SOURCE: YP Corp.

January 01, 2007 13:09 ET

YP Corp. Announces Fiscal 2006 Results and Issues Guidance for Fiscal 2007

MESA, AZ -- (MARKET WIRE) -- January 1, 2007 -- YP Corp. (OTCBB: YPNT), a leading provider of nationwide Internet Yellow Pages and related services, today announced that revenue for the twelve months ended September 30, 2006 was $36.9 million vs. $25.0 million in fiscal 2005, an increase of 47%. The increase in revenue was primarily due to increased customer count and expansion of the fulfillment segment of our marketing program.

On a non-GAAP basis, Fiscal 2006 net income, before one-time items and the adjustment for a change in accounting principle, was approximately $3.3 million, or $0.07 per share vs. a net loss of $618,000, or $0.02 per share, for fiscal 2005. On a GAAP basis, after extraordinary items and one-time charges, we incurred a net loss of approximately $1 million for the twelve months ended September 30, 2006.

"The company continues to market in all fifty states using telemarketing and direct mail across the U.S. to the 17 million small to medium size businesses for whom the Internet is becoming a critical way to attract new customers," said Daniel L. Coury, Sr., CEO. "We have spent the year making the company a formidable national Yellow Pages company providing high value-added services for our customers."

Outlook and Guidance

"We look forward to a profitable 2007 with many new initiatives that will grow revenues and earnings during the next fiscal year," stated Coury. "For Fiscal 2007, the changes in accounting principles that we have adopted relative to our customer acquisition costs should make it easier for investors to understand the inherent profitability of our business model."

The company expects fiscal 2007 revenues to range from $45 million to $49 million, operating income to range from $11 million to $12 million, and net income to range from $6.0 million to $7.0 million.

This guidance represents substantial improvements in all measures from fiscal 2006. "In 2006, the company continued to improve all operating metrics," stated Coury. "We continue to streamline operations, improve our marketing profitability and find less expensive ways to acquire customers."

Fiscal 2006 Breakdown

The average customer count increased 60% from 81,342 to 130,627, reflecting the continued improvement of our marketing and retention efforts. Cost of sales increased to $8.07 million from $3.98 million due to increased use of Local Exchange Carrier (LEC) billing channels. Our LEC billing channel for 2006 was 64% vs. 32% in 2005. We anticipate decreasing utilization of the LEC billing channels in fiscal 2007 thereby reducing the cost of sales for the company.

Gross Profit grew to $28.8 million from $21.2 million in fiscal 2005. Gross margins percentage was 78% of net revenues as compared to 84% of net revenues due to increased utilization of the LEC billing channels.

General and Administrative expenses increased 5.9% or approximately $770,000, from $13 million to $13.80 million, due to increased spending associated with consulting fees, executive search and executive severance packages of previous management.

Sales and Marketing increased $6.1 million from $11.4 million to $5.3 million due to a change in accounting principle in the fourth quarter of fiscal 2006 to expense customer acquisition costs when they are incurred instead of the prior practice of capitalizing such costs and amortizing these costs over twelve months.

Fiscal 2006 included non-recurring charges, before taxes, totaling $4,144,000 and an additional charge to Sales and Marketing Expense of approximately $2.5 million for the change in accounting principle for customer acquisition costs. Fiscal 2005's earnings were adjusted for the change in accounting principle which reduced Sales and Marketing Expense, before taxes, by $2.1 million.

The non-recurring charges, before taxes, totaling $4,144,000 are as follows:

--      Attorney General Settlement                     $2,000,000
--      Future Refund Accruals Related to AG Settlement $1,250,000
--      Legal Fees Associated with AG Settlement        $  275,000
--      Past Executive Severance Packages               $  475,000
--      Vendor Legal Settlement                         $  162,000
The Balance Sheet remains strong with cash and cash equivalents growing $1.0 million to over $9.5 million. While net revenues grew $12 million, receivables grew only $1.4 million. Working Capital grew to $14 million from $13.4 million. The increase in Current Liabilities was due to accruals for the AG Settlement. Shareholder Equity remained constant at $22 million. The company continues to maintain a robust balance sheet and transparent financial reporting.

"We have had an exciting Fiscal 2006 that included much hard work and opportunity," said Coury. "Our progress toward making this company a top choice for businesses in local markets across the U.S. will only continue in 2007."

About YP Corp.

YP Corp. is America's Local Online Yellow Pages™ and offers businesses a simple and affordable way of creating a web presence and marketing their products and services to local audiences online. The Company offers an Internet Advertising Package, which provides advertisers preferred placement in yellow page search results and their own Mini Webpage™ where they can provide potential customers with details about their products and services.

Use of Non-GAAP Measures

We provide a reconciliation of Non-GAAP Net Income to GAAP net loss below:

                                                            2006
GAAP Net Loss Before Taxes                              ($1,362,699)
Non-Recurring Charges                                    $4,144,000
Impact Change In Accounting Principle                    $2,493,469
Adjusted Non-GAAP Income Before Taxes                    $5,274,770
Income Taxes                                             $1,972,764
Adjusted Non-GAAP Net Income                             $3,302,006

YP Corp. provides non-GAAP financial information to assist investors in assessing its current and future operations in the way that YP Corp.'s management evaluates those operations. Non-GAAP adjusted net income and one-time charges are supplemental measures of YP Corp.'s performance that are not required by, and are not presented in accordance with, generally accepted accounting principles (GAAP). The non-GAAP information does not substitute for any performance measure derived in accordance with GAAP. YP Corp. believes that this non-GAAP information provides useful information to investors by excluding the effect of some one-time expenses and other amounts that are required to be recorded under GAAP but that YP Corp. believes are not indicative of YP Corp.'s operating results.

YP Corp.'s management evaluates and makes operating decisions about its business operations primarily based on revenue and the costs of those business operations on an ongoing basis. Therefore, management presents non-GAAP financial measures, along with GAAP measures, in this earnings release by excluding these one-time items from the period expenses. The income statement line items involved in the adjustment from GAAP to non-GAAP presentation in this earnings release are the following items: (1) One-time Charges (2) Impact Change In Accounting Principle for operating expenses, selling and marketing. These items in turn affect (1) total costs and expenses; (2) operating income/loss; (3) income before income taxes; (4) net loss, and (5) basic earnings per share.

For each such non-GAAP financial measure, the adjustment provides management with information about YP Corp.'s underlying operating performance that enables comparison of its financial results in different reporting periods regardless of one-time charges due to changes in accounting principles or exogenous events.

Management uses these measures to help it make budgeting decisions between those expenses that affect operating expenses and operating margin (such as sales and marketing, and general and administrative expenses), and those expenses that affect cost of revenue and gross margin. Further, the availability of non-GAAP financial information helps management track actual performance relative to financial targets, including both internal targets and publicly announced targets. Making this non-GAAP financial information available to investors, in addition to the GAAP information, helps investors compare YP Corp.'s performance with the performance of other companies in our industry, which use similar financial measures to supplement their GAAP financial information.

As stated above, management recognizes that the use of these non-GAAP measures has limitations, including the fact that management must exercise judgment in determining which types of charges should be excluded from the non-GAAP financial information. Because other companies, including companies similar to YP Corp., may calculate their non-GAAP earnings differently than YP Corp., non-GAAP measures may have limited usefulness in comparing companies. YP Corp. has provided non-GAAP results to the investment community, not as an alternative but as an important supplement to GAAP information, to enable investors to evaluate YP Corp.'s operating performance in the same way that management does.

Forward-Looking Disclaimer

This press release may include statements that constitute "forward-looking statements," which are often characterized by the terms "may," "believes," "projects," "expects," or "anticipates," and do not reflect historical facts. Forward-looking statements involve risks, uncertainties and other factors that may cause actual results, performance or achievements of YP Corp. and its subsidiary to be materially different from those expressed or implied by such forward-looking statements. Specific forward-looking statements contained in this press release include, but are not limited to, the Company's anticipation that (i) fiscal 2007 will be profitable and that new initiatives will grow revenues and earnings; (ii) fiscal 2007 revenues will range from $45 million to $49 million, operating income will range from $11 million to $12 million, and net income will range from $6.0 million to $7.0 million; (iii) it will decrease utilization of the LEC billing channels in fiscal 2007 thereby reducing the cost of sales for the company; and (iv) its progress toward making the company a top choice for businesses in local markets across the U.S. will continue in 2007.

Factors that may affect forward-looking statements and the Company's business generally include but are not limited to (i) the risk factors and cautionary statements made in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2006; and (ii) other factors that YP Corp. is currently unable to identify or quantify, but may exist in the future.

Forward-looking statements speak only as of the date the statement was made. YP Corp. does not undertake and specifically declines any obligation to update any forward-looking statements. This press release includes statements that constitute "forward-looking statements," which are often characterized by the terms "may," "believes," "projects," "expects," or "anticipates," and do not reflect historical facts. Forward-looking statements involve risks, uncertainties, and other factors that may cause actual results, performance, or achievements of YP Corp. and its subsidiary to be materially different from those expressed or implied by such forward-looking statements.

                         YP CORP. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENT OF OPERATIONS

                                               Year ended September 30,
                                          --------------------------------
                                                2006             2005
                                          ---------------  ---------------

Net revenues                              $    36,881,164  $    25,204,858
Cost of services                                8,069,239        3,980,619
                                          ---------------  ---------------
Gross profit                                   28,811,925       21,224,239
                                          ---------------  ---------------

Operating expenses:
  General and administrative expenses          13,800,456       13,030,614
  Sales and marketing expenses                 11,452,465        5,310,237
  Depreciation and amortization                 1,434,554        1,569,999
                                          ---------------  ---------------
    Total operating expenses                   26,687,475       19,910,850
                                          ---------------  ---------------
Operating income                                2,124,450        1,313,389
Other income (expense):
  Interest expense and other financing
   costs                                                -           (8,610)
  Interest income                                 224,176          242,965
  Loss on attorneys general settlement         (3,525,000)               -
  Other income (expense)                         (186,325)        (550,409)
                                          ---------------  ---------------
    Total other income (expense)               (3,487,149)        (316,054)
                                          ---------------  ---------------


Income (loss) before income taxes and
 cumulative effect of accounting change        (1,362,699)         997,335
Income tax benefit (provision)                    311,779         (372,037)
Cumulative effect of accounting change
 (net of income taxes of $53,764 in 2005)               -           99,848
                                          ---------------  ---------------
Net income (loss)                         $    (1,050,920) $       725,146
                                          ===============  ===============

Net income (loss) per common share:
  Basic:
    Income (loss) applicable to common
     stock before cumulative effect of
     accounting change                    $         (0.02) $          0.01
    Cumulative effect of accounting
     change                               $             -  $          0.00
    Net income applicable to common stock $         (0.02) $          0.02

  Diluted:
    Income (loss) applicable to common
     stock before cumulative effect of
     accounting change                    $         (0.02) $          0.01
    Cumulative effect of accounting
     change                               $             -  $          0.00
    Net income (loss) applicable to
     common stock                         $         (0.02) $          0.02

Weighted average common shares
 outstanding:
  Basic                                        44,958,683       46,390,356
                                          ===============  ===============
  Diluted                                      44,958,683       46,659,918
                                          ===============  ===============



                         YP CORP. AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS

                                                    September 30,
                                          --------------------------------
              Assets                            2006             2005
                                          ---------------  ---------------

Cash and equivalents                      $     7,210,560  $     6,114,311
Restricted cash                                         -          500,000
Certificates of deposit and other
 investments                                    2,266,268        2,004,987
Accounts receivable, net                        6,741,781        5,338,533
Prepaid expenses and other current assets         259,069          602,103
Deferred tax asset                              1,781,736          381,887
                                          ---------------  ---------------
   Total current assets                        18,259,414       14,941,821
Accounts receivable, long term portion,
 net                                            1,140,179          873,299
Property and equipment, net                       178,883          396,862
Deposits and other assets                          91,360           62,029
Intangible assets, net                          5,722,604        6,108,823
Deferred tax asset, long term                   1,334,787        1,250,082
                                          ---------------  ---------------
   Total assets                           $    26,727,227  $    23,632,916
                                          ===============  ===============

   Liabilities and Stockholders' Equity

Accounts payable                          $       773,653  $       655,527
Accrued liabilities                             3,315,439          803,268
Income taxes payable                              261,762          108,855
                                          ---------------  ---------------
   Total current liabilities                    4,350,854        1,567,650
                                          ---------------  ---------------
Series E convertible preferred stock,
 $.001 par value, 200,000 shares
 authorized, 127,840 issued and
 outstanding, liquidation preference
 $38,202                                           10,866           10,866
Common stock, $.001 par value,
 100,000,000 shares authorized,
 50,021,594 and 48,837,694 issued and
 outstanding                                       50,022           48,838
Treasury stock                                 (2,407,158)      (2,171,740)
Paid in capital                                12,249,166       11,044,400
Deferred stock compensation                    (2,854,122)      (3,247,535)
Retained earnings                              15,327,599       16,380,437
                                          ---------------  ---------------
   Total stockholders' equity                  22,376,373       22,065,266
                                          ---------------  ---------------

   Total liabilities and stockholders'
    equity                                $    26,727,227  $    23,632,916
                                          ===============  ===============