2007. The decrease in average event cost is attributable to the cost savings
      resulting from seven promoter events as compared to five promoter events for
      the
      six months ended June 30, 2007. The event promoters were responsible for certain
      operational costs of the events.





**Gross Profit**Six Months Ended June 30,**2008**
            
            **2007**Revenue
            
            $
            8,819,124
            
            $
            11,017,401Event
                Costs
            
            
            6,761,185
            
            
            7,237,468Gross
                Profit
            
            $
            2,057,939
            
            $
            3,779,933Gross
                Profit %
            
            
            23
            %
            
            34
            %




The
      decrease in gross profit margin for the six months ended June 30, 2008 is
      primarily due to the decrease in sponsorship/advertising revenue, in activation
      fees, and in marketing/interactive service revenue. The gross profit margin
      also
      decreased due to the net loss related to our entry to Australia with the five
      outdoor Australian events that were held during the six months ended June 30,
      2008. For the six months ended June 30, 2007, no Australian event was held.




25




**Operating
      Expenses**





**Summary Costs**
            
            **% Revenue****Increase as**Six Months Ended June 30,
            
            Six Months Ended June 30,
            
            **% of Revenue****2008**
            
            **2007**
            
            **2008**
            
            **2007**
            
            **2008 vs. 2007**Administrative
            
            $
            3,241,329
            
            $
            3,404,540
            
            
            37
            %
            
            31
            %
            
            6
            %Sales
                and Marketing
            
            
            2,071,764
            
            
            1,738,216
            
            
            23
            %
            
            16
            %
            
            7
            %Total
                Costs
            
            $
            5,313,093
            
            $
            5,142,756
            
            
            60
            %
            
            47
            %
            
            13
            %




The
      5% or
      $0.2 million decrease in administrative costs was due primarily to the fact
      that
      no transaction costs were incurred during the six months ended June 30, 2008;
      as
      compared to $0.9 million in transaction costs incurred during the six months
      ended June 30, 2007, which were related to the plan of merger with Shamrock
      Holdings, Inc. Such decrease was offset by an increase in stock-based
      compensation expenses as a result of employee options valued under SFAS 123R
      for
      stock options granted to employees in 2007 and during the six months ended
      June
      30, 2008, an increase in legal and public company costs as a result of
      scheduling an annual meeting and electing a new Board of Directors during the
      six months ended June 30, 2008, as well as an increase in SEC compliance costs
      related to the Sarbanes Oxley Act of 2002 and travel related
      expenses.




The
      19%
      or $0.3 million increase in sales and marketing costs mainly reflects an
      increase in website expenses and marketing/interactive service-related expenses.
      The increase in website costs includes an estimated payment due to a vendor
      for
      previously rendered services recorded to preserve the relationship. The increase
      in sales and marketing costs was partially offset by the decrease in commission
      expense paid to external sales agents and the decrease in recruiting costs.





**Depreciation and Amortization Expense**Six Months Ended June 30,
            
            **Percentage****2008**
            
            **2007**
            
            **Increase**Depreciation
                Expense
            
            $
            128,799
            
            $
            109,260
            
            
            18
            %Total
            
            $
            128,799
            
            $
            109,260
            
            
            18
            %




The
      18%
      increase in depreciation expense resulted from an increase in depreciable
      assets, including information technology equipment and software and signage
      equipment.




**Other
      Income (Expense)**


Six Months Ended June 30,
                
                **Percentage****2008**
                
                **2007**
                
                **(Decrease)**Interest
                    Income
                
                $
                17,203
                
                $
                113,977
                
                
                (85)
                %Gain
                    on disposal of asset
                
                
                3,500
                
                
                9,774
                
                
                (64
                )%Foreign
                    exchange loss
                
                
                (5,581
                )
                
                -
                
                
                -
                %Total
                
                $
                15,122
                
                $
                123,751
                
                
                (88
                )%




The
      85%
      decrease in interest income is due to a lower cash balance for the six months
      ended June 30, 2008 as compared to the six months ended June 30, 2007.




26




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


**% Revenue**Six Months Ended June 30,
              
              Six Months Ended June 30,2008
              
              2007
              
              2008
              
              2007Operating
                  Loss
              
              $
              (3,255,154
              )
              $
              (1,362,823
              )
              
              (37
              )%
              
              (12
              )%Net
                  Loss
              
              $
              (3,241,182
              )
              $
              (1,239,872
              )
              
              (37
              )%
              
              (11
              )%




The
      Company’s net loss of $3.2 million for the six months ended June 30, 2008
      compared to a loss of $1.2 million for the six months ended June 30, 2007
      reflects a decrease in sponsorship/advertising revenue, a decrease in activation
      fees, a decrease in marketing/interactive service revenue, and an increase
      in
      stock-based compensation costs, legal costs, website expenses and the net loss
      related to the five outdoor Australian events that were held during the six
      months ended June 30, 2008.




**Liquidity
      and Capital Resources**





**Sources of Liquidity**June 30, 2008
            
            December 31,
              2007
            
            (Decrease)Cash
                and cash equivalents
            
            $
            1,468,212
            
            $
            2,257,453
            
            $
            (789,241
            )Percentage
                of total assets
            
            
            24
            %
            
            43
            %





Six Months Ended June 30,2008
            
            2007
            
            (Decrease)Cash
                flows provided by (used in) operating activities
            
            $
            (705,402
            )
            $
            1,197,700
            
            $
            (1,903,102
            )Cash
                flows used in investing activities
            
            
            (89,420
            )
            
            (82,034
            )
            
            (7,386
            )Cash
                flows provided by financing activities
            
            
            -
            
            
            -
            
            
            -




As
      of
      June 30, 2008, our primary source of liquidity is comprised of $1.5 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 flows provided by financing
      activities.  We have generated significant cash flows from the issuance of
      our common stock through private placements.




Cash
      flows provided by (used in) operating activities for the six months ended June
      30, 2008 and 2007 were ($0.7) million and $1.2 million, respectively. The
      variance in cash flows provided by (used in) operating activities for the six
      months ended June 30, 2008 is primarily due to an increase in net loss. Working
      capital, consisting of current assets less current liabilities, was ($0.8)
      million at June 30, 2008 and $4.3 million at June 30, 2007. The negative working
      capital at June 30, 2008 resulted from increases in accounts payable and
      deferred revenue.




The
      Company is in the process of exploring financing opportunities and is seeking
      to
      raise funds for working capital and general corporate purposes.




At
      June
      30, 2008 and 2007, accounts receivable had increased $1.4 million and $1.5
      million as compared to December 31, 2007 and 2006, respectively. At June 30,
      2008 and 2007, deferred revenues had increased $2.4 million and $2.5 million
      as
      compared to December 31, 2007 and 2006, respectively. Deferred revenues are
      recorded as AVP collects revenues prior to holding certain events.




27




Capital
      expenditures for the six months ended June 30, 2008 and 2007 were $0.1 million
      and $0.2 million, respectively. During the six months ended June 30, 2008,
      AVP
      purchased information technology equipment, accounting software, and signage
      equipment. During the six months ended June 30, 2007, AVP purchased information
      technology equipment, vehicles and rotational signage equipment.




**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**




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** ****




A
      discussion of recent accounting pronouncements is included in Note 8 of Notes
      to
      Consolidated Financial Statements (Unaudited).




**Off-Balance
      Sheet Arrangements**




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





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**ITEM
      4T. CONTROLS AND PROCEDURES**





AVP's
      management has evaluated, with the participation of its principal executive
      and
      financial officers, the effectiveness of AVP's disclosure controls and
      procedures (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) as of
      the
      end of the period covered by this report. Based on this evaluation, these
      officers have concluded, that, as of June 30, 2008, 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.





No
      changes in AVP’s internal control over financial reporting occurred during the
      quarter covered by this report that has materially affected or is reasonably
      likely to materially affect our internal control over financial
      reporting.





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**PART
      II. OTHER INFORMATION**





**ITEM
      6. EXHIBITS**





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





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





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





30





**SIGNATURE**





Pursuant
      to the requirements of Section 13 or 15 or 15(d) of the Securities Exchange
      Act
      of 1934, the registrant has duly caused this report to be signed on its behalf
      by the undersigned, thereunto duly authorized on the 14th day of August, 2008.





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




31