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**UNITED      STATES SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C. 20549**

**FORM      10-Q**

| x | Quarterly                  Report Pursuant to Section 13 or 15(d) of the Securities Exchange                  Act of                  1934 |
|---|--------------------------------------------------------------------------------------------------------------------------------------------|

| o | Transition                  Report Pursuant to Section 13 or 15(d) of the Securities Exchange                  Act |
|---|--------------------------------------------------------------------------------------------------------------------|

**YP      CORP.**

| **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**

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

**APPLICABLE      ONLY TO CORPORATE ISSUERS**

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**INDEX      TO FORM 10-Q FILING**

**FOR      THE QUARTER ENDED DECEMBER 31, 2006**

**TABLE      OF CONTENTS**

|                       | **PART                I.**                                                                                                                                                 |     |
|----------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                       | **FINANCIAL                INFORMATION**                                                                                                                                   |     |
|                       |                                                                                                                                                                       | **Page** |
| **Item                1.** | **Financial                Statements**                                                                                                                                    |     |
|                       |                                                                                                                                                                       |     |
|                       | **Consolidated                Balance Sheets as of December 31, 2006 and                September 30, 2006**                                                               | **3**    |
|                       | **Unaudited                Consolidated Statements of Operations for the                Three Month Periods Ended December 31, 2006 and December 31,                2005** | **4**    |
|                       | **Unaudited                Consolidated Statement of Cash Flows for the Three                Month Periods Ended December 31, 2006 and December 31,                2005**  | **5**    |
|                       | **Notes                to the Unaudited Consolidated Financial                Statements**                                                                                 | **6**    |
|                       |                                                                                                                                                                       |     |
| **Item                2.** | **Management’s                Discussion and Analysis of Financial Condition and                Results of Operations**                                              | **12**   |
|                       |                                                                                                                                                                       |     |
| **Item                3.** | **Quantitative                and Qualitative Disclosures About Market                Risk**                                                                               | **19**   |
|                       |                                                                                                                                                                       |     |
| **Item                4.** | **Controls                and Procedures**                                                                                                                                 | **19**   |
|                       |                                                                                                                                                                       |     |
|                       | **PART                II**                                                                                                                                                 |     |
|                       | **OTHER                INFORMATION**                                                                                                                                       |     |
|                       |                                                                                                                                                                       |     |
| **Item                1.** | **Legal                Proceedings**                                                                                                                                       | **20**   |
|                       |                                                                                                                                                                       |     |
| **Item                6.** | **Exhibits**                                                                                                                                                               | **20**   |
|                       |                                                                                                                                                                       |     |
| **Signatures**             | **21**                                                                                                                                                                     |

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*Table          of Contents*

**PART      I - FINANCIAL INFORMATION**

| ITEM                1. | FINANCIAL                STATEMENTS |
|------------------------|-------------------------------------|

**YP      CORP. AND SUBSIDIARIES**

**CONSOLIDATED      BALANCE SHEET**

|                                                                                                                                                                                          |   | **December                31,** |       | **September                30,** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|------------|----------------------------------|--------|
|                                                                                                                                                                                          |   | **2006**                        |       | **2006**                         |   |
|                                                                                                                                                                                          |   | **(unaudited)**                 |       |                             |   |
|                                                                                                                                                                                          |   |                            |       |                             |   |
| **Assets**                                                                                                                                                                                    |   |                            |       |                             |   |
| Cash                and equivalents                                                                                                                                                           |   | $                               | 6,563,969  |                             | $      | 7,210,560 |   |
| Certificates                of deposit and other investments                                                                                                                                  |   |                            | 2,090,752  |                             |   | 2,266,268 |   |
| Accounts                receivable, net                                                                                                                                                       |   |                            | 6,583,348  |                             |   | 7,991,781 |   |
| Prepaid                expenses and other current assets                                                                                                                                      |   |                            | 352,502    |                             |   | 259,069 |   |
| Income                tax receivable                                                                                                                                                          |   |                            | 429,050    |                             |   | - |   |
| Deferred                tax asset                                                                                                                                                             |   |                            | 896,041    |                             |   | 1,781,736 |   |
| Total                current assets                                                                                                                                                           |   |                            | 16,915,662 |                             |   | 19,509,414 |   |
| Accounts                receivable, long term portion, net                                                                                                                                    |   |                            | 1,756,715  |                             |   | 1,140,179 |   |
| Property                and equipment, net                                                                                                                                                    |   |                            | 237,753    |                             |   | 178,883 |   |
| Deposits                and other assets                                                                                                                                                      |   |                            | 104,267    |                             |   | 91,360 |   |
| Intangible                assets, net                                                                                                                                                         |   |                            | 5,870,346  |                             |   | 5,722,604 |   |
| Deferred                tax asset, long term                                                                                                                                                  |   |                            | 1,431,514  |                             |   | 1,334,787 |   |
| Total                assets                                                                                                                                                                   |   | $                               | 26,316,257 |                             | $      | 27,977,227 |   |
|                                                                                                                                                                                          |   |                            |       |                             |   |   |   |
| **Liabilities                and Stockholders' Equity**                                                                                                                                       |   |                            |       |                             |   |   |   |
|                                                                                                                                                                                          |   |                            |       |                             |   |   |   |
| Accounts                payable                                                                                                                                                               |   | $                               | 654,961    |                             | $      | 773,653 |   |
| Accrued                liabilities                                                                                                                                                            |   |                            | 2,432,177  |                             |   | 4,565,439 |   |
| Income                taxes payable                                                                                                                                                           |   |                            | -          |                             |   | 261,762 |   |
| Total                current liabilities                                                                                                                                                      |   |                            | 3,087,138  |                             |   | 5,600,854 |   |
| Series                E convertible preferred stock, $.001 par value, 200,000 shares authorized,                127,840 issued and outstanding, liquidation preference                $38,202 |   |                            | 10,866     |                             |   | 10,866 |   |
| Common                stock, $.001 par value, 100,000,000 shares authorized, 50,020,094                and                50,021,594 issued and outstanding                                   |   |                            | 50,020     |                             |   | 50,022 |   |
| Treasury                stock                                                                                                                                                                 |   |                            | (2,407,158 | )                                |   | (2,407,158 | ) |
| Paid                in capital                                                                                                                                                                |   |                            | 9,762,594  |                             |   | 9,395,044 |   |
| Retained                earnings                                                                                                                                                              |   |                            | 15,812,797 |                             |   | 15,327,599 |   |
| Total                stockholders' equity                                                                                                                                                     |   |                            | 23,229,119 |                             |   | 22,376,373 |   |
|                                                                                                                                                                                          |   |                            |       |                             |   |   |   |
| Total                liabilities and stockholders' equity                                                                                                                                     |   | $                               | 26,316,257 |                             | $      | 27,977,227 |   |

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*Table          of Contents*

**YP      CORP. AND SUBSIDIARIES**

**UNAUDITED      CONSOLIDATED STATEMENT OF OPERATIONS**

|                                                       |   | **Three                Months ended December 31,** |       |
|------------------------------------------------------------|--------|----------------------------------------------------|------------|
|                                                       |   | **2006**                                           |       | **2005** |   |
|                                                       |   |                                               |       |   |   |
| Net                revenues                                |   | $                                                  | 7,795,405  |   | $ | 7,626,776 |   |
| Cost                of services                            |   |                                               | 1,498,531  |   |   | 1,116,346 |   |
| Gross                profit                                |   |                                               | 6,296,874  |   |   | 6,510,430 |   |
|                                                       |   |                                               |       |   |   |   |   |
| Operating                expenses:                         |   |                                               |       |   |   |   |   |
| General                and administrative expenses         |   |                                               | 3,133,899  |   |   | 3,758,849 |   |
| Sales                and marketing expenses                |   |                                               | 2,086,033  |   |   | 2,750,485 |   |
| Depreciation                and amortization               |   |                                               | 336,887    |   |   | 397,004 |   |
| Total                operating expenses                    |   |                                               | 5,556,819  |   |   | 6,906,338 |   |
| Operating                income (loss)                     |   |                                               | 740,055    |   |   | (395,908 | ) |
| Other                income (expense):                     |   |                                               |       |   |   |   |   |
| Interest                income                             |   |                                               | 78,234     |   |   | 39,636 |   |
| Other                income (expense)                      |   |                                               | 15,065     |   |   | (188,545 | ) |
| Total                other income (expense)                |   |                                               | 93,299     |   |   | (148,909 | ) |
|                                                       |   |                                               |       |   |   |   |   |
| Income                (loss) before income taxes           |   |                                               | 833,354    |   |   | (544,817 | ) |
| Income                tax benefit (provision)              |   |                                               | (348,156   | ) |   | 217,725 |   |
| Net                income (loss)                           |   | $                                                  | 485,198    |   | $ | (327,092 | ) |
|                                                       |   |                                               |       |   |   |   |   |
| Net                income (loss) per common share:         |   |                                               |       |   |   |   |   |
| Basic                                                      |   | $                                                  | 0.01       |   | $ | (0.01 | ) |
| Diluted                                                    |   | $                                                  | 0.01       |   | $ | (0.01 | ) |
|                                                       |   |                                               |       |   |   |   |   |
| Weighted                average common shares outstanding: |   |                                               |       |   |   |   |   |
| Basic                                                      |   |                                               | 45,528,264 |   |   | 44,885,425 |   |
| Diluted                                                    |   |                                               | 46,761,202 |   |   | 44,885,425 |   |

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*Table          of Contents*

**YP      CORP. AND SUBSIDIARIES**

**UNAUDITED      CONSOLIDATED STATEMENT OF CASH FLOWS**

|                                                                                                                                       |   | **Three                Months Ended December 31,** |       |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|------------|
|                                                                                                                                       |   | **2006**                                           |       | **2005** |   |
| CASH                FLOWS FROM OPERATING ACTIVITIES:                                                                                       |   |                                               |       |   |   |
| Net                income (loss)                                                                                                           |   | $                                                  | 485,198    |   | $ | (327,092 | ) |
| Adjustments                to reconcile net income (loss) to net cash (used in) provided by                operating activities: |   |                                               |       |   |   |   |   |
| Depreciation                and amortization                                                                                               |   |                                               | 336,887    |   |   | 397,004 |   |
| Amortization                of deferred stock compensation                                                                                 |   |                                               | 367,548    |   |   | 446,474 |   |
| Deferred                income taxes                                                                                                       |   |                                               | 788,968    |   |   | (184,132 | ) |
| Provision                for uncollectible accounts                                                                                        |   |                                               | (805,065   | ) |   | 339,446 |   |
| Changes                in assets and liabilities:                                                                                          |   |                                               |       |   |   |   |   |
| Accounts                receivable                                                                                                         |   |                                               | 1,596,962  |   |   | (397,295 | ) |
| Prepaid                and other current assets                                                                                            |   |                                               | (93,433    | ) |   | (25,548 | ) |
| Deposits                and other assets                                                                                                   |   |                                               | (12,907    | ) |   | (38,973 | ) |
| Accounts                payable                                                                                                            |   |                                               | (118,692   | ) |   | 233,836 |   |
| Accrued                liabilities                                                                                                         |   |                                               | (2,133,262 | ) |   | 599,951 |   |
| Income                taxes payable                                                                                                        |   |                                               | (690,812   | ) |   | 5,204 |   |
|                                                                                                                                       |   |                                               |       |   |   |   |   |
| Net                cash (used in) provided by operating activities                                                                    |   |                                               | (278,608   | ) |   | 1,048,875 |   |
|                                                                                                                                       |   |                                               |       |   |   |   |   |
|                                                                                                                                       |   |                                               |       |   |   |   |   |
| CASH                FLOWS FROM INVESTING ACTIVITIES:                                                                                       |   |                                               |       |   |   |   |   |
| Sales                of certificates of deposits and other investments                                                                     |   |                                               | 175,516    |   |   | - |   |
| Purchase                of certificates of deposits and other investments                                                                  |   |                                               | -          |   |   | (13,252 | ) |
| Expenditures                for intangible assets                                                                                          |   |                                               | (446,757   | ) |   | (39,577 | ) |
| Purchases                of equipment                                                                                                      |   |                                               | (96,742    | ) |   | - |   |
|                                                                                                                                       |   |                                               |       |   |   |   |   |
| Net                cash used for investing activities                                                                                      |   |                                               | (367,983   | ) |   | (52,829 | ) |
|                                                                                                                                       |   |                                               |       |   |   |   |   |
|                                                                                                                                       |   |                                               |       |   |   |   |   |
| CASH                FLOWS FROM FINANCING ACTIVITIES:                                                                                       |   |                                               |       |   |   |   |   |
| Purchase                of treasury stock                                                                                                  |   |                                               | -          |   |   | (90,026 | ) |
|                                                                                                                                       |   |                                               |       |   |   |   |   |
| Net                cash used for financing activities                                                                                      |   |                                               | -          |   |   | (90,026 | ) |
|                                                                                                                                       |   |                                               |       |   |   |   |   |
|                                                                                                                                       |   |                                               |       |   |   |   |   |
| INCREASE                (DECREASE) IN CASH AND CASH EQUIVALENTS                                                                       |   |                                               | (646,591   | ) |   | 906,020 |   |
|                                                                                                                                       |   |                                               |       |   |   |   |   |
| CASH                AND CASH EQUIVALENTS, beginning of period                                                                              |   |                                               | 7,210,560  |   |   | 6,114,311 |   |
|                                                                                                                                       |   |                                               |       |   |   |   |   |
| CASH                AND CASH EQUIVALENTS, end of period                                                                                    |   | $                                                  | 6,563,969  |   | $ | 7,020,331 |   |

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*Table          of Contents*

**YP        CORP. AND SUBSIDIARIES**

**NOTES        TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS**

| 1. | ORGANIZATION                AND BASIS OF PRESENTATION |
|----|-------------------------------------------------------|

| 2. | ACCOUNTING                CHANGES |
|----|-----------------------------------|

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*Table          of Contents*

**YP      CORP. AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS**

| **Income                Statement**                |   | **Quarter                Ended December 31, 2005** |      |
|----------------------------------------------------|--------|----------------------------------------------------|-----------|
|                                               |   | As                Originally Reported              |      | As                Adjusted |   | Effect                of change |   |
| Sales                and marketing expense         |   | $                                                  | 1,534,000 |   | $ | 2,750,000 |   | $ | 1,217,000 |   |
| Income                tax expense (benefit)        |   | $                                                  | 237,000   |   | $ | (218,000 | ) | $ | (455,000 | ) |
| Net                income (loss)                   |   | $                                                  | 435,000   |   | $ | (327,000 | ) | $ | (762,000 | ) |
| Net                income (loss) per common share: |   |                                               |      |   |   |   |   |   |   |   |
| Basic                                              |   | $                                                  | 0.01      |   | $ | (0.01 | ) | $ | (0.02 | ) |
| Diluted                                            |   | $                                                  | 0.01      |   | $ | (0.01 | ) | $ | (0.02 | ) |

| **Statement                of Cash Flows**                                                                                |   | **Quarter                Ended December 31, 2005** |       |
|---------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|------------|
|                                                                                                                      |   | As                Originally Reported              |       | As                Adjusted |   | Effect                of change |   |
| Net                income (loss)                                                                                          |   | $                                                  | 435,000    |   | $ | (327,000 | ) | $ | (762,000 | ) |
| Adjustments                to reconcile net income to net cash provided by (used in) operating                activities: |   |                                               |       |   |   |   |   |   |   |   |
| Deferred                income taxes                                                                                      |   | $                                                  | 270,000    |   | $ | (184,000 | ) | $ | (455,000 | ) |
| Changes                in assets and liabilities:                                                                         |   |                                               |       |   |   |   |   |   |   |   |
| Customer                acquisition costs                                                                                 |   | $                                                  | (1,217,000 | ) | $ | - |   | $ | 1,217,000 |   |
| Net                cash provided by operating activities                                                                  |   | $                                                  | 1,009,000  |   | $ | 1,009,000 |   | $ | - |   |

| 3. | BALANCE                SHEET INFORMATION |
|----|------------------------------------------|

|                                           |   | **December                31, 2006** |       |
|------------------------------------------------|--------|--------------------------------------|------------|
|                                           |   | Current                              |       | Long-Term |   | Total |   |
| Gross                accounts receivable       |   | $                                    | 8,954,000  |   | $ | 1,849,000 |   | $ | 10,803,000 |   |
| Allowance                for doubtful accounts |   |                                 | (2,371,000 | ) |   | (92,000 | ) |   | (2,463,000 | ) |
| Net                                            |   | $                                    | 6,583,000  |   | $ | 1,757,000 |   | $ | 8,340,000 |   |

|                                           |   | **September                30, 2006** |       |
|------------------------------------------------|--------|---------------------------------------|------------|
|                                           |   | Current                               |       | Long-Term |   | Total |   |
| Gross                accounts receivable       |   | $                                     | 11,027,000 |   | $ | 1,374,000 |   | $ | 12,401,000 |   |
| Allowance                for doubtful accounts |   |                                  | (3,035,000 | ) |   | (234,000 | ) |   | (3,269,000 | ) |
| Net                                            |   | $                                     | 7,992,000  |   | $ | 1,140,000 |   | $ | 9,132,000 |   |

|                                                                                                  |   | **December                31, 2006** |      | **September                30, 2006** |   |
|-------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-----------|---------------------------------------|--------|
| Allowance                for dilution and fees on amounts due from billing                aggregators |   | $                                    | 1,827,000 |                                  | $      | 2,465,000 |   |
| Allowance                for customer refunds                                                         |   |                                 | 636,000   |                                  |   | 804,000 |   |
|                                                                                                  |   | $                                    | 2,463,000 |                                  | $      | 3,269,000 |   |

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*Table          of Contents*

**YP        CORP. AND SUBSIDIARIES**

**NOTES        TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS**

| Property                and equipment:        |   | **December                31, 2006** |       | **September                30, 2006** |   |
|-----------------------------------------------|--------|--------------------------------------|------------|---------------------------------------|--------|
| Leasehold                improvements         |   | $                                    | 448,000    |                                  | $      | 448,000 |   |
| Furnishings                and fixtures       |   |                                 | 296,000    |                                  |   | 296,000 |   |
| Office                and computer equipment  |   |                                 | 1,152,000  |                                  |   | 1,055,000 |   |
| Total                                         |   |                                 | 1,896,000  |                                  |   | 1,799,000 |   |
| Less:                Accumulated depreciation |   |                                 | (1,658,000 | )                                     |   | (1,620,000 | ) |
| Property                and equipment, net    |   | $                                    | 238,000    |                                  | $      | 179,000 |   |

| Intangible                assets:             |   | **December                31, 2006** |       | **September                30, 2006** |   |
|-----------------------------------------------|--------|--------------------------------------|------------|---------------------------------------|--------|
| Domain                name                    |   | $                                    | 5,709,000  |                                  | $      | 5,709,000 |   |
| Non-compete                agreements         |   |                                 | 3,465,000  |                                  |   | 3,465,000 |   |
| Website                development            |   |                                 | 1,030,000  |                                  |   | 1,009,000 |   |
| Software                licenses              |   |                                 | 854,000    |                                  |   | 428,000 |   |
| Total                                         |   |                                 | 11,058,000 |                                  |   | 10,611,000 |   |
| Less:                Accumulated amortization |   |                                 | (5,188,000 | )                                     |   | (4,888,000 | ) |
| Intangible                assets, net         |   | $                                    | 5,870,000  |                                  | $      | 5,723,000 |   |

| Accrued                liabilities:                           |   | **December                31, 2006** |      | **September                30, 2006** |   |
|---------------------------------------------------------------|--------|--------------------------------------|-----------|---------------------------------------|--------|
| Litigation                accrual, including customer refunds |   |                                 | 1,400,000 |                                  |   | 3,737,000 |   |
| Deferred                revenue                               |   |                                 | 153,000   |                                  |   | 188,000 |   |
| Accrued                expenses - other                       |   |                                 | 879,000   |                                  |   | 640,000 |   |
| Accrued                liabilities                            |   | $                                    | 2,432,000 |                                  | $      | 4,565,000 |   |

| 4. | COMMITMENTS                AND CONTINGENCIES |
|----|----------------------------------------------|

| Fiscal                2007 |   | $      | 219,000 |   |
|----------------------------|--------|--------|---------|--------|
| Fiscal                2008 |   |   | 160,000 |   |
| Fiscal                2009 |   |   | 117,000 |   |
| Fiscal                2010 |   |   | 117,000 |   |
| Fiscal                2011 |   |   | 88,000  |   |
| Thereafter                 |   |   | -       |   |
|                       |   | $      | 701,000 |   |

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*Table          of Contents*

**YP      CORP. AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS**

|   | · | 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. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5. | NET                INCOME                PER SHARE |
|----|----------------------------------------------------|

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*Table          of Contents*

**YP        CORP. AND SUBSIDIARIES**

**NOTES        TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS**

|                                                                       |   | **Three                Months Ended December 31,** |    |
|----------------------------------------------------------------------------|--------|----------------------------------------------------|---------|
|                                                                       |   | **2006**                                           |    | **2005** |   |
|                                                                       |   |                                               |    |   |   |
| Income                (loss) before cumulative effect of accounting change |   | $                                                  | 485,000 |   | $ | (327,000 | ) |
| Less:                preferred stock dividends                             |   |                                               | -       |   |   | - |   |
| Income                (loss) applicable to common stock                    |   | $                                                  | 485,000 |   | $ | (327,000 | ) |
| Cumulative                effect of accounting change                      |   |                                               | -       |   |   | - |   |
| Net                income applicable to common stock                       |   | $                                                  | 485,000 |   | $ | (327,000 | ) |

| Basic                weighted average common shares outstanding   |   |   | 45,528,264 |   |   | 44,885,425 |   |
|-------------------------------------------------------------------|--------|--------|------------|--------|--------|------------|--------|
| Add                incremental shares for:                        |   |   |       |   |   |       |   |
| Unvested                restricted stock                          |   |   | 1,170,980  |   |   | -          |   |
| Series                E convertible preferred stock               |   |   | 61,957     |   |   | -          |   |
| Outstanding                warrants                               |   |   | -          |   |   | -          |   |
|                                                              |   |   |       |   |   |       |   |
| Diluted                weighted average common shares outstanding |   |   | 46,761,202 |   |   | 44,885,425 |   |
|                                                              |   |   |       |   |   |       |   |
| Net                income per share:                              |   |   |       |   |   |       |   |
| Basic                                                             |   | $      | 0.01       |   | $      | (0.01      | )      |
| Diluted                                                           |   | $      | 0.01       |   | $      | (0.01      | )      |

|                                                       |   | **Three                Months Ended December 31,** |    |
|------------------------------------------------------------|--------|----------------------------------------------------|---------|
|                                                       |   | **2006**                                           |    | **2005** |   |
|                                                       |   |                                               |    |   |   |
| Warrants                to purchase shares of common stock |   |                                               | -       |   |   | 500,000 |   |
| Unvested                restricted stock                   |   |                                               | -       |   |   | 223,918 |   |
| Series                E convertible preferred stock        |   |                                               | -       |   |   | 33,663 |   |
| Shares                of non-vested restricted stock       |   |                                               | 905,200 |   |   | 2,837,364 |   |
|                                                       |   |                                               | 905,200 |   |   | 3,594,945 |   |

| 6. | CONCENTRATION                OF CREDIT RISK |
|----|---------------------------------------------|

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*Table          of Contents*

**YP          CORP. AND SUBSIDIARIES**

**NOTES          TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS**

| 7. | RECENT                ACCOUNTING PRONOUNCEMENTS |
|----|-------------------------------------------------|

| 8. | SUBSEQUENT                EVENTS |
|----|----------------------------------|

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*Table          of Contents*

| ITEM                2. | MANAGEMENT’S                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                OPERATIONS |
|------------------------|---------------------------------------------------------------------------------------------------------------------------|

**Forward-Looking      Statements**

**Executive      Overview **

*Recent      Developments and Outlook*

|   | · | We                  paid a settlement fee of $2,000,000 in December 2006 to the state                  consortium, which they may distribute among                  themselves; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We                  discontinued the use of activation checks as a promotional                  incentive; |
|--------|--------|------------------------------------------------------------------------------------------------------------|

|   | · | We                  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 |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We                  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 we represent our ability to do                  so. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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*Table          of Contents*

*Customer      Counts*

| **Quarter                Ended**    |   | **Average                Billed Listings During Quarter** |    | **Gross                Revenue** |   | **Returns                & Allowances (% of Gross Revenue)** |   | **Net                Revenues** |   | **Average                Monthly Gross Revenue per Average Billed Listing** |   |
|-------------------------------------|--------|-----------------------------------------------------------|---------|----------------------------------|--------|------------------------------------------------------------------|--------|---------------------------------|--------|-----------------------------------------------------------------------------|--------|
| December                31st, 2006  |   |                                                      | 99,758  |                             | $      | 8,489,609                                                        |   |                            | 6.88   | %                                                                           | $      | 7,905,405 |   | $ | 28.37 |   |
| September                30th, 2006 |   |                                                      | 130,627 |                             | $      | 10,672,074                                                       |   |                            | 5.52   | %                                                                           | $      | 10,082,487 |   | $ | 27.23 |   |
| June                30th, 2006      |   |                                                      | 134,264 |                             |   | 10,869,020                                                       |   |                            | 6.41   | %                                                                           |   | 10,172,705 |   | $ | 26.98 |   |
| March                31st, 2006     |   |                                                      | 116,622 |                             |   | 9,823,664                                                        |   |                            | 8.39   | %                                                                           |   | 8,999,196 |   | $ | 28.08 |   |
| December                31st, 2005  |   |                                                      | 90,809  |                             |   | 8,328,583                                                        |   |                            | 8.43   | %                                                                           |   | 7,626,776 |   | $ | 30.57 |   |
| September                30th, 2005 |   |                                                      | 81,342  |                             |   | 6,856,082                                                        |   |                            | 11.71  | %                                                                           |   | 6,052,936 |   | $ | 28.10 |   |

*Recent      Operating Results*

|                                   |   | **Q1                2007** |      | **Q4                2006** |   | **Q3                2006** |   | **Q2                2006** |       | **Q1                2006** |   |
|----------------------------------------|--------|----------------------------|-----------|----------------------------|--------|----------------------------|--------|----------------------------|------------|----------------------------|--------|
| Net                Revenues            |   | $                          | 7,795,405 |                       | $      | 10,082,487                 |   | $                          | 10,172,705 |                       | $      | 8,999,196 |   | $ | 7,626,776 |   |
| Gross                margin            |   |                       | 6,296,874 |                       |   | 7,047,642                  |   |                       | 7,843,120  |                       |   | 7,410,732 |   |   | 6,510,430 |   |
| Operating                expenses      |   |                       | 5,556,819 |                       |   | 5,878,319                  |   |                       | 6,613,886  |                       |   | 7,288,932 |   |   | 6,906,338 |   |
| Operating                income (loss) |   |                       | 740,055   |                       |   | 1,169,322                  |   |                       | 1,229,234  |                       |   | 121,800 |   |   | (395,908 | ) |
| Net                income (loss)       |   |                       | 485,198   |                       |   | (1,680,673                 | )      |                       | 826,847    |                       |   | 129,998 |   |   | (327,092 | ) |

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*Table          of Contents*

|   | · | 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 | $1,250,000                of accrued refunds and processing fees for existing customers that                wish to                cancel their service in response to the correspondence to be sent                per the                terms of the agreement |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | $275,000                of legal and professional fees |
|--------|---|--------------------------------------------------------|

|   | · | Third                  quarter of fiscal 2006 - no significant non-recurring 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. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | First                  quarter of fiscal 2006 - includes an increase of general and                  administrative expenses totaling approximately $338,000 related                  to                  separation costs with our former Chief Executive Officer and an                  increase                  in other expenses associated with an additional expense of $162,000                  relating to an outstanding legal                  matter. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                          |   | **Q1                2007** |   | **Q4                2006** |   | **Q3                2006** |   | **Q2                2006** |   | **Q1                2006** |   |
|-------------------------------|--------|----------------------------|--------|----------------------------|--------|----------------------------|--------|----------------------------|--------|----------------------------|--------|
| LEC                billing    |   |                       | 59     | %                          |   | 63                         | %      |                       | 62     | %                          |   | 49 | % |   | 35 | % |
| ACH                billing    |   |                       | 37     | %                          |   | 33                         | %      |                       | 33     | %                          |   | 43 | % |   | 54 | % |
| Direct                billing |   |                       | 4      | %                          |   | 4                          | %      |                       | 5      | %                          |   | 8 | % |   | 11 | % |

**Results      of Operations **

*Net      Revenues*

|                                           |   | **Net                Revenues** |      |
|------------------------------------------------|--------|---------------------------------|-----------|
|                                           |   | **2006**                        |      | **2005** |   | **Change** |   | **Percent** |   |
|                                           |   |                            |      |   |   |   |   |   |   |
| Three                Months Ended December 31, |   | $                               | 7,795,405 |   | $ | 7,626,776 |   | $ | 168,629 |   |   | 2 | % |

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*Table          of Contents*

*Cost      of Services*

|                                           |   | **Cost                of Services** |      |
|------------------------------------------------|--------|-------------------------------------|-----------|
|                                           |   | **2006**                            |      | **2005** |   | **Change** |   | **Percent** |   |
|                                           |   |                                |      |   |   |   |   |   |   |
| Three                Months Ended December 31, |   | $                                   | 1,498,531 |   | $ | 1,116,346 |   | $ | 382,185 |   |   | 34 | % |

*Gross      Profit*

|                                           |   | **Gross                Profit** |      |
|------------------------------------------------|--------|---------------------------------|-----------|
|                                           |   | **2006**                        |      | **2005** |   | **Change** |   | **Percent** |   |
|                                           |   |                            |      |   |   |   |   |   |   |
| Three                Months Ended December 31, |   | $                               | 6,296,874 |   | $ | 6,510,430 |   | $ | (213,556 | ) |   | (3 | )% |

*General      and Administrative Expenses*

|                                           |   | **General                and Administrative Expenses** |      |
|------------------------------------------------|--------|--------------------------------------------------------|-----------|
|                                           |   | **2006**                                               |      | **2005** |   | **Change** |   | **Percent** |   |
|                                           |   |                                                   |      |   |   |   |   |   |   |
| Three                Months Ended December 31, |   | $                                                      | 3,133,899 |   | $ | 3,758,849 |   | $ | (624,950 | ) |   | (17 | )% |

|   | · | A                  decrease in compensation expense of $574,000 stemming from: a)                  a                  non-recurring charge of $337,500 in the quarter ended December                  31, 2005                  associated with the termination of our former Chief Executive Officer                  and                  b) general headcount reductions in our customer service workforce. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | An                  increase in consulting and professional fees of approximately $262,000                  associated with operational and strategic consulting and director                  and                  officer turnover (temporary and placement services). |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A                  decrease in mailing and other customer costs of approximately $468,000                  associated with discontinued mailing programs that occurred in                  the quarter                  ended December 31, 2005 associated with reconfirmation projects                  as well as                  paper invoices and other methods of correspondence with customers                  for                  which payment is unlikely to be                  received. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | An                  increase in rent and office related expenses associated with the                  expansion                  of our telemarketing efforts. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Additional                  expenses of $39,000 primarily attributable to travel and related                  costs                  associated with the attorneys’ general                  settlement. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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*Table          of Contents*

|                                                                                |   | **Q1                2007** |      | **Q4                2006** |   | **Q3                2006** |   | **Q2                2006** |      | **Q1                2006** |   |
|-------------------------------------------------------------------------------------|--------|----------------------------|-----------|----------------------------|--------|----------------------------|--------|----------------------------|-----------|----------------------------|--------|
| Compensation                for employees, leased employees, officers and directors |   | $                          | 1,873,582 |                       | $      | 2,073,646                  |   | $                          | 1,908,099 |                       | $      | 2,475,244 |   | $ | 2,476,713 |   |
| Professional                fees                                                    |   |                       | 678,089   |                       |   | 697,784                    |   |                       | 649,706   |                       |   | 479,696 |   |   | 416,088 |   |
| Reconfirmation,                mailing, billing and other customer-related costs    |   |                       | 23,715    |                       |   | 39,180                     |   |                       | 245,597   |                       |   | 396,883 |   |   | 491,947 |   |
| Other                general and administrative costs                               |   |                       | 558,513   |                       |   | 389,093                    |   |                       | 326,405   |                       |   | 360,276 |   |   | 374,099 |   |

*Sales      and Marketing Expenses*

|                                           |   | **Sales                and Marketing Expenses** |      |
|------------------------------------------------|--------|-------------------------------------------------|-----------|
|                                           |   | **2006**                                        |      | **2005** |   | **Change** |   | **Percent** |   |
|                                           |   |                                            |      |   |   |   |   |   |   |
| Three                Months Ended December 31, |   | $                                               | 2,086,033 |   | $ | 2,750,485 |   | $ | (664,452 | ) |   | (24 | )% |

*Depreciation      and Amortization*

|                                           |   | **Depreciation                and Amortization** |    |
|------------------------------------------------|--------|--------------------------------------------------|---------|
|                                           |   | **2006**                                         |    | **2005** |   | **Change** |   | **Percent** |   |
|                                           |   |                                             |    |   |   |   |   |   |   |
| Three                Months Ended December 31, |   | $                                                | 336,887 |   | $ | 397,004 |   | $ | (60,117 | ) |   | (15 | )% |

*Operating      Income*

|                                           |   | **Operating                Income (Loss)** |    |
|------------------------------------------------|--------|--------------------------------------------|---------|
|                                           |   | **2006**                                   |    | **2005** |   | **Change** |   | **Percent** |   |
|                                           |   |                                       |    |   |   |   |   |   |   |
| Three                Months Ended December 31, |   | $                                          | 740,055 |   | $ | (395,908 | ) | $ | 1,135,963 |   |   | (287 | )% |

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*Table          of Contents*

*Other      Income (Expense)*

|                                           |   | **Other                Income (Expense)** |   |
|------------------------------------------------|--------|-------------------------------------------|--------|
|                                           |   | **2006**                                  |   | **2005** |   | **Change** |   | **Percent** |   |
|                                           |   |                                      |   |   |   |   |   |   |   |
| Three                Months Ended December 31, |   | $                                         | 15,065 |   | $ | (188,545 | ) | $ | 203,610 |   |   | (108 | )% |

*Income      Tax Benefit (Provision)*

|                                           |   | **Income                Tax Benefit (Provision)** |     |
|------------------------------------------------|--------|---------------------------------------------------|----------|
|                                           |   | **2006**                                          |     | **2005** |   | **Change** |   | **Percent** |   |
|                                           |   |                                              |     |   |   |   |   |   |   |
| Three                Months Ended December 31, |   | $                                                 | (348,156 | ) | $ | 217,725 |   | $ | (565,881 | ) |   | (260 | )% |

*Net      Income (Loss)*

|                                           |   | **Net                Income (Loss)** |    |
|------------------------------------------------|--------|--------------------------------------|---------|
|                                           |   | **2006**                             |    | **2005** |   | **Change** |   | **Percent** |   |
|                                           |   |                                 |    |   |   |   |   |   |   |
| Three                Months Ended December 31, |   | $                                    | 485,198 |   | $ | (327,092 | ) | $ | 812,290 |   |   | (248 | )% |

**Liquidity      and Capital Resources**

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*Table          of Contents*

|                                            |   | **Payments                Due by Fiscal Year** |      |
|-------------------------------------------------|--------|------------------------------------------------|-----------|
|                                            |   | **Total**                                      |      | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **Thereafter** |   |
| Operating                lease commitments      |   |                                           | 701,000   |   |   | 219,000 |   |   | 160,000 |   |   | 117,000 |   |   | 117,000 |   |   | - |   |
| Noncanceleable                service contracts |   |                                           | 789,000   |   |   | 322,000 |   |   | 287,000 |   |   | 180,000 |   |   | - |   |   | - |   |
|                                            |   |                                           | 1,490,000 |   |   | 541,000 |   |   | 447,000 |   |   | 297,000 |   |   | 117,000 |   |   | - |   |

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*Table          of Contents*

| ITEM                3. | QUANTITATIVE                AND QUALITATIVE DISCLOSURES ABOUT MARKET                RISK |
|------------------------|------------------------------------------------------------------------------------------|

| ITEM                4. | CONTROLS                AND PROCEDURES |
|------------------------|----------------------------------------|

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*Table          of Contents*

**PART      II - OTHER INFORMATION**

| ITEM                1. | LEGAL                PROCEEDINGS |
|------------------------|----------------------------------|

| ITEM                6. | EXHIBITS |
|------------------------|----------|

| Exhibit                Number |   | Description                                                                                                                                                                                                                   |
|-------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                          |   |                                                                                                                                                                                                                          |
| 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)                                                              |
|                          |   |                                                                                                                                                                                                                          |
| 31                            |   | Certifications                pursuant to Section 302 of the Sarbanes-Oxley Act of                2002                                                                                                                        |
|                          |   |                                                                                                                                                                                                                          |
| 32                            |   | Certifications                pursuant to 18 U.S.C. Section 1350                                                                                                                                                              |

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*Table          of Contents*

G

| YP.CORP.                                 |                                      |
|------------------------------------------|-------------------------------------------|
|                                     |                                      |
| Dated:                February 20 , 2007 | */s/                Gary L. Perschbacher* |
|                                     | Gary                L. Perschbacher       |
|                                     | Chief                Financial Officer    |

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