**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
                  1934For
                  the quarterly period ended June 30,
                  2006
  o
              Transition
                  Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                  ActFor
                  the transition period from _____________ to
                  _______________Commission
                  File Number 0-24217


**YP
      CORP.**


(Exact
      Name of Registrant as Specified in Its Charter)




**Nevada**
              (State
                or Other Jurisdiction of Incorporation or Organization)
            **85-0206668**
              (IRS
                Employer Identification No.)**4840
                East Jasmine St. Suite 105**
              **Mesa,
                Arizona**
              (Address
                of Principal Executive Offices)
            **85205**
              (Zip
                Code)





**(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 an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act). Yes o No 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 1, 2006
      was 48,731,594 shares of common stock, par value $.001.







**INDEX
      TO FORM 10-Q FILING**


**FOR
      THE QUARTER ENDED JUNE 30, 2006**





**TABLE
      OF CONTENTS**





**PART
      I.**


**FINANCIAL
      INFORMATION**




**Page****Item
                  1.  Financial Statements****Consolidated Balance Sheets****as
                  of June 30, 2006 and September 30, 2005**
              
              **3****Unaudited Consolidated Statements of Operations****for
                  the Three- and Nine-Month Periods Ended June 30, 2006 and****June
                  30, 2005**
              
              **4****Unaudited Consolidated Statement of Cash Flows****for
                  the Nine-Month Periods Ended June 30, 2006 and****June
                  30, 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**
              
              **22****Item
                  4.  Controls and Procedures**
              
              **22****PART
                  II****OTHER
                  INFORMATION****Item
                  1.  Legal Proceedings**
              
              **23****Item
                  1A.  Risk Factors**
              
              **23****Item
                  2.  Unregistered Sales of Equity Securities and Use of
                  Proceeds**
              
              **23****Item
                  3.  Defaults Upon Senior Securities**
              
              **24****Item
                  4.  Submission of Matters to a Vote of Security
                  Holders**
              
              **24****Item
                  5.  Other Information**
              
              **24****Item
                  6.  Exhibits**
              
              **24****Signatures**
              
              **25**









**PART
      I - FINANCIAL INFORMATION**





ITEM
      1.  FINANCIAL
      STATEMENTS


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


**June
                    30,**
                **2006**
              
              **September
                    30,**
                **2005****(unaudited)****Assets**Cash
                  and equivalents
              
              $
              8,516,985
              
              $
              8,119,298Restricted
                  cash
              
              
              —
              
              
              500,000Accounts
                  receivable, net
              
              
              8,228,308
              
              
              5,338,533Prepaid
                  expenses and other current assets
              
              
              559,008
              
              
              602,103Customer
                  acquisition costs, net
              
              
              5,293,333
              
              
              2,337,650Deferred
                  tax asset
              
              
              674,171
              
              
              381,887Total
                  current assets
              
              
              23,271,805
              
              
              17,279,471Accounts
                  receivable, long term portion, net
              
              
              585,850
              
              
              873,299Property
                  and equipment, net
              
              
              209,245
              
              
              396,862Deposits
                  and other assets
              
              
              95,438
              
              
              62,029Intangible
                  assets, net
              
              
              5,363,065
              
              
              6,108,823Deferred
                  tax asset, long term
              
              
              —
              
              
              376,708Total
                  assets
              
              $
              29,525,403
              
              $
              25,097,192**Liabilities
                  and Stockholders' Equity**Accounts
                  payable
              
              $
              1,100,950
              
              $
              655,526Accrued
                  liabilities
              
              
              635,236
              
              
              803,268Income
                  taxes payable
              
              
              409,222
              
              
              108,855Total
                  current liabilities
              
              
              2,145,408
              
              
              1,567,649Deferred
                  income taxes
              
              
              178,203
              
              
              —Total
                  liabilities
              
              
              2,323,611
              
              
              1,567,649Commitments
                  and contingencies
              
              
              —
              
              
              —Series
                  E convertible preferred stock, $.001 par value, 200,000 shares
                  authorized,127,840
                  issued and outstanding, liquidation preference $38,202
              
              
              10,866
              
              
              10,866Common
                  stock, $.001 par value, 100,000,000 shares authorized,48,751,594
                  and 48,837,694 issued and outstanding
              
              
              48,742
              
              
              48,838Treasury
                  stock
              
              
              (2,306,158
              )
              
              (2,171,740
              )Paid
                  in capital
              
              
              11,506,544
              
              
              11,044,400Deferred
                  stock compensation
              
              
              (2,384,074
              )
              
              (3,247,535
              )Retained
                  earnings
              
              
              20,325,872
              
              
              17,844,714Total
                  stockholders' equity
              
              
              27,201,792
              
              
              23,529,543Total
                  liabilities and stockholders' equity
              
              $
              29,525,403
              
              $
              25,097,192


See
        accompanying notes to consolidated financial statements.
  3
 **YP
          CORP. AND SUBSIDIARIES**
 **UNAUDITED
          CONSOLIDATED STATEMENT OF OPERATIONS**
 **Three
                      Months Ended June 30,**
                  
                  **Nine
                      Months Ended June 30,****2006**
                  
                  **2005**
                  
                  **2006**
                  
                  **2005**Net
                      revenues
                  
                  $
                  10,172,705
                  
                  $
                  6,517,158
                  
                  $
                  26,798,677
                  
                  $
                  19,151,922Cost
                      of services
                  
                  
                  2,329,584
                  
                  
                  925,805
                  
                  
                  5,034,393
                  
                  
                  2,921,322Gross
                      profit
                  
                  
                  7,843,121
                  
                  
                  5,591,353
                  
                  
                  21,764,284
                  
                  
                  16,230,600Operating
                      expenses:General
                      and administrative expenses
                  
                  
                  3,129,807
                  
                  
                  3,251,975
                  
                  
                  10,600,755
                  
                  
                  9,685,457Sales
                      and marketing expenses
                  
                  
                  2,485,950
                  
                  
                  1,565,536
                  
                  
                  6,134,854
                  
                  
                  4,896,063Depreciation
                      and amortization
                  
                  
                  351,342
                  
                  
                  451,962
                  
                  
                  1,117,865
                  
                  
                  1,178,854Total
                      operating expenses
                  
                  
                  5,967,099
                  
                  
                  5,269,473
                  
                  
                  17,853,474
                  
                  
                  15,760,374Operating
                      income
                  
                  
                  1,876,022
                  
                  
                  321,880
                  
                  
                  3,910,810
                  
                  
                  470,226Other
                      income (expense):Interest
                      expense and other financing costs
                  
                  
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (8,610
                  )Interest
                      income
                  
                  
                  67,127
                  
                  
                  29,859
                  
                  
                  157,641
                  
                  
                  206,621Other
                      income (expense)
                  
                  
                  (9,172
                  )
                  
                  (584,988
                  )
                  
                  (183,095
                  )
                  
                  (477,535
                  )Total
                      other income (expense)
                  
                  
                  57,955
                  
                  
                  (555,129
                  )
                  
                  (25,454
                  )
                  
                  (279,524
                  )Income
                      before income taxes and cumulativeeffect
                      of accounting change
                  
                  
                  1,933,977
                  
                  
                  (233,249
                  )
                  
                  3,885,356
                  
                  
                  190,702Income
                      tax benefit (provision)
                  
                  
                  (701,990
                  )
                  
                  83,465
                  
                  
                  (1,404,198
                  )
                  
                  (92,982
                  )Income
                      before cumulative effect ofaccounting
                      change
                  
                  
                  1,231,987
                  
                  
                  (149,784
                  )
                  
                  2,481,158
                  
                  
                  97,720Cumulative
                      effect of accounting change (net ofincome
                      taxes of $53,764 in fiscal 2005)
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  99,848Net
                      income
                  
                  $
                  1,231,987
                  
                  $
                  (149,784
                  )
                  $
                  2,481,158
                  
                  $
                  197,568Net
                      income per common share:Basic:Income
                      applicable to common stock before cumulative effect of accounting
                      change
                  
                  $
                  0.03
                  
                  $
                  (0.00
                  )
                  $
                  0.06
                  
                  $
                  0.00Cumulative
                      effect of accounting change
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  —Net
                      income applicable to common stock
                  
                  $
                  0.03
                  
                  $
                  (0.00
                  )
                  $
                  0.06
                  
                  $
                  0.00Diluted:Income
                      applicable to common stock before cumulative effect of accounting
                      change
                  
                  $
                  0.03
                  
                  $
                  (0.00
                  )
                  $
                  0.05
                  
                  $
                  0.00Cumulative
                      effect of accounting change
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  —Net
                      income applicable to common stock
                  
                  $
                  0.03
                  
                  $
                  (0.00
                  )
                  $
                  0.05
                  
                  $
                  0.00Weighted
                      average common shares outstanding:Basic
                  
                  
                  44,642,094
                  
                  
                  44,860,228
                  
                  
                  44,748,047
                  
                  
                  46,060,709Diluted
                  
                  
                  46,536,736
                  
                  
                  44,860,228
                  
                  
                  45,694,457
                  
                  
                  46,296,626




See
      accompanying notes to consolidated financial statements.


4




**YP
      CORP. AND SUBSIDIARIES**


**UNAUDITED
      CONSOLIDATED STATEMENT OF CASH FLOWS**


**Nine
                  Months Ended June 30,****2006**
              
              **2005**CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              2,481,158
              
              $
              197,568Adjustments
                  to reconcile net income to net cashprovided
                  by operating activities:Depreciation
                  and amortization
              
              
              1,117,865
              
              
              1,178,854Amortization
                  of deferred stock compensation
              
              
              1,325,509
              
              
              1,105,763Issuance
                  of common stock as compensation for services
              
              
              —
              
              
              119,500Gain
                  on settlement of debt
              
              
              —
              
              
              171,865Cumulative
                  effect of accounting change
              
              
              —
              
              
              (99,848
              )Deferred
                  income taxes
              
              
              262,627
              
              
              (782,962
              )Provision
                  for uncollectible accounts
              
              
              1,559,569
              
              
              (54,492
              )Changes
                  in assets and liabilities:Restricted
                  cash
              
              
              500,000
              
              
              (365,000
              )Accounts
                  receivable
              
              
              (4,161,895
              )
              
              2,956,306Customer
                  acquisition costs
              
              
              (2,955,683
              )
              
              1,459,528Prepaid
                  and other current assets
              
              
              43,095
              
              
              (408,674
              )Deposits
                  and other assets
              
              
              (33,409
              )
              
              178,141Accounts
                  payable
              
              
              445,424
              
              
              (708,825
              )Accrued
                  liabilities
              
              
              (168,032
              )
              
              225,163Income
                  taxes payable
              
              
              300,367
              
              
              1,744,894Advances
                  to affiliates (accrued interest)
              
              
              —
              
              
              (157,972
              )Net
                  cash provided by operating activities
              
              
              716,595
              
              
              6,759,809CASH
                  FLOWS FROM INVESTING ACTIVITIES:Expenditures
                  for intangible assets
              
              
              (166,804
              )
              
              (346,751
              )Purchases
                  of equipment
              
              
              (17,686
              )
              
              (44,387
              )Net
                  cash used for investing activities
              
              
              (184,490
              )
              
              (391,138
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Series
                  E preferred stock dividends
              
              
              —
              
              
              (780
              )Repurchases
                  of common stock
              
              
              (134,418
              )
              
              —Proceeds
                  from conversion of preferred stock
              
              
              —
              
              
              225Common
                  stock dividends
              
              
              —
              
              
              (940,355
              )Net
                  cash used for financing activities
              
              
              (134,418
              )
              
              (940,910
              )INCREASE
                  IN CASH AND CASH EQUIVALENTS
              
              
              397,687
              
              
              5,427,761CASH
                  AND CASH EQUIVALENTS, beginning of period
              
              
              8,119,298
              
              
              3,576,529CASH
                  AND CASH EQUIVALENTS, end of period
              
              $
              8,516,985
              
              $
              9,004,290


See
      accompanying notes to consolidated financial
      statements.


5


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




1.  
       ORGANIZATION AND BASIS OF PRESENTATION





The
      accompanying 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 advertising space on or through www.YP.com, www.YP.net
      and www.Yellow-Page.net. No material or information contained on these websites
      is a part of the notes or the quarterly report to which notes are attached.
      All
      material intercompany accounts and transactions have been
      eliminated.




The
      accompanying unaudited financial statements as of June 30, 2006 and for the
      three and nine months ended June 30, 2006 and 2005,  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, 2005 and for the year then ended
      included in the Company’s annual report on Form 10-K for the year ended
      September 30, 2005.




All
      amounts, except share and per share amounts, are rounded to the nearest thousand
      dollars.




The
      preparation of financial statements in accordance with 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 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 amortization periods for direct response advertising costs,
      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. These changes had no impact on previously reported net income
      or
      stockholders’ equity.




2.   
      ACCOUNTING CHANGES





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





Additionally,
      while both methods of accounting for forfeitures are acceptable under current
      guidance, the implementation of FAS 123R
      (effective during the Company’s first
      quarter of fiscal 2006) will no longer permit companies to recognize forfeitures
      as they occur .
      See
      Note 8. As this new guidance will require the Company to change its method
      of
      accounting for restricted stock forfeitures, the Company has decided to adopt
      such change as of the beginning of its fiscal year. The Company did not adopt
      the provisions of FAS 123R prior to its effective date. Rather, the Company
      changed its accounting for forfeitures under the allowed options prescribed
      in
      FAS 123.





The
      impact of this change for periods prior to October 1, 2004 was an increase
      to
      income of $100,000 (less than $0.01 per share), net of taxes of $54,000, and
      has
      been reflected as a cumulative effect of a change in accounting principle in
      the
      Company’s consolidated statement of operations for the three months ended
      December 31, 2004. Because stock grants are now recorded net of estimated
      forfeitures, the cumulative effect of this change also reduced Additional Paid
      in Capital and Deferred Compensation by $1,013,000 and $1,166,000, respectively,
      at October 1, 2004.




6


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


3.   
      BALANCE SHEET INFORMATION





Balance
      sheet information is as follows:




**June,
                  2006****Current**
              
              **Long-Term**
              
              **Total**Gross
                  accounts receivable
              
              $
              10,938,000
              
              $
              681,000
              
              $
              11,619,000Allowance
                  for doubtful accounts
              
              
              (2,710,000
              )
              
              (95,000
              )
              
              (2,805,000
              )Net
              
              $
              8,228,000
              
              $
              586,000
              
              $
              8,814,000
  **September
                  30, 2005****Current**
              
              **Long-Term**
              
              **Total**Gross
                  accounts receivable
              
              $
              6,451,000
              
              $
              982,000
              
              $
              7,433,000Allowance
                  for doubtful accounts
              
              
              (1,112,000
              )
              
              (109,000
              )
              
              (1,221,000
              )Net
              
              $
              5,339,000
              
              $
              873,000
              
              $
              6,212,000
  Components
          of allowance for doubtful accounts are as follows:
  **June
                  30, 2006**
              
              **September
                  30, 2005**Allowance
                  for dilution and fees on amounts due from billing
                  aggregators
              
              $
              2,075,000
              
              $
              923,000Allowance
                  for customer refunds
              
              
              730,000
              
              
              298,000Other
                  allowances
              
              
              —
              
              
              —$
              2,805,000
              
              $
              1,221,000
  **June
                  30, 2006**
              
              
              **September
                  30, 2005**Customer
                  acquisition costs:Customer
                  acquisition costs
              
              
              9,437,000
              
              
              3,622,000Less:
                  Accumulated amortization
              
              
              (4,144,000
              )
              
              (1,284,000
              )Customer
                  acquisition costs, net
              
              
              5,293,000
              
              $
              2,338,000
  **June
                  30, 2006**
              
              
              **September
                  30, 2005**Property
                  and equipment:Leasehold
                  improvements
              
              $
              448,000
              
              $
              439,000Furnishings
                  and fixtures
              
              
              296,000
              
              
              295,000Office
                  and computer equipment
              
              
              1,047,000
              
              
              1,040,000Total
              
              
              1,791,000
              
              
              1,774,000Less:
                  Accumulated depreciation
              
              
              (1,582,000
              )
              
              (1,377,000
              )Property
                  and equipment, net
              
              $
              209,000
              
              $
              397,000
  **June
                  30, 2006**
              
              
              **September
                  30, 2005**Intangible
                  assets:Domain
                  name
              
              $
              5,510,000
              
              $
              5,510,000Non-compete
                  agreements
              
              
              3,465,000
              
              
              3,465,000Website
                  development
              
              
              948,000
              
              
              781,000Software
                  licenses
              
              
              53,000
              
              
              53,000Total
              
              
              9,976,000
              
              
              9,809,000Less:
                  Accumulated amortization
              
              
              (4,613,000
              )
              
              (3,700,000
              )Intangible
                  assets, net
              
              $
              5,363,000
              
              $
              6,109,000
  **June
                  30, 2006**
              
              
              **September
                  30, 2005**Accrued
                  liabilities:Litigation
                  accrual
              
              $
              —
              
              $
              328,000Deferred
                  revenue
              
              
              219,000
              
              
              291,000Accrued
                  expenses - other
              
              
              416,000
              
              
              184,000Accrued
                  liabilities
              
              $
              635,000
              
              $
              803,000




7




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




4.   
      COMMITMENTS AND CONTINGENCIES





At
      June
      30, 2006, future minimum annual lease payments under operating lease agreements
      for fiscal years ended September 30 are as follows:




Fiscal
                  2006
              
              $
              100,000Fiscal
                  2007
              
              
              145,000Fiscal
                  2008
              
              
              128,000Fiscal
                  2009
              
              
              124,000Fiscal
                  2010
              
              
              127,000Thereafter
              
              
              97,000Total
              
              $
              721,000


Termination
      Agreements with Related Parties




Prior
      to
      fiscal 2004, the Company entered into Executive Consulting Agreements with
      four
      entities, each of which was controlled by one of the Company’s four executive
      officers. These agreements called for fees to be paid for the services provided
      by these individuals as officers of the Company, as well as their respective
      staffs. During fiscal 2004, the Company terminated the Executive Consulting
      Agreements with the entities controlled by its former CEO, former Executive
      Vice
      President of Marketing, and former CFO. In fiscal 2005, the
      Company terminated the remaining Executive Consulting Agreement with the entity
      controlled by a former Executive Vice President. These
      termination agreements provided for cash payments totaling $2,145,000 in
      exchange for consulting services and non-compete agreements. Approximately
      $1,643,000 of
      the
      settlement payments described above has been allocated to non-compete
      agreements. The values attributed to the non-compete agreements are being
      amortized on a straight line basis over the six-year life of the non-compete
      agreements .
      The
      remaining $502,000 was allocated to the consulting service portion of the
      termination agreements, which were originally expected to be rendered over
      a
      two-year period, In the fourth quarter of fiscal 2005, however, the Company
      concluded all matters with respect to these parties, made all remaining payments
      owed under the termination agreements, and expensed the remaining unamortized
      amount of $212,000 attributed to the consulting services. All
      amounts related to these agreements were paid by September 30,
      2005.




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





On
      November 3, 2005, the Company entered into a Separation Agreement with its
      Chief
      Executive Officer. Under the terms of the agreement, the Company made a cash
      payment of $337,500 in the second quarter of fiscal 2006. The agreement also
      provides for the continued vesting of 700,000 shares of the Chief Executive
      Officers’ restricted stock awards that were granted in fiscal 2004 and 2005.





At
      a
      meeting of the Board of Directors of the Company, held on January 8, 2006,
      John
      T. Kurtzweil, R.A. Johnson-Clague, Peter J. Bergmann and Paul Gottlieb each
      resigned from the Board of Directors of the Company and the respective
      committees of the Board of Directors on which they were serving. Subsequent
      to
      the foregoing resignations, Joseph F. Cunningham, Jr. and Elisabeth DeMarse
      were
      elected to the Board of Directors of the Company. In addition, Daniel L. Coury,
      Sr., a current member of the Board of Directors, was elected Chairman of the
      Board and Mr. Cunningham was appointed to serve as the Chairman of the Audit
      Committee of the Board of Directors.





On
      January 19, 2006, YP Corp. (the Company) entered into a Separation Agreement
      & General Release with its Chief Financial Officer. Under the terms of the
      agreement, the Company made a cash payment of approximately $95,000 in the
      second quarter of fiscal 2006. The agreement also provides for the continued
      vesting of the Chief Financial Officers’ restricted stock awards (totaling
      150,000 shares) that were granted in fiscal 2004 and 2005.




8


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


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.




During
      the second quarter of fiscal 2006, the Company settled a legal dispute with
      a
      former service provider, resulting in a cash payment of $490,000. As the full
      amount of the settlement was previously accrued, there was no expense incurred
      in the current quarter associated with this settlement. In connection with
      this
      payment, the Company was no longer required to maintain its bond that was
      previously reflected as restricted cash in the accompanying balance sheet
      included elsewhere in this report. Accordingly, the bond has been released
      and
      this amount has been reclassified from restricted cash to cash in our balance
      sheet as of June 30, 2006.




Other
      Contractual Commitments




During
      the second quarter of fiscal 2006, the Company entered into a contractual
      arrangement with an attorney to settle previous claims and to engage the future
      services of this attorney. Under the terms of the arrangement, the Company
      made
      cash payments during the quarter totaling $55,000 and granted 100,000 shares
      of
      restricted stock. Under the terms of the agreement, the Company is obligated
      to
      make future payments over the next two years totaling $294,750 in exchange
      for
      future services. Such amounts have not been accrued in the accompanying
      financial statements as such payments are for future services.




During
      the second quarter of fiscal 2006, we entered into a contractual arrangement
      with a consulting firm to provide strategic and operational related consulting
      services. Under the terms of the agreement and a subsequent amendment, we are
      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 $100,000 per month. Such amounts have not
      been accrued in the accompanying financial statements as such payments are
      for
      future services.




5.   
      NET INCOME PER
      SHARE




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




9


**YP
            CORP. AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS**
 The
        following table presents
        the computation of basic and diluted income per share:
  **Three
                  Months Ended June 30,**
              
              **Nine
                  Months Ended June 30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Income
                  before cumulative effect of accounting change
              
              $
              1,232,000
              
              $
              (150,000
              )
              $
              2,481,000
              
              $
              98,000Less:
                  preferred stock dividends
              
              
              —
              
              
              —
              
              
              —
              
              
              (1,000
              )Income
                  applicable to common stock before cumulative effect of accounting
                  change
              
              
              1,232,000
              
              
              (150,000
              )
              
              2,481,000
              
              
              97,000Cumulative
                  effect of accounting change
              
              
              —
              
              
              —
              
              
              —
              
              
              100,000Net
                  income applicable to common stock
              
              $
              1,232,000
              
              $
              (150,000
              )
              $
              2,481,000
              
              $
              197,000Basic
                  weighted average common shares outstanding
              
              
              44,642,094
              
              
              44,860,228
              
              
              44,748,047
              
              
              46,060,709Add
                  incremental shares for:Unvested
                  restricted stock
              
              
              1,810,810
              
              
              —
              
              
              890,244
              
              
              136,636Series
                  E convertible preferred stock
              
              
              74,573
              
              
              —
              
              
              53,080
              
              
              75,565Outstanding
                  warrants
              
              
              9,259
              
              
              —
              
              
              3,086
              
              
              23,716Diluted
                  weighted average common shares outstanding
              
              
              46,536,736
              
              
              44,860,228
              
              
              45,694,457
              
              
              46,296,626Net
                  income per share:Basic:Income
                  applicable to common stock before cumulative effect of accounting
                  change
              
              $
              0.03
              
              $
              (0.00
              )
              $
              0.06
              
              $
              0.00Cumulative
                  effect of accounting change
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —Net
                  income applicable to common stock
              
              $
              0.03
              
              $
              (0.00
              )
              $
              0.06
              
              $
              0.00Diluted:Income
                  applicable to common stock before cumulative effect of accounting
                  change
              
              $
              0.03
              
              $
              (0.00
              )
              $
              0.05
              
              $
              0.00Cumulative
                  effect of accounting change
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —Net
                  income applicable to common stock
              
              $
              0.03
              
              $
              (0.00
              )
              $
              0.05
              
              $
              0.00




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


**Three
                  Months Ended June 30,**
              
              **Nine
                  Months Ended June 30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Warrants
                  to purchase shares of common stock
              
              
              375,000
              
              
              500,000
              
              
              458,333
              
              
              375,000Series
                  E convertible preferred stock
              
              
              —
              
              
              127,840
              
              
              —
              
              
              —Shares
                  of non-vested restricted stock
              
              
              171,000
              
              
              3,523,400
              
              
              1,282,505
              
              
              2,964,744546,000
              
              
              4,151,240
              
              
              1,740,838
              
              
              3,339,744





6.   
      RELATED PARTY TRANSACTIONS





The
      Company’s related party transactions occurring during fiscal 2005 and the nine
      months of fiscal 2006 consisted exclusively of payments under termination
      agreements with former executives as described in Note 4.





10


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


7.   
      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 June 30, 2006, the Company had bank balances exceeding those
      insured limits by
      approximately $5,136,000.




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 Local Exchange Carrier (“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 three third-party billing
      companies. The net receivable due from such billing services providers
      represented 29%, 23% and 34%, respectively, of the Company’s total net accounts
      receivable at June 30, 2006. Additionally, the Company’s receivable portfolio
      includes amounts due from two service providers that handle and process our
      ACH
      billings. One such service provider represented approximately 12% of the
      Company’s total net accounts receivable at June 30, 2006.




8.   
      RECENT ACCOUNTING PRONOUNCEMENTS





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





In
      July
      2006, the FASB issued FASB Interpretation No. 48 “Accounting For Uncertain Tax
      Positions” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income
      taxes recognized in an enterprise’s financial statements in accordance with FASB
      Statement No. 109 “Accounting for Income Taxes”. It 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 tax return.
      FIN
      48 also provides guidance on derecognition, 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 to its financial position and results
      of operations.





9.   
      SUBSEQUENT EVENT





In
      July
      2003, the Company entered into a licensing agreement with a vendor to license
      the use of the URL www.yp.com in
      exchange for cash and restricted shares of the Company’s common stock. Under the
      terms of this agreement, the licensor had the option of transferring the rights
      to the URL and the restricted shares to the Company in exchange for $300,000.
      In
      July 2006, the licensor exercised this option, and transferred ownership of
      the
      URL and the restricted shares to the Company. As this option was deemed to
      be a
      purchase commitment, no liability was reflected in the Company’s financial
      statements prior to the exercise of the option. The Company will capitalize
      the
      URL at its net acquisition price, computed as the $300,000 cash payment less
      the
      fair market value of the shares acquired (determined based on the stock price
      on
      the date of reacquisition) and will amortize this asset on a straight-line
      basis
      over its estimated useful life.





*   *   *




11


I TEM
      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, 2006, 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 ,
      as well
      as our Annual Report on Form 10-K for the year ended September 30,
      2005.




**Forward-Looking
      Statements**




This
      portion of this Annual 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. Specific forward-looking
      statements contained in this portion of the Annual Report include, but are
      not
      limited to our (i) our expectation to continue to expand our telemarketing
      campaigns in the future; (ii) our expectation that any future changes in billing
      practices with our remaining LECs will not have a material adverse impact on
      our
      net revenues; (iii) our belief that cost of services will continue to be
      directly correlated to our usage of LEC billing channel; (iv) our belief that
      sales and marketing expenses will increase if we continue to our strategy of
      significant mailing and telemarketing activities; and (v) the belief that our
      existing cash on hand will provide us with sufficient liquidity to meet our
      operating needs for the next twelve months.




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




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




**Executive
      Overview**




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




*Business
      and Company Overview*




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




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




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




12




*Customer
      Counts*




The
      success of our business model is based on our ability to retain, add and
      efficiently bill our subscribers.





There
      have been different methodologies employed in the reporting of customer count.
      To more properly reflect customer count we changed our methodology in the first
      quarter of fiscal 2006 to count billed listings. A billed listing is defined
      by
      management as any listing that has successfully been submitted through one
      of
      our billing channels or in the case of listings billed by direct invoice only
      those listings that have paid for their listing at the end of the reporting
      period.




Management
      believes that this change when coupled with the knowledge of our average price
      and percentage of returns and allowances will provide greater insight into
      our
      business model for the public.





The
      following represent our counts for billed listings over the last six quarters.
      Where applicable, we have included our previously reported customer count data
      for comparative purposes:




**Quarter
                  Ended**
              
              **Average
                  Billed Listings During Quarter**
              
              **Gross
                  Revenue**
              
              **Returns
                  & Allowances (% of Gross Revenue)**
              
              **Net
                  Revenues**
              
              **Average
                  Monthly Gross Revenue per Average Billed Listing**June
                  30th, 2006
              
              
              134,264
              
              $
              10,869,020
              
              
              6.41
              %
              $
              10,172,705
              
              $
              26.98March
                  31st, 2006
              
              
              116,622
              
              
              9,823,664
              
              
              8.39
              %
              
              8,999,196
              
              $
              28.08December
                  31st, 2005
              
              
              90,809
              
              
              8,328,583
              
              
              8.43
              %
              
              7,626,776
              
              $
              30.57September
                  30th, 2005
              
              
              81,342
              
              
              6,856,082
              
              
              11.71
              %
              
              6,052,936
              
              $
              28.10June
                  30th, 2005
              
              
              83,096
              
              
              7,419,827
              
              
              12.17
              %
              
              6,517,158
              
              $
              29.76March
                  31st, 2005
              
              
              76,633
              
              
              7,527,086
              
              
              14.38
              %
              
              6,444,609
              
              $
              32.74December
                  31st, 2004
              
              
              82,579
              
              
              7,502,125
              
              
              17.49
              %
              
              6,190,155
              
              $
              30.28




Our
      average monthly gross revenue per average billed listing declined in the last
      two quarters, as a significant amount of our increase in billed listings was
      via
      a new fulfillment contract with a new LEC billing vendor. Under the terms of
      this new contract, our gross revenues are, on average, approximately $3 lower
      than those of our other LEC billing channels.




*Recent
      Operating Results*




We
      bill
      our customers through four primary channels: LEC billing, ACH billing, recurring
      credit card and direct invoice. During the end of 2004 and throughout 2005,
      we
      had been reducing our use of LEC billing channels as the LEC’s policies
      regarding the use of our check mailer as our primary letter of authorization
      prevented us from billing many existing customers through this particular
      billing channel. Additionally, the major LECs (i.e. Regional Bell Operating
      Companies or RBOCs) prevented us from billing any new customers acquired via
      check mailers. As such, we transitioned a significant number of our customers
      to
      alternate billing means, the most significant of which was ACH billing. ACH
      billing is less expensive than LEC billing; however, many of our customers
      view
      this as a less desirable billing method, leading to increased
      cancellations.




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, we expect to continue to expand our telemarketing
      campaigns in the future, though check mailings remain a significant component
      of
      our marketing efforts. Although LEC channels include fees and other costs that
      exceed those of other channels, the growth in LEC billings has contributed
      to a
      significant increase in our gross profit. We are in the process of petitioning
      other LECs to reopen these billing channels as well.




13




The
      following represents a summary of recent financial results:




**Q3
                2006**
            
            **Q2
                2006**
            
            **Q1
                2006**
            
            **Q4
                2005**
            
            **Q3
                2005**Net
                Revenues
            
            $
            10,172,705
            
            $
            8,999,196
            
            $
            7,626,776
            
            $
            6,052,936
            
            $
            6,517,158Gross
                margin
            
            
            7,843,121
            
            
            7,410,733
            
            
            6,510,430
            
            
            4,993,639
            
            
            5,591,353Operating
                expenses
            
            
            5,967,099
            
            
            6,196,731
            
            
            5,689,644
            
            
            6,295,000
            
            
            5,269,473Operating
                income (loss)
            
            
            1,876,022
            
            
            1,214,002
            
            
            820,786
            
            
            (1,301,361
            )
            
            321,880Net
                income (loss)(1)
            
            
            1,231,987
            
            
            814,140
            
            
            435,031
            
            
            (815,727
            )
            
            (149,784
            )





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




·
            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
                .




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




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




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




**Q3
                2006**
            
            **Q2
                2006**
            
            **Q1
                2006**
            
            **Q4
                2005**
            
            **Q3
                2005**LEC
                billing
            
            
            62
            %
            
            49
            %
            
            35
            %
            
            32
            %
            
            23
            %ACH
                billing
            
            
            33
            %
            
            43
            %
            
            54
            %
            
            54
            %
            
            64
            %Direct
                billing and other
            
            
            5
            %
            
            8
            %
            
            11
            %
            
            14
            %
            
            13
            %




*Other
      Recent Developments*




During
      the second quarter of fiscal 2006, we began engaging the services of a
      consulting firm that has expertise with LEC billing channels, with the intent
      of
      improving operational efficiencies and cash collection cycle times and reducing
      the costs associated with fees, chargebacks and dilution. We have since expanded
      their role to include consulting on various strategic initiatives and have
      extended our contract with this firm through February 2010. Such services have
      been expensed as incurred.




During
      the second quarter of fiscal 2006, we settled our outstanding litigation with
      a
      former vendor, resulting in a cash payment of $490,000. As the full amount
      of
      the settlement was previously accrued, there was no expense incurred in the
      current quarter associated with this settlement. In connection with this
      payment, we are no longer required to maintain our bond that was previously
      reflected as restricted cash in the accompanying balance sheet included
      elsewhere in this report. Accordingly, the bond has been released and this
      amount has been reclassified from restricted cash to cash in our balance sheet
      as of June 30, 2006.




14




During
      the second quarter of fiscal 2006, we entered into a contractual arrangement
      with an attorney to settle previous claims and to engage the future services
      of
      this attorney. Under the terms of the arrangement an a subsequent amendment,
      we
      made cash payments during the quarter totaling $55,000 and granted 100,000
      shares of restricted stock. We are obligated to make future payments over the
      next two years totaling $294,750 in exchange for future services. Such amounts
      have not been accrued in the accompanying financial statements as such payments
      are for future services. This contract is terminated immediately upon the sale
      of the Company.




We
      bill a
      significant number of our IAP advertisers through our ACH billing channel.
      ACH
      transactions are closely regulated by NACHA - The Electronic Payments
      Association, which develops operating rules and business practices for the
      Automated Clearing House (ACH) Network and for electronic payments in the areas
      of Internet commerce and other electronic payment means. In February 2006,
      NACHA
      issued an Operating Bulletin concerning the use of the back of a check to obtain
      authorization for an ACH transaction. In this Operating Bulletin, NACHA
      indicated that, while this practice of authorizing ACH debits by relying on
      the
      endorsement of a check is not expressly prohibited by the NACHA operating rules,
      it does contain inherent risks that the underlying transaction was not properly
      authorized or understood. Therefore, service providers in the electronic
      payments network are encouraged to adopt appropriate policies to mitigate such
      risks. We have yet to see any changes in the business practices of our service
      providers as a result of this announcement. However, to the extent that such
      business practices change, it could have an adverse impact on our ability to
      bill a significant number of our clients and result in lost
      revenues




On
      January 19, 2006, we entered into a Separation Agreement with Chris Broquist,
      our Chief Financial Officer, pursuant to which Mr. Broquist and the Company
      have
      agreed to terminate their employment relationship effective February 28, 2006.
      Pursuant to the terms of the Separation Agreement & General Release, among
      other items, Mr. Broquist will receive a severance package consisting of six
      months of compensation and health benefits and the continued vesting of his
      restricted stock and Mr. Broquist has agreed not to compete with the Company
      or
      solicit any of the employees of the Company for a period of two
      years.




At
      a
      meeting of our Board of Directors, held on January 8, 2006, John T. Kurtzweil,
      R.A. Johnson-Clague, Peter J. Bergmann and Paul Gottlieb each resigned from
      our
      Board of Directors and their respective committees on which they were serving.
      Subsequent to the foregoing resignations, Joseph F. Cunningham, Jr. and
      Elisabeth Demarse were appointed to the Board of Directors of the Company.
      In
      addition, Daniel L. Coury, Sr., a current member of our Board of Directors,
      was
      elected Chairman of the Board and Mr. Cunningham was appointed to serve as
      the
      Chairman of the Audit Committee of our Board of Directors.




On
      November 3, 2005, we entered into a Separation Agreement with Peter J. Bergmann
      in connection with his resignation as Chairman and President of our company.
      Under the terms of this agreement, Mr. Bergmann resigned as Chief Executive
      Officer during the second quarter of fiscal 2006. Mr. Bergmann will receive
      a
      cash payment of $337,500 and will continue to vest in a portion of his
      stock-based compensation earned during his tenure, in accordance with the terms
      of this agreement.





*Attorneys
      General Complaints Concerning Direct Marketing Mail Solicitation*




We
      have
      received a number of inquiries from the Attorney General offices or other
      regulatory agencies of several states, including a 20-state consortium,
      investigating our promotional activities. In Nebraska, the notice required
      us to
      cease and desist the use of our check mail program in that State immediately.
      These inquiries are in response to business complaints and seek to determine
      whether the promotional check mailer practice engaged in by the Company violates
      state consumer protection statutes and deceptive trade practices acts.




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




15




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




**Results
      of Operations**




*Net
      Revenues*




**Net
                Revenues****2006**
            
            **2005**
            
            **Change**
            
            **Percent**Three
                Months Ended June 30,
            
            $
            10,172,705
            
            $
            6,517,158
            
            $
            3,655,547
            
            
            56
            %Nine
                Months Ended June 30,
            
            $
            26,798,677
            
            $
            19,151,922
            
            $
            7,646,755
            
            
            40
            %




The
      increase in revenues for the three and nine months ended June 30, 2006, as
      compared to June 30, 2005, was largely due to an increased customer count
      attributable to expanded marketing efforts, the reintroduction of the LEC
      billing channel for new customers, and a new fulfillment contract with OneSource
      Network.




Although
      we have concentrations of risk with our billing aggregators (as described in
      the
      Notes to Unaudited Consolidated Financial Statements included elsewhere in
      this
      Quarterly Report) 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.




The
      majority of our IAP customers pay between $27.50 and $39.95 per month.




*Cost
      of Services*




**Cost
                of Services****2006**
            
            **2005**
            
            **Change**
            
            **Percent**Three
                Months Ended June 30,
            
            $
            2,329,584
            
            $
            925,805
            
            $
            1,403,779
            
            
            152
            %Nine
                Months Ended June 30,
            
            $
            5,034,393
            
            $
            2,921,322
            
            $
            2,113,071
            
            
            72
            %




The
      increase in cost of services for the three months ended June 30, 2006, as
      compared to June 30, 2005, is largely due to an increase in LEC billings, which
      have higher costs than other billing channels Billings through LEC channels,
      comprised 62%, 49% and 36% of total billings in the first three fiscal quarters
      of 2006, respectively, as compared to 23%, 25% and 49% of total billings in
      the
      first three fiscal quarters of 2005. The increase in cost of sales was less
      dramatic when comparing the nine months ended June 30, 2006 as compared to
      June
      30, 2005 due to the fact that LEC billing was a smaller component of total
      billings in the first quarter of fiscal 2006 as compared to the first quarter
      of
      fiscal 2005.




*Gross
      Profit*




**Gross
                Profit****2006**
            
            **2005**
            
            **Change**
            
            **Percent**Three
                Months Ended June 30,
            
            $
            7,843,121
            
            $
            5,591,353
            
            $
            2,251,768
            
            
            40
            %Nine
                Months Ended June 30,
            
            $
            21,764,284
            
            $
            16,230,600
            
            $
            5,533,684
            
            
            34
            %




16




The
      increase in our gross profits was due primarily to increased revenues as
      discussed above. Gross margins decreased to 77% of net revenues in the third
      quarter of fiscal 2006 compared to 86% of net revenues in the third quarter
      of
      fiscal 2005 due to increased dilution in fiscal 2006 resulting from the increase
      in LEC billings. Gross margins decreased to 81% for the first nine months of
      fiscal 2006 compared to 85% for the first nine months of fiscal 2005, primarily
      as a result of the increase in LEC billings previously discussed.




*General
      and Administrative Expenses*




**General
                and Administrative Expenses****2006**
            
            **2005**
            
            **Change**
            
            **Percent**Three
                Months Ended June 30,
            
            $
            3,129,807
            
            $
            3,251,975
            
            $
            (122,168
            )
            
            (4
            )%Nine
                Months Ended June 30,
            
            $
            10,600,755
            
            $
            9,685,457
            
            $
            915,298
            
            
            9
            %




General
      and administrative expenses decreased for the quarter ended June 30, 2006
      compared to the quarter ended June 30, 2005. In the quarter ended June 30,
      2006
      there was a decrease in customer expenses associated with reconfirmation
      activities that took place during the same period in 2005, as well as a decrease
      in compensation costs associated with headcount reductions, which was partially
      offset by increased operational and strategic consulting services.




The
      increase in general and administrative expenses for the nine months ended June
      30, 2006, as compared to June 30, 2005, is largely due to the
      following:




·
            An
                increase in compensation expense of $513,000 stemming from: a)
                approximately $433,000 of severance costs associated with the termination
                of former officers and other personnel and b) increased non-cash
                compensation costs of approximately $220,000 associated with restricted
                stock awards. These costs were partially offset by general headcount
                reductions in our customer service workforce.




·
            An
                increase in consulting and professional fees of approximately $748,000
                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 $293,000
                associated with the reduction of paper invoices and other methods
                of
                correspondence with customers for which payment is unlikely to be
                received.




·
            General
                cost reductions of $121,000.




Our
      general and administrative expenses consist largely of fixed expenses such
      as
      compensation, 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
                2006**
            
            **Q2
                2006**
            
            **Q1
                2006**
            
            **Q4
                2005**
            
            **Q3
                2005**Compensation
                for employees, leasedemployees,
                officers and directors
            
            $
            1,860,102
            
            $
            2,414,777
            
            $
            2,423,537
            
            $
            2,265,275
            
            $
            2,115,672Professional
                fees and other G&A costs
            
            
            1,024,108
            
            
            900,439
            
            
            843,366
            
            
            672,328
            
            
            618,738Reconfirmation,
                mailing, billing and othercustomer-related
                costs
            
            
            245,597
            
            
            396,883
            
            
            491,947
            
            
            407,554
            
            
            517,565




17




*Sales
      and Marketing Expenses*




**Sales
                and Marketing Expenses****2006**
            
            **2005**
            
            **Change**
            
            **Percent**Three
                Months Ended June 30,
            
            $
            2,485,950
            
            $
            1,565,536
            
            $
            920,414
            
            
            59
            %Nine
                Months Ended June 30,
            
            $
            6,134,854
            
            $
            4,896,063
            
            $
            1,238,791
            
            
            25
            %




Sales
      and
      marketing expense increased in the third quarter of fiscal 2006 as compared
      to
      the third quarter of fiscal 2005 due to ** an
      increase in the amortization of capitalized costs associated with telemarketing
      and direct mail campaigns *.* We
      capitalize certain direct marketing expenses and amortize those costs over
      a
      period of time that approximates the estimated life of the customer. In the
      fourth quarter of fiscal 2005, this amortization period was reduced from 18
      months to 12 months. Additionally, fiscal 2006 capitalized costs include
      telemarketing and direct mail campaigns whereas fiscal 2005 capitalizable costs
      only included direct marketing expenses. The decrease in amortization period,
      coupled with a larger base of capitalizable costs, accounted for the increase
      in
      amortization expense.




The
      increase in the first nine months of fiscal 2006 as compared to the first nine
      months of fiscal 2005 was slightly less than that of third quarter of fiscal
      2006 as compared to fiscal 2005. We had a smaller base of capitalized costs
      in
      the first quarter of fiscal 2006 compared to the first quarter of fiscal 2005,
      resulting in less amortization in the corresponding periods.




*Depreciation
      and Amortization*




**Depreciation
                and Amortization****2006**
            
            **2005**
            
            **Change**
            
            **Percent**Three
                Months Ended June 30,
            
            $
            351,342
            
            $
            451,962
            
            $
            (100,620
            )
            
            (22
            )%Nine
                Months Ended June 30,
            
            $
            1,117,865
            
            $
            1,178,854
            
            $
            (60,989
            )
            
            (5
            )%




Depreciation
      and amortization remained largely consistent between the three and nine months
      ended June 30, 2006 as compared to the three and nine months ended June 30,
      2005. Depreciation and amortization consists of amortization of fixed assets,
      capitalized website costs, intangible assets and non-compete agreements.
      Amortization relating to the capitalization of our direct mail marketing costs
      is included in marketing expenses, as discussed previously.




*Operating
      Income*




**Operating
                Income (Loss)****2006**
            
            **2005**
            
            **Change**
            
            **Percent**Three
                Months Ended June 30,
            
            $
            1,876,022
            
            $
            321,880
            
            $
            1,554,142
            
            
            483
            %Nine
                Months Ended June 30,
            
            $
            3,910,810
            
            $
            470,226
            
            $
            3,440,584
            
            
            732
            %




Our
      operating income increased substantially due primarily to revenue increases
      as
      previously described.




*Other
      Income* *(Expense)*




**Other
                Income (Expense)****2006**
            
            **2005**
            
            **Change**
            
            **Percent**Three
                Months Ended June 30,
            
            $
            (9,172
            )
            $
            (584,988
            )
            $
            575,816
            
            
            (98
            )%Nine
                Months Ended June 30,
            
            $
            (183,095
            )
            $
            (477,535
            )
            $
            294,440
            
            
            (62
            )%




Other
      expenses decreased in the quarter and nine months ended June 30, 2006 compared
      to the quarter and nine months ended June 30, 2005 primarily as the result
      of
      losses incurred during the third quarter of fiscal 2005 consisting of $328,000
      associated with a litigation settlement and approximately $282,000 associated
      with our agreement to settle outstanding amounts due from two of our largest
      stockholders.




18




*Income
      Tax Benefit (Provision)*




**Income
                Tax Benefit (Provision)****2006**
            
            **2005**
            
            **Change**
            
            **Percent**Three
                Months Ended June 30,
            
            $
            (701,990
            )
            $
            83,465
            
            $
            (785,455
            )
            
            (941
            )%Nine
                Months Ended June 30,
            
            $
            (1,404,198
            )
            $
            (92,982
            )
            $
            (1,311,216
            )
            
            1410
            %




The
      changes in our income tax benefit (provision) for the three and nine months
      ended June 30, 2006 as compared to the three and nine months ended June 30,
      2005
      is due almost entirely to our increase in profitability. We have not experienced
      a significant change in our effective tax rates during these periods.




*Cumulative
      Effect of Accounting Change*




**Cumulative
                Effect of Accounting Change****2006**
            
            **2005**
            
            **Change**
            
            **Percent**Three
                Months Ended June 30,
            
            $
            —
            
            $
            —
            
            $
            —
            
            
            0
            %Nine
                Months Ended June 30,
            
            $
            —
            
            $
            99,848
            
            $
            (99,848
            )
            
            0
            %




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




*Net
      Income (Loss)*




**Net
                Income (Loss)****2006**
            
            **2005**
            
            **Change**
            
            **Percent**Three
                Months Ended June 30,
            
            $
            1,231,987
            
            $
            (149,784
            )
            $
            1,381,771
            
            
            (923
            )%Nine
                Months Ended June 30,
            
            $
            2,481,158
            
            $
            197,568
            
            $
            2,283,590
            
            
            1156
            %




The
      increase in net income for the three and nine months ended June 30, 2006 as
      compared to the three and nine months ended June 30, 2005 is due primarily
      to
      increased revenues, offset by increased cost of sales, general and
      administrative, sales and marketing and income tax expense and the effects
      of
      the cumulative effect of accounting change in fiscal 2005, each of which is
      described above.




**Liquidity
      and Capital Resources**




Net
      cash
      provided by operating activities decreased $6,043,214 or 89%, to $716,595 for
      the first nine months of fiscal 2006, compared to $6,759,809 for the first
      nine
      months of 2005. During the first nine months of fiscal 2005, we generated a
      significant portion of our operating cash flow from the conversion of many
      of
      our customers from LEC billing to alternate billing channels that have a shorter
      collection time. During the first nine months of fiscal 2006, the opposite
      occurred - a substantial amount of new and existing customers were billed via
      LEC billing channels which have a longer collection time. Additionally, during
      the first nine months of fiscal 2006, we made substantial investments in direct
      customer acquisition costs as compared to the first nine months of fiscal 2006,
      where we had limited investments. The net changes in these two balance sheet
      items caused a net decrease in our cash flows of over $11.5 million in the
      first
      nine months of fiscal 2006 as compared to the first nine months of fiscal 2005.
      This decrease was offset by an increase in net income of over $2.2 million
      and
      an increase in noncash expenses of approximately $2,627,000. The remaining
      differences were due to other changes in assets and liabilities.




19




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, three LEC
      aggregators and one ACH service provider accounted for 29%, 23%, 34% and 12%,
      respectively, of our net accounts receivable at June 30, 2006.




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




Cash
      used
      for investing activities was $184,490 for the first nine months of 2006,
      consisting of $166,804 of expenditures for intangible assets and $17,686 of
      equipment purchases. During the first nine months of fiscal 2005, cash used
      for
      investing was $391,138, consisting of $346,751 of expenditures for intangible
      assets and $44,387 of equipment purchases.




Net
      cash
      used for financing activities was $134,418 for the first nine months of fiscal
      2006, consisting of acquisitions of our common stock through our stock
      repurchase program. During
      the first nine months of fiscal 2005, cash used for financing activities totaled
      $940,910, consisting primarily of common stock dividends. We have recently
      suspended all payments of common stock dividends.




We
      had
      working capital of $21,126,397 as of June 30, 2006, compared to $15,711,822
      as
      of September 30, 2005. Our cash position increased during the past three months
      to over $8,500,000 at June 30, 2006 from approximately $8,100,000 at the end
      of
      fiscal 2005.




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. 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 third quarter of fiscal 2005, our Board of Directors initiated the
      repurchase of up to $3 million of our common stock from time to time on the
      open
      market or in privately negotiated transactions. To date, we have reacquired
      853,850 shares at an aggregate cost of $700,027 under the program.





During
      the second quarter of fiscal 2006, we entered into a contractual arrangement
      with an attorney to settle previous claims and to engage the future services
      of
      this attorney. Under the terms of the arrangement, we made cash payments during
      the quarter totaling $55,000 and granted 100,000 shares of restricted stock.
      We
      are obligated to make future payments over the next two years totaling $294,750
      in exchange for future services. Such amounts have not been accrued in the
      accompanying financial statements as such payments are for future
      services.




20




The
      following table summarizes our contractual obligations at June 30, 2006 and
      the
      effect such obligations are expected to have on our future liquidity and cash
      flows:




**Payments
                due by Period****Contractual
                Obligations**
            
            **Total**
            
            **Fiscal
                2006**
            
            **Fiscal
                2007**
            
            **Fiscal
                2008**
            
            **Fiscal
                2009**
            
            **Fiscal
                2010**
            
            **Thereafter**Lease
                commitments
            
            $
            721,000
            
            $
            100,000
            
            $
            145,000
            
            $
            128,000
            
            
            124,000
            
            
            127,000
            
            $
            97,000Contractual
                commitments
            
            $
            1,414,750
            
            $
            105,000
            
            $
            426,750
            
            $
            303,000
            
            $
            240,000
            
            $
            100,000
            
            $
            240,000




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.





*   *   *


21


ITEM
      3.  QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




As
      of
      June 30, 2006, 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
      first nine months of fiscal 2006 or in any of 2005) 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 all as described above, our
      principal executive officer and principal financial officer have concluded
      that
      our disclosure controls and procedures (as defined in Rules 13a-15(e) and
      15d-15(e) under the Securities Exchange Act of 1934) are effective as of the
      end
      of the period covered by this report. They are not aware of any significant
      changes in our disclosure controls or in other factors that could significantly
      affect these controls subsequent to the date of their evaluation, including
      any
      corrective actions with regard to significant deficiencies and material
      weaknesses. During the period covered by this Form 10-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.


22


**PART
      II - OTHER INFORMATION**




ITEM
      1.  LEGAL
      PROCEEDINGS




None




ITEM
      1A.  RISK
      FACTORS




The
      following sets forth additional risk factors that represent material changes
      from those previously disclosed in our Form 10-K for the year ended September
      30, 2005.




***Changes
      in recent operating guidelines from regulatory agencies could impact our ability
      to bill via our ACH channels.***




In
      February 2006, NACHA - The Electronic Payments Association (which develops
      operating rules and business practices for the Automated Clearing House (ACH)
      Network and for other electronic payments), issued an Operating Bulletin
      concerning the use of the back of a check to obtain authorization for an ACH
      transaction. In this Operating Bulletin, NACHA indicated that, while this
      practice of authorizing ACH debits by relying on the endorsement of a check
      is
      not expressly prohibited by the NACHA operating rules, it does contain inherent
      risks that the underlying transaction was not properly authorized or understood.
      Therefore, service providers in the electronic payments network are encouraged
      to adopt appropriate policies to mitigate such risks.




We
      have
      yet to see any changes in the business practices of our service providers as
      a
      result of this announcement. However, to the extent that such business practices
      change, it could have an adverse impact on our ability to bill a significant
      number of our clients and result in lost revenues. To date, we have not yet
      formulated policies or procedures to address any future potential changes in
      our
      billing partners’ business practices.




***We
      acquire new customers via telemarketing activities performed by third-parties.
      Changes in regulations concerning telemarketing activities, or a failure of
      our
      third-party vendors to comply with existing regulations, could result in a
      loss
      of customers and our ability to attract new customers via this marketing
      channel.***




We
      currently utilize telemarketing activities as a significant means of attracting
      new customers. Such telemarketing activities are regulated by the Federal
      Communication Commission and statewide regulations. We outsource such
      telemarketing activities to experienced third-party vendors. To the extent
      that
      these vendors fail to understand or comply with these regulations, our business
      could be adversely affected. Likewise, changes in existing regulations could
      impact our future ability to utilize telemarketing activities as a viable
      marketing strategy.




ITEM
      2.  UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS




**Issuer
      Purchases of Equity Securities**




**Period**
            
            **(a)
                Total Number of Shares (or Units) Purchased**
            
            **(b)
                Average Price Paid per Share (or Unit)**
            
            **(c)
                Total Number of Shares (or Units) Purchased as Part of Publicly Announced
                Plans or Programs**
            
            **(d)
                Maximum Number (or Approximate Dollar Value) of Shares (or Units)
                that May
                Yet Be Purchased Under the Plans or Programs**April
                2006
            
            0
            
            N/A
            
            0
            
            N/AMay
                2006
            
            0
            
            N/A
            
            0
            
            N/AJune
                2006
            
            0
            
            N/A
            
            0
            
            N/ATotal
            
            0
            
            N/A
            
            0
            
            $_2,299,973(1)




(1)
            On
                May 18, 2005, we announced the adoption of a $3 million stock repurchase
                program. To date, we have purchased 853,850 shares at an aggregate
                price
                of $700,027.




23




ITEM
      3.   DEFAULTS
      UPON SENIOR SECURITIES




None




ITEM
      4.   SUBMISSIONS
      OF MATTERS TO A VOTE OF SECURITY HOLDERS




None




ITEM
      5.  OTHER
      INFORMATION




None




ITEM
      6.  EXHIBITS




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





Exhibit
                Number
            
            Description3.1
            
            Amended
                and Restated Articles of Incorporation of YP Corp. (incorporated
                by
                reference to the Company’s current report on Form 8-K filed with the SEC
                on April 12, 2006).10.1
            
            Separation
                Agreement & General Release, dated as of January 19, 2006, by and
                between Chris Broquist and YP Corp.(incorporated
                by reference to the Company’s current report on Form 8-K filed with the
                SEC on January 25, 2006).10.2
            
            Employment
                Agreement, dated as of February 6, 2006, by and between John Raven
                and YP
                Corp.(incorporated
                by reference to the Company’s current report on Form 8-K filed with the
                SEC on February 21, 2006).10.3
            
            Employment
                Agreement, by and between YP Corp. and Gary Perschbacher, dated as
                of
                March 31, 2006. (incorporated by reference to the Company’s current report
                on Form 8-K filed with the SEC on April 3, 2006).31
            
            Certifications
                pursuant to SEC Release No. 33-8238, as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 200232
            
            Certifications
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002




24




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 8, 2006
            
            */s/
              Gary L. Perschbacher*Gary
                L. Perschbacher
              Chief
                  Financial Officer


25