**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**


**___________**





**FORM
      10-K**


**ANNUAL
      REPORT**


**PURSUANT
      TO SECTIONS 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





(Mark
      one)




x
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934




For
      the
      fiscal year ended September 30, 2005





o
            TRANSITION
                REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
                OF
                1934




For
      the
      Transition period from ________ to ____________





Commission
      File Number: 0-24217





**YP
                CORP.**(Exact
                Name of Registrant as Specified in Its Charter)





**Nevada**
            
            **85-0206668**(State
                or Other Jurisdiction of Incorporation or Organization)
            
            (IRS
                Employer Identification No.)





**4840
                East Jasmine Street, Suite 105,**
              **Mesa,
                Arizona**
            
            **85205**(Address
                of principal executive offices)
            
            (Zip
                Code)





Registrant’s
      telephone number, including area code: (480) 654-9646





Securities
      registered under Section 12(b) of the Exchange Act: None





Securities
      registered under Section 12(g) of the Exchange Act:





Common
      Stock, $.001 Par Value


(Title
      of
      Class)





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes o No x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes o No x





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 o













Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K o





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Exchange Act Rule 12b-2). Yes o No x .





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No x .





The
      aggregate market value of the common stock held by non-affiliates computed
      based
      on the closing price of such stock on March 31, 2005 was approximately
      $17,306,846





The
      number of shares outstanding of the registrant’s classes of common stock, as of
      December 1, 2005, was 48,874,194 shares.





DOCUMENTS
      INCORPORATED BY REFERENCE





Portions
      of the Proxy Statement for the Registrant’s 2006 Annual Meeting of Shareholders
      are incorporated by reference in Part III of this Form 10-K.











**YP
      CORP.**





**FORM
      10-K**


**For
      the year ended September 30, 2005**





**TABLE
      OF CONTENTS**





**Page**Part
                IItem
                1.
            Business
            
            1Item
                1A.
            Risk
                Factors
            
            12Item
                1B.
            Unresolved
                Staff Comments
            
            22Item
                2.
            Properties
            
            22Item
                3.
            Legal
                Proceedings
            
            23Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            
            23Part
                IIItem
                5.
            Market
                for Registrant’s Common Equity, Related Stockholder
                Matters and Issuer Repurchases of Equity Securities
            
            24Item
                6.
            Selected
                Financial Data
            
            25Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            
            26Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            
            38Item
                8.
            Financial
                Statements and Supplementary
                Data
            
            39Report
                of Registered Public Accounting
                Firm
            
            40Consolidated
                Financial
                Statements:Consolidated
                Balance Sheet at September 30, 2005 and
                2004
            
            41Consolidated
                Statements of Operations for the Years
                Ended September 30, 2005, 2004, and 2003
            
            42Consolidated
                Statements of Cash Flows for the Years
                Ended September 30, 2005, 2004, and 2003
            
            43Consolidated
                Statements of Stockholder’s Equity for
                the Years Ended September 30, 2005, 2004, and 2003
            
            44Notes
                to Consolidated Financial
                Statements
            
            45Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting
                and Financial Disclosure
            
            62Item
                9A.
            Controls
                and Procedures
            
            62Item
                9B.
            Other
                Information
            
            62Part
                IIIItem
                10.
            Directors
                and Executive Officers of the
                Registrant
            
            62Item
                11.
            Executive
                Compensation
            
            62Item
                12.
            Security
                Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters
            
            63Item
                13.
            Certain
                Relationships and Related
                Transactions
            
            64Item
                14.
            Principal
                Accountant Fees and Services
            
            64Part
                IVItem
                15.
            Exhibits
                and Financial Statement
                Schedules
            
            64Signatures
            
            
            68





i
 *Table
            of Contents*





**PART
      I**





**Forward-Looking
      Statements**





Part
      I of
      this Annual Report on Form 10-K, includes statements that constitute
“forward-looking statements.” These forward-looking statements are often
      characterized by the terms “may,” “believes,” “projects,” “expects,” or
“anticipates,” and do not reflect historical facts. Specific forward-looking
      statements contained in Part I of this Annual Report include, but are not
      limited to our company’s (i) belief that LEC billing will continue to be a
      significant billing channel in the future; (ii) expectation that its
      concentration of credit risk with any single third-party will diminish in fiscal
      2006; (iii) plan to use various forms of media in its branding campaign, which
      may include Internet, print, radio, and other advertising mediums; (iv)
      expectation that its technologies will increase recurrent use of its system
      by
      users of its directory services; (v) belief in the growth of Internet usage
      and
      the Internet Yellow Page market as set forth in recent press releases by The
      Kelsey Group; (vi) belief that its branding efforts will help to attract users
      to its website and IAP subscribers; and (vii) belief that existing facilities
      are adequate for its current and anticipated future needs and that its
      facilities and their contents are adequately covered by insurance.





Forward-looking
      statements involve risks, uncertainties and other factors, which may cause
      our
      actual results, performance or achievements to be materially different from
      those expressed or implied by such forward-looking statements. Factors and
      risks
      that could affect our results and achievements and cause them to materially
      differ from those contained in the forward-looking statements include those
      identified in the section titled “Risk Factors”, as well as other factors that
      we are currently unable to identify or quantify, but may exist in the
      future.





In
      addition, the foregoing factors may affect generally our business, results
      of
      operations and financial position. Forward-looking statements speak only as
      of
      the date the statement was made. We do not undertake and specifically decline
      any obligation to update any forward-looking statements.





**ITEM
                1.**
            **Business**





**Our
      Company**





YP
      Corp.,
      a Nevada corporation (the “Company,” “we,” “us,” or “our”) is a national
      Internet Yellow Pages publisher, headquartered in Mesa, Arizona. Through our
      wholly-owned subsidiary, Telco Billing, Inc., or Telco, located in Las Vegas,
      Nevada, we publish our Yellow Pages online at or through the following URL’s:
      www.Yellow-Page.Net, www.YP.Net and www.YP.Com. Any information contained on
      the
      foregoing websites or any other websites referenced in this Annual Report are
      not a part of this Annual Report.





**Summary
      Business Description**





We
      use a
      business model similar to print Yellow Pages publishers. We publish basic
      directory listings on the Internet free of charge. Our basic listings contain
      the business name, address and telephone number for almost 17 million U.S.
      businesses. We strive to maintain a listing for almost every business in America
      in this format.





We
      generate revenues from advertisers that desire increased exposure for their
      businesses. As described below, advertisers pay us monthly fees in the same
      manner that advertisers pay additional fees to traditional print Yellow Pages
      providers for enhanced advertisement font, location or display. The users of
      our
      website are prospective customers for our advertisers, as well as the other
      businesses for which we publish basic listings.





*Products.* Our
      primary product is our Internet Advertising PackageTM, or IAP. Under this
      package, the advertiser pays for additional exposure by purchasing a
      Mini-WebPageTM. In order to provide search traffic to our advertiser’s
      Mini-WebPage, we elevate the advertiser to a preferred listing status, at no
      additional charge. We also provide our IAP advertisers with enhanced
      presentation and additional unique products, such as larger font, bolded
      business name, map directions, ease of communication between our advertisers
      and
      users of our website, a link to the advertiser’s webpage, as well as other
      benefits.





1
 *Table
            of Contents*





We
      also
      offer our customers other products and services to enhance their use of the
      Internet, including a simple, effective, website development tool and a
      cost-effective Internet dial-up package. These products are described in greater
      detail below under *Products
      and Services* .





*Marketing* .
      Unlike
      most print Yellow Pages companies that sell advertising space by visiting or
      calling potential advertisers in their area, we solicit advertisers for our
      IAP
      product by direct mail and telemarketing. We believe direct mail is a less
      expensive form of marketing than visiting potential customers. As a result,
      we
      believe this enables us to offer our products and services at more affordable
      rates than our competitors. While telemarketing is more expensive than direct
      mail, we believe it is a very effective means of marketing and remains less
      expensive than visiting potential customers.





Our
      direct mail marketing program historically has included a promotional incentive,
      generally in the form of a $3.25 activation check that a solicited business
      simply deposits to activate the service and become an IAP advertiser on a
      month-by-month basis. We have third-party verification and confirmation
      procedures to confirm the order and obtain the information necessary to build
      the IAP advertiser’s Mini-WebPage. Within 30 days of activation, we also send a
      confirmation letter to the business. Additionally, we offer a full refund within
      the first 120 days of service. Our direct mail marketing program complies with
      United States Federal Trade Commission, or FTC, requirements as established
      by
      an agreement signed between our company and the FTC in September 2001.





During
      the fourth quarter of fiscal 2004, certain changes in practices by our
      third-party billing providers limited the effectiveness of our activation checks
      as a direct means of activating accounts. As a result of these changes and
      other
      business reasons, we have discontinued the use of the check mailer as our
      primary letter of authorization or LOA in some LEC billing areas. See *Item
      7: Management’s Discussion and Analysis of Financial Condition and Operating
      Results - Executive Overview* for a
      more detailed description of these changes and the impact they have had on
      our
      business and operations *.*





*Billing* .
      Similar
      to the local Regional Bell Operating Companies, we are approved to bill our
      products and services directly on some of our advertisers’ local telephone bill
      through their local exchange carrier, or LEC, commonly referred to as their
      local telephone company. We believe that this is an efficient and cost-effective
      billing method as compared to direct billing methods. However, during the fourth
      quarter of fiscal 2004, several of these LECs changed their internal policies
      regarding the use of activation checks as the letter of authorization that
      allows us to bill our products and services directly on our advertisers’ local
      telephone bill. We therefore began to convert many of our advertisers to billing
      via recurring direct bank account withdrawal options through an Automated
      Clearing House, or ACH billing, which is an efficient and cost-effective billing
      alternative to LEC billing. This transition to ACH billing continued through
      fiscal 2005. See *Item
      7: Management’s Discussion and Analysis of Financial Condition and Operating
      Results - Executive Overview* for a
      more detailed description of these changes and the impact they have had on
      our
      business and operations.





*Benefits
      to Advertisers* .
      RH
      Donnelley indicated in its 2004 report that the Internet is the future of the
      Yellow Pages. For advertisers, we believe that online Yellow Pages provide
      significant competitive advantages over existing print directories. For example,
      the ability of online advertisers to access and modify their displays and
      advertisements often results in more current information. Additionally, online
      advertisers can more readily advertise temporary or targeted specials or
      discounts. We provide added value to advertisers that have purchased our IAP
      through promotion and branding of our website to bring customers to our
      advertisers. We believe that the large number of IAPs, which include the
      Mini-WebPages, provide users of our website with more information about our
      advertisers and that this feature is more readily available on our website
      than
      that of our competitors. We believe that we provide users of our website with
      the information they are looking for, more quickly and more efficiently. We
      believe our call center provides the highest level of customer service and
      therefore provides IAP advertisers with the necessary resources to fully utilize
      the benefits of the IAP. We also believe the attraction of these users will,
      over the long-term, result in more sales for our IAP advertisers.





Moreover,
      we provide additional value through our relationships. We provide the majority
      of our IAP advertisers additional exposure by circulating their listings to
      other search engines.   The circulated listing competes for appearance
      in search results across the Internet through paid advertising agreements with
      www.epilot.com and searchmarketing.yahoo.com, formerly known as
      www.overture.com.  Epilot has agreements with approximately 300 search
      partners with over 3 billion searches per month to display
      advertising.  Yahoo! Search Engine Marketing lists sites and content in
      search results at several high-profile sites including www.msn.com,
      www.altavista.com, www.cnn.com and www.infospace.com.  In addition to our
      paid advertising programs, our preferred listings are syndicated
      to community portals at www.mycity.com.   MyCity.com has a
      national network of online city guides, focused on delivering local search
      results.





2
 *Table
            of Contents*





*Benefits
      to Users of our Website* .
      We are
      a national online Yellow Pages. Users of our website can access information
      nationally rather than relying exclusively on local listings such as those
      provided in print Yellow Pages directories. In addition, our product offerings
      allow users to find and take advantage of our advertisers’ current special
      offerings and discounts. Users can access such information easily through their
      desktop or laptop computers, cellular telephones or hand-held devices, such
      as
      personal digital assistants. We believe our offering of a national online Yellow
      Pages service meets the growing demand for immediate access and the increasing
      need and trend of Internet users who are more frequently traveling to areas
      outside the areas serviced by their local print directories. We also believe
      that our website meets or exceeds the local yellow page search capabilities
      of
      our major competitors.





*Directory
      Service and Search Engine* .
      We
      believe that our products offer many competitive advantages over standard search
      engines. Our directory service and search engine format allows a user of our
      website to search by location using either a business name or business category.
      Unlike popular commercial search engines, our search engine does not search
      the
      Internet to provide results. Instead, it searches our defined database,
      resulting in a more focused, refined and, typically, quicker and more accurate
      search.





**Products
      and Services**





For
      those
      advertisers that want additional exposure for their businesses or desire to
      take
      full advantage of connectivity to the World Wide Web, we offer several products
      and services for a fee.





*Internet
      Advertising Package.* Our
      primary product is our Internet Advertising Package, or IAP. Under this package,
      the advertiser pays for additional exposure by purchasing a Mini-WebPage. This
      Mini-WebPage contains, among other useful information, a 40-word description
      of
      the business, hours of operation, and detailed contact information. The
      advertiser can easily access and modify its Mini-WebPage. This product is easily
      searched by users of our website on their personal computers, as well as
      cellular telephones and other hand-held devices. In order to provide search
      traffic to an advertiser’s Mini-WebPage, we elevate the advertiser to a
      preferred listing status at no additional charge. As such, the preferred
      advertiser enjoys the benefit of having its advertisement displayed in a primary
      position before all of the basic listings in that particular category when
      users
      of our website perform searches on our website. We also provide our IAP
      advertisers with enhanced presentation and additional unique products,
      including:




·
            Larger
                font.


·
            Bolded
                business name.


·
            A
                “tagline” whereby the advertiser can differentiate itself from its
                competitors.


·
            An
                audio advertisement.


·
            Map
                directions.


·
            A
                Click2CallTM feature, whereby a user of our website can place a telephone
                call to one of our advertising customers by clicking the icon that
                is
                displayed on the Mini-WebPage. This initiates a telephone call by
                the
                advertiser to the user, in a conference call type format. Once both
                are
                connected, it functions as a regular telephone call. Because we cover
                all
                charges for this telephone call, it is free of charge to both the
                user and
                the IAP advertiser. We have an agreement with WebDialogs, Inc. to
                provide
                this service.


·
            A
                link to the advertiser’s own webpage and email
                address.


·
            Additional
                distribution network for preferred listings. This feature gives additional
                exposure to our IAP advertisers by placing their preferred listing
                on
                several online directory systems. There currently is no charge to
                the IAP
                advertiser for these additional channels of
                distribution.





Our
      IAP
      advertisers pay between $27.50 and $39.95 per month. Our IAP and the Internet
      Dial-Up Package described below account for over 99% of our net
      revenues.





3
 *Table
            of Contents*





*Internet
      Dial-Up PackageTM* .
      We also
      offer all of our IAP advertisers a cost-effective and efficient Internet dial-up
      package to take advantage of the benefits offered by on-line access. This allows
      our advertisers that do not have Internet access to take full advantage of
      the
      IAP and QuickSite packages that we offer. In most instances, we offer this
      service bundled with our IAP service for between $29.95 and $39.95 per month.
      In
      some regions, we only offer the bundled product and not an IAP standalone
      product.





*Online
      QuickSite PackageTM.* For
      those IAP advertisers that do not have their own website and that desire to
      provide more information than is offered through the IAP Mini-WebPage, we will
      design and create an eight page, template-driven website for the advertiser.
      This is known as a QuickSiteTM. Once set up, the advertiser can access its new
      QuickSite online and make modifications at its discretion. This essentially
      serves the same function as display advertisements in print Yellow Pages books,
      except that it can be changed more often to meet the advertiser’s needs. Users
      of our website can access these QuickSites on the World Wide Web or from the
      advertiser’s preferred listing or Mini-WebPage. Currently, this product accounts
      for less than 1% of our net revenues.





**Billing**





Our
      billing process allows us to deliver high levels of service to our customers
      through convenient and timely billing and payment options. We currently bill
      our
      advertisers through (i) their LEC, (ii) ACH billing, (iii) their credit card
      or
      (iv) direct bill invoices.





Until
      the
      end of fiscal 2004, we historically billed the majority of our advertisers
      via
      their LEC. However, during the fourth quarter of fiscal 2004, several of the
      LECs changed their internal policies regarding the use of activation checks
      as
      the letter of authorization that would allow us to bill our products and
      services directly on our advertisers’ local telephone bill. See *Item
      7: Management’s Discussion and Analysis of Financial Condition and Operating
      Results - Executive Overview* for a
      detailed description of these changes and the effects they have had and will
      continue to have on our financial condition and results of
      operations.





During
      fiscal 2004, we began converting many of our advertisers to ACH billing, which
      is an efficient and cost-effective billing method and has a faster collection
      time than LEC billing. However, it is time-consuming and labor-intensive to
      convert customers from one billing channel to another and has resulted in missed
      billings and customer cancellations. While ACH billing is a cost-effective
      billing method, many of our customers prefer LEC billing. Therefore, many of
      our
      existing marketing programs, including our telemarketing campaign, are focused
      on generating new customers that will be serviced through our LEC billing
      channel. We expect that LEC billing will continue to be a significant billing
      channel in the future.





In
      cases
      where other billing methods, including LEC billing, ACH billing and recurring
      credit card charges, are unavailable or instances where the customer requests
      that we bill them directly, we utilize direct bill invoices. Direct billing
      has
      a higher percentage of uncollectible accounts than other billing methods and,
      therefore, is our least attractive billing option.





*Billing
      Service Agreements* .
      In
      order to bill our advertisers through their LECs, we are required to use one
      or
      more billing service aggregators. These aggregators have been approved by
      various LECs to provide billing, collection, and related services through the
      LECs. Under these agreements, our service aggregators bill and collect our
      charges to our advertisers through LEC billing and remit to us the proceeds,
      net
      of fees, bad debt expense, customer returns, and unbillable accounts, typically
      within 90 days of submission.





We
      also
      use billing service providers to process our ACH billings. These service
      providers process direct bank withdrawals through an Automated Clearing House
      and remit the proceeds, net of fees and refunds to advertisers that cancel
      their
      service, typically within 15 days of settlement.





Under
      our
      contractual agreements with our LEC billing service aggregators and our ACH
      service providers, these third-parties are entitled to withhold certain amounts
      from our net proceeds to serve as a security deposit or “holdbacks” or
“reserves.” In the case of LEC billing aggregators, such amounts are generally
      remitted to us over a 12-18 month period, depending on the terms of the
      respective agreements. ACH processors maintain a rolling reserve based on
      average monthly volume.





4
 *Table
            of Contents*





During
      2005, in an effort to reduce our concentration of credit risk with any single
      third-party, we engaged the services of additional service providers. We
      currently utilize three LEC billing aggregators and two ACH service providers.
      This reduced our concentration of gross accounts receivable with any single
      vendor from approximately 80% at the end of fiscal 2004 to approximately 65%
      at
      the end of fiscal 2005. A significant portion of the fiscal 2005 concentration
      consists of holdbacks and reserves that will be collected over their contractual
      period. Thus, we expect that this concentration will continue to diminish in
      fiscal 2006.





*Check
      Processing Agreements* .
      We
      conduct our primary marketing efforts are through direct mail solicitations.
      Our
      direct mail marketing program historically has utilized a promotional incentive
      generally in the form of a $3.25 activation check that a solicited business
      simply deposits to activate the service and become an IAP advertiser on a
      month-to-month basis. We continue to utilize the activation check as our primary
      promotional incentive. However, rather than our past practice of utilizing
      this
      activation check as the exclusive letter of authorization, we now follow up
      with
      each advertiser that has deposited the activation check to ensure that they
      understand our services and our terms and conditions. While this confirmation
      process requires additional costs, we believe it results in a more satisfied
      advertiser base and reduced cancellations as we eliminate a significant portion
      of advertisers that sign up without a full understanding of our services. For
      a
      more detailed discussion, see *Item
      7: Management’s Discussion and Analysis of Financial Condition and Operating
      Results - Executive Overview.*





**Pricing**





We
      currently price our IAP product between $27.50 and $39.95 per month, which
      includes all of the service benefits previously described. We believe that
      these
      prices are comparable to the prices of our competitors and we believe that
      our
      site provides superior value to our advertisers when considering the many
      benefits that they receive, including the Click2Call feature, the Mini-WebPage,
      mapping directions, links to the advertiser websites, and the speed and ease
      of
      use of our website.





Our
      pricing advantage is significant when compared with printed Yellow Pages. For
      a
      Yellow Pages listing with comparable information content, an advertiser would
      typically pay over $200 per month. This listing in the printed Yellow Pages
      would include a business description of comparable size to our IAP offering
      but
      would lack our Click2Call feature, mapping directions, and link to the
      advertiser’s website. Our online Yellow Pages provide significant flexibility in
      terms of changing content and adding special informational items at any time
      throughout the year. Advertisers in printed Yellow Pages are limited by the
      publishers’ infrequent re-publication schedule if they desire to change their
      advertisement.





**Marketing**





Unlike
      most print Yellow Pages companies that sell their advertising by having sales
      representatives personally visit or call each potential advertiser in their
      area, we solicit advertisers for our IAP product primarily through direct mail.
      This direct mail component enables us to offer our products and services on
      a
      nationwide basis. This would not be economically possible or manageable through
      the use of sales representatives making personal visits or calls to potential
      advertisers. In addition, we believe direct mail is a less expensive and more
      predictable form of marketing than physically visiting or calling potential
      advertisers and, therefore, allows us to offer potential advertisers quality
      products and services at much more affordable rates than our competitors.





*Direct
      Mail Solicitation* .
      Our
      direct mail marketing solicitation is made up of several pages that describe
      in
      detail our products, services, pricing, sign-up instructions, and billing
      alternatives. We include in this solicitation a promotional sign-up incentive,
      generally in the form of a $3.25 activation check made payable to the name
      of
      the solicited business. If a potential advertiser wishes to order our service,
      the advertiser deposits the incentive check in its bank account. Because a
      check
      made out to the name of a business can only be deposited into an account of
      that
      business, the advertiser’s bank acts as a third-party verifier, confirming that
      the solicited advertiser is in fact the advertiser ordering the service. We
      have
      third-party verification and confirmation procedures to confirm the order and
      obtain the information necessary to build the advertiser’s Mini-WebPage. Within
      30 days of activation, we send a confirmation letter to the business. We also
      offer a 120-day cancellation period during which an advertiser may receive
      a
      full refund. Our direct mail marketing program complies with FTC requirements
      as
      established by an agreement signed between our company and the FTC in September
      2001.





5
 *Table
            of Contents*





The
      target audience for our direct mail marketing program is every business in
      America. According to the U.S. Census Bureau, there are approximately 21 million
      businesses in the United States. We generally solicit approximately 1.3 million
      businesses per month.





We
      also
      have entered into various marketing arrangements with other businesses whereby
      we pay commissions based on sales leads and revenue generated from these
      businesses. To date, such commissions have not been material.





*Telemarketing.* During
      the fourth quarter of fiscal 2005, we began testing our telemarketing sales
      campaign. This campaign went into full production subsequent to the end of
      fiscal 2005. We outsource this function to a third party that makes outbound
      calls to potential customers using a marketing list we provide. The company
      is
      compensated on a per-sale basis.





*Mailing
      List Generation* .
      To
      generate the leads for our mailing list operation, we purchase business
      directory listings on a monthly basis from three of the largest information
      providers in the North American market: Acxiom, InfoUSA, and Experian. We refer
      to each information provider’s list of business listings as a data set. Each
      data set consists of 10-19 million records with each record composed of several
      attributes, such as company name, address, employment range, telephone number,
      United States Standard Industrial Classification, or SIC code, and Standard
      Yellow Pages Heading, or SYPH code. While SYPH codes are proprietary to Acxiom,
      we believe our fluency in multiple industrial classifications and the additional
      cost and effort of acquiring data from several sources gives us a competitive
      edge over companies that purchase data from only a single provider of
      information or a provider that does not verify the accuracy of the information
      for each business listing.





We
      continue to evaluate the accuracy of data provided to us by our information
      providers and continuously expand our list of information providers as necessary
      in order to generate an accurate database of potential customers. We believe
      the
      quality of a lead from each information provider’s data set cannot be evaluated
      by business count alone. We consider other factors including overall quality,
      duplicates, out of business records, and records without telephone numbers.
      Each
      information provider verifies the information for each business listing
      differently. For example, some will attempt to verify information for each
      business by telephone while others will attempt to verify by using a United
      States Postal Service Certified Address Standardization process for converting
      addresses to a standard zipcode-4 format required to qualify for lower bulk
      mailing rates.





*National
      Accounts Marketing* .
      In June
      2004, we initiated our National Accounts Program. Unlike other IAP advertisers,
      we do not obtain these accounts through our direct mail program. These accounts
      represent large national organizations that purchase their advertising in bulk
      for their many locations. These are sophisticated advertisers for whom a “per
      click” revenue model is effective, desired, and expected. We have built a
      software model that allows us to implement and bill these customers on a per
      click basis. We host their information on a separate spot on our search results
      page (beside the standard IAP listings) to give them high priority while
      allowing our smaller advertisers to compete directly when consumers are
      searching for products **.** We
      also
      are actively pursuing national accounts that will appear on a “skyscraper” ad on
      the right side of the screen, with a hypertext link, when the related category
      is opened.




Although
      we have yet to generate significant revenue from our national accounts, we
      have
      attracted some well-known customers including 1-800-Flowers, American World
      Van
      Lines, and GEICO.




**Branding**





The
      goal
      of our branding is to obtain instant customer recognition of our offerings
      that,
      over time, may enhance the response rate of our direct mail marketing program.
      We have recently sought to increase traffic to our website by the use of banner
      ads and skyscrapers on selected internet sites and selected radio
      advertisements. Prior to September 2004, page views were below 54,000,000 per
      month; current page views exceed 134,000,000 per month, which represents a
      nearly 150% increase in monthly page views. This heightened traffic is an added
      benefit to our subscribers as well as an increased awareness of what we offer
      to
      potential advertisers. ** We
      expect
      to utilize various forms of media in the future to increase our brand awareness,
      which may include Internet, print, radio, and other advertising
      mediums.





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We
      acquired the rights to the YP.com URL from Onramp Access Inc. pursuant to a
      three-year license agreement executed in 2003. We received this license in
      exchange for $250,000 cash and 100,000 shares of our common stock. Under the
      terms of this agreement, there are certain events, including the performance
      of
      our stock price, that trigger the automatic transfer of ownership to us. If
      such
      events do not occur, we have the option to purchase the rights to this URL
      for
      $300,000. Because of the importance of this URL to our branding strategy, we
      intend to purchase the rights to this URL if ownership has not already
      transferred by the end of the three-year license agreement in the fourth quarter
      of fiscal 2006.





**Technology
      and Infrastructure**





We
      have
      developed technologies to support the timely delivery of information requested
      by a user of our online Yellow Pages system. A staff of senior engineers
      experienced in large-scale system design and computer operation develops and
      maintains the technology. We believe we are particularly adept at large-scale
      database management, design, data modeling, operations and content management.





To
      focus
      on a quality and timely product, we have divided our technology staff and
      technology base into a business operations unit and an advanced technologies
      group dedicated to our directory services product. Our business operations
      support a sophisticated call center, automated billing of our customers,
      customer relationship management, and automated mailing campaign. Our advanced
      technologies group supports all programming and other systems enhancements
      to
      the YP website and internal systems. These operations are described in the
      following paragraphs.





*YP.Com.* The
      front
      end of our directory services and the showcase of our technology and marketing
      capabilities is our website, YP.Com. The YP.Com website currently is in its
      sixth generation of development. We develop ongoing enhancements to our website
      on a recurring schedule to meet the increased demand for our services and
      products. Our YP.com website provides several key and easy to use features,
      including timely information, simple search, search tips, reverse telephone
      number lookup, mapping, and residential and business directory listings.





*Database
      Management Systems.* At
      the
      core of our infrastructure are several high-performance and proprietary database
      systems containing several terabytes of data representing billions of records
      with hundreds of attributes each, such as business name, telephone number,
      address, number of employees, and our unique-to-the-industry 40-word description
      of the business. We maintain the data for internal operations on
      high-performance servers and with large-scale storage systems at our Mesa,
      Arizona facility, which is co-located with our call center operation and
      technology teams. To meet the demand for our products and services and to
      provide the highest level of reliability, we employ technologies and techniques
      providing data redundancy and clustering. Clustering is the use of several
      computers deployed in a manner that provides redundancy and additional computer
      processing power.





*High-Performance
      Database and Search Engine.* We
      believe we provide one of the most complete and high-performing directory
      services in the market today. Our proprietary database enables us to collect
      and
      merge data from multiple sources to provide extensive and accurate content
      for
      our users. With our xDirectoryTM and DirectXMLTM technologies, we provide
      spellchecking, synonym matching, automated content delivery, and multiple source
      data merging in a simple to use paradigm. We believe these technologies simplify
      the search process and provide the most relevant content to suit our customers’
and users’ needs. Ultimately, we expect these technologies to increase recurrent
      use of our system by users of our directory services.





*xDirectory.* xDirectory
      is the platform for our high-performance database and search engine. xDirectory
      is a proprietary content management system and repository for extensible data
      merged from multiple sources of North American listing data. xDirectory also
      serves as a platform for several proprietary features, including real-time
      search feedback on accuracy, search time, spellchecking, synonym matching,
      geographical positioning, automated content syndication, and the proprietary
      algorithms to perform listing data match-up and merging into a uniquely accurate
      record.





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*DirectXML.* DirectXML
      is the technology that supports our content syndication program and distribution
      network. DirectXML integrates our proprietary content management system with
      our
      distribution network to deliver up-to-date syndicated content. DirectXML
      leverages the XML standard for the definition, interoperability, transmission,
      validation, and interpretation of data between systems and
      organizations.





*Extensible
      Record* .
      We
      purchase data from some of the largest information providers in North America
      and merge that data with our extensive in-house customer data set to form what
      we believe is the largest and most comprehensive content in the market. This
      effort provides users of our directory services the greatest number of results
      per search. Our xDirectory platform has the unique ability to weigh the accuracy
      of a wide variety of attributes from the source record for inclusion into the
      merged record. xDirectory’s proprietary algorithm for identifying accurate
      information and removing inaccuracies during the merge process is complemented
      by our customer verification process that confirms the attributes of a given
      customer record.





*Content
      Syndication, Distribution, and Private Label Networks.* We
      add
      value by increasing our IAP advertisers’ visibility by providing automated
      conduits and content delivery to numerous search engines besides our own. We
      can
      deliver content both on the Internet and on mobile devices such as cell phones
      and personal digital assistants. Our market position and volume allows us to
      provide content to any of our strategic alliances, as discussed elsewhere in
      this Annual Report, at a cost below what would be accomplished if one were
      to
      attempt to duplicate our content and distribution network. We have further
      enhanced the capabilities of this global distribution network with our DirectXML
      technology, which provides high-volume automated record updates daily to our
      distribution partners and private-label customers.





*Billing
      Operation.* Our
      billing process is executed using a two-tier architecture that consists of
      foundation and business platforms. Our foundation platform is anchored with
      Microsoft® as the primary partner leveraging their SQL Server product line. This
      alliance aligns us technically with a stable industry standard with proven
      scaling ability to meet our growth needs. System stability is enabled through
      built-in design features including high availability, simplified database
      administration and security features. Our business applications tier rests
      on a
      program suite that consists of partner-provided utilities and our own utilities
      developed specifically to our billing process. By having development abilities
      in-house, we have control over our application, which allows us greater
      flexibility, greater security and reduced dependency on an external entity.
      These programs also reduce LEC submittal fees by cleaning our customer billing
      submittals prior to formal submission. They also optimize which provider best
      suits our needs in order to maximize profit potential.





*Call
      Center Operation.* We
      use
      sophisticated call center technologies to support teams dedicated to servicing
      customer needs, managing the provisioning of new customers and selling
      additional services to existing customers. The call center operation is built
      around a high-volume telephone switch and sophisticated applications that
      manage, distribute, and analyze workload across and between call center
      representatives. Since our call center is staffed five days a week, an automated
      call attendant is employed only after hours, on weekends or during holidays.





*Site
      Design and Facilities.* We
      implement our website on a set of large-scale, high-performance Unix servers
      with accompanying large-scale storage subsystems that are organized into layers
      and groups. Each layer and group provides different functionality across the
      site. We organize the site to allow the integration of new information and
      functionality without any interruption of service. To ensure our site remains
      continuously available to our users, we house the site at environmentally
      controlled co-location facilities geographically distributed and repeated
      between three locations in Arizona, Nevada, and Florida. XO Communications,
      a
      leader and national provider of telecommunications services and facilities,
      provides the co-location services. The co-location facilities are interconnected
      by a high-performance, scalable and highly-reliable state-of-the-art fiber
      data
      network.





*Mailing
      List Generation* .
      The
      technology for generating a mailing list is comprised of a proprietary
      application and three primary databases for generating a mailing list of leads.
      On a monthly basis our information providers send us leads in an electronic
      format for integration into a database. After data has been refreshed in each
      provider database, our proprietary application performs a comparison-and-merge
      process between data sets. The proprietary algorithm within our application
      improves the quality of the record by verifying the accuracy of the information
      for every business listing sent to us. We compare information from each
      information provider to determine matching records, unique records, and the
      method employed to verify the information for each business listed in order
      to
      gauge the accuracy for each respective information provider. A unique record
      is
      one that exists only in a single provider’s data set. The number of unique
      records varies from month to month and is one of the reasons we purchase from
      multiple sources. Following the merge process, our proprietary mailing
      application employs a sophisticated filtering process to determine address
      accuracy and facilitate the delivery of the solicitation mailer. Ultimately,
      the
      application generates an electronic file containing a list of leads with the
      name, address of the lead and type of business of each lead. We then send the
      list to our service provider for printing and mass mailing.





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            of Contents*




**The
      Internet Yellow Pages Market**





According
      to The Kelsey Group and the Yellow Pages Integrated Media Association, or YPIMA,
      while there are approximately 200 major U.S. Yellow Pages print publishers,
      an
      increasingly mobile and computer-sophisticated population is accessing the
      Yellow Pages by way of the Internet at a sharply increasing rate.





Per
      The
      Kelsey Group, annual Web search usage and volume are projected to cross the
      100
      billion threshold during the next 12 months, driven by a range of advances
      and
      new developments in general and vertical search as well as video and multimedia
      search. In parallel with those larger trends, local commercial searches could
      surpass 20 billion (or 20% of total Web searches) during 2006, according to
      The
      Kelsey Group. With increasing user awareness and the introduction of dynamic
      new
      local products, including maps, user-generated content, mobile local search
      and
      local targeting via IPTV, The Kelsey Group believes local searches could
      potentially exceed 30 billion by 2009.





According
      to a July 2005 press release from The Kelsey Group, 8% of advertisers indicated
      that they were likely to spend more money on Internet Yellow Pages this year,
      up
      from 2% one year ago. Among the media tracked by this study—print and Internet
      Yellow Pages, newspapers, direct mail, magazines, radio, outdoor, coupons,
      local
      TV, Web site, search engine key word optimization, e-mail, online city guides,
      pay-per-click—only Internet Yellow Pages showed a statistically significant
      jump. Internet Yellow Pages advertising is expected to grow to an estimated
      $1.3
      billion by 2009, an estimated annual growth rate of 19% from 2003.





Internet
      Yellow Pages provide the following advantages over print Yellow
      Pages:





·
            More
                current and extensive listing
                information.


·
            Immediate
                access to business listings across the nation from any
                location.


·
            Broad
                accessibility via computers and hand-held devices, such as mobile
                phones
                and personal digital assistants.


·
            Features
                such as mapping, direct calling to the advertiser, and e-mail at
                the click
                of a button also may be available.





Internet
      Yellow Pages also offer lower costs for a given level of content and the ability
      to easily access and modify displays and advertisements, which allows for
      opportunistic or targeted specials or discounts.





**Strategic
      Alliances**





In
      order
      to service users of our website more effectively and to extend our brand to
      other Internet sources, we have entered into strategic relationships with
      business partners that offer content, technology, and distribution capabilities.
      The following are descriptions of our most significant strategic
      relationships:





·
            We
                have cross-marketing arrangements with reciprocal linking of websites
                without any compensation to either party. These arrangements increase
                the
                page views for our advertisers’ listings by being listed on the linked
                websites. During 2005, the number of websites providing such links
                to
                YP.com fluctuated between 30 and 100 websites. These co-promotional
                arrangements typically are terminable at
                will.





·
            We
                have distribution agreements with several traffic generators, including
                Interchange, Marchex Inc. subsidiaries GoClick.com and Enhance
                Interactive, as well as others. These agreements allow us to increase
                the
                page views for our advertisers’ listings by displaying our advertisers’
                information in the search results of their affiliate sites. These
                contracts require monthly payments that are either fixed or variable,
                depending on website traffic.





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·
            We
                have a license agreement with Palm, Inc. whereby we pay a fee to
                be a
                provider of Yellow Pages content on hand-held devices using the Palm
                operating system. We provide this content to Palm through a hypertext
                link
                from the Palm operating system to our
                website.





·
            We
                have an agreement with Overture.com to provide visibility to our
                website
                so that we can provide traffic to our advertisers. In exchange for
                monthly
                fees, Overture tries to ensure that our website will be one of the
                highest
                placed sites when Yellow Pages searches are done on major search
                engines,
                such as MSN® and Yahoo®.





·
            We
                utilize WebDialogs in a co-promotional effort to provide automatic
                dialing
                services to our website users. These services allow these users to
                place a
                call to one of our IAP advertisers by simply clicking a button. This
                function powers our Click2Call
                feature.





We
      are
      members of the Yellow Pages Association (fka Yellow Pages Integrated Media
      Association) and the Association of Directory Publishers and have been since
      1998. These organizations are trade associations for Yellow Pages publishers
      or
      others that promote the quality of published content and advertising methods.





**Customer
      Service**





We
      believe that superior customer service is an important factor in differentiating
      ourselves from our competitors. To meet this objective, our customer service
      department is comprised of four main departments - inbound, outbound, quality
      assurance and administration.





*Inbound
      Call Center* .
      Our
      call center supports incoming calls from our advertisers for all of our
      products. The inbound customer service representatives, or CSRs, are responsible
      for taking calls regarding billing, technical service and general questions.
      The
      CSRs are empowered to activate new accounts, adjust accounts with credits,
      accept payments, change the billing method, and cancel accounts. Our proprietary
      CSR software is tiered in order to limit the actions taken with an advertiser’s
      account, depending on the CSR’s position. If a CSR is unable to accommodate the
      advertiser’s request, the CSR transfers the call to a supervisor to ensure the
      customer is satisfied. Requests beyond those a supervisor can handle are given
      to a department manager or our quality assurance personnel. The CSRs have the
      ability to update advertiser’s accounts by adding or changing a Mini-WebPage,
      changing hours of operation, changing the business category, and adding the
      link
      to the advertiser’s website and email. After the CSR makes the requested
      changes, the new information will appear on our website within two business
      days, enabling the advertiser to make timely changes to their listing. The
      inbound customer call center is generally staffed five days a week.





*Outbound
      Calling* .
      We
      established the outbound call center to help our IAP advertisers receive the
      full benefit for the advertising they purchased. The outbound CSRs primarily
      call new advertisers. They confirm the sale and, in the case of a new
      advertiser, they obtain the information to build the advertiser’s Mini-Webpage. After
      the
      outbound CSR speaks with the advertiser and obtains all the information for
      the
      advertiser’s listing, that listing is then sent to our proofreaders. Every
      listing that is updated is proofread prior to being placed on our site. This
      additional step ensures that our advertisers are represented professionally
      and
      accurately to their customers. Since our outbound CSRs only call existing or
      new
      advertisers, we are not affected by the “National Do Not Call”
list.





*Quality
      Assurance* . The
      goal
      of our quality assurance personnel is to monitor inbound and outbound calls,
      take calls transferred from CSRs, perform customer satisfaction surveys, and
      make test calls into our customer care line on a random basis.





In
      addition to the quality assurance representatives, we have a training supervisor
      whose responsibility is to produce and distribute training material to the
      entire call center to ensure consistent information is provided to all
      departments.





10
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            of Contents*





*Administration* .
      The
      purpose of our administration department is to assist our customers with timely
      feedback when requested through the mail, e-mail or by facsimile. In addition
      to
      the CSRs answering incoming calls, we have individuals trained to assist
      customers via email. Our website and our incoming greeting on the telephone
      give
      our customers and our website users our email address. We review these emails
      daily and generally reply within two business days. We have found that many
      advertisers prefer to email us with their changes and are very satisfied with
      our response time and ability to respond to their request. The administration
      department receives, sorts, and distributes all incoming and outgoing mail.
      They
      also are responsible for filing the hard copies of the cashed incentive checks.
      All information that is sent to our advertisers or potential customers by the
      call center is routed through the administration department in order to ensure
      that accurate and consistent information is sent.





**Competition**





We
      operate in the highly competitive and rapidly expanding and evolving
      business-to-business Internet services market. Our largest competitors are
      LECs,
      which are generally known as local telephone companies, and national search
      engines such as Yahoo! and Google that have recently expanded their presence
      in
      the local search market. We compete with other online Yellow Pages services,
      website operators, advertising networks, and traditional offline media, such
      as
      traditional Yellow Pages directory publishers, television, radio, and print
      share advertising. Our services also compete with many directory website
      production businesses and Internet information service providers.





The
      principal competitive factors of the markets in which we compete include
      personalization of service, ease of use of directories, quality and
      responsiveness of search results, availability of quality content, value-added
      products and services, and access to end-users. We compete for advertising
      listings with the suppliers of Internet navigational and informational services,
      high-traffic websites, Internet access providers, and other media. This
      competition could result in significantly lower prices for advertising and
      reductions in advertising revenues. Increased competition could have a material
      adverse effect on our business.





Many
      of
      our competitors have greater capital resources than we have. These capital
      resources could allow our competitors to engage in advertising and other
      promotional activities that will enhance their brand name recognition at levels
      we cannot match. The LECs and national search engines have advantages in terms
      of brand name recognition.





We
      believe that we are in a position to successfully compete in these markets
      due
      to the speed of our local search engine, the comprehensiveness of our database,
      and the effectiveness of our direct mail, telemarketing and other marketing
      programs. Furthermore, we have begun testing various branding campaigns using
      web banners and radio. We believe this will increase market awareness of the
      YP.com brand, which will enhance the value of YP.com to our IAP advertiser
      base.
      We further believe that we can compete effectively by continuing to provide
      quality services at competitive prices and by actively developing new products
      and services for customers.





We
      believe our listings and our Mini-WebPages provide users of our website with
      readily available information that is easy to understand and from which they
      can
      make their buying decisions. We believe that our calling center is a competitive
      advantage. Through our calling centers, we continually receive and process
      requests to update customer information on our website and, accordingly, we
      believe our site contains more useful and timely information than that of our
      competitors. We further believe that this, in turn, will translate into more
      page views and advertisers.





**Executive
      Officers**





The
      following persons currently serve as our executive officers:




Name
            Age
            PositionPeter
                Bergmann
            56
            Chief
                Executive Officer and DirectorW.
                Chris Broquist
            48
            Chief
                Financial Officer and Corporate SecretaryJohn
                Raven
            41
            Chief
                Operating Officer





11
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            of Contents*





*PeterBergmann* has
      served as a director of our company since May 2002. In May 2004, Mr. Bergmann
      was appointed Chairman, President, and Chief Executive Officer. On November
      3,
      2005, Mr. Bergmann resigned as Chairman and President of our company. Bergmann
      has agreed to continue to serve as a director of our company until our next
      annual meeting of the stockholders and will resign as chief executive officer
      immediately upon the filing of this Annual Report to pursue other interests.
      Since January 1999, Mr. Bergmann has served as the President of Perfect Timing
      Media, Inc., a television development and production company that he founded.
      From 1994 to 1999, Mr. Bergmann was a member of the faculty at Fairleigh
      Dickinson University, where he inaugurated the electronic Filmmaking and Digital
      Video Design program, which is a distinctive program in video and
      computer-generated graphics technologies offering students an opportunity to
      study commerce and art. In 1988, Mr. Bergmann joined Major Arts, Inc., a
      division of Paramount Communications, Inc., as the head of its television
      division where he was responsible for developing projects for television
      production. In 1987, Mr. Bergmann served as the President of Odyssey
      Entertainment, Inc. where he engineered the purchase of Coast Productions,
      Inc.,
      which subsequently became Odyssey Filmmakers, Inc. From 1984 through 1987,
      Mr.
      Bergmann served as President of The Film Company, where he had directorial
      and
      production responsibilities for theatrical releases and projects for television.
      During the 14 years prior to 1984, Mr. Bergmann was employed in various
      capacities by the American Broadcasting Company. These positions included line
      producer, division head, and assistant to the President, Executive Vice
      President and Special Assistant to the Chairman of the Board. Mr. Bergmann
      received his PhD from New York University.





*W.
      Chris. Broquist* has
      served as our Chief Financial Officer since August 2004 and as our Corporate
      Secretary since November 2004. Prior to joining our company, Mr. Broquist served
      as Vice President and Chief Financial Officer of GBD Graphics, Inc. from May
      2003 to August 2004. Prior to May 2003, Mr. Broquist served as Corporate
      Treasurer of Century Media, Inc. from February 2000 to December 2002. Between
      December 2002 and May 2003, Mr. Broquist was an independent consultant.





*John
      Raven* has
      served as our Chief Operating Officer since June 2005. Mr. Raven served as
      our
      Chief Technology Officer from September 2003 until June 2005. Mr. Raven has
      over
      ten years experience in the technology arena and 16 years of overall leadership
      experience working with companies such as Perot Systems (PER), where he worked
      in 2003 and managed 640 staff members, Read-Rite Corp,, where he worked from
      2000 to 2003, and as Cap Gemini Ernst & Young (CAPMF), where he worked from
      2000 to 2002. Mr. Raven also served as Director of Information Technology at
      Viacom's ENG Network division, where he worked from 1996 to 1999. Mr. Raven
      has
      experience in software engineering, data and process architecture, systems
      development, and database management systems. At NASA's Jet Propulsion
      Laboratory, where he worked from 1993 to 1996, Mr. Raven was a team member
      and
      information systems engineer for the historic 1997 mission to Mars conducted
      with the Pathfinder space vehicle and the Sojourner surface rover. Mr. Raven
      received his Bachelors of Science in Computer Science from the California
      Institute of Technology in 1991. His certifications include Cisco Internetwork
      Engineer, Project Management from the Project Management Institute, Certified
      Project Manager from Perot Management Methodology Institute, Microsoft Certified
      System Engineer, and Certified Novel Engineer.





**Employees**





As
      of
      September 30, 2005, our only direct employees are our three executive officers
      and our direct marketing executive. As of September 30, 2005, we also engaged
      93
      full-time and 32 part-time independent contractors through employee leasing
      or
      temporary help agencies. Such team members are not covered by any collective
      bargaining agreements.





**ITEM
                1A.**
            **Risk
                Factors**





An
      investment in our common stock involves a substantial degree of risk. Before
      making an investment decision, you should give careful consideration to the
      following risk factors in addition to the other information contained in this
      report. The following risk factors, however, may not reflect all of the risks
      associated with our business or an investment in our common stock. Accordingly,
      you should only consider investing in our common stock if you can afford to
      lose
      your entire investment.





12
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            of Contents*





**Risks
      Related to Our Business**








**We
      face intense competition, including from companies with greater resources,
      which
      could adversely affect our growth and could lead to decreased revenues.**





Several
      companies, including Google, Microsoft, Verizon, and Yahoo, currently market
      Internet Yellow Pages or local search services that directly compete with our
      services and products. We may not compete effectively with existing and
      potential competitors for several reasons, including the following:


·
              some
                  competitors have longer operating histories and greater financial
                  and
                  other resources than we have and are in better financial condition
                  than we
                  are;
  ·
              some
                  competitors have better name recognition, as well as larger, more
                  established, and more extensive marketing, customer service, and
                  customer
                  support capabilities than we have;
  ·
              some
                  competitors may supply a broader range of services, enabling them
                  to serve
                  more or all of their customers’ needs. This could limit our sales and
                  strengthen our competitors’ existing relationships with their customers,
                  including our current and potential IAP
                  advertisers;
  ·
              some
                  competitors may be able to better adapt to changing market conditions
                  and
                  customer demand; and
  ·
              barriers
                  to entry are not significant. As a result, other companies that
                  are not
                  currently involved in the Internet-based Yellow Pages advertising
                  business
                  may enter the market or develop technology that reduces the need
                  for our
                  services.


Increased
      competitive pressure could lead to reduced market share, as well as lower prices
      and reduced margins for our services. If we experience reductions in our revenue
      for any reason, our margins may continue to decline, which would adversely
      affect our results of operations. We cannot assure you that we will be able
      to
      compete successfully in the future.





**Our
      success depends upon our ability to establish and maintain relationships with
      our advertisers.**





Our
      ability to generate revenue depends upon our ability to maintain relationships
      with our existing advertisers, to attract new advertisers to sign up for
      revenue-generating services, and to generate traffic to our advertisers’
websites. We primarily use direct marketing efforts to attract new advertisers.
      These direct marketing efforts may not produce satisfactory results in the
      future. We attempt to maintain relationships with our advertisers through
      customer service and delivery of traffic to their businesses. An inability
      to
      either attract additional advertisers to use our service or to maintain
      relationships with our advertisers could have a material adverse effect on
      our
      business, prospects, financial condition, and results of
      operations.





**If
      we do not introduce new or enhanced offerings to our advertisers and users,
      we
      may be unable to attract and retain those advertisers and users, which would
      significantly impede our ability to generate revenue.**





We
      will
      need to introduce new or enhanced products and services in order to attract
      and
      retain advertisers and users and to remain competitive. Our industry has been
      characterized by rapid technological change, changes in advertiser and user
      requirements and preferences, and frequent new product and service introductions
      embodying new technologies. These changes could render our technology, systems,
      and website obsolete. We may experience difficulties that could delay or prevent
      us from introducing new products and services. If we do not periodically enhance
      our existing products and services, develop new technologies that address our
      advertisers’ and users’ needs and preferences, or respond to emerging
      technological advances and industry standards and practices on a timely and
      cost-effective basis, our products and services may not be attractive to
      advertisers and users, which would significantly impede our revenue growth.
      In
      addition, our reputation and our brand could be damaged if any new product
      or
      service introduction is not favorably received.





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**Our
      quarterly results of operations could fluctuate due to factors outside of our
      control.**





Our
      operating results have historically fluctuated significantly and we have
      experienced recent declines in net revenues and operating profits. We could
      continue to experience fluctuations or continued declining operating results
      due
      to factors that may or may not be within our control. Such factors include
      the
      following:




·
              fluctuating
                  demand for our services, which may depend on a number of factors
                  including
  o
              changes
                  in economic conditions and our IAP advertisers’
                  profitability,
  o
              varying
                  IAP advertiser response rates to our direct marketing
                  efforts,
  o
              our
                  ability to complete direct mailing solicitations on a timely basis
                  each
                  month,
  o
              changes
                  in our direct marketing efforts,
  o
              IAP
                  advertiser refunds or cancellations,
                  and
  o
              our
                  ability to continue to bill through LEC billing, ACH billing or
                  credit
                  card channels rather than through direct
                  invoicing;
  ·
              timing
                  of new service or product introductions and market acceptance of
                  new or
                  enhanced versions of our services or products;
  ·
              our
                  ability to develop and implement new services and technologies
                  in a timely
                  fashion in order to meet market
                  demand;
  ·
              price
                  competition or pricing changes by us or our
                  competitors;
  ·
              new
                  product offerings or other actions by our
                  competitors;
  ·
              the
                  ability of our check processing service providers to continue to
                  process
                  and provide billing information regarding our solicitation
                  checks;
  ·
              the
                  amount and timing of expenditures for expansion of our operations,
                  including the hiring of new employees, capital expenditures, and
                  related
                  costs;
  ·
              technical
                  difficulties or failures affecting our systems or the Internet
                  in
                  general;
  ·
              a
                  decline in Internet traffic at our
                  website;
  ·
              the
                  cost of acquiring, and the availability of, information for our
                  database
                  of potential advertisers; and
  ·
              the
                  fixed nature of a significant amount of our operating
                  expenses.





**The
      loss of our ability to bill IAP advertisers through our remaining Local Exchange
      Carriers on the IAP advertisers’ telephone bills would adversely impact our
      results of operations.**





Prior
      to
      2004, our business model depended heavily upon our ability to bill advertisers
      on their telephone bills through their respective Local Exchange Carriers,
      or
      LECs. In 2004 and 2005, we faced challenges and impediments to our ability
      to
      bill certain advertisers in this manner. These challenges forced us to convert
      many of these advertisers to alternative methods of billing, resulting in
      decreased revenues. We continue, however, to rely on our ability to use the
      LEC
      billing method for between one-fourth and one-third of our net revenues.





The
      existence of the LECs is the result of Federal legislation. In the same manner,
      Congress could pass future legislation that obviates the existence of or the
      need for the LECs. Additionally, regulatory agencies could limit or prevent
      our
      ability to use the LECs to bill our advertisers. The introduction of and
      advancement of new technologies, such as WiFi technology or other
      wireless-related technologies, could render unnecessary the existence of fixed
      telecommunication lines, which also could obviate the need for and access to
      the
      LECs. Finally, if the recent trend of certain LECs to change their policies
      concerning our ability to use an incentive check as a letter of authorization
      and to adopt more onerous reconfirmation requirements becomes more widespread,
      our ability to use the LECs to bill our advertisers could be jeopardized
      altogether. Our inability to use the LECs to bill our advertisers through their
      monthly telephone bills would result in increased dilution and decreased
      revenues and would have a material adverse impact on our financial condition
      and
      results of operations.





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**Our
      revenue may decline over time due to the involvement of the CLECs in the local
      telephone markets.**  ****





Due
      to
      competition in the telephony industry, many business customers are finding
      alternative telephony suppliers, such as Competitive Local Exchange Carriers,
      or
      CLECs, that offer less expensive alternatives to the LECs. When the LECs
      effectuate a price increase, many business customers look for an alternative
      telephone company, which may be a CLEC. When our advertising customers switch
      service providers from the LECs to a CLEC, we are precluded from billing these
      customers on their monthly telephone bill and must instead convert them to
      alternative billing methods such as ACH billing or direct invoicing. This
      conversion process can be disruptive to our operations and result in lost
      revenue. We cannot provide any assurances that our efforts will be successful.
      We may experience future increases in dilution of our customer base that we
      are
      able to bill on their monthly telephone bills, which, in turn, may result in
      decreases in our revenue.





**The
      loss of our ability to bill IAP advertisers through our ACH billing channel
      would adversely impact our results of operations.**





We
      bill a
      significant number of our IAP advertisers through our ACH billing channel.
      ACH
      transactions are closely regulated by NACHA - The Electronic Payments
      Association, which develops operating rules and business practices for the
      Automated Clearing House (ACH) Network and for electronic payments in the areas
      of Internet commerce and other electronic payment means. Changes in these rules
      and business practices could compromise our ability to bill a significant number
      of our advertisers through ACH billing, and we would have to transition these
      advertisers to other billing channels. Such changes would be disruptive and
      result in lost revenue.





**We
      depend upon our executive officers and key personnel** .





Our
      performance depends substantially on the performance of our executive officers
      and other key personnel. The success of our business in the future will depend
      on our ability to attract, train, retain, and motivate high quality personnel,
      especially highly qualified technical and managerial personnel. The loss of
      services of any executive officers or key personnel could have a material
      adverse effect on our business, results of operations or financial condition.
      We
      do not maintain key person life insurance on the lives of any of our executive
      officers or key personnel.





Competition
      for talented personnel is intense, and there is no assurance that we will be
      able to continue to attract, train, retain or motivate other highly qualified
      technical and managerial personnel in the future. In addition, market conditions
      may require us to pay higher compensation to qualified management and technical
      personnel than we currently anticipate. Any inability to attract and retain
      qualified management and technical personnel in the future could have a material
      adverse effect on our business, prospects, financial condition, and results
      of
      operations.





Subsequent
      to September 30, 2005, we entered into a separation agreement with our CEO.
      To
      the extent that we cannot find a competent replacement on a timely basis, our
      operating results may be adversely affected.




**Failure
      to achieve and maintain effective internal controls in accordance with Section
      404 of the Sarbanes-Oxley Act could have a material adverse effect on our
      business and stock price.**




Pursuant
      to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our Annual
      Report on Form 10-K for the fiscal year ending September 30, 2007, we will
      be
      required to furnish a report by our management on our internal control over
      financial reporting. The internal control report must contain (i) a statement
      of
      management's responsibility for establishing and maintaining adequate internal
      control over financial reporting, (ii) a statement identifying the framework
      used by management to conduct the required evaluation of the effectiveness
      of
      our internal control over financial reporting, (iii) management's assessment
      of
      the effectiveness of our internal control over financial reporting as of the
      end
      of our most recent fiscal year, including a statement as to whether or not
      internal control over financial reporting is effective, and (iv) a statement
      that the Company's independent auditors have issued an attestation report on
      management's assessment of internal control over financial
      reporting.




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In
      order
      to achieve compliance with Section 404 of the Act within the prescribed period,
      we will need to engage in a process to document and evaluate our internal
      control over financial reporting, which will be both costly and challenging.
      In
      this regard, management will need to dedicate internal resources, engage outside
      consultants and adopt a detailed work plan to (i) assess and document the
      adequacy of internal control over financial reporting, (ii) take steps to
      improve control processes where appropriate, (iii) validate through testing
      that
      controls are functioning as documented, and (iv) implement a continuous
      reporting and improvement process for internal control over financial reporting.
      We can provide no assurance as to our, or our independent auditors’, conclusions
      at September 30, 2007 with respect to the effectiveness of our internal control
      over financial reporting under Section 404 of the Act. There is a risk that
      neither we nor our independent auditors will be able to conclude at September
      30, 2007 that our internal controls over financial reporting are effective
      as
      required by Section 404 of the Act.




During
      the course of our testing we may identify deficiencies that we may not be able
      to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act
      for
      compliance with the requirements of Section 404. In addition, if we fail to
      achieve and maintain the adequacy of our internal controls, as such standards
      are modified, supplemented or amended from time to time, we may not be able
      to
      ensure that we can conclude on an ongoing basis that we have effective internal
      controls over financial reporting in accordance with Section 404 of the
      Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those
      related to revenue recognition, are necessary for us to produce reliable
      financial reports and are important to helping prevent financial fraud. If
      we
      cannot provide reliable financial reports or prevent fraud, our business and
      operating results could be harmed, investors could lose confidence in our
      reported financial information, and the trading price of our stock could drop
      significantly.




**Our
      ability to efficiently process new advertiser sign-ups and to bill our
      advertisers monthly depends upon our check processing service providers and
      billing aggregators and processors, respectively.**





We
      currently use check processing companies to provide us with advertiser
      information at the point of sign-up for our Internet Advertising Package. Our
      ability to gather information to bill our advertisers at the point of sign-up
      could be adversely affected if one or more of these providers experiences a
      disruption in its operations or ceases to do business with us.





We
      also
      depend upon our billing aggregators and service providers to efficiently bill
      and collect monies through our LEC billing and ACH billing channels. We
      currently have agreements with three billing aggregators and two ACH service
      providers. Any disruption in these third parties’ ability to perform these
      functions could adversely affect our financial condition and results of
      operations.





**We
      depend upon third parties to provide certain services and software, and our
      business may suffer if the relationships upon which we depend fail to produce
      the expected benefits or are terminated.**





We
      depend
      upon third-party software to operate certain of our services. The failure of
      this software to perform as expected would have a material adverse effect on
      our
      business. Additionally, although we believe that several alternative sources
      for
      this software are available, any failure to obtain and maintain the rights
      to
      use such software would have a material adverse effect on our business,
      prospects, financial condition, and results of operations. We also depend upon
      third parties to provide services that allow us to connect to the Internet
      with
      sufficient capacity and bandwidth so that our business can function properly
      and
      our websites can handle current and anticipated traffic. Any restrictions or
      interruption in our connection to the Internet would have a material adverse
      effect on our business, prospects, financial condition, and results of
      operations.





**The
      market for our services is uncertain.**





The
      demand and market acceptance for our services may be subject to a high level
      of
      uncertainty. Advertisers and users may not adopt or continue to use
      Internet-base Yellow Pages services and other online services that we may offer
      in the future. Advertisers may find Internet Yellow Pages advertising to be
      less
      effective for meeting their business needs than traditional methods of Yellow
      Pages or other advertising and marketing. Our business, prospects, financial
      condition or results of operations will be materially and adversely affected
      if
      potential advertisers do not adopt Internet Yellow Pages as an important
      component of their advertising expenditures.





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**We
      may not be able to secure additional capital to expand our operations.**





Although
      we currently have no material long-term needs for capital expenditures, we
      will
      likely be required to make increased capital expenditures to fund our
      anticipated growth of operations, infrastructure, and personnel. We currently
      anticipate that our cash on hand as of September 30, 2005, together with cash
      flows from operations, will be sufficient to meet our anticipated liquidity
      needs for working capital and capital expenditures over the next 12 months.
      In
      the future, however, we may seek additional capital through the issuance of
      debt
      or equity depending upon our results of operations, market conditions or
      unforeseen needs or opportunities. Our future liquidity and capital requirements
      will depend on numerous factors, including the following:


·
              the
                  pace of expansion of our
                  operations;
  ·
              our
                  need to respond to competitive pressures;
                  and
  ·
              future
                  acquisitions of complementary products, technologies or
                  businesses.


Our
      forecast of the period of time through which our financial resources will be
      adequate to support our operations is a forward-looking statement that involves
      risks and uncertainties and actual results could vary materially as a result
      of
      the factors described above. As we require additional capital resources, we
      may
      seek to sell additional equity or debt securities or draw on our existing bank
      line of credit. Debt financing must be repaid at maturity, regardless of whether
      or not we have sufficient cash resources available at that time to repay the
      debt. The sale of additional equity or convertible debt securities could result
      in additional dilution to existing stockholders. We cannot provide assurance
      that any financing arrangements will be available in amounts or on terms
      acceptable to us, if at all.





**Our
      business is subject to a strict regulatory environment** .





Existing
      laws and regulations and any future regulation may have a material adverse
      effect on our business. For example, we believe that our direct marketing
      programs meet existing requirements of the United States Federal Trade
      Commission. Any changes to FTC requirements or changes in our direct or other
      marketing practices, however, could result in our marketing practices failing
      to
      comply with FTC regulations. Our increasing dependence on ACH billing has
      exposed us to greater scrutiny by the National Automated Clearing House
      Association, or NACHA. As a result, we could be subject to substantial liability
      in the future, including fines and criminal penalties, preclusion from offering
      certain products or services, and the prevention or limitation of certain
      marketing practices.





**We
      may be unable to promote and maintain our brands.**





We
      believe that establishing and maintaining the brand identities of our Internet
      Yellow Pages services is a critical aspect of attracting and expanding a base
      of
      advertisers and users. Promotion and enhancement of our brands will depend
      largely on our success in continuing to provide high quality service. If
      advertisers and users do not perceive our existing services to be of high
      quality, or if we introduce new services or enter into new business ventures
      that are not favorably received by advertisers and users, we will risk diluting
      our brand identities and decreasing their attractiveness to existing and
      potential IAP advertisers.





**We
      may not be able to adequately protect our intellectual property
      rights.**





Our
      success depends both on our internally developed technology and our third party
      technology. We rely on a variety of trademarks, service marks, and designs
      to
      promote our brand names and identity. We also rely on a combination of
      contractual provisions, confidentiality procedures, and trademark, copyright,
      trade secrecy, unfair competition, and other intellectual property laws to
      protect the proprietary aspects of our products and services. Legal standards
      relating to the validity, enforceability, and scope of the protection of certain
      intellectual property rights in Internet-related industries are uncertain and
      still evolving. The steps we take to protect our intellectual property rights
      may not be adequate to protect our intellectual property and may not prevent
      our
      competitors from gaining access to our intellectual property and proprietary
      information. In addition, we cannot provide assurance that courts will always
      uphold our intellectual property rights or enforce the contractual arrangements
      that we have entered into to protect our proprietary technology.





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Third
      parties may infringe or misappropriate our copyrights, trademarks, service
      marks, trade dress, and other proprietary rights. Any such infringement or
      misappropriation could have a material adverse effect on our business,
      prospects, financial condition, and results of operations. In addition, the
      relationship between regulations governing domain names and laws protecting
      trademarks and similar proprietary rights is unclear. We may be unable to
      prevent third parties from acquiring domain names that are similar to, infringe
      upon or otherwise decrease the value of our trademarks and other proprietary
      rights, which may result in the dilution of the brand identity of our services.





We
      may
      decide to initiate litigation in order to enforce our intellectual property
      rights, to protect our trade secrets, or to determine the validity and scope
      of
      our proprietary rights. Any such litigation could result in substantial expense,
      may reduce our profits, and may not adequately protect our intellectual property
      rights. In addition, we may be exposed to future litigation by third parties
      based on claims that our products or services infringe their intellectual
      property rights. Any such claim or litigation against us, whether or not
      successful, could result in substantial costs and harm our reputation. In
      addition, such claims or litigation could force us to do one or more of the
      following:




·
              cease
                  selling or using any of our products that incorporate the challenged
                  intellectual property, which would adversely affect our
                  revenue;
  ·
              obtain
                  a license from the holder of the intellectual property right alleged
                  to
                  have been infringed, which license may not be available on reasonable
                  terms, if at all; and
  ·
              redesign
                  or, in the case of trademark claims, rename our products or services
                  to
                  avoid infringing the intellectual property rights of third parties,
                  which
                  may not be possible and in any event could be costly and
                  time-consuming.


Even
      if
      we were to prevail, such claims or litigation could be time-consuming and
      expensive to prosecute or defend, and could result in the diversion of our
      management’s time and attention. These expenses and diversion of managerial
      resources could have a material adverse effect on our business, prospects,
      financial condition, and results of operations.





**Capacity
      constraints may require us to expand our infrastructure and IAP advertiser
      support capabilities.**





Our
      ability to provide high-quality Internet Yellow Pages services largely depends
      upon the efficient and uninterrupted operation of our computer and
      communications systems. We may be required to expand our technology,
      infrastructure, and IAP advertiser support capabilities in order to accommodate
      any significant increases in the numbers of advertisers and users of our
      websites. We may not be able to project accurately the rate or timing of
      increases, if any, in the use of our services or expand and upgrade our systems
      and infrastructure to accommodate these increases in a timely manner. If we
      do
      not expand and upgrade our infrastructure in a timely manner, we could
      experience temporary capacity constraints that may cause unanticipated system
      disruptions, slower response times, and lower levels of IAP advertiser service.
      Our inability to upgrade and expand our infrastructure and IAP advertiser
      support capabilities as required could impair the reputation of our brand and
      our services, reduce the volume of users able to access our website, and
      diminish the attractiveness of our service offerings to our advertisers.





Any
      expansion of our infrastructure may require us to make significant upfront
      expenditures for servers, routers, computer equipment, and additional Internet
      and intranet equipment, as well as to increase bandwidth for Internet
      connectivity. Any such expansion or enhancement will need to be completed and
      integrated without system disruptions. An inability to expand our infrastructure
      or IAP advertiser service capabilities either internally or through third
      parties, if and when necessary, would materially and adversely affect our
      business, prospects, financial condition, and results of
      operations.





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**Risks
      Related to the Internet**





**We
      may not be able to adapt as the Internet, Internet Yellow Pages services, and
      IAP advertiser demands continue to evolve.**





Our
      failure to respond in a timely manner to changing market conditions or client
      requirements could have a material adverse effect on our business, prospects,
      financial condition, and results of operations. The Internet, e-commerce, and
      the Internet Yellow Pages industry are characterized by:




·
              rapid
                  technological change;
  ·
              changes
                  in advertiser and user requirements and
                  preferences;
  ·
              frequent
                  new product and service introductions embodying new technologies;
                  and
  ·
              the
                  emergence of new industry standards and practices that could render
                  our
                  existing service offerings, technology, and hardware and software
                  infrastructure obsolete.
  In
        order
        to compete successfully in the future, we must
  ·
              enhance
                  our existing services and develop new services and technology that
                  address
                  the increasingly sophisticated and varied needs of our prospective
                  or
                  current IAP advertisers;
  ·
              license,
                  develop or acquire technologies useful in our business on a timely
                  basis;
                  and
  ·
              respond
                  to technological advances and emerging industry standards and practices
                  on
                  a cost-effective and timely basis.


**Our
      future success may depend on continued growth in the use of the
      Internet.**





Because
      Internet Yellow Pages is a relatively new and rapidly evolving industry, the
      ultimate demand and market acceptance for our services will be subject to a
      high
      level of uncertainty. Significant issues concerning the commercial use of the
      Internet and online service technologies, including security, reliability,
      cost,
      ease of use, and quality of service, remain unresolved and may inhibit the
      growth of Internet business solutions that use these technologies. In addition,
      the Internet or other online services could lose their viability due to delays
      in the development or adoption of new standards and protocols required to handle
      increased levels of Internet activity, or due to increased governmental
      regulation. Our business, prospects, financial condition, and results of
      operations would be materially and adversely affected if the use of Internet
      Yellow Pages and other online services does not continue to grow or grows more
      slowly than we expect.





**We
      may be required to keep pace with rapid technological change in the Internet
      industry.**





In
      order
      to remain competitive, we will be required continually to enhance and improve
      the functionality and features of our existing services, which could require
      us
      to invest significant capital. If our competitors introduce new products and
      services embodying new technologies, or if new industry standards and practices
      emerge, our existing services, technologies, and systems may become obsolete.
      We
      may not have the funds or technical know-how to upgrade our services,
      technology, and systems. If we face material delays in introducing new services,
      products, and enhancements, our advertisers and users may forego the use of
      our
      services and select those of our competitors, in which event our business,
      prospects, financial condition, and results of operations could be materially
      and adversely affected.





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**Regulation
      of the Internet may adversely affect our business.**





Due
      to
      the increasing popularity and use of the Internet and online services such
      as
      online Yellow Pages, federal, state,  local,
      and foreign governments may adopt laws and regulations, or amend existing laws
      and regulations, with respect to the Internet and other online services. These
      laws and regulations may affect issues such as user privacy, pricing, content,
      taxation, copyrights, distribution, and quality of products and services. The
      laws governing the Internet remain largely unsettled, even in areas where
      legislation has been enacted. It may take years to determine whether and how
      existing laws, such as those governing intellectual property, privacy, libel,
      and taxation, apply to the Internet and Internet advertising and directory
      services. In addition, the growth and development of the market for electronic
      commerce may prompt calls for more stringent consumer protection laws, both
      in
      the United States and abroad, that may impose additional burdens on companies
      conducting business over the Internet. Any new legislation could hinder the
      growth in use of the Internet generally or in our industry and could impose
      additional burdens on companies conducting business online, which could, in
      turn, decrease the demand for our services, increase our cost of doing business,
      or otherwise have a material adverse effect on our business, prospects,
      financial condition, and results of operations.





**We
      may not be able to obtain Internet domain names that we would like to
      have.**





We
      believe that our existing Internet domain names are an extremely important
      part
      of our business. We may desire, or it may be necessary in the future, to use
      these or other domain names in the United States and abroad. Various Internet
      regulatory bodies regulate the acquisition and maintenance of domain names
      in
      the United States and other countries. These regulations are subject to change.
      Governing bodies may establish additional top-level domains, appoint additional
      domain name registrars or modify the requirements for holding domain names.
      As a
      result, we may be unable to acquire or maintain relevant domain names in all
      countries in which we plan to conduct business in the future.





The
      extent to which laws protecting trademarks and similar proprietary rights will
      be extended to protect domain names currently is not clear. We therefore may
      be
      unable to prevent competitors from acquiring domain names that are similar
      to,
      infringe upon or otherwise decrease the value of our domain names, trademarks,
      trade names, and other proprietary rights. We cannot provide assurance that
      potential users and advertisers will not confuse our domain names, trademarks,
      and trade names with other similar names and marks. If that confusion occurs,
      we
      may lose business to a competitor and some advertisers and users may have
      negative experiences with other companies that those advertisers and users
      erroneously associate with us. The inability to acquire and maintain domain
      names that we desire to use in our business, and the use of confusingly similar
      domain names by our competitors, could have a material adverse affect on our
      business, prospects, financial conditions, and results of operations in the
      future.





**Our
      business could be negatively impacted if the security of the Internet becomes
      compromised.**





To
      the
      extent that our activities involve the storage and transmission of proprietary
      information about our advertisers or users, security breaches could damage
      our
      reputation and expose us to a risk of loss or litigation and possible liability.
      We may be required to expend significant capital and other resources to protect
      against security breaches or to minimize problems caused by security breaches.
      Our security measures may not prevent security breaches. Our failure to prevent
      these security breaches or a misappropriation of proprietary information may
      have a material adverse effect on our business, prospects, financial condition,
      and results of operations.





**Our
      technical systems could be vulnerable to online security risks, service
      interruptions or damage to our systems.**





Our
      systems and operations may be vulnerable to damage or interruption from fire,
      floods, power loss, telecommunications failures, break-ins, sabotage, computer
      viruses, penetration of our network by unauthorized computer users or “hackers,”
natural disaster, and similar events. Preventing, alleviating, or eliminating
      computer viruses and other service-related or security problems may require
      interruptions, delays or cessation of service. We may need to expend significant
      resources protecting against the threat of security breaches or alleviating
      potential or actual service interruptions. The occurrence of such unanticipated
      problems or security breaches could cause material interruptions or delays
      in
      our business, loss of data, or misappropriation of proprietary or IAP
      advertiser-related information or could render us unable to provide services
      to
      our IAP advertisers for an indeterminate length of time. The occurrence of
      any
      or all of these events could materially and adversely affect our business,
      prospects, financial condition, and results of operations.





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**If
      we are sued for content distributed through, or linked to by, our website or
      those of our advertisers, we may be required to spend substantial resources
      to
      defend ourselves and could be required to pay monetary damages.**





We
      aggregate and distribute third-party data and other content over the Internet.
      In addition, third-party websites are accessible through our website or those
      of
      our advertisers. As a result, we could be subject to legal claims for
      defamation, negligence, intellectual property infringement, and product or
      service liability. Other claims may be based on errors or false or misleading
      information provided on or through our website or websites of our directory
      licensees. Other claims may be based on links to sexually explicit websites
      and
      sexually explicit advertisements. We may need to expend substantial resources
      to
      investigate and defend these claims, regardless of whether we successfully
      defend against them. While we carry general business insurance, the amount
      of
      coverage we maintain may not be adequate. In addition, implementing measures
      to
      reduce our exposure to this liability may require us to spend substantial
      resources and limit the attractiveness of our content to users.





**Risks
      Related to Our Securities**





**Stock
      prices of technology companies have declined precipitously at times in the
      past
      and the trading price of our common stock is likely to be volatile, which could
      result in substantial losses to investors.**




The
      trading price of our common stock has fallen significantly over the past twelve
      months and investors could continue to experience losses in response to factors
      including the following, many of which are beyond our control:




·
            decreased
                demand in the Internet services
                sector;




·
            variations
                in our operating results;




·
            announcements
                of technological innovations or new services by us or our
                competitors;




·
            changes
                in expectations of our future financial performance, including financial
                estimates by securities analysts and
                investors;




·
            our
                failure to meet analysts’
expectations;




·
            changes
                in operating and stock price performance of other technology companies
                similar to us;




·
            conditions
                or trends in the technology
                industry;




·
            additions
                or departures of key personnel; and




·
            future
                sales of our common stock.




Domestic
      and international stock markets often experience significant price and volume
      fluctuations that are unrelated to the operating performance of companies with
      securities trading in those markets. These fluctuations, as well as political
      events, terrorist attacks, threatened or actual war, and general economic
      conditions unrelated to our performance, may adversely affect the price of
      our
      common stock. In the past, securities holders of other companies often have
      initiated securities class action litigation against those companies following
      periods of volatility in the market price of those companies’ securities. If the
      market price of our stock fluctuates and our stockholders initiate this type
      of
      litigation, we could incur substantial costs and experience a diversion of
      our
      management’s attention and resources, regardless of the outcome. This could
      materially and adversely affect our business, prospects, financial condition,
      and results of operations.





21
 *Table
            of Contents*





**Certain
      provisions of Nevada law and in our charter may prevent or delay a change of
      control of our company** .





We
      are
      subject to the Nevada anti-takeover laws regulating corporate takeovers. These
      anti-takeover laws prevent Nevada corporations from engaging in a merger,
      consolidation, sales of its stock or assets, and certain other transactions
      with
      any stockholder, including all affiliates and associates of the stockholder,
      who
      owns 10% or more of the corporation’s outstanding voting stock, for three years
      following the date that the stockholder acquired 10% or more of the
      corporation’s voting stock except in certain situations. In addition, our
      amended and restated articles of incorporation and bylaws include a number
      of
      provisions that may deter or impede hostile takeovers or changes of control
      or
      management. These provisions include the following:





·
            our
                board is classified into three classes of directors as nearly equal
                in
                size as possible, with staggered three
                year-terms;




·
            the
                authority of our board to issue up to 5,000,000 shares of serial
                preferred stock and to determine the price, rights, preferences,
                and
                privileges of these shares, without stockholder
                approval;




·
            all
                stockholder actions must be effected at a duly called meeting of
                stockholders and not by written consent unless such action or proposal
                is
                first approved by our board of
                directors;




·
            special
                meetings of the stockholders may be called only by the Chairman of
                the
                Board, the Chief Executive Officer, or the President of our company;
                and




·
            cumulative
                voting is not allowed in the election of our
                directors.




These
      provisions of Nevada law and our articles and bylaws could prohibit or delay
      mergers or other takeover or change of control of our company and may discourage
      attempts by other companies to acquire us, even if such a transaction would
      be
      beneficial to our stockholders.




**Our
      common stock may be subject to the “penny stock” rules as promulgated under the
      Exchange Act.**





In
      the
      event that no exclusion from the definition of “penny stock” under the Exchange
      Act is available, then any broker engaging in a transaction in our common stock
      will be required to provide its customers with a risk disclosure document,
      disclosure of market quotations, if any, disclosure of the compensation of
      the
      broker-dealer and its sales person in the transaction, and monthly account
      statements showing the market values of our securities held in the customer’s
      accounts. The bid and offer quotation and compensation information must be
      provided prior to effecting the transaction and must be contained on the
      customer’s confirmation of sale. Certain brokers are less willing to engage in
      transactions involving “penny stocks” as a result of the additional disclosure
      requirements described above, which may make it more difficult for holders
      of
      our common stock to dispose of their shares.





**ITEM
                1B.**
            **Unresolved
                Staff Comments**





Not
      applicable.





**ITEM
                2.**
            **Properties**





We
      have a
      long-term operating lease with Art Grandlich d/b/a McKellips Corporate Square
      for the 16,772 square foot corporate office that is located in Mesa, Arizona.
      We
      pay rent of approximately $120,000 annually under this lease, which expires
      in
      June 2006. This facility contains our customer service call center and certain
      administrative resources.





In
      October 2003, our wholly owned subsidiary, Telco, signed a three-year lease
      with
      Tomorrow 33 Convention, LP on a facility in Las Vegas, Nevada with annual lease
      payments of approximately $203,000. This facility is approximately 3,500 square
      feet and is our corporate headquarters and the primary operating facility of
      Telco.





We
      believe that these facilities are adequate for our current and anticipated
      future needs and that both of these facilities and their contents are adequately
      covered by insurance.





22
 *Table
            of Contents*





**ITEM
                3.**
            **Legal
                Proceedings**





We
      are
      party to certain legal proceedings and other various claims and lawsuits in
      the
      normal course of our business, which, in the opinion of management, are not
      material to our business or financial condition.





**ITEM
                4.**
            **Submission
                of Matters to a Vote of Security
                Holders**





Not
      applicable.





23
 *Table
            of Contents*





**PART
      II**





**ITEM
                5.**
            **Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Repurchases of Equity
                Securities**





**Our
      Common Stock**





Our
      common stock trades publicly on the OTC Bulletin Board under the symbol “YPNT.”
The OTCBB is a regulated quotation service that displays real-time quotes,
      last-sale prices and volume information in over-the-counter equity securities.
      The OTCBB securities are traded by a community of market makers that enter
      quotes and trade reports. This market is extremely limited and any prices quoted
      are not a reliable indication of the value of our common stock.





The
      following table sets forth the quarterly high and low bid prices per share
      of
      our common stock by the OTCBB during the last two fiscal years. The quotes
      represent inter-dealer quotations, without adjustment for retail mark-up,
      markdown or commission and may not represent actual transactions.




Fiscal
                  Year
              Quarter
                  Ended
              High
              Low2004
              December
                  31, 2003
              $2.90
              $1.21March
                  31, 2004
              $5.58
              $2.05June
                  30, 2004
              $5.12
              $1.03September
                  30, 2004
              $2.37
              $0.952005
              December
                  31, 2005
              $1.70
              $0.93March
                  31, 2005
              $1.31
              $0.78June
                  30, 2005
              $1.14
              $0.69September
                  30, 2005
              $1.12
              $0.77





**Holders
      of Record**





On
      December 1, 2005, there were approximately 446 holders of record of our common
      stock according to our transfer agent. The Company has no record of the number
      of shareholders who hold their stock in “street” name with various
      brokers.





**Dividend
      Policy**





We
      have
      one class of outstanding preferred stock (Series E Preferred Stock), of which
      there are currently 127,840 shares issued and outstanding. Each share of Series
      E Preferred Stock is entitled to and receives a dividend of $0.015 per year,
      payable in quarterly installments of $0.00375.





In
      April
      2004, we terminated certain loan agreements with two significant stockholders.
      In connection with the termination of those loan obligations, we agreed to
      pay a
      $0.01 per share dividend each quarter, subject to compliance with applicable
      laws. As a result of that agreement, we paid quarterly dividends of $0.01 per
      share to all common stockholders during the last three quarters of fiscal 2004
      and for the first three quarters of fiscal 2005. In April 2005, we entered
      into
      another agreement with the same two significant stockholders that, among other
      things, terminated our obligation to pay dividends after the third quarter
      of
      fiscal 2005. The timing and amount of future dividend payments by our company,
      if any, will be determined by our Board of Directors based upon our earnings,
      capital requirements and financial position, general economic conditions,
      alternative uses of capital, and other pertinent factors.





24
 *Table
            of Contents*





**Issuer
      Purchases of Equity Securities**


Period
                
                (a)
                    Total Number of
                  Shares
                    (or Units)
                  Purchased
                
                (b)
                    Average Price
                  Paid
                    per
                  Share
                    (or Unit)
                
                (c)
                    Total Number of
                  Shares
                    (or Units)
                  Purchased
                    as Part of
                  Publicly
                    Announced
                  Plans
                    or Programs
                
                (d)
                    Maximum Number
                  (or
                    Approximate Dollar
                  Value)
                    of Shares (or
                  Units)
                    that May Yet Be
                  Purchased
                    Under the
                  Plans
                    or ProgramsAugust
                    2005
                
                
                171,250
                
                $
                0.95
                
                
                171,250
                
                
                N/ASeptember
                    2005
                
                
                430,000
                
                $
                0.94
                
                
                430,000
                
                
                N/ATotal
                
                
                601,250
                
                $
                0.94
                
                
                601,250
                
                $
                2,434,391
                (1)




(1) On
      May
      18, 2005, we announced the adoption of a $3,000,000 stock repurchase program.
      To
      date, we have purchased 601,250 shares at an aggregate price of $565,609.





**ITEM
                6.**
            **Selected
                Financial Data**





The
      selected financial data presented below are derived from our historical
      consolidated financial statements for the years indicated, which have been
      audited by Epstein, Weber & Conover, P.L.C., our independent registered
      public accounting firm. The selected financial data should be read in
      conjunction with Management’s Discussion and Analysis of Financial Condition and
      Results of Operations and our consolidated financial statements and the related
      notes thereto included elsewhere in this Annual Report.




**Year
                  Ended September 30,****2005
                  (1)**
              
              **2004**
              
              **2003**
              
              **2002**
              
              **2001****Statement
                  of Operations Data**Net
                  revenues
              
              $
              25,204,858
              
              $
              57,168,105
              
              $
              30,767,444
              
              $
              12,618,126
              
              $
              13,501,966Cost
                  of services
              
              
              3,980,619
              
              
              24,757,880
              
              
              8,473,746
              
              
              3,497,678
              
              
              6,150,085Gross
                  profit
              
              
              21,224,239
              
              
              32,410,225
              
              
              22,293,698
              
              
              9,120,448
              
              
              7,351,881Operating
                  income
              
              
              (831,134
              )
              
              12,704,882
              
              
              9,106,890
              
              
              2,820,625
              
              
              2,073,066Net
                  income
              
              
              (618,158
              )
              
              8,960,983
              
              
              7,615,866
              
              
              2,840,732
              
              
              777,264Net
                  income (loss) per common share:Basic
              
              $
              (0.02
              )
              $
              0.19
              
              $
              0.17
              
              $
              0.06
              
              $
              0.02Diluted
              
              $
              0.00
              
              $
              -
              
              $
              -
              
              $
              0.06
              
              $
              0.02Weighted
                  average common shares outstanding:Basic
              
              
              46,390,356
              
              
              47,375,927
              
              
              45,326,721
              
              
              44,024,329
              
              
              40,738,839Diluted
              
              
              46,390,356
              
              
              48,075,699
              
              
              45,591,590
              
              
              44,024,329
              
              
              40,738,839Cash
                  dividends declared per common share
              
              $
              1,444,763
              
              $
              1,427,640
              
              $
              -
              
              $
              -
              
              $
              -**Statement
                  of Cash Flows Data**Net
                  cash provided by (used in) operating activities
              
              $
              6,990,162
              
              $
              4,818,203
              
              $
              4,762,238
              
              $
              1,158,015
              
              $
              3,880,158Net
                  cash provided by (used in) investing activities
              
              
              (435,805
              )
              
              (2,192,500
              )
              
              (2,798,500
              )
              
              (244,077
              )
              
              (165,672
              )Net
                  cash provided by (used in) financing activities
              
              
              (2,010,148
              )
              
              (1,428,022
              )
              
              (351,998
              )
              
              (830,677
              )
              
              (3,250,252
              )**Balance
                  Sheet Data**Cash
                  and cash equivalents
              
              $
              8,119,298
              
              $
              3,576,529
              
              $
              2,378,848
              
              $
              767,108
              
              $
              683,847Working
                  capital
              
              
              14,690,911
              
              
              12,484,833
              
              
              6,615,537
              
              
              3,089,108
              
              
              1,680,074Property
                  and equipment, net
              
              
              396,862
              
              
              725,936
              
              
              731,142
              
              
              274,459
              
              
              374,885Intangible
                  assets, net
              
              
              4,792,084
              
              
              3,326,274
              
              
              3,512,952
              
              
              3,578,542
              
              
              3,932,084Total
                  assets
              
              
              25,097,192
              
              
              29,097,185
              
              
              22,387,691
              
              
              10,773,652
              
              
              9,416,890Total
                  long term liabilities
              
              
              -
              
              
              848,498
              
              
              -
              
              
              115,866
              
              
              410,669Total
                  stockholders equity
              
              
              23,529,543
              
              
              26,379,974
              
              
              17,740,843
              
              
              9,237,789
              
              
              6,388,551
  
 (1)
        Includes an increase to income of approximately $100,000 (net of income taxes
        of
        approximately $54,000) resulting from a cumulative effect of an accounting
        change for forfeitures of restricted stock granted to employees, executives
        and
        consultants.




25
 *Table
            of Contents*





**ITEM
                7.**
            **Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations**





For
      a
      description of our significant accounting policies and an understanding of
      the
      significant factors that influenced our performance during the fiscal year
      ended
      September 30, 2005, this “Management’s Discussion and Analysis” should be read
      in conjunction with the Consolidated Financial Statements, including the related
      notes, appearing in Item 8 of this Annual Report.




**Forward-Looking
      Statements**




This
      portion of this Annual Report on Form 10-K, includes statements that constitute
      “forward-looking statements.” These forward-looking statements are often
      characterized by the terms “may,” “believes,” “projects,” “expects,” or
“anticipates,” and do not reflect historical facts. Specific forward-looking
      statements contained in this portion of the Annual Report include, but are
      not
      limited to our (i ) assertion that there is an expectation of tremendous growth in online
      advertising; (ii) expectation that our adoption of the provisions of SFAS 123R
      in the first quarter of fiscal 2006 on a prospective basis will not have a
      material effect on its financial condition or results of operations; (iii)
      expectation that cost of services will continue to be directly correlated to
      our
      usage of LEC billing channel; (iv) expectation that the foregoing trend of
      significantly increasing our cash position will not continue at the current
      rate; and (v) the belief that our existing cash on hand will provide us with
      sufficient liquidity to meet our operating needs for the next twelve months.




Forward-looking
      statements involve risks, uncertainties and other factors, which may cause
      our
      actual results, performance or achievements to be materially different from
      those expressed or implied by such forward-looking statements. Factors and
      risks
      that could affect our results and achievements and cause them to materially
      differ from those contained in the forward-looking statements include those
      identified in the section titled “Risk Factors”, as well as other factors that
      we are currently unable to identify or quantify, but that may exist in the
      future.




In
      addition, the foregoing factors may affect generally our business, results
      of
      operations, and financial position. Forward-looking statements speak only as
      of
      the date the statement was made. We do not undertake and specifically decline
      any obligation to update any forward-looking statements.




**Executive
      Overview**




This
      section presents a discussion of recent developments and summary information
      regarding our industry and operating trends only. For further information
      regarding the events summarized herein, you should read this MD&A in its
      entirety.




*Business
      and Company Overview*




We
      use a
      business model similar to print Yellow Pages publishers. We publish basic
      directory listings on the Internet free of charge. Our basic listings contain
      the business name, address, and telephone number for almost 17 million U.S.
      businesses. We strive to maintain a listing for almost every business in America
      in this format.




We
      generate revenues from advertisers that desire increased exposure for their
      businesses. As described below, advertisers pay us monthly fees in the same
      manner that advertisers pay additional fees to traditional print Yellow Pages
      providers for enhanced advertisement font, location or display. The users of
      our
      website are prospective customers for our advertisers, as well as the other
      businesses for which we publish basic listings.




Our
      primary product is our Internet Advertising PackageTM, or IAP. Under this
      package, advertisers pay for additional exposure by purchasing a Mini-WebPageTM.
      In order to provide search traffic to our advertiser’s Mini-WebPage, we elevate
      the advertiser to a preferred listing status, at no additional charge. We also
      provide our IAP advertisers with enhanced presentation and additional unique
      products, such as larger font, bolded business name, map directions, ease of
      communication between our advertisers and users of our website, a link to the
      advertiser’s webpage, as well as other benefits.




26
 *Table
            of Contents*




*Definition
      and Explanation of Customer Counts*




Our
      customer count metric includes those customers that were successfully billed
      for
      the month in which they received a listing, but only includes customers that
      are
      not more than 30 days past due in paying on their account. Once an account
      exceeds the 30-day past due period, the account is no longer considered to
      be a
      customer and is removed from our customer count. It is important to recognize
      that activation alone does not constitute inclusion in our customer count.
      The
      customer must have also been billed through one of our billing channels - LEC,
      ACH, recurring credit card or direct invoice.




*Changes
      in Billing Practices*




Our
      revenues have been adversely affected as we transition from LEC billing to
      other
      billing methods. During this transitional period, we have experienced increased
      customer cancellations and missed billings as we continue to gather the
      information necessary to convert customers to more desirable billing methods
      such as ACH billing.




Until
      late 2004, we billed most of our customers directly through their monthly phone
      bill (referred to as LEC billing). As discussed in *Item
      1: Business* ,
      our
      revenues have been negatively impacted by recent changes in LEC billing
      practices, which require us to perform additional procedures to confirm new
      and
      existing customers before we are allowed to bill via certain local telephone
      companies. There also has been an increasing presence of Competitive Local Exchange Carriers, or CLECs ,
      in the
      local telephone market. If an advertiser changes its telephone service from
      a
      LEC to a CLEC , we often are not able to utilize LEC billing channels to bill
      for services, which adversely impacts our revenues.




We
      continued to deal with the impacts of these billing issues during fiscal 2005.
      As a result, we have made strides to reduce our dependence on LEC billing and
      have identified effective alternative methods of billing our customers. We
      have
      migrated a substantial portion of our customers to automated
      clearing house, or ACH, billing.
      ACH billing is less expensive, has a faster collection time than LEC billing,
      and presents minimal dilution. However, it is time-consuming and labor-intensive
      to convert customers from one billing channel to another and the conversion
      process can result in missed billings or customer cancellations. In situations
      where we cannot bill a customer via LEC or ACH billing, or in instances where
      the customer requests that we bill them directly, we utilize direct invoices.
      Direct billing has a higher percentage of uncollectible accounts than other
      billing methods and, therefore, is our least attractive billing option.





The
      following represents the breakdown of net billings by channel during recent
      fiscal quarters:




**Q4
                2005**
            
            **Q3
                2005**
            
            **Q2
                2005**
            
            **Q1
                2005**
            
            **Q4
                2004**
            
            **Q3
                2004**
            
            **Q2
                2004**
            
            **Q1
                2004**LEC
                billing
            
            
            32
            %
            
            23
            %
            
            26
            %
            
            49
            %
            
            64
            %
            
            91
            %
            
            98
            %
            
            97
            %ACH
                billing
            
            
            54
            %
            
            64
            %
            
            56
            %
            
            42
            %
            
            32
            %
            
            7
            %
            
            1
            %
            
            0
            %Direct
                billing
            
            
            14
            %
            
            13
            %
            
            18
            %
            
            9
            %
            
            4
            %
            
            2
            %
            
            1
            %
            
            3
            %




*Recent
      Financial Results*




The
      following represents a summary of recent financial results:




**Q4
                2005**
            
            **Q3
                2005**
            
            **Q2
                2005**
            
            **Q1
                2005**
            
            **Q4
                2004**
            
            **Q3
                2004**
            
            **Q2
                2004**
            
            **Q1
                2004**Net
                Revenues
            
            $
            6,052,936
            
            $
            6,517,158
            
            $
            6,444,609
            
            $
            6,190,155
            
            $
            10,069,924
            
            $
            16,890,361
            
            $
            16,367,853
            
            $
            13,839,967Gross
                margin
            
            
            4,993,639
            
            
            5,591,353
            
            
            5,583,676
            
            
            5,055,571
            
            
            4,990,492
            
            
            8,695,098
            
            
            9,767,071
            
            
            8,957,765Operating
                expenses
            
            
            6,295,000
            
            
            5,269,473
            
            
            5,199,870
            
            
            5,291,031
            
            
            5,518,453
            
            
            5,213,413
            
            
            4,665,672
            
            
            4,250,316Operating
                income (loss)
            
            
            (1,301,361
            )
            
            321,880
            
            
            383,806
            
            
            (235,459
            )
            
            (527,961
            )
            
            3,481,685
            
            
            5,101,399
            
            
            4,707,449Net
                income(loss)(1)
            
            
            (815,727
            )
            
            (149,784
            )
            
            298,280
            
            
            49,072
            
            
            (311,721
            )
            
            2,639,420
            
            
            3,348,599
            
            
            3,284,685







27
 *Table
            of Contents*





(1)
      The
      following non-recurring items are relevant to our fiscal 2005 quarterly
      operating results, each of which are further described in this Executive
      Overview:




·
            Fourth
                quarter of fiscal 2005 - includes an increase of general and
                administrative expenses totaling approximately $212,000 relating
                to the
                termination of consulting agreements with certain of our former officers
                and an increase in sales and marketing expense of $921,000 associated
                with
                a change in the amortization period of our customer acquisition costs,
                offset by a reduction of general and administrative expenses of
                approximately $295,000 associated with the true-up of estimates of
                forfeitures of restricted stock grants.




·
            Third
                quarter of fiscal 2005 - includes losses of $328,000 associated with
                a
                litigation settlement and approximately $282,000 associated with
                our
                agreement to settle outstanding amounts due from two of our largest
                stockholders (with the loss being equal to the difference between
                the fair
                value of debt forgiven and the value of the consideration
                received).




·
            First
                quarter of fiscal 2005 - includes a gain of approximately $100,000
                (net of
                tax effects) associated with the cumulative effect of an accounting
                change
                with respect to our restricted stock grants.




*Attorneys
      General Complaints Concerning Direct Marketing Mail Solicitation*




We
      have
      received a number of notices from the Attorney General offices of the States
      of
      Nevada, Nebraska, and Oregon concerning consumer complaints about the use of
      our
      direct mail solicitation. In Nebraska, the notice required us to cease and
      desist the use of our check mail program in that State immediately. The notices
      generally claim that the promotional check mailer practice engaged in by the
      Company violates state consumer protection statutes and deceptive trade
      practices acts.




We
      believe that the language in the various state statutes referenced is very
      vague
      as to what constitutes a deceptive trade practice or misleading practice, such
      that they are subject to wide-ranging constructions. Moreover, we do not believe
      that we are in violation of the referenced statutes. To this end, we are
      maintaining an ongoing dialogue with the various states in an effort to dispel
      such concerns, explain the non-deceptive nature of our business solicitations,
      and, if practicable, tailor our marketing practices so as to comply with the
      various states’ interpretation of what conduct would not violate the applicable
      consumer protection statutes.




Our
      current cooperative posture, however, does not obviate the possibility of a
      particular State Attorney General instituting formal action against us in a
      wider attempt to curb solicitations for business utilizing check promotions.
      We
      hope to continue our good faith discussions with these various States Attorney
      General offices in an effort to formulate a uniform set of standards to be
      used
      to determine if any specific check solicitation violates consumer protection
      laws. However, to the extent future standards are deemed too onerous, we may
      consider pursuing a legal course of action challenging those
      standards.




*Recent
      Developments*




On
      November 3, 2005, we entered into a Separation Agreement with Peter J. Bergmann
      in connection with his resignation as Chairman and President of our company.
      In
      connection with the Separation Agreement, on November 3, 2005, our company
      and
      Mr. Bergmann terminated his Employment Agreement, dated June 6, 2004,
      and his Restricted Stock Agreement, dated June 6, 2004. Pursuant to the
      Separation Agreement, Mr. Bergmann will continue to serve as a director of
      our
      company until the next annual meeting of the stockholders and will be resigning
      as Chief Executive Officer immediately upon the filing of this Annual
      Report.




28
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In
      consideration of a waiver of all rights to severance and certain other covenants
      and a general release of all claims by Mr. Bergmann, the agreement provides
      for
      the continued payment of the monthly salary Mr. Bergmann was receiving
      immediately prior to the Agreement until his resignation as CEO. He also is
      entitled to the payment of 18 months of his current salary in one payment of
      $337,500 on or before January 2, 2006. We also will continue to provide Mr.
      Bergmann with health insurance for 12 months or until he is employed elsewhere
      with a company that offers an insurance program.




Pursuant
      to the agreement, Mr. Bergmann forfeited all shares of our common stock and
      any
      other unvested capital stock or options to purchase such stock received by
      Mr.
      Bergmann, or an affiliated party, while employed by our company except for
      (i)
      50,000 shares granted to Mr. Bergmann in 2002 that were fully vested, (ii)
      600,000 shares of the total 1,000,000 shares granted to Mr. Bergmann in a
      Restricted Stock Agreement dated June 6, 2004, and (iii) 100,000 shares granted
      to Mr. Bergmann in April 2005. The parties agreed that the shares set forth
      in
      (ii) and (iii) above will remain subject to contractual restrictions on transfer
      for 18 months, or until a change of control or our stock price achieving certain
      sustained levels.





On
      August
      11, 2005, we
      elected to accelerate all remaining payments and conclude all related consulting
      activities associated with the termination agreements with former executives
      and
      officers outlined in Note
      11
      in the Notes to Unaudited Consolidated Financial Statements. As
      the
      portion of the termination payments attributable to consulting services are
      amortized over the contractual period of service, the remaining unamortized
      balance of approximately $212,000 at June 30, 2005 was charged to expense in
      the
      fourth quarter of fiscal 2005. The non-compete portion of the termination
      agreements remain unchanged and will continue to be expensed over the life
      of
      the non-compete agreements.




**Critical
      Accounting Estimates and Assumptions**




The
      preparation of our financial statements in conformity with accounting principles
      generally accepted in the United States of America requires our management
      to
      make certain estimates and assumptions that affect the reported amounts of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. As such, in accordance with the use of
      accounting principles generally accepted in the United States of America, our
      actual realized results may differ from management’s initial estimates as
      reported. A summary of our significant accounting policies are detailed in
      the
      notes to the financial statements, which are an integral component of this
      filing.





The
      following summarizes critical estimates made by management in the preparation
      of
      the financial statements.





*Revenue
      Recognition.* ****** We
      generate revenue from customer subscriptions for directory and advertising
      services. Our billing and collection procedures include significant involvement
      of outside parties, referred to as aggregators for LEC billing and service
      providers for ACH billing. Such processes are described below.




ACH
      Billing - For
      ACH billing, we submit electronic billing information to our service providers,
      who in turn use this information as a basis for processing direct bank
      withdrawals through an Automated Clearing House. We receive information
      regarding records that are rejected or cannot otherwise be processed on a timely
      basis, and we recognize revenue only for those items that are processed.




LEC
      Billing - When a
      customer subscribes to our service we create an electronic customer file, which
      is the basis for the billing. We submit gross billings electronically to third
      party billing aggregators. These billing aggregators compile and format our
      electronic customer files and forward the billing records to the appropriate
      LECs. The billing for our service flows through to monthly bills of the
      individual LEC customers. The LECs collect our billing and remit amounts to
      the
      billing aggregators, which in turn remit funds to us. The following are
      significant accounting estimates and assumptions used in the revenue recognition
      process with respect to these billings.




·
            Customer
                refunds.
                We have a customer refund policy that allows the customer to request
                a
                refund if they are not satisfied with the service within the first
                120
                days of the subscription. We accrue for refunds based on historical
                experience of refunds as a percentage of new billings in that 120-day
                period. Customer refunds are reserved and charged against gross
                revenue.




29
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            of Contents*





·
            Non-paying
                customers.
                There are customers who may not pay the fee for our services even
                though
                we believe they are valid subscribers. Included in cost of services
                is an
                accrual for estimated non-paying customers that are recorded at the
                time
                of billing.




·
            Dilution.
                We recognize revenue during the month for which the service is provided
                based on net billings accepted by the billing aggregators. We recognize
                revenue only for accepted records. However, subsequent to this acceptance,
                there are instances in the LEC billing process where a customer cannot
                be
                billed due to changes in telephone numbers, telephone carriers, data
                synchronization issues, etc. These amounts that ultimately cannot
                be
                billed, as well as certain minor billing adjustments by the LECs
                are
                commonly referred to as “dilution.” Dilution is estimated at the time of
                billing and charged to cost of
                services.




·
            Fees.
                Processing fees are charged by both the aggregator and the LEC.
                Additionally, the LEC charges fees for responding to billing inquiries
                by
                its customers, processing refunds, and other customer-related services.
                Such fees are estimated at the time of billing and charged to cost
                of
                services.




Direct
      bill customers - If we
      are unable to bill via any other means, we bill subscribers directly via paper
      invoices. Our collection rate on these billings is significantly lower than
      those processed through the LECs. We track collections on direct billed
      customers and recognize revenue from those customers based on the historical
      collection rates.




*Allowance
      for Doubtful Accounts.* ****** We
      receive cash through the processes discussed above. Under our contractual
      arrangements with our third party aggregators and service providers, the LECs
      and aggregators/service providers deduct from our gross billings amounts for
      returns, nonpaying customers, dilution and fees to arrive at net proceeds
      remitted to us. We estimate an allowance for doubtful accounts on the basis
      of
      information provided by the billing aggregators and service providers. This
      information is an indicator of timely payments made by our subscribers. At
      September 30, 2005 and 2004, the allowance for doubtful accounts was
      approximately 16% and 26% of gross accounts receivable,
      respectively.




*Carrying
      Value of Intellectual Property.* The
      carrying value of our intellectual property at September 30, 2005, relates
      primarily to the purchase of the Yellow-Page.Net Universal Resource Locator,
      or
      URL, from Telco. The URL is recorded at its $5,000,000 purchase price, less
      accumulated amortization of $2,423,000. We have estimated the useful life of
      this asset to be 20 years.




We
      evaluate the recoverability of the carrying amount of this and other intangible
      assets whenever events or changes in circumstances indicate that the carrying
      amount of this asset may not be fully recoverable. In 2005, there have been
      no
      events that indicate that this asset may be impaired and, accordingly, no such
      impairment tests are warranted. In the event of such changes, impairment would
      be assessed if the undiscounted expected cash flows derived for the asset are
      less than its carrying amount. The dynamic economic environment in which we
      operate and the resulting assumptions used to estimate future cash flows would
      impact the outcome of such impairment tests.




*Capitalization
      of Direct Response Advertising Costs and Amortization of those Costs.* We
      purchase mailing lists and send advertising materials to prospective subscribers
      from those mailing lists as well as outbound call campaigns. Customers subscribe
      to the services by affirmatively responding to those advertising materials
      and
      calling campaigns, which serve as the contract for the subscription. We
      capitalize these direct response advertising costs and amortize them on a
      straight-line basis over the average expected life of our customers based on
      historical IAP advertiser attrition rates and other factors. Due to increased
      turnover, in part due to changes in billing practices previously described,
      effective July 1, 2005, we decreased our amortization period for these costs
      from 18 months to 12 months. The change in this estimate resulted in an increase
      in sales and marketing costs of approximately $921,000 during the fourth quarter
      of fiscal 2005, bringing the total amortization expense of these costs to
      $5,924,000 for fiscal 2005 as compared to $5,097,000 for fiscal 2004. As of
      September 30, 2005, the carrying value of our direct response advertising costs
      was $2,338,000, which includes the gross cost of approximately $3,779,000,
      less
      amortization of $1,441,000.




30
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*Income
      Taxes.* Management
      evaluates the probability of the utilization of the deferred income tax assets.
      We have estimated net deferred income tax assets of $759,000 and net deferred
      tax liabilities of $764,000 at September 30, 2005 and 2004, respectively, which
      relate to various timing differences between book and tax expense recognition.
      We are required to make judgments and estimates related to the timing and
      utilization of deferred income tax assets, applicable tax rates, and feasible
      tax planning strategies.




*Stock-Based
      Compensation.* From
      time-to-time, we grant restricted stock awards to employees, directors,
      executives, and consultants. Such awards are recorded as an increase to common
      stock and paid in capital on the grant date with an offsetting amount of
      deferred compensation in stockholders’ equity. This deferred compensation cost
      is amortized on a straight-line basis over the vesting period.  Prior
      to
      October 1, 2004, we recognized forfeitures as they occurred. Upon occurrence,
      we
      reversed the previously recognized expense associated with such grant. Effective
      October 1, 2004, we changed to an expense recognition method that is based
      on an
      estimate of the number of shares that are ultimately expected to vest (see
      discussion below in “Results of Operations - Cumulative Effect of Accounting
      Change”). The impact of changes in such estimates on unamortized deferred
      compensation cost are recorded as an adjustment to compensation expense in
      the
      period in which such estimates are revised. During the fourth quarter of 2005,
      the Company changed its estimate of forfeitures on stock grants to key
      employees, officers and directors based on historical experience. This change
      caused a decrease in compensation expense of approximately $295,000 in the
      fourth quarter of fiscal 2005.




**Results
      of Operations**




*Net
      Revenues*


**Year
                  Ended**
                **September
                  30,**
              
              **Net**
                **Revenues**
              
              **Change
                  from**
                **Prior
                  Year**
              
              **Percent
                  Change**
                **from
                  Prior Year**2005
              
              $
              25,204,858
              
              $
              (31,963,247
              )
              
              (56
              )%2004
              
              $
              57,168,105
              
              $
              26,400,661
              
              
              86
              %2003
              
              $
              30,767,444




The
      decrease in revenues for the year ended September 30, 2005, as compared to
      the
      year ended September 30, 2004, was largely due to declines in our paying
      subscriber base resulting from our LEC billing issues. The following table
      sets
      forth recent quarter-end customer counts:





**Q4
                2005**
            **Q3
                2005**
            **Q2
                2005**
            **Q1
                2005**
            **Q4
                2004**
            **Q3
                2004**92,000
            108,000
            105,000
            95,000
            196,000
            224,000





We
      experienced significant customer count declines from the third quarter of 2004
      to the first quarter of 2005 as a result of our transition from LEC billing
      to
      other billing channels as described in the “Executive Overview” section above.
      We increased our customer count in the second and third quarters of fiscal
      2005.
      However during the third and fourth quarter of 2005, we experienced continued
      changes in the billing practices of certain of our LECs which required us to
      transition such customers to alternative billing channels. As of the end of
      fiscal 2005, we have yet to transition a significant number of these customers
      to an acceptable alternative billing channel that would allow us to include
      these customers in our customer count. See “Executive Overview - Explanation of
      Customer Counts” ** in
      this
      MD&A for an explanation of our customer count.




Although
      we have concentrations of risk with our billing aggregators (as described in
      the
      Notes to Consolidated Financial Statements included elsewhere in this Annual
      Report), these aggregators bill via many underlying LECs, thus reducing our
      risk. As we no longer have any significant concentrations of customers with
      any
      single LEC, we do not expect any future changes in billing practices with our
      remaining LECs to have a material adverse impact on our net
      revenues.




31
 *Table
            of Contents*




Our
      net
      revenues increased substantially in fiscal 2004 as compared to fiscal 2003
      due
      to significant increases in our customer count and increases in our monthly
      pricing. During fiscal 2004, we significantly increased the number of activated
      customers through increased marketing efforts consisting primarily of direct
      mail advertising. The prices for our IAP product fluctuated between $17.95
      and
      $29.95 per month during 2003. In 2004, the majority of our customers paid
      between $27.50 and $29.95 per month.




The
      price
      for our IAP product currently ranges from $27.50 to $39.95 per month.




*Cost
      of Services*


**Year
                  Ended**
                **September
                  30,**
              
              **Cost
                  of**
                **Services**
              
              **Change
                  from**
                **Prior
                  Year**
              
              **Percent
                  Change**
                **from
                  Prior Year**2005
              
              $
              3,980,619
              
              $
              (20,777,261
              )
              
              (83.9
              )%2004
              
              $
              24,757,880
              
              $
              16,284,134
              
              
              192.2
              %2003
              
              $
              8,473,746




The
      decrease in our cost of services from fiscal 2004 to fiscal 2005 is directly
      attributable to a reduction in our dilution expense as a result of our
      transition from LEC billing to alternative billing methods. Billings through
      LEC
      channels, which drives a substantial majority of our dilution expense, decreased
      to 32% of total billings during fiscal 2005 from over 90% of total billings
      during fiscal 2004. A significant portion of these customers were converted
      to
      ACH and direct billing methods, which have minimal dilution. We expect cost
      of
      services to continue to be directly correlated to our usage of LEC billing
      channels.




Cost
      of
      services increased from fiscal 2003 to fiscal 2004 due primarily to an increase
      in dilution as a percentage of revenues. The increase in dilution is primarily
      the result of advertisers switching from LECs to other telephone carriers for
      their local telephone service and the change in LEC billing practices with
      respect to customers whose activation check served as the letter of
      authorization. Each of these factors is described above in Item 6: Management’s
      Discussion and Analysis - Changes in Billing Practices.




*Gross
      Profit*




**Year
                  Ended**
                **September
                  30,**
              
              **Gross**
                **Profit**
              
              **Change
                  from**
                **Prior
                  Year**
              
              **Percent
                  Change**
                **from
                  Prior Year**2005
              
              $
              21,224,239
              
              $
              (11,185,986
              )
              
              (34.5
              )%2004
              
              $
              32,410,225
              
              $
              10,116,527
              
              
              45.4
              %2003
              
              $
              22,293,698




The
      decrease in our gross profits from fiscal 2004 to fiscal 2005 was due to
      decreased revenues resulting from the previously mentioned decrease in IAP
      advertisers, offset in part by the decreased dilution as discussed above. Gross
      margins increased to 84.2% of net revenues in fiscal 2005 compared to 56.7%
      of
      net revenues in fiscal 2004 due to decreased dilution in fiscal 2005.




The
      increase in gross profits from fiscal 2003 to fiscal 2004 is due to increased
      revenues resulting from the previously mentioned increased average IAP
      advertiser counts and price increases, offset by increased dilution discussed
      above. Gross margins decreased to 56.7% of net revenues in fiscal 2004 compared
      to 72.5% of net revenues in fiscal 2003 due to increased dilution as a
      percentage of revenues in fiscal 2004.




32
 *Table
            of Contents*





*General
      and Administrative Expenses*


**Year
                  Ended**
                **September
                  30,**
              
              **General
                  &**
                **Administrative**
                **Expenses**
              
              **Change
                  from**
                **Prior
                  Year**
              
              **Percent
                  Change**
                **from
                  Prior Year**2005
              
              $
              13,300,544
              
              $
              614,208
              
              
              4.8
              %2004
              
              $
              12,686,336
              
              $
              4,028,646
              
              
              46.5
              %2003
              
              $
              8,657,690




General
      and administrative expenses increased 4.8 % during fiscal year 2005 compared
      to
      a 46.5% increase in fiscal 2004. The increase in costs for the year ended
      September 30, 2005 was comprised of approximately $828,000 related to our
      efforts to reconfirm our existing subscriber base and $584,000 associated with
      increased customer mailing costs attributable to an increase in customers that
      are invoiced directly and other customer mailing efforts that took place during
      fiscal 2005. These increases were offset by the combination of $498,000 of
      decreased legal costs in fiscal 2005 and general expense reductions associated
      with cost-containment initiatives.




General
      and administrative expenses in fiscal 2004 increased significantly over fiscal
      2003 due to an increase in personnel and other expenses relating to our growth
      in IAP advertisers, our Quality Assurance and outbound marketing initiatives,
      as
      well as an increase in certain officers’ compensation relating to employment
      contracts with such officers and termination agreements with former officers.




Our
      general and administrative expenses consist largely of fixed and semi-fixed
      expenses such as compensation, rent, utilities, etc .
      Therefore, we do not consider short-term trends of general and administrative
      expenses as a percentage of revenues to be meaningful indicators for evaluating
      operational performance.




The
      following table sets forth our recent operating performance for general and
      administrative expenses:




**Q4
                2005**
            
            **Q3
                2005**
            
            **Q2
                2005**
            
            **Q1
                2005**
            
            **Q4
                2004**
            
            **Q3
                2004**
            
            **Q2
                2004**
            
            **Q1
                2004**Compensation
                for employees, consultants, officers and directors
            
            
            2,283,733
            
            
            2,184,131
            
            
            1,937,592
            
            
            2,265,863
            
            
            2,458,735
            
            
            2,029,536
            
            
            2,006,719
            
            
            2,054,271Other
                G&A costs
            
            
            697,436
            
            
            600,442
            
            
            608,428
            
            
            809,396
            
            
            950,677
            
            
            1,029,252
            
            
            945,758
            
            
            649,608Reconfirmation,
                mailing, billing and other customer-related costs
            
            $
            432,447
            
            $
            535,861
            
            $
            635,624
            
            $
            309,592
            
            $
            132,390
            
            $
            244,324
            
            $
            67,511
            
            $
            59,865




*Sales
      and Marketing Expenses*




**Year
                  Ended**
                **September
                  30,**
              
              **Sales
                  &**
                **Marketing**
                **Expenses**
              
              **Change
                  from**
                **Prior
                  Year**
              
              **Percent
                  Change**
                **from
                  Prior Year**2005
              
              $
              7,454,760
              
              $
              1,366,146
              
              
              22.4
              %2004
              
              $
              6,088,614
              
              $
              2,219,971
              
              
              57.4
              %2003
              
              $
              3,868,643





Sales
      and
      marketing expense increased in fiscal 2005 as compared to fiscal 2004 due to
      an
      increase in amortization of direct response advertising costs and an increase
      of
      $504,000 for branding, offset by a decrease in other miscellaneous promotional
      expenses. As previously described, effective July 1, 2005, we decreased our
      amortization period for capitalized direct response advertising costs from
      18
      months to 12 months in light of recent trends related to customer attrition.
      The
      change in this estimate resulted in an increase in sales and marketing costs
      of
      approximately $921,000 during the fourth quarter of fiscal 2005, bringing the
      total amortization expense of these costs to $5,924,000 fiscal 2005 as compared
      to $5,097,000 for fiscal 2004. We will continue to analyze our amortization
      periods in the future.




33
 *Table
            of Contents*





Branding
      expenses include radio and Internet advertising and fees paid to redirect
      traffic from other websites. Prior to September 2004, page views were below
      54,000,000 per month. Current page views exceed 134,000,000 per month, which
      represents a nearly 150% increase in monthly page views.




A
      substantial portion of sales and marketing expense relates to the amortization
      of costs previously incurred, thereby creating a significant fixed component
      of
      this expense. Accordingly, revenue declines resulted in our sales and marketing
      expenses increasing as a percentage of revenues to 29.6% for fiscal 2005
      compared to 10.7% for fiscal 2004.




Sales
      and
      marketing costs increased significantly between fiscal 2003 and fiscal 2004
      due
      to the increased effort in our marketing solicitation program, the
      implementation of new market strategies, and modifications to our direct mail
      marketing pieces. As a percentage of revenues, sales and marketing expenses
      were
      10.7% in fiscal 2004 as compared to 12.6% for fiscal 2003.




*Depreciation
      and Amortization*


**Year
                  Ended**
                **September
                  30,**
              
              **Depreciation
                  &**
                **Amortization**
              
              **Change
                  from**
                **Prior
                  Year**
              
              **Percent
                  Change**
                **from
                  Prior Year**2005
              
              $
              1,300,069
              
              $
              369,676
              
              
              39.7
              %2004
              
              $
              930,393
              
              $
              269,918
              
              
              40.9
              %2003
              
              $
              660,475




The
      increase in depreciation and amortization expense from fiscal 2004 to fiscal
      2005 is attributable to (i) amortization of a $1,821,000 non-compete agreement
      acquired in April 2005 as part of the Transfer and Repayment Agreement described
      in “Recent Developments” above and in Note 11 of the Notes to Consolidated
      Financial Statements included elsewhere in this report, and (ii) increased
      amortization of intangible assets associated with website development costs
      that
      were capitalized during 2005.




The
      increase in depreciation and amortization expense from fiscal 2003 to fiscal
      2004 is attributable to (i) increased
      depreciation due to additional purchases of equipment related to our upgrade
      in
      infrastructure in the information technology department and hardware purchased
      relating to our quality assurance and outbound marketing initiatives,
      and (ii) increased amortization of intangible assets associated with website development
      costs that were capitalized during 2004. Amortization relating to the
      capitalization of our direct mail marketing costs is included in marketing
      expenses, as discussed previously.




*Operating
      Income*


**Year
                  Ended**
                **September
                  30,**
              
              **Operating**
                **Income**
              
              **Change
                  from**
                **Prior
                  Year**
              
              **Percent
                  Change**
                **from
                  Prior Year**2005
              
              $
              (831,134
              )
              $
              (13,536,016
              )
              
              (106.5
              )%2004
              
              $
              12,704,882
              
              $
              3,597,992
              
              
              39.5
              %2003
              
              $
              9,106,890




Our
      operating income declined in fiscal 2005 as compared to fiscal 2004 due
      primarily to revenue declines as previously described. Likewise, revenue
      increases were a predominate factor in our increase in operating income in
      fiscal 2004 as compared to fiscal 2003.




34
 *Table
            of Contents*





*Other
      Income (Expense)*


**Year
                  Ended**
                **September
                  30,**
              
              **Other
                  Income**
                **(Expense)**
              
              **Change
                  from**
                **Prior
                  Year**
              
              **Percent
                  Change**
                **from
                  Prior Year**2005
              
              $
              (550,409
              )
              $
              (1,338,584
              )
              
              (169.8
              )%2004
              
              $
              788,175
              
              $
              497,173
              
              
              170.8
              %2003
              
              $
              291,002




Other
      income (expense) in fiscal 2005 includes the following:




·
            A
                loss of $282,000 from the Transfer and Repayment Agreement as described
                in
                Note 11 in the Notes to Unaudited Consolidated Financial Statements.
                This
                amount is equal to the difference between the carrying value of Advances
                to Affiliates and the value of the consideration received.




·
            A
                loss of $328,000 from an arbitration judgment involving disputed
                fees
                associated with a former public relations firm described above in
                the
                Executive Overview section of this
                MD&A.




Other
      income in fiscal 2004 consisted of technical and service income from Simple.net
      of $287,000, a nonrecurring reversal of $525,000 of previously accrued
      compensation costs for former executives for which payment is no longer
      required, and other miscellaneous items.




Other
      income in fiscal 2003 consisted  of
      technical and service income from Simple.net of $619,000, offset by legal
      expenses incurred relating to stock settlements of $241,000 and other
      miscellaneous items.




*Income
      Tax Benefit (Provision)*


**Year
                  Ended**
                **September
                  30,**
              
              **Income
                  Tax**
                **Benefit
                  (Provision)**
              
              **Change
                  from**
                **Prior
                  Year**
              
              **Percent
                  Change**
                **from
                  Prior Year**2005
              
              $
              429,182
              
              $
              5,269,278
              
              
              (108.9
              )%2004
              
              $
              (4,840,096
              )
              $
              (2,968,803
              )
              
              158.6
              %2003
              
              $
              (1,871,293
              )




The
      change in our income tax benefit (provision) in each of the above years is
      due
      primarily to changes in our pre-tax income. However, fiscal 2003’s tax provision
      was reduced by approximately $1,465,000 due to changes in our estimate of net
      operating loss carryforwards. As of September 30, 2005, we have utilized all
      of
      our net operating loss carryforwards.





*Cumulative
      Effect of Accounting Change*





During
      the first fiscal quarter of 2005, we changed our method of accounting for
      forfeitures of restricted stock awards to employees, officers, and directors.
      Prior to October 1, 2004, we recognized forfeitures as they occurred .
      Upon occurrence, we reversed the previously recognized expense associated with such
      grant. Effective October 1,
      2004 ,
      we
      changed to an expense recognition method that is based on an estimate of the
      number of shares that are ultimately expected to vest. We believe that this
      is a
      preferable method as it provides less volatility in expense recognition.
      Additionally, while both methods of accounting for forfeitures are acceptable
      under current guidance, the implementation of FAS 123R
      (effective during the first
      quarter of fiscal 2006) will no longer permit us to recognize forfeitures as
      they occur .
      This
      change resulted in an increase to net income of $99,848, net of income taxes
      of
      $53,764, during the first quarter of fiscal 2005.




35
 *Table
            of Contents*





*Net
      Income (Loss)*


**Year
                  Ended**
                **September
                  30,**
              
              **Net
                  Income**
                **(Loss)**
              
              **Change
                  from**
                **Prior
                  Year**
              
              **Percent
                  Change**
                **from
                  Prior Year**2005
              
              $
              (618,158
              )
              $
              (9,579,141
              )
              
              (106.9
              )%2004
              
              $
              8,960,983
              
              $
              1,345,117
              
              
              17.7
              %2003
              
              $
              7,615,866




We
      reported a net loss
      for
      fiscal 2005 of $618,000, as compared to net income for fiscal 2004 of
      $8,961,000, a decrease of $9,579,000. The substantial decrease in net income
      for
      the year ended September 30, 2005 is due primarily to decreased revenues. Net
      income (loss) as a percent of revenues was (2.5)% for fiscal 2005 as compared
      to
      15.7% for fiscal 2004. As a significant portion of our expenses are fixed,
      our
      profitability margins are negatively impacted by declines in revenue.




Net
      income increased from fiscal 2003 to fiscal 2004 due primarily to increases
      in
      our gross profit, offset by increased sales and marketing and general and
      administrative expenses needed to attract and service our growing customer
      base
      and to expand our website functionality.




**Liquidity
      and Capital Resources**




Net
      cash
      provided by operating activities increased $2,172,000, or 45%, to $6,990,000
      for
      the year September 30, 2005, compared to $4,818,000 for the year ended September
      30, 2004. The increase in cash generated from operations in fiscal 2005 is
      primarily due to the conversion of many of our customers from LEC billing to
      alternate billing channels that have a shorter collection time. Net cash
      provided by operating activities was $4,762,000 for the year ended September
      30,
      2003.




Our
      primary source of cash inflows is net remittances from our billing channels,
      including ACH billings and LEC billings. For ACH billings, we generally receive
      the net proceeds through our billing service processors within 15 days of
      submission. For LEC billings, we receive collections on accounts receivable
      through the billing service aggregators under contracts to administer this
      billing and collection process. The billing service aggregators generally do
      not
      remit funds until they are collected. Generally, cash is collected and remitted
      to us (net of dilution and other fees and expenses) over a 60- to 120-day period
      subsequent to the billing dates. Additionally, for each monthly billing cycle,
      the billing aggregators and LECs withhold certain amounts, or “holdback
      reserves,” to cover potential future dilution and bad debt expense. These
      holdback reserves lengthen our cash conversion cycle as they are remitted to
      us
      over a 12- to 18-month period of time. We classify these holdback reserves
      as
      current or long-term receivables on our balance sheet, depending on when they
      are scheduled to be remitted to us. As of September 30, 2005, approximately
      65%
      of our accounts receivable are due from a single aggregator.




Our
      most
      significant cash outflows include payments for marketing expenses and general
      operating expenses. Cash outflows for direct response advertising, our primary
      marketing strategy, typically occur in advance of expense recognition as these
      costs are capitalized and amortized over 12 months, the average estimated
      retention period for new customers. General operating cash outflows consist
      of
      payroll costs, income taxes, and general and administrative expenses that
      typically occur within close proximity of expense recognition.




Net
      cash
      used in investing activities totaled $436,000 during fiscal 2005 and consisted
      of expenditures for intangible assets and minor purchases of equipment. During
      fiscal 2004, cash used for investing activities was $2,193,000, of which the
      primary components were net advances to affiliates of $1,450,000, expenditures
      for intangible assets of $391,000 and $385,000 for purchases of equipment.
      During fiscal 2003, cash used for investing activities was $2,798,000,
      consisting of net advances to affiliates of $1,800,000, expenditures for
      intangible assets of $262,000 and $737,000 for purchases of
      equipment.




Net
      cash
      used for financing activities was $2,012,000 during fiscal 2005 and consisted
      primarily of payments of common stock dividends of $1,445,000 and purchases
      of
      treasury stock totaling $566,000. Cash used for financing activities during
      fiscal 2004 were $1,428,000 and consisted predominantly of payments of common
      stock dividends. Cash used for financing activities during fiscal 2003 were
      $352,000 and consisted of $307,000 of net debt repayments and $45,000 for the
      purchase of treasury stock.




36
 *Table
            of Contents*





We
      had
      working capital of $14,691,000 as of September 30, 2005, compared to $12,485,000
      as of September 30, 2004. Our cash position increased to over $8,119,000 at
      September 30, 2005 from approximately $3,600,000 at the end of fiscal 2004.
      Despite our near breakeven performance during 2005, our operating expenses
      consist of a substantial amount of non-cash expenses, such as amortization
      of
      customer acquisition costs and deferred stock compensation, which allow us
      to
      continue to grow our cash and working capital.




We
      do not
      expect the foregoing trend of significantly increasing our cash position to
      continue at the current rate. Our future cash flows may be impacted by a number
      of factors, including the following:




·
            Potential
                repurchases of our common stock from time to time on the open market
                or in
                privately negotiated transactions as authorized by our Board of
                Directors




·
            Increased
                marketing expenditures




We
      maintain a $1,000,000 credit facility with Merrill Lynch Business Financial
      Services Inc., The applicable interest rate on borrowings, if any, will be
      a
      variable rate of the one-month LIBOR rate (as published in the *Wall
      Street Journal* ),
      plus
      3%. The facility requires an annual line fee of 1% of the committed amount.
      Outstanding advances are secured by all of our existing and acquired tangible
      and intangible assets located in the United States. There was no balance
      outstanding at September 30, 2005. On May 19, 2005, we renewed this line of
      credit, extending the maturity date from April 30, 2005 to April 30, 2006.
      All
      other terms and conditions of the original line of credit remain
      unchanged.





The
      credit facility requires us to maintain a “Leverage Ratio” (total liabilities to
      tangible net worth) that does not exceed 1.5-to-1 and a “Fixed Charge Ratio”
(earnings before interest, taxes, depreciation, amortization and other non-cash
      charges minus any internally financed capital expenditures divided by the sum
      of
      debt service, rent under capital leases, income taxes and dividends) that is
      not
      less that 1.5-to-1 as determined quarterly on a 12-month trailing basis. The
      credit facility includes additional covenants governing permitted indebtedness,
      liens, and protection of collateral. As of September 30, 2005, we were in
      compliance with the covenants and are able to fully draw on the credit
      facility.




Until
      April 1, 2005, we were contractually obligated to pay a $0.01 per share dividend
      each quarter, subject to compliance with applicable laws, to all common
      stockholders, including those who hold unvested restricted stock. However,
      in connection with the Transfer and Repayment Agreement dated April 1,2005,
      we
      are no longer required to pay quarterly dividends. Future dividend payments
      will
      be evaluated by the Board of Directors based upon earnings, capital requirements
      and financial position, general economic conditions, alternative uses of capital
      and other pertinent factors.





During
      2005, our Board of Directors authorized the repurchase of up to $3,000,000
      of
      our common stock from time to time on the open market or in privately negotiated
      transactions. To date, we have purchased 601,250 shares at a weighted-average
      price of $0.94 per share for a total of $566,000.





The
      following table summarizes our contractual obligations at September 30, 2005
      and
      the effect such obligations are expected to have on our future liquidity and
      cash flows:





**Payments
                Due by Period****Contractual
                obligations**
            
            **Total**
            
            **2006**
            
            **2007**
            
            **2008**
            
            **2009**
            
            **Thereafter**Lease
                commitments
            
            $
            405,000
            
            $
            369,000
            
            $
            28,000
            
            $
            8,000
            
            
            --
            
            
            --





At
      September 30, 2005, we had no other off-balance sheet arrangements, commitments
      or guarantees that require additional disclosure or measurement.





37
 *Table
            of Contents*





Although
      our revenues declined significantly and we incurred a net loss in fiscal 2005,
      we believe that our existing cash on hand will provide us with sufficient
      liquidity to meet our operating needs for the next twelve months.





**ITEM
                7A.**
            **Quantitative
                and Qualitative Disclosure about Market
                Risk**





As
      of
      September 30, 2005, we did not participate in any market risk-sensitive
      commodity instruments for which fair value disclosure would be required under
      Statement of Financial Accounting Standards No. 107. We believe that we are
      not
      subject in any material way to other forms of market risk, such as foreign
      currency exchange risk or foreign customer purchases (of which there were none
      in fiscal 2005 or 2004) or commodity price risk.




38
 *Table
            of Contents*





**ITEM
                8.**
            **Financial
                Statements and Supplementary Data**





**YP
      CORP.**





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Page**Report
                Of Independent Registered Public Accounting Firm
            40Consolidated
                Financial Statements:Consolidated
                Balance Sheet at September 30, 2005 and 2004
            41Consolidated
                Statements of Operations for the years ended September 30, 2005,
                2004, and
                2003
            42Consolidated
                Statements of Stockholders’ Equity for the years ended September 30, 2005,
                2004, and 2003
            43Consolidated
                Statements of Cash Flows for the years ended September 30, 2005,
                2004, and
                2003
            44Notes
                To Consolidated Financial Statements
            45




39
 *Table
            of Contents*





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**











To
      the
      Stockholders and Board


of
      Directors of YP Corp.:





We
      have
      audited the accompanying consolidated balance sheets of YP Corp. and
      subsidiaries as of September 30, 2005 and 2004 and the related statements of
      operations, stockholders’ equity and cash flows for the each of the three years
      in the period then ended. These financial statements are the responsibility
      of
      the Company’s management. Our responsibility is to express an opinion on these
      financial statements based on our audit.




We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. An audit includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements. An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation. We believe our audits
      provide a reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated financial position of YP Corp. and
      subsidiaries as of September 30, 2005 and 2004, and the consolidated results
      of
      its operations and cash flows for each of the three years in the period ended
      September 30, 2005, in conformity with accounting principles generally accepted
      in the United States of America.








/s/  
      Epstein, Weber & Conover, PLC


Scottsdale,
      Arizona


December
      9, 2005





40
 *Table
            of Contents*


**YP
        CORP. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**


**September
                  30,****Assets**
              
              **2005**
              
              **2004**Cash
                  and equivalents
              
              $
              8,119,298
              
              $
              3,576,529Restricted
                  cash
              
              
              500,000
              
              
              -Accounts
                  receivable, net
              
              
              5,338,533
              
              
              8,362,283Prepaid
                  expenses and other current assets
              
              
              1,918,842
              
              
              822,919Income
                  tax refund receivable
              
              
              -
              
              
              1,239,436Deferred
                  tax asset
              
              
              381,887
              
              
              352,379Total
                  current assets
              
              
              16,258,560
              
              
              14,353,546Accounts
                  receivable, long term portion, net
              
              
              873,299
              
              
              2,075,334Customer
                  acquisition costs, net
              
              
              2,337,650
              
              
              4,482,173Property
                  and equipment, net
              
              
              396,862
              
              
              725,936Deposits
                  and other assets
              
              
              62,029
              
              
              239,060Intangible
                  assets, net
              
              
              4,792,084
              
              
              3,326,274Deferred
                  tax asset, long term
              
              
              376,708
              
              
              -Advances
                  to affiliates
              
              
              -
              
              
              3,894,862Total
                  assets
              
              $
              25,097,192
              
              $
              29,097,185**Liabilities
                  and Stockholders' Equity**Accounts
                  payable
              
              $
              655,526
              
              $
              1,210,364Accrued
                  liabilities
              
              
              803,268
              
              
              542,481Income
                  taxes payable
              
              
              108,855
              
              
              -Notes
                  payable - current portion
              
              
              -
              
              
              115,868Total
                  current liabilities
              
              
              1,567,649
              
              
              1,868,713Deferred
                  income taxes
              
              
              -
              
              
              848,498Total
                  liabilities
              
              
              1,567,649
              
              
              2,717,211Commitments
                  and contingencies
              
              
              -
              
              
              -Series
                  E convertible preferred stock, $.001 par value, 200,000 shares
                  authorized,
                  127,840 and 128,340 issued and outstanding, liquidation preference
                  $38,202
                  and $38,502
              
              
              10,866
              
              
              10,909Common
                  stock, $.001 par value, 100,000,000 shares authorized, 48,837,694 and
                  50,858,787 issued and outstanding
              
              
              48,838
              
              
              50,858Treasury
                  Stock
              
              
              (2,171,740
              )
              
              -Paid
                  in capital
              
              
              11,044,400
              
              
              12,151,947Deferred
                  stock compensation
              
              
              (3,247,535
              )
              
              (5,742,814
              )Retained
                  earnings
              
              
              17,844,714
              
              
              19,909,074Total
                  stockholders' equity
              
              
              23,529,543
              
              
              26,379,974Total
                  liabilities and stockholders' equity
              
              $
              25,097,192
              
              $
              29,097,185




See
        accompanying notes to consolidated financial statements.


41
 *Table
            of Contents*




**YP
        CORP. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENT OF OPERATIONS**
  **Year
                  ended September 30,****2005**
              
              **2004**
              
              **2003**Net
                  revenues
              
              $
              25,204,858
              
              $
              57,168,105
              
              $
              30,767,444Cost
                  of services
              
              
              3,980,619
              
              
              24,757,880
              
              
              8,473,746Gross
                  profit
              
              
              21,224,239
              
              
              32,410,225
              
              
              22,293,698Operating
                  expenses:General
                  and administrative expenses
              
              
              13,300,544
              
              
              12,686,336
              
              
              8,657,690Sales
                  and marketing expenses
              
              
              7,454,760
              
              
              6,088,614
              
              
              3,868,643Depreciation
                  and amortization
              
              
              1,300,069
              
              
              930,393
              
              
              660,475Total
                  operating expenses
              
              
              22,055,373
              
              
              19,705,343
              
              
              13,186,808Operating
                  income
              
              
              (831,134
              )
              
              12,704,882
              
              
              9,106,890Other
                  income (expense):Interest
                  expense and other financing costs
              
              
              (8,610
              )
              
              (19,123
              )
              
              (19,728
              )Interest
                  income
              
              
              242,965
              
              
              327,145
              
              
              108,995Other
                  income (expense)
              
              
              (550,409
              )
              
              788,175
              
              
              291,002Total
                  other income (expense)
              
              
              (316,054
              )
              
              1,096,197
              
              
              380,269Income
                  (loss) before income taxes and cumulative effect of accounting
                  change
              
              
              (1,147,188
              )
              
              13,801,079
              
              
              9,487,159Income
                  tax benefit (provision)
              
              
              429,182
              
              
              (4,840,096
              )
              
              (1,871,293
              )Cumulative
                  effect of accounting change (net of income taxes of $53,764 in
                  2005)
              
              
              99,848
              
              
              -
              
              
              -Net
                  income (loss)
              
              $
              (618,158
              )
              $
              8,960,983
              
              $
              7,615,866Net
                  income (loss) per common share:Basic:Income
                  (loss) applicable to common stock before cumulative effect of accounting
                  change
              
              $
              (0.02
              )
              $
              0.19
              
              $
              0.17Cumulative
                  effect of accounting change
              
              $
              0.00
              
              $
              -
              
              $
              -Net
                  income applicable to common stock
              
              $
              (0.01
              )
              $
              0.19
              
              $
              0.17Diluted:Income
                  (loss) applicable to common stock before cumulative effect of accounting
                  change
              
              $
              (0.02
              )
              $
              0.19
              
              $
              0.17Cumulative
                  effect of accounting change
              
              $
              0.00
              
              $
              -
              
              $
              -Net
                  income (loss) applicable to common stock
              
              $
              (0.01
              )
              $
              0.19
              
              $
              0.17Weighted
                  average common shares outstanding:Basic
              
              
              46,390,356
              
              
              47,375,927
              
              
              45,326,721Diluted
              
              
              46,390,356
              
              
              48,075,699
              
              
              45,591,590


Certain
        amounts may not total due to rounding of individual components.
 See
        accompanying notes to consolidated financial statements.


42
 *Table
            of Contents*


**YP
        CORP. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENT OF STOCKHOLDERS' EQUITY**


**Common
                  Stock**
              
              **Preferred
                  Stock**
              
              **Treasury**
              
              **Paid-In**
              
              **Deferred**
              
              **Retained****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Stock**
              
              **Capital**
              
              **Compensation**
              
              **Earnings**
              
              **Total**Balance,
                  October 1, 2002
              
              
              40,769,609
              
              $
              40,770
              
              
              131,840
              
              $
              11,206
              
              $
              (171,422
              )
              $
              4,593,435
              
              $
              -
              
              $
              4,763,800
              
              $
              9,237,789Common
                  stock issued for services
              
              
              7,005,678
              
              
              7,006
              
              
              
              
              
              
              
              
              
              
              
              712,678
              
              
              
              
              
              
              
              
              719,684Common
                  stock issued for URL
              
              
              100,000
              
              
              100
              
              
              
              
              
              
              
              
              
              
              
              59,900
              
              
              
              
              
              
              
              
              60,000Purchase
                  of treasury stock
              
              
              (500,000
              )
              
              (500
              )
              
              
              
              
              
              
              
              (45,000
              )
              
              500
              
              
              
              
              
              
              
              
              (45,000
              )Series
                  E preferred stock dividends
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,978
              )
              
              (1,978
              )Common
                  stock issued in restricted stock plan
              
              
              1,973,000
              
              
              1,973
              
              
              
              
              
              
              
              
              
              
              
              3,993,352
              
              
              (3,995,325
              )
              
              
              
              
              -Amortization
                  of deferred stock compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              154,482
              
              
              
              
              
              154,482Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              7,615,866
              
              
              7,615,866Balance,
                  September 30, 2003
              
              
              49,348,287
              
              $
              49,349
              
              
              131,840
              
              $
              11,206
              
              $
              (216,422
              )
              $
              9,359,865
              
              $
              (3,840,843
              )
              $
              12,377,688
              
              $
              17,740,843Balance,
                  October 1, 2003
              
              
              49,348,287
              
              $
              49,349
              
              
              131,840
              
              $
              11,206
              
              $
              (216,422
              )
              $
              9,359,865
              
              $
              (3,840,843
              )
              $
              12,377,688
              
              $
              17,740,843Common
                  stock issued for services
              
              
              1,010,000
              
              
              1,010
              
              
              
              
              
              
              
              
              
              
              
              1,540,430
              
              
              (1,541,440
              )
              
              
              
              
              -Series
                  E preferred stock dividends
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,957
              )
              
              (1,957
              )Common
                  stock issued in restricted stock plan
              
              
              515,000
              
              
              515
              
              
              
              
              
              
              
              
              
              
              
              1,520,636
              
              
              (1,521,151
              )
              
              
              
              
              -Amortization
                  of deferred stock compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,160,620
              
              
              
              
              
              1,160,620Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              8,960,983
              
              
              8,960,983Preferred
                  shares converted to common
              
              
              3,500
              
              
              3
              
              
              (3,500
              )
              
              (297
              )
              
              
              
              
              1,869
              
              
              
              
              
              
              
              
              1,575Common
                  stock dividends
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,427,640
              )
              
              (1,427,640
              )Treasury
                  stock retired
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              216,422
              
              
              (216,422
              )
              
              
              
              
              
              
              
              -Canceled
                  stock
              
              
              (18,000
              )
              
              (18
              )
              
              
              
              
              
              
              
              
              
              
              (54,432
              )
              
              
              
              
              
              
              
              (54,450
              )Balance,
                  September 30, 2004
              
              
              50,858,787
              
              $
              50,859
              
              
              128,340
              
              $
              10,909
              
              $
              -
              
              $
              12,151,946
              
              $
              (5,742,814
              )
              $
              19,909,074
              
              $
              26,379,974Balance,
                  October 1, 2004
              
              
              50,858,787
              
              $
              50,859
              
              
              128,340
              
              $
              10,909
              
              $
              -
              
              $
              12,151,946
              
              $
              (5,742,814
              )
              $
              19,909,074
              
              $
              26,379,974Common
                  stock issued for services
              
              
              100,000
              
              
              100
              
              
              
              
              
              
              
              
              
              
              
              119,400
              
              
              
              
              
              
              
              
              119,500Treasury
                  stock received as partial settlement of amounts due from
                  affiliates
              
              
              (1,889,566
              )
              
              (1,889
              )
              
              
              
              
              
              
              
              (1,606,131
              )
              
              1,889
              
              
              
              
              
              
              
              
              (1,606,131
              )Treasury
                  stock acquired as part of stock repurchase program
              
              
              (601,250
              )
              
              (601
              )
              
              
              
              
              
              
              
              (565,609
              )
              
              601
              
              
              
              
              
              
              
              
              (565,609
              )Series
                  E preferred stock dividends
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,439
              )
              
              (1,439
              )Conversion
                  of Series E preferred stock
              
              
              500
              
              
              
              
              
              (500
              )
              
              (43
              )
              
              
              
              
              267
              
              
              
              
              
              
              
              
              224Common
                  stock issued in restricted stock plan
              
              
              885,723
              
              
              886
              
              
              
              
              
              
              
              
              
              
              
              529,490
              
              
              (530,376
              )
              
              
              
              
              -Amortization
                  of deferred stock compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,419,557
              
              
              
              
              
              1,419,557Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (618,158
              )
              
              (618,158
              )Preferred
                  shares converted to common
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Common
                  stock dividends
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,444,763
              )
              
              (1,444,763
              )Cumulative
                  effect of accounting change
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,166,426
              )
              
              1,012,814
              
              
              
              
              
              (153,612
              )Effect
                  of change in estimated forfeiture rate for restricted stock
                  plan
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (593,284
              )
              
              593,284Canceled
                  stock
              
              
              (516,500
              )
              
              (517
              )
              
              
              
              
              0
              
              
              
              
              
              517
              
              
              
              
              
              
              
              
              -Balance,
                  September 30, 2005
              
              
              48,837,694
              
              $
              48,838
              
              
              127,840
              
              $
              10,866
              
              $
              (2,171,740
              )
              $
              11,044,400
              
              $
              (3,247,535
              )
              $
              17,844,714
              
              $
              23,529,543




See
        accompanying notes to consolidated financial statements.


43
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            of Contents*




**YP
        CORP. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENT OF CASH FLOWS**
  **Year
                  ended September 30,****2005**
              
              **2004**
              
              **2003**CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              (618,158
              )
              $
              8,960,983
              
              $
              7,615,866Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              1,300,069
              
              
              930,392
              
              
              660,475Amortization
                  of deferred stock compensation
              
              
              1,419,557
              
              
              1,160,620
              
              
              154,482Issuance
                  of common stock as compensation for services
              
              
              119,500
              
              
              -
              
              
              719,684Non-cash
                  interest income on advances to affiliates
              
              
              (110,019
              )
              
              -
              
              
              -Non-cash
                  loss on transaction with affiliates
              
              
              281,884
              
              
              -
              
              
              -Cumulative
                  effect of accounting change
              
              
              (99,848
              )
              
              -
              
              
              -Gain
                  on settlement of debt
              
              
              -
              
              
              -
              
              
              (45,362
              )Non-cash
                  income recognized on return of common stock related to legal settlements
              
              
              -
              
              
              (54,450
              )
              
              -Deferred
                  income taxes
              
              
              (1,308,478
              )
              
              2,136,708
              
              
              (1,631,774
              )Loss
                  on disposal of equipment
              
              
              -
              
              
              3,992
              
              
              6,932Provision
                  for uncollectible accounts
              
              
              442,775
              
              
              285,070
              
              
              1,688,058Changes
                  in assets and liabilities:Restricted
                  cash
              
              
              (500,000
              )
              
              -
              
              
              -Accounts
                  receivable
              
              
              3,783,010
              
              
              (2,270,558
              )
              
              (6,064,894
              )Customer
                  acquisition costs
              
              
              2,144,523
              
              
              (1,238,932
              )
              
              (1,825,014
              )Prepaid
                  and other current assets
              
              
              (1,095,923
              )
              
              (668,643
              )
              
              (183,196
              )Deposits
                  and other assets
              
              
              177,031
              
              
              (90,750
              )
              
              2,415Accounts
                  payable
              
              
              (554,838
              )
              
              781,941
              
              
              233,027Accrued
                  liabilities
              
              
              260,786
              
              
              (870,764
              )
              
              1,320,735Income
                  taxes payable
              
              
              1,348,290
              
              
              (3,928,748
              )
              
              2,203,069Advances
                  to affiliates
              
              
              -
              
              
              (318,658
              )
              
              (92,265
              )Net
                  cash provided by operating activities
              
              
              6,990,161
              
              
              4,818,203
              
              
              4,762,238CASH
                  FLOWS FROM INVESTING ACTIVITIES:Advances
                  made to affiliates and related parties
              
              
              -
              
              
              (3,050,000
              )
              
              (1,800,000
              )Repayments
                  of advances made to affiliates and related parties
              
              
              -
              
              
              1,600,000
              
              
              -Expenditures
                  for intangible assets
              
              
              (391,077
              )
              
              (391,442
              )
              
              (261,545
              )Proceeds
                  from sale of equipment
              
              
              -
              
              
              34,320
              
              
              -Purchases
                  of equipment
              
              
              (44,728
              )
              
              (385,378
              )
              
              (736,955
              )Net
                  cash used in investing activities
              
              
              (435,805
              )
              
              (2,192,500
              )
              
              (2,798,500
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Series
                  E preferred stock dividends
              
              
              (1,939
              )
              
              (1,957
              )
              
              -Common
                  stock dividends
              
              
              (1,444,763
              )
              
              (1,427,640
              )
              
              -Proceeds
                  from conversion of preferred stock
              
              
              224
              
              
              1,575
              
              
              -Proceeds
                  from debt
              
              
              -
              
              
              -
              
              
              378,169Principal
                  repayments on notes payable
              
              
              -
              
              
              -
              
              
              (685,167
              )Purchase
                  of treasury stock
              
              
              (565,609
              )
              
              -
              
              
              (45,000
              )Net
                  cash used in financing activities
              
              
              (2,011,587
              )
              
              (1,428,022
              )
              
              (351,998
              )INCREASE
                  IN CASH AND CASH EQUIVALENTS
              
              
              4,542,769
              
              
              1,197,681
              
              
              1,611,740CASH
                  AND CASH EQUIVALENTS, beginning of year
              
              
              3,576,529
              
              
              2,378,848
              
              
              767,108CASH
                  AND CASH EQUIVALENTS, end of year
              
              $
              8,119,298
              
              $
              3,576,529
              
              $
              2,378,848




See
        accompanying notes to consolidated financial statements.


44
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            of Contents*





**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


1.
              ORGANIZATION
                  AND BASIS OF PRESENTATION




YP
      Corp.
      (the “Company”), formally YP.Net, Inc. and RIGL Corporation, had previously
      attempted to develop software solutions for medical practice billing and
      administration. The Company had made acquisitions of companies performing
      medical practice billing services as test sites for its software and as business
      opportunities. The Company was not successful in implementing its medical
      practice billing and administration software products and looked to other
      business opportunities. The Company acquired Telco Billing, Inc. in June 1999,
      through the issuance of 17,000,000 shares of the Company’s common stock. Prior
      to its acquisition of Telco, the Company had not generated significant or
      sufficient revenue from planned operations.





Telco
      was
      formed in April 1998, to provide advertising and directory listings for
      businesses on its Internet website in a “Yellow Pages” format. Telco provides
      those services to its subscribers for a monthly fee. These services are provided
      primarily to businesses throughout the United States. Telco became a wholly
      owned subsidiary of YP Corp. after the June 1999 acquisition.





At
      the
      time that the transaction was agreed to, the Company had 12,567,770 common
      shares issued and outstanding. As a result of the merger transaction with Telco,
      there were 29,567,770 common shares outstanding, and the former Telco
      stockholders held approximately 57% of the Company’s voting stock. For financial
      accounting purposes, the acquisition was a reverse acquisition of the Company
      by
      Telco, under the purchase method of accounting, and was treated as a
      recapitalization with Telco as the acquirer. Consistent with reverse acquisition
      accounting, (i) all of Telco’s assets, liabilities, and accumulated deficit were
      reflected at their combined historical cost (as the accounting acquirer) and
      (ii) the preexisting outstanding shares of the Company (the accounting acquiree)
      were reflected at their net asset value as if issued on June 16, 1999.





The
      accompanying financial statements represent the consolidated financial position
      and results of operations of the Company and include the accounts and results
      of
      operations of the Company, Telco and Telco of Canada, Inc, the Company’s wholly
      owned subsidiaries, for the years ended September 30, 2005, 2004, and 2003.
      All
      amounts, except share and per share amounts, are rounded to the nearest thousand
      dollars.




2.
              SUMMARY
                  OF SIGNIFICANT ACCOUNTING
                  POLICIES





Cash
      and Cash Equivalents: This
      includes all short-term highly liquid investments that are readily convertible
      to known amounts of cash and have original maturities of three months or less.
      At times, cash deposits may exceed government insured limits. At September
      30,
      2005 and 2004, cash deposits exceeded those insured limits by $7,888,000 and
      $3,443,000, respectively.





Principles
      of Consolidation: The
      consolidated financial statements include the accounts of the Company and its
      wholly owned subsidiaries, Telco Billing, Inc and Telco of Canada, Inc. All
      significant intercompany accounts and transactions are eliminated.





Customer
      Acquisition Costs: These
      costs represent the direct response marketing costs that are incurred as the
      primary method by which customers subscribe to the Company’s services. The
      Company purchases mailing lists and sends advertising materials to prospective
      subscribers from those lists. Customers subscribe to the services by positively
      responding to those advertising materials, which serves as the contract for
      the
      subscription. The Company capitalizes and amortizes the costs of direct-response
      advertising on a straight-line basis over the average expected life of its
      customers based on historical IAP advertiser attrition rates and other factors.
      Due to increased turnover, effective July 1, 2005, the Company decreased its
      amortization period for these costs from 18 months to 12 months. The change
      in
      this estimate resulted in an increase in sales and marketing costs of
      approximately $921,000 during the fourth quarter of fiscal 2005. The Company
      capitalized costs of $3,779,000, $6,336,000, and $4,739,000 during the years
      ended September 30, 2005, 2004, and 2003, respectively. The Company amortized
      $5,924,000, $5,097,000, and $2,914,000, respectively, of capitalized costs
      during the years ended September 30, 2005, 2004, and 2003. The Company also
      analyzes these capitalized costs for impairment in accordance with Statement
      of
      Financial Accounting Standards (“SFAS”) No. 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets,* as
      further discussed herein.


The
      Company also incurs advertising costs that are not considered direct-response
      advertising. These other advertising costs are expensed when incurred. These
      advertising expenses were $1,531,000, $992,000, and $955,000 for the years
      ended
      September 30, 2005, 2004, and 2003, respectively.





45
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            of Contents*





**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





Property
      and Equipment: Property
      and equipment is stated at cost less accumulated depreciation. Depreciation
      is
      recorded on a straight-line basis over the estimated useful lives of the assets
      ranging from 3 to 5 years. Depreciation expense was $374,000, $352,000, and
      $273,000 for the years ended September 30, 2005, 2004, and 2003,
      respectively.





Revenue
      Recognition :
      The
      Company’s revenue is generated by customer subscriptions of directory and
      advertising services. Revenue is billed and recognized monthly for services
      subscribed in that specific month. The Company utilizes outside billing
      companies to perform billing services through two primary channels:





·
            direct
                ACH withdrawals; and


·
            inclusion
                on the customer’s local telephone bill provided by their Local Exchange
                Carriers, or LECs.





For
      billings via ACH withdrawals, revenue is recognized when such billings are
      accepted. For billings via LECs, the Company recognizes revenue based on net
      billings accepted by the LECs. Due to the periods of time for which adjustments
      may be reported by the LECs and the billing companies, the Company estimates
      and
      accrues for dilution and fees reported subsequent to year-end for initial
      billings related to services provided for periods within the fiscal year. Such
      dilution and fees are reported in cost of services in the accompanying
      Consolidated Statement of Operations. Customer refunds are recorded as an offset
      to gross revenue.





Revenue
      for billings to certain customers that are billed directly by the Company and
      not through the outside billing companies is recognized based on estimated
      future collections. The Company continuously reviews this estimate for
      reasonableness based on its collection experience.





Income
      Taxes :
      The
      Company provides for income taxes based on the provisions of SFAS No.
      109, *Accounting for Income Taxes,* which,
      among other things, requires that recognition of deferred income taxes be
      measured by the provisions of enacted tax laws in effect at the date of
      financial statements.





Net
      Income Per Share: Net
      income per share is calculated using the weighted average number of shares
      of
      common stock outstanding during the year. The Company has adopted the provisions
      of SFAS No. 128, *Earnings
      Per Share* .





Financial
      Instruments :
      Financial instruments consist primarily of cash, accounts receivable, advances
      to affiliates and obligations under accounts payable, accrued expenses and
      notes
      payable. The carrying amounts of cash, accounts receivable, accounts payable,
      accrued expenses and notes payable approximate fair value because of the short
      maturity of those instruments. The carrying amount of the advances to affiliates
      approximates fair value because the Company charges what it believes are market
      rate interest rates for comparable credit risk instruments. The Company has
      applied certain assumptions in estimating these fair values. The use of
      different assumptions or methodologies may have a material effect on the
      estimates of fair values.





Use
      of
      Estimates :
      The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Actual results could differ from those estimates.





46
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            of Contents*





**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





Significant
      estimates made in connection with the accompanying financial statements include
      the estimate of dilution and fees associated with LEC billings, the estimated
      reserve for doubtful accounts receivable, estimated customer retention period
      used for the amortization of customer acquisition costs, estimated forfeiture
      rates for stock-based compensation, and estimated useful lives for intangible
      assets and property and equipment.





Stock-Based
      Compensation :
      The
      Company from time-to-time grants restricted stock awards to employees and
      executives. Such awards are recorded as an increase to common stock and paid
      in
      capital on the grant date with an offsetting amount of deferred compensation
      in
      stockholders’ equity. This deferred compensation cost is amortized on a
      straight-line basis over the vesting period.





The
      Company accounts for stock awards issued to non-employees in accordance with
      the
      provisions of SFAS 123 and Emerging Issues Task Force (“EITF”) Issue No. 96-18 *Accounting
      for Equity Instruments that are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling Goods or Services* .
      Under
      SFAS 123 and EITF 96-18, stock awards to non-employees are accounted for at
      fair
      value at their respective measurement date.





Impairment
      of Long-lived Assets :
      The
      Company assesses long-lived assets for impairment in accordance with the
      provisions of SFAS 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets.* SFAS
      144
      requires that the Company assess the value of a long-lived asset whenever there
      is an indication that its carrying amount may not be recoverable. The carrying
      amount of a long lived asset is not recoverable if it exceeds the sum of the
      undiscounted cash flows expected to result from the use and eventual disposition
      of the asset. The amount of impairment loss, if any, is measured as the
      difference between the net book value of the asset and its estimated fair value.
      For purposes of these tests, long-lived assets must be grouped with other assets
      and liabilities for which identifiable cash flows are largely independent of
      the
      cash flows of other assets and liabilities. No long-lived assets were impaired
      during the years ended September 30, 2005, 2004, and 2003.





Recently
      Issued Accounting Pronouncements :





In
      May 2005, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting
      Changes and Error Corrections”. SFAS No. 154 replaces Accounting Principles
      Board (“APB”) No. 20, “Accounting Changes” and SFAS No. 3, “Reporting
      Accounting Changes in Interim Financial Statements” and establishes
      retrospective application as the required method for reporting a change in
      accounting principle. SFAS No. 154 provides guidance for determining
      whether retrospective application of a change in accounting principle is
      impracticable and for reporting a change when retrospective application is
      impracticable. The reporting of a correction of an error by restating previously
      issued financial statements is also addressed. SFAS No. 154 is effective
      for accounting changes and corrections of errors made in fiscal years beginning
      after December 15, 2005. The Company does not anticipate that the adoption
      of SFAS No. 154 will have a material impact on its financial condition or
      results of operations.





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      123R, “Share-Based Payment” (“SFAS 123R”). Under this new standard, companies
      will no longer be able to account for share-based compensation transactions
      using the intrinsic method in accordance with APB 25. Instead, companies will
      be
      required to account for such transactions using a fair-value method and to
      recognize the expense over the service period. This new standard also changes
      the way in which companies account for forfeitures of share-based compensation
      instruments. SFAS 123R will be effective for fiscal years beginning after June
      15, 2005 and allows for several alternative transition methods. In light of
      this
      upcoming change, the Company decided
      to change its method of accounting for forfeitures of restricted
      stock , under
      current GAAP rules effective October 1, 2004. See Note
      3. The Company expects to adopt the provisions of SFAS 123R in the first
      quarter of
      fiscal 2006
      on a
      prospective basis and does not expect this to have a material effect on its
      financial condition or results of operations.





47
 *Table
            of Contents*





**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





3.
            ACCOUNTING
                CHANGES





Effective
      October 1, 2004, the Company changed its method of accounting for forfeitures
      of
      restricted stock granted to employees, executives and consultants. Prior to
      this
      date, the Company recognized forfeitures as they occurred. Upon occurrence,
      the
      Company reversed the previously recognized expense associated with such grant.
      Effective October 1, 2004, the Company changed to an expense recognition method
      that is based on an estimate of the number of shares for which the service
      is
      expected to be rendered. The Company believes that this is a preferable method
      as it provides less volatility in expense recognition.





Additionally,
      while both methods of accounting for forfeitures are acceptable under current
      guidance, the implementation of FAS 123R
      (effective during the Company’s first
      quarter of fiscal 2006) will no longer permit companies to recognize forfeitures
      as they occur .
      See
      Note 2. As this new guidance will require the Company to change its method
      of
      accounting for restricted stock forfeitures, the Company has decided to adopt
      such change as of the beginning of fiscal 2005. The Company is not adopting
      the
      provisions of FAS 123R prior to its effective date. Rather, the Company is
      changing its accounting for forfeitures under the allowed options prescribed
      in
      FAS 123.





The
      impact of this change for periods prior to October 1, 2004 was an increase
      to
      income of $100,000 (less than $0.01 per share), net of taxes of $54,000, and
      has
      been reflected as a cumulative effect of a change in accounting principle in
      the
      Company’s consolidated statement of operations for the year ended September 30,
      2005. Because stock grants are now recorded net of estimated forfeitures, the
      cumulative effect of this change also reduced Additional Paid in Capital and
      Deferred Compensation by $1,013,000 and $1,166,000, respectively, at October
      1,
      2004. The effect of the change was to increase net income by $108,000 (net
      of
      income taxes of $64,000) for the year ended September 30, 2005.





The
      estimated pro forma effects of the accounting change on the Company’s results of
      operations for the year ended September 30, 2004 is as follows:




**Year
                  Ended September**
                **30,
                  2004**As
                  reported:Net
                  income
              
              $
              8,961,000Basic
                  net income per share
              
              $
              0.19Diluted
                  net income per share
              
              $
              0.19Pro
                  forma amounts reflecting the accounting change applied
                  retroactively:Net
                  income
              
              $
              9,077,000Basic
                  net income per share
              
              $
              0.19Diluted
                  net income per share
              
              $
              0.19Weighted
                  average common shares outstanding:Basic
              
              
              47,375,927Diluted
              
              
              48,075,699










4.
            BALANCE
                SHEET INFORMATION





Balance
      sheet information is as follows:





48
 *Table
            of Contents*


**YP
        CORP. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  **September
                  30,****2005**
              
              **2004**Receivables,
                  current, netAccounts
                  receivable, current
              
              $
              6,451,000
              
              $
              11,763,000Less:
                  Allowance for doubtful accounts
              
              
              (1,112,000
              )
              
              (3,401,000
              )$
              5,339,000
              
              $
              8,362,000Receivables,
                  long term, netAccounts
                  receivable, long term
              
              $
              982,000
              
              $
              2,345,000Less:
                  Allowance for doubtful accounts
              
              
              (109,000
              )
              
              (270,000
              )$
              873,000
              
              $
              2,075,000Total
                  receivables, netGross
                  receivables
              
              $
              7,433,000
              
              $
              14,108,000Gross
                  allowance for doubtful accounts
              
              
              (1,221,000
              )
              
              (3,671,000
              )$
              6,212,000
              
              $
              10,437,000Components
                  of allowance for doubtful accounts are as follows:Allowance
                  for dilution and fees on amounts due from billing
                  aggregators
              
              $
              923,000
              
              $
              2,978,000Allowance
                  for customer refunds
              
              
              298,000
              
              
              638,000Other
                  allowances
              
              
              -
              
              
              55,000$
              1,221,000
              
              $
              3,671,000Prepaid
                  expenses and other current assetsPrepaid
                  set-up fees
              
              $
              -
              
              $
              12,000Prepaid
                  expenses and other
              
              
              602,000
              
              
              556,000Prepaid
                  non-compete agreement
              
              
              1,317,000
              
              
              255,000$
              1,919,000
              
              $
              823,000Customer
                  acquisition costs, netCustomer
                  acquisition costs
              
              $
              3,622,000
              
              $
              9,579,000Less:
                  Accumulated amortization
              
              
              (1,284,000
              )
              
              (5,097,000
              )$
              2,338,000
              
              $
              4,482,000Property
                  and equipment, netLeasehold
                  improvements
              
              $
              439,000
              
              $
              439,000Furnishings
                  and fixtures
              
              
              295,000
              
              
              298,000Office,
                  computer equipment and other
              
              
              1,040,000
              
              
              993,0001,774,000
              
              
              1,730,000Less:
                  Accumulated depreciation
              
              
              (1,377,000
              )
              
              (1,004,000
              )$
              397,000
              
              $
              726,000Intangible
                  assets, netDomain
                  name
              
              $
              5,510,000
              
              $
              5,329,000Non-compete
                  agreement
              
              
              1,821,000
              
              
              -Website
                  development
              
              
              781,000
              
              
              390,000Software
                  licenses
              
              
              53,000
              
              
              53,0008,165,000
              
              
              5,772,000Less:
                  Accumulated amortization of intangible
              
              
              (3,373,000
              )
              
              (2,446,000
              )$
              4,792,000
              
              $
              3,326,000Accrued
                  liabilitiesLitigation
                  accrual
              
              $
              382,000
              
              $
              -Deferred
                  revenue
              
              
              291,000
              
              
              81,000Accrued
                  expenses - other
              
              
              130,000
              
              
              461,000$
              803,000
              
              $
              542,000


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          of Contents*


**YP
        CORP. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


5.
            ACCOUNTS
                RECEIVABLE





The
      Company provides billing information to third party billing companies for the
      majority of its monthly billings. Two billing channels account for the majority
      of the Company’s accounts receivable. Billings submitted are “filtered” by these
      billing companies and the LECs. Net accepted billings are recognized as revenue
      and accounts receivable. The billing companies remit payments to the Company
      on
      the basis of cash ultimately received from the LECs by those billing companies.
      The billing companies and LECs charge fees for their services, which are netted
      against the gross accounts receivable balance. The billing companies also apply
      holdbacks to the remittances for potentially uncollectible accounts. These
      amounts will vary due to numerous factors and the Company may not be certain
      as
      to the actual amounts on any specific billing submittal until several months
      after that submittal. The Company estimates the amount of these charges and
      holdbacks based on historical experience and subsequent information received
      from the billing companies. The Company also estimates uncollectible account
      balances and provides an allowance for such estimates. The billing companies
      retain certain holdbacks that may not be collected by the Company for a period
      extending beyond one year. These balances have been classified as long-term
      assets in the accompanying balance sheet.





The
      Company experiences significant dilution of its gross billings by the billing
      companies. The Company negotiates collections with the billing companies on
      the
      basis of the contracted terms and historical experience. The Company’s cash flow
      may be affected by holdbacks, fees, and other matters, which are determined
      by
      the LECs and the billing companies.





The
      Company processes its billings through two primary billing aggregators:
      PaymentOne, Inc. and Billing Concepts, Inc. (acquirer of ACI Communications,
      Inc.). PaymentOne provides the majority of the Company’s billings, collections,
      and related services. The receivables due from PaymentOne at September 30,
      2005
      and 2004, respectively, were $4,046,000 and $8,565,000, net of allowances for
      doubtful accounts of $650,000 and $2,230,000. The net receivables from
      PaymentOne for billing at September 30, 2005 and 2004 represented approximately
      65% and 82%, respectively, of the Company’s total net accounts
      receivable.





Subscription
      receivables that are directly billed by the Company are valued and reported
      at
      the estimated future collection amount. Determining the expected collections
      requires an estimation of both uncollectible accounts and refunds. The net
      direct-billed subscriptions receivable at September 30, 2005 and 2004,
      respectively, were $372,000 and $60,000.





Certain
      receivables have been classified as long-term because issues arise whereby
      the
      billing companies change holdback terms and collection experience is such that
      collection can extend beyond one year. The breakdown of current and long-term
      receivables and their respective allowances is in Note 4 above.





6.
            INTANGIBLE
                ASSETS





The
      Company’s intangible assets consist of licenses for the use of Internet domain
      names or Universal Resource Locators, or URLs, capitalized website development
      costs, and other information technology licenses. All such licenses are
      capitalized at their original cost and amortized over their estimated useful
      lives.





In
      connection with the Company’s acquisition of Telco, the Company was required to
      provide an accelerated payment of license fees for the use of the URL
      Yellow-page.net. The URL is recorded at its cost of $5,000,000, net of
      accumulated amortization. The URL is amortized on an accelerated basis over
      the
      twenty-year term of the licensing agreement. Amortization expense on the URL
      was
      $285,000, $317,000, and $352,000 for the years ended September 30, 2005, 2004,
      and 2003, respectively.





During
      the year ended September 30, 2003, the Company acquired a three-year license
      for
      the domain name “YP.com” for $250,000 cash and 100,000 shares of the Company’s
      common stock valued at $60,000. Under the terms of this agreement, there are
      certain events, including the performance of the Company’s common stock, that
      trigger the automatic transfer of ownership to the Company. If such events
      do
      not occur, the Company has the option to purchase the rights to this URL for
      consideration not to exceed $300,000.





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            of Contents*





**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





Because
      of the importance of this URL to the Company’s branding strategy, it intends to
      purchase the rights to this URL if ownership has not already transferred by
      the
      end of the three-year license agreement.





The
      following summarizes the estimated future amortization expense related to
      intangible assets:




Years
                  ended September 30,2006
              
              $
              819,0002007
              
              
              737,0002008
              
              
              643,0002009
              
              
              551,0002010
              
              
              338,000Thereafter
              
              
              1,704,000Total
              
              $
              4,792,000




7.
              STOCKHOLDERS’
                  EQUITY




Common
      Stock Issued for Services





The
      Company historically has granted shares of its common stock to officers,
      directors and consultants as payment for services rendered. The value of those
      shares was determined based on the trading value of the stock at the dates
      on
      which the agreements were made for the services. During the year ended September
      30, 2005, the Company issued 100,000 shares to a consulting firm valued at
      $119,500, During the year ended September 30, 2004, the Company issued 1,010,000
      shares of common stock to officers and directors, or entities controlled by
      those individuals, valued at $1,541,000. During the year ended September 30,
      2003, 7,005,678 shares were issued to various parties with an aggregate value
      of
      $719,684.





Common
      Shares Received and Retired Under Legal Settlements





During
      the year ended September 30, 2004, the Company settled litigation with a former
      officer which involved, among other things, the return of 18,000 shares of
      the
      Company’s common stock. This transaction resulted in a net gain of $54,000
      included in other income in the accompanying consolidated statement of
      operations. These shares were canceled when received.





Common
      Stock Issued for URL





During
      the year ended September 30, 2003, the Company acquired a three-year license
      for
      the domain name, “YP.com” for $250,000 cash and 100,000 shares of the Company’s
      common stock valued at $60,000. (See Note 6)





Series
      E Convertible Preferred Stock





During
      the year ended September 30, 2002, pursuant to an existing tender offer, holders
      of 131,840 shares of the Company’s common stock exchanged said shares for an
      equal number of the Series E Convertible Preferred shares, at the then $0.085
      market value of the common stock. The shares carry a $0.30 per share liquidation
      preference and accrue dividends at the rate of 5% per annum on the liquidation
      preference per share, payable quarterly from legally available funds. If such
      funds are not available, dividends shall continue to accumulate until they
      can
      be paid from legally available funds. Holders of the preferred shares are
      entitled, after two years from issuance, to convert them into common shares
      on a
      one-to-one basis together with payment of $0.45 per converted
      share.





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            of Contents*





**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





Treasury
      Stock





The
      Company’s treasury stock consists of shares repurchased on the open market or
      shares received through various agreements with shareholders. The value of
      such
      shares is determined based on cash paid or quoted market prices. During the
      year
      ended September 30, 2003, the Company acquired 500,000 shares of its common
      stock from a former consultant to the Company for $45,000, which was the
      approximate trading value of those shares at the time the settlement was
      reached. During fiscal 2004, all then-outstanding treasury shares, valued at
      $216,000 were retired. On April 1, 2005, the Company acquired 1,889,566 shares
      valued at $1,606,000 as partial settlement of amounts due from affiliates as
      described in Note 11. On May 18, 2005, the Company’s Board of Directors
      authorized a plan to repurchase up to $3,000,000 of common stock from time
      to
      time on the open market or in privately negotiated transactions. In fiscal
      2005,
      the Company acquired 601,250 shares for $566,000 under this plan.





Dividends





During
      the years ended September 30, 2005 and 2004, the Company paid dividends of
      $1,445,000 and $1,428,000, respectively, to holders of common stock, including
      restricted stock, and $1,400 and $2,000, respectively, to holders of Series
      E
      preferred stock. Dividends paid on unvested shares of common stock are charged
      to compensation expense. The amount of dividends charged to compensation expense
      in fiscal 2005 and 2004 were $76,000 and $86,000, respectively.





8.
            NET
                INCOME PER SHARE





Net
      income per share is calculated using the weighted average number of shares
      of
      common stock outstanding during the year. Preferred stock dividends are
      subtracted from net income to determine the amount available to common
      stockholders.





The
      following table presents the computation of basic and diluted loss per share
      from continuing operations:





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            of Contents*





**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**Year
                  Ended**
                **September
                  30,**
                **2005**
              
              **Year
                  Ended**
                **September
                  30,**
                **2004**
              
              **Year
                  Ended**
                **September
                  30,**
                **2003**Income
                  (loss) before cumulative effect ofaccounting
                  change
              
              $
              (718,000
              )
              $
              8,961,000
              
              $
              7,616,000Less:
                  preferred stock dividends
              
              
              (1,000
              )
              
              (2,000
              )
              
              (2,000
              )Income
                  (loss) applicable to common stock beforecumulative
                  effect of accounting change
              
              
              (719,000
              )
              
              8,959,000
              
              
              7,614,000Cumulative
                  effect of accounting change
              
              
              100,000
              
              
              -
              
              
              -Net
                  income (loss) applicable to common stock
              
              $
              (619,000
              )
              $
              8,959,000
              
              $
              7,614,000Basic
                  weighted average common shares outstanding:
              
              
              46,390,356
              
              
              47,375,927
              
              
              45,326,721Add
                  incremental shares for:Unvested
                  restricted stock
              
              
              -
              
              
              510,745
              
              
              264,869Series
                  E convertible preferred stock
              
              
              -
              
              
              104,032
              
              
              -Outstanding
                  warrants
              
              
              -
              
              
              84,995
              
              
              -Diluted
                  weighted average common shares outstanding:
              
              
              46,390,356
              
              
              48,075,699
              
              
              45,591,590Net
                  income (loss) per share:Basic:Income
                  (loss) applicable to common stock beforecumulative
                  effect of accounting change
              
              $
              (0.02
              )
              $
              0.19
              
              $
              0.17Cumulative
                  effect of accounting change
              
              $
              0.00
              
              $
              -
              
              $
              -Net
                  income (loss) applicable to common stock
              
              $
              (0.01
              )
              $
              0.19
              
              $
              0.17Diluted:Income
                  (loss) applicable to common stock beforecumulative
                  effect of accounting change
              
              $
              (0.02
              )
              $
              0.19
              
              $
              0.17Cumulative
                  effect of accounting change
              
              $
              0.00
              
              $
              -
              
              $
              -Net
                  income (loss) applicable to common stock
              
              $
              (0.01
              )
              $
              0.19
              
              $
              0.17





The
      following potentially dilutive securities were excluded from the calculation
      of
      net income (loss) per share because the effects are antidilutive:




**September
                  30,****2005**
              
              **2004**
              
              **2003**Warrants
                  to purchase shares of common stock
              
              
              500,000
              
              
              -
              
              
              500,000Series
                  E convertible preferred stock
              
              
              127,840
              
              
              -
              
              
              131,840Shares
                  of non-vested restricted stock
              
              
              3,195,900
              
              
              -
              
              
              -3,823,740
              
              
              -
              
              
              631,840





9.
            COMMITMENTS
                AND CONTINGENCIES





The
      Company leases its office space and certain equipment under long-term operating
      leases expiring through fiscal year 2008. Rent expense under these leases was
      $365,000, $370,000, and $222,000 for the years ended September 30, 2005, 2004
      and 2003, respectively.





At
      September 30, 2005, future minimum annual lease payments under operating lease
      agreements for fiscal years ended September 30 are as follows:





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            of Contents*





**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


Fiscal
                  2006
              
              $
              369,000Fiscal
                  2007
              
              
              28,000Fiscal
                  2008
              
              
              8,000Thereafter
              
              
              -Total
              
              $
              405,000





Commitments
      to Investment Banking Firm





On
      October 8, 2004, pursuant to the terms of a Letter Agreement with Jefferies
      & Company, Inc., the Company issued a total of 925,000 shares of common
      stock to Jefferies. These shares were issued in lieu of cash fees for Jefferies’
investment banking services. These shares were not issued under the Company’s
      2003 Stock Plan. Of the total shares issued to Jefferies, 100,000 shares were
      issued without restrictions on transfer other than those imposed by Rule 144
      under the Securities Act of 1933, as amended. The remaining 825,000 shares
      were
      granted pursuant to a Restricted Stock Agreement. Accordingly, these shares
      remain subject to restrictions on transfer and sale, which lapse in accordance
      with a vesting schedule depending on the achievement of certain performance
      goals, none of which were achieved as of September 30, 2005.





In
      accordance with the provisions of EITF Topic D-90, *Grantor
      Balance Sheet Presentation of Unvested, Forfeitable Equity Instruments Granted
      to a Nonemployee,* because
      the Company has a right to receive future services in exchange for unvested,
      forfeitable equity instruments, the 825,000 shares are treated as unissued
      for
      accounting purposes until such time that the performance goals are achieved.




Litigation





The
      Company is party to certain legal proceedings incidental to the conduct of
      its
      business. Management believes that the outcome of pending legal proceedings
      will
      not, either individually or in the aggregate, have a material adverse effect
      on
      its business, financial position, and results of operations, cash flows or
      liquidity.





During
      fiscal 2005, the Company received an arbitration judgment involving disputed
      fees associated with a former public relations firm. Under the terms of this
      judgment, the Company is obligated to pay $328,000, inclusive of legal fees
      and
      associated expenses. The loss associated with this judgment was accrued in
      2005
      and is reflected in other income and expense in the accompanying consolidated
      statement of operations. In accordance with the terms of the judgment, the
      Company has established a bond in the amount of $500,000, which is reflected
      as
      restricted cash in the accompanying September 30, 2005 balance sheet. The
      Company currently is appealing the arbitrator’s decision.





Credit
      Facility





The
      Company maintains a $1,000,000 credit facility with Merrill Lynch Business
      Financial Services Inc., The applicable interest rate on borrowings, if any,
      will be a variable rate of the one-month LIBOR rate (as published in the *Wall
      Street Journal* ),
      plus
      3%. The facility requires an annual line fee of 1% of the committed amount.
      Outstanding advances are secured by all of the Company’s existing and acquired
      tangible and intangible assets located in the United States. There was no
      balance outstanding at September 30, 2005. The credit facility matures on April
      30, 2006.





10.
            PROVISION
                FOR INCOME TAXES





Deferred
      income taxes reflect the net tax effects of temporary differences between the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amounts used for income tax purposes.





54
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            of Contents*




**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





During
      the years ended September 30, 2003 and 2002, the Company structured certain
      transactions related to its merger with Telco that allowed the Company to
      utilize net operating losses that were previously believed to be unavailable
      or
      limited under the change of control rules of Internal Revenue Code 382. The
      deferred income tax asset of approximately $1,463,000 related to these net
      operating losses recorded at September 30, 2001, was partially offset by a
      valuation allowance of approximately $773,000. The Company also amended prior
      year tax returns reflecting a higher net operating loss carryforward than had
      initially been estimated. The additional net operating loss carryforwards
      previously not recognized resulted in an income tax benefit of $979,000 that
      was
      utilized to offset some of the income tax provision for the year ended September
      30, 2003. Additionally, as a result of these changes and the elimination of
      the
      valuation allowance an income tax benefit of approximately $917,000 was
      recognized for the year ended September 30, 2002. As of September 30, 2004,
      all
      net operating loss carryforwards had been fully utilized.





Income
      taxes for years ended September 30, is summarized as follows:




**2005**
              
              **2004**
              
              **2003**Current
                  provision
              
              $
              880,000
              
              $
              3,682,000
              
              $
              3,337,000Deferred
                  (benefit) provision
              
              
              (1,309,000
              )
              
              1,158,000
              
              
              (1,466,000
              )Net
                  income tax (benefit) provision
              
              $
              (429,000
              )
              $
              4,840,000
              
              $
              1,871,000





A
      reconciliation of the differences between the effective and statutory income
      tax
      rates for years ended September 30, is as follows:




**2005**
              
              **2004**
              
              **2003****Amount**
              
              **Percent**
              
              **Amount**
              
              **Percent**
              
              **Amount**
              
              **Percent**Federal
                  statutory rates
              
              $
              (390,000
              )
              
              34
              %
              $
              4,692,000
              
              
              34
              %
              $
              3,226,000
              
              
              34
              %State
                  income taxes
              
              
              (39,000
              )
              
              3
              %
              
              343,000
              
              
              2
              %
              
              115,000
              
              
              1
              %Change
                  in estimate of NOL due to changes in structuring and state income
                  tax
                  rates used
              
              
              -
              
              
              0
              %
              
              -
              
              
              0
              %
              
              (1,465,000
              )
              
              (15
              )%Other
              
              
              -
              
              
              0
              %
              
              (195,000
              )
              
              (1
              )%
              
              (5,000
              )
              
              (0
              )%Effective
                  rate
              
              $
              (429,000
              )
              
              37
              %
              $
              4,840,000
              
              
              35
              %
              $
              1,871,000
              
              
              20
              %




At
      September 30, deferred income tax assets and liabilities were comprised
      of:




**2005**
              
              **2004**Deferred
                  income tax assets:Book
                  to tax differences in accounts receivable
              
              $
              263,000
              
              $
              474,000Book
                  to tax differences in accrued expenses
              
              
              119,000
              
              
              -Book
                  to tax differences for stock based compensation
              
              
              1,235,000
              
              
              460,000Book
                  to tax differences in intangible assets
              
              
              118,000
              
              
              114,000Total
                  deferred income tax asset
              
              
              1,735,000
              
              
              1,048,000Deferred
                  income tax liabilities:Book
                  to tax differences in depreciation
              
              
              126,000
              
              
              122,000Book
                  to tax differences in prepaid assets
              
              
              -
              
              
              122,000Book
                  to tax differences in customer acquisition costs
              
              
              850,000
              
              
              1,568,000Total
                  deferred income tax liability
              
              
              976,000
              
              
              1,812,000Net
                  deferred income tax asset (liability)
              
              $
              759,000
              
              $
              (764,000
              )





55
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            of Contents*




**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




11.
              RELATED
                  PARTY TRANSACTIONS




Termination
      Agreements with Executive Officers





Prior
      to
      fiscal 2004, the Company entered into Executive Consulting Agreements with
      four
      entities, each of which was controlled by one of the Company’s four executive
      officers. These agreements called for fees to be paid for the services provided
      by these individuals as officers of the Company, as well as their respective
      staffs. During fiscal 2004, the Company terminated the Executive Consulting
      Agreements with the entities controlled by its former CEO, former Executive
      Vice
      President of Marketing, and former CFO. In fiscal 2005, the
      Company terminated the remaining Executive Consulting Agreement with the entity
      controlled by a former Executive Vice President. These
      termination agreements provided for cash payments totaling $2,145,000 in
      exchange for consulting services and non-compete agreements. Approximately
      $1,643,000 of
      the
      settlement payments described above has been allocated to non-compete
      agreements, as paid, based on values determined by an independent third party
      valuation firm. The values attributed to the non-compete agreements are being
      amortized on a straight line basis over the six-year life of the non-compete
      agreements .
      The
      remaining $502,000 was allocated to the consulting service portion of the
      termination agreements, which were originally expected to be rendered over
      a
      two-year period, In the fourth quarter of fiscal 2005, however, the Company
      concluded all matters with respect to these parties, made all remaining payments
      owed under the termination agreements, and expensed the remaining unamortized
      amount of $212,000 attributed to the consulting services.








The
      following table includes the compensation paid to these entities during
      the years ended September 30, 2005 and 2004, respectively, pursuant to the
      termination agreements between the Company and the former officers’ respective
      entities. There were no amounts remaining to be paid under any of these
      agreements as of September 30, 2005:




**Payments
                  under termination**
                **agreements
                  for the year ended**
                **September
                  30, 2005**
              
              **Payments
                  under termination**
                **agreements
                  for the year ended**
                **September
                  30, 2005**Sunbelt
                  Financial Concepts
              
              $
              775,000
              
              $
              185,000Advertising
                  Management & Consulting Services, Inc.
              
              
              546,000
              
              
              151,000Advanced
                  Internet Marketing, Inc.
              
              
              368,000
              
              
              -MAR
                  & Associates
              
              
              80,000
              
              
              40,000$
              1,769,000
              
              $
              376,000





During
      the fourth quarter of fiscal 2005, the Company entered into a separation
      agreement with its Chief Operating Officer. Under the agreement, the Company
      made a cash payment of $80,000. No further amounts are owed under this
      agreement.





Shareholder
      Agreements





The
      Company made final advances totaling $3,050,000 to its two largest stockholders,
      Morris & Miller and Mathew and Markson, during the fiscal year ended
      September 30, 2004. Interest earned on these advances was at an 8% annual rate
      and was approximately $321,000 and $94,000 for the fiscal years ended September
      30, 2004 and 2003, respectively. On December 22, 2003, the Company entered
      into
      an agreement with Morris & Miller and Mathew and Markson that terminated the
      line of credit agreement effective April 9, 2004. (See Note 10). During the
      fiscal year ended September 30, 2004, Morris & Miller and Mathew and Markson
      made accelerated principal reductions of $1.6 million almost three years in
      advance of their maturity.





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**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





On
      April
      1, 2005, the Company and Morris & Miller, Ltd. and Matthew and Markson,
      Ltd., (together, the “Shareholders”) entered into a Transfer and Repayment
      Agreement (the “Agreement”). Under the Agreement, the Shareholders satisfied all
      of their outstanding debt obligations to the Company (previously reflected
      as
      Advances to Affiliates in the accompanying Consolidated Balance Sheet) as
      follows:





·
            The
                Shareholders agreed to surrender and deliver to the Company 1,889,566
                shares of its common stock previously owned by the Shareholders (included
                in Treasury Stock at September 30, 2005);





·
            The
                Shareholders forgave $115,865 of debt owed by the Company to the
                Shareholders and all related accrued interest;





·
            The
                Shareholders released any liens they previously had on any shares
                of the
                Company’s common stock;





·
            The
                Shareholders assigned certain intellectual property to the Company;
                and





·
            The
                Shareholders agreed to a non-compete and non-solicitation agreement
                whereby the Shareholders and their affiliates agree not to compete
                with
                the Company or solicit any customers for a period of five years.





This
      transaction resulted in a non-cash charge of $282,000 for the year ended
      September 30, 2005 equal to the difference between the carrying value of the
      Advances to Affiliates and the value of the consideration received. The fair
      value of the common stock received was $1,606,000 and was based on the market
      value of the common stock as of the date of the agreement. The fair values
      of
      the intellectual property and non-compete and non-solicitation agreement were
      $180,000 and $1,821,000 and were determined based on independent appraisals.
      The
      intellectual property and non-compete
      and non-solicitation agreement are included in intangible assets in the
      consolidated balance sheet and will be amortized over their estimated useful
      lives of 36 and 60 months, respectively.





Other





Prior
      to
      the Company’s fiscal year ended September 30, 2003, the board of directors had
      committed the Company to pay for the costs of defending a civil action filed
      against its former CEO and Chairman. The action involved a business in which
      the
      CEO was formerly involved. The Company and at least one officer had received
      subpoenas in connection with this matter and the board believed that it was
      important to help resolve the matter as soon as possible to allow the CEO to
      refocus his attention on the Company’s business. The board action included the
      payment of legal and other fees for any other officers and directors that may
      have become involved in this civil action. During the year ended September
      30,
      2004, the Company paid final legal costs of approximately $58,000 on behalf
      of
      the former CEO in connection with this matter. These amounts are presented
      as
      compensation expense within general and administrative expenses in the
      accompanying consolidated statement of operations for the year ended September
      30, 2004. The civil case against the former CEO was settled in December 2003.
      No
      additional legal costs will be advanced to the former CEO.





Simple.Net,
      Inc .





The
      Company had contracted with Simple.Net, Inc., or SN, an Internet service
      provider owned by a former director of the Company, to provide Internet dial-up
      and other services to its customers. On December 29, 2003, the Company entered
      into a separation agreement with Simple.Net, which became effective January
      31,
      2004. Under this agreement, Simple.Net ceased providing any services to the
      Company as of March 2, 2004.





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**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





During
      the fiscal year ended September 30, 2005, the Company recorded no expenses
      and
      no other income from Simple.Net, Inc. For the fiscal year ended September 30,
      2004 the Company recorded expenses of $422,000 and other income of $287,000
      from
      Simple.Net, Inc. for these services.


12.
              CONCENTRATION
                  OF CREDIT RISK
 
 The
        Company maintains cash balances at banks in Arizona and Nevada. Accounts
        are
        insured by the Federal Deposit Insurance Corporation up to $100,000. At
        September 30, 2005 and 2004, the Company had bank balances exceeding those
        insured limits of $7,888,000 and $3,443,000, respectively.
 
 Financial
        instruments that potentially subject the Company to concentrations of credit
        risk are primarily trade accounts receivable. The trade accounts receivable
        are
        due primarily from business customers over widespread geographical locations
        within the LEC billing areas across the United States. The Company historically
        has experienced significant dilution and customer credits due to billing
        difficulties and uncollectible trade accounts receivable. The Company estimates
        and provides an allowance for uncollectible accounts receivable. The handling
        and processing of cash receipts pertaining to trade accounts receivable is
        maintained primarily by two third-party billing companies. The Company is
        dependent upon these billing companies for collection of its accounts
        receivable. Net receivables due from a single billing services provider at
        September 30, 2005 and 2004 was $4,046,000 and $8,565,000, respectively,
        net
        of  an
        allowances for doubtful accounts of $650,000 and $2,230,000. The net receivables
        from this billing services provider at September 30, 2005 and 2004 represent
        approximately 65% and 82%, respectively of the Company’s total net accounts
        receivable.
 
 13.
              STOCK
                  BASED COMPENSATION




During
      the year ended September 30, 2003, the Company’s board of directors and a
      majority of it stockholders voted to terminate the Company’s 2002 Employees,
      Officers & Directors Stock Option Plan and approved the Company’s 2003 Stock
      Plan. The 3,000,000 shares of Company common stock previously allocated to
      the
      2002 Plan were re-allocated to the 2003 Plan. During the year ended September
      30, 2004, an additional 2,000,000 shares were authorized by the board of
      directors and approved by the Company’s stockholders to be issued under the 2003
      Plan. All Company personnel and contractors are eligible to participate in
      the
      plan.





As
      of
      September 30, 2005, 2,943,000 shares authorized under the 2003 Plan were granted
      and remain outstanding in the form of restricted stock. These shares of
      restricted stock were granted to the Company’s service providers, executives and
      directors. These 2,943,000 shares of restricted stock granted are subject to
      the
      following vesting schedules:





·
            400,000
                shares vest at the end of twelve months from the date of
                grant;


·
            1,191,500
                shares vest at the end of three years from the date of
                grant;


·
            479,000
                shares vest either at the end of ten years or upon the Company’s common
                stock attaining an average bid and ask price of $10.00 per share
                for three
                consecutive trading days;


·
            687,500
                shares vest either at the end of ten years or in increments based
                on the
                common stock attaining various average bid and ask prices between
                $5.00
                per share and $9.00 per share;


·
            185,000
                shares vest either at the end of three years or in increments based
                on the
                common stock attaining various average bid and ask prices between
                $5.00
                per share and $8.00 per share.





The
      vesting of substantially all shares of restricted stock accelerates upon a
      change of control, as defined in the 2003 Plan. Compensation expense is
      determined at the date of grant, is equal to the stock price at the date of
      grant, and is deferred and recognized on a straight-line basis over the vesting
      period. The weighted-average grant-date fair value of the shares outstanding
      is
      $1.86 per share.





During
      the year ended September 30, 2004, the Company issued an additional 1,000,000
      shares of restricted common stock outside of the 2003 Plan to an officer of
      the
      Company valued at $1,540,000. These shares remain outstanding at September
      30,
      2005. During the year ended September 30, 2004 the Company issued 10,000 shares
      to an employee valued at $1,000 that were not subject to any vesting
      provisions.





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      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





During
      the years ended September 30, 2005, 2004, and 2003, the Company recognized
      compensation expense of $1,420,000,$1,161,000, and $154,000, respectively,
      under
      the 2003 Plan and other restricted stock issuances. As of September 30, 2005,
      all outstanding shares of restricted stock are unvested.





At
      September 30, 2005, there were no options exercisable or outstanding. No options
      were granted in the years ended September 30, 2005 and 2004.





The
      Company has issued warrants in connection with certain debt and equity
      transactions. Warrants outstanding are summarized as follows:


**2005**
              
              **2004**
              
              **2003****Number
                      of**
                    **Warrants**
              
              **Weighted
                    Average**
                  **Exercise
                    Price**
              
              **Number
                        of**
                      **Warrants**
              
              **Weighted
                        Average**
                      **Exercise
                        Price**
              
              **Number
                        of**
                      **Warrants**
              
              **Weighted
                        Average**
                      **Exercise
                        Price**Warrants
                  outstanding at beginning of year
              
              
              500,000
              
              $
              2.12
              
              
              500,000
              
              $
              2.12
              
              
              500,000
              
              $
              2.12Granted
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Expired
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Warrants
                  outstanding at September 30,
              
              
              500,000
              
              $
              2.12
              
              
              500,000
              
              $
              2.12
              
              
              500,000
              
              $
              2.12





The
      warrants were granted in the year ended September 30, 2001 in connection with
      the settlement with the former URL holder (See Note 6). The exercise prices
      of
      the warrants range from $1.00 to $3.00. The fair value of these options at
      the
      date of grant was negligible, estimated using the Black-Scholes option-pricing
      model. The 500,000 warrants outstanding at September 30, 2005, expire in
      September 2006.


14.
              EMPLOYEE
                  BENEFIT PLAN
 
 The
        Company maintains a 401(k) profit sharing plan for its employees and service
        providers who are eligible to participate in the plan upon reaching age 21
        and
        completion of three months of service. The Company made contributions of
        $7,000,
        $7,000, and $5,000 to the plan for the years ended September 30, 2005, 2004,
        and
        2003, respectively.
 
 15.
              OTHER
                  INCOME


For
      the
      year ended September 30, 2005, other income included the following:




·
              A
                  loss of $282,000 from the Transfer and Repayment Agreement as described
                  above in Note 11 above. This amount is equal to the difference
                  between the
                  carrying value of Advances to Affiliates and the value of the
                  consideration received;
  ·
              A
                  loss of $328,000 from an arbitration judgment involving disputed
                  fees
                  associated with a former public relations firm described in Note
                  9 above;
                  and
  ·
              The
                  elimination of $287,000 in other income in fiscal 2005 as the result
                  of a
                  termination agreement with Simple.Net, Inc. See Note 11 above for
                  further
                  discussion.


For
      the
      year ended September 30, 2004, other income included the following:





·
            Other
                income of $287,000 from an agreement with Simple.Net, Inc. for technical
                services provided to an affiliate;





·
            $54,000
                from the receipt of stock in accordance with the settlement of a
                dispute;
                and





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**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





·
            $600,000
                relating to the reversal of previously accrued compensation cost
                for
                former executives, for which payment is no longer expected, offset
                by
                other miscellaneous amounts.





For
      the
      year ended September 30, 2003, other income included the following:





·
            $474,000
                related to the rescission of consulting contracts;
                and





·
            $618,000
                for technical services provided to an affiliate, offset by expenses
                incurred in other legal
                settlements.




16.
            SELECTED
                QUARTERLY FINANCIAL DATA
                (UNAUDITED)




Quarterly
      financial information for 2005 and 2004 follows:




**Quarter
                  Ended****December
                  31,**
              
              **March
                  30,**
              
              **June
                  30,**
              
              **September
                  30,****2004**
              
              **2005**
              
              **2005**
              
              **2005**Net
                  revenues
              
              $
              6,190,155
              
              $
              6,444,609
              
              $
              6,517,158
              
              $
              6,052,936Gross
                  profit
              
              
              5,055,571
              
              
              5,583,676
              
              
              5,591,353
              
              
              4,993,639Net
                  income (loss) before cumulative effect of accounting
                  change
              
              
              (50,776
              )
              
              298,280
              
              
              (149,784
              )
              
              (815,727
              )Net
                  income (loss)
              
              
              49,072
              
              
              298,280
              
              
              (149,784
              )
              
              (815,727
              )Earnings
                  (loss) per share information:Basic
                  before cumulative effectof
                  accounting change
              
              $
              (0.00
              )
              $
              0.01
              
              $
              (0.00
              )
              $
              (0.02
              )Diluted
                  before cumulative effectof
                  accounting change
              
              $
              (0.00
              )
              $
              0.01
              
              $
              (0.00
              )
              $
              (0.02
              )Basic
                  income (loss) per share
              
              $
              0.00
              
              $
              0.01
              
              $
              (0.00
              )
              $
              (0.02
              )Diluted
                  income (loss) per share
              
              $
              0.00
              
              $
              0.01
              
              $
              (0.00
              )
              $
              (0.02
              )
  **Quarter
                    Ended****December
                    31,**
                
                **March
                    30,**
                
                **June
                    30,**
                
                **September
                    30,****2003**
                
                **2004**
                
                **2004**
                
                **2004**Net
                    revenues
                
                $
                13,839,967
                
                $
                16,367,853
                
                $
                16,890,361
                
                $
                10,069,924Gross
                    profit
                
                
                8,957,565
                
                
                9,767,071
                
                
                8,695,097
                
                
                4,990,492Net
                    income (loss)
                
                
                3,284,685
                
                
                3,348,599
                
                
                2,639,420
                
                
                (311,721
                )Earnings
                    (loss) per share information:Basic:
                
                $
                0.07
                
                $
                0.07
                
                $
                0.06
                
                $
                (0.01
                )Diluted:
                
                $
                0.07
                
                $
                0.07
                
                $
                0.05
                
                $
                (0.01
                )





17.
            SUBSEQUENT
                EVENTS





On
      November 3, 2005, the Company entered into a Separation Agreement (“Separation
      Agreement”) with Peter J. Bergmann in connection with his resignation as
      Chairman and President of the Company. In connection with the Separation
      Agreement, on November 3, 2005, the Company and Mr. Bergmann terminated his
      Employment Agreement, dated June 6, 2004, and his Restricted Stock
      Agreement, dated June 6, 2004. Pursuant to the Separation Agreement, Mr.
      Bergmann will continue to serve as a director of the Company until the next
      annual meeting of the shareholders and has agreed to resign as Chief Executive
      Officer immediately upon the filing of the Company’s Annual Report.




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**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




In
      consideration of a waiver of all rights to severance and certain other covenants
      and a general release of all claims by Mr. Bergmann, the Separation Agreement
      provides for (i) the continued payment of the monthly salary Mr. Bergmann was
      receiving immediately prior to the Separation Agreement until his resignation
      as
      CEO and (ii) the payment of 18 months of Mr. Bergmann’s current salary in one
      payment of $337,500 on or before January 2, 2006. The Company also will continue
      to provide Mr. Bergmann with health insurance for 12 months or until he is
      employed elsewhere with a company that offers an insurance program.




Pursuant
      to the Agreement, Mr. Bergmann forfeited all shares of the Company’s common
      stock and any other unvested capital stock or options to purchase such stock
      received by Mr. Bergmann, or an affiliated party, while employed by the Company
      except for (i) 50,000 shares granted to Mr. Bergmann in 2002 that were fully
      vested, (ii) 600,000 shares of the total 1,000,000 shares granted to Mr.
      Bergmann in a Restricted Stock Agreement dated June 6, 2004, and (iii) 100,000
      shares granted to Mr. Bergmann in April 2005. The parties agreed that the shares
      set forth in (ii) and (iii) above will remain subject to contractual
      restrictions on transfer for 18 months, or until a change of control or the
      Company’s stock price achieving certain sustained levels.





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**ITEM
                9.**
            **Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosures**





Not
      applicable.





**ITEM
                9A.**
            **Controls
                and Procedures**





Disclosure
      controls and procedures are designed with an objective of ensuring that
      information required to be disclosed in our periodic reports filed with the
      Securities and Exchange Commission, such as this Annual Report on Form 10-K,
      is
      recorded, processed, summarized, and reported within the time periods specified
      by the Securities and Exchange Commission. Disclosure controls also are designed
      with an objective of ensuring that such information is accumulated and
      communicated to our management, including our chief executive officer and chief
      financial officer, in order to allow timely consideration regarding required
      disclosures.





The
      evaluation of our disclosure controls by our chief executive officer and chief
      financial officer included a review of the controls’ objectives and design, the
      operation of the controls, and the effect of the controls on the information
      presented in this Annual Report. Our management, including our chief executive
      officer and chief financial officer, does not expect that disclosure controls
      can or will prevent or detect all errors and all fraud, if any. A control
      system, no matter how well designed and operated, can provide only reasonable,
      not absolute, assurance that the objectives of the control system are met.
      Also,
      projections of any evaluation of the disclosure controls and procedures to
      future periods are subject to the risk that the disclosure controls and
      procedures may become inadequate because of changes in conditions, or that
      the
      degree of compliance with the policies or procedures may
      deteriorate.





Based
      on
      their review and evaluation as of the end of the period covered by this Form
      10-K, and subject to the inherent limitations all as described above, our
      principal executive officer and principal financial officer have concluded
      that
      our disclosure controls and procedures (as defined in Rules 13a-15(e) and
      15d-15(e) under the Securities Exchange Act of 1934) are effective as of the
      end
      of the period covered by this report. They are not aware of any significant
      changes in our disclosure controls or in other factors that could significantly
      affect these controls subsequent to the date of their evaluation, including
      any
      corrective actions with regard to significant deficiencies and material
      weaknesses. During the period covered by this Form 10-K, there have not been
      any
      changes in our internal control over financial reporting that have materially
      affected, or that are reasonably likely to materially affect, our internal
      control over financial reporting.





**ITEM
                9B.**
            **Other
                Information**





Not
      applicable.





**PART
      III**





Certain
      information required by Part III is omitted from this Annual Report on Form
      10-K
      because we will file our definitive Proxy Statement for our 2006 Annual Meeting
      of Shareholders to be filed pursuant to Regulation 14A of the Exchange Act
      (the
“2006 Proxy Statement”) not later than 120 days after the end of the fiscal year
      covered by this Annual Report. Certain information included in the 2006 Proxy
      Statement is incorporated herein by reference.





**ITEM
                10.**
            **Directors
                and Executive Officers**





The
      information required by this Item relating to our executive officers is included
      in Item 1, “Business - Executive Officers.” The information required by this
      Item relating to directors of our company and the disclosure required by Item
      405 of Regulation SK concerning Section 16(a) Beneficial Ownership Reporting
      Compliance will be set forth under the captions “Election of Directors,” and
“Section 16(a) Beneficial Ownership Reporting Compliance” in our 2006 Proxy
      Statement.





**ITEM
                11****.**
            **Executive
                Compensation**





Information
      regarding director and executive compensation will be set forth under the
      captions “Election of Directors” and “Executive Officers and Compensation” in
      our 2006 Proxy Statement.





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            of Contents*





**ITEM
                12.**
            **Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters**





Information
      regarding security ownership of certain beneficial owners and management will
      be
      set forth under the caption “Security Ownership of Principal Stockholders and
      Management” in our 2006 Proxy Statement.





***Equity
      Compensation Plan Information***




We
      maintain the 2003 Stock Plan pursuant to which we may grant equity awards to
      eligible persons. The following table sets forth certain information about
      equity awards under our 2003 Stock Plan, as well as an individual equity
      compensation arrangement with our Chief Executive Officer.


(a)
              
              (b)
              
              (c)Plan
                  category
              
              Number
                  of securities to
                be
                  issued upon exercise of
                outstanding
                  options,
                warrants
                  and rights
              
              Weighted-average
                exercise
                  price of
                outstanding
                  options,
                warrants
                  and rights
              
              Number
                  of securities
                remaining
                  available for future
                issuance
                  under equity
                compensation
                  plans
                (excluding
                  securities reflected
                incolumn (a))Equity
                  compensation plans approved by security holders (1)
              
              
              2,943,000
                  (2)
              
              
              N/A
              
              
              2,057,000Equity
                  compensation plans not approved by security holders
              
              
              1,000,000
                  (3)
              
              
              N/A
              
              
              0Total
              
              
              3,943,000
              
              
              N/A
              
              
              2,057,000




1
            The
                2003 Stock Plan was approved by written consent of a majority of
                the
                Company’s stockholders on July 21,
                2003.




2
            This
                number represents the number of shares of restricted stock granted
                to
                eligible persons under the 2003 Stock
                Plan.




3
            This
                number represents shares of restricted stock that were granted to
                Peter J.
                Bergmann, our Chairman and Chief Executive Officer, pursuant to a
                restricted stock agreement dated June 6, 2004. These shares were
                not
                granted under our 2003 Stock Plan. These shares of restricted stock
                vest
                in accordance with a performance-based vesting schedule. As of September
                30, 2004, none of these shares is vested. For a description of this
                equity
                compensation arrangement, see Note 14 in the notes to our financial
                statements in Item 7 of this Form
                10-KSB.




**Our
      2003 Stock Plan**





During
      the year ended September 30, 2002, our stockholders approved the 2002 Employees,
      Officers & Directors Stock Option Plan (the “2002 Plan”), which was intended
      to replace our 1998 Stock Option Plan (the “1998 Plan”). The 2002 Plan was never
      implemented, however, and no options, shares or any other securities were issued
      or granted under the 2002 Plan. There were 3,000,000 shares of our common stock
      authorized under the 2002 Plan. On June 30, 2003 and July 21, 2003,
      respectively, our Board of Directors and a majority of our stockholders
      terminated both the 1998 Plan and the 2002 Plan and approved our 2003 Stock
      Plan. The 3,000,000 shares of common stock previously allocated to the 2002
      Plan
      were re-allocated to the 2003 Stock Plan.





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In
      April
      2004, our stockholders and our Board of Directors approved an amendment to
      the
      2003 Stock Plan to increase the aggregate number of shares available thereunder
      by 2,000,000 shares in order to have an adequate number of shares available
      for
      future grants.





**ITEM
                13.**
            **Certain
                Relationships and Related
                Transactions**





Information
      regarding certain relationships and related transactions of management will
      be
      set forth under the caption “Certain Relationships and Related Transactions” in
      the 2006 Proxy Statement.





**ITEM
                14****.**
            **Principal
                Accountant Fees and
                Services**





Information
      regarding this item will be set forth under the caption “Principal Accountant
      Fees and Services” in the 2006 Proxy Statement.





**PART
      IV**





**ITEM
                15.**
            **Exhibits
                and Financial Statement
                Schedules**





(1)
            Financial
                Statements are listed on the Index to Consolidated Financial Statements
                on
                page 40 of this Annual Report.


(2)
            There
                are no financial statement schedules required to be filed with this
                Annual
                Report.


(3)
            The
                following exhibits are filed with or incorporated by reference into
                this
                Annual Report.





Exhibit
              Number
            
            Description
            
            Previously
                Filed as Exhibit
            
            File
                Number
            
            Date
              Previously
              Filed3.1
            
            Amended
                and Restated Articles of Incorporation
            
            Exhibit
                3.1 to the Registrant’s Quarterly Report on Form 10-QSB
            
            000-24217
            
            5/13/043.2
            
            Amended
                and Restated Bylaws
            
            Exhibit
                3.1 to the Registrant’s Quarterly Report on Form 10-QSB
            
            000-24217
            
            5/13/044.1
            
            Specimen
                Stock Certificate with New Rights Legend
            
            Exhibit
                4.1 to the Registrant’s Quarterly Report on Form 10-QSB for the fiscal
                quarter ended June 30, 2004
            
            000-24217
            
            8/19/044.2
            
            Shareholder
                Rights Agreement, dated as of May 6, 2004, between the Registrant
                and
                Registrar and Transfer Company
            
            Exhibit
                4.1 to Amendment No. 1 to the Registrant’s Quarterly Report on Form
                10-QSB/A for the fiscal quarter ended June 30, 2004
            
            000-24217
            
            12/29/044.3
            
            Amendment
                No. 1 to Shareholder Rights Agreement, dated as of May 31, 2004,
                between
                the Registrant and Registrar and Transfer Company
            
            Exhibit
                4.2 to Amendment No. 1 to the Registrant’s Quarterly Report on Form
                10-QSB/A for the fiscal quarter ended June 30, 2004
            
            000-24217
            
            12/29/044.4
            
            Amendment
                No. 2 to Shareholder Rights Agreement, dated October 13, 2005, between
                the
                Registrant and Registrar and Transfer Company
            
            Exhibit
                10 to the Registrant’s Current Report on Form 8-K
            
            000-24217
            
            10/12/0510.1
            
            YP
                Corp. Amended and Restated 2003 Stock Plan
            
            Exhibit
                10 to the Registrant’s Quarterly Report on Form 10-QSB for the fiscal
                quarter ended December 31, 2003
            
            000-24217
            
            2/11/04





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10.2
            
            Standard
                Industrial/Commercial Multi-Tenant Lease for Mesa facility between
                the
                Registrant and Art Grandlich, d/b/a McKellips Corporate
                Square
            
            Exhibit
                10.5 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year
                ended September 30, 1999
            
            000-24217
            
            9/19/0010.3
            
            Amendment
                No. 1 to Standard Industrial/Commercial Multi-Tenant Lease for Mesa
                facility between the Registrant and Art Grandlich, d/b/a McKellips
                Corporate Square
            
            Exhibit
                10.14 to Amendment No. 2 to the Registrant’s Annual Report on Form
                10-KSB/A for the fiscal year ended September 30, 2002
            
            000-24217
            
            7/8/0310.4
            
            Standard
                Industrial Lease for Nevada facility between the Registrant and Tomorrow
                33 Convention, LP dated August 13, 2003
            
            Exhibit
                10.4 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year
                ended September 30, 2003
            
            000-24217
            
            12/31/0310.5
            
            Loan
                and Security Agreement, dated April 13, 2004, between the Registrant
                andMerrill
                Lynch Business Financial Services, Inc.
            
            Exhibit
                10.1 to Amendment No. 1 to the Registrant’s Quarterly Report on Form
                10-QSB for the fiscal quarter ended June 30, 2004
            
            000-24217
            
            12/29/0410.6
            
            Stock
                Purchase Agreement between the Registrant, Morris & Miller, Mathew and
                Markson and Telco Billing dated March 16, 1999.
            
            Exhibit
                A to the Registrant’s Current Report on Form 8-K
            
            000-24217
            
            3/29/199910.7
            
            Amendment
                No. 1 to Stock Purchase Agreement between the Registrant, Morris
&
                Miller, Mathew and Markson and Telco Billing dated March 16,
                1999.
            
            Exhibit
                10.16 to Amendment No. 2 to the Registrant’s Annual Report on Form
                10-KSB/A for the fiscal year ended September 30, 2002
            
            000-24217
            
            7/8/0310.8
            
            Amendment
                No. 2 to Stock Purchase Agreement between the Registrant, Morris
&
                Miller, Mathew and Markson and Telco Billing dated September 12,
                2000.
            
            Exhibit
                10.17 to Amendment No. 2 to the Registrant’s Annual Report on Form
                10-KSB/A for the fiscal year ended September 30, 2002
            
            000-24217
            
            7/8/0310.9
            
            Amendment
                No. 3 to Stock Purchase Agreement between the Registrant, Morris
&
                Miller, Mathew and Markson and Telco Billing dated December 22,
                2003.
            
            Exhibit
                10.10 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year
                ended September 30, 2003
            
            000-24217
            
            12/31/0310.10
            
            Exclusive
                Licensing Agreement between the Registrant and Mathew and Markson,
                Ltd.
                dated September 21, 1998
            
            Exhibit
                10.11 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year
                ended September 30, 2003
            
            000-24217
            
            12/31/0310.11
            
            Binding
                Term Sheet Agreement between the Registrant and Mathew and Markson,
                Ltd.
                dated September 25, 2001
            
            Exhibit
                10.11 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year
                ended September 30, 2004
            
            000-24217
            
            12/29/0410.12
            
            Employment
                Agreement, dated as of June 6, 2004, between the Registrant and Peter
                Bergmann
            
            Exhibit
                10.1 to the Registrant’s Quarterly Report on Form 10-QSB for the fiscal
                quarter ended June 30, 2004
            
            000-24217
            
            8/19/04





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10.13
              
              Restricted
                  Stock Agreement, dated as of June 6, 2004, between the Registrant
                  and
                  Peter Bergmann
              
              Exhibit
                  10.2 to the Registrant’s Quarterly Report on Form 10-QSB for the fiscal
                  quarter ended June 30, 2004
              
              000-24217
              
              8/19/0410.14
              
              Indemnification
                  Agreement, dated as of June 6, 2004, between the Registrant and
                  Peter
                  Bergmann
              
              Exhibit
                  10.3 to the Registrant’s Quarterly Report on Form 10-QSB for the fiscal
                  quarter ended June 30, 2004
              
              000-24217
              
              8/19/0410.15
              
              Termination
                  Agreement between the Registrant and Sunbelt Financial Concepts,
                  Inc.
                  dated July 12, 2004
              
              Exhibit
                  10.15 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year
                  ended September 30, 2004
              
              000-24217
              
              12/29/0410.16
              
              Termination
                  Agreement between the Registrant and Advertising Management &
                  Consulting Services, Inc. dated July 12, 2004
              
              Exhibit
                  10.16 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year
                  ended September 30, 2004
              
              000-24217
              
              12/29/0410.17
              
              Termination
                  Agreement between the Registrant and Mar & Associates, Inc. dated July
                  16, 2004
              
              Exhibit
                  10.17 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year
                  ended September 30, 2004
              
              000-24217
              
              12/29/0410.18
              
              Employment
                  Agreement, dated as of August 3, 2004, between the Registrant and
                  W. Chris
                  Broquist
              
              Exhibit
                  10.18 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year
                  ended September 30, 2004
              
              000-24217
              
              12/29/0410.19
              
              Employment
                  Agreement, dated as of September 21, 2004, between the Registrant
                  and John
                  Raven
              
              Exhibit
                  10.19 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year
                  ended September 30, 2004
              
              000-24217
              
              12/29/0410.20
              
              Exclusive
                  Domain Name Licensing Agreement between the Registrant and Onramp
                  Access,
                  Inc. dated July 8, 2003
              
              Exhibit
                  10.1 to the Registrant’s Current Report on Form 8-K
              
              000-24217
              
              7/22/200310.21
              
              Processing
                  Agreement between the Registrant and Integrated Payment Systems
                  Inc.,
                  d/b/a First Data dated August 26, 2003
              
              Exhibit
                  10.2 to the Registrant’s Current Report on Form 8-K
              
              000-24217
              
              10/24/200310.22
              
              Master
                  Services Agreement between the Registrant and eBillit, Inc dated
                  August 1,
                  2002
              
              Exhibit
                  10.24 to Amendment No. 1 to the Registrant’s Quarterly Report on Form
                  10-QSB/A for the fiscal quarter ended March 31, 2003
              
              000-24217
              
              7/8/0310.23
              
              Billings
                  and Related Services Agreement between the Registrant and ACI
                  Communications, Inc. dated September 1, 2001
              
              Exhibit
                  10.33 to Amendment No. 2 to the Registrant’s Annual Report on Form
                  10-KSB/A for the fiscal year ended September 30, 2002
              
              000-24217
              
              7/8/0314
              
              Code
                  of Ethics
              
              Exhibit
                  14 to the Registrant’s Quarterly Report on Form 10-QSB for the period
                  ended March 31, 2004
              
              000-24217
              
              5/13/2004





66
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21
            Company
                Subsidiaries
            
            Attached
                hereto23
            Consent
                of Epstein, Weber and Conover P.L.C
            
            Attached
                hereto




31
            Certification
                pursuant to SEC Release No. 33-8238, as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002
            
            Attached
                hereto32
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002
            
            Attached
                hereto








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SIGNATURES





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





Dated:
                December 16, 2005
            */s/
                Peter J. Bergmann*Peter
                BergmannChief
                Executive Officer





BOARD
                  OF DIRECTORS**Signature**
              
              **Title**
              **Date***/s/
                  Peter J. Bergmann*
              
              Chief
                  Executive Officer and Director*)*
              December
                  16, 2005Peter
                  J. Bergmann
              
              *(Principal
                  Executive Officer**/s/
                  W. Chris Broquist*
              
              Chief
                  Financial Officer
              December
                  16, 2005W.
                  Chris Broquist
              
              *(Principal
                  Financial Officer and Principal Accounting Officer)**/s/
                  Alistair Johnson-Clague*
              
              Chairman
                  of the Board
              December
                  16, 2005Alistair
                  Johnson-Clague*/s/
                  Daniel L. Coury, Sr.*
              
              Director
              December
                  16, 2005Daniel
                  L. Coury, Sr.*/s/
                  Paul Gottlieb*
              
              Director
              December
                  16, 2005Paul
                  Gottlieb*/s/
                  John T. Kurtzweil*
              
              Director
              December
                  16, 2005John
                  T. Kurtzweil


68