**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**


**FORM
      10-Q**





(Mark
      One)




x
              Quarterly
                  Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934
 
 For
        the
        quarterly period ended June 30, 2007
 
 o
              Transition
                  Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934
 
 For
        the
        transition period from _____________ to _______________
  Commission
        File Number 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 St. Suite 105**
            **85205****Mesa,
                Arizona**
            (Zip
                Code)(Address
                of principal executive offices)





**(480)
      654-9646**


(Registrant’s
      telephone number, including area code)





Indicate
      by check mark whether the
      registrant (1) has filed all reports required to be filed by Section 13 or
      15(d)
      of the Securities Exchange Act of 1934 during the preceding 12 months (or for
      such shorter period that the registrant was required to file such reports),
      and
      (2) has been subject to such filing requirements for the past 90 days. Yes
þ  No  o





Indicate
      by check mark whether the
      registrant is a large accelerated filer, an accelerated filer, or a
      non-accelerated filer.  See definition of “accelerated filer and large
      accelerated filer” in Rule 12b-2 of the Exchange Act.


Large
                Accelerated Filer o
            Accelerated
                Filer o
            Non-Accelerated
                Filer  þ





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





**APPLICABLE
      ONLY TO CORPORATE ISSUERS**





The
      number of shares of the issuer’s
      common equity outstanding as of August 13, 2007 was 67,167,905 shares of common
      stock, par value $.001.












**INDEX
      TO FORM 10-Q FILING**


**FOR
      THE QUARTER ENDED JUNE 30, 2007**





**TABLE
      OF CONTENTS**





**PART
                I****FINANCIAL
                INFORMATION****Page****Item
                1.**
            **Financial  Statements****Consolidated
                Balance Sheets as of June 30, 2007 (unaudited)
                and September 30, 2006**
            **3****Unaudited
                Consolidated Statements of Operations for the Three
                and Nine Month Periods Ended June 30, 2007 and June 30,
                2006**
            **4****Unaudited
                Consolidated Statements of Cash Flows for the Nine
                Month Periods Ended June 30, 2007 and 30,
                2006**
            **5****Notes
                to Unaudited Consolidated Financial
                Statements**
            **6****Item
                2.**
            **Management’s
                Discussion and Analysis of Financial Condition
                **and
                Results of Operations****
            **18****Item
                3.**
            **Quantitative
                and Qualitative Disclosures About Market
                Risk**
            **27****Item
                4.**
            **Controls
                and Procedures**
            **27****PART
                II****OTHER
                INFORMATION****Item
                1A.**
            **Risk
                Factors**
            **28****Item
                6.**
            **Exhibits**
            **28****Signatures**
            **29**




2
 *Table
            of Contents*





**PART
      I – FINANCIAL INFORMATION**





ITEM
                1.
            FINANCIAL
                STATEMENTS




**YP
      CORP. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**








**June 30,**
              **2007**
            
            
            **September 30,**
              **2006****(unaudited)****Assets**Cash
                and cash equivalents
            
            $
            10,248,103
            
            
            $
            6,394,775Certificates
                of deposit and other investments
            
            
            -
            
            
            
            3,082,053Accounts
                receivable, net of allowance of $1,756,411 in 2007 and $3,034,504 in
                2006
            
            
            7,004,356
            
            
            
            8,015,600Prepaid
                expenses and other current assets
            
            
            340,178
            
            
            
            235,250Income
                tax receivable
            
            
            805,898
            
            
            
            -Deferred
                tax asset
            
            
            311,788
            
            
            
            1,781,736Total
                current assets
            
            
            18,710,323
            
            
            
            19,509,414Accounts
                receivable, long term portion, net of allowance of $78,111 in 2007
                and
                $234,445 in 2006
            
            
            1,484,114
            
            
            
            1,140,179Property
                and equipment, net
            
            
            239,260
            
            
            
            178,883Deposits
                and other assets
            
            
            105,766
            
            
            
            91,360Intangible
                assets, net
            
            
            7,538,002
            
            
            
            5,722,604Goodwill
            
            
            7,389,951
            
            
            
            -Deferred
                tax asset, long term
            
            
            4,860,699
            
            
            
            1,334,787Total
                assets
            
            $
            40,328,115
            
            
            $
            27,977,227**Liabilities
                and Stockholders' Equity**Liabilities:Accounts
                payable
            
            $
            1,075,426
            
            
            $
            773,653Accrued
                liabilities
            
            
            1,923,941
            
            
            
            4,565,439Income
                taxes payable
            
            
            -
            
            
            
            261,762Total
                current liabilities
            
            
            2,999,367
            
            
            
            5,600,854Total
                liabilities
            
            
            2,999,367
            
            
            
            5,600,854Commitments
                and contingenciesStockholders'
                equity:Series
                E convertible preferred stock, $0.001 par value, 200,000 shares
                authorized, 127,840 issued and outstanding, liquidation preference
                $38,202
            
            
            10,866
            
            
            
            10,866Common
                stock, $0.001 par value, 100,000,000 shares authorized, 67,167,905
                and
                50,021,594 issued and outstanding in 2007 and 2006,
                respectively
            
            
            67,168
            
            
            
            50,022Treasury
                stock (2,843,416 shares carried at cost)
            
            
            (2,407,158
            )
            
            
            (2,407,158
            )Paid
                in capital
            
            
            22,954,324
            
            
            
            9,395,044Retained
                earnings
            
            
            16,703,548
            
            
            
            15,327,599Total
                stockholders' equity
            
            
            37,328,748
            
            
            
            22,376,373Total
                liabilities and stockholders' equity
            
            $
            40,328,115
            
            
            $
            27,977,227





See
      accompanying notes to unaudited consolidated financial statements.





3
 *Table
            of Contents*




**YP
      CORP. AND SUBSIDIARIES**


**UNAUDITED
      CONSOLIDATED STATEMENTS OF OPERATIONS**








**Three Months ended June 30,**
            
            
            **Nine Months ended June 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Net
                revenues
            
            $
            5,989,437
            
            
            $
            8,577,640
            
            
            $
            19,219,664
            
            
            $
            23,622,664Cost
                of services
            
            
            711,258
            
            
            
            734,519
            
            
            
            2,320,265
            
            
            
            1,858,380Gross
                profit
            
            
            5,278,179
            
            
            
            7,843,121
            
            
            
            16,899,399
            
            
            
            21,764,284Operating
                expenses:General
                and administrative expenses
            
            
            3,399,803
            
            
            
            3,481,148
            
            
            
            10,181,167
            
            
            
            11,718,618Sales
                and marketing expenses
            
            
            1,302,015
            
            
            
            3,132,737
            
            
            
            4,496,808
            
            
            
            9,090,539Litigation
                and related expenses
            
            
            -
            
            
            
            -
            
            
            
            (200,718
            )
            
            
            161,804Total
                operating expenses
            
            
            4,701,818
            
            
            
            6,613,885
            
            
            
            14,477,257
            
            
            
            20,970,961Operating
                income
            
            
            576,361
            
            
            
            1,229,236
            
            
            
            2,422,142
            
            
            
            793,323Other
                income (expense):Interest
                income
            
            
            68,914
            
            
            
            67,127
            
            
            
            233,611
            
            
            
            157,641Other
                income (expense)
            
            
            537
            
            
            
            (9,172
            )
            
            
            14,292
            
            
            
            (21,289
            )Total
                other income (expense)
            
            
            69,451
            
            
            
            57,955
            
            
            
            247,903
            
            
            
            136,352Income
                before income taxes
            
            
            645,812
            
            
            
            1,287,191
            
            
            
            2,670,045
            
            
            
            929,675Income
                tax provision
            
            
            (379,407
            )
            
            
            (460,343
            )
            
            
            (1,292,180
            )
            
            
            (299,921
            )Net
                income
            
            $
            266,405
            
            
            $
            826,848
            
            
            $
            1,377,865
            
            
            $
            629,754Net
                income per common share:Basic
            
            $
            0.01
            
            
            $
            0.02
            
            
            $
            0.03
            
            
            $
            0.01Diluted
            
            $
            0.01
            
            
            $
            0.02
            
            
            $
            0.03
            
            
            $
            0.01Weighted
                average common shares outstanding:Basic
            
            
            50,242,285
            
            
            
            44,642,094
            
            
            
            47,156,300
            
            
            
            44,748,047Diluted
            
            
            52,625,539
            
            
            
            46,536,736
            
            
            
            49,412,720
            
            
            
            45,694,457





See
      accompanying notes to unaudited consolidated financial
      statements.





4
 *Table
            of Contents*




**YP
      CORP. AND SUBSIDIARIES**


**UNAUDITED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**








**Nine Months Ended June 30,****2007**
            
            
            **2006**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income (loss)
            
            $
            1,377,865
            
            
            $
            629,754Adjustments
                to reconcile net income (loss) to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            1,098,370
            
            
            
            1,117,865Stock-based
                compensation
            
            
            1,169,543
            
            
            
            1,325,509Issuance
                of common stock as compensation for services
            
            
            78,837
            
            
            
            -Noncash
                compensation expense to Chief Executive Officer
            
            
            88,680
            
            
            
            -Deferred
                income taxes
            
            
            1,489,654
            
            
            
            (841,652
            )Loss
                on disposal of property, plant and equipment
            
            
            4,128
            
            
            
            -Change
                in allowance for uncollectible accounts
            
            
            (1,434,426
            )
            
            
            1,559,569Changes
                in operating assets and liabilities:Restricted
                cash
            
            
            -
            
            
            
            500,000Accounts
                receivable
            
            
            2,230,324
            
            
            
            (4,161,895
            )Prepaid
                and other current assets
            
            
            (81,751
            )
            
            
            43,095Deposits
                and other assets
            
            
            (3,560
            )
            
            
            (33,409
            )Accounts
                payable
            
            
            (780,990
            )
            
            
            445,424Accrued
                liabilities
            
            
            (2,928,662
            )
            
            
            (168,032
            )Income
                taxes receivable
            
            
            (1,067,660
            )
            
            
            300,367Net
                cash provided by operating activities
            
            
            1,240,352
            
            
            
            716,595CASH
                FLOWS FROM INVESTING ACTIVITIES:Net
                purchases/redemptions of certificates of deposits and other
                investments
            
            
            3,082,053
            
            
            
            (1,050,557
            )Acquisition
                of business, net of cash acquired
            
            
            397,876
            
            
            
            -Expenditures
                for intangible assets
            
            
            (674,580
            )
            
            
            (166,804
            )Purchases
                of  equipment
            
            
            (192,373
            )
            
            
            (17,686
            )Net
                cash provided by (used in) investing activities
            
            
            2,612,976
            
            
            
            (1,235,047
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Repurchases
                of common stock
            
            
            -
            
            
            
            (134,418
            )Net
                cash used in financing activities
            
            
            -
            
            
            
            (134,418
            )INCREASE
                (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            3,853,328
            
            
            
            (652,870
            )CASH
                AND CASH EQUIVALENTS, beginning of period
            
            
            6,394,775
            
            
            
            6,114,311CASH
                AND CASH EQUIVALENTS, end of period
            
            $
            10,248,103
            
            
            $
            5,461,441SUPPLEMENTAL
                DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:Issuance
                of common stock for acquisition of LiveDeal, Inc.
            
            $
            12,328,045
            
            
            $
            -





See
      accompanying notes to unaudited consolidated financial statements





5
 *Table
            of Contents*





**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**








1.  ORGANIZATION
      AND BASIS OF PRESENTATION





The
      accompanying unaudited consolidated financial statements include the accounts
      of
      YP Corp., a Nevada Corporation, and its wholly owned subsidiaries (collectively
      the “Company”).  The Company is an Internet-based provider of yellow
      page directories and online local classified ads on or through www.YP.com,
      www.YP.net, www.Yellow-Page.net, and www.livedeal.com.  No material or
      information contained on these websites is a part of these notes or this
      Quarterly Report on Form 10-Q.  All material intercompany accounts and
      transactions have been eliminated.





The
      accompanying unaudited consolidated financial statements as of June 30, 2007
      and
      for the three and nine months ended June 30, 2007 and 2006,respectively, have been
      prepared in accordance with generally accepted accounting principles for interim
      financial information. Accordingly, they do not include all of the information
      and footnotes required by generally accepted accounting principles for audited
      financial statements. In the opinion of the Company’s management, the interim
      information includes all adjustments, consisting only of normal recurring
      adjustments, necessary for a fair presentation of the results for the interim
      periods. The footnote disclosures related to the interim financial information
      included herein are also unaudited. Such financial information should be read
      in
      conjunction with the consolidated financial statements and related notes thereto
      as of September 30, 2006 and for the year then ended included in the Company’s
      Annual Report on Form 10-K for the year ended September 30,
      2006.





The
      Company completed its acquisition of LiveDeal, Inc. (“LiveDeal”) on June 6,
      2007.  The results of operations for the three and nine months ended
      June 30, 2007 included in the accompanying unaudited statements of operations
      include LiveDeal operating results from June 6, 2007 through June 30,
      2007.  The unaudited consolidated balance sheet at June 30, 2007
      includes LiveDeal assets and liabilities acquired as of June 6, 2007 as well
      as
      a preliminary allocation of the purchase price.  Further discussions
      of this transaction can be found under “LiveDeal, Inc. Acquisition” in
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations and in Note 4 to the unaudited consolidated financial
      statements.





Due
      to
      the short term nature and market rates of interest for the certificates of
      deposit and other investments, the carrying value (cost) approximates the fair
      value for these investments.





The
      preparation of financial statements in accordance with U.S. generally
      accepted accounting principles requires management to make estimates and
      assumptions that affect the reported amount of assets and liabilities at the
      date of the financial statements and the reported amount of revenues and
      expenses during the reporting period. Significant estimates and assumptions
      have
      been used by management throughout the preparation of the consolidated financial
      statements including in conjunction with establishing allowances for customer
      refunds, non-paying customers, dilution and fees, analyzing the recoverability
      of the carrying amount of intangible assets, estimating forfeitures of
      restricted stock and evaluating the recoverability of deferred tax
      assets.  Actual results could differ from these
      estimates.





Certain
      prior period amounts have been revised to conform to the current period
      presentation as follows:





·
            Accrued
                refunds and fees of $1,250,000 relating to the Attorneys’ General
                settlement described in Note 5 have been reclassified from accounts
                receivable, net to accrued liabilities in the accompanying consolidated
                balance sheet as of September 30,
                2006.


·
            Certain
                miscellaneous receivables totaling $23,819 at September 30, 2006
                were
                reclassified from prepaid expenses and other current assets to accounts
                receivable, net in the accompanying consoldated balance
                sheet


·
            Depreciation
                and amortization expenses that were previously separately stated
                are now
                included in general and administrative expenses in the consolidated
                statement of operations.


·
            Litigation
                and related expenses that were previously included in other income
                and
                expense are now separately stated as a component of operating expenses
                in
                the consolidated statement of
                operations.


·
            Dilution
                and charge backs have been reclassified from cost of services to
                a
                reduction in net revenues in the consolidated statement of
                operations.





6
 *Table
            of Contents*





**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**







These
      changes had no impact on previously reported net income or stockholders’
equity.  While the other changes are self-evident, the following table
      sets forth the impact of reclassifying dilution and charge backs on the
      Company’s consolidated statements of operations:





**Statements
                of Operations**
            
            **Three Months Ended June
                30, 2006**As
                Originally
              Reported
            
            
            As Adjusted
            
            
            Effect of changeNet
                revenues
            
            $
            10,172,705
            
            
            $
            8,577,640
            
            
            $
            (1,595,065
            )Cost
                of services
            
            $
            2,329,584
            
            
            $
            734,519
            
            
            $
            (1,595,065
            )Gross
                profit
            
            $
            7,843,121
            
            
            $
            7,843,121
            
            
            $
            -**Nine Months Ended June 30, 2006**As
                Originally
              Reported
            
            
            As Adjusted
            
            
            Effect of changeNet
                revenues
            
            $
            26,798,677
            
            
            $
            23,622,664
            
            
            $
            (3,176,013
            )Cost
                of services
            
            $
            5,034,393
            
            
            $
            1,858,380
            
            
            $
            (3,176,013
            )Gross
                profit
            
            $
            21,764,284
            
            
            $
            21,764,284
            
            
            $
            -




2.  ACCOUNTING
      CHANGES IN 2006





Prior
      to
      fiscal 2006, the Company capitalized customer acquisition costs and amortized
      them on a straight-line basis over the average expected life of the related
      customers. The majority of the capitalized customer acquisition costs related
      to
      the Company’s mailing campaigns.  During fiscal 2006, the Company
      began increasing its expenditures for telemarketing campaigns.  The
      capitalization of such costs requires that the Company amortize them over the
      average expected life of acquired customers on a cost-pool by cost-pool basis;
      however, the Company’s systems were not equipped to monitor customer lives by
      method of acquisition.  Therefore, the Company was unable to determine
      the average expected life of those customers acquired via telemarketing versus
      those acquired via mailing campaigns and cannot assess the value of the future
      benefits.  As the Company could not effectively evaluate such costs on
      a cost-pool by cost-pool basis, the Company determined in fiscal 2006 that
      the
      preferable method of accounting for these costs was to expense them when
      incurred.  The Company received a preferabilty letter from its
      predecessor auditors relating to this change.  The Company enacted
      this change in accounting principle during the fourth quarter of fiscal 2006
      and, in accordance with Statement of Financial Accounting Standards (SFAS)
      154,
      in the Company’s 10-K for the year ended September 30, 2006, the Company
      restated all periods presented to reflect this new method of accounting for
      such
      costs.





The
      following tables set forth the impact of such a change on the Company’s
      previously reported financial results:





7
 *Table
            of Contents*





**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**








**Statements
                of Operations**
            
            **Three Months Ended June 30, 2006**As
                Originally
              Reported
            
            
            As Adjusted
            
            
            Effect of changeSales
                and marketing expense
            
            $
            2,485,950
            
            
            $
            3,132,737
            
            
            $
            646,787Income
                tax expense (benefit)
            
            $
            701,990
            
            
            $
            460,343
            
            
            $
            (241,647
            )Net
                income (loss)
            
            $
            1,231,987
            
            
            $
            826,848
            
            
            $
            (405,139
            )Net
                income (loss) per common share:Basic
            
            $
            0.03
            
            
            $
            0.02
            
            
            $
            (0.01
            )Diluted
            
            $
            0.03
            
            
            $
            0.02
            
            
            $
            (0.01
            )





**Nine
                Months Ended June 30, 2006**As
                Originally
              Reported
            
            
            As
                Adjusted
            
            
            Effect
                of changeSales
                and marketing expense
            
            $
            6,134,854
            
            
            $
            9,090,539
            
            
            $
            2,955,685Income
                tax expense (benefit)
            
            $
            1,404,198
            
            
            $
            299,921
            
            
            $
            (1,104,277
            )Net
                income (loss)
            
            $
            2,481,158
            
            
            $
            629,754
            
            
            $
            (1,851,404
            )Net
                income (loss) per common share:Basic
            
            $
            0.06
            
            
            $
            0.01
            
            
            $
            (0.05
            )Diluted
            
            $
            0.05
            
            
            $
            0.01
            
            
            $
            (0.04
            )





**Statement
                of Cash Flows**
            
            **Nine
                Months Ended June 30, 2006**As
                Originally
              Reported
            
            
            As
                Adjusted
            
            
            Effect
                of changeNet
                income (loss)
            
            $
            2,481,158
            
            
            $
            629,754
            
            
            $
            (1,851,404
            )Adjustments
                to reconcile net income to net cash provided by operating
                activities:Deferred
                income taxes
            
            $
            262,627
            
            
            $
            (841,652
            )
            
            $
            (1,104,279
            )Changes
                in assets and liabilities:Customer
                acquisition costs
            
            $
            (2,955,683
            )
            
            $
            -
            
            
            $
            2,955,683Net
                cash provided by operating activities
            
            $
            716,595
            
            
            $
            716,595
            
            
            $
            -





8
 *Table
            of Contents*





**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**








3.  BALANCE
      SHEET INFORMATION





Balance
      sheet information is as follows:





**June
                30, 2007**Current
            
            
            Long-Term
            
            
            TotalGross
                accounts receivable
            
            $
            8,760,768
            
            
            $
            1,562,225
            
            
            $
            10,322,993Allowance
                for doubtful accounts
            
            
            (1,756,412
            )
            
            
            (78,111
            )
            
            
            (1,834,523
            )Net
            
            $
            7,004,356
            
            
            $
            1,484,114
            
            
            $
            8,488,470**September
                30, 2006**Current
            
            
            Long-Term
            
            
            TotalGross
                accounts receivable
            
            $
            11,050,104
            
            
            $
            1,374,624
            
            
            $
            12,424,728Allowance
                for doubtful accounts
            
            
            (3,034,504
            )
            
            
            (234,445
            )
            
            
            (3,268,949
            )Net
            
            $
            8,015,600
            
            
            $
            1,140,179
            
            
            $
            9,155,779Components
                of allowance for doubtful accounts are as follows:**June
                30, 2007**
            
            
            
            
            
            
            **September
                30,**
              **2006**Allowance
                for dilution and fees on amounts due from billing
                aggregators
            
            $
            1,320,531
            
            
            
            
            
            
            $
            2,465,423Allowance
                for customer refunds
            
            
            513,992
            
            
            
            
            
            
            
            803,526$
            1,834,523
            
            
            
            
            
            
            $
            3,268,949Property
                and equipment:
            
            **June
                30, 2007**
            
            
            
            
            
            
            **September
                30,**
              **2006**Leasehold
                improvements
            
            $
            448,551
            
            
            
            
            
            
            $
            447,681Furnishings
                and fixtures
            
            
            309,079
            
            
            
            
            
            
            
            296,074Office
                and computer equipment
            
            
            1,157,330
            
            
            
            
            
            
            
            1,055,545Total
            
            
            1,914,960
            
            
            
            
            
            
            
            1,799,300Less:
                Accumulated depreciation
            
            
            (1,675,700
            )
            
            
            
            
            
            
            (1,620,417
            )Property
                and equipment, net
            
            $
            239,260
            
            
            
            
            
            
            $
            178,883Intangible
                assets:
            
            **June
                30, 2007**
            
            
            
            
            
            
            **September
                30,**
              **2006**Domain
                name
            
            $
            5,708,600
            
            
            
            
            
            
            $
            5,708,600Non-compete
                agreements
            
            
            3,465,000
            
            
            
            
            
            
            
            3,465,000Website
                development
            
            
            1,084,716
            
            
            
            
            
            
            
            1,009,356Software
                licenses
            
            
            1,024,781
            
            
            
            
            
            
            
            427,635Marketing-related
                intangibles - LiveDeal, Inc.
            
            
            1,500,000
            
            
            
            
            
            
            
            -Technology-related
                intangibles - LiveDeal, Inc.
            
            
            630,000
            
            
            
            
            
            
            
            -Total
            
            
            13,413,097
            
            
            
            
            
            
            
            10,610,591Less:
                Accumulated amortization
            
            
            (5,875,095
            )
            
            
            
            
            
            
            (4,887,987
            )Intangible
                assets, net
            
            $
            7,538,002
            
            
            
            
            
            
            $
            5,722,604Accrued
                liabilities:
            
            **June
                30, 2007**
            
            
            
            
            
            
            **September
                30,**
              **2006**Litigation
                accrual, including customer refunds
            
            
            16,875
            
            
            
            
            
            
            
            3,525,000Deferred
                revenue
            
            
            328,949
            
            
            
            
            
            
            
            188,399Accrued
                payroll and bonuses
            
            
            817,646
            
            
            
            
            
            
            
            187,973Accrued
                expenses - other
            
            
            760,471
            
            
            
            
            
            
            
            664,067Accrued
                liabilities
            
            $
            1,923,941
            
            
            
            
            
            
            $
            4,565,439





During
      fiscal 2007, the Company implemented additional quality control procedures
      to
      reduce the number of unbillable accounts through its Local Exchange Carrier
      (“LEC”) channels.  This change permitted the Company to identify
      certain accounts that were unbillable prior to submission of billing records
      to
      LECs.  This change served to reduce both the gross accounts receivable
      and the related allowance from September 30, 2006 to June 30, 2007.





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      CORP. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**








During
      fiscal 2007, the decrease in the litigation accrual was attributable to the
      payment of the settlement fee, refunds and other expenses attributable to the
      Attorneys’ General settlement described in Note 5 as well as the reversal of
      approximately $200,000 of accruals based on revised estimates of future payment
      obligations.





During
      fiscal 2007, the increase in intangible assets is related primarily to the
      acquisition of certain intangible assets in connection with the business
      acquisition described in Note 4.




4.   ACQUISITION
      OF LIVEDEAL, INC.





On
      June
      6, 2007, the Company acquired all of the outstanding common and preferred
      stock of LiveDeal, Inc. ("LiveDeal") in exchange for 15,054,808 shares of Common
      Stock. In addition, the Company issued an aggregate of 231,547 shares of
      restricted Common Stock in exchange for the cancellation of all outstanding
      LiveDeal options and warrants. Finally, the Company agreed to issue an
      additional 1,463,706 shares of Company Stock in exchange for the cancellation
      of
      $1,021,666 of LiveDeal debt. Immediately following the transaction, LiveDeal
      became be a wholly-owned subsidiary of the Company.





LiveDeal
      has developed and operates an online local classifieds marketplace,
www.livedeal.com which has more than a million goods and services listed
      for sale, in almost every city and zip code across the U.S. LiveDeal offers
      such
      classifieds functionality as fraud protection, identity protection, e-commerce,
      listing enhancements, photos, community-building, package pricing, premium
      stores, featured Yellow Page business listings and advanced local search
      capabilities. Additionally, the LiveDeal technology lets consumers search or
      browse for items in a particular city, state or zip code.





At
      the
      site, users can search classifieds in any region, and can look up businesses
      in
      a yellow pages database. As with most such classified ad sites, users are
      offered a search window, and a listing of subcategories. It appears that sales
      are made directly between the user (buyer) and seller, and an "email the seller"
      link is provided to assist in this process.





Among
      the
      interesting features of LiveDeal’s site is "Local AdWiz", which is a classifieds
      and yellow pages distribution network, turning any web site or blog into a
      unique and localized classifieds and yellow pages site in seconds. AdWiz gives
      website publishers fresh local content and an instant revenue stream. Local
      AdWiz pulls from millions of classified and yellow page listings across multiple
      categories from people in cities and towns all over the U.S. AdWiz enables
      the
      listings to be republished dynamically on any website within
      seconds.





The
      aggregate purchase price of LiveDeal was approximately $12,741,000, consisting
      of approximately $12,328,000 of stock-based consideration and approximately
      $413,000 of acquisition-related expenses.  The value of the combined
      16,750,061 shares of Common Stock granted in the transaction was determined
      based on the average closing market price of the Common Stock over the two
      day
      period before and after the effective date of the acquisition.  The
      purchase price was determined based on an average of valuation estimates
      utilizing  comparable companies, precedent transactions and discounted
      cash flow techniques.  There are no contingent payments or commitments
      specified in the agreement, except with respect to the employment agreement
      described in Note 5.





The
      following table sets forth the preliminary allocation of the acquisition cost,
      including acquisition-related expenses, to the assets acquired and liabilities
      assumed, based on their estimated fair values:





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            of Contents*





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      CORP. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**








Current
                assets
            
            $
            962,877Property,
                plant and equipment
            
            
            70,000Goodwill
            
            
            7,389,951Intangible
                assets
            
            
            2,130,000Deferred
                tax assets
            
            
            3,545,618Other
                non-current assets
            
            
            10,846Total
                assets acquired
            
            
            14,109,292Current
                liabilities
            
            
            1,368,012Total
                liabilities assumed
            
            
            1,368,012Net
                assets acquired
            
            $
            12,741,280




The
      amounts in the preceeding table are preliminary based on the
      following:





·
            The
                Company is awaiting the final valuation report on its intangible
                assets
                and property, plant and equipment


·
            The
                Company is performing further analysis of the realizability of the
                acquired deferred tax assets


·
            Included
                in the preliminary purchase price are estimated accruals for service
                providers for which the Company has not received final
                invoices.





The
      Company does not expect the goodwill to be tax-deductible.  As the
      Company only operates one reportable segment, the entire goodwill balance has
      been allocated to that segment.





The
      Company has estimated the fair value of LiveDeal’s identifiable intangible
      assets as $2,130,000, allocated as follows:





**Estimated**
              **Fair
                Value**
            
            **Average**
              **Remaining**
              **Useful
                Life**Asset
                class:Marketing-based
                intangible assets
            
            $
            1,500,000
            
            20
                yearsTechnology-based
                intangible assets
            
            
            630,000
            
            5
                years$
            2,130,000





Marketing-based
      intangible assets include trademarks, tradenames and internet domain names,
      whereas technology-based intangible assets include computer software,
      technology, databases, and trade secrets.





The
      following table provides pro forma results of operations for the three and
      nine
      months ended June 30, 2007 and 2006 as if LiveDeal had been acquired as of
      the
      beginning of each period presented.  The pro forma results include
      certain purchase accounting adjustments such as the estimated changes in
      amortization expense on acquired intangible assets, increased compensation
      expense resulting from the contractual obligation for Mr. Navar’s salary
      (described in Note 5) and the elimination of interest expense on borrowings
      that
      were satisfied through the acquisition.  However, pro forma results do
      not include any anticipated cost savings or other effects of the planned
      integration of LiveDeal.  Accordingly, such amounts are not
      necessarily indicative of the results that would have occurred if the
      acquisition had occurred on the dates indicated or that may result in the
      future.





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            of Contents*





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      CORP. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**








**Three Months Ended June 30,**
            
            
            **Nine Months Ended June 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Net
                revenues
            
            $
            6,410,361
            
            
            $
            8,927,758
            
            
            $
            20,936,377
            
            
            $
            24,504,481Net
                loss
            
            $
            (1,118,971
            )
            
            $
            (838,996
            )
            
            $
            (2,165,640
            )
            
            $
            (4,206,867
            )Diluted
                net loss per share
            
            $
            (0.02
            )
            
            $
            (0.01
            )
            
            $
            (0.03
            )
            
            $
            (0.07
            )




5.  COMMITMENTS
      AND CONTINGENCIES





At
      June
      30, 2007, future minimum annual lease payments under operating lease agreements
      for fiscal years ended September 30 are as follows:





2007
            
            $
            102,4592008
            
            
            251,3782009
            
            
            124,6332010
            
            
            123,7952011
            
            
            93,183Thereafter
            
            
            337$
            695,785




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, results of operations, cash flows or
      liquidity.





In
      the
      past, the Company has received inquiries from the Attorneys General offices
      of
      several states investigating its promotional activities, specifically, the
      use
      of its check mailer for customer activation.  On December 14, 2006,
      the Company voluntarily entered into a settlement with 34 states’ Attorneys
      General to address their inquiries and bring finality to the
      process.  The Company voluntarily agreed to the
      following:





·
            The
                Company paid a settlement fee of $2,000,000 to the state consortium,
                which
                they may distribute among
                themselves;


·
            The
                Company discontinued the use of activation checks as a promotional
                incentive;


·
            The
                Company suspended billing of any active customer that was acquired
                in
                connection with the use of an activation check until a letter was
                mailed
                notifying the customer of their legal rights to cancel the service
                and
                providing them a 60-day opportunity to receive a refund equivalent
                to the
                customer’s last two payments; and


·
            The
                Company will not employ any collection efforts with respect to past-due
                accounts of customers that were secured through the use of an activation
                check, nor will it represent its ability to do
                so.





The
      Company recorded a charge of $3,525,000 in litigation and related expenses
      in
      the fourth quarter of fiscal 2006, consisting of a settlement accrual of
      $2,000,000 and $1,525,000 of accrued refunds, processing fees, legal and other
      related fees.  Customers had through February 2007 to apply for these
      refunds.





Through
      June 30, 2007 the Company paid the settlement fee of $2,000,000, refunds
      totaling approximately $902,000 and other related costs of approximately
      $376,000.  During the second quarter of fiscal 2007, the Company
      reversed approximately $200,000 of accrued refunds and other costs, which is
      included in litigation and related expenses in the accompanying unaudited
      consolidated statement of operations.   The remaining accrual of
      approximately $17,000, for estimated future administrative costs related to
      this
      settlement, is included in accrued liabilities in the accompanying unaudited
      consolidated balance sheet at June 30, 2007.





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      CORP. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**








Change
      in Officers and Employment Agreement





Effective
      June 6, 2007, the Company appointed Rajesh Navar, 39, President of the Company.
      Mr. Navar brings to the Company over 16 years of experience in building high
      technology and Internet companies and was an original member of the engineering
      and management teams at eBay and other Internet companies.  Prior to
      founding LiveDeal, Mr. Navar joined eBay in 1998, a start-up at that time,
      as a
      senior member of the engineering team. In September 2005, Mr. Navar was honored
      among Silicon Valley Business Journal's chronicle of "40 under 40" people to
      watch.  Mr. Navar holds a Master's in Business Management (Sloan Fellow)
      from Stanford University's Graduate School of Business, a M.S. in
      Electrical Engineering from Iowa State University and a Bachelor of
      Engineering in Electronics Engineering from Bangalore University in
      Bangalore, India.





In
      connection with acquisition described in Note 4 above, the Company entered
      into
      a three-year employment agreement with Mr. Navar. The agreement provides for
      a
      base salary of $300,000 per year plus participation in the Company's health,
      disability and dental benefits, insurance programs, pension and retirement
      plans, and all other employee benefit and compensation arrangements available
      to
      other senior officers of the Company. Commencing in the second year, Mr. Navar's
      annual salary will be increased on an annual basis at a rate of at least 10%
      of
      the preceding year's annual salary. The Company will also reimburse Mr. Navar
      for all business expenses incurred by him in connection with his employment
      with
      the Company.





The
      agreement also provides that, if Mr. Navar's employment is terminated as a
      result of his death, disability, for Cause (as defined in the agreement), the
      agreement otherwise expires, or for any reason other than Good Reason (as
      defined in the agreement), Mr. Navar or his estate, conservator or designated
      beneficiary, as the case may be, will be entitled to payment of any earned
      but
      unpaid annual salary for the year in which Mr. Navar's employment is terminated
      through the date of termination, as well as any accrued but unused vacation,
      reimbursement of expenses, and vested benefits to which Mr. Navar is entitled
      in
      accordance with the terms of each applicable benefit plan. In the event Mr.
      Navar's employment is terminated for any other reason or if Mr. Navar terminates
      his own employment for Good Reason on or before the expiration of the Agreement,
      and provided that Mr. Navar executes a valid release of any and all claims
      that
      Mr. Navar may have relating to his employment against the Company, Mr. Navar
      will be entitled to receive any earned but unpaid annual salary for the year,
      any accrued but unused vacation, reimbursement of expenses and vested benefits
      to which Mr. Navar is entitled in accordance with the terms of each applicable
      benefit plan, plus a lump sum amount equal to three months of annual salary
      that
      Mr. Navar would receive under the agreement if his employment with the Company
      had not been terminated.





In
      addition, in the event Mr. Navar's employment is terminated as a result of
      his
      death, Mr. Navar's estate, conservator or designated beneficiary, as the case
      may be, will be entitled to receive, in addition to Mr. Navar's accrued salary
      and benefits through the date of death, a lump sum payment equivalent to three
      months of Mr. Navar's annual salary in effect at the time of death.





On
      June
      6, 2007, the Company also entered into a Noncompetition, Nondisclosure, and
      Nonsolicitation Agreement with Mr. Navar, which provides that Mr. Navar will
      not: (i) disclose the Company's confidential information; (ii) compete with
      the
      Company until the third anniversary of the agreement or for one year after
      his
      employment or service to the Company is terminated (unless he is terminated
      for
      Cause or Good Reason), whichever is longer; (iii) solicit employees of the
      Company until the second anniversary of the agreement or for one year after
      his
      employment or service to the Company is terminated, whichever is longer; and (iv)
      solicit clients of the Company until the third anniversary of the agreement
      or
      for one year after his employment or service to the Company is terminated
      (unless he is terminated for Cause or Good Reason), whichever is
      longer.




Other
      Contractual Commitments





During
      the second quarter of fiscal 2006, the Company entered into a contractual
      arrangement with an attorney to provide in-house legal
      services.  Under the terms of the agreement, the Company is obligated
      to make future payments over the remainder of the contract, which expires in
      fiscal 2008, totaling $94,500 in exchange for future services.  Such
      amounts have not been accrued in the accompanying consolidated financial
      statements as such payments are for future services.  The Company has
      expensed all amounts related to services rendered through June 30,
      2007.





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            of Contents*





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      CORP. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**








During
      the third quarter of fiscal 2006, the Company entered into a contractual
      arrangement with a consulting firm to provide strategic and operational related
      consulting services.  Under the terms of the agreement, the Company is
      obligated to make future payments through February 2010 that vary based on
      the
      Company’s billed customer count, subject to a minimum of $20,000 per
      month.  Current payments are approximately $62,000 per
      month.  Such amounts have not been accrued in the accompanying
      consolidated financial statements as such payments are for future
      services.  The Company has expensed all amounts related to services
      rendered through June 30, 2007.





During
      the fourth quarter of fiscal 2006, the Company entered into a contractual
      arrangement with an information technology company to provide information
      technology consulting services.  Under the terms of the agreement, the
      Company is obligated to make future monthly payments of $29,500 through
      September 2009.  Such amounts have not been accrued in the
      accompanying consolidated financial statements as such payments are for future
      services.  The Company has expensed all amounts related to services
      rendered through June 30, 2007.





On
      February 2, 2007, LiveDeal and CBS Television Stations Digital Media Group
      (“CBS”) entered into a Co-Branded Website License Agreement (the
“Agreement”).  Under the Agreement, LiveDeal granted to CBS a license
      to use, display, publish, distribute and transmit the “Co-Branded Website”
(content available at www.livedeal.com) in exchange for a recurring monthly
      fee
      and a percentage of the revenues derived from the website.   The
      Agreement provides for an initial term of 12 months.  In addition,
      either party may terminate the Agreement immediately for cause in the event
      that
      the other party (i) ceases to do business; (ii) breaches a material provision
      of
      the Agreement and fails to cure such breach within 30 days of receiving written
      notice thereof; or (iii) becomes insolvent or enters bankruptcy
      proceedings.




6.  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. The Company records,
      among other items, deferred tax assets related to book-tax differences in the
      recognition of restricted stock awards to officers, directors, employees and
      consultants.  During the three and nine months ended June 30, 2007, a
      portion of our restricted stock awards had vested and, due to declines in our
      stock price from grant date to vest date, the tax effects of the vesting of
      these awards were less than the carrying value of our related deferred tax
      assets.  Accordingly, the Company incurred an additional $145,000 and
      $279,000 of income tax expense for the three and nine months ended June 30,
      2007, related to the write-off of these deferred tax assets.





Excluding
      the effects of the acquisition described in Note 4, the Company’s net deferred
      tax assets have been reduced by approximately $1.5 million during the nine
      months ended June 30, 2007 due to the utilization of deferred tax assets related
      to accruals for the Attorneys’ General settlement and the Company’s provision
      for doubtful accounts.





During
      the nine months ended June 30, 2007, the Company made estimated tax payments
      based primarily on the Company’s book income.  However, because of the
      utilization of certain deferred tax assets, the Company’s taxable income was
      significantly less than book income, giving rise to an income tax receivable
      at
      June 30, 2007.





7.  NET
      INCOME PER SHARE





Net
      income per share is calculated using the weighted average number of shares
      of common stock outstanding during the period.  Basic weighted average
      common shares outstanding do not include shares of restricted stock that have
      not yet vested, although such shares are included as outstanding shares in
      the
      Company’s unaudited consolidated balance sheet.  Preferred stock
      dividends are subtracted from net income to determine the amount available
      to common stockholders.





14
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            of Contents*





**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**








The
      following table presents the computation of basic and diluted net income per
      share:





**Three Months Ended June 30,**
            
            
            **Nine Months Ended June 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Income
                before cumulative effect of accounting change
            
            $
            266,405
            
            
            $
            826,848
            
            
            $
            1,377,865
            
            
            $
            629,754Less:
                preferred stock dividends
            
            
            (478
            )
            
            
            -
            
            
            
            (1,916
            )
            
            
            -Income
                applicable to common stock
            
            $
            265,927
            
            
            $
            826,848
            
            
            $
            1,375,949
            
            
            $
            629,754Basic
                weighted average common shares outstanding
            
            
            50,242,285
            
            
            
            44,642,094
            
            
            
            47,156,300
            
            
            
            44,748,047Add
                incremental shares for:Unvested
                restricted stock
            
            
            2,315,073
            
            
            
            1,810,810
            
            
            
            2,191,426
            
            
            
            890,244Series
                E convertible preferred stock
            
            
            68,181
            
            
            
            74,573
            
            
            
            64,994
            
            
            
            53,080Outstanding
                warrants
            
            
            -
            
            
            
            9,259
            
            
            
            -
            
            
            
            3,086Diluted
                weighted average common shares outstanding
            
            
            52,625,539
            
            
            
            46,536,736
            
            
            
            49,412,720
            
            
            
            45,694,457Net
                income per share:Basic
            
            $
            0.01
            
            
            $
            0.02
            
            
            $
            0.03
            
            
            $
            0.01Diluted
            
            $
            0.01
            
            
            $
            0.02
            
            
            $
            0.03
            
            
            $
            0.01








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





**Three Months Ended June 30,**
            
            
            **Nine Months Ended June 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Warrants
                to purchase shares of common stock
            
            
            -
            
            
            
            500,000
            
            
            
            -
            
            
            
            500,000Shares
                of non-vested retricted stock
            
            
            530,750
            
            
            
            171,000
            
            
            
            670,820
            
            
            
            1,282,505530,750
            
            
            
            671,000
            
            
            
            670,820
            
            
            
            1,782,505





The
      warrants were antidilutive for the three and nine months ended June 30, 2006
      as
      they were “out-of-the-money” and were excluded from the calculations for the
      three and nine months ended June 30, 2007 as they expired in fiscal
      2006.  The shares of non-vested restricted stock included in the above
      table were determined to be antidilutive based on the application of the
      treasury stock method.




8. CONCENTRATION
      OF CREDIT RISK





The
      Company maintains cash balances at major nationwide institutions in Arizona
      and
      Nevada.  Accounts are insured by the Federal Deposit Insurance
      Corporation up to $100,000.  At times, including at June 30, 2007, the
      Company’s bank balances exceed federally insured limits.





15
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            of Contents*





**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**








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
      four third-party billing companies.  The net receivable due from three
      of these billing service providers represented 28%, 28% and 20%, respectively,
      of the Company’s total net accounts receivable (excluding
      non-specific reserves) at June 30, 2007. The net receivable due from
      such billing services providers represented 27%, 27% and 27%, respectively,
      of
      the Company’s total net accounts receivable at September 30,
      2006.




9. 
      STOCK REPURCHASE PROGRAM





In
      May 2007, the Company's Board of Directors approved the termination of
      the Company's existing $3 million stock repurchase program and adopted


an amended
      stock repurchase program authorizing the repurchase up to $1 million of the
      Company's common stock from time to time in the open market or through privately
      negotiated transactions.




10. RECENT
      ACCOUNTING PRONOUNCEMENTS





In
      February of 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 155, “Accounting for Certain Hybrid Financial Instruments”, which is
      intended to simplify the accounting and improve the financial reporting of
      certain hybrid financial instruments (i.e., derivatives embedded in other
      financial instruments). The statement amends SFAS No. 133, “Accounting for
      Derivative Instruments and Hedging Activities”, and SFAS No. 140, “Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities—a replacement of FASB Statement No. 125.” SFAS No. 155 is effective
      for all financial instruments issued or acquired after the beginning of an
      entity's first fiscal year that begins after September 15, 2006. The Company
      has
      not issued any such instruments since the effective date of this
      pronouncement.





In
      March
      of 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets, an amendment of FASB Statement No. 140” (SFAS 156).  SFAS 156
      amends SFAS 140, ”Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities a replacement of FASB Statement No. 125,” with
      respect to the accounting for separately recognized servicing assets and
      servicing liabilities. SFAS 156 requires an entity to recognize a servicing
      asset or servicing liability each time it undertakes an obligation to service
      a
      financial asset by entering into a servicing contract in any of the following
      situations: (a) a transfer of the servicer’s financial assets that meets the
      requirements for sale accounting, (b) a transfer of the servicer’s financial
      assets to a qualifying special-purpose entity in a guaranteed mortgage
      securitization in which the transferor retains all of the resulting securities
      and classifies them as either available-for-sale securities or trading
      securities, and (c) an acquisition or assumption of an obligation to service
      a
      financial asset that does not relate to financial assets of the servicer or
      its
      consolidated affiliates. SFAS 156 is effective for all servicing assets and
      liabilities as of the beginning of an entity’s first fiscal year that begins
      after September 15, 2006.  The Company has no such servicing
      arrangements and, thus, the effect of adoption of SFAS 156 did not have a
      material impact on the Company’s consolidated financial statements.





In
      July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes (FIN 48) – an interpretation of FASB Statement No.
      109, Accounting for Income Taxes (SFAS No. 109)” (FIN 48). FIN 48 clarifies the
      accounting for uncertainty in income taxes recognized in accordance with SFAS
      No. 109 and prescribes a recognition threshold and measurement attribute for
      the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a return. Guidance is also provided on de-recognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. FIN 48 is effective for fiscal years beginning after
      December 15, 2006.  The Company is currently evaluating the impact of
      FIN 48 on its financial position and results of operations.





16
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            of Contents*





**YP
      CORP. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**








In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108,
**“Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial
      Statements”**(“SAB 108”).  SAB 108 provides guidance on
      how prior year misstatements should be considered when quantifying misstatements
      in the current year financial statements.  The SAB requires
      registrants to quantify misstatements using both a balance sheet and an income
      statement approach and evaluate whether either approach results in quantifying
      a
      misstatement that, when all relevant quantitative and qualitative factors are
      considered, is material.  SAB 108 does not change the guidance in SAB
      99, “Materiality”, when evaluating the materiality of
      misstatements.  SAB 108 is effective for fiscal years ending after
      November 15, 2006.  The adoption of this pronouncement did not have a
      material effect of the Company’s consolidated financial statements.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS
      157).  SFAS 157 defines fair value, establishes a framework for
      measuring fair value and expands disclosures about fair value measurements.
      Where applicable, SFAS 157 clarifies and codifies related guidance within other
      generally accepted accounting principles. SFAS 157 is effective for fiscal
      years
      beginning after November 15, 2007.  The effect of adoption of SFAS 157
      is not anticipated to have a material impact on the Company’s consolidated
      financial statements.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities”, which provides companies with an
      option to report selected financial assets and liabilities at fair
      value.  SFAS No. 159 also establishes presentation and disclosure
      requirements designed to facilitate comparisons between companies that choose
      different measurement attributes for similar types of assets and
      liabilities.  SFAS No. 159 is effective as of the beginning of an
      entity’s first fiscal year beginning after November 15, 2007 with early adoption
      allowed.  The Company has not yet determined the impact, if any, that
      adopting this standard might have on its financial statements.





11.  SUBSEQUENT
      EVENTS





Acquisition
      of OnCall Subscriber Management Inc.





On
      July
      10, 2007,the Company
      acquired substantially all of the assets and assumed certain liabilities of
      OnCall Subscriber Management Inc. (a Manila, Philippines-based company), which
      OnCall purchased recently under option from 24 by 7 Contact Solutions,
      Inc.  The Company completed the acquisition through 247 Marketing,
      LLC, a wholly owned subsidiary, which will establish a branch office in the
      Philippines to operate the business.  The purchase price of the
      acquisition was $4,500,000 payable in cash. The acquisition will add 170
      Philippines-based employees to the Company’s workforce.




Changein Directors





Effective
      August 3, 2007, Elisabeth DeMarse resigned from the board of directors of the
      Company as disclosed in the Company’s Form 8-K filed on August 9,
      2007.





Shareholder
      Meeting





The
      following matters were approved by the Company’s stockholders at Special Meeting
      of Stockholders held on August 2, 2007:





·
            A
                proposal to give the Company’s Board of Directors discretion to effect a
                reverse stock split with respect to issued and outstanding shares
                of our
                common stock; and





·
            A
                proposal to amend and restate the Company’s Restated Articles of
                Incorporation to change the Company’s name from “YP Corp.” to “LiveDeal,
                Inc.”





The
      name
      change will become effective on August 15, 2007.  As the stock split
      had not yet been effected by the Company’s Board of Directors, all per share
      amounts included herein have been unaffected by the actions taken during the
      meeting held on August 2, 2007.







*                      *                      *





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ITEM
                2.
            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 three and nine
      months ended June 30, 2007, this  “Item 2.  Management’s
      Discussion and Analysis of Financial Condition and Results of Operations”
(hereafter referred to as “MD&A”) should be read in conjunction with the
      Consolidated Financial Statements, including the related notes, appearing in
      Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report
      on
      Form 10-K for the year ended September 30, 2006.




**Forward-Looking
      Statements**





This
      portion of this Quarterly Report on Form 10-Q, 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.





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 our Annual Report on
      Form
      10-K for the fiscal year ended September 30, 2006 under Item 1A “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.





*Acquisition
      of LiveDeal, Inc*





On
      June
      6, 2007, we completed the acquisition of LiveDeal, Inc.
      (“LiveDeal”).  LiveDeal has developed and operates an online local
      classifieds marketplace, www.livedeal.com which has more than a million goods
      and services listed for sale, in almost every city and zip code across the
      U.S.
      LiveDeal offers such classifieds functionality as fraud protection, identity
      protection, e-commerce, listing enhancements, photos, community-building,
      package pricing, premium stores, featured Yellow Page business listings and
      advanced local search capabilities. Additionally, the LiveDeal technology lets
      consumers search or browse for items in a particular city, state or zip
      code.





At
      the
      site, users can search classifieds in any region, and can look up businesses
      in
      a yellow pages database. As with most such classified ad sites, users are
      offered a search window, and a listing of subcategories. It appears that sales
      are made directly between the user (buyer) and seller, and an "email the seller"
      link is provided to assist in this process.





Among
      the
      interesting features of LiveDeal’s site is "Local AdWiz", which is a classifieds
      and yellow pages distribution network, turning any web site or blog into a
      unique and localized classifieds and yellow pages site in seconds. AdWiz gives
      website publishers fresh local content and an instant revenue stream. Local
      AdWiz pulls from millions of classified and yellow page listings across multiple
      categories from people in cities and towns all over the U.S. AdWiz enables
      the
      listings to be republished dynamically on any website within
      seconds.





Rajesh
      Navar, the founder & CEO of LiveDeal, will serve as president and chief
      architect of YP Corp. and also joined our board, as of
      the effective date of the acquisition. Mr. Navar brings more than 16
      years experience in building high technology and Internet companies. Mr. Navar
      was an original member of the engineering and management team at
      eBay.  Prior to founding LiveDeal, Navar joined eBay in 1998, a
      start-up at that time, as a senior member of the engineering team. In September,
      2005, Navar was honored among Silicon Valley Business Journal's chronicle of
      "40
      under 40" people to watch.





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The
      acquisition represents a major strategic event in our history and is expected
      to
      result in significant efficiencies as well as future growth
      opportunities.  The third quarter’s results of operation include
      LiveDeal’s operating results from June 6, 2007 through June 30,
      2007.  The unaudited balance sheet includes LiveDeal assets and
      liabilities acquired as of June 6, 2007 as well as a preliminary allocation
      of
      the purchase price.





The
      aggregate purchase price of LiveDeal was approximately $12,741,000, consisting
      of approximately $12,328,000 of stock-based consideration and approximately
      $413,000 of acquisition-related expenses.  The value of the combined
      16,750,061 shares of Common Stock granted in the transaction was determined
      based on the average closing market price of the Common Stock over the two
      day
      period before and after the effective date of the acquisition.





The
      following table presents the allocation of the acquisition cost, including
      acquisition-related expenses, to the assets acquired and liabilities assumed,
      based on their fair values:





Current
                assets
            
            $
            962,877Property,
                plant and equipment
            
            
            70,000Goodwill
            
            
            7,389,951Intangible
                assets
            
            
            2,130,000Deferred
                tax assets
            
            
            3,545,618Other
                non-current assets
            
            
            10,846Total
                assets acquired
            
            
            14,109,292Current
                liabilities
            
            
            1,368,012Total
                liabilities assumed
            
            
            1,368,012Net
                assets acquired
            
            $
            12,741,280




Further
      information with respect to this acquisition is set forth in Note 4 to our
      unaudited consolidated financial statements.




*Acquisition
        of OnCall Subscriber Management Inc.*
 
 On
        July
        10, 2007, we acquired substantially all of the assets and assumed certain
        liabilities of OnCall Subscriber Management Inc. (a Manila, Philippines-based
        company), which OnCall purchased recently under option from 24 by 7 Contact
        Solutions, Inc. We completed the acquisition through 247 Marketing, LLC,
        a
        wholly owned subsidiary, which will establish a branch office in the Philippines
        to operate the business. The purchase price of the acquisition was $4,500,000
        payable in cash. The acquisition will add 170 Philippines-based employees
        to our
        workforce.


*Income
      Statement Reclassifications*





During
      the second quarter of fiscal 2007, we revisited our consolidated financial
      statement presentation.  As such, we have determined that it is
      preferable to reflect dilution and chargeback amounts as a reduction in net
      revenues, include depreciation and amortization in general and administrative
      expenses, and show expenses related to the attorneys general settlement as
      litigation and related expenses.  Previously, these amounts were
      respectively included in cost of sales, shown as a separate expense item, and
      presented in other income (expense).  We also made certain
      reclassifications with respect to the classifications of certain accounts on
      our
      consoldated balance sheet.  Our auditors have reviewed these changes
      and concur with our current presentation.  All prior periods have been
      reclassified to conform to the current period presentation.  See Note
      1 to our unaudited consolidated financial statements.





*Recent
      Operating Results*





We
      bill
      our customers through four primary channels: LEC billing, ACH billing, recurring
      credit card and direct invoice.  In fiscal 2006, we began acquiring
      new customers via telemarketing campaigns, which are allowed to be billed via
      LECs.  These telemarketing campaigns have reopened certain LEC billing
      channels as a viable billing channel.   Additionally, our monthly
      billing rates are higher for customers acquired via telemarketing
      campaigns.  For these reasons, as well as the cessation of the use of
      our activation checks, we expect to continue to expand our telemarketing
      campaigns in the future.  The Company’s online traffic acquisition
      strategy includes activities in e-mail marketing, search engine marketing (SEM)
      search engine optimization (SEO) partnerships with major online marketing
      companies, and the generation of word of mouth advertising.  We
      anticipate continued investment in online advertising to bring increased traffic
      to our websites which should result in increased value to the local business
      advertising community thereby driving increased revenues.





19
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            of Contents*





In
      fiscal
      2007, as a result of the Attorneys’ General settlement, we experienced an
      increase in customer cancellations associated primarily with customers billed
      through our ACH channel.  The net impact of this was to reduce our ACH
      revenues and, because we experienced a decline in ACH customer counts, this
      increased the relative percentage of customers that are billed through LEC
      channels.





During
      2007, because we were no longer able to utilize activation check campaigns,
      we
      reduced our headcount associated with customer service representatives that
      previously reconfirmed activated customers and performed other service
      activities related to the check campaigns.  We also began to invest in
      the necessary infrastructure to expand our telemarketing campaigns.





The
      following represents a summary of recent financial results (certain amounts
      have
      been reclassified to conform to the current period presentation as described
      in
      Note 1 to our unaudited consolidated financial statements):




**Q3
                2007**
            
            
            **Q2
                2007**
            
            
            **Q1
                2007**
            
            
            **Q4
                2006**
            
            
            **Q3
                2006**
            
            
            **Q2
                2006**Net
                Revenues
            
            $
            5,989,437
            
            
            $
            6,106,544
            
            
            $
            7,123,683
            
            
            $
            8,335,284
            
            
            $
            8,577,639
            
            
            $
            7,997,623Gross
                margin
            
            
            5,278,179
            
            
            
            5,324,346
            
            
            
            6,296,874
            
            
            
            7,047,642
            
            
            
            7,843,120
            
            
            
            7,410,733Operating
                expenses
            
            
            4,701,818
            
            
            
            4,218,620
            
            
            
            5,556,819
            
            
            
            9,403,319
            
            
            
            6,613,886
            
            
            
            7,278,872Operating
                income (loss)
            
            
            576,361
            
            
            
            1,105,726
            
            
            
            740,055
            
            
            
            (2,355,677
            )
            
            
            1,229,234
            
            
            
            131,861Net
                income (loss)
            
            
            266,405
            
            
            
            626,262
            
            
            
            485,198
            
            
            
            (1,680,673
            )
            
            
            826,847
            
            
            
            129,998




_________________





(1)
      The
      following items are relevant to our recent quarterly operating results, each
      of
      which are further described herein:





·
            On
                June 6, 2007, the Company completed the acquisition of LiveDeal,
                Inc.  The results of operations include LiveDeal’s operating
                loss, for the period of June 6, 2007 through June 30, 2007, of
                approximately $150,000. The Company expects the benefits of the LiveDeal
                merger to begin to be realized during fiscal 2008.  These
                benefits are expected to come from increased revenue growth as marketing
                campaigns gain footing and through cost reductions as the operational
                groups are optimized.





·
            Second
                quarter of fiscal 2007 – includes the reversal of approximately $200,000
                of accrued expenses related to the Attorneys’ General
                settlement.





·
            First
                quarter of fiscal 2007 – includes approximately $1,000,000 of direct
                response advertising costs incurred in October 2006 for which we
                derived
                no substantial benefit based on the attorneys’ general settlement that was
                agreed to in December 2006.





·
            Fourth
                quarter of fiscal 2006 – includes the following charges associated with
                the voluntary agreement with various regulatory agencies surrounding
                the
                use of activation checks (described in Recent Developments and Outlook
                above):





o
            $2,000,000
                payment to cover regulatory and related
                expenses


o
            $1,525,000
                of accrued refunds, processing fees, legal and other related
                fees





20
 *Table
            of Contents*





·
            Third
                quarter of fiscal 2006 –  no significant unusual expenses were
                incurred.





·
            Second
                quarter of fiscal 2006 – includes an increase of general and
                administrative expenses of approximately $80,000 related to separation
                costs with our former Chief Financial Officer and $39,000 related
                to
                separation costs with other
                employees.




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




**Q3
                2007**
            
            
            **Q2
                2007**
            
            
            **Q1
                2007**
            
            
            **Q4
                2006**
            
            
            **Q3
                2006**
            
            
            **Q2
                2006**LEC
                billing
            
            
            66
            %
            
            
            65
            %
            
            
            55
            %
            
            
            56
            %
            
            
            55
            %
            
            
            44
            %ACH
                billing
            
            
            28
            %
            
            
            31
            %
            
            
            41
            %
            
            
            39
            %
            
            
            39
            %
            
            
            47
            %Direct
                billing
            
            
            4
            %
            
            
            4
            %
            
            
            4
            %
            
            
            5
            %
            
            
            6
            %
            
            
            9
            %Classified
            
            
            2
            %
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %




The
      higher percentage of LEC billings in Q3 2007 and Q2 2007 is directly related
      to
      the effects of the significant customer loss occurring in the second quarter,
      as
      most of the customer cancellations were for customers billed through our ACH
      channel.





**Results
      of Operations**





*Net
      Revenues*





**Net
                Revenues****2007**
            
            
            **2006**
            
            
            **Change**Three
                Months Ended June 30,
            
            $
            5,989,437
            
            
            $
            8,577,640
            
            
            $
            (2,588,203
            )Nine
                Months Ended June 30,
            
            $
            19,219,664
            
            
            $
            23,622,664
            
            
            $
            (4,403,000
            )




Gross
      revenue for the quarter ended June 30, 2007 versus quarter ended June 30, 2006
      was down $4 million while returns and allowances were down $1.5
      million.  For the nine months ended June 30, 2007 as compared to the
      nine months ended June 30, 2006, gross revenues were down $7 million while
      returns and allowances were down $2.6 million.  The primary reason for
      the decrease in net revenues, for the three and nine months ended June 30,
      2007,
      was a lower paid listings count.





At
      June
      30, 2007, the Company had approximately 76,000 yellow page paid listings as
      compared to approximately 133,000 paid listings at June 30, 2006. Average
      monthly gross revenue per average billed yellow page listing for the quarter
      ended June 30, 2007 was approximately $30.15 as compared to $29.40 for the
      quarter ended March 31, 2007 and $26.98 for the quarter ended June 30, 2006.
      The
      majority of our IAP customers pay between $27.50 and $39.95 per
      month.





The
      Company has been successful in opening new territories, but we have taken a
      very
      measured approach in adding new customers to these territories to ensure we
      stay
      within the guidelines of billing channels.  The Company‘s growth
      strategy is to introduce innovative new products, enhance customer recognition
      of our brands, continue to expand our footprint in the local search market
      and,
      where appropriate, make strategic acquisitions.





On
      June
      6, 2007, the Company completed its acquisition of LiveDeal, Inc.  The
      results of operations include LiveDeal operating results for the period of
      June
      6, 2007 through June 30, 2007.  Included in the Company’s net revenue
      for the three and nine months ended June 30, 2007 is approximately $140,000
      of
      net revenues generated by LiveDeal sales and marketing activities.  At
      June 30, 2007, LiveDeal had 2362 classified advertising customers and 686
      premium store subscriber customers.  Revenues per customer vary based
      on the respective services provided to each customer.





21
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            of Contents*





Although
      we have concentrations of risk with our billing aggregators (see Note 8 to
      our
      unaudited consolidated financial statements) these aggregators bill via many
      underlying LECs, thereby reducing our risk associated with credit
      concentrations.  However, there are a few LECs that service a
      significant number of our customers.  To the extent that future
      changes in their billing practices cause a disruption in our ability to bill
      through these channels, our revenues could be adversely affected.




*Cost
      of Services*





**Cost
                of Services****2007**
            
            
            **2006**
            
            
            **Change**Three
                Months Ended June 30,
            
            $
            711,258
            
            
            $
            734,519
            
            
            $
            (23,261
            )Nine
                Months Ended June 30,
            
            $
            2,320,265
            
            
            $
            1,858,380
            
            
            $
            461,885





The
      slight decrease in cost of services for the three months ended June 30, 2007,
      as
      compared to the three months ended June 30, 2006, is attributable to lower
      billing fees partially offset by fees attributable to our wholesale account
      activity which was minimal in third quarter of fiscal 2006.  The
      increase in cost of services for the nine months ended June 30, 2007, as
      compared to June 30, 2006, is primarily due to fees attributable to our
      wholesale accounts which did not exist in the second quarter of fiscal 2006
      and
      were minimal in the third quarter of 2006. Cost of services attributable to
      LiveDeal that were included for the period June 6, 2007 through June 30, 2007
      were immaterial to the third quarter’s results.




*Gross
      Profit*





**Gross
                Profit****2007**
            
            
            **2006**
            
            
            **Change**Three
                Months Ended June 30,
            
            $
            5,278,179
            
            
            $
            7,843,121
            
            
            $
            (2,564,942
            )Nine
                Months Ended June 30,
            
            $
            16,899,399
            
            
            $
            21,764,284
            
            
            $
            (4,864,885
            )




The
      decrease in our gross profits was due to decreased net revenues attributable
      to
      the lower paid listing counts, as described above and an increase in cost of
      services primarily from costs attributable to our wholesale accounts, also
      described above.





*General
      and Administrative
      Expenses*





**General
                and Administrative Expenses****2007**
            
            
            **2006**
            
            
            **Change**Three
                Months Ended June 30,
            
            $
            3,399,803
            
            
            $
            3,481,148
            
            
            $
            (81,345
            )Nine
                Months Ended June 30,
            
            $
            10,181,167
            
            
            $
            11,718,618
            
            
            $
            (1,537,451
            )




General
      and administrative expenses decreased for the quarter and nine months ended
      June
      30, 2007 compared to the quarter and nine months ended June 30,
      2006.  This decrease in general and administrative expenses is largely
      due to reductions in our workforce and other costs related to the cessation
      of
      call center activities and other administrative functions associated with our
      check activation campaigns which served to reduce our expenses for compensation
      and reconfirmation, mailing, billing, and other customer-related
      costs.  During the nine months ended June 30, 2006, we incurred
      a  charge of $456,500 associated with the termination of our former
      Chief Executive Officer, Chief Financial Officer and various other
      employees.   These decreases were partially offset by increased
      travel costs related to investor relations campaigns and an increase in
      operational consulting fees.





On
      June
      6, 2007, the Company completed its acquisition of LiveDeal,
      Inc.  Results of operations include operating results from LiveDeal
      from June 6, 2007 through June 30, 2007, and consequently, approximately
      $195,000 of general and administrative attributable to LiveDeal are included
      in
      the three and nine months ended June 30, 2007.





22
 *Table
            of Contents*





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





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





**Q3
                2007**
            
            
            **Q2
                2007**
            
            
            **Q1
                2007**
            
            
            **Q4
                2006**
            
            
            **Q3
                2006**
            
            
            **Q2
                2006**Compensation
                for employees, leased employees, officers and directors
            
            $
            1,760,439
            
            
            $
            1,877,103
            
            
            $
            1,873,582
            
            
            $
            2,073,646
            
            
            $
            1,908,099
            
            
            $
            2,476,713Professional
                fees
            
            
            693,775
            
            
            
            495,459
            
            
            
            678,089
            
            
            
            697,784
            
            
            
            649,706
            
            
            
            479,696Reconfirmation,
                mailing, billing and other customer-related costs
            
            
            24,269
            
            
            
            34,042
            
            
            
            23,715
            
            
            
            39,180
            
            
            
            245,597
            
            
            
            396,883Depreciation
                and amortization
            
            
            396,759
            
            
            
            364,724
            
            
            
            336,887
            
            
            
            316,688
            
            
            
            351,342
            
            
            
            369,519Other
                general and administrative costs
            
            
            524,561
            
            
            
            539,250
            
            
            
            558,513
            
            
            
            411,225
            
            
            
            326,405
            
            
            
            358,808





Included
      in compensation for employees, leased employees, officers and directors is
      stock
      compensation, which is the amortization of estimated value for our stock grants
      under our 2003 stock plan.   For the quarter ended June 30, 2007,
      this expense was approximately $335,000 as compared to approximately $408,000
      for the same period in fiscal 2006.  For the nine months ended June
      30, 2007, this expense was approximately $1,170,000 as compared to $1,326,000
      for the nine months ended June 30, 2006.





Included
      in other general and administrative costs are expenses for facilities,
      utilities, telephone, communications, insurance, travel, office-related,
      investor relations and other miscellaneous charges.





*Sales
      and Marketing
      Expenses*


**Sales
                and Marketing Expenses****2007**
            
            
            **2006**
            
            
            **Change**Three
                Months Ended June 30,
            
            $
            1,302,015
            
            
            $
            3,132,737
            
            
            $
            (1,830,722
            )Nine
                Months Ended June 30,
            
            $
            4,496,808
            
            
            $
            9,090,539
            
            
            $
            (4,593,731
            )




As
      discussed in Note 2 to our unaudited consolidated financial statements, we
      enacted a change in accounting principle in the fourth quarter of fiscal 2006
      to
      expense customer acquisition costs when they are incurred and have retroactively
      restated all prior periods presented to reflect such a change.





Sales
      and
      marketing expenses decreased in the quarter and nine months ended June 30,
      2007
      as compared to the quarter and nine months ended June 30, 2006 primarily due
      to
      the cessation of activation checks.  As previously discussed, we have
      ceased utilizing activation checks.  However, we did incur
      approximately $1,000,000 of expenses in the first quarter of fiscal 2007
      associated with check mailers for which we derived no substantial benefit.
      Funds
      previously spent on mail campaigns will be earmarked toward other marketing
      efforts in the future.  We expect telemarketing campaigns and
      investments in online advertisement to be our primary source of sales and
      marketing expenditures in fiscal 2007.





On
      June
      6, 2007, the Company completed its acquisition of LiveDeal, Inc.  The
      results of operations include LiveDeal operating results for the period of
      June
      6, 2007 through June 30, 2007.  Included in the Company’s sales and
      marketing expense for the three and nine months ended June 30, 2007 is
      approximately $94,000 of LiveDeal sales and marketing expenses.





*Litigation
      and Related Expenses*





**Litigation
                and Related Expenses****2007**
            
            
            **2006**
            
            
            **Change**Three
                Months Ended June 30,
            
            $
            -
            
            
            $
            -
            
            
            $
            -Nine
                Months Ended June 30,
            
            $
            (200,718
            )
            
            $
            161,804
            
            
            $
            (362,522
            )




23
 *Table
            of Contents*





There
      were no litigation and related expenses for the three months ended June 30,
      2007
      and June 30, 2006.  For the nine months ended June 30, 2007,
      litigation and related expenses relate to the reversal of a portion of the
      accruals for refunds and other costs that were recorded in the fourth quarter
      of
      fiscal 2006 associated with the Attorneys’ General
      settlement.  Litigation and related expenses for the nine months ended
      June 30, 2006 relate to adjustments for legal accruals related to the settlement
      of a dispute with a former vendor.





*Operating
      Income*





**Operating
                Income****2007**
            
            
            **2006**
            
            
            **Change**Three
                Months Ended June 30,
            
            $
            576,361
            
            
            $
            1,229,236
            
            
            $
            (652,875
            )Six
                Months Ended March 31,
            
            $
            2,422,142
            
            
            $
            793,323
            
            
            $
            1,628,819





For
      the
      three months ended June 30, 2007, as compared to the three months ended June
      30,
      2006, operating income decreased primarily due to the approximately $2.6 million
      unfavorable variance in net revenues.  Partially offsetting this
      deficit were favorable variances of approximately $80,000 in general and
      administrative expenses and approximately $1.8 million in sales and marketing
      expenses.




For
      the
      nine months ended June 30, 2007, as compared to the nine months ended June
      30,
      2006, operating income increased primarily due to favorable variances in
      operating expenses of approximately $6.5 million and a favorable variance of
      approximately $462,000 in cost of services.  These favorable variances
      were partially offset by an unfavorable net revenue variance of approximately
      $4.4 million.




On
      June
      6, 2007, the Company completed its acquisition of LiveDeal, Inc.  The
      results of operations include LiveDeal operating results for the period of
      June
      6, 2007 through June 30, 2007.  Included in the Company’s operating
      income for the three and nine months ended June 30, 2007 is an operating loss
      of
      approximately  $150,000 from LiveDeal operations.




*Income
      Tax Provision*




**Income
                Tax Provision****2007**
            
            
            **2006**
            
            
            **Change**Three
                Months Ended June 30,
            
            $
            (379,407
            )
            
            $
            (460,343
            )
            
            $
            80,936Nine
                Months Ended June 30,
            
            $
            (1,292,180
            )
            
            $
            (299,921
            )
            
            $
            (992,259
            )




The
      changes in our income tax benefit (provision) for the three and nine months
      ended June 30, 2007 as compared to the three and nine months ended June 30,
      2006
      are due primarily to our change in profitability.   However, we
      also incurred an additional $145,000 and $279,000 of income tax expense for
      the
      three and nine months ended June 30, 2007, respectively, due to book-tax
      differences in the recognition of restricted stock awards.  During
      these periods, a portion of our restricted stock awards had vested and, due
      to
      declines in our stock price from grant date to vest date, the tax effects of
      the
      vesting of these awards were less than the carrying value of our related
      deferred tax assets.





*Net
      Income*





**Net
                Income****2007**
            
            
            **2006**
            
            
            **Change**Three
                Months Ended June 30,
            
            $
            266,405
            
            
            $
            826,848
            
            
            $
            (560,443
            )Nine
                Months Ended June 30,
            
            $
            1,377,865
            
            
            $
            629,754
            
            
            $
            748,111




24
 *Table
            of Contents*





The
      decrease in net income for the three months ended June 30, 2007 as compared
      to
      the three months ended June 30, 2006 is attributable to the decrease in gross
      profit, partially offset by operating expense cost reductions, each of which
      is
      described above.  The increase in net income for the nine months ended
      June 30, 2007 as compared to the nine months ended June 30, 2006 is attributable
      to operating expense costs reductions, partially offset by a decrease in gross
      profit, each of which is described above.





**Liquidity
      and Capital Resources**





Net
      cash
      provided by operating activities increased $523,757 to $1,240,352 for the nine
      month period ended June 30, 2007, as compared to $716,595 for the period ended
      June 30, 2006.  Contributing factors in this approximate $524,000
      increase were increases in net income of approximately $748,000 and increases
      in
      changes in operating assets and liabilities of approximately $442,000, partially
      offset by a decrease in non-cash activities of approximately
      $666,000.  The decrease in noncash expenses was caused primarily by a
      increase in deferred income taxes due to timing differences between book and
      tax
      income partially offset by a decrease in the provision for doubtful accounts
      caused by lower sales volumes and changes in quality assurance procedures for
      our billing processes.  The increase in changes in operating assets
      and liabilities is attributable to many different business factors,
      including changes in the use of certain billing methods and changes in the
      timing of payments for accounts payable, accrued expenses and estimated
      taxes.





Our
      primary source of cash inflows is net remittances from our billing channels,
      including LEC billings and ACH billings.  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.  For ACH billings, we
      generally receive the net proceeds through our billing service processors within
      15 days of submission.  Additionally, the net receivable due from
      three of our billing services providers represented 28%, 28% and 20%,
      respectively, of our total net accounts receivable (excluding
      non-specific reserves) at June 30, 2007. The net receivable due from
      such billing services providers represented 27%, 27% and 27%, respectively,
      of
      our total net accounts receivable at September 30, 2006.





Our
      most
      significant cash outflows include payments for marketing expenses and general
      operating expenses.   Marketing costs have historically included
      direct response mailing costs and telemarketing costs, but we no longer expect
      to incur significant mailing costs in the future due to changes in our business
      practices relating to the Attorneys’ General settlement.  Funds
      previously spent on mail campaigns will be earmarked toward other marketing
      efforts in the future.  General operating cash outflows consist of
      payroll costs, professional fees income taxes, and general and administrative
      expenses that typically occur within close proximity of expense
      recognition.  We utilize non-cash compensation awards through grants
      of restricted stock under our 2003 Stock Plan and expect to continue to utilize
      such awards in the future.





Cash
      provided by investing activities was $2,612,976 for the nine months ended June
      30, 2007, consisting of $3,082,053 of proceeds from redemptions of certificates
      of deposits and other investments and $397,876 of net cash acquired (consisting
      of cash acquired less cash-based acquisition costs) through the acquisition
      of
      LiveDeal, Inc., partially offset by $674,580 of expenditures for intangible
      assets for website licenses, website development costs, online customer service
      and customer relationship management software, and $192,373 of equipment
      purchases.  During the nine months ended June 30, 2006, cash used for
      investing activities was $1,235,047, consisting of $1,050,557 for purchases
      of
      certificates of deposits and other investments $166,804 of website development
      costs , and $17,686 for equipment purchases.





25
 *Table
            of Contents*





There
      were no financing cash flows for the nine months ended June 30,
      2007.  For the nine months ended June 30, 2006, cash flows used in
      financing activities consisted of $134,418 of acquisitions of our common stock
      through our stock repurchase program.





We
      had
      working capital of $15,710,956 as of June 30, 2007, compared to $13,908,560
      as
      of September 30, 2006.  During the nine months ended June 30, 2007,
      total current assets declined by approximately $0.8 million while total current
      liabilities decreased by approximately $2.6 million.





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.  We
      are no longer required to pay quarterly dividends to our common
      shareholders.  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
      the second quarter of fiscal 2006, the Company entered into a contractual
      arrangement with an attorney to provide  legal services. Under the
      terms of the agreement , the Company is obligated to make future payments over
      the next two years totaling $94,500 in exchange for future services. Such
      amounts have not been accrued in the accompanying consolidated financial
      statements as such payments are for future services.  The Company has
      expensed all amounts related to services rendered through June 30,
      2007.





During
      the third quarter of  fiscal 2006, the Company entered into a
      contractual arrangement with a consulting firm to provide strategic and
      operational related consulting services.  Under the terms of the
      agreement, the Company is obligated to make future payments through February
      2010 that vary based on the Company’s billed customer count subject to a minimum
      of $20,000 per month.  Current payments are approximately $62,000 per
      month.  Such amounts have not been accrued in the accompanying
      consolidated financial statements as such payments are for future
      services.  The Company has  expensed all amounts related to
      services rendered through June 30, 2007.





During
      the fourth quarter of fiscal 2006, we entered into a contractual arrangement
      with an information technology company to provide information technology
      consulting services.  Under the terms of the agreement, we are
      obligated to make future payments of $29,500 per month through September
      2009.  Such amounts have not been accrued in the accompanying
      consolidated financial statements as such payments are for future
      services.  We have expensed all amounts related to services rendered
      through June 30, 2007.





The
      following table summarizes our contractual obligations at June 30, 2007 and
      the
      effect such obligations are expected to have on our future liquidity and cash
      flows:





**Payments
                Due by Fiscal Year****Total**
            
            
            **2007**
            
            
            **2008**
            
            
            **2009**
            
            
            **2010**
            
            
            **2011**
            
            
            **Thereafter**Operating
                lease commitments
            
            $
            695,785
            
            
            $
            102,459
            
            
            $
            251,378
            
            
            $
            124,633
            
            
            $
            123,795
            
            
            $
            93,183
            
            
            $
            337Noncanceleable
                service contracts
            
            
            1,531,000
            
            
            
            195,750
            
            
            
            641,250
            
            
            
            594,000
            
            
            
            100,000
            
            
            
            -
            
            
            
            -$
            2,226,785
            
            
            $
            298,209
            
            
            $
            892,628
            
            
            $
            718,633
            
            
            $
            223,795
            
            
            $
            93,183
            
            
            $
            337




We
      have
      no off-balance sheet arrangements at June 30, 2007.





We
      believe that our existing cash on hand and cash flow from operations will
      provide us with sufficient liquidity to meet our operating needs for the next
      twelve months.





*                      *                      *





26
 *Table
            of Contents*





ITEM
                3.
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK





As
      of
      June 30, 2007, 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 the
      periods set forth in this report) or commodity price risk.




ITEM
                4.
            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 Quarterly Report on Form 10-Q,
      is recorded, processed, summarized and reported within the time periods
      specified by the Securities and Exchange Commission.  Disclosure
      controls are also 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 principal executive officer and
      principal 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 Quarterly 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-Q, and subject to the inherent limitations 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-Q, 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.




27
 *Table
            of Contents*





**PART
      II – OTHER INFORMATION**




ITEM
      1A.   RISK FACTORS





There
      have been no material changes to the factors disclosed in Item 1A Risk Factors
      in our Annual Report on Form 10-K for the year ended September 30,
      2006.





ITEM
      6.   EXHIBITS





The
      following exhibits are either attached hereto or incorporated herein by
      reference as indicated:




Exhibit
              Number
            
            Description2.1
            
            Agreement
                and Plan of Merger Dated June 6, 2007, by and among YP Corp., LD
                Acquisition Co., LiveDeal, Inc, Rajesh Navar and Arati Navar as Trustees
                of the Rajesh and Arati Navar Living Trust, and Rajesh Navar (incorporated
                by reference to the Company’s Current Report on Form 8-K, filed June 7,
                2007)3.1
            
            Amended
                and Restated Articles of Incorporation of YP Corp. (incorporated
                by
                reference to the Company’s Annual Report on Form 10-K, filed December 29,
                2006)3.2
            
            Amended
                and Restated Bylaws (incorporated by reference to the Company’s Annual
                Report on Form 10-K, filed December 29, 2006)10.1
            
            Escrow
                Agreement dated June 6, 2007, by and among YP Corp., the Shareholders’
                Representative, and Thomas Title and Escrow, LLC (incorporated by
                reference to the Company’s Current Report on Form 8-K, filed June 7,
                2007)10.2
            
            Employment
                Agreement dated June 6, 2007, by and between YP Corp. and Rajesh
                Navar
                (incorporated by reference to the Company’s Current Report on Form 8-K,
                filed June 7, 2007)10.3
            
            Noncompetition,
                Nondisclosure and Nonsolicitation Agreement dated June 6, 2007, by
                and
                between YP Corp. and Rajesh Navar (incorporated by reference to the
                Company’s Current Report on Form 8-K, filed June 7,
                2007)31
            
            Certifications
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                200232
            
            Certifications
                pursuant to 18 U.S.C. Section 1350




28
 *Table
            of Contents*





SIGNATURES





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.






YP
              CORP.Dated:  August
                15 , 2007
            */s/
                Gary L. .Perschbacher*Gary
                L. PerschbacherChief
                Financial Officer