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: September 30, 2006




**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: 0-17458





**AHPC
                Holdings, Inc.**(Exact
                name of registrant as specified in its charter)**Maryland**
            
            **73-1326131**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              Identification
                No.)**80
                Internationale Boulevard, Unit A**
              **Glendale
                Heights, IL 60139**(Address
                of principal executive office)**(630)
                407-0242**(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 of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes
      [X]
      No [   ]





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




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





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


Yes
      [   ] No [X]








APPLICABLE
      ONLY TO CORPORATE ISSUERS





The
      number of shares of the issuer's Common Stock, par value $.01 per share,
      outstanding as of November 9, 2006, was 1,251,246.









2




**AHPC
      Holdings, Inc**


**FORM
      10-Q**


**September
      30, 2006**





**INDEX**





PART
      I
      - FINANCIAL INFORMATION








Item
                1.
            Financial
                StatementsCondensed
                Consolidated Balance Sheets
              September
                30, 2006 (unaudited) and June 30,
                2006
            pgs.
                4-5Condensed
                Consolidated Statements of
                Operations (unaudited) for the
              Three
                Months Ended September 30, 2006 and
                2005
            pg.
                6Condensed
                Consolidated Statements of Cash Flows
                (unaudited) for the
              Three
                Months Ended September 30, 2006 and
                2005
            pg.
                7Notes
                to Condensed Consolidated Financial Statements
                (unaudited)
            pg.
                8Item
                2.
            Management's
                Discussion and Analysis of Financial Condition andResults
                of Operations
            pg.
                18Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            pg.
                22Item
                4.
            Controls
                and Procedures
            pg.
                22







PART
      II - OTHER INFORMATION





Item
                1.
            Legal
                Proceedings
            pg.
                24Items
                1A.
            Risk
                Factors
            pg.
                24Item
                2.
            Unregistered
                Sales of Equity Securities and Use
                of Proceeds
            pg.
                24Item
                3.
            Defaults
                Upon Senior Securities
            pg.
                24Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            pg.
                24Item
                5.
            Other
                Information
            pg.
                25Item
                6.
            Exhibits
            pg.
                25









3





**ITEM
      1.   Financial Statements**




**AHPC
      Holdings, Inc. and Subsidiary**


**CONDENSED
      CONSOLIDATED BALANCE
      SHEETS**


**September
      30, 2006 and June 30, 2006**




**ASSETS**
            September
                30, 2006
            
            
            June
                30, 2006(unaudited)**CURRENT
                ASSETS**Cash
            
            $
            209,566
            
            $
            83,162Accounts
                receivable - trade, net of allowance fordoubtful
                accounts of $61,988 at September 30, 2006and
                at June 30, 2006
            
            
            1,919,700
            
            
            1,867,977Inventories,
                net
            
            
            5,447,876
            
            
            6,470,411Prepaid
                expenses
            
            
            421,927
            
            
            440,428Other
                receivables
            
            
            3,694
            
            
            3,694Total
                current assets
            
            
            8,002,763
            
            
            8,865,672**PROPERTY,
                PLANT AND EQUIPMENT**Equipment,
                furniture and fixtures
            
            
            2,623,204
            
            
            2,618,324Building
                improvements
            
            
            35,036
            
            
            35,036Total
                property, plant and equipment
            
            
            2,658,240
            
            
            2,653,360Less
                accumulated depreciation and amortization
            
            
            2,542,735
            
            
            2,527,940Property,
                plant and equipment, net
            
            
            115,505
            
            
            125,420**OTHER
                ASSETS**Other
                assets
            
            
            1,108
            
            
            1,108Total
                other assets
            
            
            1,108
            
            
            1,108Total
                Assets
            
            $
            8,119,376
            
            $
            8,992,200





The
      accompanying notes are an integral part of these condensed consolidated balance
      sheets.








4





**AHPC
      Holdings, Inc. and Subsidiary**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**September
      30, 2006 and June 30, 2006**





**LIABILITIES
                AND SHAREHOLDERS' EQUITY**
            September
                30, 2006
            
            
            June
                30, 2006(unaudited)**CURRENT
                LIABILITIES**Accounts
                payable - trade
            
            $
            2,179,678
            
            $
            2,498,467Trade
                notes payable to bank
            
            
            2,407,529
            
            
            2,094,711Other
                notes payable
            
            
            57,400
            
            
            19,101Accrued
                rebates
            
            
            293,067
            
            
            241,024Accrued
                warrant liability
            
            
            155,377
            
            
            272,178Accrued
                expenses
            
            
            1,036,913
            
            
            987,295Total
                current liabilities
            
            
            6,129,964
            
            
            6,112,776**DEFERRED
                RENT**
            
            
            83,899
            
            
            87,031Total
                liabilities
            
            
            6,213,863
            
            
            6,199,807**COMMITMENTS
                AND CONTINGENCIES****SHAREHOLDERS'
                EQUITY**Series
                B convertible preferred stock, $0.01 par value;30,000 shares authorized, 30,000 issued and outstanding atSeptember 30, 2006 and June 30, 2006
            
            
            300
            
            
            300Common
                stock, $.01 par value; 50,000,000 sharesauthorized;
                1,375,511 shares issued; 1,251,246 shares outstandingat
                September 30, 2006 and at June 30, 2006
            
            
            41,711
            
            
            41,711Additional
                paid-in capital
            
            
            24,406,435
            
            
            24,382,944Accumulated
                deficit
            
            
            (16,536,757
            )
            
            (15,626,386
            )7,911,689
            
            
            8,798,569Less
                common stock in treasury, at cost, 124,265 shareson
                September 30, 2006 and June 30, 2006
            
            
            6,006,176
            
            
            6,006,176Total
                shareholders' equity
            
            
            1,905,513
            
            
            2,792,393$
            8,119,376
            
            $
            8,992,200





The
      accompanying notes are an integral part of these condensed consolidated balance
      sheets.





5


**AHPC
      Holdings, Inc. and Subsidiary**


**CONDENSED
      CONSOLIDATED STATEMENTS OF
      OPERATIONS**


**For
      the Three Months Ended September 30, 2006 and 2005**




For
                the Three Months Ended September 30,2006
            
            
            
            2005(unaudited)
            
            
            
            (unaudited)Net
                sales
            
            $
            6,091,470
            
            
            $
            6,914,796Cost
                of goods sold
            
            
            5,102,007
            
            
            
            5,479,944Gross
                profit
            
            
            989,463
            
            
            
            1,434,852Operating
                expensesSelling,
                general and administrative
            
            
            1,895,056
            
            
            
            1,885,714Loss
                from operations
            
            
            (905,593
            )
            
            
            (450,862
            )Other
                Income and (Expense)Interest
                expense
            
            
            64,597
            
            
            
            (44,459
            )Other
                income
            
            
            -
            
            
            
            -Loss
                on stock redemption transaction
            
            
            -
            
            
            
            -Loss
                from operations before provisionfor
                (benefit from) income taxesand
                minority interest
            
            
            (840,996
            )
            
            
            (495,321
            )Provision
                for (benefit from) income taxes
            
            
            -
            
            
            
            (3,235
            )Loss
                from operations before minorityinterest
            
            
            (840,996
            )
            
            
            (498,556
            )Minority
                interest in loss of subsidiary
            
            
            -
            
            
            
            -NET
                LOSS
            
            $
            (840,996
            )
            
            $
            (498,556
            )Discount
                on Preferred Stock/Beneficial Conversion
            
            
            (69,375
            )
            
            
            -**NET
                LOSS Available to Common Shareholders**
            
            $
            (910,371
            )
            
            $
            (498,556
            )Basic
                and diluted net loss per common share
            
            $
            (0.74
            )
            
            $
            (0.41
            )Weighted
                average number of common shares outstanding:Basic
            
            
            1,234,347
            
            
            
            1,207,237


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


6


**AHPC
      Holdings, Inc. and Subsidiary**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**For
      the Three Months Ended September 30, 2006 and 2005**





For
                the Three Months Ended September 30,2006
            
            
            2005(unaudited)
            
            
            (unaudited)Cash
                flows from operating activitiesNet
                loss
            
            $
            (840,996
            )
            $
            (498,556
            )Adjustments
                to reconcile net loss to net cash used inoperating
                activitiesDepreciation
                and amortization
            
            
            14,795
            
            
            68,930Amortization
                of discount on subordinated notes
            
            
            -
            
            
            8,372Stock-Based
                compensation
            
            
            23,491
            
            
            -Deferred
                rent expense
            
            
            10,868
            
            
            49,641Changes
                in operating assets and liabilitiesAccounts
                receivable - trade
            
            
            (51,723
            )
            
            10,979Inventories,
                net
            
            
            1,022,535
            
            
            (600,722
            )Prepaid
                expenses
            
            
            18,501
            
            
            (119,364
            )Other
                assets
            
            
            -
            
            
            500Accounts
                payable - trade
            
            
            (318,789
            )
            
            174,520Accrued
                rebates
            
            
            52,043
            
            
            67,742Accrued
                expenses
            
            
            (81,183
            )
            
            83,528Amounts
                due to and from affiliates
            
            
            -
            
            
            -Net
                cash used in operating activities
            
            
            (150,458
            )
            
            (754,430
            )Cash
                flows from investing activitiesCapital
                expenditures
            
            
            (4,880
            )
            
            (12,168
            )Net
                cash used in investing activities
            
            
            (4,880
            )
            
            (12,168
            )Cash
                flows from financing activitiesGross
                payments on trade notes payable to bank
            
            
            (3,592,182
            )
            
            (8,118,546
            )Gross
                borrowings on trade notes payable to bank
            
            
            3,905,000
            
            
            7,677,861Gross
                payments on notes payable
            
            
            (19,101
            )
            
            (8,803
            )Gross
                borrowings on notes payable
            
            
            57,400
            
            
            56,000Subordinated
                note borrowings
            
            
            -
            
            
            1,200,000Preferred
                Stock Dividend
            
            
            (69,375
            )
            
            -Proceeds
                from issuance of common stock/exercise of options
            
            
            -
            
            
            4,520Net
                cash provided by financing activities
            
            
            281,742
            
            
            811,031Net
                increase in cash
            
            
            126,404
            
            
            44,433Cash,
                beginning of period
            
            
            83,162
            
            
            16,434Cash,
                end of period
            
            $
            209,566
            
            $
            60,867Supplemental
                disclosure of cash flow informationInterest
                Paid
            
            $
            51,642
            
            $
            45,427Income
                Taxes Paid
            
            $
            -
            
            $
            27,554Non
                -cash investing and financing activities:Estimated
                fair value of the accrued warrant liability as of September 30, 2006
                in
                connection with the subordinated notes is
              $155,377.


The
      accompanying notes are an integral part of these condensed consolidated
      statements of cash flows.


7


**AHPC
      Holdings, Inc and Subsidiary**


**NOTESTO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
      (Unaudited)**


**September
      30, 2006**





**1.**
            **Description
                of Business:**





AHPC
      Holdings, Inc. (the "Company") is a marketer of foodservice and medical
      examination gloves and other disposable items used primarily in the foodservice
      and medical industries in the United States and Canada through its wholly owned
      subsidiary, American Health Products Corporation ("AHPC").





**2.** **Basis
      of Presentation:**





The
      accompanying unaudited condensed, consolidated financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America, for interim financial information and with the
      instructions to Form 10-Q. Accordingly, they do not include all of the
      information and footnotes required by accounting principles generally accepted
      in the United States of America for a complete presentation of our financial
      statements. In the opinion of management, all adjustments necessary for a fair
      presentation, consisting only of normal recurring adjustments, have been
      included. The audited June 30, 2006 financial statements have been prepared
      under the assumption that we are a going concern. Our independent registered
      public accounting firm has included a "going concern" emphasis paragraph in
      their audit report accompanying the June 30, 2006 financial statements. For
      further information these financial statements and notes are to be read in
      conjunction with the consolidated financial statements contained in our Annual
      Report on Form 10-K for the year ended June 30, 2006, filed September 13, 2006
      with the Securities and Exchange Commission. The results of operations for
      the
      three-month period ended September 30, 2006, may not be indicative of the
      results that may be expected for the fiscal year ending June 30,
      2007.





We
      have
      made certain reclassifications to the prior year balances to show comparatives.





**3.** **Working
      Capital:**




We
      continue to incur operating losses and have working capital shortages. Despite
      this, we have been able to secure both short-term and long-term financing to
      support future operations (refer to Notes 6, 14 and 15). We believe that
      this short-term and long-term financing will be sufficient to support our
      liquidity through June 30, 2007, depending on operating results and our
      continued trade support. We expect to continue to consume cash through the
      end
      of fiscal year June 30, 2007. The rate at which cash will be consumed is
      primarily dependent on the revenues we realize, cost reductions, rising raw
      material costs and our ability to pass along some of these costs to our
      customers. There can be no assurances that the current financing will be
      sufficient and that favorable operating results will be achieved, or that
      additional financing will be available to us, or that the terms of any
      additional financing will be favorable for us.




8


**4.** **Principles
      of Consolidation:**





The
      accompanying condensed consolidated financial statements include our accounts
      and those of AHPC. All significant intercompany transactions have been
      eliminated in consolidation.





**5.** **Common
      Stock:**





During
      the three months ended September 30, 2006, we did not issue any shares of our
      Common Stock pursuant to the exercise of employee stock options.





**6.** **Series
      B Convertible Preferred Stock:**





On
      June
      20, 2006, we completed a $3 million equity financing with M.A.G. Capital, LLC
      and certain of its affiliates (collectively, "MAG"). In connection with this
      equity financing, we issued 30,000 shares of our Series B Convertible Preferred
      Stock (the "Series B Preferred") to MAG at a price of $100 per
      share.





The
      shares of Series B Preferred pay preferential, cumulate dividends at a rate
      based on the higher of the Prime Rate of interest, as quoted in the Wall Street
      Journal, plus 1%, or 9% per annum, subject to a maximum rate of interest of
      12%
      per annum. The dividends are payable monthly in arrears on the first day of
      the
      month while such shares of Series B Preferred are outstanding. The holders
      of
      the Series B Preferred have the option, at any time, to convert their shares
      into shares of our Common Stock at rate that is determined by dividing the
      purchase price for the shares of Series B Preferred ($100 per share)
      by the conversion price of $1.60 per share.





In
      addition, we issued Common Stock purchase warrants to MAG to acquire an
      aggregate of 1,950,000 shares of Common Stock. These warrants grant the holders
      the right to purchase shares of our Common Stock at an exercise price of $1.75
      per share with respect to 975,000 shares and $1.85 per share with respect to
      the
      remaining 975,000 shares. The warrants are exercisable commencing six months
      after the date of the issuance of the warrants and expire on June 20,
      2011.





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





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





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






9


Flagstone
      Capital, LLC, a St. Louis, Missouri based investment bank, acted as placement
      agent in this transaction. On June 20, 2006 and in connection with the closing
      of the equity financing, we issued the placement company warrants to purchase
      93,750 shares of our Common Stock (refer to Note 7).





**7.** **Accrued
      Warrant Liability:**





On
      September 29, 2005, we issued warrants to purchase up to 325,714 shares of
      our
      Common Stock in connection with the private placement of $1.2 million in
      subordinated promissory notes (refer to Note 15). Each subordinated promissory
      note has attached a Class A Warrant and a Class B Warrant granting the holder
      of
      the subordinated promissory note the right to purchase an aggregate of 192,000
      and 120,000 shares, respectively, of our Common Stock at an exercise price
      of
      $3.50 per share and $4.50 per share, respectively. In addition, in connection
      with this transaction, we issued the placement company a warrant to purchase
      13,714 shares of our Common Stock at an exercise price of $3.50 per share.
      This
      warrant has similar rights and terms to the Class A Warrants and will also
      be
      referred to as a "Class A warrant." Each of the Class A Warrants and the Class
      B
      Warrants has an exercise term of five years. The Class A Warrants and Class
      B
      Warrants shall be automatically exercised in full in a cashless exchange if
      the
      closing price of our Common Stock as listed on the NASDAQ Stock Market exceeds
      $8.75 and $11.25, respectively, for fifteen (15) consecutive trading days.
      As of
      September 30, 2006, the Class A Warrants and Class B Warrants were assigned
      a
      fair value of $155,377, which was estimated using the Black-Scholes valuation
      model. The following assumptions were used to determine the fair value of these
      warrants using the Black-Scholes valuation model: a term of 3.97 years, a
      risk-free rate of 4.562, volatility of 89.534%, and an expected dividend yield
      of zero.





The
      holders of the subordinated promissory notes, referenced in the preceding
      paragraph, and Class A Warrants and Class B Warrants have registration rights
      that require us to file a registration statement with the Securities and
      Exchange Commission within one year from the date of issuance of the warrants
      to
      register the resale of the Common Stock issuable upon exercise of the warrants
      if we file a registration statement or if we receive a collective demand for
      registration from the holders of the Class A Warrants and Class B Warrants
      holding in the aggregate at least 51% of the total shares of Common Stock
      issuable upon exercise of all the warrants. Under EITF No. 00-19, *Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company's Own Stock,* the
      ability to register the shares of Common Stock issuable upon exercise of the
      warrants is deemed to be outside of our control. Accordingly, we have recorded
      the fair value of the Class A Warrants and Class B Warrants of $419,406 as
      an
      accrued warrant liability on our consolidated balance sheet, and this liability
      will continue to be marked to fair value at the end of each subsequent reporting
      period.





10


**8.            S** **tock
      Incentive Plans:**





On
      June
      12, 1998, the Board of Directors approved an amendment and restatement of the
      Company's Omnibus Equity Compensation Plan (the "Plan"), which authorized and
      adjusted the number of shares issuable under the Plan from 133,333 to 466,667
      (reflective of the 3 for 1 reverse stock split effective on January 20, 2004,
      refer to Note B of our Consolidated Financial Statements included as part of
      our
      Form 10-K report for the fiscal year ended June 30, 2006, as filed with the
      Securities and Exchange Commission on September 13, 2006). Options are issued
      at
      the discretion of our compensation committee and generally are priced at or
      above fair market value on the date of grant, have a vesting period of 3 years
      and a total term of 10 years.





Effective
      June 13, 2005, the Board of Directors approved the immediate vesting of
      managements remaining stock options, dated February 20, 2004, as recognition
      for
      the Company's performance. As a result 44,000 stock options were immediately
      vested. Of the 397,965 options outstanding at September 30, 2006 all were fully
      vested and exercisable. We have reserved an adequate number of shares of our
      common stock for issuance upon conversion of these options.





A
      summary
      of options outstanding under the Plan for the three month period ending
      September 30, 2006 shown below is as follows:





Number
                of Outstanding Options
            
            
            Weighted-Average
                Exercise Price
            
            
            Weighted-
                Average Remaining Contractual Life
            
            
            Aggregate
                Intrinsic ValueOutstanding,
                June 30, 2006
            
            
            397,965
            
            $
            1.97Grants
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -Rescissions
            
            
            -
            
            
            -Expirations
            
            
            -
            
            
            -Outstanding,
                September 30, 2006
            
            
            397,965
            
            $
            1.97
            
            
            8.47
            
            $
            18,294





During
      the quarter ended September 30, 2006, we did not issue any stock
      options.




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


Range
                of exercise pricesNumber
                  Outstanding at
            
            Weighted
                  average
            Number
                  exercisable
            Weighted-averageSeptember
                30,
            Remaining
            exercise
            at
                September 30,
            exercise2006
            life
            price
            2006
            price$6.21
            
            15,579
            
            0.5-4
                years
            
            $6.21
            
            15,579
            
            $6.212.65
            
            18,360
            
            9
                years
            
            2.65
            
            18,360
            
            2.652.31
            
            26,668
            
            5
                years
            
            2.31
            
            26,668
            
            2.312.25
            
            37,691
            
            5
                years
            
            2.25
            
            37,691
            
            2.252.05
            
            170,000
            
            9.5
                years
            
            2.05
            
            -
            
            2.051.13
            
            123,000
            
            7
                years
            
            1.13
            
            123,000
            
            1.130.72
            
            6,667
            
            6
                years
            
            0.72
            
            6,667
            
            0.72$.72-$6.21
            
            397,965
            
            0.5-10
                years
            
            $1.97
            
            227,965
            
            $1.91





11


A
      summary
      of the status of our nonvested shares as of September 30, 2006 and changes
      during the three months ended September 30, 2006 is as follows:




Nonvested
                  Options
              Outstanding
                  options
              
              Weighted-average
                  grant-date fair valueBalance,
                  June 30, 2006
              170,000
              
              $1.65Grants
              -
              
              -Vested
              (-)
              
              (-)Expirations
              (-)
              
              (-)Balance,
                  September 30, 2006
              170,000
              
              $1.65
 During the three months ended September 30, 2006 and 2005, we recognized
        compensation expense of $23,491 related to the stock options issued. We have
        not
        recognized any deferred income tax benefit related to stock-based compensation
        due to our deferred tax asset being fully reserved as of September 30, 2006.
        As
        of September 30, 2006, there was $227,085 of total unrecognized compensation
        cost related to nonvested options granted under the Plan. This cost is expected
        to be recognized over a weighted average period of 3 years.





**9.** **Net
      Loss Per Share:**





We
      follow
      the Statement of Financial Accounting Standards No. 128, "Earnings Per Share
      (EPS)" ("SFAS 128"), which requires dual presentation of basic and diluted
      earnings per share information for all periods presented. Basic EPS amounts
      are
      based on the weighted-average number of shares of Common Stock outstanding
      during each period while diluted EPS amounts are based on the weighted-average
      number of shares of Common Stock outstanding during the period after the effect
      of dilutive stock options and warrants. Dilution is not applicable during the
      loss periods presented. The weighted-average number of common shares and common
      share equivalents outstanding for the three months ended September 30, 2006
      and
      2005, respectively, are as follows:




Three
                  Months Ended
                September
                  30,2006
            
            
            2005Net
                Loss as reported
            
            $
            (840,996
            )
            $
            (498,556
            )Deduct:
                Preferred Stock dividend
            
            
            (69,375
            )
            
            -Net
                Loss available to common shareholders
            
            $
            (910,371
            )
            $
            (498,556
            )Basic
                and diluted weighted-average number of common shares outstanding
            
            
            1,251,246
            
            
            1,207,237





**10.** **Accounting
      for Income Taxes:**





We
      record
      income taxes in accordance with Statement of Financial Accounting Standards
      No.
      109 ("SFAS 109"). SFAS 109 utilizes the liability method and, under this method,
      deferred taxes are determined based on the estimated future tax effects of
      differences between the financial statement and tax basis of fixed assets and
      other temporary differences given the provisions of enacted tax laws. Deferred
      income tax provisions and benefits are based on the changes in the deferred
      tax
      asset or tax liability from period to period.




12





Our
      U.S.
      operations had generated net operating loss carry-forwards ("NOL's") in prior
      years, of which approximately $6.537 million is remaining at September 30,
      2006.
      The tax benefits of these NOL's are fully reserved with a valuation allowance
      and are included as a component of deferred tax assets. In accordance with
      federal tax regulations, usage of the NOL's is subject to limitations in future
      years as a direct result of our Redemption Transaction which is described in
      our
      prior filings with the Securities and Exchange Commission, including in
      Note 16 to our Notes to Condensed Consolidated Financial Statements filed
      as part of our 10-Q Report for the quarter ended December 31, 2005. We have
      available to utilize only $2.8 million of these NOL's over the next 20 years,
      at
      which time all of the NOL's listed above will have expired.





For
      the
      three months ended September 30, 2006 and 2005, we have recorded a provision
      of
      $0 and $3,235, respectively, for income taxes. The current period provision
      was
      for state income taxes.





**11.** **Contingencies:**





Over
      the
      last several years, numerous product liability lawsuits have been filed against
      suppliers and manufacturers of latex gloves alleging, among other things,
      adverse allergic reactions. We are one of numerous defendants that have been
      named in such lawsuits. During the three months ended September 30, 2006, there
      were no additional product liability lawsuits filed against the Company. At
      September 30, 2006, we were involved in a total of one lawsuit, either as a
      named defendant, third party or an indemnifier. We have agreed to defend and
      indemnify certain of our vendors solely in connection with the sale and
      distribution of our products. We are not named as the sole defendant in this
      lawsuit.





We
      have
      obtained product liability insurance coverage which covers the defense costs
      and
      certain damage awards associated with the product liability claims against
      the
      Company and AHPC. Additionally, AHPC's customers typically procure product
      liability insurance that limits our exposure to those claims for which we have
      agreed to indemnify such customers, subject to deductions for such claims that
      remain our responsibility. We believe that all legal claims are adequately
      provided for or involve such amounts that would not materially or adversely
      affect our financial condition. However, there is no assurance that AHPC's
      or
      its customers' insurance will be sufficient to meet all damages for which we
      may
      be held liable. In addition, there can be no assurances that product liability
      insurance for these claims will continue to be available to us or, if available,
      that it will be available in sufficient amounts and at affordable
      terms.





**12.** **Critical
      Accounting Policies:**





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





13


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





We
      review
      on an ongoing basis the realizability of our inventory value and the need for
      establishing reserves. Accordingly, we have established inventory reserves
      for
      valuation, shrinkage, excess and obsolete inventory. We determine the excess
      and
      obsolete inventory as items that potentially will not be sold within the next
      12
      month period, based on a trailing 8-week sales analysis, and reserve a
      percentage against those items based on knowledge and expectations. As of
      September 30, 2006 and June 30, 2006, these reserves were $214,077 and
      $203,642, respectively.





Revenue
      Recognition. Sales
      for all products shipped from our Glendale Heights, Illinois warehouse are
      recognized at the time the product is shipped to our customers or picked up.
      Sales shipped or picked up from our designated two public warehouse facilities
      are recognized the day following the date of shipment. An accrual is recorded
      to
      recognize these sales in accordance with our accounting policies.





Inventories. Inventories are accounted for on a first-in, first-out basis and are valued
      at
      the lower of actual cost or market. Inventories are stored at our Glendale
      Heights, Illinois warehouse and two independent public warehouses located in:
      Oakland, California; and Fond du Lac, Wisconsin.





Property,
      Plant and Equipment. We
      record property, plant and equipment at cost. Depreciation is provided by both
      straight-line and accelerated methods over lives ranging from 2 to 7 years.
      Building improvements are amortized on a straight-line basis over their
      estimated useful lives or lease terms, whichever is shorter.





Sales
      Incentives. Certain
      customers are granted discounts, rebates or other allowances which are intended
      to assist in the promotion of our products. We record these discounts and
      rebates as our customers earn them or when they are paid, depending on the
      nature of the item. All discounts, rebates and allowances are shown as a
      deduction from gross sales to arrive at net sales in our consolidated statements
      of income.





Deferred
      Tax Asset. Deferred
      taxes result from the effect of transactions that are recognized in different
      periods for financial and tax reporting purposes. A valuation allowance is
      established when it is more likely than not that any portion of the deferred
      tax
      assets will not be realized. The valuation allowance is adjusted if the
      realization of deferred tax assets becomes more likely than not.





14


Accrued
      Warrant Liability .
      In
      connection with the issuance of the subordinated promissory notes, referred
      to
      in Note 7, we recorded the fair market value of the associated warrants (refer
      to Note 7) as an accrued warrant liability in accordance with Statement of
      Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
      and Hedging Activities" and EITF 00-19 "Accounting for Derivative Financial
      Instruments Indexed to, and Potentially Settled in, a Company's Own Stock."
      Accordingly, changes in the fair market value of these warrants will be reported
      in earnings as they occur. The associated discount on the subordinated
      promissory notes is being amortized to interest expense, using the effective
      interest rate method, over the term of the subordinated promissory
      notes.





**13.** **Key
      Customers:**





Our
      customers include leading foodservice distributors and healthcare product
      suppliers. A relatively small number of national accounts comprise a substantial
      portion of our revenues. During the three months ended September 30, 2006,
      AHPC's national customer group accounted for 87.2% of net sales and, as of
      September 30, 2006, receivables from this customer group amounted to 80.7%
      of our outstanding accounts receivable. This customer group is comprised of
      60
      independent customers, of which 38 we currently generate sales to. The loss
      of
      the national customers comprising this customer group would have a materially
      adverse effect on us. Our customers tend to limit the number of qualified
      vendors they purchase from to gain efficiencies across their product line.
      We,
      therefore, expend substantial efforts to maintain and grow our relationships
      with our existing major customers. However, our products are ultimately
      distributed by three diversified distribution companies, through their combined
      networks of over 100 operating companies, to thousands of foodservice
      organizations and medical facilities throughout the United States. The ultimate
      end-users of our products are foodservice organizations and medical facilities,
      healthcare professionals and individuals who use our gloves and other associated
      disposable products.





**14.** **Trade
      Notes Payable to Bank:**





On
      September 9, 2004, we signed a commitment for a one-year credit facility with
      Greenfield Commercial Credit, LLC, a privately held commercial financing
      company. This credit facility consisted of an asset-based loan and security
      agreement that provided us with a $3 million revolving line of credit.





On
      September 9, 2005, we extended our loan and security agreement with Greenfield
      Commercial Credit, LLC for an additional one-year term through September 9,
      2006, with an additional automatic one year renewal term. This renewal included
      an amendment to the loan and security agreement increasing our revolving line
      of
      credit borrowing limit from $3 million to a potential maximum borrowing amount
      of $5 million. Under the amended facility we may borrow up to the lesser of
      (i)
      $5 million or (ii) the sum of 80% of eligible receivables and 50% of eligible
      inventory on hand and 35% of eligible inventory in-transit, with a sub limit
      on
      the inventory in-transit of $500,000, and an overall inventory cap of
      $2,500,000. This bank obligation remains secured by a security interest in
      substantially all of AHPC tangible and intangible assets. The line of credit
      borrowings under the amended facility carry an interest rate of prime plus
      4.5%.
      The prime rate is the rate published in the Wall Street Journal in its "Money
      Rates" column as the "Prime Rate." As of September 30, 2006, the prime rate
      was
      7.75%. At any time prior to the maturity date, the lender has the unrestricted
      right to demand payment of all outstanding indebtedness. It contains certain
      penalties for early termination.





15


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





As
      of
      September 30, 2006 and June 30, 2006, we had an outstanding credit line balance
      of $2,407,529 and $2,094,711, respectively, under this credit facility and
      were
      contingently liable for outstanding letters of credit liabilities totaling
      $562,879 and $555,051, respectively. Also, included in the contingent
      outstanding letters of credit for both September 30, 2006 and June 30, 2006
      is
      one stand-by letter of credit for $125,000 which represents our warehouse and
      office space security deposit. As of September 30, 2006 and June 30, 2006 our
      credit line had an availability of $656,089 and $1,006,925,
      respectively.





In
      addition to our grant of a security interest in substantially all of AHPC's
      assets, Alan Zeffer, our Chief Executive Officer, has guaranteed the repayment
      of the revolving loan in full if the loan is not repaid as a result of
      malfeasance by Mr. Zeffer in the performance of his duties.





**15.** **Long
      Term Debt:**





On
      September 29, 2005, we completed a private placement of $1.2 million in
      subordinated promissory notes (the "Subordinated Notes"). Our obligations under
      the Subordinated Notes are secured by a Security Agreement that generally grants
      the holder of the Subordinated Note a secondary interest, behind Greenfield
      Commercial Credit, LLC, in substantially all of our assets. The Subordinated
      Notes bear interest at a rate of 7% per annum with a maturity date of two years
      after the date of issuance of the Subordinated Notes. Each Subordinated Note
      has
      attached a Class A Warrant and a Class B Warrant granting the holder of the
      Subordinated Note the right to purchase shares of our Common Stock at an
      exercise price of $3.50 per share and $4.50 per share, respectively (refer
      to
      Note 7). We recorded each warrant at its fair value at the date of issuance.
      The
      $26,786 fair value of the warrants allocable to the placement agent has been
      recorded as debt issue costs and is being amortized to expense over the term
      of
      the Subordinated Notes. The discount on the Subordinated Notes for the warrants
      is being amortized to interest expense, using the effective interest rate
      method, over the term of the Subordinated Notes. As of June 30, 2006, the
      Subordinated Notes were paid in full and are no longer outstanding.





**16.** **NASDAQ
      Listing Contingency:**





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





On
      July
      13, 2006 we received notification from the Nasdaq Stock Market that our listing
      on the Nasdaq Stock Market would be continued, conditioned upon two
      exceptions:





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





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





16


On
      October 9, 2006, we received a letter from the Office of General Counsel of
      the
      Listing Qualifications Hearings of The Nasdaq Stock Market, Inc. indicating
      that
      we have (a) evidenced our compliance with the exception requirements contained
      in the Nasdaq Listing Qualifications Panel's decision on July 13, 2006 and
      (b)
      demonstrated compliance with all Nasdaq Marketplace Rules to continue the
      listing of our securities on The Nasdaq Capital Market.





As
      of
      September 30, 2006, as reported in our financial statements included in
      this report, we have shareholders' equity of $1,905,513, which is again below
      the $2.5 million minimum shareholders' equity requirement for continued listing
      on the Nasdaq Stock Market. Within the section titled "Risk Factors" in
      Part I, Item 1A of our annual report on Form 10-K for the fiscal
      year ended June 30, 2006 we have disclosed certain risks and uncertainties
      relating to our business and investing in our Common Stock including those
      risks
      associated with our Nasdaq listing and the effect a delisting from the Nasdaq
      Stock Market could have upon the trading in shares of our Common
      Stock.





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




·
            broker-dealers
                could be less willing to effect transactions in our common
                stock;·
            the
                news coverage associated with Nasdaq traded stocks would be
                lost;·
            our
                Common Stock price could decrease; and·
            investors
                could find it difficult to sell or obtain accurate quotations for
                the
                market value of our common stock and, thus, may hold a highly illiquid
                security.








17


**ITEM
      2.   Management's Discussionand
      Analysis of Financial Condition and Results of Operations**





The
      purpose of management's discussion and analysis of financial condition and
      results of operations is to provide shareholders with an understanding of our
      financial condition, changes in financial condition and results of operations.





**Business
      Overview**





Our
      wholly owned subsidiary, American Health Products Corporation ("AHPC"), is
      engaged primarily in the marketing and distribution of high quality medical
      grade examination and foodservice gloves and other complimentary products within
      the United States and Canada. We have been in the glove business since our
      incorporation in January 1989. For the three months ended September 30, 2006,
      we
      recorded net sales of approximately $6.1 million.





**Analysis
      of Results of Operations**




*Three
      Months Ended September 30, 2006 Compared to the Three Months Ended
      September 30, 2005:*





Our
      consolidated net sales for the three months ended September 30, 2006 were
      $6,091,470 which represents a decrease in net sales of $823,326 or 11.9%
      compared to the three months ended September 30, 2005. This decrease in net
      sales is due to the loss of some customers from continued competitive pricing
      pressure within our national account customer group. Our net sales are derived
      from the sales of finished product net of allowable rebates, discounts and
      returns.





Our
      consolidated gross profit decreased $434,953 or 30.3% for the three months
      ended
      September 30, 2006 compared to the three months ended September 30, 2005. Cost
      of goods sold, a component in calculating our gross profit, includes all costs
      to purchase our finished products plus the related costs associated with ocean
      freight, customs duty and warehousing. The increase in cost of goods sold during
      the current year period was due to increases in raw material costs in the
      current quarter over the prior period quarter. We expect to improve our margins
      on our product sales in subsequent quarters due to certain price increases
      that
      have been approved to enable us to pass on to our customers certain of the
      increased raw material costs we have recently incurred. However, we continue
      to
      expect our gross margins to be affected by the cost of latex, changes in product
      mix, competition, manufacturing capacity levels and other factors.





Our
      operating loss has increased $454,731 or 100.9% for the three months ended
      September 30, 2006 from the same time period in the prior year. The increase
      in
      our operating loss is primarily due to the decrease in our sales and the
      increase in raw material pricing. Selling expenses, a component of calculating
      our operating loss, include all salaries and payroll related costs for sales
      and
      marketing staff together with other sales related expenses such as sales
      commissions, travel costs, trade shows, advertising, promotions and delivery
      costs. During the three months ended September 30, 2006, our selling, general,
      administrative and other expenses ("SG&A expenses") increased by $19,778 or
      0.01%. As a percentage of net sales, SG&A expenses increased from 27.3% for
      the three months ended September 30, 2005, to 31.3% for the three months ended
      September 30, 2006. This percentage increase was primarily due to the decrease
      in net sales for the three-month period ended September 30, 2006.





18


Loss
      from
      operations before taxes increased by $354,675 or 69.8% for the three months
      ended September 30, 2006 compared to the same period in the prior year. This
      increase in our loss from operations was primarily due to the decrease in sales
      and an increase in raw material costs. Also included in the computation of
      our
      loss from operations is other income (or expense) which consists of interest
      expense and income and miscellaneous expense and income. Other expense decreased
      by $109,056 for the three months ended September 30, 2006 from the reported
      amount in the same period in the prior year. This decrease was due to a decrease
      in interest expense due to a decrease in the fair value of the warrant liability
      of $116,801.





The
      expense for income taxes for the three month-periods ended September 30, 2006
      and September 30, 2005 was $0 and $3,235, respectively.





As
      a
      result of the factors discussed above, we reported a net loss of $(910,371)
      for
      the three months ended September 30, 2006, which compares to a net loss of
      $(498,556) during the same period in the prior year. Basic and dilutive net
      loss
      per share for the three months ended September 30, 2006 and September 30, 2005,
      were $(0.74) and $(0.41), respectively. Outstanding options and warrants are
      excluded from the calculation of diluted net loss per share since the inclusion
      of such options and warrants is anti-dilutive.




**Liquidity
      and Capital Resources:**





*Three
      Months Ended September 30, 2006:*





Cash
      and
      cash equivalents at September 30, 2006 were $209,566, an increase of $126,404
      from $83,162 at June 30, 2006. We experienced an increase in cash flows during
      the three months ended September 30, 2006, primarily as a result of increased
      borrowings on our trade notes payable to the bank.





Our
      operations used cash of $150,458 during the three months ended September 30,
      2006, primarily due to the current loss mitigated by a reduction in inventory.
      Inventory levels for our core line of business are maintained at levels between
      six and eight weeks on hand. Inventory levels for all other lines of business
      vary from period to period. Net trade accounts receivable at September 30,
      2006
      was $1,919,700 which increased from $1,867,977 at June 30, 2006 due to the
      timing of our cash receipts. Net inventories at September 30, 2006 were
      $5,447,876, a decrease from the level at June 30, 2006, of $6,470,411, due
      to
      current quarter sales and the timing of product purchases.





During
      the three months ended September 30, 2006, we used cash in investing activities
      of $4,880 in connection with capital improvement expenditures primarily relating
      to computer software and hardware purchases.





During
      the three months ended September 30, 2006, cash provided by financing activities
      equaled $281,742 compared to $811,031 during the three months ended
      September 30, 2005. The cash provided by financing activities primarily
      came from increased borrowings on our trade notes payable to the bank due to
      the
      increased need to finance the operations of the business.




19





We
      renewed our credit facility with Greenfield Commercial Credit, LLC which was
      scheduled to expire on September 9, 2006 for another one-year period. In
      connection with the renewal, we incurred a renewal fee of $50,000.





The
      loan
      and security agreement with Greenfield Commercial Credit, LLC, extended on
      September 9, 2006, included an amendment increasing our borrowing availability
      from $3 million to a potential maximum borrowing amount of $5 million.
      Under the amended facility, we may borrow up to the lesser of (i) $5 million
      or
      (ii) the sum of 80% of eligible receivables and 50% of eligible inventory on
      hand and 35% of eligible inventory in-transit, with a sub limit of $500,000,
      and
      an overall inventory cap of $2,500,000. The line of credit borrowings carry
      an
      interest rate of prime plus 4.5%. At any time prior to the maturity date, the
      lender has the unrestricted right to demand payment of all outstanding
      indebtedness. These bank obligations are secured by a security interest in
      substantially all of AHPC's tangible and intangible assets and contain certain
      penalties for early termination. As of September 30, 2006, we had an outstanding
      balance under this credit facility of $2,407,529 and were contingently liable
      for outstanding letters of credit liabilities totaling $562,879.




Our
      audited June 30, 2006 financial statements have been prepared under the
      assumption that we are a going concern. Our independent registered public
      accounting firm has included a "going concern" emphasis paragraph in their
      audit
      report accompanying the June 30, 2006 financial statements. We continue to
      experience reoccurring net losses. Although, we have benefited from several
      cost
      reduction programs, the volatility of raw material costs and rising oil prices
      together have limited the benefits of these programs in our results of
      operations.




Despite
      the negative cash flow, we have been able to secure both short-term and
      long-term financing to support future operations (refer to Note 6, 14 and 15
      of
      our Condensed Consolidated Financial Statements included elsewhere in this
      report). We believe that this short-term and long-term financing will be
      sufficient to support our liquidity for the foreseeable future, depending on
      operating results and the continued trade support. We expect to continue to
      consume cash through the end of fiscal year June 30, 2007. We are executing
      a
      strategy whereby we are introducing additional consumable products to the
      healthcare market that will enable us to achieve higher revenue growth. In
      addition, we are reviewing alternatives including evaluating product line and
      customer profitability, evaluating the markets within which we participate,
      further diversification of our product line to include additional non-glove
      products, and expanding into markets where we currently do not participate
      in.
      We are also evaluating several strategies for reducing costs and expenses that
      we expect will enable us to improve our liquidity and reduce our financing
      requirements. If and when effectively implemented, we anticipate these plans
      will reduce and/or eliminate our cash consumption by June 30, 2007. There can
      be
      no assurances that the current financing will be sufficient and that favorable
      operating results will be achieved, or that additional financing will be
      available to us, or that the terms of any additional financing will be favorable
      to us.







20


The
      following table summarizes our significant contractual commitments as of
      September 30, 2006:




**Payments
                Due by Period****Contractual
                Obligation**
            
            **Total**
            
            **Less
                Than 1 Year**
            
            **1
                - 3 Years**
            
            **4
                - 5 Years**
            
            **After
                5 Years**Operating
                Leases (1)
            
            $
            1,679,402
            
            $
            343,368
            
            $
            1,336,034
            
            $
            -
            
            $
            -Purchase
                Commitments (2)
            
            $
            15,068,583
            
            $
            4,374,750
            
            $
            10,693,833
            
            $
            -
            
            $
            -





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





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





**Forward
      Looking Statements**





Certain
      matters discussed in this Form 10-Q are "forward-looking statements," and the
      Company intends these forward-looking statements to be covered by the safe
      harbor provisions for forward-looking statements contained in the Private
      Securities Litigation Reform Act of 1995 and is including this statement for
      purposes of those safe harbor provisions. These forward-looking statements
      can
      generally be identified as such because the context of the statement includes
      phrases such as the Company "expects," "believes," "anticipates" or other words
      of similar meaning. Similarly, statements that describe the Company's future
      plans, objectives or goals are also forward-looking statements. Such
      forward-looking statements are subject to certain risks and uncertainties which
      could cause actual results or outcomes to differ materially from those currently
      anticipated. Factors that could affect actual results or outcomes include those
      contained in our reports that we file with the Securities and Exchange
      Commission, including in our Annual Report on Form 10-K for the year ended
      June
      30, 2006, filed September 13, 2006, and the following: changes in consumer
      spending patterns; unanticipated issues related to the Company's business;
      the
      Company's success in implementing its strategic plan; actions of companies
      that
      compete with the Company; the Company's success in managing inventory; the
      success of the Company's suppliers and customers; the ability of the Company
      to
      deploy its capital successfully; unanticipated outcomes related to outsourcing
      certain manufacturing processes; and unanticipated outcomes related to
      outstanding litigation matters. Shareholders, potential investors and other
      readers are urged to consider these factors in evaluating the forward-looking
      statements and are cautioned not to place undue reliance on such forward-looking
      statements. The forward-looking statements included herein are only made as
      of
      the date of this Form 10-Q. The Company assumes no obligation, and disclaims
      any
      obligation, to update such forward-looking statements to reflect subsequent
      events or circumstances.





21





**ITEM
      3.  Quantitative and Qualitative DisclosuresAbout
      Market Risk**





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





Exposure
      to changes in interest rates is limited to borrowings under our revolving credit
      and debt agreements, which have variable interest rates that are tied to the
      prime rate of interest. We estimate that the fair value of each debt instrument
      approximated its market value at September 30, 2006. Based on the Company's
      interest rate exposure on variable rate borrowings at September 30, 2006, a
      one percentage point increase in average interest rates on the Company's
      borrowings would increase future interest expense by approximately $2,000 per
      month and a five percentage point increase would increase future interest
      expense by approximately $10,000 per month. The Company determined these amounts
      based on approximately $2,400,000 of variable rate borrowings at
      September 30, 2006, multiplied by 1.0% and 5.0%, respectively, and divided
      by twelve. The Company is currently not using any interest rate collars, hedges
      or other derivative financial instruments to manage or reduce interest rate
      risk. As a result, any increase in interest rates on the Company's variable
      rate
      borrowings would increase interest expense and reduce net income.





**ITEM
      4.  Controls and
      Procedures**





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





During
      the process of responding to a Securities and Exchange Commission comment
      letter, the Company's management identified an error which led to the
      identification of a material weakness within the Company's financial reporting
      and disclosure controls.




22


The
      error
      relates to the Company's accounting and disclosure of the reverse three for
      one
      stock split effective January 20, 2004 and the calculation of the reported
      basic
      and diluted net loss per share. The Company incorrectly included potential
      common shares in the denominator of a diluted per-share computation that
      resulted in the disclosure of an anti-dilutive per share amount, which is not
      the equivalent of diluted earnings per share disclosure. Additionally, in
      connection with the reverse three for one stock split, the Company failed to
      retroactively adjust its loss per share amounts to reflect the stock split.
      It
      should be noted, however, that the Company's failure to accurately report its
      basic and diluted net loss per share did not have any affect on the Company's
      cash balance or net loss for the applicable periods.





In
      addition, during the quarter ended September 30, 2005 and March 31, 2006, a
      significant adjustment relating to the accounting treatment for the warrants
      (refer to Note 7 of our Condensed Consolidated Financial Statements included
      elsewhere in this report) was proposed by our independent auditors and recorded
      by management and reflected in the financial statements included within this
      Form 10-Q.





The
      material weakness relates to the lack of formal policies and procedures related
      to our financial statement reporting and regulatory filing process. Management
      is addressing this material weakness by enacting the following
      steps:





-
            Developing
                a formal policy/procedures manual for the financial statement reporting
                and regulatory filing process;-
            Developing
                monthly, quarterly and annual closing procedures checklists and "close"
                binders. These binders should include a draft of the financials statements
                and 10-K/Q with references to supporting schedules or other documentation
                (i.e., agreements);-
            Utilizing
                a Generally Accepted Accounting Principle (GAAP) checklist to help
                ensure
                all relevant disclosures are included;-
            Preparing
                white papers to address the accounting for any new accounting
                pronouncements and any existing and/or new complex or unusual accounting
                transactions;-
            Employing
                documented detail reviews by management and others of regulatory
                filings
                and financial statements;-
            Implementing
                training programs for technical accounting areas and SEC reporting
                requirements; and-
            Continuing
                to consider with outside legal counsel the filing of an 8-K upon
                signature
                of any agreements made on behalf of the
                Company.





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




23


**PART
      II**


**Other
      Information**





**ITEM
      1.   Legal
      Proceedings.**




In
      the normal course of business, the Company may be involved in various legal
      proceedings from time to time. The Company does not believe it is currently
      involved in any claim or action the ultimate disposition of which would have
      a
      material adverse effect on the Company's financial statements.





**ITEM
      1A. Risk Factors.**





There have been no material changes in our risk factors from those disclosed
      in
      Part I, Item 1A "Risk Factors," of our annual report on Form 10-K
      for the fiscal year ended June 30, 2006. Please refer to that section and
      Note 16 of our Condensed Consolidated Financial Statements (included elsewhere
      in this report) for disclosures regarding the risks and uncertainties relating
      to our business.





**ITEM
      2.  Unregistered Salesof Equity
      Securities and Use of Proceeds.**





None





**ITEM
      3.  DefaultsUpon Senior
      Securities.**





None





**ITEM
      4.  Submission of Mattersto a Vote of
      Security Holders.**





The
      annual meeting of shareholders of the Company was held on August 14, 2006.
      The two matters voted upon were the election of two directors, each for a three
      year term, and the ratification of the appointment of Plante & Moran PLLC to
      serve as the Company's independent auditors for the fiscal year ending
      June 30, 2006. The number of votes cast for, cast against and withheld or
      abstained, as the case may, as to such matters were as follows:





1. Election
      of Directors :





**Votes
                Cast For**
            **Votes
                Withheld**Alan
                E. Zeffer
            1,141,675
            9,544Richard
                J. Swanson
            1,137,532
            13,687





The
      terms of office as directors for Anthony F. Alibrio, Sr., Don L. Arnwine, Robert
      J. Simmons and George Jeff Mennen continued after the meeting.





2. Ratification
      of Independent Auditors :





**Votes
                Cast FOR**
            **Votes
                Cast Against**
            **Abstentions
                and Broker Nonvotes**1,144,661
            6,489
            69







24





**ITEM
      5.  Other Information.**





None





**ITEM
      6.  Exhibits.**




Exhibit
                Number
            
            Description
                of Document3.1
            
            Certificate
                of Incorporation of the Company, incorporated herein by reference
                to
                Exhibit No. 3.1 to the Company's Form S-1 Registration Statement
                (Registration No. 33-36206).3.2
            
            Certificate
                of Amendment to Certificate of Incorporation of the Company, incorporated
                herein by reference to Exhibit No. 3.2 to the Company's Form S-1
                Registration Statement (Registration No. 33-36206).3.3
            
            Certificate
                of Amendment to Certificate of Incorporation of the Company, incorporated
                herein by reference to Exhibit 3.3 to the Company's Form 10-K Annual
                Report for the fiscal year ended December 31, 1991 (File No.
                0-17458).3.4
            
            Articles
                of Amendment to Certificate of Incorporation, incorporated herein
                by
                reference to Exhibit 10.42 included in the Company's Form 10-K Annual
                Report for the fiscal year ended December 31, 1997 (File No.
                0-17458).3.5
            
            Articles
                Supplementary to Certificate of Incorporation of the Company designating
                the Series B Convertible Preferred Stock, incorporated by reference
                to Exhibit 3.5 to the Company's Registration Statement on
                Form S-1 filed on September 21, 2006 (File
                No. 333-137500).3.6
            
            Bylaws
                of the Company, incorporated herein by reference to Exhibit No. 3.4
                to the
                Company's Form S-18 Registration Statement (Registration No.
                33-23164-FW).3.7
            
            Amendment
                to Bylaws of the Company, incorporated herein by reference to Exhibit
                3.5
                to the Company's Form 10-K Annual Report for the fiscal year ended
                December 31, 1991 (File No. 0-17458).10.1
            
            Letter
                Agreement dated September 5, 2006 between Monarch Pointe Fund, Ltd.,
                Mercator Momentum Fund, L.P., Mercator Momentum Fund III, L.P., M.A.G.
                Capital, LLC and AHPC Holdings, Inc., incorporated herein by reference
                to
                Exhibit 99.1 to the Company's Form 8-K report filed on September
                11,
                2006.10.2
            
            Letter
                Agreement dated September 15, 2006 among Monarch Pointe Fund, Ltd.,
                Mercator Momentum Fund, L.P., Mercator Momentum Fund III, L.P., M.A.G.
                Capital, LLC and AHPC Holdings, Inc., incorporated herein by reference
                to
                Exhibit 99.1 to the Company's Form 8-K report filed on September
                20,
                2006.


25





10.3
            Third
                Amendment to Loan and Security
                Agreementdated as of July 31, 2006 by and among Greenfield Commercial
                Credit L.L.C., AHPC Holdings, Inc. and American Health Products
                Corporation.10.4
            Second
                Amended and Restated Revolving
                Credit Loan Notedated as of July 31, 2006 in the principal amount of
                $5,000,000 made payable by AHPC Holdings, Inc. and American Health
                Products Corporation to Greenfield Commercial Credit,
                L.L.C.31.1
            Certification
                of CEOPursuant to
                Section 302 of the Sarbanes-Oxley Act of 2002.31.2
            Certification
                of CFOPursuant to
                Section 302 of the Sarbanes-Oxley Act of 2002.32.1(1)
            Certification
                Pursuant to 18 U.S.C.
                Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002.


(1)  This
      certification is not "filed" for purposes of Section 18 of the Securities
      Exchange Act of 1934, as amended, or incorporated by reference into any filing
      under the Securities Act of 1933, as amended, or the Securities Exchange Act
      of
      1934, as amended.





26


**SIGNATURES**





Pursuant
      to the requirements 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.





AHPC
                Holdings, Inc.
              (Registrant)
              
              BY:/s/ Alan E.
                Zeffer
              Alan E. Zeffer, Chief Executive OfficerBY:/s/ Deborah J.
                Bills
              Deborah J. Bills, Chief Financial OfficerDated: 
                November 20, 2006





27