**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**








**Form 10-K** **SB/A**


Amendment
      No. 1




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




For
      the
      fiscal year ended December 31, 2005




**or**




**oTRANSITION
      REPORT UNDER
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**




For
      the
      transition period from __________ to __________




**Commission
      File No. 0-18412**




**YTB
      International, Inc.**


**(formerly
      REZconnect Technologies, Inc.)**


(Name
      of
      small business issuer in its charter)




**Delaware**
            
            **20-2181181**(State
                or Other Jurisdiction of Incorporation or Organization)
            
            (I.R.S.
                Employer Identification No.)




**1901
                  East Edwardsville Road****Wood
                  River, Illinois**
              **62095**(Address
                  of principal executive offices)
              (zip
                  code)





Issuer’s
      telephone number: (618) 655-9477





Securities
      Registered pursuant to Section 12(b) of the Act: None




Securities
      Registered pursuant to Section 12(g) of the Act: Common Stock,$.001
      per
      share


( Title
      of
      Class)





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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 o No x




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB o.




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




State
      issuer’s revenues for its most recent fiscal year. $21,593,317.




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, of the registrant as of February 28, 2007 was approximately $158,169,589.




State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date. As of February 28, 2007, there were
      38,971,967 shares of Common Stock, par value $.001 per share
      outstanding.




DOCUMENTS
      INCORPORATED BY REFERENCE: None.




Transitional
      Small Business Disclosure Format (check one) Yeso No x .









Table
      of
      Contents


PART
                  IItem
                  1.
              Description
                  of Business
              2Item
                  2.
              Description
                  of Property
              4Item
                  3.
              Legal
                  Proceedings
              4Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              4PART
                  IIItem
                  5.
              Market
                  for Common Equity and Related Stockholder Matters
              5Item
                  6.
              Management’s
                  Discussion and Analysis or Plan of Operation
              6Item
                  7.
              Financial
                  Statements
              13Item
                  8.
              Changes
                  In and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              13Item
                  8A.
              Controls
                  and Procedures
              13Item
                  8B.
              Other
                  Information
              16PART
                  IIIItem
                  9.
              Directors,
                  Executive Officers, Promoters and Control Persons; Compliance With
                  Section
                  16(a) of the Exchange Act
              17Item
                  10.
              Executive
                  Compensation
              20Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              23PART
                  IVItem
                  12.
              Certain
                  Relationships and Related Transactions
              24Item
                  13.
              Exhibits
              25Item
                  14.
              Principal
                  Accountant Fees and Services
              27







EXPLANATORY
        NOTE
 
 YTB
        International, Inc. (“YTB” or the “Company”) is filing this amendment on Form
        10-KSB/A (Amendment No. 1) to amend our annual report on Form 10-KSB for
        the fiscal year ended December 31, 2005, as filed with the Securities and
        Exchange Commission on November 22, 2006 (the “Original Report”), solely for the
        purpose of making certain corrections and changes. This amendment reflects
        the
        following changes:
  During
        a
        review of the Company’s outstanding options and warrants, the Company discovered
        that the expense related to 200,000 warrants previously issued had not been
        recognized in the 2005 consolidated financial statements. We are amending
        this
        Form 10-KSB to reflect this additional expense of $311,028, or ($0.01) per
        share, and to update the related disclosure. See Note 11, “Capital Stock,” and
        Note 15, “Restatement of Financial Statements” in the Notes to Consolidated
        Financial Statements for a detailed discussion of the effect of the restatement.
        Furthermore, we have clarified the disclosure in Item 8A. “Controls
        and
        Procedures”,
 Item
        8C. "Management's Remediation Plan", Item 12. “Certain Relationships
        and Related Transactions” and Note 10, “Related Party Transactions,” to the
        Notes to Consolidated Financial Statements.
 
 In
        addition, certain items in the Consolidated Statement of Cash Flows for the
        year
        ended December 31, 2005 have been reclassified to properly reflect non-cash
        items as well as the gross activity related to the conversion of debt to
        common
        stock that occurred in the fourth quarter of 2005. Certain reclassifications
        were also made in the Consolidated Statement of Changes in Stockholders’ Equity
        for the
        year ended December 31, 2005 to provide additional detail regarding the value
        of
        warrants issued in conjunction with the convertible debt, as
        well
        as a reclassification on the Consolidated Statement of Operations between
        the
“Change in the fair market value of derivatives” and “Interest
        Expense”.
  This
        amendment does not reflect events occurring after the filing of the Original
        Report, or modify or update those disclosures affected by subsequent events.
        This Amendment continues to speak as of the date of the Original Report,
        and
        does not modify or update any other item or disclosures in the Original
        Report.
 
 1


**PART
      I**




**ITEM
              1.**
            **DESCRIPTION
                OF BUSINESS.**




YTB
      International, Inc. (the “Company” or “We”) (formerly, REZconnect Technologies,
      Inc.) is a leader in the travel services business and has operated in the travel
      services industry for 24 years. The Company offers an interactive, real-time
      travel booking engine, access to preferred deals with leading travel industry
      suppliers to its licensees and to small office and home office agencies,
      independent travel agencies and high traffic websites. The Company’s revenue
      stream is comprised of initial license fees as each online travel agency is
      sold, monthly license fees from its licensed travel agencies and commissions
      on
      the sale of travel products and fees from Referring Travel Agents
      (“RTAs”).




Effective
      January 4, 2005, the Company reincorporated in Delaware, changed its name to
      YTB
      International, Inc. and increased its authorized common shares to 50,000,000.
      At
      this time, the Company was divided into three distinct wholly-owned
      subsidiaries, REZconnect Technologies, Inc. (“Technologies”), a franchisor of
      traditional “brick and mortar” travel agencies, as well as internet-based
      travel-related services and technology offering proprietary reservation systems
      for the travel and entertainment industry; YTB Travel Network, Inc., and its
      subsidiary YTB Travel Network of Illinois, Inc. (“YTB Travel”) which licenses
      and services online, licensed RTAs; and YourTravelBiz.com, Inc. (“YTB
      Marketing”) which uses a referral marketing system to offer and sell licenses
      for online travel agencies. The Company is quoted on the Over-The-Counter
      Bulletin Board under the symbol YTBL.PK.




While
      previously concentrating on the establishment of its “brick and mortar”
franchise operations, the Company’s management recognized that margins in the
      travel agency industry are generally shrinking, due in large measure to
      reductions by airlines in commission rates and to greater competition throughout
      the industry. To combat these trends and strengthen its competitive position,
      the Company sought to bring an advanced technology to the travel and lodging
      industry by investing in software development and offering new online travel
      franchises.




All
      travel arrangements from the online sites are serviced by the divisions of
      the
      Company. As of December 31, 2005, there were approximately 22,000 online sites
      in operation.




The
      Company was incorporated in June 1982 as Travel Network, Ltd. in the State
      of
      New York, doing business as Global Travel Network. In February 1994, Travel
      Network, Ltd. re-incorporated in the State of New Jersey. In 1998, Travel
      Network, Ltd. transferred its assets to Global Travel Network, L.L.C. (“GTN”).
      GTN was created as a conduit to participate in the franchise Global Travel
      Network business of Travel Network, Ltd.




In
      September 1999, Playorena, Inc., a public shell company, acquired the
      outstanding equity of GTN in exchange for 5,063,379 shares of Playorena’s common
      stock (including 123,292 shares reserved for issuance upon the exercise of
      certain warrants previously issued by GTN and 4,931,087 shares issued to equity
      holders of GTN), representing 94.5% of the issued and outstanding common stock
      of Playorena upon completion of the share exchange. Following the merger with
      Playorena, Inc., the Company changed its name to ETRAVNET.COM, Inc. In August
      2002, the Company changed its name to REZconnect Technologies, Inc.




In
      December 2004, the Company merged with and into YourTravelBiz.com, Inc. In
      the
      share exchange and associated merger with the YourTravelBiz.com, Inc., the
      stockholders of YourTravelBiz.com, Inc. received, in exchange for 100% of
      YourTravelBiz.com, Inc.’s capital stock, 11,522,376 newly issued shares of
      REZconnect’s capital stock (the “Exchange Stock”). The number of shares of
      Exchange Stock issued was one share greater than the total number of then
      outstanding shares and consisted of 7,430,000 shares of Common Stock and
      4,092,376 shares of Series B Convertible Preferred Stock of REZconnect (“Series
      B Stock”). The Series B Stock was created and issued because the Company did not
      have a sufficient number of authorized and un-issued common shares available.
      Each share of Series B Stock was converted into one share of common stock,
      subject to adjustment, on January 9, 2005. The issuance of the Exchange Stock
      was not registered, as the transaction was exempt from registration pursuant
      to
      Section 4 (2) of the Securities Act of 1933.




2


**Current
      Operations**




***REZconnect
      Technologies, Inc.***




Technologies’
      business includes the travel franchise system and our technology software
      and services to the travel industry. The technology group builds reservation
      systems using proprietary applications for suppliers within the travel industry.
      Technologies builds travel stores within the travel industry and includes
      RezCity.com, an online city guide and travel store.




The
      Technologies’ consumer driven websites provide strong content and book-ability
      with over 60 booking engines incorporated into one site, covering all aspects
      of
      the travel industry. Sites are available for use 24 hours, 7 days a week,
      allowing travel agents the ability to personally follow-up with the online
      consumer and provide customer service. Technologies’ typically charges $49.95
      per month, on a non-contract basis, to own and operate on an online travel
      site.




Technologies’
      franchise agreements signed generally have 15 year terms and are
      renewable.




***YTB
      Travel Network, Inc. (and it’s subsidiary YTB Travel Network of Illinois,
      Inc.)***




YTB
      Travel’s business is comprised of arrangements to sell airline tickets, cruise
      packages and other services plus the travel sales from the approximately 22,000
      RTAs’ web sites which it hosts. YTB Travel handles travel processing, document
      distribution and travel commission payments, including tracking the transaction
      for each of the sites. RTAs are schooled through our training courses. This
      is
      accomplished through a combination of company conference calls, e-training
      modules and hands-on certification seminars.




The
      Company believes it is at the forefront of several growing trends: the
      increasing consumer spending in the travel industry and the boom in home-based
      businesses and the growing acceptance of conducting retail business on the
      internet. Luxury cruise ship companies and resort builders are gearing up for
      this wave of retirees. Secondly, with job security, as well as an ability to
      spend time with the family, an ever increasing concern, we believe the ability
      to own a home-based business is becoming an even more attractive option.
      Finally, we believe online travel planning will continue to make tremendous
      inroads in the marketplace as more people use the internet to become better
      informed and save time and money.




***YourTravelBiz.com,
      Inc.***




YTB
      Marketing continues to conduct business through recruitment, enrollment,
      training, and support of its sales force. There are currently approximately
      22,000 individuals, known as independent marketing representatives (each, an
      “IMR”), who are responsible for enrolling RTAs, most of whom work from their
      homes. An IMR might utilize a number of methods of attracting new RTAs, at
      informational meetings and events, through newspaper advertising, and one-on-one
      meetings with individuals seeking a home based business enterprise.




YTB
      Marketing was created to market travel agency websites to RTAs in a Referral
      Marketing program that incentivizes the IMRs for bringing RTAs into the system.
      RTAs are independent and are provided with training materials and onsite
      training at various locations throughout the USA.




**Competition**




The
      travel industry is highly diverse and specialized and one of the most
      competitive industries in the United States. Much of the travel business is
      niche oriented and highly price sensitive. Many of our competitors are much
      more
      highly capitalized. One of the principal functions of the recent share exchange,
      merger and reincorporation was to make the Company significantly more
      competitive.





The
      Company has the characteristics of both an online travel provider and a “brick
      and mortar” travel agency and sell our travel-related products through
      traditional “brick and mortar” travel agencies and online sites. Our buying
      power and low acquisition costs differentiate us from our competitors. This
      unique positioning results in having few direct competitors. Our competition
      can
      be classified into three separate types of companies: the online travel
      providers; the retail travel providers; and electronic distributors of travel
      information and services. Websites such as Travelocity.com, Priceline.com,
Expedia.com
      and Orbitz.com are retailers of travel online, unlike YTB Travel, which serves
      in a facilitator function only. In addition, the YTB Travel target markets
      are
      direct referrals for the Company’s RTAs.




3




The
      Company’s franchise travel agency business is subject to competition.
      Priceline.com, a competitor, is now a revenue generating preferred supplier
      for
      air ticketing on our travel sites.




To
      the
      Company’s knowledge, there are currently no other direct network marketing
      companies specializing in the travel online business similar to YTB Marketing.
      Hence, while there are travel site marketing companies in existence, the Company
      does not believe they are direct competitors of YTB Marketing.




**Employees**




As
      of
      December 31, 2005, the Company had a total of 77 full-time employees. Our
      employees are not represented by any collective bargaining agreement and we
      have
      never experienced a work stoppage. We believe we have good relations with our
      employees.




**ITEM
              2.**
            **DESCRIPTION
                OF PROPERTY.**




Our
      executive offices are located at One and Two Country Club View Drive,
      Edwardsville, Illinois 62025, but we also have leased office space at 560 Sylvan
      Avenue, Englewood Cliffs, NJ 07632. Our New Jersey offices consist of
      approximately 2,000 sq. ft. of leased space in an office building in Englewood
      Cliffs, New Jersey. The current monthly rent is $4,083. The lease expires in
      April 2008. Our office in Edwardsville, IL is approximately 18,000 sq. ft.
      with
      a monthly rent of $15,000. All franchised agency sites are owned or leased
      directly by the owners of such agencies.




On
      July
      26, 2006, the Company purchased 12 acres of land which included a 100,000 square
      foot building (the “Property”) for $2.5 million to house their new corporate
      headquarters in Wood River, Illinois. The Company financed the purchase of
      the
      Property with a note in the amount of $2.5 million with an interest rate of
      Prime, less 0.50% floating daily from Meridian Bank, a local bank. Interest
      only
      is payable monthly for the first two years of the note. The Note is
      collateralized by the first mortgage on the Property and a $500,000 Certificate
      of Deposit. The Certificate of Deposit will be released after the Company makes
      $625,000 of improvements to the Property. The Company has begun a $6.0 million
      renovation project to the Property.




The
      Company has borrowed $2.5 million in connection with the above mentioned
      property. The chairman of the bank is also a director of the Company. This
      transaction was approved by the independent members of the Company’s board of
      directors. The Company believes that the terms were commercially available
      terms
      and are as favorable to the Company as would be from an unaffiliated party.
      See
      Item 12. “Certain Relationships and Related Transactions”.




**ITEM
              3.**
            **LEGAL
                PROCEEDINGS.**




None.




**ITEM
              4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS.**




None.




4


**PART
      II**




**ITEM
              5.**
            **MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND****SMALL
                BUSINESS****ISSUERS
                PURCHASE OF EQUITY
                SECURITIES.**




**Common
      Stock Prices**




Beginning
      on May 24, 2006 the Company’s common stock has been quoted on the Pink Sheets
      under the common stock symbol “YTBL.PK.” The Company’s common stock had been
      quoted on OTC Bulletin Board under the symbol from January 25, 2005 through
      May
      24, 2006 under the common stock symbol “YTBL.OB.” On May 24, 2006, the Company
      was suspended from the OTC Bulletin Board as a result of not filing its annual
      report on Form 10-KSB for the year ended December 31, 2005 with the United
      States Securities and Exchange Commission (“SEC”) in a timely
      manner





Prior
      thereto, it was traded under the symbol “REZT” from August 29, 2001 to January
      24, 2005, “ETRV” from September 17, 1999 to December 19, 1999, “ETVT” from
      December 20, 1999 to August 28, 2001. Prior to December 20, 1999, it traded
      under the symbol “PLEX.”





The
      following table sets forth the high and low closing share prices per share
      for
      the periods indicated:




High
            
            LowFiscal
                year ended December 31, 2005First
                quarter
            
            $
            1.70
            
            $
            1.25Second
                quarter
            
            
            2.54
            
            
            1.70Third
                quarter
            
            
            3.77
            
            
            1.80Fourth
                quarter
            
            
            2.50
            
            
            0.95Fiscal
                year ended December 31, 2004First
                quarter
            
            $
            0.32
            
            $
            0.21Second
                quarter
            
            
            0.25
            
            
            0.12Third
                quarter
            
            
            1.85
            
            
            0.16Fourth
                quarter
            
            
            1.78
            
            
            1.15





At
      December 31, 2005 the closing price per share for the Company’s common stock, as
      reported by NASDAQ was $1.06.




**Dividend
      Policy**




The
      Company has neither declared nor paid a cash dividend on the Company’s common
      stock since the Company became a publicly traded company. It is the policy
      of
      the Board of Directors to retain all available funds to finance the development
      and growth of the Company’s business. The payment of cash dividends in the
      future will be dependent upon the Company’s earnings and financial
      requirements.





**Shareholders**




As
      of
      December 31, 2005, we had 208 common shareholders of record and no preferred
      shareholders of record.




**Recent
      Sales of Unregistered Securities**




None.




5


**ITEM
              6.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF
                OPERATION.**




**Overview**




In
      December 2004, REZconnect merged with its largest customer, the privately owned
      YourTravelbiz.com, Inc. (“YTB, Inc.”). REZconnect had provided YTB, Inc. with
      the technology that enabled it to operate its online travel stores, track
      orders, and book travel online. REZconnect also provided its technology to
      over
      7,000 registered agents using the Vacation Central site. YTB, Inc. shareholders
      had developed a successful multilevel online travel marketing program through
      its network of Independent Marketing Representatives (“IMR”). YTB, Inc. received
      11.5 million common shares which gave it an equal number of shares to the
      principal shareholders of REZconnect. In January 2005, REZconnect changed its
      name to YTB International, Inc., from REZconnect Technologies, Inc.




The
      merger with YTB, Inc. gave REZconnect a competitive advantage because few travel
      related companies have expertise in travel, marketing and technology. In
      addition, the combined company has gained more favorable pricing terms with
      its
      vendors. The combined company is also beginning to realize economies of scale.
      For example, it recently signed an agreement that will significantly reduce
      its
      credit card processing costs. In addition, more favorable commission rates
      are
      able to be realized based on the larger volume under the combined
      company.




The
      Company is a leading provider of internet-based travel related services and
      operates through its three subsidiaries. YourTravelBiz.com, Inc. (“YTB
      Marketing”) establishes online travel agencies and compensates its sales
      representatives via multilevel marketing commission structure; YTB Travel
      Network, Inc. (“YTB Travel”) contracts with the online travel agencies, provides
      online booking systems, fulfills travel orders & pays travel commissions.
      REZconnect Technologies, Inc. (“Technologies”) is a travel technology provider,
      including online travel booking engine technologies and is a franchisor of
      travel agencies.




The
      Company operates the businesses under various trade names “YourTravelBiz.com,”
“YourTravelBiz,” “YTBnet.com,” “YTB Travel and Cruises,” “Travel Network,”
“Global Travel Network,” “Travel Network Vacation Central,” as well as web sites
“Bookmytravel.com,” and “REZconnect.com.” The Company offers its customers a
      reliable source of travel products and services through its agreements with
      selected travel providers, including major airlines, cruise lines, hotels and
      car rental agencies, as well as wholesale travel providers. In addition, we
      offer our customers the ability to make reservations on over 400 airlines,
      at
      more than 57,000 hotels and with most major car rental companies, cruise lines
      and tour package operators.




YTB
      Marketing markets and establishes online travel agencies on behalf of YTB
      Travel. YTB Marketing has a unique business model and strategy of creating
      a
      network of commissioned sales representatives who exclusively market the online
      travel agencies of and serviced by YTB Travel. Purchasers of online travel
      agencies from YTB Travel are known as Referring Travel Agents (“RTAs”). Each RTA
      pays an initial fee of $349.95, plus the first month’s membership dues of
      $49.95. YTB Travel retains a percentage of the travel commissions generated
      by
      the RTAs. In contrast Travelocity, Priceline.com, Expedia and Orbitz focus
      their
      promotion efforts on the customer. Whereas YTB Travel spends nothing on
      advertising, the major companies typically spend over 50% of their revenue
      of
      advertising. YTB Marketing and its sales of online travel agencies through
      YTB
      Travel are not subject to the seasonality of the travel business, nor should
      a
      decline in travel significantly impact it, since the $49.95 monthly fee is
      its
      primary source of revenue. Also, typical online travel merchants sell a
      commodity (travel), which does not engender strong customer loyalty. RTAs have
      a
      significant advantage over the major online travel companies because each has
      personal relationships with their customers, who book travel through the RTAs’
own online travel stores. The cost to book a trip through an RTA is usually
      nearly identical to booking a trip through a major online travel company. The
      RTAs’ online stores provide access to more than 60 booking engines, including
      World Choice (a subsidiary of Travelocity), Priceline.com, Hotels.com, Apple
      Vacations, Funjet Vacations, Ourvacationstore.com and more.




Currently,
      there are approximately 22,000 RTA consumer websites in operation and over
      7,000
      registered travel agents, which include franchisees and independent travel
      agents, using the Vacation Central travel portal site. Site owners are permitted
      to solicit organizations and associations for travel sites allowing for site
      owners to earn more revenue.




YTB
      Travel is the travel management subsidiary that processes travel sales from
      online business models and processes and handles bookings (reservations) from
      approximately 22,000 websites and negotiates deals with over 60 preferred
      vendors, and receives incentives based on the volume of business that it
      produces. The fulfillment is offered through interactive, real time booking
      engines and access to preferred deals with leading travel industry suppliers.
      The emerging market shift to the internet for travel services presents the
      opportunity for advancement of products and services by referral relationships.
      Future revenue growth should accelerate as more RTAs are added to the system,
      and as each goes through the various training programs that YTB Marketing and
      YTB Travel Network provides.




6




Technologies
      generate revenue through 7,000 registered travel agents and over 60 active
      franchised travel agencies, Technologies operates under the following brands:
      Travel Network, Global Travel Network and Travel Network / Vacation Central.
      Technologies offers consumer driven websites which provide strong content and
      travel book-ability with over 60 booking engines incorporated into one site,
      covering all aspects of the travel industry. Sites are available for use 24
      hours, 7 days a week, allowing travel agents the ability to personally follow-up
      with the online consumer and provide customer service.




Our
      revenues are comprised of initial and monthly RTA hosting and maintenance fees,
      franchise fees and franchise service fees, commissions paid by travel providers
      and the retail value of travel agency related sales plus online hosting fees
      for
      websites. In addition, certain travel suppliers pay performance-based
      compensation known as “override commissions” or “overrides.” Commission revenues
      and gross retail sales, net of allowances for cancellations, are recognized
      generally based on the expected date of travel. Overrides are recognized on
      an
      accrual basis once the amount has been confirmed with the travel supplier.
      Franchise fees are recognized when all material services and conditions required
      have been performed and the collect ability of the franchise fee is relatively
      assured. We generally defer recognition of franchise fees until such amounts
      have been collected from the franchisee. Franchise service fees are recognized
      on the accrual basis as earned. Online travel income from online travel store
      sales is deferred and recognized ratably as income over a 12-month period which
      is the average life of an RTA.




With
      respect to travel services, revenues are generated by transactions with
      customers who make offers to purchase tickets or packages supplied by
      participating vendors. Because the Company is the merchant of record in these
      transactions, revenue for these services includes the total amount billed to
      the
      customer.




The
      commission rates paid by travel suppliers, in addition to overrides, are
      determined by individual travel suppliers and are subject to change.
      Historically, typical standard base commission rates paid by travel suppliers
      have been approximately 10% for hotel reservations, 5% to 10% for car rentals
      and 10% to 16% for cruises and vacation packages. Based on the past several
      years, leisure vendors (including tour operators, cruise lines and hotel and
      car
      packagers) have not reduced their commission levels but in fact have offered
      YTB
      Travel incentive commissions above the standard compensation for its volume
      business. The YTB Travel expects that its weighted average commission of online
      transaction revenues will increase due to the fact that its leisure bookings
      are
      much greater as a percentage of total sales than airline ticketing, the latter
      offering lower commissions. Each website travel storeowner pays a monthly fee
      of
      $49.95, plus, YTB Travel can earn transactional compensation from travel
      purchased from each website. There can be no assurance that travel suppliers
      will not reduce commission rates paid to YTB Travel or eliminate such
      commissions entirely, which could, individually or in the aggregate, have a
      material adverse effect on the Company’s business, operating results and
      financial condition.




7


Results
      of Operations




The
      following table sets forth, for the periods indicated, the percentage
      relationship of certain items from the Company’s consolidated statement of
      operations to total revenues:





Year
                Ended
              December
                31,
              2005
            
            Year
                Ended
              December
                31,
              2004(RESTATED)NET
                REVENUESOnline
                travel stores and monthly fees
            
            
            68.5
            %
            
            28.9
            %Travel
                commissions and services
            
            
            21.8
            %
            
            51.1
            %Franchise
                service fees and other fees
            
            
            2.1
            %
            
            19.8
            %Other
            
            
            7.6
            %
            
            0.2
            %Total
                net revenues
            
            
            100.0
            %
            
            100.0
            %OPERATING
                EXPENSESMarketing
                commissions
            
            
            64.3
            %
            
            8.7
            %Travel
                commissions
            
            
            16.0
            %
            
            39.5
            %Franchise
                fees
            
            
            0.9
            %
            
            6.1
            %Depreciation
                and amortization
            
            
            4.4
            %
            
            14.9
            %Marketing
                and selling
            
            
            0.9
            %
            
            -General
                and administrative
            
            
            40.7
            %
            
            99.2
            %Total
                operating expenses
            
            
            127.2
            %
            
            168.4
            %LOSS
                FROM OPERATIONS
            
            
            (27.2
            %)
            
            (68.4
            %)OTHER
                INCOME/(EXPENSES)Change
                in fair market value of derivatives
            
            
            (6.3
            %)
            
            -Interest
                and dividend income
            
            
            0.5
            %
            
            0.8
            %Interest
                expense
            
            
            (6.1
            %)
            
            (1.1
            %)TOTAL
                OTHER EXPENSE
            
            
            (11.9
            %)
            
            (0.3
            %)NET
                LOSS
            
            
            (39.1
            %)
            
            (68.7
            %)





8


***Revenues***




Revenue.
      Online travel store sales and monthly fee revenue increased in 2005 as compared
      to 2004 by approximately $13,861,240 or 1,502% as a result of the merger with
      YTB, Inc. On a pro forma basis as if YTB Inc. had been included for the full
      year, the increase would have been approximately $10,316,000 or
      331%.




Commissions.
      Travel agency commissions increased by approximately $3,086,400 from 2004 to
      2005, an increase of approximately 189.2%. The increase is attributable to
      an
      increase in the number of representatives utilizing the Company as their travel
      provider as a result of the merger with YTB, Inc.  On a pro forma basis if
      YTB Inc. had been included for the full year, the increase would have been
      approximately $2,650,000.




Franchise
      Service Fees. Franchise Service Fees in 2005 decreased as compared to 2004
      by
      approximately $188,700, a decrease of 30%. The decrease is largely attributable
      to the transition to the internet for travel bookings away from traditional
      travel agents.




Other.
      Other income increased in 2005 as compared to 2004 by approximately $1,641,685.
      This increase was due to the merger with YTB Inc., more specifically from the
      perspective of increased sales of training materials and convention
      registrations that accommodate the increased number of RTAs. On a pro forma
      basis as if YTB, Inc. had been included for the entire year, other income
      increased in 2005 as compared to 2004 by approximately $1,310,000 also due
      to
      the increased number of RTAs and the related increased sales of training
      materials and convention registrations.




***Operating
      Expenses***




Marketing
      and Selling Commissions. Commissions increased by approximately $13,602,849
      in
      2005 as compared to 2004. The increase is a result of higher marketing related
      revenues due to the increase in the number of RTAs as a result of the merger
      with YTB, Inc. The increased number of RTAs resulted in a fourth quarter accrual
      for Sales Director bonuses of $3.5 million. On a pro forma basis as if YTB
      Inc.
      had been included for the full year, the increase would have been approximately
      $10,948,000 or 473%.




Marketing
      and Selling Expenses. Marketing and selling expenses increased by approximately
      $207,181 from 2004 to 2005. The increase is attributable to the merger with
      YTB,
      Inc. The increase is directly related to the increased costs of meetings held
      for RTA recruitment and support. A pro forma comparison as if YTB Inc. had
      been
      included for the entire year results in an increase of approximately $56,400,
      primarily related to the increase in meeting expense directly related to the
      increase in the number of RTAs.




Travel
      Commissions. Travel commissions increased in 2005 as compared to 2004 by
      approximately $2,192,282 or 173.7%. This increase was due to the increased
      number of RTAs year over year.




General
      and Administrative. General and administrative expenses increased by
      approximately $5,621,592 or 177.5% from 2004 to 2005. The increase in general
      and administrative expense in 2005 is attributable to the merger with YTB,
      Inc.
      $1.7 million is attributable to increased legal and consulting fees surrounding
      the private placement memorandum and the Laurus Fund loan. $2 million of the
      increased G&A is the result of both the merger with YTB (only 1 month of
      expense in 2004) and increased staffing to handle the high growth rate of RTAs
      (increased payroll and benefits costs at YTB). Credit card fees, travel, rent
      & shipping costs, and convention costs all accounted for $500 thousand each
      amounting to the remaining $2 million. In addition, $311,028 was recorded
      in 2005 as equity compensation for investment consulting services. On a pro
      forma basis as if YTB Inc. had been included for the full year,
      the increase would have been approximately $2,740,000 or
      45.3%.




***Variability
      of Results***




The
      Company’s travel products and services gross bookings have increased from 2004
      to 2005 due to increase in the number of hosted websites and an increase in
      products and services sold to travel agencies utilizing our unique private
      label
      agent only web-based booking site. Cost of travel revenues have similarly
      increased from 2004 to 2005.




As
      a
      result of the Company’s operating history in online commerce and the variability
      that can be experienced by our franchising operations, the Company is unable
      to
      accurately forecast its revenues. The Company’s current and future expense
      levels are based predominantly on its operating plans. The Company may be unable
      to adjust spending in a timely manner to compensate for any unexpected revenue
      shortfall. Accordingly, any significant shortfall in revenues would likely
      have
      an adverse effect on the Company’s business, operating results and financial
      condition. Further, the Company currently intends to substantially increase
      its
      operating expenses to develop and offer new and expanded travel services, to
      fund increased sales and marketing and customer service operations to develop
      its technology and transaction processing systems. To the extent such expenses
      precede or are not subsequently followed by increased revenues, the Company’s
      operating results will fluctuate and anticipated net losses in a given period
      may be greater than expected.




9




The
        Company expects to experience fluctuations in its future quarterly operating
        results due to a variety of other factors, many of which are outside the
        Company’s control. Factors that may adversely affect the Company’s quarterly
        operating results
        include, but are not limited to (i) the Company’s ability to retain existing
        customers, attract new customers at a steady rate and maintain customer
        satisfaction, (ii) changes in inventory availability from third party suppliers
        or commission rates paid by travel suppliers, (iii) the announcement or
        introduction of new or enhanced sites, services and products by the Company
        or
        its competitors, (iv) general economic conditions specific to the internet,
        online commerce or the travel industry, (v) the level of use of online services
        and consumer acceptance of the internet and commercial online services for
        the
        purchase of consumer products and services such as those offered by the Company,
        (vi) the Company’s ability to upgrade and develop its systems and infrastructure
        and to attract new personnel in a timely and effective manner, (vii) the
        level
        of traffic on the Company’s online sites, (viii) technical difficulties, system
        downtime or internet brownouts, (ix) online sites, (x) technical difficulties,
        system downtime or internet brownouts, (xi) the amount and timing of operating
        costs and capital expenditures relating to expansion of the Company’s business,
        operations and infrastructure, (xii) governmental regulation and (xiii)
        unforeseen events affecting the travel industry, including terrorist activities
        similar to September 11 and the conflict with Iraq.




In
      addition, the Company expects that it will experience seasonal fluctuations
      in
      the travel industry, internet and commercial online service usage and
      advertising expenditures. The Company anticipates that travel bookings will
      typically increase during the first and second quarter in anticipation of summer
      travel and will typically decline during the third quarter. internet and
      commercial online service usage and the rate of growth of such usage may be
      expected typically to decline during the summer. Depending on the extent to
      which the internet and commercial online services are accepted as an advertising
      medium, seasonality in the level of advertising expenditures could become more
      pronounced for internet-based advertising.




Due
      to
      the foregoing factors, quarterly revenues and operating results are difficult
      to
      forecast, and the Company believes that period-to-period comparisons of its
      operating results will not necessarily be meaningful and should not be relied
      upon as an indication of future performance. It is likely that the Company’s
      future quarterly operating results from time to time will not meet the
      expectations of security analysts or investors. In such event, the price of
      the
      Company’s common stock would likely be materially and adversely
      affected.




**Liquidity
      and Capital Resources**




Cash provided by
      operating activities in 2005 was $107,722 as compared
      to cash consumed by operating activities of $298,942 in 2004.




Cash
      used
      by investing activities was $3,589,691 in 2005 as compared to cash
      provided by investing activities of $192,154 in 2004, primarily as a
      result of the purchase of securities. The purchase of property and equipment
      accounted for the use of $429,645 in 2005.




Cash
      provided by financing activities was $3,686,608 in 2005 compared to $84,387
      in 2004. $3,000,000 of the increase derives from the proceeds from the
      issuance of debt and the other $960,000 derives from a common stock
      issuance.




The
      Company believes that cash and short term investments on hand at December 31,
      2005, its cash flow from operations will be sufficient to meet its obligation
      on
      a timely basis for the next 12 months.




On
      July
      26, 2006, the Company purchased 12 acres of land which included a 100,000 square
      foot building (the “Property”) for $2.5 million to house their new corporate
      headquarters in Wood River, Illinois. The Board of Directors of the Company
      approved the transaction at its meeting on July 24, 2006.





The
      Company financed the purchase of the Property with a note in the amount of
      $2,500,000 with an interest rate of Prime, less 0.50% floating daily from
      Meridian Bank, a local bank. The Note is collateralized by the first mortgage
      on
      the Property and a $500,000 Certificate of Deposit. The Certificate of Deposit
      will be released after the Company makes $625,000 of improvements to the
      Property. The Company plans to begin a $6.0 million renovation project to the
      Property in late 2006.




**Critical
      Accounting Policies and Estimates**




The
      Company’s financial statements and accompanying notes are prepared in accordance
      with accounting principles generally accepted in the United States. The
      preparation of financial statements requires the Company to estimate the effect
      of various matters that are inherently uncertain as of the date of the financial
      statements. Each of these required estimates varies in regard to the level
      of
      judgment involved and its potential impact on the Company’s reported financial
      results. Estimates are deemed critical when a different estimate could have
      reasonably been used or where changes in the estimate are reasonably likely
      to
      occur from period to period, and would materially impact the Company’s financial
      condition, changes in financial condition or results of operations. The
      Company’s significant accounting policies are discussed in Note 1 in the
      accompanying Notes to Consolidated Financial Statements. Critical accounting
      estimates for the Company include revenue recognition, impairment of goodwill
      and realization of deferred tax assets and are discussed in the following
      paragraphs.




10




Revenue
      Recognition




*A
      summary of the Company’s revenue recognition policies, as they relate to the
      specific revenue streams, is as follows:*




*Online
      travel store sales and monthly fees*





The
      Company generates revenue from the selling of online travel agencies, and from
      providing training and ongoing maintenance services to the new business owners
      of such online travel agencies, i.e. RTA(s). The Company determined that its
      initial sale of the online travel store was deemed to fall under the SEC’s Staff
      Accounting Bulletin No. 4, “Revenue Recognition” (“SAB 104”) and Emerging Issues
      Task Force 00-21 (“EITF 00-21”), “Accounting for Revenue Arrangements with
      Multiple Deliverables”. SAB 104 and EITF 00-21 require the initial sales price,
      including all up-front fees received from new RTA sales, to be amortized over
      the expected useful life of referring travel agent (“RTA”). The calculation of
      the expected useful life was based upon a review of the sales for each month
      and
      the length of time each RTA continues with the Company. The Company then applied
      a weighted average to the calculations. Likewise, the commission paid in
      connection with the negotiations to sell the business would be amortized over
      the same period. Any excess of expense to acquire the business over the proceeds
      received, is recognized immediately and not amortized. Monthly maintenance
      fees
      are recognized in the month the services are provided. The Company reviews
      the
      underlying calculations of the expected useful life of the RTA
      annually.




*Travel
      commissions and services*





Commissions
      and incentives earned from travel sales are recognized as revenue when the
      related travel has been completed by the customer. Commissions earned where
      the
      Company acts in the capacity of a wholesaler are recorded at their gross amount.
      The cost of such revenue is recorded separately as an operating
      expense.





*Franchise
      service fees and other fees*





The
      Company is a franchisor of traditional “brick and mortar” travel agencies. The
      initial franchise fee related to the sale of these travel agencies is due upon
      execution of a franchise agreement with the franchisee. The initial franchise
      fee is deferred and subsequently recognized as revenue when all material
      conditions prior to the opening of a franchised business have been satisfied.
      Fees paid are non-refundable once a site location has been
      selected.





*Other
      revenue*




Sales
      revenues from sales aids and miscellaneous promotional and marketing materials
      are recognized when the related merchandise is shipped to the
      customer.


Intangible
        assets, net
 
 Intangible
        assets are amortized using the straight-line method over their estimated
        period
        of benefit, ranging from one to ten years. The Company periodically evaluates
        the recoverability of intangible assets and takes into account events or
        circumstances that warrant revised estimates of useful lives or that indicate
        that impairment exists. No impairment of intangible assets was identified
        during
        any of the periods presented.




Goodwill





In
      accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142,
“Goodwill and Other Intangible Assets,” (“SFAS 142”), the Company assesses
      goodwill for impairment annually during the fourth quarter, or more frequently,
      if an event occurs or circumstances change that more likely than not reduce
      the
      fair values of reporting units below their carrying values. The impairment
      test
      requires the Company to estimate the fair value of the Company’s reporting
      units. If the carrying value of the reporting unit exceeds the fair value,
      the
      goodwill of the reporting unit is potentially impaired and the Company proceeds
      to step two of the impairment analysis. In step two of the analysis, the Company
      will record an impairment loss equal to the excess of the carrying value of
      the
      reporting unit’s goodwill over its implied fair value should such a circumstance
      arise.


Expense
        recognition of commission costs
  The
        Company incurs commission costs that are directly related to the origination
        of
        new RTA sales; sales which result in the deferral of revenue. Such incremental
        direct commission costs are capitalized in accordance with Financial Accounting
        Standards Board (“FASB”) Technical Bulletin No. 90-1 (“FTB 90-1”). In addition,
        the Company has elected to account for such commission costs in accordance
        with
        Securities and Exchange Commission Staff Accounting Bulletin (“SAB") 104 and FTB
        90-1, by deferring and charging such costs to expense in proportion to the
        related revenue recognized, over the same deferral period of twelve
        months.


Marketing
        compensation plan
  The
        Company offers a compensation plan to its sales representatives under an
        arrangement that pays the representatives direct sales commissions, override
        compensation (if qualified) and other bonus incentives based on the amounts
        attributable to each representative’s sales, or enrolled referrals. Direct sales
        commissions are paid on a weekly basis, based upon the amount of the previous
        week’s sales. Residual commissions are paid on a monthly basis for active
        representatives, following the month earned. Bonuses are earned by maintaining
        a
        minimum number of personal enrollments. Commission costs are capitalized
        and
        recognized as expense in proportion to the related revenue recognized, over
        a
        period of twelve months.




11




Income
        taxes
  SFAS
        109,
“Accounting for Income Taxes *”,* establishes financial accounting and reporting standards for the effect of
        income taxes. The Company provides deferred income tax assets and liabilities
        based on the estimated future tax effects of differences between the financial
        and tax bases of assets and liabilities based on currently enacted tax laws.
        The
        Company assesses temporary differences that result from differing treatments
        of
        certain items for tax and accounting purposes. These differences
        result in deferred tax assets and liabilities, which are shown on our
        consolidated balance sheet. The Company must assess the likelihood that deferred
        tax assets will be realized. To the extent the Company believes that realization
        is not likely, a valuation allowance is established. When a valuation allowance
        is established or increased in an accounting period, a corresponding tax
        expense
        is recorded in our consolidated statement of operations. Judgment is required
        in
        assessing the future tax consequences of events that have been recognized
        in the
        Company’s financial statements or tax returns. Fluctuations in the actual
        outcome of these future tax consequences could materially impact the Company’s
        financial position or its results of operations.




The
      Company has made certain other estimates that, while not involving the same
      degree of judgment, are important to understanding the Company’s financial
      statements. These estimates are in the areas of assessing recoverability of
      long-lived assets and in establishing reserves in connection with its accounts
      receivable. On an ongoing basis, management evaluates its estimates and
      judgments in these areas based on its substantial historical experience and
      other relevant factors. Management’s estimates as of the date of the financial
      statements reflect its best judgment giving consideration to all currently
      available facts and circumstances. As such, these estimates may require
      adjustment in the future, as additional facts become known or as circumstances
      change.




The
      Company’s management has discussed the development and selection of these
      critical accounting policies with the Audit Committee of the Company’s Board of
      Directors and the Audit Committee has reviewed the Company’s disclosure relating
      to it in this Management Discussion and Analysis of Financial Condition and
      Results of Operations.





**New
      Accounting Pronouncements**





SFAS
      No.
      123R, “Share-Based Payment” requires that a public entity measure the cost of
      equity based service awards based on the grant-date fair value of the award.
      That cost will be recognized over the period during which an employee is
      required to provide service in exchange for the award or the vesting period.
      No
      compensation cost is recognized for equity instruments for which employees
      do
      not render the requisite service. A public entity will initially measure the
      cost of liability based service awards based on current fair value. The fair
      value of those awards will be re-measured subsequently at each reporting date
      through the settlement date. Changes in fair value during the requisite period
      will be recognized as compensation cost over the period. The Company is required
      to adopt SFAS No. 123R on January 1, 2006. Although there will be no impact
      on
      the Company’s cash flows, the adoption of SFAS No. 123R will have significant
      impact on its operating results.




The
      Company currently plans to adopt SFAS No. 123R using the modified prospective
      method. At December 31, 2005, the unvested option expense is $125,926 and is
      expected to be expensed over the next 1.17 years. The Company is currently
      assessing the impact of the adoption of SFAS No. 123R on its compensation
      strategies.




The
      Company does not believe that there are any other new accounting pronouncements
      that the Company is required to adopt that are likely to have at least some
      effect on the Company’s future financial statements.





**Restatement
      of Prior Year Financial Statements**





The
      Company recently filed its Annual Report on Form 10-KSB/A No. 6 for its fiscal
      year ended December 31, 2004 and will file its amended Quarterly Reports on
      Forms 10-QSB/A for each of the six quarters ended March 31, 2004, June 30,
      2004,
      September 30, 2004, March 31, 2005, June 30, 2005 and September 30, 2005 to
      reflect the restatement of its audited financial statements for the fiscal
      years
      ended December 31, 2004 and 2003. The restatements arose from actions taken
      by
      the Company when it became aware of the lack of independence with the Company’s
      former independent accounting firm, Dischino and Associates. Subsequently,
      the
      Company began a review of the financials statements for the years ended
      December 31, 2004 and 2003, which gave rise to additional adjustments. The
      restatement resulted principally from numerous material weaknesses in the
      Company’s internal controls and insufficient personnel resources and technical
      accounting expertise within the accounting function to affect a timely and
      accurate financial close process.





**Forward-Looking
      Statements**





All
      statements other than statements of historical fact included in this annual
      report, including without limitation statements regarding the Company’s
      financial position, business strategy and the plans and objectives of the
      Company’s management for future operations are forward-looking statements. When
      used in this annual report, words such as “anticipate,” “believe,” “estimate,”
“expect,” “intend,” and similar expressions, as they relate to the Company or
      its management, identify forward-looking statements. Such forward-looking
      statements are based on the beliefs of the Company’s management, as well as
      assumptions made by and information currently available to the Company’s
      management. Actual results could differ materially from those contemplated
      by
      the forward-looking statements as a result of certain factors, including but
      not
      limited to, business and economic conditions, competitive factors and pricing
      pressures, capacity and supply constraints. Such statements reflect the views
      of
      the Company with respect to future events and are subject to these and other
      risks, uncertainties and assumptions relating to the operations, results of
      operations, growth strategy and liquidity of the Company. Readers are cautioned
      not to place undue reliance on these forward-looking statements. The Company
      does not undertake any obligation to release publicly any revisions to these
      forward-looking statements to reflect future events or circumstances or to
      reflect the occurrence of unanticipated events.




12




**ITEM
              7.**
            **FINANCIAL
                STATEMENTS****.**





Consolidated
      financial statements of the Company prepared in accordance with Regulation
      S-X
      are included elsewhere in this Report and are incorporated by reference in
      this
      Item 7.




**ITEM
              8.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND****FINANCIAL
                DISCLOSURE.**





In
      September 2005, Dischino & Associates, P.C. (“Dischino”) and the Company
      mutually agreed that Dischino would not continue to act as the Company’s
      independent auditor following Dischino’s review for the quarter ended September
      30, 2005. Based on the recommendation of the Company’s Audit Committee, the
      Board of Directors of the Company at a meeting held on December 22, 2005
      approved the engagement of UHY LLP (“UHY”) as the Company’s independent
      registered public accounting firm for the fiscal year ending December 31, 2005.
      On January 4, 2006 arrangements were finalized with UHY. Prior to its
      appointment, the Company did not consult with UHY regarding matters or events
      set forth in Items 304(a) (2) (i) and (ii) of Regulation S-B promulgated by
      the
      U.S. Securities and Exchange Commission.





The
      reports of Dischino on the Company’s financial statements for each of the two
      fiscal years ended December 31, 2004 and 2003 did not contain an adverse opinion
      or a disclaimer of opinion and were not qualified or modified as to uncertainty,
      audit scope, or accounting principles. In connection with the audits of the
      Company’s financial statements for each of the two fiscal years ended December
      31, 2004 and 2003, and through January 4, 2006, there were no disagreements
      with
      Dischino on any matter of accounting principles or practices, financial
      statement disclosure, or auditing scope or procedure, which, if not resolved
      to
      the satisfaction of Dischino, would have caused Dischino to make reference
      to
      the matter in its reports.





During
      each of the two fiscal years ended December 31, 2004 and 2003, and through
      January 4, 2006, no information is required to be reported under Item
      304(a)(1)(iv)(B) of Regulation S-B.




**ITEM
              8A.**
            **CONTROLS
                AND PROCEDURES.**





a.  Evaluation
      of disclosure controls and procedures.





The
      Company maintains disclosure controls and procedures designed to ensure that
      information required to be disclosed in the reports that the Company files
      or
      submits under the Securities Exchange Act of 1934, is recorded, processed,
      summarized and reported within the time period specified in the rules and forms
      of the SEC. In connection with the Form 10-KSB for the fiscal year ended
      December 31, 2005, as required under Rule 13a-15(e) of the Exchange Act, the
      Company's management, including its Chief Executive Officer and Chief Financial
      Officer, conducted an evaluation of the effectiveness of the Company's
      disclosure controls and procedures. Based on that evaluation, the Company's
      Chief Executive Officer and Chief Financial Officer concluded that the Company's
      disclosure controls and procedures were not effective as of December 31, 2005.





On
      January 6, 2006, the Company self-reported to the staff of the SEC (the “Staff”)
      that it became aware that the Company’s previous independent accounting firm,
      Dischino and Associates, P.C., had provided prohibited services and appeared
      to
      have not followed the standards of the Public Company Accounting Oversight
      Board
      (“PCAOB”). On January 19, 2006, the Company initiated an internal inquiry into
      those accounting-related matters which the Company disclosed in the Current
      Report on Form 8-K filed with the SEC on January 19, 2006. Based on the findings
      of the inquiry, on February 6, 2006, the Company’s management and the Audit
      Committee of the Company’s Board of Directors concluded that the Company needed
      to restate certain of the Company’s financial statements and that the financial
      statements included in the Company’s Annual Report on Form 10-KSB/A No. 5 for
      the year ended December 31, 2004 and the financial statements included in the
      Company’s Quarterly Reports on Form 10-QSB for the quarters ended March 31,
      2004, June 30, 2004, September 30, 2004, March 31, 2005, June 30, 2005 and
      September 30, 2005 could not be relied upon.




13





As
      a
      result of the notification of non-reliance filed, the Company began its
      restatement of the affected years’ and quarters’ financial statements. The
      Company believes that the restatements resulted from the record retention
      deficiencies and lack of internal control over financial reporting at the
      former REZconnect. However, the Company is taking numerous steps to tighten
      controls and strengthen internal control policies and procedures.





In
      addition, during the restatement process, the Company also discovered other
      matters giving rise to adjustments. These matters are with regard to
      insufficient personnel resources and technical accounting expertise within
      the
      accounting function to affect a timely financial close process. In conjunction
      with this effort, the Company conducted an in-depth review of its application
      of
      accounting principles and system of internal controls. As a result of this
      investigation, the Company identified numerous material weaknesses in its
      internal controls and improper application of accounting principles. A material
      weakness is a significant deficiency, or combination of significant
      deficiencies, that results in more than a remote likelihood that a material
      misstatement of the annual or interim financial statements will not be prevented
      or detected. The Company has quantified the errors caused by these deficiencies
      and has prepared restated financial statements and disclosures to correct the
      identified errors.





The
      restatements are described in more detail in Note 13 in the Notes to
      Consolidated Financial Statements included in the Company’s Annual Report filed
      on Form 10-KSB/A No. 6 for the year ended December 31, 2004. Internal controls
      over financial reporting, including the application of accounting policies
      and
      principles, are within the scope of disclosure controls. Therefore, management
      has concluded that there were material weaknesses in the Company’s disclosure
      controls as of December 31, 2005 and 2004. Remediation of those internal control
      issues is currently in process. The following is a summary of those weaknesses
      identified by management:


In
        addition, after having filed its Form 10-KSB for the year ended December
        31,
        2005, additional information relative to stock warrants issued by the Company
        came to light. This information required the restatement of Form 10-KSB for
        the
        year ended December 31, 2005.


·
            The
                Company did not maintain sufficient competent personnel to maintain
                an
                appropriate accounting and financial reporting organizational structure.
                Specifically, the Company did not maintain personnel with an appropriate
                level of accounting knowledge, experience and training in the selection,
                application and implementation of generally accepted accounting principles
                commensurate with the Company’s financial reporting requirements. As a
                result, the Company’s controls over selection and application of
                accounting principles were ineffective. This deficiency resulted
                in the
                improper presentations in the Company’s financial statements.




·
              The
                  Company failed to maintain adequate controls over the issuance
                  of and
                  accounting for warrants.


·
            The
                Company’s design and operation of controls over the accounting closing and
                reporting process are not effective due to lack of timely and complete
                preparation of account analyses and reconciliations, a lack of appropriate
                review of account reconciliations and supporting analyses and errors
                in
                account balance classification. This lack of proper evaluations resulted
                in cut-off, completeness and presentation errors in the Company’s
                financial statements.





·
            The
                Company did not maintain effective controls over the development
                of
                accounting estimates. Specifically, the Company did not have controls
                in
                place to conduct a review over the propriety or collectibility of
                account
                and notes receivable in order to determine the proper recorded value
                of
                those assets and the proper valuation of the allowance for doubtful
                accounts. In addition, the deficient controls did not allow for the
                proper
                evaluation of the estimated lives of RTAs so that a proper matching
                of
                revenue and expense could be accomplished. Additionally, the Company
                did
                not analyze average marketing commissions paid in relation to original
                enrollment transactions in order to determine proper expense
                recognition.





·
            The
                Company did not maintain proper internal controls over expenditures
                and
                accounting for certain liabilities which resulted in unrecorded
                liabilities and expenses.





·
            The
                Company did not conduct an in-depth study of the carrying value of
                its
                recorded assets or testing over the impairment of those assets.
                Specifically, the deficient controls did not allow for the proper
                identification of the composition of the items included in the Company’s
                capitalized software accounts nor did it allow for an impairment
                valuation
                to determine the proper carrying value of the
                asset.





·
            The
                Board of Directors failed to maintain documentation of approved acts
                of
                the Company. Formal Board of Director minutes were not maintained
                during
                this reporting period. As a result, certain share-based transactions
                were
                not recorded or were recorded incorrectly in the Company’s financial
                statements.





Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      provide reasonable assurance that information required to be disclosed in
      Company reports filed or submitted under the Securities and Exchange Act of
      1934
      (“Exchange Act”) is recorded, processed, summarized and reported, within the
      time periods specified in the Securities and Exchange Commission’s rules and
      forms. Disclosure controls and procedures include, without limitation, controls
      and procedures designed to provide reasonable assurance that information
      required to be disclosed in Company reports filed under the Exchange Act is
      accumulated and communicated to management, including the Company’s Chief
      Executive Officer and Chief Financial Officer as appropriate, to allow timely
      decisions regarding required disclosure.




14





It
      should
      be noted that 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. As a result, there can be no assurance that a control
      system will succeed in preventing all possible instances of error and fraud.
      The
      Company’s disclosure controls and procedures are designed to provide reasonable
      assurance of achieving their objectives, and the conclusions of our Chief
      Executive Officer and Chief Financial Officer are made at the “reasonable
      assurance” level.





**b.** **Changes
      in internal control over financial reporting.**





Effective
      December 5, 2005, the Company appointed Mr. John D. Clagg as it Chief Financial
      Officer.





**c.** **Management
      Remediation Plan.**





The
      Company’s management and Audit Committee are committed to addressing and
      resolving these material weaknesses fully and promptly, by putting in place
      the
      personnel, processes, technology and other resources appropriate to support
      our
      financial reporting processes.





To
      remediate the internal control material weaknesses described above, management
      has commenced implementation of the following measures:





·  For
      material transactions that are unique or outside the Company’s core operations,
      the Company will continue to document its process for accounting for such
      transactions and the Company will improve its process for researching the
      applicable accounting literature and documenting its conclusions, by consulting
      with outside experts to ensure its interpretations are correct.





·  The
      Company will prepare a standardized memorandum that is required to be completed
      for each transaction that is unique or outside the Company’s normal core
      operations that is material to its financial statements. This memo will be
      reviewed and approved by the Chief Financial Officer.





·  The
      Company will enhance formal communication with, and approval by, its Chief
      Financial Office and Audit Committee of its application of Generally Accepted
      Accounting Principles in the United States (“US GAAP”) and account policy
      decisions for transactions that are outside the Company’s core operations and
      the advice received from outside experts.





·  All
      Board
      of Directors’ meetings as well as Committee meetings minutes will be reviewed by
      an appropriate member of the internal accounting staff to determine if there
      are
      any transactions that need to be accounted for properly or events that rise
      to
      the level of disclosure.




·  Management
      will evaluate and augment when necessary, the qualifications of accounting
      personnel and staffing levels at both the Illinois and New Jersey
      locations.





·  Management
      will establish new policies and procedures as part of an enhanced quarterly
      and
      annual financial review close process to include additional analysis and support
      for the financial accounts as well as to ensure that all appropriate disclosures
      are made in accordance with US GAAP and the rules and regulations of the
      SEC.


· The Chief Financial Officers’ office will maintain a log of
          warrants and options issued along with other pertinent data. This log will
          be
          reviewed each reporting period to ensure that proper accounting
          occurs.




We
      have
      undertaken remedial action to address and correct the weakness in our internal
      controls and disclosure controls identified subsequent to the end of 2005.
      These
      actions include adopting an adequate review of the annual and quarterly
      financial statements, engaging qualified personnel to prepare the statements
      and
      ensuring that the personnel receive continuing professional educational related
      specifically to US GAAP. These actions were put in place during the quarter
      beginning January, 2006.





We
      have
      begun the extensive process of documenting and evaluating our internal control
      procedures in order to satisfy the requirements of Section 404 of the
      Sarbanes-Oxley Act which will apply to us beginning with our fiscal year 2007.
      Section 404 will require an annual report by our management on the effectiveness
      of our internal controls over financial reporting and for our independent
      registered public accounting firm to attest to management’s evaluation
      report.




15





**Internal
      Inquiry**





The
      Company initiated an internal inquiry into (i) possible improper recognition
      of
      approximately $30,000 in revenue for the period ended June 30, 2005 as reported
      in the Company’s Form 10-QSB for the period ended June 30, 2005, which possible
      improper recognition the Company believes was rectified in its Form 10-QSB
      for
      the period ended September 30, 2005, and (ii) the probability that Dischino
      & Associates, P.C., the Company’s former independent auditor, was not
      independent during a portion of the period in which it performed services on
      behalf of the Company. Management of the Company concluded that in light of
      the
      fact that it appears the Company’s former audit firm provided certain prohibited
      services and appeared not to have followed appropriate auditing standards,
      the
      financial statements included in the Company’s Annual Reports for the years
      ended December 31, 2003 and 2004, and the Company’s Quarterly reports on Form
      10-QSB for years 2004 and 2005 cannot be relied upon. Accordingly, all of the
      affected statements and filings have been restated and re-audited.





The
      Company will determine what corrective action, if any, will be taken promptly
      following the completion of the inquiry. The legal firm of Greenberg Traurig
      has
      been retained by the Audit Committee of the Board of Directors of the Company
      to
      handle the inquiry and to make recommendations to the Audit Committee. In April
      2006, the findings to date of Greenberg Traurig were presented to the
      Company’s Audit Committee of the Board of Directors. As a result, the Audit
      Committee presented certain resolutions to the Board of Directors which were
      adopted on April 24, 2006. The resolutions included, but were not limited to,
      enhanced controls over an executive’s ability to enter into contracts on behalf
      of the Company, additional controls over safeguarding Company assets and changes
      to enhance the Company’s record retention procedures.





In
      September 2006, the Company’s Chief Financial Officer and the Company’s legal
      counsel met with the SEC Staff to explain the financial statement restatements,
      the internal control weaknesses that gave rise to those restatements as well
      as
      the corrective actions that have been undertaken.





**ITEM
              8B.**
            **OTHER
                INFORMATION.**





None.




16


**PART
      III**




**ITEM
              9.**
            **DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;****COMPLIANCE
                WITH SECTION 16(a) OF THE EXCHANGE
                ACT.**




**Directors
      and Executive Officers**




Each
      director will serve for a term of one year and thereafter until their successors
      are duly elected and appointed or he resigns, unless sooner removed. Set forth
      below is certain information concerning the directors and executive
      officers:




Name
            
            Director
              Since
            
            Age
            
            Position/TitleJ.
                Lloyd Tomer
            
            December
                2004
            
            71
            
            Chairman
                of the Board of DirectorsMichael
                Y. Brent
            
            November
                1989
            
            63
            
            President
                and DirectorJ.
                Scott Tomer
            
            December
                2004
            
            47
            
            Chief
                Executive Officer and DirectorDerek
                J. Brent
            
            April1995
            
            34
            
            Secretary
                and DirectorKim
                Sorensen
            
            December
                2004
            
            55
            
            Vice
                President and DirectorJohn
                D. Clagg
            
            n/a
            
            47
            
            Chief
                Financial OfficerHarold
                L. Kestenbaum
            
            December
                1991
            
            56
            
            DirectorDarren
                Brent
            
            November
                2005
            
            34
            
            DirectorClay
                Winfield
            
            November
                2005
            
            51
            
            DirectorAndrew
                Wilder
            
            November
                2005
            
            54
            
            DirectorTimothy
                Kaiser, M.D.
            
            November
                2005
            
            48
            
            Director





J.
      Lloyd
      Tomer, Chairman of the Board of Directors, father of J. Scott Tomer, is a
      seasoned veteran of direct sales and marketing. After spending thirteen years
      in
      the ministry, he became an agent of the A. L. Williams Company (now known as
      Primerica Financial Services (“Primerica”) in January 1981. He achieved the
      level of Senior National Sales Director in 1985 and maintained that position
      through 2001. While at A. L. Williams he built a successful sales organization
      numbering in the thousands, whose combined life insurance sales was measured
      in
      the billions, with assets under management of $750 million. He sold his agency
      in Primerica in January 2002. Thereafter, Mr. Lloyd J. Tomer devoted his
      marketing expertise to YourTravelBiz.com. He attended Anderson College in
      Anderson, Indiana.




Michael
      Y. Brent, President and Director, father of Derek J. and Darren J. Brent,
      graduated from the University of Miami in June 1965 with a Bachelor of Arts
      in
      administration and accounting. From July 1965 through 1974, he was a Director
      of
      Convention Sales, for his family’s hotel business. From 1974 - 1981, Mr. Michael
      Y. Brent owned and operated a travel company. In 1982, he co-founded Travel
      Network, Ltd. (one of the Company’s predecessors) and served as Vice President
      until June 1989 when he became its Chief Operating Officer and a part owner.
      In
      1994, Mr. Michael Y. Brent became its President and Chief Executive Officer.
      In
      2006, due to a change in the Company’s management structure, Mr. Michael Y.
      Brent became the Company’s President.




J.
      Scott
      Tomer, Director and Chief Executive Officer, son of J. Lloyd Tomer, was employed
      at A. L. Williams (now known as Primerica Financial Services (“Primerica”)) from
      1981-1993 where he earned the level of National Sales Director; he had the
      responsibility of field support and training for their sales force, where he
      trained over 2,000 sales personnel. He left Primerica to become a Certified
      Financial Planner, which he continued while specializing in real estate
      investing prior to co-founding YourTravelBiz.com in 2001.




Derek
      J.
      Brent, Director and Secretary, son of Michael Y. Brent, graduated from the
      University of Maryland in June 1993 with a Bachelor of Business Administration
      and Accounting. He joined the Company’s predecessor in May 1993, as sales
      consultant. In 1996, he became Director of Sales. On December 8, 2004, Mr.
      Derek
      J. Brent became President of REZconnect Technologies, Inc.




17




J.
      Kim
      Sorensen, Director and Vice President, brings to YTB International, Inc. an
      extensive and successful business history. He has owned several businesses,
      and
      managed a multi-million dollar mixed real estate complex across from the
      Illinois state capital in Springfield. He was also a professional bowler and
      bowling proprietor from 1975-1980. He joined A. L. Williams in 1981 and earned
      the Sr. Vice President position in 1985. In 1990, Mr. Sorensen partnered with
      J.
      Lloyd Tomer to provide technical and management support for his growing sales
      organization through 2001. He is a co-founder of YourTravelBiz.com, and his
      expertise in computer technology has led to the development and management
      of
      many of the systems at the Company.




Harold
      Kestenbaum, Director, graduated from the University of Richmond School of Law
      in
      1975, and is the Company’s franchise and general counsel. Mr. Kestenbaum is
      engaged primarily in the independent practice of law, specializing in franchise
      and distribution law, representing franchisors only, both start-up and
      established from his Garden City, New York offices. He is, among other
      professional roles, a founding member of the New York State Bar Association’s
      Franchising, Distribution and Licensing Law Section.




Clay
      Winfield, Director, is a principal in numerous business ventures, centered
      primarily in the real estate development and real estate management arenas,
      in
      both the St. Louis, Missouri and Naples, Florida markets. Mr. Winfield was
      an
      early builder and developer of premier communities in the Naples, Florida market
      and continues to develop communities there. Mr. Winfield also is a principal
      in
      Meridian Bank and Meridian Land Company, Inc., which has holdings in the St.
      Louis and Naples area.




Andrew
      Wilder, Director, is a licensed CPA and shareholder with the firm of Israeloff,
      Trattner & Co., CPAs P.C. in Garden City, New York. Mr. Wilder graduated
      from Monmouth University in 1972 and is a member of the American Institute
      of
      Certified Public Accountants and the New York State Society of Certified Public
      Accountants. He also has served on various committees of the New York State
      Society of Certified Public Accountants, including the Accounting and Auditing
      and the SEC committees as well as a former adjunct lecturer at Queens College.
      Mr. Wilder also serves on the Board of Directors of Napco Security Systems,
      Inc.
      IUS: NSSC), since 1995 and has been Chairman of its Audit Committee since 2001.
      Mr. Wilder also serves as Chairman of the Audit Committee of the Board of
      Directors of the Company.




Timothy
      Kaiser, M.D., Director, graduated with highest honors from the University of
      Oklahoma and magna cum laude from Harvard Medical School. Dr. Kaiser is Chairman
      of the Board of Meridian Bank, an Illinois commercial bank, and is involved
      in
      several business interests as a principal, primarily involving real estate
      holding, sales, and development companies in the St. Louis, Missouri and Naples,
      Florida areas.




Darren
      J.
      Brent, Director, son of Michael Y. Brent, graduated from Tufts University with
      a
      Bachelor of Arts, Political Science in 1991 and then earned his Law Degree
      from
      Nova Southeastern University in June 1994. Mr. Darren J. Brent practices law
      in
      Florida and New Jersey where he is admitted. His firm specializes in real estate
      transactions and personal bankruptcies.




John
      D.
      Clagg, Chief Financial Officer, graduated with a Bachelor of Science Degree
      from
      Southern Illinois University-Edwardsville and is pursuing the MBA program from
      the same institution. His 23 year career includes extensive experience at the
      corporate level in financial and strategic planning, merger/acquisition
      transactions, financial and treasury management and with experience in budgeting
      and financial forecasting. Mr. Clagg began his professional career in 1983
      at
      Arthur Andersen & Co. in St. Louis. He joined the Sisters of Mercy Health
      System and rose to the position of Corporate Controller. From 1998 to 2001
      he
      served as Director of Operational and Financial Support at the national office
      for Ascension Health in St. Louis. From 2001 to 2003 he served as Chief
      Financial Officer for a large assisted living and retirement center in St.
      Louis
      County.




***Compliance
      with Section 16(a) of the Securities Exchange Act***




Section
      16(a) of the Exchange Act requires our executive officers, directors and persons
      who own more than ten percent of a registered class of our equity securities
      (“Reporting Persons”) to file reports of ownership and changes in ownership on
      Forms 3, 4, and 5 with the Securities and Exchange Commission (the “SEC”). These
      Reporting Persons are required by SEC regulation to furnish us with copies
      of
      all Forms 3, 4 and 5 they file with the SEC. Based solely on our review of
      the
      copies of the forms we have received, we believe that all Reporting Persons,
      other than J. Lloyd Tomer, J. Scott Tomer and J. Kim Sorensen, are non-compliant
      with filing requirements applicable to them with respect to transactions during
      fiscal year 2005. The Company is currently reviewing the transactions of the
      Reporting Persons and intends to assist them in connection with filing the
      required reports.




18




**Code
      of Ethics**




The
      Sarbanes-Oxley Act (“SOX”) was adopted by Congress July 2002 to impose corporate
      governance standards and associated disclosures on publicly reporting companies.
      One of those requirements related to adoption of a Code of Ethics promoting,
      among other objectives, “...honest and ethical conduct, including fair dealing
      and the ethical handling of conflicts of interest...” on executive level
      financial and accounting people for fiscal years ending after the July 15,
      2003.
      The Company adopted the Code of Ethics (filed herewith as Exhibit 14.1) July
      10,
      2003, voluntarily extending such standards to all (not just financial and
      accounting) executive officers (as well as all management personnel) of the
      Company and any subsidiaries.




The
      Board
      of Directors of YTB International, Inc. (with its subsidiaries, the “Company”)
      has adopted this code of ethics (this “Code”) to:





·
            Promote
                honest and ethical conduct, including fair dealing and the ethical
                handling of conflicts of interest


·
            Promote
                full, fair , accurate, timely and understandable
                disclosure;


·
            Promote
                compliance with applicable laws and governmental rules and
                regulations;


·
            Ensure
                the protection of the Company’s legitimate business interests, including
                corporate opportunities, assets and confidential information;
                and


·
            Deter
                wrongdoing.





All
      directors, officers and employees of the Company are expected to be familiar
      with the code and to adhere to those principles and procedures set forth in
      the
      Code that apply to them. The Company’s more detailed policies and procedures set
      forth in Policies and Procedures Manual are separate requirements and are not
      part of this Code. Any questions regarding the Code should be addressed with
      the
      Company’s “Code of Ethics Contact Person,” initially Thayer
      Lindauer.




19




**ITEM
              10.**
            **EXECUTIVE
                COMPENSATION.**




**Summary
      Compensation Table**




The
      following table set forth the compensation of the named executive officers
      for
      each of the last three years:


Long
                  Term CompensationAnnual
                  Compensation
              
              Awards(a)
              
              (b)
              
              (c)
              
              (d)
              
              (e)
              
              (g)Name
                  and Principal Position
              
              Year
              
              Salary
                  ($)
              
              Bonus
                  ($)
              
              Other
                  Annual Compensation($)
              
              Securities
                  Underlying Options/SARs (#)J.
                  Lloyd Tomer,
              
              
              2005
              
              
              -
              
              
              -
              
              
              206,239(1
              )
              
              -Chairman
                  of the Board
              
              
              2004
              
              
              -
              
              
              -
              
              
              -
              
              
              100,000of
                  Directors
              
              
              2003
              
              
              -
              
              
              -
              
              
              -
              
              
              -J.
                  Scott Tomer, Chief
              
              
              2005
              
              
              120,000
              
              
              -
              
              
              181,988(2
              )
              
              25,000Executive
                  Officer
              
              
              2004
              
              
              10,000
              
              
              -
              
              
              -
              
              
              135,0002003
              
              
              -
              
              
              -
              
              
              -
              
              
              -Michael
                  Y. Brent,
              
              
              2005
              
              
              240,000
              
              
              -
              
              
              60,911(3
              )
              
              -President
              
              
              2004
              
              
              211,074
              
              
              60,700(4
              )
              
              17,054(5
              )
              
              -2003
              
              
              206,080(6
              )
              
              19,200(7
              )
              
              39,955(8
              )
              
              -J.
                  Kim Sorensen,
              
              
              2005
              
              
              120,000
              
              
              -
              
              
              181,783(9
              )
              
              25,000Vice
                  President
              
              
              2004
              
              
              10,000
              
              
              -
              
              
              -
              
              
              135,0002003
              
              
              -
              
              
              -
              
              
              -Derek
                  J. Brent,
              
              
              2005
              
              
              120,000
              
              
              -
              
              
              -
              
              
              -Secretary
              
              
              2004
              
              
              48,574
              
              
              1,205,350(10
              )
              
              -
              
              
              -2003
              
              
              46,433
              
              
              3,810(11
              )
              
              -
              
              
              -




(1)
            Includes
                $116,239 in commissions and 90,000 in consulting
                fees.





(2)
            Includes
                $158,116 in commissions; $11,995 in vehicle allowance and $11,877
                for 401k
                contribution.





(3)
            Includes
                $25,739 in commissions; $11,580 for vehicle allowance and $18,900 for
                401k contribution.





(4)
            Stock
                bonuses of $60,700 including 9,000 shares at the then-current market
                price
                of $1.30 per share and 196,000 shares at thethen-current
                market price of $.25 per share.





(5)
            Includes
                  $11,580 for vehicle
                  allowance.





(6)
            Includes
                stock in lien of compensation of $31,249 for 56,816 shares at the
                then-current market price of $.55 per
                share.





(7)
              Stock
                  bonuses of $19,200 including 60,000 shares at the then-current
                  market
                  price of $.32 per share.


(8)
            Includes
                $23,500 in consulting fees and $12,545 for vehicle
                allowance.





(9)
            Includes
                $160,142 in commissions; $9,742 in vehicle allowance and $11,899
                for 401k
                contribution.





(10)
            Stock
                bonuses of $1,205,350 including 900,000 shares at the then-current
                market
                price of $1.32 per share, 4,500 shares at thethen-current
                market price of $1.30 per share and 46,000 shares at the then-current
                market price of $.25 per share.





(11)
            Stock
                bonus of $3,810 including 11,906 shares at the then-current market
                price
                of $.32 per share.





20


**Employment
      Agreements**





The
      Company has entered into a long-term employment agreement with each of Mr.
      J.
      Scott Tomer, (Chief Executive Officer), Mr. J. Kim Sorensen, (Vice President),
      Mr. Michael Y. Brent, (President), Mr. Derek J. Brent, (Secretary), and Mr.
      John
      D. Clagg, (Chief Financial Officer). All employment agreements expire December
      31, 2009 and subject each officer to confidentiality provisions, as well as
      non-raid and non-compete provisions for an additional 2 years following
      termination of employment.




Each
      of
      Messrs. J. Kim Sorensen and J. Scott Tomer receive a base annual salary of
      $120,000, increasing annually in 6% increments. They each receive an
      override on RTA sales and monthly fees generated by “representative position #2”
of the YourTravelBiz.com sales organization equal to 50% of the monthly
      commissions and overrides earned by such representative position #2, paid
      monthly. Additionally, each of Messrs. J. Kim Sorensen and J. Scott Tomer
      receives a cash bonus based on the net pre-tax income of the Company equal
      to 2%
      if net pre-tax income is between $500,000 and $1,500,000, 2.25% if net pre-tax
      income is between $1,500,000 and $3,000,000 and 2.5% if net pre-tax income
      is at
      least $3,000,000. They each receive a car allowance and health and medical
      insurance provided by the Company. The Company has also taken out a term life
      insurance policy on the lives of Messrs. J. Kim Sorensen and J. Scott Tomer
      in
      an amount equal to three times their respective annual base salary, payable
      to
      beneficiaries designated by each.




Mr.
      Michael Y. Brent receives a base annual salary of $240,000, increasing annually
      in 6% increments. Mr. Michael Y. Brent receives an override on the RTA
      sales and monthly fees generated by “representative position #1” of the
      YourTravelBiz.com sales organization equal to 16.69% of the monthly commissions
      and overrides earned by said position #1, paid monthly. Additionally, Mr.
      Michael Y. Brent receives a cash bonus based on the net pre-tax income of the
      Company equal to 2% if net pre-tax income is between $500,000 and $1,500,000,
      2.25% if net pre-tax income is between $1,500,000 and $3,000,000 and 2.5% if
      net
      pre-tax income is at least $3,000,000. Mr. Michael Y. Brent receives a car
      allowance and health and medical insurance provided by the Company. The Company
      has also taken out a term life insurance policy on the life of Mr. Michael
      Y.
      Brent in an amount equal to three times his annual base salary, payable to
      beneficiaries designated by him.




Mr.
      Derek
      J. Brent receives a base annual salary of $120,000, increasing annually in
      $12,000 increments. Additionally,
      Mr. Derek J. Brent receives a cash bonus based on the net pre-tax income of
      the
      Company equal to 2% if net pre-tax income is between $500,000 and $1,500,000,
      2.25% if net pre-tax income is between $1,500,000 and $3,000,000 and 2.5% if
      net
      pre-tax income is at least $3,000,000. In addition, Mr. Derek J.
      Brent receives a car allowance and health and medical insurance provided by
      the
      Company.




Mr.
      John
      D. Clagg, whose contract became effective December 1, 2005, receives a base
      salary of $150,000 increasing annually in $30,000 increments. Mr. Clagg also
      receives health, life, and medical insurance provided by the Company.




Effective
      November 22, 2006, an agreement has been reached between Michael Brent, Kim
      Sorensen and Scott Tomer for each of them to share a one-third  interest in
      YTB Rep position #2. Previously, Mr. Brent had a one-sixth share in YTB Rep
      position #1. This agreement was reached to document the verbal agreement between
      the three parties whereby each would receive the same compensation. The Board
      of
      Directors had instructed the parties to come to a resolution of this issue
      and
      come back with a settlement. Formal approval of the change in employment
      contracts will occur at the next regular Board meeting.




**Option/SAR
      Grants in Last Fiscal Year**





The
      following table sets forth certain information with respect to stock options
      granted to the officers named in the Summary Compensation Table during the
      fiscal year ended December 31, 2005.





Individual
                Grants(a)
            
            (b)
            
            (c)
            
            (d)
            
            (e)Name
            
            Number
                of
              Securities
                Underlying
              Options/SARs
              Granted
                (#)
            
            %
                of Total Options/SARs Granted to Employees in Fiscal Year
            
            Exercise
                or Base Price ($/Sh)
            
            Expiration
              DateJ.
                Kim Sorensen
            
            
            25,000
            (1)
            
            50.0
            %
            $
            .50
            
            
            December
                30, 2005J.
                Scott Tomer
            
            
            25,000
            (1)
            
            50.0
            %
            $
            .50
            
            
            December
                30, 2005





These
      options are immediately exercisable for thirty days from November 30, 2005
      through December 30, 2005.




21


**Aggregated
      Option/SAR Exercises and Fiscal Year-End Options/SAR Value
      Table**




The
      following information concerns the exercise of each stock option and/or free
      standing SAR during the last fiscal year by each of the named executive officers
      and the aggregate fiscal year-end value of unexercised options and
      SARs.




(a)
            
            (b)
            
            (c)
            
            (d)
            
            (e)Name
            
            Shares
                Acquired On Exercise of Option/# of Securities Underlying
                SARs
            
            Value
                Realized
            
            Number
                of Unexercised Options/SARs at Fiscal Year-End (#)
              Exercisable/
                Unexercisable
            
            Value
                of Unexercised In-the-Money Options/SARs at Fiscal Year-End
                ($)
              Exercisable/
                UnexercisableMichael
                Brent
            
            
            -
            
            
            -
            
            
            200,000
                / -
            
            
            12,000
                /0Derek
                J. Brent
            
            
            -
            
            
            -
            
            
            100,000
                / -
            
            
            6,000
                /0J.
                Lloyd Tomer
            
            
            -
            
            
            -
            
            
            100,000
                / -
            
            
            6,000
                /0J.
                Scott Tomer
            
            
            25,000
            
            
            -
            
            
            135,000
                / -
            
            
            6.000
                /0J.
                Kim Sorensen
            
            
            25,000
            
            
            -
            
            
            135,000
                / -
            
            
            6,000
                /0




**Indemnification
      Agreements**




We
      have
      entered into separate indemnification agreements with certain of the Company’s
      officers and directors and we have agreed to provide indemnification with regard
      to specified legal proceedings so long as the indemnified officer or director
      has acted in good faith and in a manner he or she reasonably believed to be
      in,
      or not opposed to, our best interests and, with respect to any criminal
      proceedings, had no reasonable cause to believe his or her conduct was
      unlawful.




We
      only
      provide indemnification for expenses, judgments, fines and amounts paid in
      settlement actually incurred by the relevant officer or Director, or on his
      or
      her behalf, arising out of proceedings brought against the officer or Director
      by reason of his or her corporate status.




22


**ITEM
              11.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND****RELATED
                STOCKHOLDER MATTERS.**




**Security
      Ownership of Certain Beneficial Owners**




To
      the
      Company’s knowledge, based upon filings with the Securities and Exchange
      Commission, the following table sets forth beneficial owners of five percent
      (5%) or more of the common stock of the Company as of December 31,
      2005.




Common
                StockName
            
            Number
            
            Percent(2)Laurus
                Master Fund, Ltd
            
            
            2,468,140
            (1)
            
            9.03
            %




(1)
            As
                reported on Amendment No. 1 to its Schedule 13G, dated December 31,
                2005,
                Laurus Master Fund, Ltd., LaurusCapital
                Management, LLC, Eugene Grin and David Grin have sole voting and
                sole
                dispositive power with respect to all2,468,140
                shares and shared voting and shared dispositive power with respect
                to all
                2,468,140 shares. The address ofthe
                stockholder is 825 Third Avenue, 14thFloor, New York, New York 10022.




(2)
            As
                of December 31, 2005, the company had 27,336,260 issued and outstanding
                shares.





**Security
      Ownership of Management**





The
      following table sets forth information known to the Company with respect to
      the
      beneficial ownership of each class of the Company’s capital stock as of the date
      hereof for (1) each executive officer, (2) each of the Company’s directors and
      (4) all of the Company’s executive officers and directors as a group. Under
      those rules, beneficial ownership includes any shares as to which the individual
      has sole or shared voting or investment power and also any shares which the
      individual has the right to acquire within 60 days of the date hereof, through
      the exercise or conversion of any stock option, convertible security, warrant
      or
      other right. Including those shares in the tables does not, however, constitute
      an admission that the named shareholder is a direct or indirect beneficial
      owner
      of those shares. The table also presents the number of votes each person is
      entitled to cast on any matter submitted to a vote of the holders of Common
      Stock. Unless otherwise indicated, each person or entity named in the table
      has
      sole voting power and investment power (or shares that power with that person’s
      spouse) with respect to all shares of capital stock listed as owned by that
      person or entity. The address of each of the following persons is One Country
      Club View Drive, Edwardsville, IL 62025.





Common
                StockName
            
            Number
            
            Percent(1)Michael
                Y. Brent
            
            
            5,109,532(2
            )
            
            18.56
            %Derek
                Brent
            
            
            1,143,484(3
            )
            
            4.17
            %Harold
                Kestenbaum
            
            
            20,454
            
            
            0.07
            %J.
                Lloyd Tomer
            
            
            4,011,838(4)
                (7
            )
            
            14.62
            %J.
                Scott Tomer
            
            
            2,295,446(5
            )
            
            8.36
            %J.
                Kim Sorensen
            
            
            2,310,446(6
            )
            
            8.41
            %Andrew
                Wilder
            
            
            -
            
            
            -Clay
                Winfield
            
            
            -
            
            
            -Darren
                Brent
            
            
            18,750
            
            
            0.07
            %Timothy
                Kaiser
            
            
            -
            
            
            -All
                  directors andofficers as a group
            
            
            14,909,950
            
            
            53.24
            %





(1)
            As
                of December 31, 2005, the Company had 27,336,260 issued and outstanding
                shares.





(2)
            Includes
                200,000 shares exercisable within 60 days pursuant to a stock option
                agreement.





(3)
            Includes
                100,000 shares exercisable within 60 days pursuant to a stock option
                agreement.





(4)
            Includes
                100,000 shares exercisable within 60 days pursuant to a stock option
                agreement.





(5)
            Includes
                135,000 shares exercisable within 60 days pursuant to a stock option
                agreement





(6)
            Includes
                135,000 shares exercisable within 60 days pursuant to a stock option
                agreement.





(7)
            Includes 3,861,838 shares owned
              by Great
              River Enterprises, LP#1 in which J. Lloyd Tomer serves as general
              partner.





23




**PART
      IV**





**ITEM
              12.**
            **CERTAIN
                RELATIONSHIPS AND RELATED
                TRANSACTIONS.**




At
      the
      current time, we have no provision to issue any additional securities to
      management, promoters or their respective affiliates or associates. While the
      Board of Directors recently adopted an employee stock option or pension plan,
      any issuance would be in accordance with the terms thereof and proper approval.
      Although we have a very large amount of authorized but unissued common stock
      which may be issued without further shareholder approval or notice, we intend
      to
      reserve such stock for certain offerings contemplated for continued expansion,
      acquisitions and properly approved employee compensation at such time as such
      plan is adopted.




Because
      of certain statutory and case law relating to broad discretion granted
      management of company, typically directors and officers of a corporation are
      indemnified by and have limited monetary liability to its shareholders. Failure
      of management to satisfy its fiduciary responsibility to shareholders could
      subject management to certain claims. The following inherent or potential
      conflicts of interest should be considered by prospective investors before
      subscribing for shares.




While
      we
      may enter into transactions with affiliates in the future, we intend to continue
      to enter into such transactions only at prices and on terms no less favorable
      to
      us than transactions with independent third parties. See for example, the
      descriptions in “Summary Executive Compensation” and “Employment Agreement with
      our Chief Executive Officer.” In that context, we will require any director or
      officer who has a pecuniary interest in a matter being considered to recuse
      them
      from any negotiations. In any event, any debt instruments in the future are
      expected generally to prohibit us from extending loans to Company
      principals.


During
        the year ended December 31, 2004, the Company incurred consulting fee expenses
        of $23,000 for services provided by an entity owned by the Company’s then chief
        executive officer, a significant shareholder of the Company.   Under a
        new employment agreement reached in December 2004, such consulting fees have
        been eliminated.  At year end, December 2004, there are no consulting fees
        owed to the Company’s Chief Executive Officer. Prior to the merger, YTB Inc. was
        privately held and it rented office space on a month-to-month basis from
        a
        majority stockholder who is now the Chairman of the Board of Directors. As
        of
        December 31, 2004, the Company owed $8,000 to the Chairman for unpaid rent
        for
        prior periods’ office occupancy.
 
 Certain
        members of management of the Company also own a company that YTB Marketing
        utilizes for printing of its sales materials. During 2005 and 2004, the Company
        expended $512,392 and $315,600 for printing sales materials. In addition,
        at
        December 31, 2005, the Company has a pre-paid asset of $212,027 on the balance
        sheet for payments related to work not yet completed.
  The
          Company leases office space to house its executive offices in two buildings
          under separate commercial lease agreements. The buildings are owned and
          controlled by a company of which certain members of the Company’s Board of
          Directors are principals. In addition, each lease contains an addendum
          which
          grants to the landlord a two-year common stock purchase warrant to purchase
          Company stock in exchange for the deed to the property, unencumbered.
 
 The
          first
          lease, which covers approximately 13,000 square feet, commenced July 1,
          2005 and
          expires June 30, 2010. This lease includes an addendum with a two-year
          common
          stock purchase warrant, which expires June 30, 2007, to purchase 500,000
          shares
          of Company stock for a total exercise price of $1.00 and the deed to the
          property, unencumbered, in which the space is leased. Separately, the Company
          has the option to purchase the property for a cash price of
          $1,850,000.
 
 Correspondingly,
          the second lease, , which covers approximately 5,000 square feet, commenced
          November 1, 2005 and expires on October 31, 2010. This lease includes an
          addendum with a two-year common stock purchase warrant, which expires October
          31, 2007, to purchase 625,000 shares of Company stock for a total exercise
          price
          of $1.00 and the deed to the property, unencumbered, in which the space
          is
          leased. Separately, the Company has the option to purchase the property
          for a
          cash price of $2,350,000.
 
 The
          combined rental cost of both spaces is $15,000 per month. Combined rent
          expense
          for these two leases was $65,000 for the year ended December 31, 2005. As
          of
          December 31, 2005, neither of the common stock warrants has been
          exercised.
 In
        July
        2006, the Company borrowed $2.5 million in connection with the land and building
        which will house their new corporate headquarters in Wood River, Illinois.
        The
        chairman of the bank is also a director of the Company. This transaction
        was
        approved by the independent members of the Company’s board of directors. The
        Company believes that the terms were commercially available terms and are
        as
        favorable to the Company as would be from an unaffiliated
        party.




24




**ITEM
              13.**
            **EXHIBITS**




**b.**  **Exhibits**





2.1
                Amended
                    and Restated Merger and Stock Exchange Agreement dated November
                    19, 2004
                    by and between REZconnect Technologies, Inc. and YourTravelBiz.com,
                    Inc.
                    (incorporated by reference to YTB International, Inc.’s Current Report on
                    Form 8-K as amended, Exhibit 2.1, filed June 20,
                    2005).





3.1
            Articles
                of Incorporation of the Company (incorporated by reference to YTB
                International, Inc.’s Current Report on Form 8-K, Exhibit 3.1, filed
                January 10, 2005).





3.2
            Amended
                Bylaws of the Company (incorporated by reference to YTB International,
                Inc.’s CurrentReport
                on Form 8-K, Exhibit 3.2, filed January 10,
                2005).





10.1
                Genesis
                    Web Hosting Agreement dated September 6, 2002 by and between
                    Genesis
                    Consulting and yourTravelBiz.com, Inc. (incorporated by reference
                    to
                    REZconnect Technologies, Inc.’s Annual Report for fiscal year 2004 on Form
                    10-KSB/A No. 6, Exhibit 10.1, filed November 22,
                    2006).





10.2
                YTBL
                    Franchise Agreement (incorporated by reference to REZconnect
                    Technologies,
                    Inc.’s Annual Report for fiscal year 2004 on Form 10-KSB/A No. 6,
                    Exhibit
                    10.2, filed November 22,
                    2006).





10.3
                YTBL
                    Area Franchise Agreement (otherwise known as the Master Franchise
                    Agreement) (incorporated by reference to REZconnect Technologies,
                    Inc.’s
                    Annual Report for fiscal year 2004 on Form 10-KSB/A No. 6, Exhibit
                    10.3,
                    filed November 22,
                    2006).





10.4
                Software
                    License Agreement dated September 2, 1999 by and among Taurus
                    TeleSys
                    Inc., Global Travel Network LLC and Etravnet.com, Inc. (incorporated
                    by
                    reference to REZconnect Technologies, Inc.’s Annual Report for fiscal year
                    2004 on Form 10-KSB/A No. 6, Exhibit 10.4, filed November 22,
                    2006).




25




10.5
                Stockholders’
                    Agreement dated December 8, 2004 by and among Great River Enterprises,
                    LP#1, J. Scott Tomer, J. Kim Sorensen, Michael Y. Brent, Derek
                    J. Brent
                    and REZconnect Technologies Inc. (incorporated by reference to
                    YTB
                    International, Inc.’s Current Report on Form 8-K as amended, Exhibit 4.1,
                    filed June 20, 2005).





10.6
                Lease
                    Agreement dated July 1, 1996 by and between Wal-Mart Stores,
                    Inc. and
                    Travel Network (incorporated by reference to Etravnet.com, Inc.’s Annual
                    Report for fiscal year 1999 on Form 10-KSB, Exhibit 10.2, filed
                    March 30,
                    2000).





10.7
                Securities
                    Purchase Agreement dated January 26, 2005 by and between YTB
                    International, Inc. and Laurus Master Fund, Ltd. (incorporated
                    by
                    reference to YTB International Inc.’s Current Report on Form 8-K, Exhibit
                    10.1, filed February 3,
                    2005).





10.8
                Employment
                    Agreement dated January 30, 2006 and effective December 1, 2005
                    by and
                    between John D. Clagg and YTB International Inc. (incorporated
                    by
                    reference to YTB International Inc.’s Current Report on Form 8-K, Exhibit
                    10.1, filed February 7,
                    2006).





10.9
                Employment
                    Agreement dated January 1, 2005 by and between Michael Y. Brent
                    and YTB
                    International, Inc.





10.10
                Employment
                    Agreement dated January 1, 2005 by and between Derek Brent and
                    YTB
                    International, Inc.





10.11
                Employment
                    Agreement dated January 1, 2005 by and between J. Scott Tomer
                    and YTB
                    International, Inc.





10.12
                Employment
                    Agreement dated January 1, 2005 by and between J. Kim Sorensen
                    and YTB
                    International, Inc.




10.13
                  Commercial
                      Lease Agreement dated December 22, 2004 and effective April 6, 2005
                      by and between Meridian Land Company Inc. and YTB International,
                      Inc.
  10.14
                  Commercial
                      Lease Agreement dated August 4, 2005 by and between Meridian Land
                      Company, Inc. and YTB International,
                      Inc.


14.1
            YTB
                International, Inc. Code of Business Ethics
                Summary





21.1
            Subsidiaries
                of YTB International, Inc.




31.1
            Chief
                Executive Officer Certification pursuant to Rule 13a-14(a) or 15d-14(a)
                of
                the Securities Exchange Act of 1934, as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002.





31.2
            Chief
                Financial Officer Certification pursuant to Rule 13a-14(a) or 15d-14(a)
                of
                the Securities Exchange Act of 1934, as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002.





32.1*
            Chief
                Executive Officer and Chief Financial Officer Certification pursuant
                to 18
                U.S.C. Section1350,
                as adoptedpursuant
                to Section 906 of the Sarbanes-Oxley Act of
                2002.




*  This
      certification is attached as Exhibit 32.1 accompanying this Annual Report on
      Form 10-KSB pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall
      not be deemed “filed” by YTB International, Inc. for the purposes of Section 18
      of the Exchange Act. A signed original of this written statement required by
      Section 906 has been provided to YTB International, Inc. and will be retained
      by
      YTB International, Inc. and furnished to the Securities and Exchange Commission
      or its staff upon request.




26


**ITEM
              14.**
            **PRINCIPAL
                ACCOUNTANT FEES AND
                SERVICES.**




The
      aggregate fees billed to our Company by Dischino & Associates, P.C. for the
      fiscal years ended December 31, 2005 and 2004 are as follows:




2005
            
            2004Audit
            
            $
            40,875
            
            $
            27,583All
                Other Fees
            
            
            51,922
            
            
            -Total
            
            $
            92,797
            
            $
            27,583


The
        aggregate fees billed to our Company by UHY LLP through October 31, 2006
        for the
        fiscal years ended December 31, 2005 and 2004 are as follows:
  2005
              
              2004Audit
              
              $
              234,564
              
              $
              245,630All
                  Other Fees
              
              
              -
              
              
              3,650Total
              
              $
              234,564
              
              $
              249,280




27


**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, YTB International, Inc. (successor to REZconnect Technologies, Inc.) has
      duly caused this Report to be signed on its behalf by the undersigned thereunto
      duly authorized on the 12th of
      March, 2007.




YTB
                International, Inc.
              (successor
                to REZconnect Technologies, Inc.)/s/
                J. Scott TomerJ.
                Scott Tomer, Director and Chief Executive
                Officer




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this Report has
      been
      signed below by the following persons on behalf of YTB International, Inc.
      in
      the capacities indicated on the 12th day of March, 2007.





/s/
                J. Scott Tomer
            
            Director
                and Chief Executive Officer
            
            March 12,
                2007J.
                Scott Tomer
            
            (principal
                executive officer)/s/
                J. Lloyd Tomer
            
            Chairman
                of the Board of Directors
            
            March 12,
                  2007J.
                Lloyd Tomer/s/
                J. Kim Sorensen
            
            Director
                and President
            
            March 12,
                  2007J.
                Kim Sorensen/s/ Andrew
                Cauthen
            
            Secretary
            
            March 12,
                  2007Andrew
                Cauthen/s/
                Harold Kestenbaum, Esq.
            
            Director
            
            March 12,
                  2007Harold
                Kestenbaum, Esq./s/
                Clay Winfield
            
            Director
            
            March 12,
                  2007Clay
                Winfield/s/
                John Simmons, Esq.
            
            Director
            
            March 12,
                  2007John
                Simmons, Esq.




28




/s/
                Andrew Wilder
            
            Director
            
            March 12,
                  2007Andrew
                Wilder/s/
                Dr. Timothy Kaiser
            
            Director
            
            March 12,
                  2007Dr.
                Timothy Kaiser/s/
                Lou Brock
            
            Director
            
            March 12,
                2007Lou
                Brock/s/
                John D. Clagg
            
            Chief
                Financial Officer and Treasurer
            
            March 12,
                  2007John
                D. Clagg
            
            (principal
              financial
              and accounting officer)




29




YTB
      INTERNATIONAL, INC.


TABLE
      OF
      CONTENTS


YEARS
      ENDED DECEMBER 31, 2005 AND 2004




Page(s)Report
                of UHY LLP, Independent Registered Public Accounting Firm
            F1Financial
                StatementsConsolidated
                Balance Sheets as of December 31, 2005 and 2004
            F2Consolidated
                Statements of Operations for the Years Ended December 31, 2005 and
                2004
            F3Consolidated
                Statements of Changes in Stockholders’ Equity for the Years EndedDecember
                31, 2005 and 2004
            F4Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2005 and
                2004
            F5Notes
                to Consolidated Financial Statements
            F6
                - F24









**Report
          of Independent Registered Public Accounting Firm**
  
 The
          Board
          of Directors and Stockholders of
 YTB
          International, Inc. (formerly REZConnect Technologies, Inc.):
 
  We
          have
          audited the accompanying balance sheets of YTB International, Inc., formerly
          REZConnect Technologies, Inc. (the “Company”) as of December 31, 2005 and 2004,
          and the related consolidated statements of operations, changes in stockholders’
equity, and cash flows for each of the years in the two-year period ended
          December 31, 2005. These financial statements are the responsibility of
          the
          Company’s management. Our responsibility is to express an opinion on these
          financial statements based on our audits.
  We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audit to obtain reasonable assurance about whether the
          financial
          statements are free of material misstatement. The company is not required
          to
          have, nor were we engaged to perform, an audit of its internal control
          over
          financial reporting. Our audit included consideration of internal control
          over
          financial reporting as a basis for designing audit procedures that are
          appropriate in the circumstances, but not for the purpose of expressing
          an
          opinion on the effectiveness of the company’s internal control over financial
          reporting. Accordingly, we express no such opinion. An audit also includes
          examining, on a test basis, evidence supporting the amounts and disclosures
          in
          the financial statements, assessing the accounting principles used and
          significant estimates made by management, as well as evaluating the overall
          financial statement presentation. We believe that our audits provide a
          reasonable basis for our opinion.
  In
          our
          opinion, the financial statements referred to above present fairly, in
          all
          material respects, the consolidated financial position of the Company as
          of
          December 31, 2005 and 2004, and the consolidated results of its operations
          and
          its cash flows for each of the years in the two-year period ended December
          31,
          2005 in conformity with accounting principles generally accepted in the
          United
          States of America.
  As
          discussed more fully in Note 15 to the consolidated financial statements,
          the
          Company restated its December 31, 2005 consolidated financial statements
          to
          correct for errors resulting from previously unrecognized warrants, related
          party lease payments and warrants not previously disclosed and
          misclassifications within the consolidated statements of operations, changes
          in
          stockholders’ equity and cash flows.
  St.
                    Louis, MissouriNovember
                    22, 2006 except for Note 15 on which the date is March 8,
                    2007


F1


YTB
      INTERNATIONAL, INC.


Consolidated
      Balance Sheets


December
      31, 2005 and 2004





(RESTATED)
                  2005
            
            2004ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            230,358
            
            $
            25,719Available-for-sale
                securities
            
            
            3,611,003
            
            
            528,311Accounts
                receivable (less allowance for doubtful accountsof
                $24,888 in 2005 and $169,644 in 2004)
            
            
            64,402
            
            
            20,411Notes
                receivable
            
            
            20,000
            
            
            -Prepaid
                marketing commissions
            
            
            4,212,417
            
            
            1,622,645Other
                prepaid expenses and current assets
            
            
            285,169
            
            
            -Total
                current assets
            
            
            8,423,349
            
            
            2,197,086Property
                and equipment, net
            
            
            631,992
            
            
            353,047Intangible
                assets, net
            
            
            2,542,020
            
            
            3,262,800Goodwill
            
            
            2,224,322
            
            
            2,224,322Other
                assets
            
            
            16,184
            
            
            96,705TOTAL
                ASSETS
            
            $
            13,837,867
            
            $
            8,133,960LIABILITIES
                AND STOCKHOLDERS’ EQUITYCurrent
                liabilities:Notes
                payable
            
            $
            122,055
            
            $
            102,342Current
                maturities of long-term debt
            
            
            19,532
            
            
            18,768Accounts
                payable and accrued expenses
            
            
            1,944,640
            
            
            941,101Accrued
                bonuses
            
            
            3,451,826
            
            
            -Current
                portion of deferred revenue
            
            
            4,660,200
            
            
            1,820,808Convertible
                debt derivatives
            
            
            280,000
            
            
            -Other
                current liabilities
            
            
            -
            
            
            100,000Total
                current liabilities
            
            
            10,478,253
            
            
            2,983,019Other
                long-term liabilities:Long-term
                debt, less current maturities
            
            
            264,079
            
            
            286,789Deferred
                revenue, less current portion
            
            
            4,366
            
            
            86,245Other
                liabilities
            
            
            23,636
            
            
            20,920Total
                other long-term liabilities
            
            
            292,081
            
            
            393,954TOTAL
                LIABILITIES
            
            
            10,770,334
            
            
            3,376,973STOCKHOLDERS’
                EQUITYPreferred
                stock, Series B convertible, par value $.001; liquidation preference
                $1.45
                per
              share;
                5,000,000shares
                authorized,4,092,376
                shares issued and outstanding
            
            
            -
            
            
            4,092Common
                stock, par value $.001; 20,000,000 sharesauthorized,
                18,976,125 shares issued
              andoutstanding
            
            
            -
            
            
            18,976Common
                stock, par value $.001; 50,000,000 sharesauthorized,
                27,336,260 shares issued
              and
                outstanding
            
            
            27,336
            
            
            -Additional
                paid-in capital
            
            
            19,376,053
            
            
            12,616,988Accumulated
                deficit
            
            
            (16,335,856
            )
            
            (7,883,069
            )TOTAL
                STOCKHOLDERS’ EQUITY
            
            
            3,067,533
            
            
            4,756,987TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            13,837,867
            
            $
            8,133,960




*See
      accompanying notes to consolidated financial statements.*




F2


YTB
      INTERNATIONAL, INC.


Consolidated
      Statements of Operations


Years
      Ended December 31, 2005 and 2004





(RESTATED)
                  2005
            
            2004NET
                REVENUESOnline
                travel store sales and monthly fees
            
            $
            14,783,647
            
            $
            922,407Travel
                commissions and services
            
            
            4,718,056
            
            
            1,631,656Franchise
                service fees and other fees
            
            
            443,693
            
            
            632,393Other
            
            
            1,647,921
            
            
            6,236Total
                net revenues
            
            
            21,593,317
            
            
            3,192,692OPERATING
                EXPENSESMarketing
                commissions
            
            
            13,881,404
            
            
            278,555Travel
                commissions
            
            
            3,454,033
            
            
            1,261,751Franchise
                services and products
            
            
            198,054
            
            
            194,360Depreciation
                and amortization
            
            
            944,619
            
            
            474,986Marketing
                and selling
            
            
            207,181
            
            
            -General
                and administrative
            
            
            8,788,953
            
            
            3,167,361Total
                operating expenses
            
            
            27,474,244
            
            
            5,377,013LOSS
                FROM OPERATIONS
            
            
            (5,880,927
            )
            
            (2,184,321
            )OTHER
                INCOME (EXPENSES)Change
                in fair market value of derivatives
            
            
            312,143
            
            
            -Interest
                and dividend income
            
            
            102,049
            
            
            25,707Interest
                expense
            
            
            (2,986,052
            )
            
            (34,735
            )Total
                other expenses
            
            
            (2,571,860
            )
            
            (9,028
            )NET
                LOSS
            
            $
            (8,452,787
            )
            $
            (2,193,349
            )NET
                LOSS PER SHARE:Weighted-average
                shares outstanding
            
            
            24,861,904
            
            
            12,353,203Net
                loss per share - basic and diluted
            
            $
            (0.34
            )
            $
            (0.18
            )




*See
      accompanying notes to consolidated financial statements* .




F3


YTB
      INTERNATIONAL, INC.


Consolidated
      Statements of Changes in Stockholders’ Equity


Years
      Ended December 31, 2005 (restated) and 2004





Delaware
                Series B
            
            
            
            Series
                BConvertible
                Preferred
            
            Delaware
                Common Stock
            
            Convertible
                Preferred
            
            Common
                Stock
            
            AdditionalPaid-in
            
            RetainedEarnings
            
            TotalStockholders’Shares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            (Deficit)
            
            EquityBalance
                at January 1, 2004
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            
            10,606,314
            
            $
            10,606
            
            $
            6,634,203
            
            $
            (5,689,720
            )
            $
            955,089Shares
                issued for services
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            196,061
            
            
            196
            
            
            46,466
            
            
            -
            
            
            46,662Shares
                issued for employee bonuses
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,243,750
            
            
            1,244
            
            
            1,266,456
            
            
            -
            
            
            1,267,700Common
                shares issued for acquisition
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            7,930,000
            
            
            7,930
            
            
            3,084,770
            
            
            -
            
            
            3,092,700Convertible
                preferred shares issued foracquisition
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,092,376
            
            
            4,092
            
            
            -
            
            
            -
            
            
            1,673,782
            
            
            -
            
            
            1,677,874Shares
                surrendered
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,000,000
            )
            
            (1,000
            )
            
            (199,750
            )
            
            -
            
            
            (200,750
            )Stock
                option compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            111,061
            
            
            -
            
            
            111,061Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,193,349
            )
            
            (2,193,349
            )Balance
                at December 31, 2004
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,092,376
            
            
            4,092
            
            
            18,976,125
            
            
            18,976
            
            
            12,616,988
            
            
            (7,883,069
            )
            
            4,756,987Conversion
                of common stock to Delaware common stock upon reincorporation in
                Delaware
            
            
            -
            
            
            -
            
            
            18,976,125
            
            
            18,976
            
            
            -
            
            
            -
            
            
            (18,976,125
            )
            
            (18,976
            )
            
            -
            
            
            -
            
            
            -Conversion
                of series B preferred stock to Delaware preferred stock upon
                reincorporation in Delaware
            
            
            4,092,376
            
            
            4,092
            
            
            -
            
            
            -
            
            
            (4,092,376
            )
            
            (4,092
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Conversion
                of preferred stock to common stock
            
            
            (4,092,376
            )
            
            (4,092
            )
            
            4,092,376
            
            
            4,092
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Common
                shares issued for services
            
            
            -
            
            
            -
            
            
            201,091
            
            
            201
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            352,787
            
            
            -
            
            
            352,988Warrants
                issued for services
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            311,028
            
            
            -
            
            
            311,028Common
                shares issuedthrough
                private placement
            
            
            -
            
            
            -
            
            
            1,200,000
            
            
            1,200
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            958,800
            
            
            -
            
            
            960,000Warrants
                issued in conjunction
              with
                debt offering
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            258,004
            
            
            -
            
            
            258,004Conversion
                of
                debtto common stock
            
            
            -
            
            
            -
            
            
            2,766,668
            
            
            2,767
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,822,566
            
            
            -
            
            
            4,825,333Common
                shares issued for optionsexercised
            
            
            -
            
            
            -
            
            
            100,000
            
            
            100
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            49,900
            
            
            -
            
            
            50,000Stock
                option compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            5,980
            
            
            -
            
            
            5,980Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (8,452,787
            )
            
            (8,452,787
            )Balance
                at December 31, 2005, as restated
            
            
            -
            
            $
            -
            
            
            27,336,260
            
            $
            27,336
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            $
            19,376,053
            
            $
            (16,335,856
            )
            $
            3,067,533





*See
      accompanying notes to consolidated financial statements.*




F4


YTB
        INTERNATIONAL, INC.
 Consolidated
        Statements of Cash Flows
 Years
        Ended December 31, 2005 and 2004
 
 (RESTATED)
                2005
              
              2004CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  Loss
              
              $
              (8,452,787
              )
              $
              (2,193,349
              )Adjustments
                  to reconcile net loss to net cash provided by(used
                  in) operating activities:Depreciation
                  and amortization
              
              
              944,619
              
              
              474,986Amortization
                  of deferred offering costs
              
              
              174,020
              
              
              -Shares
                  issued for services
              
              
              352,988
              
              
              100,052Warrants
                  issued for services
              
              
              311,028
              
              
              -Shares
                  issued for employee compensation
              
              
              -
              
              
              1,267,700Shares
                  issued for services subsequently surrendered
              
              
              -
              
              
              (53,390
              )Employee
                  stock option expense
              
              
              5,980
              
              
              111,061Change
                  in fair value of derivatives
              
              
              (312,143
              )
              
              -Amortization
                  of debt discount on convertible debt
              
              
              2,369,480
              
              
              -Changes
                  in operating assets and liabilities:Accounts
                  receivable, net
              
              
              (43,991
              )
              
              64,089Notes
                  receivable
              
              
              (20,000
              )Prepaid
                  marketing commissions
              
              
              (2,589,772
              )
              
              -Other
                  prepaid expenses and current assets
              
              
              (285,169
              )
              
              4,400Other
                  assets
              
              
              (1,358
              )
              
              (77,034
              )Accounts
                  payable and accrued expenses
              
              
              1,080,893
              
              
              (182,162
              )Accrued
                  bonuses
              
              
              3,451,826
              
              
              -Deferred
                  revenue
              
              
              2,839,392
              
              
              190,051Convertible
                  debt derivative
              
              
              280,000
              
              
              -Other
                  liabilities
              
              
              2,716
              
              
              (5,346
              )NET
                  CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
              
              
              107,722
              
              
              (298,942
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchases
                  of property and equipment
              
              
              (429,645
              )
              
              (11,671
              )Accrued
                  transaction cost
              
              
              (77,354
              )
              
              -Proceeds
                  from sale of available-for-sale securities
              
              
              5,908,078
              
              
              1,137,875Purchases
                  of available-for-sale securities
              
              
              (8,990,770
              )
              
              (934,050
              )NET
                  CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
              
              
              (3,589,691
              )
              
              192,154CASH
                  FLOWS FROM FINANCING ACTIVITIES:Other
                  current liabilities
              
              
              (100,000
              )
              
              100,000Principal
                  payments on debt
              
              
              (21,946
              )
              
              (15,613
              )Repayment
                  of notes payable
              
              
              (53,426
              )
              
              -Proceeds
                  from convertible debentures
              
              
              3,000,000
              
              
              -Cash
                  paid for debt issuance costs
              
              
              (148,020
              )
              
              -Proceeds
                  from shares issued in private placement memorandum
              
              
              960,000
              
              
              -Shares
                  issued for option exercises
              
              
              50,000
              
              
              -NET
                  CASH PROVIDED BY FINANCING ACTIVITIES
              
              
              3,686,608
              
              
              84,387NET
                  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              204,639
              
              
              (22,401
              )CASH
                  AND CASH EQUIVALENTS, BEGINNING OF PERIOD
              
              
              25,719
              
              
              48,120CASH
                  AND CASH EQUIVALENTS, END OF PERIOD
              
              $
              230,358
              
              $
              25,719SUPPLEMENTAL
                  CASH FLOW INFORMATION:Interest
                  paid
              
              $
              427,186
              
              $
              28,815SUPPLEMENTAL
                  NON-CASH INVESTING AND FINANCING ACTIVITIES:Common
                  shares issued for acquisition
              
              $
              -
              
              $
              3,092,700Preferred
                  shares issued for acquisition
              
              $
              -
              
              $
              1,677,874Increase
                  in notes payable and property and equipment
              
              $
              73,139
              
              $
              -Warrants
                  issued for debt offering costs
              
              $
              26,000
              
              $
              -Decrease
                  in notes receivable and deferred revenue
              
              $
              81,879
              
              $
              -Convertible
                  debt exchanged for common stock
              
              $
              4,825,333
              
              $
              -Accrued
                  transaction cost included in accounts payable
              
              $
              -
              
              $
              77,354
  *See
        accompanying notes to consolidated financial statements.*


F5




YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





NOTE
      1
      - ORGANIZATION AND NATURE OF OPERATIONS




YTB
      International, Inc. (“YTBI,” or the “Company”) and its three wholly-owned
      subsidiaries, REZconnect Technologies, Inc. (“Technologies”), YourTravelBiz.com,
      Inc. (“YTB Marketing”), and YTB Travel Network, Inc. (“YTB Travel”), sometimes
      hereafter collectively referred to as the “Company”, are the entities that
      resulted from a corporate reorganization that took place on January 4, 2005.
      On
      that date, the Company re-incorporated in the State of Delaware, while
      simultaneously effecting a name change, by means of a “downstream merger”
between itself (then incorporated in the State of New York under its former
      name
      of REZconnect Technologies, Inc., hereafter referred to as “the former
      REZconnect” during periods when incorporated as such), and a Delaware
      corporation formed for the purpose of the reorganization (the
“Reorganization”).




On
      December 8, 2004, prior to the Reorganization, the former REZconnect acquired
      100% of the outstanding common shares from the stockholders of
      YourTravelBiz.com, Inc. (“YTB, Inc.”), following requisite approval by the
      Boards of Directors and stockholders, in a business combination structured
      as a
      statutory merger under the laws of the State of New York State and the
      reorganization provisions of the Internal Revenue Code. The acquisition, which
      recorded a total value of $4,847,928, was effected by means of the former
      REZconnect exchanging 7,430,000 shares of its common stock and 4,092,376 shares
      of its Series B convertible preferred stock for all of the outstanding common
      stock of YTB, Inc.




As
      part
      of the Reorganization, the assets of the Company were assigned to three
      newly-organized wholly-owned subsidiaries, each a Delaware corporation:
      Technologies, YTB Marketing and YTB Travel.




On
      January 9, 2005, following both the Reorganization and a corresponding increase
      in the number of its authorized common shares from 20,000,000 to 50,000,000,
      each share of the aforementioned Series B convertible preferred stock was
      converted into one share of YTBI common stock.




The
      Company provides internet-based travel-related services and technology, which
      offers proprietary reservation systems for the travel and entertainment
      industry, and is also a full-service provider of discount travel products and
      services to the leisure and small business traveler. The Company operates under
      various trade names, including “Your Travel Biz”, “YTBnet.com”, “Travel
      Network”, “Global Travel Network” and “Travel Network Vacation Central”, as well
      as internet websites “Bookmytravel.com”, “REZconnect.com” and “RezCity.com”. The
      Company provides services to customers located primarily in the United States,
      and maintains its corporate headquarters in the State of Illinois. One of its
      subsidiaries maintains administrative offices in New Jersey.




Each
      of
      the three aforementioned operating subsidiaries was formed to divide the
      Company’s operations into three basic divisions. The YourTravelBiz.com, Inc.
      subsidiary markets online travel agencies on behalf of YTB Travel Network,
      Inc.
      by use of sales representatives. Such allows the representatives to build a
      linked-by-sponsorship network of representatives. The REZconnect Technologies,
      Inc. subsidiary owns, maintains and develops online and other booking
      technologies for suppliers within the travel industry. It also franchises brick
      and mortar travel agencies. The YTB Travel Network, Inc. subsidiary is a travel
      agency which books online travel transactions, collects payments, collects
      licensing fees, and pays sales commissions.




All
      of
      REZconnect’s franchised operations are independently owned and operated. All
      sales of travel products by the Company are made through its independent
      agencies and franchisees, or through its interactive websites. Operational
      expenses consist of franchise system sales and support personnel, executive
      management and minimal administrative personnel.




F6


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





NOTE
      2
      - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Principles
      of consolidation




The
      consolidated financial statements include the accounts of YTB International,
      Inc., and its wholly-owned subsidiaries, YourTravelBiz.com, Inc., YTB Travel
      Network, Inc. and REZconnect Technologies, Inc. All intercompany accounts and
      transactions are eliminated in consolidation.




Basis
      of presentation




The
      financial statements include the activity of YourTravelBiz.com, Inc. from the
      date of acquisition (December 8, 2004) to December 31, 2004 for the period
      ended
      December 31, 2004 (see Notes 1 and 3).




Use
      of
      estimates




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Significant estimates that are particularly
      sensitive to change in the near term include, but are not limited to the
      recoverability of capitalized software development costs, allowance for doubtful
      accounts and ultimate sales commissions/bonuses. Actual results could differ
      from those estimates.




Cash
      and cash equivalents




The
      Company considers all highly liquid investments with an original maturity of
      three months or less to be cash equivalents.




Available-for-sale
      securities




The
      Company presents investments in marketable securities that are available for
      sale at fair value as determined by quoted market prices, with changes in
      realized/unrealized gains and losses recorded to other comprehensive income
      when
      material. As of December 31, 2005, the cost of marketable securities
      approximates fair value.




Accounts
      and notes receivable




The
      Company reflects both accounts and notes receivable at their outstanding
      principal balances as of the balance sheet date, as adjusted by any charge-offs
      or allowances established as a reserve for potentially uncollectible accounts.
      The allowance for doubtful accounts reflects management’s best estimate of
      probable losses inherent in the account receivable balance. Management
      determines the allowance based on the length of time receivables are past due,
      known troubled accounts, historical experience and other currently available
      evidence. Activity in the allowance for doubtful accounts is as
      follows:





2005
            
            2004Beginning
                balance
            
            $
            169,644
            
            $
            173,909Provision
                for doubtful accounts
            
            
            119,815
            
            
            40,882Accounts
                written off
            
            
            (264,571
            )
            
            (45,147
            )Ending
                balance
            
            $
            24,888
            
            $
            169,644





Concentration
      of credit risk




The
      Company is subject to credit risk through its cash, trade receivables,
      available-for-sale securities and notes receivable. The Company maintains its
      cash deposits in accounts insured up to $100,000 by the Federal Deposit
      Insurance Corporation. Balances in excess of the Federal Deposit Insurance
      Corporation totaled $98,854 and $0 at December 31, 2005 and 2004, respectively.
      The Company has deposits in a limited number of financial institutions with
      federally insured limits. Cash (including
      cash equivalents) at these institutions is normally in excess of the insured
      limits. However, the Company believes that the institutions are financially
      sound and there is only nominal risk of loss. There is no collateral currently
      required for cash, trade receivables, available-for-sale securities and notes
      receivable.




F7




YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





Fair
      value of financial instruments




The
      Company considers the carrying amounts of its accounts receivable, accounts
      payable and accrued expenses to approximate fair value because of the short
      maturity of these financial instruments. The Company considers amounts
      outstanding under debt agreements to approximate their fair value, based on
      the
      incremental borrowing rates currently available to the Company for financing
      with similar terms and maturities.




Property
      and equipment




Property
      and equipment are recorded at cost. Depreciation and amortization of property
      and equipment generally is computed using the straight-line method based on
      the
      estimated useful lives of the assets. The estimated useful lives of furniture
      and fixtures range from two to five years: equipment including computer hardware
      and software has an estimated useful life of three to five years, vehicles
      have
      a life of five years and leasehold improvements have a five year life,
      based on the term of the underlying lease. Maintenance and repairs are charged
      to expense when incurred.




Expenditures
      for improvements are capitalized, while normal repair and maintenance costs
      are
      charged to expense when incurred. When property and equipment are disposed,
      the
      related cost and accumulated depreciation are removed from the respective
      accounts and any gain or loss is credited or charged to income.




In
      accordance with Accounting Standards Executive Committee Statement of Position
      (“SOP”) 98-1, “Accounting for the Costs of Computer Software Developed or
      Obtained for Internal Use”, property and equipment includes amounts related to
      the capitalization of certain costs incurred in connection with developing
      or
      obtaining software for internal use.




Long-lived
      asset recoverability





In
      accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
      Long-lived Assets”, long-lived assets, primarily property and equipment, are
      tested for recoverability whenever events or changes in circumstances indicate
      that their carrying amount may not be recoverable.





The
      Company believes that the carrying amounts of its long-lived assets are fully
      recoverable. Accordingly, no impairment loss has been reflected in the Company’s
      reported results of operations for years ended December 31, 2005 or 2004.





Intangible
      assets, net





Intangible
      assets are amortized using the straight-line method over their estimated period
      of benefit, ranging from one to ten years. The Company periodically evaluates
      the recoverability of intangible assets and takes into account events or
      circumstances that warrant revised estimates of useful lives or that indicate
      that impairment exists. No impairment of intangible assets was identified during
      any of the periods presented.





Goodwill




Goodwill,
      which is the excess of cost over the fair value of net assets (including
      identifiable intangibles) acquired in a business acquisition, is not amortized
      but rather tested at least annually for impairment or whenever events or changes
      in circumstances indicate that the carrying amount of the asset might not be
      fully recoverable, in accordance with the provisions of SFAS No. 142, “Goodwill
      and Other Intangible Assets” SFAS 142 also requires the Company to compare the
      fair value of the acquired business to its carrying amount on an annual basis
      to
      determine if there is potential goodwill impairment. If the fair value of the
      acquired business is less than its carrying value, an impairment loss is
      recorded to the extent that the fair value of the goodwill is less than its
      carrying value. Fair values for acquired businesses are determined based on
      discounted cash flows, market multiples or appraised values.





F8


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





Revenue
      Recognition





*Online
      travel store sales and monthly fees*





The
      Company generates revenue from the selling of on-line travel agencies, and
      from
      providing training and ongoing maintenance services to the new business owners
      of such on-line travel agencies, i.e. RTA(s). The recognition of all up-front
      fees received from new RTA sales is deferred and recognized as income over
      a
      twelve-month period, which is the weighted average RTA life. Monthly maintenance
      fees are recognized in the month the services are provided.





*Travel
      commissions and services*





Commissions
      and incentives earned from travel sales are recognized as revenue when the
      related travel has been completed by the customer. Commissions earned where
      the
      Company acts in the capacity of a wholesaler are recorded at their gross amount.
      The cost of such revenue is recorded separately as an operating
      expense.





*Franchise
      service fees and other fees*





The
      Company is a franchisor of traditional “brick and mortar” travel agencies. The
      initial franchise fee related to the sale of these travel agencies is due upon
      execution of a franchise agreement with the franchisee. The initial franchise
      fee is deferred and subsequently recognized as revenue when all material
      conditions prior to the opening of a franchised business have been satisfied
      and
      all substantial doubts of collectibility have been eliminated generally upon
      receipt of payment. Fees paid are non-refundable once a site location has been
      selected.





*Other
      revenue*





Sales
      revenues from sales aids and miscellaneous promotional and marketing materials
      are recognized when the related merchandise is shipped to the
      customer.





Expense
      recognition of commission costs




The
      Company incurs commission costs that are directly related to the origination
      of
      new RTA sales; sales which result in the deferral of revenue. Such incremental
      direct commission costs are capitalized in accordance with Financial Accounting
      Standards Board (“FASB”) Technical Bulletin No. 90-1 (“FTB 90-1”). In addition,
      the Company has elected to account for such commission costs in accordance with
      Securities and Exchange Commission Staff Accounting Bulletin (“SAB") 104 and FTB
      90-1, by deferring and charging such costs to expense in proportion to the
      related revenue recognized, over the same deferral period of twelve
      months.




Marketing
      compensation plan




The
      Company offers a compensation plan to its sales representatives under an
      arrangement that pays the representatives direct sales commissions, override
      compensation (if qualified) and other bonus incentives based on the amounts
      attributable to each representative’s sales, or enrolled referrals. Direct sales
      commissions are paid on a weekly basis, based upon the amount of the previous
      week’s sales. Residual commissions are paid on a monthly basis for active
      representatives, following the month earned. Bonuses are earned by maintaining
      a
      minimum number of personal enrollments. Commission costs are capitalized and
      recognized as expense in proportion to the related revenue recognized, over
      a
      period of twelve months.




Advertising
      costs




Pursuant
      to the provisions of Statement of Position (“SOP”) No. 93-7 issued by the
      American Institute of Certified Public Accountants, the Company expenses
      advertising costs as incurred. Advertising expense was $26,306 in 2005 and
      $37,967 in 2004.




F9


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





Income
      taxes





The
      Company recognizes deferred income tax assets and liabilities for future tax
      consequences resulting from differences between the book and tax bases of
      existing assets and liabilities. A valuation allowance is provided for that
      portion of deferred income tax assets which may not be realized.





Stock-based
      compensation





The
      Company accounts for stock-based employee compensation arrangements in
      accordance with provisions of Accounting Principles Board Opinion (“APB”) No.
      25, “Accounting for Stock Issued to Employees,” FASB Interpretation No. 44 (“FIN
      44”), “Accounting for Certain Transactions Involving Stock Based Compensation—an
      Interpretation of APB No. 25,” and related interpretations and comply with the
      disclosure provisions of SFAS No. 123, “Accounting for Stock-Based
      Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based
      Compensation—Transition and Disclosure”.





Under
      APB
      No. 25 and FIN 44, compensation expense is based on the difference, if any,
      on
      the date of the grant, between the fair value of our stock and the exercise
      price of the stock option being granted. Certain
      options, which have been re-priced, are subject to the “variable accounting”
requirements of APB No. 25 and FIN 44 that require the Company record
      compensation expense for changes in the fair value of the Company’s common stock
      when it exceeds the re-priced amount.





FAS
      123
      encourages, but does not require, companies to record compensation cost for
      stock-based employee compensation plans at fair value. The Company has chosen
      to
      continue to account for stock-based compensation using the intrinsic value
      method prescribed in APB No. 25, and related interpretations where, generally,
      when the price of stock options equals the market price of the underlying stock
      on the date of grant, no compensation expense is recorded. Pro forma information
      using the fair value method to record stock-based compensation cost is as
      follows:





(RESTATED)
                2005
            
            2004Net
                loss - as reported
            
            $
            (8,452,787
            )
            $
            (2,193,349
            )Add:
                Stock-based compensation expenseIncluded
                in reported net loss
            
            
            5,980
            
            
            111,061Less:
                Additional stock-based compensationexpense
                determined under fair value based
              method
                for all awards
            
            
            (175,595
            )
            
            (8,994
            )Net
                loss - pro forma
            
            $
            (8,622,402
            )
            $
            (2,091,282
            )Earnings
                (loss) per common share - basicAs
                reported
            
            $
            (0.34
            )
            $
            (0.18
            )Pro
                forma
            
            $
            (0.34
            )
            $
            (0.17
            )





The
      fair
      value of each option is estimated on the date of grant using the Black-Scholes
      option pricing model with the following weighted-average assumptions used for
      grants in 2005 and 2004: risk-free interest rates of 3.4% and 2.9%; expected
      lives of 1.0 and 2.0, respectively: dividend yield of 0% and expected volatility
      of 75%.


F10


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements




Earnings
      (loss) per share




Basic
      earnings (loss) per share are based on the weighted-average number of common
      shares outstanding. Diluted earnings (loss) per share assumes that outstanding
      common shares are increased by common shares issuable upon the exercise of
      stock
      options and warrants, and by the conversion of preferred stock using the
      treasury stock method, where such exercise or conversion would be dilutive.
      For
      the years ended December 31, 2005 and 2004, the effects any assumed exercise
      of
      stock options and warrants on the 2005 and 2004 loss per share would be
      anti-dilutive and, therefore, are not included in the calculation of the
      Company’s basic loss per share for the years ended December 31, 2005 and
      2004.




However,
      the 4,092,376 shares of the Company’s Series B convertible preferred stock that
      were issued on December 8, 2004 (and subsequently converted into common shares
      on January 9, 2005) were considered to be common stock equivalents on the date
      of original issuance. Accordingly, all 4,092,376 shares of the Company’s Series
      B convertible preferred stock have been included in the calculation of the
      Company’s loss per common share for the year ended December 31,
      2004.





New
      accounting pronouncements




SFAS
      No.
      123R, “Share-Based Payment” requires that a public entity measure the cost of
      equity based service awards based on the grant-date fair value of the award.
      That cost will be recognized over the period during which an employee is
      required to provide service in exchange for the award or the vesting period.
      No
      compensation cost is recognized for equity instruments for which employees
      do
      not render the requisite service. A public entity will initially measure the
      cost of liability based service awards based on current fair value. The fair
      value of those awards will be re-measured subsequently at each reporting date
      through the settlement date. Changes in fair value during the requisite period
      will be recognized as compensation cost over the period. The Company is required
      to adopt SFAS No. 123R on January 1, 2006. Although there will be no impact
      on
      the Company’s cash flows, the adoption of SFAS No. 123R will have significant
      impact on its operating results.




The
      Company currently plans to adopt SFAS No. 123R using the modified prospective
      method. At December 31, 2005, the unvested option expense is $125,926 and is
      expected to be expensed over the next 1.17 years. The Company is currently
      assessing the impact of the adoption of SFAS No. 123R on its compensation
      strategies.




The
      Company does not believe that there are any other new accounting pronouncements
      that the Company is required to adopt that are likely to have at least some
      effect on the Company’s future financial statements.


F11


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements




NOTE
        3
        - BUSINESS COMBINATION
 
 On
        December 8, 2004, the Company merged with YTB, Inc. and thereby YTB, Inc.
        became
        a wholly owned subsidiary of the Company. Pursuant to the terms of the merger
        agreement the holders of YTB, Inc. common stock received in aggregate 7,430,000
        shares of common and 4,092,376 shares of Series B convertible preferred stock
        in
        exchange for all of their holdings in YTB, Inc. In addition, in connection
        with
        the transaction 500,000 shares of common stock were issued pursuant to a
        finder’s agreement and transaction costs of $77,354 were incurred. The merger
        was accounted for as a purchase business combination with the Company, deemed
        the acquirer. Prior to the merger, YTB, Inc. was a significant customer of
        the
        Company. Management’s primary reason for the acquisition was to benefit from the
        increased synergies of the combined companies in exploiting the growth potential
        of YTB, Inc.’s referral-marketing business.
 
 The
        value
        of the shares of the Company issued in connection with the purchase was
        determined by an appraisal conducted by an independent valuation company.
        The
        assumed assets and liabilities of YTB, Inc. were recorded at fair value and
        were
        determined by independent appraisal. The value of the assets and liabilities
        recorded is as follows:
 
 Assets
              
              BalancePrepaid
                  marketing commissions
              
              $
              1,666,419Property
                  and equipment, net
              
              
              241,837Intangible
                  assets
              
              
              3,310,000Goodwill
              
              
              2,224,3227,442,578Liabilities
                  and EquityAccounts
                  payable and accrued expenses
              
              
              (738,070
              )Notes
                  payable
              
              
              (102,342
              )Deferred
                  revenue
              
              
              (1,754,238
              )(2,594,650
              )Total
              
              $
              4,847,928
 
 The
        operations of YTB, Inc. have been consolidated from the acquisition date.
        The
        cost to acquire YTB, Inc. has been allocated to the assets acquired and
        liabilities assumed according to their estimated fair values. The purchase
        price
        of $4,847,928 including transaction costs resulted in acquired goodwill of
        $2,224,322 which is not deductible for tax purposes.
 
 The
        following unaudited pro forma consolidated financial information for the
        year
        ended December 31, 2004 gives effect to the Company’s acquisition of YTB, Inc.
        and reflects the results of YTB, Inc.’s operations as if the acquisition had
        occurred and been completed as of January 1, 2004.
 
 The
        following table summarizes the unaudited pro forma information for the year
        ended December 31, 2004:
 
 2004
              
              2003Revenue
              
              $
              7,923,826
              
              $
              6,001,925Net
                  loss
              
              $
              (3,942,911
              )
              $
              (2,218,300
              )Weighted
                  average common shares outstanding
              
              
              12,353,203
              
              
              10,351,179Basic
                  and diluted loss per share
              
              $
              (0.32
              )
              $
              (0.21
              )




F12




NOTE 4
      - PROPERTY AND EQUIPMENT





Property
      and equipment at December 31, 2005 and 2004 consists of the
      following:




2005
            
            2004Equipment
            
            $
            266,025
            
            $
            136,475Furniture
                and fixtures
            
            
            187,745
            
            
            15,340Capitalized
                software
            
            
            1,378,711
            
            
            1,361,650Vehicles
            
            
            168,908
            
            
            95,769Leasehold
                improvements
            
            
            110,629
            
            
            -2,112,018
            
            
            1,609,234Less:
                Accumulated depreciation
            
            
            (1,480,026
            )
            
            (1,256,187
            )Property
                and equipment, net
            
            $
            631,992
            
            $
            353,047





Depreciation
      and amortization expense on property and equipment was $223,839 and $419,563
      for
      the years ended December 31, 2005 and 2004, respectively.





As
      of
      December 31, 2005 and 2004, capitalized software development costs, net of
      accumulated amortization, totaled $105,539 and $113,103 respectively. For the
      years ended December 31, 2005 and 2004, the Company recorded amortization of
      capitalized software development costs of $129,680 and $416,788,
      respectively.





NOTE 5
      - INTANGIBLE ASSETS, NET





The
      following tables present the components of the Company’s intangible assets as of
      December 31, 2005 and 2004:




At
                  December 31, 2005
              
              At
                  December 31, 2004Intangible
                  Assets
              
              Cost
              
              Accumulated
                Amortization
              
              Net
              
              Cost
              
              Accumulated
                Amortization
              
              NetAmortized
                  intangible assets(1)Non-compete
                  agreement
              
              $
              360,000
              
              $
              54,620
              
              $
              305,380
              
              $
              360,000
              
              $
              3,180
              
              $
              356,820RTA
                  agreements
              
              
              690,000
              
              
              690,000
              
              
              -
              
              
              690,000
              
              
              42,660
              
              
              647,340Vendor
                  agreements
              
              
              220,000
              
              
              23,360
              
              
              196,640
              
              
              220,000
              
              
              1,360
              
              
              218,640Total
                  amortizedintangible
                  assets
              
              
              1,270,000
              
              
              767,980
              
              
              502,020
              
              
              1,270,000
              
              
              47,200
              
              
              1,222,800Unamortized
                  intangible assetsDomain
                  names
              
              
              2,040,000
              
              
              -
              
              
              2,040,000
              
              
              2,040,000
              
              
              -
              
              
              2,040,000Total
                  unamortizedintangible
                  assets
              
              
              2,040,000
              
              
              -
              
              
              2,040,000
              
              
              2,040,000
              
              
              -
              
              
              2,040,000Total
              
              $
              3,310,000
              
              $
              767,980
              
              $
              2,542,020
              
              $
              3,310,000
              
              $
              47,200
              
              $
              3,262,800
 
 (1)
        The
        estimated useful lives of non-compete agreements, RTA agreements and vendor
        agreements are seven years, one year and 10 years,
        respectively.




Amortization
      expense was $720,780 and $47,200 for the years ended December 31, 2005 and
      2004,
      respectively. The
      estimated amortization expense related to intangible assets as of December
      31,
      2005 over the next five years follows, assuming no subsequent impairment of
      the
      underlying assets, is as follows:




2006
            
            $
            73,4292007
            
            
            73,4292008
            
            
            73,4292009
            
            
            73,4292010
            
            
            73,429




F13


YTB
            INTERNATIONAL, INC.
 Notes
            to
            Consolidated Financial Statements
  NOTE 6
            - FINANCING ARRANGEMENTS
  Advances
  During
            December 2004, pending the closing of a private placement memorandum
            ("PPM"), an
            investor advanced $100,000 to the Company. The PPM closed in February
            2005 at
            which time the Company repaid the advance. The liability is included
            in other
            current liabilities in the accompanying consolidated balance sheet as
            of
            December 31, 2004.
  Notes
            Payable
 The
              Company is financing three vehicles, payable in monthly installments
              ranging
              from approximately $1,000 to $1,200, at the rate of approximately 6.25%.
              The
              loans are payable through March 2008. The balance due on these vehicle
              loans as
              of December 31, 2005 and 2004 totaled $122,055 and $102,342,
              respectively.
 
 The
              Company assumed the two of the three short-term notes payable upon
              the
              acquisition of its acquired entity on December 8, 2004:
  2005
                    
                    20046.25%
                        promissory note secured by vehicle purchase. Interest and
                        principal are
                        payable in monthly installments of $1,000 for 12 months,
                        remaining balance
                        due February 28, 2006.
                    
                    $
                    35,155
                    
                    $
                    44,2546.25%
                        promissory note secured by vehicle purchase. Interest and
                        principal are
                        payable in monthly installments of $1,000 for 12 months,
                        remaining balance
                        due March 4, 2006.
                    
                    
                    49,958
                    
                    
                    58,088Total
                        notes payable acquired upon acquisition
                    
                    $
                    85,113
                    
                    $
                    102,342
 Long-Term
            Debt
 
 On
            January 11, 2002, as a result of a decrease in demand for travel related
            services due to the events of September 11, 2001, the Company borrowed
            $324,500
            from the United States Small Business Administration (“SBA”) under its disaster
            relief program. Payments were to have initially commenced in January
            2003.
            However, the SBA extended the commencement date into November 2003. The
            loan is
            repayable via a monthly installment of $2,607, including interest at
            4% per
            annum, through October 2017. The loan is personally guaranteed by the
            Company’s
            president. The outstanding loan balance as of December 31, 2005 and 2004
            was
            $283,611 and $305,557, respectively.
  Minimum
            principal payments of long-term debt as of
            December 31, 2005 are as follows:
  Year
                        ending
                      December
                        31, 2004
                    
                    Amount2006
                    
                    $
                    19,5322007
                    
                    
                    20,3282008
                    
                    
                    21,1562009
                    
                    
                    22,0182010
                    
                    
                    22,915Thereafter
                    
                    
                    177,662Total
                    
                    $
                    283,611
 F14
 YTB
        INTERNATIONAL, INC.
 Notes
        to
        Consolidated Financial Statements
  During
        January 2005, the Company entered into an agreement with an investor to raise
        an
        additional $2,000,000 of capital via a convertible term note (“the Note”). The
        Note had a principal balance of $2,000,000, and interest was payable monthly
        at
        prime plus 3%, subject to an 8% floor. The Note was superior to the SBA loan
        of
        approximately $300,000. The terms of the Note provided for interest payments
        only during the first six months, with payments of $66,667 of principal plus
        interest monthly beginning in August 2005. The note was required to be paid
        in
        full by January 2008, unless it was converted by the investor into shares
        of
        common stock. The Note agreement contained several features, which are discussed
        below:
 
 ·
              Interest
                  Rate Adjustment Feature - The interest rate stated in the Note
                  could
                  subsequently be adjusted downward if the Company maintained an
                  effective
                  registration statement and the market price of the Company’s common stock
                  exceeded certain targets.
 
 ·
              Initial
                  Conversion Ratio - The Note was convertible into shares of the
                  Company’s
                  common stock at a rate of $0.80 per share for the first $1 million
                  of Note
                  principal, and $1.25 per share for any amounts in excess of the
                  first $1
                  million.
 
 ·
              Contingent
                  Conversion Ratio Adjustment Feature - If the Company were to obtain
                  subsequent equity financing at per share prices less than those
                  obtained
                  by the investor, the conversion rate would be lowered to that
                  amount.
 
 ·
              Prepayment
                  penalty - The Note could be prepaid at the Company’s option, with a 30%
                  prepayment penalty.
 
 ·
              Warrant
                  Coverage - The Note contained 800,000 detachable stock warrants,
                  which
                  have a 7-year term, and are exercisable for the first 400,000 warrants
                  at
                  $1.58 per share, and the second 400,000 warrants at $1.72 per
                  share.
 
 ·
              Additional
                  Loan Option - The investor, at its sole option, had the ability
                  to loan an
                  additional $1,000,000 to the Company on the same terms as the original
                  Note, including proportional warrant
                  coverage.  ·
              Registration Rights - As part of the Note agreement,
                the
                Company agreed to file a registration statement covering the warrants
                and
                potential shares to be issued upon conversion of the Note. The
                registration statement was to be filed within 30 days of the agreement,
                and declared effective within 120 days. The registration statement
                was to
                be continuously effective until the investor had sold all of the
                underlying shares. The registration rights agreement provides for
                a
                penalty of 2% per month. The Company has treated this item as an
                additional derivative and in failing to satisfy the registration
                rights requirement has accrued $280,000 in penalties under the terms
                of
                the agreement. Such amounts are reflected as a current liability in
                the Company's balance sheet. See Note 14.
  Because
        the Note was potentially convertible into an unlimited number of shares of
        common stock, the Company accounted for the Note under the provisions of
        SFAS
        No. 133, *Accounting
        for Derivative Instruments and Hedging Activities* ,
        and
        EITF Issue No. 00-19, *Accounting
        for Derivative Financial Instruments Indexed to, and Potentially Settled
        in, a
        Company's Own Stock.* Accordingly, the interest rate adjustment feature, conversion feature, and
        additional loan option were, collectively, considered an embedded derivative,
        which was bifurcated from the host debt instrument. The initial allocation
        of
        the gross proceeds of $2,000,000 is as follows:
 
 Embedded
                  Derivative
              
              $
              1,923,201Stock
                  Warrants
              
              
              16,192Term
                  Note
              
              
              60,607$
              2,000,000
 
 The
        embedded derivative was initially recorded at fair value, and adjusted to
        fair
        value at each subsequent balance sheet date. The net increase in the embedded
        derivative liability in 2005 was $1,348,389 and is recorded as Other Expense
        in
        the Consolidated Statement of Operations. The difference between the stated
        principal of the Note of $2,000,000 and its allocated carrying value was
        amortized as debt discount using the effective interest rate method over
        the
        term of the Note.
 
 In
        addition to the items noted above, the Company incurred debt issuance costs
        related to the Note of $174,020, of which $148,020 was paid in cash, and
        $26,000
        was settled by issuing stock warrants. These costs were amortized over the
        term
        of the Note.
 
 On
        October 12, 2005, the investor converted the remaining principal balance
        at that
        time of $1,866,666 into 1,800,000 shares of common stock. On October 31,
        2005,
        the investor exercised its option for the additional loan, at which time
        the
        Company received cash proceeds of $1,000,000. As provided in the agreement,
        the
        investor also received 400,000 additional stock warrants, exercisable at
        $1.25
        per share, the fair value of which was recorded at $215,812. The investor
        immediately converted the additional loan into common stock, receiving 800,000
        shares.


F15




YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





NOTE
      7
      - COMMITMENTS AND CONTINGENCIES





Leases




The
      Company is obligated under an operating office lease for the offices in New
      Jersey which expires on April 30, 2008, to pay minimum annual rentals, currently
      at $46,333 per year plus real estate taxes and operating cost charges. The
      Company also is obligated under a multi-year lease for its Illinois headquarters
      at $15,000 per month plus operating charges. In addition, the Company has
      entered into various operating lease agreements with Wal-Mart Stores, Inc.
      (Wal-Mart) for eight locations pursuant to a master lease agreement. The term
      of
      the individual location leases is two years with two options to extend the
      lease
      for one consecutive term of three years followed by one consecutive term of
      five
      years. The Company has also entered into sub-lease agreements with
      franchisees at these Wal-Mart locations. The subleases with the franchises
      also
      have a two year term with options that mirror the master lease renewal
      options.




Following
      is a summary of net rental income (expense) for the Wal-Mart locations for
      the years ended December 31, 2005 and 2004:




2005
            
            2004Sublease
                rental income
            
            $
            135,384
            
            
            160,863Less
                minimum rental expense
            
            
            128,434
            
            
            149,342Net
                rental income
            
            $
            6,950
            
            $
            11,521





Minimum
      future rental payments under non-cancelable operating leases (including the
      Wal-Mart location leases on which sublease rental income is earned), having
      remaining terms in excess of one year as of December 31, 2005 are as
      follows:


Year
                  ending
                December
                  31,
              
              NJ
                  Office
              
              Wal-Mart
                Locations
              
              IL
                  Offices
              
              Sublease
                Rental
                Income
              
              Net
                  Rental
                Expense
                (Income)2006
              
              $
              48,333
              
              $
              87,007
              
              $
              180,000
              
              $
              86,722
              
              $
              228,6182007
              
              
              50,470
              
              
              31,252
              
              
              209,800
              
              
              31,922
              
              
              259,6002008
              
              
              17,068
              
              
              23,789
              
              
              269,300
              
              
              25,230
              
              
              284,9272009
              
              
              -
              
              
              5,947
              
              
              274,300
              
              
              6,496
              
              
              273,751Total
              
              $
              115,871
              
              $
              147,995
              
              $
              933,400
              
              $
              150,370
              
              $
              1,046,896




Employment
        agreements
  The
        Company has entered into a long-term employment agreement with each of Mr.
        J.
        Scott Tomer, (Chief Executive Officer), Mr. J. Kim Sorensen, (Vice President),
        Mr. Michael Y. Brent, (President), Mr. Derek J. Brent, (Secretary), and Mr.
        John
        D. Clagg, (Chief Financial Officer). All employment agreements expire December
        31, 2009 and subject each officer to confidentiality provisions, as well
        as
        non-raid and non-compete provisions for an additional 2 years following
        termination of employment.
 
 Each
        of
        Messrs. J. Kim Sorensen and J. Scott Tomer receive a base annual salary of
        $120,000, increasing annually in $12,000 increments. They each receive an
        override on RTA sales and monthly fees generated by “representative position #2”
of the YourTravelBiz.com sales organization equal to 50% of the monthly
        commissions and overrides earned by such representative position #2, paid
        monthly. Additionally, each of Messrs. J. Kim Sorensen and J. Scott Tomer
        receives a cash bonus based on the net pre-tax income of the Company equal
        to 2%
        if net pre-tax income is between $500,000 and $1,500,000, 2.25% if net pre-tax
        income is between $1,500,000 and $3,000,000 and 2.5% if net pre-tax income
        is at
        least $3,000,000. They each receive a car allowance and health and medical
        insurance provided by the Company. The Company has also taken out a term
        life
        insurance policy on the lives of Messrs. J. Kim Sorensen and J. Scott Tomer
        in
        an amount equal to three times their respective annual base salary, payable
        to
        beneficiaries designated by each.
 
 Mr.
        Michael Y. Brent receives a base annual salary of $240,000, increasing annually
        in $12,000 increments. Mr. Michael Y. Brent receives an override on the RTA
        sales and monthly fees generated by “representative position #1” of the
        YourTravelBiz.com sales organization equal to 16.69% of the monthly commissions
        and overrides earned by said position #1, paid monthly. Additionally, Mr.
        Michael Y. Brent receives a cash bonus based on the net pre-tax income of
        the
        Company equal to 2% if net pre-tax income is between $500,000 and $1,500,000,
        2.25% if net pre-tax income is between $1,500,000 and $3,000,000 and 2.5%
        if net
        pre-tax income is at least $3,000,000. Mr. Michael Y. Brent receives a car
        allowance and health and medical insurance provided by the Company. The Company
        has also taken out a term life insurance policy on the life of Mr. Michael
        Y.
        Brent in an amount equal to three times his annual base salary, payable to
        beneficiaries designated by him.
 
 Mr.
        Derek
        J. Brent receives a base annual salary of $120,000, increasing annually in
        $12,000 increments. Additionally,
        Mr. Derek J. Brent receives a cash bonus based on the net pre-tax income
        of the
        Company equal to 2% if net pre-tax income is between $500,000 and $1,500,000,
        2.25% if net pre-tax income is between $1,500,000 and $3,000,000 and 2.5%
        if net
        pre-tax income is at least $3,000,000. In addition, Mr. Derek J. Brent
        receives a car allowance and health and medical insurance provided by the
        Company.
  Mr.
        John
        D. Clagg, whose contract became effective December 1, 2005, receives a base
        salary of $150,000 increasing annually in $30,000 increments. Mr. Clagg also
        receives health, life, and medical insurance provided by the
        Company.


F16


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





NOTE 8
      - STOCK OPTIONS




The
      Company has a stock option plan that is administered by the
      compensation committee of the board of directors, which in turn determines
      the
      employees, officers, and directors subject to receive awards and the terms
      and
      conditions of these awards.  The purpose of the plan is to make
      available to our key employees and directors certain compensatory arrangements
      related to the growth in the value of our stock so as to generate an increased
      incentive to contribute to the Company’s financial success and prosperity; to
      attract and retain exceptionally qualified individuals whose efforts can affect
      the Company’s financial growth and prosperity; and align in general the
      interests of our employees and directors with the interests of our
      stockholders.  No shares of common stock have been reserved for this
      plan.





During
      2005 and 2004, the Company recognized $89,980 and $3,061, respectively, in
      compensation expense related to options granted with an exercise price less
      than
      the fair value of the underlying stock at the date of the grant.




FIN
      44
      requires variable accounting for compensation expense when stock options have
      been cancelled and re-issued with a change in strike price.  The variable
      compensation associated with these types of stock options for 200 5  was
      a reduction in compensation expense in 2005 of $84,000 and an increase
      in compensation expense of $108,000 for 2004.





A
      summary
      of stock option activity is as follows:





2005
            
            2004Weighted
                Average
            
            
            
            Weighted
                AverageShares
            
            Exercise
                Price
            
            Shares
            
            Exercise
                PriceOutstanding
                - Beginning of Period
            
            
            990,000
            
            $
            1.12
            
            
            520,000
            
            $
            1.09Granted
            
            
            50,000
            
            
            .50
            
            
            470,000
            
            
            1.15Exercised
            
            
            100,000
            
            
            0.50
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -
            
            
            -
            
            
            -Outstanding
                on December 31,
            
            
            940,000
            
            $
            1.15
            
            
            990,000
            
            $
            1.12Exercisable
                on December 31,
            
            
            940,000
            
            $
            1.15
            
            
            990,000
            
            $
            1.12





F17


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements




A
      summary
      of stock options outstanding and exercisable as of December 31, 2005 are as
      follows:




Options
                Outstanding
            
            Options
                ExercisableExercise
              Price
            
            Number
                Outstanding
            
            Weighted-Average
                Remaining Life
            
            Weighted-Average
                Exercise Price
            
            Number
                Exercisable
            
            Weighted
                Average Exercise Price≤$1.00
            
            
            800,000
            
            
            .92
                years
            
            $
            1.00
            
            
            800,000
            
            $
            1.00≥$2.00
            
            
            140,000
            
            
            .95
                years
            
            $
            2.00
            
            
            140,000
            
            $
            2.00





NOTE 9
      - INCOME TAXES




The
      Company accounts for income taxes under SFAS No. 109, “Accounting for Income
      Taxes. SFAS No. 109 requires the recognition of deferred tax assets and
      liabilities for both the expected impact of differences between the financial
      statements and tax basis of assets and liabilities and for the expected future
      tax benefit to be derived from tax loss and tax credit carry forwards. SFAS
      No.
      109 additionally requires the establishment of a valuation allowance to reflect
      the likelihood of realization of deferred tax assets.




As
      a
      result of the Company’s operating losses in 2005 and 2004, and loss carry
      forwards available in 2005, there is no provision for current income
      taxes.




Statement
      of Financial Accounting Standards No. 109, Accounting for Income Taxes, requires
      a valuation allowance to reduce any deferred tax assets to their net realizable
      amounts if, based on the weight of evidence, it is more likely than not that
      all
      or some portion of such deferred tax assets will not be realized. As of December
      31, 2005 and 2004, the Company is uncertain if it will realize any future tax
      benefit of its deferred tax assets. Accordingly, a full valuation allowance
      has
      been established as a reserve against the Company’s deferred tax assets and,
      therefore, no deferred income tax credits have been recognized in the statements
      of operations for the years ended December 31, 2005 and 2004.




At
      December 31, 2005 the Company had approximately $11,441,000 of federal and
      state
      net operating losses that may be available to offset future taxable income.
      The
      net operating loss carry forwards, if not utilized, will begin to expire in
      2019
      for federal and state purposes. The net operating losses may be subject to
      a
      substantial limitation under the “Change of Ownership” section 382 of the
      Internal Revenue Code.





A
      reconciliation of income taxes, with the amounts computed at the statutory
      federal rate, is as follows:





As
                of December 31,2005
            
            2004Computed
                tax at federal statutory rate
            
            $
            (2,873,948
            )
            $
            (755,644
            )Other,
                net
            
            
            61,948
            
            
            (16,356
            )Change
                in valuation allowance
            
            
            2,812,000
            
            
            772,000Total
            
            $
            -
            
            $
            -





F18


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





Deferred
      tax assets and liabilities consist of the following:





As
                of December 312005
            
            2004**Deferred
                Tax Assets**Allowance
                for doubtful accounts
            
            $
            9,000
            
            $
            63,000Allowance
                for notes receivable
            
            
            -
            
            
            25,000Capitalized
                consulting
            
            
            23,000
            
            
            50,000Accrued
                vacation
            
            
            8,000
            
            
            5,000Capital
                losses
            
            
            9,000
            
            
            7,000Accrued
                compensation
            
            
            1,281,000
            
            
            8,000Net
                operation loss carry-forward
            
            
            4,233,000
            
            
            2,593,0005,563,000
            
            
            2,751,000**Deferred
                Tax Liabilities**
            
            
            -
            
            
            -**Net
                Deferred Tax Assets**Before
                valuation allowance
            
            
            5,563,000
            
            
            2,751,000Less
                valuation allowance
            
            
            (5,563,000
            )
            
            (2,751,000
            )**Net
                Deferred Tax Asset**
            
            $
            -
            
            $
            -







F19


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





NOTE 10
      - RELATED PARTY TRANSACTIONS




During
      the year ended December 31, 2004, the Company incurred consulting fee expenses
      of $23,000 for services provided by an entity owned by the Company's then chief
      executive officer, a significant shareholder of the Company. Under a new
      employment agreement reached in December 2004, such consulting fees have been
      eliminated. At year end, December 2004, there are no consulting fees owed to
      the
      Company's Chief Executive Officer. Prior to the merger, YTB, Inc. was privately
      held and it rented office space on a month-to-month basis from a majority
      stockholder who is now the Chairman of the Board of Directors. As of December
      31, 2004, the Company owed $8,000 to the Chairman for unpaid rent for prior
      periods' office occupancy.




Certain
      members of management of the Company also own a company that YTB Marketing
      utilizes for printing of its sales materials. During 2005 and 2004, the Company
      expended $512,392 and $4,280 for printing sales materials. In addition, at
      December 31, 2005, the Company has a pre-paid asset of $212,027 on the balance
      sheet for payments related to work not yet completed.




The
        Company leases office space to house its executive offices in two buildings
        under separate commercial lease agreements. The buildings are owned and
        controlled by a company of which certain members of the Company’s Board of
        Directors are principals. In addition, each lease contains an addendum which
        grants to the landlord a two-year common stock purchase warrant to purchase
        Company stock in exchange for the deed to the property, unencumbered.
 
 The
        first
        lease, which covers approximately 13,000 square feet, commenced July 1, 2005
        and
        expires June 30, 2010. This lease includes an addendum with a two-year common
        stock purchase warrant, which expires June 30, 2007, to purchase 500,000
        shares
        of Company stock for a total exercise price of $1.00 and the deed to the
        property, unencumbered, in which the space is leased. Separately, the Company
        has the option to purchase the property for a cash price of
        $1,850,000.
 
 Correspondingly,
        the second lease, , which covers approximately 5,000 square feet, commenced
        November 1, 2005 and expires on October 31, 2010. This lease includes an
        addendum with a two-year common stock purchase warrant, which expires October
        31, 2007, to purchase 625,000 shares of Company stock for a total exercise
        price
        of $1.00 and the deed to the property, unencumbered, in which the space is
        leased. Separately, the Company has the option to purchase the property for
        a
        cash price of $2,350,000.
 
 The
        combined rental cost of both spaces is $15,000 per month. Combined rent expense
        for these two leases was $65,000 for the year ended December 31, 2005. As
        of
        December 31, 2005, neither of the common stock warrants has been
        exercised.




In
      July
      2006, the Company borrowed $2.5 million in connection with the land and building
      which will house their new corporate headquarters in Wood River, Illinois.
      The
      chairman of the bank is also a director of the Company. This transaction was
      approved by the independent members of the Company’s board of directors. The
      Company believes that the terms were commercially available terms and are as
      favorable to the Company as would be from an unaffiliated party.




NOTE
      11 - CAPITAL STOCK


On
        February 8, 2005, the Company commenced a Private Placement Offering for
        the
        issuance of up to 1,000,000 shares at a price of $0.80 per share. Pursuant
        to
        the terms of the offering, the minimum investment was $15,000 to purchase
        an
        investment unit consisting of (a) 18,750 shares of common stock and (b) 18,750
        common stock purchase warrants. Each warrant is exercisable to purchase one
        share of common stock at an exercise price of $1.75 per share, exercisable
        for
        three years from date of issuance.
 
 On
        April
        5, 2005, the Company executed a warrant agreement with a consultant as
        consideration for services. The warrant agreement provided for the issuance
        of
        warrants to purchase up to 200,000 shares of the Company’s common stock at an
        exercise price of $1.73 per share. The warrant was exercisable as to 66,666
        shares upon execution of the agreement and the warrants to purchase the
        remaining 133,334 shares were to be exercisable upon the following vesting
        schedule; an additional 66,666 shares vest on August 5, 2005 and the final
        66,668 shares vest on December 5, 2005. Shares issuable upon exercise of
        the
        warrant will be subject to customary demand and piggyback registration rights.
        Expense was recognized over the vesting period. For the year ended December
        31,
        2005, the Company recorded consulting expense of $311,028, based on the
        estimated fair value of the vested warrants using the Black-Scholes pricing
        model, with an offsetting adjustment to additional paid in capital. As of
        December 31, 2005, none of the warrants have been exercised.




F20


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





NOTE
      12 - SEGMENT INFORMATION




The
        Company operates in the following three business segments: marketing of online
        travel stores including the development of a sales network; sales of travel
        through online travel stores; developing and commercializing internet-baased
        technology programs used in supporting online travel stores. The Company’s
        business segments operate primarily in the United States, but are structured
        for
        potential international growth.
 
 Summarized
        financial information concerning the Company’s reportable segments is shown in
        the following tables. The “parent” column includes corporate items not
        specifically allocated to the segments.
  Year
                  Ended
                December
                  31, 2005 (RESTATED)
              
              Marketing
              
              Travel
              
              Technology
              
              Parent
              
              Elimination
              
              TotalExternal
                  and inter-segment
                  revenue
              
              $
              16,244,918
              
              $
              5,157,763
              
              $
              237,741
              
              
              -
              
              $
              (47,105
              )
              $
              21,593,317Segment
                  profit (loss)
              
              
              (3,676,254
              )
              
              800,964
              
              
              73,139
              
              
              (5,650,636
              )
              
              -
              
              
              (8,452,787
              )Assets
              
              
              5,992,397
              
              
              1,703,476
              
              
              165,413
              
              
              4,845,102
              
              
              1,131,479
              
              
              13,837,867Depreciation
                  and amortization
              
              
              100,024
              
              
              -
              
              
              103,815
              
              
              740,780
              
              
              -
              
              
              944,619Capital
                  Expenditures
              
              
              502,784
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              502,784
 
 
 Year
                  Ended
                December
                  31, 2004
              
              Marketing
              
              Travel
              
              Technology
              
              Parent
              
              Elimination
              
              TotalExternal
                  and inter-segment
                  revenue
              
              $
              501,214
              
              $
              2,265,271
              
              $
              426,207
              
              $
              -
              
              $
              -
              
              $
              3,192,692Segment
                  profit (loss)
              
              
              (245,667
              )
              
              (1,459,286
              )
              
              (488,396
              )
              
              -
              
              
              -
              
              
              (2,193,349
              )Assets
              
              
              2,416,019
              
              
              566,828
              
              
              357,272
              
              
              5,487,122
              
              
              (693,281
              )
              
              8,133,960Depreciation
                  and amortization
              
              
              3,036
              
              
              -
              
              
              471,950
              
              
              -
              
              
              -
              
              
              474,986Capital
                  Expenditures
              
              
              11,671
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              11,671




F21


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements




NOTE
      13 - BENEFIT PLANS




The
      Company maintains a 401(k) benefit plan for its employees, which generally
      allows participants to make contributions via salary deductions up to allowable
      Internal Revenue Service limits on a tax-deferred basis. Such deductions are
      matched in part by discretionary contributions by the Company. Matching
      contributions by the Company were $101,861 in 2005 and zero in
      2004.




NOTE
      14 - SUBSEQUENT EVENTS




On
      January 19, 2006, the Company announced that it had initiated an internal
      investigation as to certain matters related to its former accounting firm,
      Dischino & Associates, P.C., including its probable lack of independence in
      previously reported financial statements and the possible improper recognition
      of approximately $30,000 in revenue for the period ended June 30, 2005. The
      Company retained the legal firm of Greenberg Traurig, LLP to perform the
      investigation.





The
      Company executed an employment agreement on January 30, 2006 with its new Chief
      Financial Officer effective December 1, 2005. The term of the Agreement is
      through December 31, 2009, followed by a three-year renewal period.





On
      February 7, 2006, the Company reported that it was in the process of having
      its
      financial statements for the years ended December 31, 2004 and 2003 as
      previously-filed with the SEC on Form 10-KSB/A, re-audited by UHY LLP, the
      Company's new independently registered public accounting firm.





On
      June
      1, 2006, the Company announced its common stock had been removed from trading
      on
      the OTC Bulletin Board as a result of its annual report on Form 10-KSB for
      the
      year ended December 31, 2005 having not yet been filed with the
      SEC.





On
      July
      26, 2006, the Company purchased 12 acres of land which included a 100,000 square
      foot building (the “Property”) for $2.5 million to house their new corporate
      headquarters in Wood River, Illinois. The Company financed the purchase of
      the
      Property with a note in the amount of $2.5 million with an interest rate of
      Prime, less 0.50% floating daily from Meridian Bank, a local bank. Interest
      only
      is payable monthly for the first two years of the note. The Note is
      collateralized by the first mortgage on the Property and a $500,000 Certificate
      of Deposit. The Certificate of Deposit will be released after the Company makes
      $625,000 of improvements to the Property. The Company has begun a $6.0 million
      renovation project to the Property.




On
        November 20, 2006, the Company entered into a
        Settlement Agreement with Laurus Master Fund, Ltd., (Laurus), whereby the
        Company agreed to issue an additional 200,000 shares of YTBI stock to Laurus
        as
        settlement for liquidated damages for the Company's inability to timely file
        a
        Registration Statement as stipulated in the original documents between Laurus
        and YTBI. In addition, all of the original document provisions are terminated,
        excluding the January Warrant and the October Warrant. These warrants have
        not
        been exercised and the value of these warrants have been recognized in the
        accompanying financial statements.




Effective
      November 22, 2006, an agreement has been reached between Michael Brent, Kim
      Sorensen and Scott Tomer for each of them to share a one-third interest in
      YTB
      Rep position #2. Previously, Mr. Brent had a one-sixth share in YTB Rep position
      #1. This agreement was reached to document the verbal agreement between the
      three parties whereby each would receive the same compensation. The Board of
      Directors had instructed the parties to come to a resolution of this issue
      and
      come back with a settlement. Formal approval of the change in employment
      contracts will occur at the next regular Board meeting.


Effective
        November 22, 2006, Michael Y. Brent, Derek J. Brent and Darren J. Brent resigned
        as members of the Company’s Board of Directors.




F22


NOTE
          15 - RESTATEMENT OF FINANCIAL STATEMENTS
  At its
          February 19, 2007 meeting of the Board of Directors (the “ Board ”)
          of YTB
          International, Inc. (the “ Company ”),
          the
          Board determined that it was necessary to restate and refile its previously
          filed Form 10-KSB and financial statements for the year ended December
          31, 2005.
          The Board made this determination after ratifying a previously undisclosed
          issuance of warrants to purchase 200,000 shares of the Company’s common stock at
          $1.73 per share. The warrants were issued to an advisor of the Company
          in April
          2005, but had not previously been approved by the Board (see Note 11, “Capital
          Stock”) nor
          accounted for in the original 2005 Financial Statements.
 
 As
          a
          result, the Company restated its financial statements included in its Form
          10-KSB for the year ended December 31, 2005, filed on November 22, 2006.
In
          conjuction with the restatement, certain other issues, as described below,
          came
          to the Company’s attention and have been changed in the revised financial
          statements.
  **Effects
          of the Restatement**
 The
            Company has restated its Financial Statements to reflect additional expense
            of
            $311,028, or ($0.01) per share, related to the value of the warrants
            discussed
            above and to update the related disclosure. In addition, certain items
            in the
            Consolidated Statement of Cash Flows for the year ended December 31,
            2005 have
            been reclassified to properly reflect non-cash items as well as to report
            the
            gross activity, rather than net activity, related to the conversion of
            debt to
            common stock that occurred in the fourth quarter of 2005. Certain
            reclassifications were also made in the Consolidated Statement of Changes
            in
            Stockholders’ Equity for the year ended December 31, 2005 to provide additional
            detail regarding the value of warrants issued in conjunction with the
            convertible debt, as well as a reclassification on the Consolidated Statement
            of
            Operations between the “Change in the fair market value of derivatives” and
“Interest expense”.
  The
            restatement also impacted or made changes to the following financial
            statement
            footnotes; 2, 6, 9, 10, 11, 12 and added this restatement
            footnote.
 
 Below
          is
          the effect on the Consolidated Balance Sheet as of December 31, 2005 and
          the
          Consolidated Statements of Operations and the Consolidated Statement of
          Cash
          Flows for the fiscal year ended December 31, 2005:
 
 **Consolidated
          Balance Sheet as of December 31, 2005**
  As
                  Originally
                  Reported
                
                Adjustment
                
                As
                  RestatedAdditional
                    paid-in capital
                
                $
                19,065,025
                
                $
                311,028
                
                $
                19,376,053Accumulated
                    deficit
                
                $
                (16,024,828
                )
                $
                (311,028
                )
                $
                (16,335,856
                )
 
 **Consolidated
          Statement of Operations for Fiscal Year ended December 31,
          2005**
 As
                  Originally
                  Reported
                
                Adjustment
                
                As
                  RestatedOPERATING
                    EXPENSESGeneral
                    and administrative
                
                $
                8,477,925
                
                $
                311,028
                
                $
                8,788,953Total
                    operating expenses
                
                $
                27,163,216
                
                $
                311,028
                
                $
                27,474,244LOSS
                    FROM OPERATIONS
                
                $
                (5,569,899
                )
                $
                (311,028
                )
                $
                (5,880,927
                )OTHER
                    INCOME (EXPENSES)
                
                $
                (2,571,860
                )
                $
                -
                
                $
                (2,571,860
                )NET
                    LOSS
                
                $
                (8,141,759
                )
                $
                (311,028
                )
                $
                (8,452,787
                )NET
                    LOSS PER SHARE:Net
                    loss per share - basic and diluted
                
                $
                (0.33
                )
                $
                (0.01
                )
                $
                (0.34
                )
  F23
  **Consolidated
          Statement of Cash Flows for Fiscal Year ended December 31,
          2005**
 As
                  Originally
                  Reported
                
                Adjustment
                
                As
                  RestatedCASH
                    FLOWS FROM OPERATINGACTIVITIES:Net
                    loss
                
                $
                (8,141,759
                )
                $
                (311,028
                )
                $
                (8,452,787
                )$
                2,757,513
                
                $
                81,879
                
                $
                2,839,392Convertible
                    debt exchange for commonstock
                
                $
                2,098,300
                
                $
                (2,098,300
                )
                $
                -Note
                    payable
                
                $
                19,713
                
                $
                (19,713
                )
                $
                -Amortization
                    of deferred offering costs
                
                $
                -
                
                $
                174,020
                
                $
                174,020Shares
                    issued for services
                
                $
                338,025
                
                $
                14,963
                
                $
                352,988Warrants
                    issued for services
                
                $
                -
                
                $
                311,028
                
                $
                311,028Shares
                    issued for option exercises
                
                $
                50,000
                
                $
                (50,000
                )
                $
                -Change
                    in fair value of derivatives
                
                $
                -
                
                $
                (312,143
                )
                $
                (312,143
                )Amortization
                    of debtdiscount
                    on convertible debt
                
                $
                -
                
                $
                2,369,480
                
                $
                2,369,480Other
                    assets
                
                $
                80,521
                
                
                (81,879
                )
                $
                (1,358
                )Deferred
                    revenue
                
                $
                2,757,513
                
                $
                81,879
                
                $NET
                    CASH PROVIDED BYOPERATING
                    ACTIVITIES
                
                $
                29,415
                
                $
                78,307
                
                $
                107,722CASH
                    FLOWS FROM INVESTINGACTIVITIES:Purchases
                    of property and equipment
                
                $
                (502,784
                )
                $
                73,139
                
                $
                (429,645
                )NET
                    CASH USED IN INVESTINGACTIVITES
                
                $
                (3,662,830
                )
                $
                73,139
                
                $
                (3,589,691
                )CASH
                    FLOWS FROM FINANCINGACTIVITIES:Repayment
                    of notes payable
                
                $
                -
                
                $
                (53,426
                )
                $
                (53,426
                )Cash
                    paid for debt issuance costs
                
                $
                -
                
                $
                (148,020
                )
                $
                (148,020
                )Shares
                    issued for options exercises
                
                $
                -
                
                $
                50,000
                
                $
                50,000NET
                    CASH PROVIDED BYFINANCING
                    ACTIVITIES
                
                $
                3,838,054
                
                $
                (151,446
                )
                $
                3,686,608SUPPLEMENTAL
                    NON-CASHINVESTING
                    AND FINANCING
                  ACTIVITIES:Derivative
                    value of convertible debtexchanged
                    for common stock
                
                $
                2,098,300
                
                $
                (2,098,300
                )
                $
                -Increase
                    in notes payable and propertyand
                    equipment
                
                $
                -
                
                $
                73,139
                
                $
                73,139Warrants
                    issued for debt offering costs
                
                $
                -
                
                $
                26,000
                
                $
                26,000Decrease
                    in notes receivable anddeferred
                    revenue
                
                $
                -
                
                $
                81,879
                
                $
                81,879Convertible
                    debt exchanged forcommon
                    stock
                
                $
                -
                
                $
                4,825,333
                
                $
                4,825,333
  F24