**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**Form 10-K** **SB**





x
            **ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**For
                the fiscal year ended December 31, 2007
              **or**o
            **TRANSITION
                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.**


(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 under Section 12(b) of the Exchange Act: None




Securities registered under Section
              12(g) of
              the Exchange Act:
            Class A Common Stock, par value $0.001
              per
              shareClass B Common Stock, par value $0.001
              per
              share





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 S No £




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.  S




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




State
      issuer’s revenues for its most recent fiscal year: $141,285,474




State
      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, or the average bid and asked price of such common equity, as of March
      28, 2008. $96,252,663




State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date: 53,868,060 shares of Class A Common
      Stock, par value $0.001 per share, and 48,761,971 shares of Class B Common
      Stock, par value $0.001 per share, outstanding as of March 28, 2008 (excludes
      4,911,299 shares of restricted Class A common stock and 9,822,598 shares of
      restricted Class B common stock that have been granted and are being held in
      escrow but have not yet vested and are therefore not treated as outstanding)
      .




DOCUMENTS
      INCORPORATED BY REFERENCE:




Document Incorporated by
              Reference
            Part of Report into Which
              IncorporatedProxy Statement for 2008 Annual
            Part IIIMeeting of Stockholders




Transitional
      Small Business Disclosure Format (check one) Yes £ No S .







Table
      of
      Contents


PART
                  IItem
                  1.
              Description
                  of Business
              2Item
                  2.
              Description
                  of Property
              5Item
                  3.
              Legal
                  Proceedings
              8Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              8PART
                  IIItem
                  5.
              Market
                  for Common Equity and Related Stockholder Matters
              9Item
                  6.
              Management's
                  Discussion and Analysis or Plan of Operation
              10Item
                  7.
              Financial
                  Statements
              21Item
                  8.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              21Item
                  8A(T).
              Controls
                  and Procedures
              22Item
                  8B.
              Other
                  Information
              23PART
                  IIIItem
                  9.
              Directors,
                  Executive Officers, Promoters, Control Persons and Corporate Governance;
                  Compliance With Section 16(a) of the Exchange Act
              24*Item
                  10.
              Executive
                  Compensation
              24*Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              24*Item
                  12.
              Certain
                  Relationships and Related Transactions, and Director
                  Independence
              24*Item
                  13.
              Exhibits
              24Item
                  14.
              Principal
                  Accountant Fees and Services
              26*  *
                Issuer's
                    Proxy Statement for its 2008 Annual Meeting of Stockholders is
                    incorporated herein by this
                    reference.





**PART
      I**




*On
      July 31, 2007 (the “* *Reclassification
      Date* *”),
      we filed an Amended and Restated Certificate of Incorporation which authorized
      the issuance of two classes of common stock - Class A Common Stock and Class
      B
      Common Stock - and increased the Company’s total authorized capital.
      Stockholders of record on the Reclassification Date received two shares of
      Class
      B Common Stock and one share of Class A Common Stock in exchange for each share
      of existing common stock held as of the Reclassification Date. All shares and
      per share amounts in this Annual Report on Form 10-KSB reflect this
      reclassification.*




**Item
      1.**  **Description
      of Business** **.**




YTB
      International, Inc., a Delaware corporation (the “ Company ”,
      “ YTB ”
or
      “ We ”)
      is a
      leader in the travel services business and has operated in the travel services
      industry for 26 years. We offer an interactive, real-time travel booking engine
      with access to deals with leading travel industry suppliers to our licensees
      and
      to small office and home office entrepreneurs and independent travel agencies.
      Our revenue stream is comprised primarily of proceeds from initial online travel
      store sales, monthly web hosting fees from our “Referring Travel Agents”
(“ RTAs ”)
      and
      commissions on the sale of travel products.




We
      believe that we are at the forefront of several growing trends: increased
      consumer spending in the travel industry, the boom in home-based businesses
      and
      the growing acceptance of conducting retail business on the Internet. With
      job
      security and an ability to spend time with family ever increasing concerns,
      the
      ability to own a home-based business is becoming an increasingly attractive
      option. As more people use the Internet to become better informed and to save
      time and money, we believe that online travel planning will continue to make
      tremendous inroads in the marketplace. In addition, the “baby boomer” generation
      is starting to retire, which may increase the demand for additional leisure
      travel. As a result, luxury cruise ship companies and resort builders are
      gearing up for a new wave of retirees, which we believe will add to the demand
      for travel-related products and services.




We
      conduct our business operations primarily through three distinct wholly-owned
      subsidiaries: (i) YourTravelBiz.com, Inc., which uses a referral marketing
      system to offer and sell online travel websites; (ii) YTB Travel Network, Inc.,
      together with its subsidiary YTB Travel Network of Illinois Inc., which licenses
      and services our RTAs; and (iii) REZconnect Technologies, Inc., which operates
      as a travel vendor relationship management company and offers franchises to
      brick and mortar travel agencies.




We
      operate our businesses under various trade names including, “YourTravelBiz.com,”
“YourTravelBizTM,” “YTB Travel and CruisesTM,” “Travel NetworkTM,” “YTB Travel
      NetworkTM,” “Global Travel NetworkTM,” “Travel Network Vacation CentralTM,” and
“YTB.comTM,” as well as web sites “Bookmytravel.comTM,” and “REZconnect.comTM.”




While
      previously concentrating on the establishment of our “brick and mortar”
franchise operations, our 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 our competitive position, we sought to
      bring an advanced technology to the travel and lodging industry by investing
      in
      software development and offering new online travel website
      opportunities. **** All
      travel arrangements from the online travel sites that we host are serviced
      by
      the divisions of the Company. As of December 31, 2007, there were 131,065 such
      online sites in operation.




We
      were
      originally incorporated in the State of New York in June 1982 as Travel Network,
      Ltd., doing business as Global Travel Network. Summary information regarding
      the
      development of our business is found below under the heading “Corporate
      History.”




Because
      we had been delinquent in 2005 and part of 2006 in filing our periodic reports
      under the Securities Exchange Act of 1934, as amended (the “ Exchange
      Act ”),
      our
      Class A Common Stock is quoted on the Pink Sheets under the symbol YTBLA.PK.
      As
      we are now current with our periodic reports under the Exchange Act; we
      intend to have our common stock quoted on the OTC-BB once again and to
      thereafter apply for listing on a national securities exchange, when
      appropriate, although no assurances can be given in this regard. In 2008, we
      submitted to a FINRA (Financial Industry Regulatory Authority) member firm
      the
      requisite paperwork to be filed with FINRA to seek to have our Class A Common
      Stock quoted on the OTC-BB.




2


**Current
      Operations**




Our
      three
      distinct, wholly-owned subsidiary divisions operate as follows:




***YourTravelBiz.com,
      Inc. (and its subsidiaries)***




YourTravelBiz.com,
      Inc. together with its domestic and international subsidiaries (collectively
      “ YTB
      Marketing ”)
      conducts business through recruitment, enrollment, training, and support of
      its
      sales force. There are currently approximately 303,100 independent contractors,
      known as “ Reps ”
(each,
      a “Rep”), who are responsible for enrolling RTAs, most of whom work from
      their homes. Reps are compensated via a marketing commission structure. A Rep
      might utilize a number of methods for attracting new RTAs, including the use
      of
      informational meetings and events, local advertising, and one-on-one meetings
      with individuals seeking a home-based business enterprise.





YTB
      Marketing was created to market travel booking websites to RTAs in a referral
      marketing program that incentivizes Reps to bring RTAs into the system. RTAs
      are
      also independent contractors and are provided with training materials and onsite
      training at various locations throughout the United States. YTB Marketing
      charges an initial sale price of $449.95 for the sale of an online
      travel store plus $49.95 per month for web-hosting fees, on a month-to-month
      basis, to RTAs, who own and operate online travel sites. RTAs can also earn
      additional transactional compensation from travel purchased from their
      respective websites.




***YTB
      Travel Network, Inc. (and its*** ***subsidiaries.)***




YTB
      Travel Network, Inc.’s (together with its domestic and international
      subsidiaries collectively “ YTB
      Travel ”)
      business is comprised of arrangements to sell airline tickets, cruise packages
      and other services, plus travel sales, from the approximately 131,065 RTAs’ web
      sites that it hosts. YTB Travel handles travel processing, document distribution
      and travel commission payments, including tracking transactions for each of
      the
      sites. RTAs are educated through our numerous travel training courses. This
      training is accomplished through a combination of company conference calls,
      e-training modules and hands-on certification seminars.




***REZconnect
      Technologies, Inc.***




REZconnect
      Technologies, Inc. (“ REZconnect ”)
      operates as a travel vendor relationship management company and offers
      franchises to brick and mortar travel agencies. All of REZconnect’s franchised
      operations are independently owned and operated. All sales of travel products
      by
      REZconnect are made through its independent agencies and franchisees, or through
      its interactive websites. REZconnect sells and services travel stores within
      the
      travel industry and operates RezCity.com, an online city guide and travel store.
      REZconnect  operates
      under the following brands: Travel NetworkTM, Global Travel NetworkTM and Travel
      Network/Vacation CentralTM.




**Competition
      and Customer Base**




The
      travel industry is highly diverse, specialized and one of the most competitive
      industries in the United States. Much of the travel business is niche oriented
      and is highly price sensitive. Many of our competitors are much more highly
      capitalized. One of the principal functions of our share exchange transaction
      and reincorporation in late 2004 (as described in “Corporate History” below) was
      to position the Company to be more competitive.





We
      have
      the characteristics of both an online travel provider and a “brick and mortar”
travel agency, because we offer travel-related products through traditional
      “brick and mortar” travel agencies and online sites. This unique positioning
      results in our having few direct competitors. Our competition can be classified
      into three separate types of companies: online travel providers; retail travel
      providers; and electronic distributors of travel information and services.
      Websites such as Travelocity.com, Priceline.com, **** Expedia.com
      and Orbitz.com are online retailers of travel, unlike YTB Travel which serves
      in
      a facilitator function only. In addition, the YTB Travel target markets serve
      as
      direct referrals for the Company’s RTAs. Travelocity, through its subsidiary
      World Choice Travel, a competitor, is now a revenue-generating preferred
      supplier for air ticketing, car rental and hotel on our travel
      sites.




Because
      of our direct marketing approach and our diverse customer base, we are not
      dependent on major customers for a significant portion of our revenues. There
      are currently other direct network marketing companies specializing in the
      online travel business similar to YTB Marketing. The Company’s franchise travel
      agency business is subject to competition.




3


**Regulatory
      Framework**




Our
      current and prospective operations within the travel services industry are
      not
      restricted to a material extent by any current or proposed governmental
      regulations, and governmental approval is not required for the conduct of our
      business (other than ordinary course travel licenses and similar approvals).
      Similarly, environmental laws do not materially limit or materially impact
      our
      operations, and compliance with environmental laws does not impose a material
      cost on our business. YTB Marketing, whose Reps sell the online travel websites
      of YTB Travel, is subject to the various state and federal laws and regulations
      governing the structure and conduct of network marketing companies.




**Corporate
      History**




We
      were
      originally incorporated as a New York corporation in June 1982 as Travel
      Network, Ltd., doing business as Global Travel Network. In February 1994, we
      re-incorporated in the State of New Jersey. In 1998, our assets were transferred
      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, Inc. upon completion of the share exchange. Following the merger
      with Playorena, Inc., the surviving entity’s name was changed to ETRAVNET.COM,
      Inc. and its common stock was quoted on the OTC-BB under the symbol “ETRV,” and,
      subsequently, under the symbol “ETVT.” In August 2001, ETRAVNET.COM, Inc.
      changed its name to REZconnect Technologies, Inc. and its common stock was
      thereafter quoted under the symbol “REZT.”




In
      December 2004, we acquired all of the issued and outstanding stock of
      YourTravelBiz.com, Inc., then a privately-held Illinois corporation, pursuant
      to
      a share exchange transaction. In this transaction 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 our 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 of our stock and consisted of 7,430,000 shares
      of our common stock and 4,092,376 shares of our Series B Convertible Preferred
      Stock (“ Series
      B Stock ”).
      The
      Series B Stock was created and issued because we did not have a sufficient
      number of authorized and un-issued shares of our common stock available for
      issuance to the YourTravelBiz.com, Inc. stockholders in the transaction. Each
      share of Series B Stock was converted into one share of our common stock 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, as amended (the “ Securities
      Act ”).




Effective
      January 4, 2005, we reincorporated in Delaware, changed our name to YTB
      International, Inc., and increased the number of authorized shares of our common
      stock to 50,000,000. A principal result of the share exchange transaction was
      the creation of our current multiple subsidiary operating structure. As a
      further result of the share exchange transaction, our trading symbol on the
      OTC-BB was changed to “YTBL.OB.” When our common stock was removed from
      quotation on the OTC-BB and began to be quoted on the Pink Sheets in 2006 (as
      described in Item 5 below), our trading symbol became “YTBL.PK.”




On
      July
      31, 2007 (the “ Reclassification
      Date ”),
      we
      filed our Amended and Restated Certificate of Incorporation, previously approved
      by our stockholders at our 2007 annual meeting of stockholders on June 11,
      2007,
      which authorized the issuance of two classes of common stock - Class A Common
      Stock (300,000,000 shares authorized) and Class B Common Stock (100,000,000
      shares authorized) - and an increase in our total authorized capital. This
      amendment and restatement enabled a reclassification of the Company’s
      then-existing common stock, par value $0.001 per share (“ Old
      Common Stock ”)
      into
      Class B Common Stock and an accompanying stock dividend (collectively, the
      reclassification and the stock dividend, the “ Reclassification ”)
      pursuant to which stockholders of record received one share of Class A Common
      Stock and two shares of Class B Common Stock for each share of Old Common Stock
      held as of the Reclassification Date.




On
      August
      1, 2007, immediately following the effectiveness of the Reclassification, we
      announced that the new ticker symbol for our new Class A Common Stock was YTBLA.
      There is no symbol for our Class B Common Stock, as that security must be
      converted into Class A Common Stock (on a one share for one share basis) in
      order to be traded.




4


**Employees**




As
      of
      December 31, 2007, we had a total of 315 full-time employees (which excludes
      Reps and RTAs, who are independent contractors and not employees). Our employees
      are not represented by any collective bargaining agreement and we have never
      experienced a work stoppage. We believe that we enjoy good relations with our
      employees.




**Recent
      Milestones and Achievements**




During
      2007, we were named the 35 th largest
      travel agency in the United States by Travel Weekly for the year ended
      2006. Reflecting
      on our growing prominence in the travel industry, in 2007, YTB Travel’s Chief
      Executive Officer, Kim Sorensen, was named among The 33 Most Influential People
      in the Travel Industry. During fiscal 2007, the aggregate value of the retail
      travel services that have been booked by our RTAs and independent franchisees
      surpassed $400,000,000. Only the commissions paid by travel suppliers are
      included in our financial results.




In
      September 2007, we were admitted as a member company of the Direct Selling
      Association (the “ DSA ”),
      a
      national trade association of leading firms that manufacture and distribute
      goods and services sold directly to consumers. We thereby joined the ranks
      of
      DSA’s more than 220 active and pending member companies in the United States.
      Our membership in DSA requires us to maintain certain levels of ethical conduct
      and service in our marketing and direct sales activities, in conformity with
      DSA’s Code of Ethics and DSA’s stated mission—“to protect, serve and promote the
      effectiveness of member companies and the independent business people they
      represent” and “to ensure that the marketing by member companies of products
      and/or the direct sales opportunity is conducted with the highest level of
      business ethics and service to consumers.”




**Item
      2.**  **Description
      of Property** **.**




The
      following table sets forth certain information concerning our principal
      facilities:





**PROPERTY
                LOCATION**
            
            **APPROXIMATE
                AREA IN SQUARE FEET**
            
            **PRIMARY
                USES OF PROPERTY**
            
            **OWNERSHIP**
              **OR
                LEASE**1901
                East Edwardsville Road, Wood River, Illinois
            
            120,000
            
            Corporate
                headquarters
            
            Owned
                (1)560
                Sylvan Avenue, Englewood Cliffs, New Jersey
            
            2,000
            
            REZconnet
                Technologies, Inc. (subsidiary) headquarters
            
            Leased
                (2)One
                Country Club View Drive, Edwardsville, Illinois
            
            13,000
            
            Administration
            
            Owned
                (3)600
                Country Club View Drive, 2nd Floor, Edwardsville, Illinois
            
            5,000
            
            Administration
            
            Leased
                (4)#112
                Magnolia Drive, Lot #9 Magnolia Commons, Glen Carbon,
                Illinois
            
            5,500
            
            Administration
            
            Leased
                (5)


(1)
                  Subject to mortgage in original principal amount of $2,500,000,
                  which
                  bears interest at a floating rate equal to the prime rate, less
                  0.50%.
                  Currently, $1,995,989 of principal remains outstanding under such
                  mortgage.(2)
                  Lease term expires in April 2008.(3)
                  Previously leased. We purchased this property from our then-landlord
                  in
                  2007 upon exercise of a $1,850,000 cash purchase option in our
                  lease
                  agreement.(4)
                  Lease term expires on October 31, 2010. We have exercised our $2,350,000
                  cash purchase option under our lease agreement and have entered
                  into a
                  contract for the acquisition of this property in the near
                  future.(5)
                  Lease term expires on August 15,
                  2009.





5


**Owned
      Real Property**




*Headquarters
      Office* .
      Our
      headquarters office is located at 1901 East Edwardsville Road, Wood River,
      Illinois 62095. We acquired the 12 acres of land on which our headquarters
      office is located, including the 100,000 square foot building that houses our
      headquarters office (collectively, the “ Headquarters
      Property ”)
      for
      $2.5 million on July 26, 2006. In December 2006, we acquired 1.08 acres of
      land
      that included a 20,000 square foot building contiguous to the current facility
      for cash consideration of $508,693 as part of the future facility plan for
      our
      corporate headquarters that we embarked upon back in July 2006. We financed
      the
      purchase of the Headquarters Property by borrowing $2.5 million from Meridian
      Bank, a local bank controlled by two of our directors. The loan is evidenced
      by
      a note of like principal amount that we issued to Meridian Bank (the
“ Note ”),
      which
      bears interest at a floating rate equal to the prime rate, less 0.50%,
      determined on a daily basis. Interest only is payable monthly for the first
      two
      years of the Note after which the entire principal will be paid or the Note
      will
      be refinanced. Although the scheduled balloon principal payment is due July
      26,
      2008, the Note is payable upon demand per the terms of the agreement. However,
      no demand has been made to date. The Note is collateralized by a mortgage on the
      Headquarters Property and was collateralized by a $500,000 certificate of
      deposit. On January 8, 2008, the certificate of deposit was used for repayment
      of principal under the Note such that the outstanding principal amount of the
      Note has been reduced to $1,995,989 as of March 15, 2008. Through the use of
      working capital funds, we have completed a $2.5 million renovation of 20,000
      square feet of the building for our current operations. Besides the $2.5 million
      of renovations already carried out, we are planning an additional $12.0-$15.0
      million renovation project for the Headquarters Property, which we plan to
      finance via general working capital funds and outside financing.





The
      chairman and principal shareholder of Meridian Bank, Timothy Kaiser, M.D.,
      is
      also one of our directors. Another of our directors, Clay Winfield, is also
      a
      principal shareholder and director of Meridian Bank. The loan transaction with
      Meridian Bank was approved by the independent members of our Board of Directors.
      See Item 12. “Certain Relationships and Related Transactions, and Director
      Independence” and the information incorporated by reference
      therein.





*Properties
      for Future Expansion.* We also
      own additional real properties that may be used for future expansion generally
      or for the expansion of our headquarters office facility in
      particular.





On
      August
      23, 2007, we acquired two parcels of land located at or about 2201 Old Alton
      Edwardsville Road, East Alton, Illinois 62024 from an unaffiliated third party
      (the “ Seller ”).
      The
      first parcel (“ Parcel
      No. 1 ”)
      consists of approximately 9.9 acres of land and was acquired for a purchase
      price of $792,000, which we paid in cash to the Seller at the closing therefor.
      The second parcel (“ Parcel
      No. 2 ”),
      consisting of approximately 12.55 acres of land, is separated from Parcel No.
      1
      by Old Alton Edwardsville Road, and was acquired for a purchase price of $20,000
      per acre, or approximately $251,000 in the aggregate, which we also paid in
      cash
      to the Seller at the closing therefor. We anticipate using the land parcels
      for
      future expansion, but have no definitive plans with respect to the use of either
      Parcel No. 1 or Parcel No. 2 at the current time. The acquisition of the parcels
      was financed with general working capital.





In
      September 2007, we acquired approximately twenty (20) acres of real property
      for
      the future purpose of expanding our headquarters office facility. The unimproved
      property, which is located adjacent to our Headquarters Property, was acquired
      from four (4) individuals and two (2) trusts. We paid a purchase price is equal
      to $80,000 per acre of land, totaling $1,600,000, which was financed with
      general working capital.




*Administrative
      Facility.* Another
      one of our owned real properties, which serves as a facility for our
      administration, was acquired as a result of our exercise, on July 27, 2007,
      of
      our purchase option (the “ Building
      One Purchase Option ”)
      under
      that certain Commercial Lease Agreement (the “ Building
      One Lease ”),
      dated
      December 22, 2004, by and between Meridian Land Company, Inc. (“ Meridian
      Land ”),
      as
      lessor, and the Company, as lessee, covering the approximately 13,000 square
      foot premises located at One Country Club View, Edwardsville, Illinois 62025
      (the “ Building
      One Leased Premises ”).
      As a
      result of our exercise of the Building One Purchase Option, we entered into
      a
      contract with Meridian Land (the “ Building
      One Purchase Contract ”)
      and
      purchased the real property on which the Building One Leased Premises are
      located (the “ Building
      One Property ”)
      pursuant thereto. At the time that we exercised the Building One Purchase
      Option, we had been leasing the Building One Leased Premises from Meridian
      Land
      for a five year term under the Building One Lease, which was to expire on June
      30, 2010.




6


Consistent
      with the terms of the Building One Purchase Option, under the Building One
      Purchase Contract, the purchase price for the Building One Property was set
      at
      $1,850,000, of which $480,500 was paid by us in cash as of the signing of the
      Building One Purchase Contract and the remaining $1,369,500 of which constituted
      obligations of Meridian Land which we paid and/or assumed at the closing,
      consisting of (i) $1,305,525 principal amount of aggregate indebtedness owed
      by
      Meridian Land to a local bank, (ii) $57,791 of accrued property taxes owed
      by
      Meridian Land for the Building One Property for 2006 and for a pro-rata portion
      of 2007, and (iii) $6,184 of assorted closing costs of Meridian Land. The
      indebtedness to the local bank that we assumed at the closing was secured by
      a
      mortgage on the Building One Property. Closing under the Building One Purchase
      Contract occurred on August 14, 2007. We subsequently repaid and retired the
      outstanding indebtedness on the Building One Property.





Meridian
      Land is controlled by Timothy Kaiser, M.D. and Clay Winfield, each of whom
      is a
      member of our Board of Directors. As with the original Building One Lease
      transaction, our acquisition of the Building One Property was approved by the
      independent members of our Board of Directors. See
      Item
      12. Certain Relationships and Related Transactions, and Director Independence
      and the information incorporated by reference therein.





**Leased
      Real Property**




*Additional
      Administrative Facility.* In
      addition to our owned real property, we lease approximately 5,000 square feet
      of
      office space (which served as part of our previous headquarters office) at
      the
      real property location at 600 Country Club View, Edwardsville, Illinois 62025
      (the “ Building
      Two Property ”)
      under
      a commercial lease agreement (the “ Building
      Two Lease ”),
      dated
      August 4, 2005, by and between Meridian Land, as lessor, and the Company, as
      lessee, which is to expire on October 31, 2010. In January 2008, we exercised
      our purchase option under the Building Two Lease to acquire the Building Two
      Property for $2,350,000 in cash and we have subsequently entered into a purchase
      contract with Meridian Land pursuant thereto. We have paid $500,000 out of
      the
      $2,350,000 purchase price as a deposit as of the execution of the purchase
      contract, and the remaining $1,850,000 is due at the closing of the acquisition
      of the Building Two Property, which is scheduled to occur in, or prior to,
      May
      2008.





*Magnolia
      Leased Premises.* On
      August 17, 2007, we entered into a Commercial Lease Agreement (the “ Magnolia
      Lease ”),
      by
      and between Meridian Land, as lessor, and the Company, as lessee, covering
      the
      approximately 5,500 square feet premises located at #112 Magnolia Drive (Lot
      #9
      Magnolia Commons), Glen Carbon, Illinois 62034 (the “ Magnolia
      Leased Premises ”).
      We
      intend to utilize the Magnolia Leased Premises as additional office
      space.





The
      Magnolia Lease runs for an initial term of eighteen (18) months, originally
      commencing on November 1, 2007 and expiring on April 30, 2009. Rent under the
      Magnolia Lease has been set at $8,400 per month. Due to construction delays
      the
      original lease commencement date was changed to February 15, 2008, while the
      expiration date was moved to August 15, 2009. In addition to monthly rental
      payments, we will be responsible for utilities and maintenance and must pay
      all
      real estate taxes assessed on the property on which the Magnolia Leased Premises
      are located during the term of the Magnolia Lease, as well as all costs of
      maintaining any common areas used by us in conjunction with the Magnolia Leased
      Premises.





The
      consent of Meridian Land is required for us to assign the Magnolia Lease or
      sublet the Magnolia Leased Premises, such consent not to be unreasonably
      withheld or delayed. Any assignment or subletting by us will not relieve us
      from
      any of our duties or obligations under the Magnolia Lease.





Meridian
      Land is controlled by Timothy Kaiser, M.D. and Clay Winfield, each of whom
      is a
      member of our Board of Directors. Our entry into the Building Two Lease, our
      exercise of our cash purchase option and entry into a purchase contract with
      respect to the Building Two Property, and our entry into the Magnolia Lease,
      were each approved by the independent members of our Board of Directors. See
      Item 12. (Certain Relationships and Related Transactions and Director
      Independence) and the information incorporated by reference
      therein.




*Facility
      for* *REZconnect* *Subsidiary.* Besides
      our previous headquarters offices, we also lease office space at 560
      Sylvan Avenue ,
      Englewood Cliffs, New Jersey 07632, principally for the operations of our
      REZconnect subsidiary. Our New Jersey offices consist of approximately 2,000
      square feet of leased space. The current monthly rent under our New Jersey
      lease
      is $4,083, and such lease expires in April 2008. We intend to renew this lease.
      No extension has been entered into as of the filing of this report.




7


**Adequacy
      of Property**




All
      of
      our owned and leased real properties are in good working condition, and we
      believe that they are adequate to meet our current operational needs. In
      addition, we believe that all such properties are adequately covered by
      insurance.




We
      began
      planning a $12.0-$15.0 million project for the renovation of our current
      headquarters office in late 2007. Please see the description below in Item
      6
      (Management’s Discussion and Analysis or Plan of Operation), sub-heading
“Liquidity and Capital Resources”, for further discussion of this renovation
      project and the expenditures that will be incurred in connection
      therewith.




**Real
      Estate Investment Policies**




We
      do not
      have any policies in place with respect to investments in (i) real estate or
      interests in real estate, (ii) real estate mortgages or (iii) securities of
      or
      interests in persons primarily engaged in real estate activities. The real
      estate that we own and lease have been acquired and are leased, as appropriate,
      to support our operations and for long-term investment purposes.




**Item
      3. Legal Proceedings.**




None.




**Item
      4. Submission of Matters to a Vote of Security Holders.**




None.




8


**PART
      II**




**Item
      5. Market for Common Equity and Related Stockholder
      Matters.**




**Market
      Information.**





For
      a
      history of our trading symbols and the principal markets on which our common
      stock has been traded in the past, see the description above in Item 1.
      Description of Business, sub-heading “Corporate History.”





Upon
      the
      consummation of our acquisition of YourTravleBiz.com, Inc. and our
      reincorporation in Delaware as YTB International, Inc. in January 2005, our
      common stock began to be quoted on the OTC-BB under the symbol “YTBL.OB.” On May
      24, 2006, our common stock was suspended from quotation on the OTC-BB as a
      result of our not having filed our Annual Report on Form 10-KSB for the year
      ended December 31, 2005 in a timely manner with the United States Securities
      and
      Exchange Commission (the “ SEC ”).
      These
      delinquencies have been cured and since May 2006, our common equity has been
      quoted on the Pink Sheets, initially via the quotation of our common stock
      under
      the symbol “YTBL.PK,” and subsequent to the Reclassification (as described above
      in Item 1. Description of Business, sub-heading “Corporate History”), via the
      quotation of our Class A Common Stock under the symbol “YTBLA.PK.” Because we
      have become current with our periodic reports under the Exchange Act, we intend
      to have our Class A Common Stock quoted on the OTC-BB once again and to
      thereafter apply for its listing on a national
      securities exchange, although no assurances can be given in this regard.
      Towards such end, on March 3, 2008, the requisite paperwork for the quotation
      of
      our Class A Common Stock on the OTC-BB was submitted to a FINRA member firm
      for filing with FINRA.





As
      noted
      above, there is no symbol and no trading market for our Class B Common Stock,
      as
      that security must be converted into Class A Common Stock (on a one share for
      one share basis) in order to be traded.





**Common
      Stock Prices**




The
      following table sets forth the high and low bid prices per share of our Class
      A
      Common Stock, for the periods indicated. All prices relating to periods prior
      to
      the July 31, 2007 Reclassification Date give retroactive effect to the 3 for
      1
      stock split that resulted from the Reclassification.


High
              
              LowFiscal
                  year ended December 31, 2007First
                  quarter
              
              $
              5.62
              
              $
              1.03Second
                  quarter
              
              
              1.87
              
              
              1.32Third
                  quarter
              
              
              2.83
              
              
              1.87Fourth
                  quarter
              
              
              2.00
              
              
              0.96Fiscal
                  year ended December 31, 2006First
                  quarter
              
              $
              1.37
              
              $
              1.06Second
                  quarter
              
              
              1.55
              
              
              1.11Third
                  quarter
              
              
              2.95
              
              
              1.21Fourth
                  quarter
              
              
              3.28
              
              
              1.85





At
      March
      28, 2008, the closing price per share of our Class A Common Stock, as reported
      by the Pink Sheets was $1.64.




**Shareholders**




As
      of
      December 31, 2007, we had 366 shareholders of record of our Class A Common
      Stock
      and Class B Common Stock.




**Dividend
      Policy**




We
      have
      neither declared nor paid a cash dividend on any class of our common stock
      since
      we became a publicly traded company. At this time, it remains the policy of
      our
      Board of Directors to retain all available funds to finance the development
      and
      growth of our business. The payment of cash dividends in the future will be
      dependent upon our earnings and financial requirements.




9




**Recent
      Sales of Unregistered Securities**




We
      have
      not engaged in the sale of any equity securities that have not been registered
      under the Securities Act during the fiscal year covered by this Annual Report
      that has not been previously reported by us.




**Item
      6. Management’s Discussion and Analysis or Plan of
      Operation** **.**




**Overview**




We
      are a
      leading provider of Internet-based travel related services and operate primarily
      through three of our subsidiaries: YourTravelBiz.com, Inc., YTB Travel Network,
      Inc. and REZconnect Technologies, Inc. YourTravelBiz.com, Inc. (“ YTB
      Marketing ”)
      establishes online travel websites and compensates its Reps via a multilevel
      marketing commission structure. YTB Travel Network, Inc. (“ YTB
      Travel ”)
      contracts with the online travel businesses, provides online booking systems,
      fulfills travel orders and pays travel commissions. REZconnect Technologies,
      Inc. (“ REZconnect ”)
      operates as a travel vendor relationship management company and offers
      franchises to brick and mortar travel agencies. All of REZconnect’s franchised
      operations are independently owned and operated. All sales of travel products
      by
      REZconnect are made through its independent agencies and franchisees, or through
      its interactive websites.





We
      offer
      our customers a reliable source of travel products and services through our
      relationships with selected travel providers, including major airlines, cruise
      lines, hotels and car rental agencies, as well as wholesale travel providers.
      We
      offer our customers the ability to make reservations on over 400 airlines,
      at
      more than 75,000 hotels and with most major car rental companies, cruise lines
      and tour package operators.




Our
      multi-segment operating model provides us with a competitive advantage because
      few travel related companies have expertise in both travel and marketing. We
      have been able to obtain more favorable pricing terms with our vendors as a
      result of economies of scale. In addition, more favorable commission rates
      are
      able to be realized based on the larger volume.




We
      also
      benefit from the synergies among our operating segments. YTB Marketing markets
      and establishes online travel websites on behalf of YTB Travel. YTB Marketing
      has a unique business model and strategy of creating a network of commissioned
      Reps who exclusively market the online travel websites of YTB Travel. A
      purchaser of an online travel website from YTB Travel is known as a Referring
      Travel Agent (“ RTA ”).
      Each
      RTA pays $449.95 for the purchase of an online travel store, plus the first
      month’s RTA web hosting fee of $49.95. The monthly fee continues for as long as
      the RTA operates his/her online travel store. YTB Travel retains a percentage
      of
      the travel commissions generated by the RTAs. While Travelocity, Priceline.com,
      Expedia and Orbitz focus their promotion efforts on the customer, typically
      spending over 25% of their revenue on advertising, we spend less than 1% of
      our
      net revenues on advertising.




YTB
      Marketing’s sales of online travel websites on behalf of YTB Travel are not
      subject to the seasonality of the travel business, nor should a decline in
      travel significantly impact YTB Marketing, since the $49.95 monthly fee is
      a
      primary source of YTB Marketing’s revenue. Also, typical online travel merchants
      sell a commodity (travel), which does not engender strong customer loyalty.
      By
      contrast, each RTA develops personal relationships with his or her customers,
      who book travel through the RTA’s own online travel store, thereby creating a
      significant advantage for YTB compared to the major online travel companies.
      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 31 booking engines, including World Choice Travel (a subsidiary of
      Travelocity), Hotels.com, Apple Vacations, Collette Vacations,
      Ourvacationstore.com and more.




As
      of
      December 31, 2007, there are 131,065 RTA travel store websites in operation
      and
      numerous registered travel agents, which include franchisees and independent
      travel agents, using the Vacation Central travel portal site. Site owners are
      also permitted to solicit organizations and associations for travel sites.




10


YTB
      Travel is our travel management subsidiary that processes travel sales from
      online business models and processes and handles bookings (reservations) from
      approximately 131,065 websites, 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 Travel provides. RTA sites are
      available for use 24 hours, 7 days a week.




REZconnect
      generates revenue through registered travel agents and 45 active franchised
      travel agencies. REZconnect offers consumer driven websites which provide strong
      content and travel booking ability with 55 booking engines incorporated into
      one
      site, covering virtually all aspects of the travel industry.




Our
      revenues derive primarily from online travel store sales, monthly RTA web
      hosting fees and commissions paid by travel providers. In addition, certain
      travel suppliers pay performance-based compensation known as “override
      commissions” or “overrides.”


·
            Commission
                revenues, net of allowances for cancellations, are recognized based
                on the
                expected date of travel.


·
            Overrides
                are recognized on an accrual basis based on prior year's experience
                adjusted for current year volumes.


·
            Franchise
                fees are recognized when all material services and conditions required
                have been performed and the ability to collect 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 an accrual basis as
                earned.


·
            Revenue
                from online travel store sales is deferred and recognized ratably
                as
                revenue over a 12-month period, which represents the average lifespan
                during which an RTA remains an RTA with the
                Company.




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,
      10% to 18% for cruises and vacation packages and a nominal service fee for
      airline tickets. During the past several years, leisure vendors (including
      tour
      operators, cruise lines, 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. YTB Travel expects
      that
      its commissions from 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 web hosting fee of $49.95 to us, and can earn
      transactional compensation from travel purchased from his or her 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 our business, operating
      results and financial condition.




In
      order
      to expand our potential revenue base internationally, in early 2008 we expanded
      our services into Canada, the Bahamas, and Bermuda. YTB Bahamas commenced
      operations on January 11, 2008, and YTB Canada and YTB Bermuda commenced
      operations on February 8, 2008. As a result of this international expansion,
      our
      RTAs living in these countries can now sell travel through websites that they
      acquire from us, and, similarly, our Reps who are located there can market
      online travel websites to others in the U.S., Puerto Rico, the Bahamas, Bermuda
      and Canada.




It
      should
      be noted that while only the commissions arising from our RTAs’ booking of
      travel services are reflected as a component of our revenues in our financial
      statements, we also keep track of the aggregate retail value of all travel
      services that are booked by our RTAs (which directly impacts our commission
      revenues). The value of such travel services increased 83.7% in 2007 to
      over $414,000,000, from approximately $225,000,000 in 2006.




11




**Results
      of Operations**




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


2007
              
              
              
              2006
              
              
              
              VarianceYear
                  Ended December 31,
              
              %
                  of Net Revenues 2007
              
              Year
                  Ended December 31,
              
              %
                  of Net Revenues 2006
              
              Increase
                  (Decrease)
              
              Inc.(Decr.)
                  %NET
                  REVENUESOnline
                  travel stores and
                monthly
                  fees
              
              $
              103,656,435
              
              
              73.4
              %
              $
              36,887,611
              
              
              72.4
              %
              $
              66,768,824
              
              
              181.0
              %Travel
                  commissions and
                services
              
              
              20,495,954
              
              
              14.5
              %
              
              7,364,413
              
              
              14.5
              %
              
              13,131,541
              
              
              178.3
              %Training
                  programs and
                marketing
                  materials
              
              
              14,014,632
              
              
              9.9
              %
              
              5,766,081
              
              
              11.3
              %
              
              8,248,551
              
              
              143.1
              %Other
              
              
              3,118,453
              
              
              2.2
              %
              
              878,625
              
              
              1.8
              %
              
              2,239,828
              
              
              254.9
              %Total
                  net revenues
              
              
              141,285,474
              
              
              100.0
              %
              
              50,896,730
              
              
              100.0
              %
              
              90,388,744
              
              
              177.6
              %OPERATING
                  EXPENSESMarketing
                  commissions
              
              
              80,550,029
              
              
              57.0
              %
              
              29,908,507
              
              
              58.8
              %
              
              50,641,522
              
              
              169.3
              %Travel
                  commissions
              
              
              13,426,540
              
              
              9.5
              %
              
              4,893,012
              
              
              9.6
              %
              
              8,533,528
              
              
              174.4
              %Depreciation
                  and amortization
              
              
              1,151,548
              
              
              0.8
              %
              
              408,025
              
              
              0.8
              %
              
              743,523
              
              
              182.2
              %Marketing
                  and selling
              
              
              6,219,485
              
              
              4.4
              %
              
              3,144,211
              
              
              6.2
              %
              
              3,075,274
              
              
              97.8
              %General
                  and administrative
              
              
              36,915,025
              
              
              26.1
              %
              
              18,595,959
              
              
              36.5
              %
              
              18,319,066
              
              
              98.5
              %Total
                  operating expenses
              
              
              138,262,627
              
              
              97.8
              %
              
              56,949,714
              
              
              111.9
              %
              
              81,312,913
              
              
              142.8
              %INCOME
                  (LOSS) FROM
                OPERATIONS
              
              
              3,022,847
              
              
              2.2
              %
              
              (6,052,984
              )
              
              (11.9
              %)
              
              9,075,831
              
              
              149.9
              %OTHER
                  INCOME/(EXPENSE)Interest
                  and dividend income
              
              
              447,369
              
              
              0.3
              %
              
              170,224
              
              
              0.4
              %
              
              277,145
              
              
              162.8
              %Interest
                  expense
              
              
              (38,130
              )
              
              (0.0
              %)
              
              (93,617
              )
              
              (0.2
              %)
              
              55,487
              
              
              (59.3
              %)Gain
                  (loss) on sale of assets
              
              
              (9,991
              )
              
              (0.0
              %)
              
              -
              
              
              0.0
              %
              
              (9,991
              )
              
              0.0
              %Total
                  other income/(expense)
              
              
              399,248
              
              
              0.3
              %
              
              76,607
              
              
              0.2
              %
              
              322,641
              
              
              421.2
              %INCOME
                  (LOSS) BEFORE
                INCOME
                  TAX PROVISION
              
              
              3,422,095
              
              
              2.5
              %
              
              (5,976,377
              )
              
              (11.7
              %)
              
              9,398,472
              
              
              157.3
              %INCOME
                  TAX PROVISION
              
              
              213,200
              
              
              0.2
              %
              
              -
              
              
              0.0
              %
              
              213,200
              
              
              0.0
              %NET
                  INCOME (LOSS)
              
              $
              3,208,895
              
              
              2.5
              %
              $
              (5,976,377
              )
              
              (11.7
              %)
              $
              9,185,272
              
              
              157.3
              %






12


The
      following table sets forth the number of active RTAs as of the conclusion of
      each of our last two fiscal years, as well as the number of site sales during
      each such fiscal year:


RTAs
                  as of
              RTAs
                  as ofDecember
                  31, 2007
              December
                  31, 2006131,065
              59,736Site
                  sales for the
              Site
                  sales for the12
                  months ended
              12
                  months endedDecember
                  31, 2007
              December
                  31, 2006139,239
              58,985





The
      above
      RTA figures represent the number of active RTAs paying $49.95 per month for
      monthly web hosting fees.  The site sales figures represent the number of
      online travel store sites sold during the respective fiscal years.  The
      number of sales, and the amount of recurring monthly web hosting fees paid,
      each
      directly impacts our revenues and expenses.  As each new site is sold for
      $449.95, marketing commissions are paid on that sale.  Likewise, each
      recurring monthly web hosting fee paid results in marketing commissions paid
      to
      our Reps.  As the number of active RTAs grows, the amount of our travel
      commissions revenue grows as well.  Correspondingly, our travel commissions
      expense follows suit.





The
      growth on a year-to-year basis of our organization that is evidenced by the
      above numbers directly impacts our financial results, both on the revenue side,
      and the expense side.  As more sites are sold and maintained, the amount of
      marketing and travel commissions correspondingly increase, as do other volume
      related expenses, such as wage and benefit costs.  As more sales are made,
      our entire infrastructure needs to keep pace with the sales volume.





At
      YTB
      Marketing, we engage network marketing as our method of distribution of the
      online travel websites to new RTAs. Reps are recruited, trained, motivated,
      recognized, supported, and compensated for the sale of our travel websites.
      A
      number of Company-sponsored events and programs are conducted annually to assist
      Reps in the building of their businesses. Below are some events and programs
      that occur throughout the year that assist Reps in building their businesses,
      while also training our RTAs:




·
            **National
                Convention:**The YTB National Convention has been conducted annually in St. Louis
                since
                2003.  The registration fee of $100 - $200 provides participants with
                four days of training, motivation, and recognition for sales achievement.
                Planned for the August 2008 National Convention is “YTB University,” a
                two-day school of business building and travel sales classes, conducted
                by
                YTB’s leading field sales people, corporate staff, travel industry vendors
                and experts, and outside professionals. The final two days of the
                convention consist of a series of general sessions, comprised of
                instructional and motivational speakers, awards and recognition,
                special
                announcements, launch of contests, travel industry vendor presentations,
                and keynote speeches by our corporate founders and field leaders.  In
                August 2007, attendance at the convention rose by over 200% relative
                to
                2006, with 10,800 sales force individuals of our organization in
                attendance. It is anticipated that 2008 attendance could approach
                20,000.


Convention
                attendance follows by year:
 Year
              
              Attendance2004
              
              
              7002005
              
              
              1,3002006
              
              
              3,2002007
              
              
              10,800





·
            **Regional
                Meetings**-
                Throughout the year our founders, corporate staff, and field leaders
                plan
                and participate in various regional meetings around the nation for
                Reps
                and RTAs. These events, ranging from single-evening to two-day meetings
                and seminars, involve some of the elements of our National Convention.
                Attendance can range from a few hundred to several thousand attendees.
                These events usually begin in January with a “Founders Tour,” during which
                our founders travel to 60 - 70 cities to conduct
                meetings.





·
            **CRTA
                Events**-
                These events - “RTA Certification” or “CRTAs” - are conducted by our Sales
                Directors, our top sales achievers.  They are primarily for the
                benefit of new RTAs and Reps. There is a $149 tuition payment required
                to
                become certified, but there is no payment required to attend the
                event.
                The one-day course consists of travel and marketing training, and
                is
                conducted normally on weekends on a monthly basis in up to 30 to
                40 cities
                around the nation.




13





·
            **Coach’s
                Birthday Bash**-
                A sales contest - “Coach’s Birthday Bash” - is launched annually at our
                National Convention and runs through the end of the year. The contest
                winners are treated to several days on a cruise or trip to an exotic
                location for socializing, recognition, and attendance of motivational
                and
                training seminars.




**Number
          of Winners of Coach’s Birthday Bash contest by year have
          been:**
 Jan.
                  2005
              
              
              100Jan.
                  2006
              
              
              200Jan.
                  2007
              
              
              400Jan.
                  2008
              
              
              2,000


·
            **Funshine
                Travel Trade Shows**-
                Historically, twice annually, in the spring on the west coast and
                in the
                fall on the east coast, a “Funshine Travel Trade Show” is generally
                conducted and attended by upwards of 5,000 of our RTAs.  The Funshine
                event features major national travel vendors conducting travel seminars
                and distributing their vacation materials on cruises, golf packages,
                hotels and resorts, theme parks, and US and European packages, among
                others.   Event planning starts a year in advance for these
                travel events which features major vendors such as Disney, Carnival
                Cruises, Apple Vacations, Trafalgar Tours, and many more. In October
                2007,
                over 5,000 RTAs attended the Funshine event that was held in Orlando,
                Florida.





·
            **YTB
                E-Campus**-
                In October 2007, we launched “YTB E-Campus,” a proprietary web-based
                training certification and testing program for our RTAs.The
                program was designed by Dr. Marc Mancini, the creative force behind
                some
                of the best-known and most successful training programs in the travel
                business.The
                YTB E-Campus instructional series is designed to be one of the most
                ambitious and comprehensive-training programs ever offered by a host
                agency and will initially consist of 10 unique courses. We have been
                introducing a new course every six to eight weeks. The first course,*Overview
                of the Travel Industry*,
                was launched in October 2007, and has been/will continue to be followed
                by
                courses on lodging, tours/groups, cruising, air, rail/car rentals,
                sales/service/marketing, and three courses on destination geography.
                Each
                course is interactive, instructionally sound and entertaining.TheAcademy.com,
                a San Antonio-based firm that specializes in travel-related training
                solutions, has designed the program’s web site. TheAcademy.com has built
                and currently manages several of the most prominent certification
                programs
                in the travel industry.





These
      events contribute to rapid growth in the sales of online travel stores and
      also
      aid in the retention of Reps and RTAs throughout the year.





***Revenues***




Net
      revenues totaled $141,285,474 and $50,896,730 for the years ended December
      31,
      2007 and 2006, respectively.





·
            Online
                travel store sales and monthly web hosting fee revenue increased
                $66,768,824 or 181.0% in 2007 to $103,656,435 from $36,887,611 in
                2006.
                The increase was due to the significant growth of YTB Marketing and
                an
                accompanying increase in the number of active RTAs. We believe that
                the
                significant growth in RTAs was attributable to (i) the emerging market
                shift to the Internet for travel services which presents the opportunity
                for advancement of products and services by referral relationships,
                and
                (ii) the boom in home-based businesses. In addition, an increase
                in the
                sales price for websites to RTAs from $399.95 to $449.95 effective
                October
                1, 2006 was also partially responsible for the
                increase.





·
            Travel
                booking commissions for 2007 increased $13,131,541 or 178.3% in 2007
                to
                $20,495,954 from $7,364,413 reported in 2006. The increase was
                attributable to an increase in the number of customers who utilized
                the
                Company as their travel provider in 2007, due to the significant
                growth in
                the number of RTAs.





It
      should
      be noted that while only the commissions arising from our RTAs’ booking of
      travel services are reflected as a component of our revenues in our financial
      statements, we also keep track of the aggregate retail value of all travel
      services that are booked by our RTAs (which directly impacts our commission
      revenues). The value of such travel services increased 83.7% in 2007 to
      $414,480,364, from $225,676,569 in 2006.




14




·
            Training
                programs and marketing materials revenue increased in 2007 as compared
                to
                2006 by $8,248,551 or 143.1% to $14,014,632 from $5,766,081. This
                increase
                was due to the significant growth of sales revenues primarily from
                training programs, sales aides and miscellaneous promotional and
                marketing
                materials purchased by an increasing number of Reps. Revenue from
                the sale
                of the “Success from Home” magazine, which began to be sold in 2006 but
                was sold in greater quantity in 2007, accounts for $3,369,494 million
                of
                the increase from 2006. Additional increases in 2007 stemmed from
                increases in training programs revenue and sales aides and miscellaneous
                marketing materials revenue in amounts of $1,092,022 and $336,603,
                respectively, compared to 2006.





·
            Other
                revenue increased in 2007 as compared to 2006 by $2,239,828 or by
                254.9% to $3,118,453 from $878,625 primarily due to the increase in
                convention revenue.





***Operating
      Expenses***




·
            Marketing
                commissions increased by $50,641,522 or 169.3% in 2007 to $80,550,029
                from
                $29,908,507 in 2006. This increase was due to the significant increase
                in
                the number of active RTAs recruited by our Reps. The average payout
                went
                down as compared to 2006. This is due to a reduction in the percentage
                of
                marketing sales that were attributable to Reps achieving a Dream
                Bonus plus Leadership Bonus as compared to 2006, thereby reducing
                our
                average commission payouts to our Reps.





·
            Travel
                commissions for the year ended December 31, 2007 increased $8,533,528
                or
                174.4% to $13,426,540 from $4,893,012 reported in the comparable
                prior
                year period. The increase was attributable to an increase in the
                number of
                customers utilizing the Company as their travel provider in 2007
                due to
                the significant growth in the number of
                RTAs.





·
            Depreciation
                and amortization was $1,151,548 for the year ended 2007 compared
                to
                $408,025 in 2006. This increase was due to the acquisition of $7.3
                million
                of depreciable assets in 2007. The additions included the purchase
                of the
                old corporate headquarters, work on the new headquarters and IT equipment.





·
            Marketing
                and selling expenses increased by $3,075,274 or 97.8% from $3,144,211
                in
                the year 2006 to $6,219,485 in 2007. This increase was primarily
                due to
                “Success From Home” magazine expense of $4,002,230. Other increases
                resulted from the increase in CRTA events held, regional meetings,
                and the
                increase in number and size of open houses at our headquarters office
                called “Red Carpet” Days.





·
            General
                and administrative expenses increased $18,319,066 or 98.5% to $36,915,025
                for the year ended 2007 from $18,595,959 in 2006. As a percentage
                of total
                net revenues, these expenses were 26.1% in 2007 and 36.5% in 2006.
                The
                increase in general and administrative expense in 2007 was attributable
                to
                the significant growth in the number of active RTAs, resulting in
                increased costs associated with the growth in our infrastructure
                to
                support the increased volume.





***Variability
      of Results***




Our
      travel products and services gross bookings have increased from 2006 to 2007
      due
      to an increase in the number of hosted websites and an increase in products
      and
      services sold to travel stores utilizing our unique private label agent-only
      web-based booking site. Cost of travel revenues have similarly increased from
      2006 to 2007.




As
      a
      result of our operating history in online commerce we are unable to accurately
      forecast our revenues. Our current and future expense levels are based
      predominantly on our operating plans. We 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
      our
      business, operating results and financial condition. Further, we currently
      intend to substantially increase our operating expenses to develop and offer
      new
      and expanded travel services, to fund increased sales and marketing and customer
      service operations and to further develop our technology and transaction
      processing systems. To the extent such expenses precede or are not subsequently
      followed by increased revenues, our operating results will fluctuate and net
      losses may be experienced in a given period.




15




We
      expect
      to experience fluctuations in our future operating results due to a variety
      of
      other factors, many of which are outside our control. Factors that may adversely
      affect our quarterly operating results include, but are not limited to (i)
      our
      ability to retain existing travel customers, attract new customers at a steady
      rate and maintain customer satisfaction, (ii) changes in travel product
      inventory availability from third party suppliers and commission rates paid
      by
      travel suppliers, (iii) the announcement or introduction of new or enhanced
      sites, services and products by us or by our 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 travel products and
      services such as those offered by us, (vi) our ability to upgrade and develop
      our systems and infrastructure and to attract new personnel in a timely and
      effective manner, (vii) the level of traffic on our online sites, (viii)
      technical difficulties, system downtime or Internet brownouts, (ix) the amount
      and timing of operating costs and capital expenditures relating to expansion
      of
      our business, operations and infrastructure, (x) governmental regulation and
      (xiii) unforeseen events affecting the travel industry, including terrorist
      activities similar to September 11 and the conflict in the Middle
      East.




Another
      factor that may also impact whether there are periodic or long-term declines
      in
      our revenues is our ability to maintain our relationships both with contractual
      counter-parties whose travel services are sold by our RTAs and with other trade
      organizations. In 2007, one contractual counter-party, a provider of cruises,
      terminated its relationship with us, thereby preventing our RTAs from booking
      cruises or other services through that provider. While the commissions generated
      by travel sales through that cruise line provider were not material to our
      financial results, if a large number of travel service providers were to follow
      suit in a finite period of time, that would have an adverse impact on our
      revenues and overall financial condition during such period of time. In
      addition, in 2007, due to action taken by a large global trade organization,
      our
      RTAs lost the associated certification benefits. While such action does not
      impact our RTAs’ ability to book travel at all, similar actions that could be
      taken by other trade organizations could negatively impact our reputation and
      thereby cause a decline in our revenues.




In
      addition to fluctuations triggered by specific events, we expect that we will
      experience seasonal fluctuations in the travel industry, Internet and commercial
      online and travel product purchases. We anticipate 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 a travel
      sales
      medium, seasonality in the level of customer travel expenditures could become
      more pronounced for Internet-based travel sales.




Due
      to
      the foregoing factors, quarterly revenues and operating results are difficult
      to
      forecast and we believe that quarter-to-quarter comparisons of our operating
      results will not necessarily be meaningful and should not be relied upon as
      an
      indication of future performance. It is likely that our future quarterly
      operating results from time to time will not meet the expectations of security
      analysts or investors. In such event, the price of our Class A Common Stock
      would likely be materially and adversely affected.




**Liquidity
      and Capital Resources**




As
      of
      December 31, 2007, we had $1,730,570 in cash and cash equivalents and $26,834
      in
      short-term investments. We believe that cash and cash equivalents and short
      term
      investments on hand at December 31, 2007 and our cash flow from operations
      will
      be sufficient to meet our obligations on a timely basis for the next 12 months.
      However, given our increase in business volume we would also expect the
      requirements for our restricted cash to increase. In addition, our lack of
      external financing sources may limit our ability to continue to grow and to
      achieve strategic business objectives that may be targeted by our Board of
      Directors. Such limitations may have an adverse impact on our financial
      position, results of operations and liquidity. Also, as of December 31, 2007,
      the Company reclassed $1.0 million from available-for-sale securities to
      long-term investments. The $1.0 million represents auction rate securities
      for
      which, subsequent to the end of fiscal 2007, auctions have failed. The Company
      will not be able to access these funds in the near term, however, the Company
      believes that it has the ability to hold these securities for longer than a
      period of twelve months. (See Future Cash Flows and expenditures.)




The
      information below outlines the purposes towards which we made extraordinary
      cash
      expenditures in 2007. Despite this significant outlay of cash, we were still
      able to expand our staff significantly during the year and also sponsored
      several large events from which we did not profit, but which helped to spur
      growth in our business.


Land
                  acquisitions
              
              $
              2,643,000Building
                  purchase
              
              
              1,850,000SAP
                  software implementation (go-live February 2008)
              
              
              732,009Renovation
                  of Wood River Building
              
              
              819,455Total
              
              $
              6,044,464




16


The
      following table presents a summary of our cash flows for each of the last two
      fiscal years:


2007
              
              2006Net
                  cash provided by (used in):Operating
                  activities
              
              $
              13,040,414
              
              $
              908,425Investing
                  activities
              
              
              (9,417,005
              )
              
              (558,396
              )Financing
                  activities
              
              
              (1,892,839
              )
              
              (580,387
              )Net
                  increase (decrease) in cash
              
              $
              1,730,570
              
              $
              (230,358
              )




Net
      cash
      provided by operating activities in 2007 increased by $12,131,989 to $13,040,414
      from the $908,425 provided in 2006. The increase is primarily the result of
      the
      growth that we experienced in 2007.





Net
      cash
      used in investing activities was $9,417,005 during 2007 as compared to $558,396
      of net cash used during 2006. This $8,858,609 increase in cash used resulted
      primarily from an increase of $6,014,339 in expenditures for purchases of
      property and equipment and a decrease of $2,608,655 in net proceeds obtained
      from the sale of available-for-sale securities. As of December 31, 2007, the
      Company reclassed $1.0 million in available-for-sale securities to long-term
      investments.





Net
      cash
      used in financing activities was $1,892,839 in 2007 as compared to cash used
      during 2006 of $580,387. The $1,312,452 increase in cash consumed by financing
      activities was primarily attributable to the repayment of the
      bank overdraft of $812,464 and short-term debt of $1,369,500 offset by
      $916,625 and 412,000, respectively, in proceeds received during 2007 from the
      exercise of common stock warrants and common stock options issued by the
      Company.





On
      July
      26, 2006, we spent $2,500,000 for the purchase of 12 acres of land which
      includes a 100,000 square foot building (the “ Headquarters
      Property ”)
      which
      houses our current corporate headquarters in Wood River, Illinois. We financed
      the purchase of the Headquarters Property by borrowing $2.5 million from
      Meridian Bank, a local bank controlled by two of our directors. The loan is
      evidenced by a note of like principal amount that we issued to Meridian Bank
      (the “ Note ”),
      which
      bears interest at a floating rate equal to the prime rate, less 0.50%,
      determined on a daily basis. Interest only is payable monthly for the first
      two
      years of the Note after which the entire principal will be paid or the Note
      will
      be refinanced. Although the scheduled balloon principal payment is due July
      26,
      2008, the Note is payable upon demand per the terms of the agreement, however,
      no demand has been made to date. The Note is collateralized by a mortgage on
      the
      Headquarters Property and a $500,000 certificate of deposit. The certificate
      of
      deposit was to be released after we had made $625,000 of improvements to the
      Headquarters Property. Through the use of working capital funds, we have
      completed $2.5 million of renovations to 20,000 square feet of the building
      located on the Headquarters Property which we utilize for our current
      operations. Upon the completion of such renovations to the Headquarters
      Property, in lieu of requesting release of the certificate of deposit, on
      January 7, 2008 we instead opted to apply the proceeds thereof towards repayment
      of a portion of the principal amount of the Note. In addition to the $2.5
      million of renovations that we have already carried out, we are planning an
      additional $12-$15 million renovation project for the Headquarters Property,
      which we expect to finance with cash flow from operations. Although no formal
      commitments have been made, we anticipate spending a majority of the aggregate
      $12-$15 million cost of the renovation project in 2008.





In
      December 2006, we purchased 1.08 acres that included a 20,000 square foot
      building contiguous to the Headquarters Property. The acquisition cost was
      $508,693. Working capital funds were used for this acquisition.





In
      connection with our acquisition, on August 23, 2007, of Parcel No. 1 and Parcel
      No. 2 located at or about 2201 Old Alton Edwardsville Road, East Alton, Illinois
      (as described above in Item 2 (Description of Property)), we expended
      approximately $792,000 and $251,000 for the respective parcels, which we paid
      in
      cash to the Seller at the closing therefor.





Furthermore,
      in September 2007, in connection with our acquisition of approximately twenty
      (20) acres of real property adjacent to our Headquarters Property for the
      purpose of expanding our headquarters office facility, we paid an aggregate
      cash
      purchase price equal to $1,600,000, which was financed with general working
      capital.





In
      connection with our acquisition of the Building One Property from Meridian
      Land
      (as described above in Item 2 (Description of Property)) we expended a total
      of
      $1,850,000 in cash, of which $480,500 was paid by us as of the signing of the
      Building One Purchase Contract and the remaining $1,369,500 of which constituted
      obligations of Meridian Land which we paid following the closing under the
      Building One Purchase Contract on August 14, 2007.




17




In
      order
      to improve our internal informational technology capabilities, in November
      2007
      we selected the SAP® enterprise resource planning (ERP) software application to
      aid in the automation of our business processes. Our implementation of a
      state-of-the-art ERP system will provide us with a proven business solution,
      and
      serve to enhance controls and support for all functional business units within
      our rapidly growing organization. The implementation of this system resulted
      in
      expenditures of $732,009 in 2007, and has resulted in approximately an
      additional $558,812 of expenditures in 2008 leading up to the launch of this
      system, which occurred in February 2008.




On
      November 28, 2007, the Company signed a letter of intent and made a deposit
      of
      $311,332 in connection with a proposed acquisition of a business.




Our
      expansion into Canada, the Bahamas, and Bermuda in January and February 2008
      is
      also expected to require expenditure of a portion of our cash resources on
      a
      going-forward basis.




**Future
      Cash Flows and Expenditures**





To
      facilitate an understanding of our contractual obligations and other
      commitments, the following table is provided.


PAYMENTS
                  DUE BY PERIODTotal
              
              2008
              
              2009-10
              
              2011-12
              
              2013
                  & BeyondContractual
                  obligations:Short-term
                  debt
              
              $
              2,500,000
              
              $
              2,500,000
              
              $
              -
              
              $
              -
              
              $
              -Long-term
                  debt
              
              
              241,659
              
              
              22,018
              
              
              46,764
              
              
              49,642
              
              
              123,235Operating
                  leases
              
              
              562,157
              
              
              260,615
              
              
              301,542
              
              
              -
              
              
              -Purchase
                  obligations formaterials
                  and services (1)
              
              
              2,563,237
              
              
              1,488,099
              
              
              514,738
              
              
              586,042
              
              
              24,000TOTAL
              
              $
              5,867,053
              
              $
              4,270,732
              
              $
              863,044
              
              $
              586,042
              
              $
              147,235
 (1)
                Amount
                    represent outstanding commitments to purchase goods or services
                    as of
                    December 31, 2007. The purchase commitments principally include
                    $1,148,800
                    for future services over the next five years related to the
                    Company's annual convention, as well as approximately $450,000
                    related to the construction of the new corporate headquarters,
                    approximately $265,000 in commitments for various marketing materials
                    and
                    servicesand
                    $213,000 in commitments related to travel training programs for
                    RTAs.
  As
          of
          December 31, 2007, our investment portfolio included $1.0 million of
          auction rate securities, which are primarily backed by student loans originated
          under the Federal Family Education Loan Program, or FFELP, and are
          over-collateralized, and guaranteed by the United States Federal Department
          of
          Education. In addition, all auction rate securities held by us are rated
          by the
          major independent rating agencies as either AAA or Aaa.
  Most
          of
          these auction rate securities were scheduled to reset subsequent to December
          31,
          2007. In March 2008, our auction rate securities failed auctions due to
          sell
          orders exceeding buy orders. These failures are not believed to be a credit
          issue, but rather, are caused by a lack of liquidity. Under the contractual
          terms, the issuer is obligated to pay penalty rates should an auction fail.
          In
          the near term, we will not be able to access these funds associated with
          the
          failed auctions until one of the following occurs: a successful auction
          occurs,
          the issuer redeems the issue, a buyer is found outside of the auction process
          or
          the underlying securities have matured. As a result, we have classified
          $1.0 million of the auction rate securities as long-term investments as of
          December 31, 2007. This amount represents the entire balance of the auction
          rate
          securities as of December 31, 2007 and had not been sold by the Company
          subsequent to the end of fiscal 2007. We believe that we have the ability
          to
          hold these securities for longer than a period of twelve months.
  While
          the
          recent auction failures will limit our ability to liquidate these investments
          for some period of time we do not believe the auction failures will materially
          impact our ability to fund our working capital needs, capital expenditures,
          or
          other business requirements.
  We
          have
          determined that no other-than-temporary impairment losses existed as of
          December
          31, 2007 as all holdings had successful auctions in the periods leading
          up to
          that date. However, if the issuer of the auction rate securities is unable
          to
          successfully close future auctions or does not redeem the auction rate
          securities, or the United States government fails to support its guaranty
          of the
          obligations, we may be required to adjust the carrying value of the auction
          rate
          securities and record other-than-temporary impairment charges in future
          periods.


**Off-Balance
      Sheet Arrangements**





We
      have
      no off-balance sheet arrangements.




18




**Critical
      Accounting Policies and Estimates**




Our
      financial statements and accompanying notes are prepared in accordance with
      accounting principles generally accepted in the United States. The preparation
      of financial statements requires that we 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 our 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 our financial condition, changes in financial
      condition or results of operations. Our significant accounting policies are
      discussed in Note 2 in the accompanying Notes to Consolidated Financial
      Statements. Critical accounting estimates for us include: the determination
      of
      the estimated lifespan during which an RTA remains an RTA, which impacts revenue
      recognition and related marketing commissions/bonuses; impairment of goodwill;
      and realization of deferred tax assets. Such accounting estimates are discussed
      in the following paragraphs.




Revenue
      Recognition




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




*Online
      travel store sales and monthly fees*





We
      generate revenue from the sale of online travel websites, and from providing
      training and ongoing services to the new business owners of online travel
      websites, i.e. RTAs. We have determined that our initial sale of each online
      travel store was deemed to fall under the SEC’s Staff Accounting Bulletin No.
      104, “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 the RTA.
      The calculation of the expected useful life is based upon a review of the sales
      for each month and the length of time each RTA continues with the Company.
      We
      then apply a weighted average to the calculations. Likewise, the commission
      paid
      in connection with negotiations to sell the business is amortized over the
      same
      period. Any excess of expense to acquire the business over the proceeds
      received, is recognized immediately and not amortized. Monthly web hosting
      fees
      are recognized in the month the services are provided. We review the underlying
      calculations of the expected useful life of the RTA on a monthly
      basis.





*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
      we
      act in the capacity of a travel product wholesaler are recorded at their gross
      amount. The cost of such revenue is recorded separately as an operating
      expense.





*Training
      programs and marketing materials revenue*





Sales
      revenues from the sale of Rep sales aides and miscellaneous promotional and
      marketing materials are recognized when the related merchandise is shipped
      to
      the Rep. Sales revenues from training programs are recognized when the Rep
      has
      completed the related training course.





*Other
      revenue*





Sales
      revenues from convention attendance are recognized during the period in which
      the convention occurs.





Marketing
      compensation plan




We
      offer
      a compensation plan to our 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 personal and team travel website sales, or enrolled referrals.
      The “commission override” is comprised of a small portion of the monthly web
      hosting fee that RTAs pay to the Company which is paid to the person responsible
      for selling the online travel store site.  Direct sales commissions and
      override compensation 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 travel websites, following the month earned. All commissions 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, which is based upon the estimated
      RTA life. In the event that the commission payout is greater than the average
      commission revenue collected, the difference is immediately charged to expense
      when incurred.




19


Long-term
        Investments
  We
        invest
        in auction rate securities that are typically over collateralized by pools
        of
        loans originated under the Federal Family Education Loan Program, or FFELP,
        and
        are guaranteed by the U.S. Department of Education. In addition, all auction
        rate securities held are rated by one or more of the major independent rating
        agencies as either AAA or Aaa at the time of purchase. Historically, all
        auction
        rate securities were classified as short-term investments because we have
        been
        able to liquidate these at our direction on seven day, twenty-eight day or
        thirty-five day auction cycles. When auction rate securities fail to clear
        at
        auction, which occurred with respect to a portion of our securities in February
        2008 and to all of our auction rate securities in March 2008, and we are
        unable
        to estimate when the impacted auction rate securities will clear at the next
        auction, we classify these as long-term, consistent with the stated contractual
        maturities of the securities. We
        believe that our cash flows from operations provided us with the ability
        to
        withstand the loss in liquidity for these securities for the next twelve
        months,
        if necessary. The
        "stated" or "contractual" maturities for these securities generally are between
        20 to 30 years. A failed auction results in a lack of liquidity in the
        securities but does not signify a default by the issuer.




Goodwill





In
      accordance with Statement of Financial Accounting Standards (“ SFAS ”)
      No.
      142, “Goodwill and Other Intangible Assets,” (“ SFAS
      142 ”),
      we
      assess 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 us to estimate the fair value of our reporting units.
      If the carrying value of the reporting unit exceeds the fair value, the goodwill
      of the reporting unit is potentially impaired and we proceed to step two of
      the
      impairment analysis. In step two of the analysis, we 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.




Income
      Taxes




SFAS
      109,
“Accounting for Income Taxes *”,* establishes financial accounting and reporting standards for the effect of
      income taxes. We provide deferred income tax assets and liabilities based on
      the
      estimated future tax effects of differences between the financial and tax basis
      of assets and liabilities based on currently enacted tax laws. We assess
      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. We must assess
      the likelihood that deferred tax assets will be realized. To the extent that
      we
      believe 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 our financial statements or tax returns.
      Fluctuations in the actual outcome of these future tax consequences could
      materially impact our financial position or our results of
      operations.




We
      have
      made certain other estimates that, while not involving the same degree of
      judgment, are important to understanding our financial statements. These
      estimates are in the areas of assessing recoverability of long-lived assets
      and
      in establishing reserves in connection with our 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.




Our
      management has discussed the development and selection of these critical
      accounting policies with the Audit Committee of our Board of Directors and
      the
      Audit Committee has reviewed our disclosure relating to it in this Management
      Discussion and Analysis or Plan of Operation section of our Annual
      Report.





**New
      Accounting Pronouncements**





In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS
      157 defines fair value, establishes a framework for measuring fair value and
      expands disclosures about fair value measurements. SFAS 157 applies under other
      accounting pronouncements that require or permit fair value measurement. SFAS
      157 does not require any new fair value measurement and we are currently
      evaluating the impact, if any, of SFAS 157 on our financial position, results
      of
      operations and cash flows. SFAS 157 requires prospective application for fiscal
      years beginning after November 15, 2007.





In
      February 2007, the FASB issued SFAS 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities Including
      an
      amendment of FASB Statement No. 115* (SFAS
      159) *,* which
      permits entities to choose to measure many financial instruments and certain
      other items at fair value. The provisions of SFAS 159 are effective as of the
      beginning of our 2008 fiscal year. We are currently evaluating the impact of
      adopting SFAS 159 on our financial statements.


In
        December 2007, the FASB issued SFAS No. 141R (“SFAS 141R”), “Business
        Combinations”, which establishes principles and requirements for how the
        acquirer recognizes and measures in its financial statements the identifiable
        assets acquired, the liabilities assumed, and any noncontrolling interest
        in the
        acquiree, goodwill acquired in the business combination or a gain from a
        bargain
        purchase. SFAS 141R is effective for business combinations with an acquisition
        date on or after the beginning of the first annual reporting period beginning
        on
        or after December 15, 2008. The Company expects SFAS 141R to have an impact
        on
        the accounting for any future business acquisitions of the effective
        date.




In
        December 2007, the FASB issued SFAS No. 160, *Noncontrolling
        Interests in Consolidated Financial Statements – an amendment of ARB No. 51* (“SFAS
        No. 160”). SFAS No. 160 requires the recognition of a noncontrolling interest,
        or minority interest, as equity in the consolidated financial statements
        and
        separate from the parent’s equity. The amount of net income attributable to the
        noncontrolling interest will be included in consolidated net income on the
        face
        of the income statement. SFAS No. 160 also includes expanded disclosure
        requirements regarding the interests of the parent and its noncontrolling
        interest. The Company is currently evaluating the impact his statement may
        have
        in its future financial statements.




We
      do not
      believe that there are any other new accounting pronouncements that we are
      required to adopt that are likely to have at least some effect on our future
      financial statements.




20


STATEMENT
      REGARDING FORWARD-LOOKING INFORMATION





*The
      Private Securities Litigation Reform Act of 1995 and Section 21E of the
      Securities Exchange Act of 1934, as amended (the “Exchange Act”), provide
      a safe harbor for forward-looking statements made by or on behalf of the
      Company. The Company and its representatives may from time to time make written
      or oral statements that are “forward-looking”, including statements contained in
      this report and other filings with the Securities and Exchange Commission
      (“SEC”) and in our reports to stockholders. In some cases forward-looking
      statements can be identified by words such as “believe,” “expect,” “anticipate,”
“plan,” “potential,” “continue” or similar expressions. Such forward-looking
      statements include risks and uncertainties and there are important factors
      that
      could cause actual results to differ materially from those expressed or implied
      by such forward-looking statements. These factors, risks and uncertainties
      can
      be found in the “Risk Factors” section of the Company’s Registration Statement
      on Form SB-2 filed with the SEC on May 21, 2007.*





*Although
      we believe the expectations reflected in our forward-looking statements are
      based upon reasonable assumptions, it is not possible to foresee or identify
      all
      facts that could have a material effect on the future financial performance
      of
      the Company. The forward-looking statements in this report are made on the
      basis
      of management’s assumptions and analyses, as of the time the statements are
      made, in light of their experience and perception of historical conditions,
      expected future developments and other factors believed to be appropriate under
      the circumstances.*





*In
      addition, certain market data and other statistical information used throughout
      this report are based on independent industry publications. Although we believe
      these sources to be reliable, we have not independently verified the information
      and cannot guarantee the accuracy and completeness of such
      sources.*





*Except
      as otherwise required by the federal securities laws, we disclaim any obligation
      or undertaking to publicly release any updates or revisions to any
      forward-looking statement contained in this Annual Report on Form 10-KSB and
      the
      information incorporated by reference in this report to reflect any change
      in
      our expectations with regard thereto or any change in events, conditions or
      circumstances on which any statement is based.*





**Item
      7.**  **Financial
      Statements** **.**





Our
      consolidated financial statements prepared in accordance with Regulation S-B
      are
      included as Appendix
      A to this
      Annual Report on Form 10-KSB and are incorporated by reference into this Item
      7.





**Item
      8. Changes In and Disagreements With Accountants on Accounting and Financial
      Disclosure.**





None.




21


**Item
        8A(T). Controls and Procedures.**
 
 ***Evaluation
        of Disclosure Controls and Procedures.***
 
 We
        have
        established and maintain disclosure controls and procedures designed to ensure
        that information required to be disclosed in the reports that we file or
        submit
        under the Securities Exchange Act of 1934, as amended (the “ Exchange
        Act ”),
        is
        recorded, processed, summarized and reported within the time period specified
        in
        the rules and forms of the SEC, and that such information is accumulated
        and
        communicated to management, including our Chief Executive Officer  and
        Chief Financial Officer, as appropriate, to allow timely decisions regarding
        required disclosure.
 
 In
        connection with our Annual Report on Form 10-KSB for the fiscal year ended
        December 31, 2007, as required under Rule 13a-15(b) of the Exchange Act,
        our
        management, including our Chief Executive Officer and Chief Financial Officer,
        conducted an evaluation of the effectiveness of the design and operation
        of our
        disclosure controls and procedures as of the end of the period covered by
        this
        report. Based on that evaluation, our Chief Executive Officer and Chief
        Financial Officer concluded that our disclosure controls and procedures were
        effective as of the date of such evaluation to provide reasonable assurance
        that
        information required to be disclosed by the Company in the reports that it
        files
        or submits under the Exchange Act is recorded, processed, summarized and
        reported within the time periods specified by the SEC’s rules and forms.
 
 ***Management’s
        Report on Internal Control Over Financial Reporting.***
 
 Our
        management is responsible for establishing and maintaining adequate internal
        control over financial reporting.  Internal
        control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f)
        under the Exchange Act as a process designed by, or under the supervision
        of,
        our principal executive and principal financial officers and effected by
        our
        Board of Directors, management and other personnel to provide reasonable
        assurance regarding the reliability of financial reporting and the preparation
        of financial statements for external purposes in accordance with generally
        accepted accounting principles and includes those policies and procedures
        that:
 
 ·
              pertain
                  to the maintenance of records that in reasonable detail accurately
                  and
                  fairly reflect the transactions and dispositions of the assets
                  of our
                  Company;
 
 ·
              provide
                  reasonable assurance that transactions are recorded as necessary
                  to permit
                  preparation of financial statements in accordance with generally
                  accepted
                  accounting principles, and that receipts and expenditures of our
                  Company
                  are being made only in accordance with authorizations of management
                  and
                  directors of our Company; and
 
 ·
              provide
                  reasonable assurance regarding prevention or timely detection of
                  unauthorized acquisition, use or disposition of our Company’s assets that
                  could have a material effect on our financial
                  statements.
 
 Because
        of inherent limitations, internal control over financial reporting may not
        prevent or detect misstatements. Projections of any evaluation of effectiveness
        to future periods are subject to the risks that controls may become inadequate
        because of changes in conditions, or that the degree of compliance with the
        policies or procedures may deteriorate. However, these inherent limitations
        are
        known features of the financial reporting process. It is possible to design
        into
        the process safeguards to reduce, though not eliminate, the risk that
        misstatements are not prevented or detected on a timely basis. Management
        is
        responsible for establishing and maintaining adequate internal control over
        financial reporting for the Company.
 
 Management
        assessed the effectiveness of our internal control over financial reporting
        as
        of December 31, 2007. In making this assessment, management used the criteria
        set forth by the Committee of Sponsoring Organizations of the Treadway
        Commission in Internal Control-Integrated Framework. Based on this assessment,
        our management concluded that, as of December 31, 2007, our internal control
        over financial reporting was effective to provide reasonable assurance regarding
        the reliability of financial reporting and the preparation and presentation
        of
        financial statements for external purposes in accordance with generally accepted
        accounting principles.
 
 This
        Annual Report on Form 10-KSB does not include an attestation report of our
        registered public accounting firm regarding internal control over financial
        reporting. Management’s report was not subject to attestation by our registered
        public accounting firm pursuant to temporary rules of the SEC that permit
        us to
        provide only management’s report in this Annual Report on Form
        10-KSB.
 
 ***Changes
        in Internal Control Over Financial Reporting.***
 
 In
        the
        course of the preparation of the Company’s Form 10-KSB fiscal years ended
        December 31, 2006 and 2005, management concluded that there were deficiencies
        in
        its internal control over financial reporting relating to the following
        area:
 
 ·
              We
                  did not maintain sufficient competent personnel to maintain an
                  appropriate
                  accounting and financial reporting organizational structure. Specifically,
                  we 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 our financial reporting requirements. As a result, our controls
                  over
                  selection and application of accounting principles were ineffective.
                  This
                  deficiency resulted in improper presentations in our financial
                  statements.
 
 ·
              Our
                  design and operation of controls over the accounting closing and
                  reporting
                  process were 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 our financial
                  statements.
 
 ·
              We
                  did not maintain effective controls over the development of accounting
                  estimates. Specifically, we 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, we did not analyze
                  average
                  marketing commissions paid in relation to original RTA enrollment
                  transactions in order to determine proper expense
                  recognition.
  22
  ·
              We
                  did not maintain proper internal controls over expenditures and
                  accounting
                  for certain liabilities which resulted in unrecorded liabilities
                  and
                  expenses.
 
 ·
              We
                  did not conduct an in-depth study of the carrying value of our
                  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 our capitalized software account
                  nor
                  did it allow for an impairment valuation to determine the proper
                  carrying
                  value of the asset.
 
 ·
              Our
                  Board of Directors failed to maintain documentation of actions
                  that it had
                  approved. Formal Board of Director meeting minutes were not maintained
                  during this reporting period. As a result, certain share-based
                  transactions were not recorded or were recorded incorrectly in
                  our
                  financial statements.
 
 In
        connection with our Annual Report on Form 10-KSB for the fiscal year ended
        December 31, 2007, as required under Rule 13a-15(d) of the Exchange Act,
        our
        management, including our Chief Executive Officer and Chief Financial Officer,
        conducted an evaluation of whether there had been any change in our internal
        control over financial reporting that occurred during our fiscal quarter
        ended
        December 31, 2007.
 
 Based
        upon such evaluation, our Chief Executive Officer and Chief Financial Officer
        identified certain changes in our internal control over financial reporting
        that
        occurred during the quarter ended December 31, 2007 that have materially
        affected, or are reasonably likely to materially affect, our internal control
        over financial reporting.
 
 During
        the quarter ended December 31, 2007, the Company has completed the following
        measures to remediate the internal control material weaknesses described
        above
        and to strengthen its financial reporting internal controls:
 
 ·
              For
                  material transactions that are unique or outside our core operations,
                  management has documented our process for accounting for such transactions
                  and we improved our process for researching the applicable accounting
                  literature and documenting our conclusions, by consulting with
                  outside
                  experts to ensure our interpretations are
                  correct.
 
 ·
              Management
                  formed a formal Disclosure Committee, comprised of senior and mid-level
                  management, to review, comment on, and discuss required disclosures
                  in our
                  public filings. In addition, a formal Disclosure Control policy
                  has been
                  drafted and subsequently adopted by the Board of
                  Directors.
 
 ·
              We
                  have prepared a standardized memorandum that is required to be
                  completed
                  for each transaction that is unique or outside our normal core
                  operations
                  that is material to our financial statement. This memo will be
                  reviewed
                  and approved by our Chief Financial
                  Officer.
 
 ·
              We
                  enhanced formal communication with, and approved by, our Chief
                  Financial
                  Officer and Audit Committee of our application of Generally Accepted
                  Accounting Principles in the Untied States (“US
                  GAAP”)
                  and account policy decisions for transactions that are outside
                  our core
                  operations and solicit and adhere to the advice received from outside
                  experts.
 
 ·
              All
                  Board of Directors’ meeting as well as Board committee meetings minutes
                  are 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 rises to the level of
                  disclosure.
 
 ·
              Management
                  has evaluated and augmented when necessary, the qualifications
                  of
                  accounting personnel and staffing levels at our headquarters
                  office.
 
 ·
              Management
                  has established 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. A formal, more stringent, closing
                  process has been developed with timelines and GAAP and SEC checklists
                  to
                  be completed and reviewed. The procedures include the consideraton
                  of
                  significant accounting estimates, the cut off and completeness
                  of
                  liabilities and asset impairment
                  reviews.
 
 ·
              The
                  Companyduring its review of internal control over financial reporting
                  also
                  strengthened many of its other manual controls including complete
                  documentation of its policies and procedures and documentation
                  of key
                  controls that were being performed but not
                  documented.


**Item
      8B.**  **Other
      Information.**





None.




23


**PART
      III**




**Item
      9. Directors, Executive Officers, Promoters, Control Persons and Corporate
      Governance; Compliance With Section 16(a) of the Exchange
      Act.**




The
      information required by this Item is set forth in the following sections of
      our
      Definitive Proxy Statement for our 2008 Annual Meeting of Stockholders:
“Proposal 1- Election of Directors”, “Executive Officers of the Company”,
“Section 16(a) Beneficial Ownership Reporting Compliance”, and “Corporate
      Governance” (including “Code of Ethics”), each of which is incorporated by
      reference herein.





**Item
      10. Executive Compensation.**




The
      information required by this Item is set forth in the following section of
      our
      Definitive Proxy Statement for our 2008 Annual Meeting of Stockholders:
“Executive Compensation”, which is incorporated by reference
      herein.





**Item
      11. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.**




The
      information required by this Item is set forth in the following sections of
      our
      Definitive Proxy Statement for our 2008 Annual Meeting of Stockholders:
“Security Ownership of Officers, Directors and 5% Owners” and “Equity
      Compensation Plan Information”, each of which is incorporated by reference
      herein.





**Item
      12. Certain Relationships and Related Transactions, and Director
      Independence.**




The
      information required by this Item is set forth in the following sections of
      our
      Definitive Proxy Statement for our 2008 Annual Meeting of Stockholders:
“Proposal 1- Election of Directors”, “Corporate Governance” and “Certain
      Relationships and Related Transactions”, each of which is incorporated by
      reference herein.




**Item
      13. 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 with the SEC on June 20,
                2005.





3.1
            
            Amended
                and Restated Certificate Incorporation of the Company, incorporated
                by
                reference to YTB International, Inc.’s Definitive Proxy Statement on
                Schedule 14A, Appendix A, filed with the SEC on April 24,
                2007.





3.2
            
            Amended
                and Restated By-Laws of the Company, incorporated by reference to
                YTB
                International, Inc.’s Current Report on Form 8-K, Exhibit 3.1, filed with
                the SEC on September 28, 2007.





10.1
            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 the Company (as successor to REZconnect Technologies Inc.),
                incorporated by reference to YTB International, Inc.’s Current Report on
                Form 8-K, as amended, Exhibit 4.1, filed with the SEC on June 20,
                2005.





10.2
            Agreement
                and Irrevocable Proxy, dated November 22, 2006, by and among J. Lloyd
                Tomer, J. Scott Tomer, J. Kim Sorensen, jointly and severally, and
                Michael
                Y. Brent, Derek Brent and Darren Brent, jointly and severally, with
                respect to certain matters specified therein, incorporated by reference
                to
                Exhibit 99.1 to the Schedule 13D/A filed by Great River Enterprises,
                LP
                #1, J. Lloyd Tomer, J. Scott Tomer and J. Kim Sorensen with the SEC
                on
                November 24, 2006.





10.3
            Commercial
                Lease Agreement, effective as of November 1, 2005, by and between
                Meridian
                Land Company, Inc. and the Company with respect to that certain real
                property located at 600 Country Club View, 2ndFloor, Edwardsville, Illinois 62025, incorporated by reference to
                the
                Company’s Annual Report on Form 10-KSB/A (Amendment No. 1) for the fiscal
                year ended December 31, 2005, Exhibit 10.14, filed with the SEC on
                March
                13, 2007.




24




10.4
            Commercial
                Lease Agreement, dated August 10, 2007, by and between Meridian Land
                Company, Inc. and the Company, covering the approximately 5,500 square
                feet premises located at #112 Magnolia Drive (Lot #9 Magnolia Commons),
                Glen Carbon, Illinois 62034, incorporated by reference to the Company’s
                Current Report on Form 8-K, Exhibit 10.1, filed with the SEC on August
                22,
                2007.





*10.5
            Form
                of Employment Agreement, dated as of January 1, 2008, by and between
                the
                Company and J. Lloyd Tomer.





*10.6
            Form
                of Employment Agreement, dated as of January 1, 2008, by and between
                the
                Company and J. Scott Tomer, incorporated by reference to the Company’s
                Current Report on Form 8-K, Exhibit 10.1, filed with the SEC on January
                30, 2008.





*10.7
            Form
                of Employment Agreement, dated as of January 1, 2008, by and between
                the
                Company and J. Kim Sorensen, incorporated by reference to the Company’s
                Current Report on Form 8-K, Exhibit 10.3, filed with the SEC on January
                30, 2008.





*10.8
            Form
                of Employment Agreement, dated as of January 1, 2008, by and between
                the
                Company and John D. Clagg, incorporated by reference to the Company’s
                Current Report on Form 8-K, Exhibit 10.4, filed with the SEC on January
                30, 2008.





*10.9
            Form
                of Employment Agreement, dated as of January 1, 2008, by and between
                the
                Company and Andrew Cauthen, incorporated by reference to the Company’s
                Current Report on Form 8-K, Exhibit 10.1, filed with the SEC on January
                10, 2008.





*10.10
            Amendment
                to Employment Agreement, dated as of November 22, 2006, by and between
                the
                Company and Derek Brent incorporated by reference to the Company’s Annual
                Report on Form 10-KSB, Exhibit 10.11, filed with the SEC on April
                2,
                2007.





*10.11
            Amendment
                to Employment Agreement, dated as of November 22, 2006, by and between
                the
                Company and Michael Y. Brent incorporated by reference to the Company’s
                Annual Report on Form 10-KSB, Exhibit 10.12, filed with the SEC on
                April
                2, 2007.





*10.12
            YTB
                International, Inc. Amended and Restated 2004 Stock Option and Restricted
                Stock Plan.





*10.13
            YTB
                International, Inc. 2007 Sales Director Bonus Plan, incorporated
                by
                reference to the Company's Definitive Proxy Statement on
                Schedule 14A, Appendix B, filed with the SEC on April 24,
                2007.





14
            YTB
                International, Inc. Code of Business Ethics Summary, incorporated
                by
                reference to the Company’s Annual Report on Form 10-KSB, Exhibit 14, filed
                with the SEC on April 2, 2007.  21
            Subsidiaries of YTB International, Inc.  23
            Independent Auditor’s Consent  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.








25


#32.1
            Chief
                Executive Officer Certification pursuant to Rule 13a-14(b) of the
                Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.





#32.2
            Chief
                Financial Officer Certification pursuant to Rule 13a-14(b) of the
                Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.





*
            Denotes
                a management contract or compensatory plan or arrangement required
                to be
                filed as an exhibit to this Form
                10-KSB.





#
            These
                certifications are attached as Exhibits 32.1 and 32.2 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.




**Item
      14. Principal Accountant Fees and Services.**




The
      information required by this Item is set forth in the following section of
      our
      Definitive Proxy Statement for our 2008 Annual Meeting of Stockholders:
“Proposal 2- Ratification of the Company’s Selection of its Auditors”, which is
      incorporated by reference herein.




26




**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




**YTB
                International, Inc**By:
            /s/ J.
              Scott
              TomerJ.
              Scott TomerChief
                Executive Officer and DirectorDate:
            March
                31, 2008


Signature
                
                Title
                
                Date/s/
                J.
                    Scott Tomer
                
                Director
                    and Chief Executive Officer
                
                March
                    31, 2008J.
                    Scott Tomer
                
                (principal
                    executive officer)/s/
                J.
                    Lloyd Tomer
                
                Chairman
                    of the Board of Directors
                
                March
                    31, 2008J. Lloyd Tomer/s/
                J.
                    Kim Sorensen
                
                Director
                    and President
                
                March
                    31, 2008J. Kim Sorensen/s/
                John
                    Simmons
                
                Director
                
                March
                    31, 2008John
                    Simmons/s/
                Harold
                    Kestenbaum
                
                Director
                
                March
                    31, 2008Harold
                    Kestenbaum/s/
                Clay
                    Winfield
                
                Director
                
                March
                    31, 2008Clay
                    Winfield/s/
                Lou
                    Brock
                
                Director
                
                March
                    31, 2008Lou
                    Brock/s/
                Andrew
                    Wilder
                
                Director
                
                March
                    31, 2008Andrew
                    Wilder/s/
                Timothy
                    Kaiser
                
                Director
                
                March
                    31, 2008Timothy
                    Kaiser/s/
                John
                    D. Clagg
                
                Chief
                    Financial Officer and Treasurer
                
                March
                    31, 2008John
                    D. Clagg
                
                (principal
                    financial and accounting officer)/s/
                Andrew
                    F. Cauthen
                
                Secretary,
                    Chief Operating Officer
                
                March
                    31, 2008Andrew
                    F. Cauthen
  27




APPENDIX
        A


YTB
      INTERNATIONAL, INC.


TABLE
      OF
      CONTENTS


YEARS
      ENDED DECEMBER 31, 2007 AND 2006


Page(s)Report
                  of Independent Registered Public Accounting Firm
              
              
              F1Financial
                  StatementsConsolidated
                  Balance Sheets as of December 31, 2007 and 2006
              
              
              F2Consolidated
                  Statements of Operations for the Years Ended December 31, 2007
                  and
                  2006
              
              
              F3Consolidated
                  Statements of Changes in Stockholders' Equity (Deficit) for the
                  Years
                  EndedDecember
                  31, 2007 and 2006
              
              
              F4Consolidated
                  Statements of Cash Flows for the Years Ended December 31, 2007
                  and
                  2006
              
              
              F5Notes
                  to Consolidated Financial Statements
              
              
              F7-F33


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





The
      Board
      of Directors and Stockholders of


YTB
      International, Inc.


Wood
      River, Illinois 62095





We
      have
      audited the accompanying consolidated balance sheets of YTB International,
      Inc.
      (the “Company”) as of December 31, 2007 and 2006, and the related
      consolidated statements of operations, changes in stockholders’ equity
      (deficit), and cash flows for each of the years in the two-year period ended
      December 31, 2007. 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. 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.




We
      were
      not engaged to examine management’s assertion about the effectiveness of YTB
      International, Inc.’s internal control over financial reporting as of December
      31, 2007 included in the accompanying Management’s Report on Internal Control
      over Financial Reporting and, accordingly, we do not express an opinion
      thereon.




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, 2007 and 2006, and the consolidated results of its operations
      and
      its cash flows for each of the years in the two year period ended December
      31,
      2007 in conformity with accounting principles generally accepted in the United
      States of America.





/s/
      UHY
      LLP




St.
      Louis, Missouri




Date
      March 31, 2008




F1




*On
      July 31, 2007 (the “* *Reclassification
      Date* *”),
      the Company filed an Amended and Restated Certificate of Incorporation which
      authorized the issuance of two classes of common stock - Class A Common Stock
      and Class B Common Stock - and increased the Company’s total authorized capital.
      Stockholders of record on the Reclassification Date received two shares of
      Class
      B Common Stock and one share of Class A Common Stock in exchange for each share
      of existing common stock held as of the Reclassification Date. All shares and
      per share amounts in this Annual Report on Form 10-KSB reflect this
      reclassification.*





YTB
      INTERNATIONAL, INC.


Consolidated
      Balance Sheets


December
      31, 2007 and 2006


December
                  31, 2007
              
              December
                  31, 2006ASSETSCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              1,730,570
              
              $
              -Restricted
                  cash
              
              
              2,268,344
              
              
              1,250,000Available-for-sale
                  securities
              
              
              26,834
              
              
              1,014,591Accounts
                  receivable (less allowance for doubtful accounts of$5,699in
                  2007 and $6,919 in 2006)
              
              
              2,662,101
              
              
              103,539Notes
                  receivable (less allowance of $200,907 in 2007 and $0 in
                  2006)
              
              
              2,041,751
              
              
              1,233,624Inventory
              
              
              4,903,244
              
              
              1,016,690Prepaid
                  marketing commissions
              
              
              25,080,737
              
              
              12,978,516Other
                  prepaid expenses and current assets
              
              
              2,056,535
              
              
              394,125Total
                  current assets
              
              
              40,770,116
              
              
              17,991,085Long-term
                  investments
              
              
              1,000,000
              
              
              -Property
                  and equipment, net
              
              
              15,432,502
              
              
              6,191,408Intangible
                  assets, net
              
              
              2,395,151
              
              
              2,468,580Goodwill
              
              
              2,979,322
              
              
              2,224,322Other
                  assets
              
              
              316,895
              
              
              14,994**TOTAL
                  ASSETS**
              
              $
              62,893,986
              
              $
              28,890,389LIABILITIES
                  AND STOCKHOLDERS' EQUITY (DEFICIT)Current
                  liabilities:Bank
                  overdraft
              
              $
              -
              
              $
              812,464Accounts
                  payable and accrued expenses
              
              
              9,698,038
              
              
              5,099,248Current
                  maturities of long-term debt
              
              
              22,018
              
              
              21,156Income
                  taxes payable
              
              
              126,155
              
              
              -Deferred
                  revenue
              
              
              31,143,451
              
              
              14,769,085Accrued
                  bonuses
              
              
              928,303
              
              
              7,435,132Short-term
                  debt
              
              
              2,500,000
              
              
              2,500,000Total
                  current liabilities
              
              
              44,417,965
              
              
              30,637,085Other
                  long-term liabilities:Long-term
                  debt, less current maturities
              
              
              219,641
              
              
              241,659Deferred
                  revenue, less current portion
              
              
              -
              
              
              4,366Deferred
                  tax liability
              
              
              755,000
              
              
              -Other
                  income tax liabilities
              
              
              181,821
              
              
              -Other
                  liabilities
              
              
              11,125
              
              
              23,636Total
                  other long-term liabilities
              
              
              1,167,587
              
              
              269,661TOTAL
                  LIABILITIES
              
              
              45,585,552
              
              
              30,906,746Commitment
                  and Contingencies (Note 14)STOCKHOLDERS'
                  EQUITY (DEFICIT)Preferred
                  stock, $.001 par value, 5,000,000 authorized, none issued
                  andoutstanding
                  at December 31, 2007 and 2006
              
              
              
              
              
              -Class
                  A Common stock, $.001 par value, 300,000,000 shares
                  authorized;51,144,275
                  and 27,870,454 shares issued and outstanding at December 31, 2007and
                  December 31, 2006, respectively.
              
              
              51,144
              
              
              27,870Class
                  B Common Stock, $.001 par value, 100,000,000 shares authorized;
                  46,453,644and
                  55,740,908 shares issued and outstanding at December 31, 2007 andDecember
                  31, 2006, respectively; convertible into Class A shares on a one-for-one
                  basis
              
              
              46,453
              
              
              55,741Additional
                  paid-in capital
              
              
              36,419,266
              
              
              20,212,265Retained
                  earnings (deficit)
              
              
              (19,208,429
              )
              
              (22,312,233
              )Total
                  STOCKHOLDERS' EQUITY (DEFICIT)
              
              
              17,308,434
              
              
              (2,016,357
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)**
              
              $
              62,893,986
              
              $
              28,890,389
  *See
                  accompanying notes to consolidated financial
                  statements.*


F2


YTB
      INTERNATIONAL, INC.


Consolidated
      Statements of Operations


Years
      Ended December 31, 2007 and 2006


2007
              
              2006NET
                  REVENUESOnline
                  travel store sales and monthly fees
              
              $
              103,656,435
              
              $
              36,887,611Travel
                  commissions and services
              
              
              20,495,954
              
              
              7,364,413Training
                  programs and marketing materials
              
              
              14,014,632
              
              
              5,766,081Other
              
              
              3,118,453
              
              
              878,625Net
                  revenues
              
              
              141,285,474
              
              
              50,896,730OPERATING
                  EXPENSESMarketing
                  commissions
              
              
              80,550,029
              
              
              29,908,507Travel
                  commissions
              
              
              13,426,540
              
              
              4,893,012Depreciation
                  and amortization
              
              
              1,151,548
              
              
              408,025Marketing
                  and selling
              
              
              6,219,485
              
              
              3,144,211General
                  and administrative
              
              
              36,915,025
              
              
              18,595,959Total
                  operating expenses
              
              
              138,262,627
              
              
              56,949,714INCOME
                  (LOSS) FROM OPERATIONS
              
              
              3,022,847
              
              
              (6,052,984
              )OTHER
                  INCOME (EXPENSE)Interest
                  and dividend income
              
              
              447,369
              
              
              170,224Interest
                  expense
              
              
              (38,130
              )
              
              (93,617
              )Gain
                  (loss) on sale of assets
              
              
              (9,991
              )
              
              -Total
                  other income (expense)
              
              
              399,248
              
              
              76,607INCOME
                  (LOSS) BEFORE INCOME TAX PROVISION
              
              
              3,422,095
              
              
              (5,976,377
              )INCOME
                  TAX PROVISION
              
              
              213,200
              
              
              -NET
                  INCOME (LOSS)
              
              $
              3,208,895
              
              $
              (5,976,377
              )NET
                  INCOME (LOSS) PER SHARE:Weighted-average
                  shares outstanding - basic for Class A and Class B
              
              
              97,377,194
              
              
              82,300,473Weighted-average
                  shares outstanding - diluted for Class A and Class B
              
              
              110,699,696
              
              
              82,300,473Net
                  income (loss) per share - basic for Class A and Class B (amounts
                  for Class
                  A
              
              $
              0.03
              
              $
              (0.07
              )and
                  Class B shares are the same under the two-class method. See Note
                  3):Net
                  income (loss) per share - diluted for Class A and Class B (amounts
                  for
                  Class A
              
              $
              0.03
              
              $
              (0.07
              )and
                  Class B shares are the same under the two-class method. See Note
                  3):
  *See
                  accompanying notes to consolidated financial
                  statements.*




F3




YTB
      INTERNATIONAL, INC.


Consolidated
      Statements of Changes in Stockholders’ Equity (Deficit)


Years
      Ended December 31, 2007 and 2006





Preferred
              
              Common
                  Stock
              
              Additional
              
              Retained
              
              TotalStock
              
              Class
                  A
              
              Class
                  B
              
              Paid-in
              
              Earnings
              
              Stockholders'Shares
              
              Amount
              
              Shares
              
              Amount
              
              Shares
              
              Amount
              
              Capital
              
              (Deficit)
              
              Equity
                  (Deficit)Balance
                  at January 1, 2006
              
              
              -
              
              
              -
              
              
              27,336,260
              
              $
              27,336
              
              
              54,672,520
              
              $
              54,673
              
              $
              19,321,380
              
              $
              (16,335,856
              )
              $
              3,067,533Settlement
                  of Convertible debt derivativewith
                  common shares
              
              
              -
              
              
              -
              
              
              200,000
              
              
              200
              
              
              400,000
              
              
              400
              
              
              399,400
              
              
              -
              
              
              400,000Common
                  shares issued for services
              
              
              -
              
              
              -
              
              
              184,194
              
              
              184
              
              
              368,388
              
              
              368
              
              
              293,908
              
              
              -
              
              
              294,460Common
                  shares surrendered for cashlessoption
                  exercise
              
              
              -
              
              
              -
              
              
              (150,000
              )
              
              (150
              )
              
              (300,000
              )
              
              (300
              )
              
              (299,550
              )
              
              -
              
              
              (300,000
              )Common
                  shares issued for cashless optionexercise
              
              
              -
              
              
              -
              
              
              300,000
              
              
              300
              
              
              600,000
              
              
              600
              
              
              299,100
              
              
              -
              
              
              300,000Stock
                  option compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              198,027
              
              
              -
              
              
              198,027Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (5,976,377
              )
              
              (5,976,377
              )Balance
                  at December 31, 2006
              
              
              -
              
              
              -
              
              
              27,870,454
              
              
              27,870
              
              
              55,740,908
              
              
              55,741
              
              
              20,212,265
              
              
              (22,312,233
              )
              
              (2,016,357
              )Exchange
                  Class B Shares for Class A shares
              
              
              -
              
              
              -
              
              
              18,593,930
              
              
              18,594
              
              
              (18,593,930
              )
              
              (18,594
              )
              
              -
              
              
              -
              
              
              -Adoption
                  of FIN 48 cumulativeeffect
                  adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (105,091
              )
              
              (105,091
              )Common
                  shares issued for restrictedstock
                  grant
              
              
              -
              
              
              -
              
              
              3,112,901
              
              
              3,113
              
              
              6,225,802
              
              
              6,226
              
              
              9,640,654
              
              
              -
              
              
              9,649,993Amortization
                  of restricted stock(unvested)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              5,066,257
              
              
              -
              
              
              5,066,257Shares
                  issued for services
              
              
              -
              
              
              -
              
              
              10,000
              
              
              10
              
              
              20,000
              
              
              20
              
              
              45,470
              
              
              -
              
              
              45,500Common
                  shares issued foroptions
                  exercised
              
              
              -
              
              
              -
              
              
              436,558
              
              
              436
              
              
              820,000
              
              
              820
              
              
              410,744
              
              
              -
              
              
              412,000Exercise
                  of common stock warrants
              
              
              -
              
              
              -
              
              
              1,120,432
              
              
              1,121
              
              
              2,240,864
              
              
              2,240
              
              
              913,264
              
              
              -
              
              
              916,625Stock
                  option compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              130,612
              
              
              -
              
              
              130,612Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,208,895
              
              
              3,208,895Balance
                  at December 31, 2007
              
              
              -
              
              $
              -
              
              
              51,144,275
              
              $
              51,144
              
              
              46,453,644
              
              $
              46,453
              
              $
              36,419,266
              
              $
              (19,208,429
              )
              $
              17,308,434





*See
      accompanying notes to consolidated financial statements.*




F4




YTB
      INTERNATIONAL, INC.


Consolidated
      Statements of Cash Flows


Years
      Ended December 31, 2007 and 2006


2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  Income (Loss)
              
              $
              3,208,895
              
              $
              (5,976,377
              )Adjustments
                  to reconcile net income (loss) to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              1,151,548
              
              
              408,025Loss
                  on disposal of property and equipment
              
              
              9,991
              
              
              -Realized
                  gain/loss on investments
              
              
              11,822
              
              
              -Impairment
                  loss on property and equipment
              
              
              376,450
              
              
              -Provision
                  for uncollectible notes
              
              
              200,907
              
              
              -Interest
                  income added to notes receivable
              
              
              (155,907
              )
              
              -Shares
                  issued for restricted stock grant
              
              
              2,799,994
              
              
              -Shares
                  issued for services
              
              
              45,500
              
              
              294,460Amortization
                  of restricted stock (unvested)
              
              
              5,066,257
              
              
              -Stock
                  option expense
              
              
              42,288
              
              
              198,027Compensation
                  expense
              
              
              552,751
              
              
              -FIN
                  48 tax provision
              
              
              76,730
              
              
              -Gain
                  on settlement of convertible debt derivative
              
              
              -
              
              
              (460,820
              )Change
                  in operating assets and liabilities:Accounts
                  receivable, net
              
              
              (2,558,562
              )
              
              (39,137
              )Notes
                  receivable
              
              
              (853,127
              )
              
              (1,213,624
              )Inventory
              
              
              (3,886,554
              )
              
              (1,016,690
              )Prepaid
                  marketing commissions
              
              
              (12,102,221
              )
              
              (8,766,099
              )Other
                  prepaid expenses and current assets
              
              
              (1,662,410
              )
              
              (108,956
              )Other
                  assets
              
              
              9,431
              
              
              1,190Accounts
                  payable and accrued expenses
              
              
              4,242,754
              
              
              2,915,415Income
                  tax payable
              
              
              126,155Accrued
                  bonuses
              
              
              (19,767
              )
              
              3,983,306Deferred
                  revenue
              
              
              16,370,000
              
              
              10,108,885Convertible
                  debt derivative
              
              
              -
              
              
              580,820Other
                  liabilities
              
              
              (12,511
              )
              
              -NET
                  CASH PROVIDED BY OPERATING ACTIVITIES
              
              
              13,040,414
              
              
              908,425CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchases
                  of property and equipment
              
              
              (9,169,147
              )
              
              (3,154,808
              )Proceeds
                  from sale of property and equipment
              
              
              87,539
              
              
              -Deposit
                  on purchase of business
              
              
              (311,332
              )
              
              -Proceeds
                  from sale of available-for-sale securities
              
              
              1,147,267
              
              
              2,903,440Purchases
                  of available-for-sale securities
              
              
              (1,171,332
              )
              
              (307,028
              )NET
                  CASH USED IN INVESTING ACTIVITIES
              
              
              (9,417,005
              )
              
              (558,396
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Bank
                  overdraft
              
              
              -
              
              
              812,464Repayment
                  of bank overdraft
              
              
              (812,464
              )
              
              -Principal
                  repayments of debt
              
              
              (21,156
              )
              
              (20,796
              )Repayment
                  of notes payable
              
              
              -
              
              
              (122,055
              )Repayment
                  of short-term debt
              
              
              (1,369,500
              )
              
              -Restricted
                  cash-collateral for outstanding note andreserve
                  for credit card processing
              
              
              (1,768,344
              )
              
              (1,250,000
              )Reduction
                  in restricted cash for credit card
                processing
                  - CD release
              
              
              750,000
              
              
              -Proceeds
                  from exercise of common stock options
              
              
              412,000
              
              
              -Proceeds
                  from exercise of common stock warrants
              
              
              916,625
              
              
              -NET
                  CASH USED IN FINANCING ACTIVITIES
              
              
              (1,892,839
              )
              
              (580,387
              )NET
                  (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
              
              
              1,730,570
              
              
              (230,358
              )CASH
                  AND CASH EQUIVALENTS, BEGINNING OF PERIOD
              
              
              -
              
              
              230,358CASH
                  AND CASH EQUIVALENTS, END OF PERIOD
              
              $
              1,730,570
              
              $
              -
  F5
  YTB
          INTERNATIONAL, INC.
 Consolidated
          Statements of Cash Flows
 Years
          Ended December 31, 2007 and 2006
  SUPPLEMENTAL
                  CASH FLOW INFORMATION:Interest
                  paid
              
              $
              40,528
              
              $
              95,035Income
                  taxes paid
              
              $
              28,796
              
              $
              -SUPPLEMENTAL
                  NON-CASH INVESTING AND FINANCING ACTIVITIES:Reclass
                  of available-for-sale securities to long-term investments
              
              $
              1,000,000
              
              
              -Property
                  and equipment included in accounts payable and accrued
                  expenses
              
              $
              356,036
              
              $
              239,193Increase
                  in short-term obligations and property and equipment
              
              $
              1,369,500
              
              $
              2,500,000Shares
                  issued in settlement of convertible debt derivative
              
              $
              -
              
              $
              400,000Shares
                  issued in cashless option exercise
              
              $
              26
              
              $
              150Transfer
                  of Class B common stock shares to Class A common stock
                  shares
              
              $
              18,594
              
              $
              -Property
                  and equipment settlement of bonus liability
              
              $
              101,490
              
              $
              -Shares
                  issued under a restricted stock grant in settlement of bonus
                  liability
              
              $
              6,849,999
              
              $
              -Shares
                  issued in cashless warrant exercise
              
              $
              595
              
              $
              -Stock
                  option compensation
              
              $
              88,324
              
              $
              -Increase
                  in goodwill related to increase in deferred tax liability
              
              $
              755,000
              
              $
              -FIN
                  48 cumulative effect adjustment
              
              $
              105,091
              
              $
              -
  *See
                  accompanying notes to consolidated financial
                  statements.*




F6





YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements








NOTE
      1
      - ORGANIZATION AND NATURE OF OPERATIONS




YTB
      International, Inc. (“ YTB ,”
or
      the
“ Company ”)
      and
      its three wholly-owned subsidiaries, YourTravelBiz.com, Inc. (“ YTB
      Marketing ”),
      YTB
      Travel Network, Inc. (“ YTB
      Travel ”)
      and
      REZconnect Technologies, Inc. (“ REZconnect ”),
      sometimes hereafter collectively referred to as the “Company”.




Effective
      July 31, 2007, the Company underwent a reclassification of its existing common
      stock and an accompanying three-for-one stock split (structured as a stock
      dividend) that resulted in the holders of the Company’s existing common stock
      receiving one share of Class A Common Stock and two shares of Class B Common
      Stock for each share of existing common stock held prior to such date. The
      Company’s authorized capital was also increased in conjunction with the
      reclassification, resulting in 300,000,000 shares of Class A Common Stock and
      100 million shares of Class B Common Stock being authorized under the Company’s
      Amended and Restated Certificate of Incorporation. Please see Note 15 - “Common
      Stock Reclassification”.




The
      Company provides Internet-based travel-related services and technology, which
      offers proprietary reservation systems for the travel industry, and is also
      a
      full-service provider of travel products and services to the leisure and small
      business traveler. The Company operates under various trade names, including
      “Your Travel BizTM”, “YTBnet.comTM”, “Travel NetworkTM”, “Global Travel NetworkTM”,
“YTB Travel NetworkTM” and “Travel Network Vacation CentralTM”, as well as
      Internet websites “Bookmytravel.comTM”, “REZconnect.comTM” and “RezCity.comTM”. 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 YTB Marketing subsidiary
      markets online travel websites on behalf of YTB Travel by use of independent
      marketing representatives (“Reps”). The YTB Travel subsidiary is a travel
      agency which books online travel transactions, collects payments, collects
      licensing fees, and pays travel sales commissions. The REZconnect subsidiary
      operates as a travel vendor relationship management company and offers
      franchises to brick and mortar travel agencies. All of REZconnect’s franchised
      operations are independently owned and operated. All sales of travel products
      by
      REZconnect are made through its independent agencies and franchisees, or through
      its interactive websites.





F7




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, and its
      wholly-owned subsidiaries, YTB Marketing, YTB Travel, and REZconnect. All
      intercompany accounts and transactions are eliminated in
      consolidation.




Reclassifications





Certain
      reclassifications have been made to the 2006 financial statements to conform
      to
      the current year presentation.




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
      determination of the estimated Referring Travel Agent (“ RTA ”)
      life
      which impacts revenue recognition and related marketing commissions/bonuses,
      impairment of goodwill, realization of deferred tax assets, the recoverability
      of capitalized software development costs and allowance for doubtful accounts.
      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.


Investments
  Investments
        designated as available-for-sale securities under SFAS No. 115, "Accounting
        for Investment in Certain Debt and Equity Securities," are carried at fair
        value
        based on quoted market prices or estimated based on quoted market prices
        for
        financial instruments with similar characteristics. Unrealized gains and
        losses
        of the Company's available-for-sale securities are excluded from earnings
        and
        reported as a component of other comprehensive income (loss). Additionally, the
        Company assesses whether an other-than-temporary impairment loss on its
        available-for-sale securities has occurred due to declines in fair value
        or
        other market conditions. Declines in fair value that are considered other
        than
        temporary are recorded as an impairment of investments in the Consolidated
        Statements of Operations.
  In
        general, investments with original maturities of greater than ninety days
        and
        remaining maturities of less than one year are classified as short-term
        investments. Investments with maturities beyond one year may also be classified
        as short-term based on their highly liquid nature and because such investments
        represent the investment of cash that is available for current
        operations.
  The
        Company also invests in auction rate securities that are typically over
        collateralized by pools of loans originated under the Federal Family Education
        Loan Program, or FFELP, and are guaranteed by the U.S. Department of Education.
        In addition, all auction rate securities held are rated by one or more of
        the
        major independent rating agencies as either AAA or Aaa. See Note 7 -
“Long-term Investments” for further details on the Company's investments. As of
        December 31, 2007 and 2006, the cost of marketable securities approximates
        fair
        value.




Accounts
      receivable




The
      Company reflects accounts receivable at the outstanding principal balance 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
      accounts receivable balance. Management determines the allowance at the end
      of
      each reporting period 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:


2007
              
              2006Beginning
                  balance
              
              $
              6,919
              
              $
              24,888Provision
                  for doubtful accounts
              
              
              -
              
              
              4,534Accounts
                  written off
              
              
              (1,220
              )
              
              (22,503
              )Ending
                  balance
              
              $
              5,699
              
              $
              6,919




F8


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





Notes
      receivable





Notes
      receivable are generally issued to certain Reps at
      interest rates that approximate the current market interest rates and have
      terms
      of 1 year or less.  The notes receivable are mainly guaranteed by
      sales director level Reps (“ Sales
      Directors ”)
      with
      at least 2,000 people or more in their organization, against future earnings
      of
      those Sales Directors.  When appropriate, a reserve is recorded against
      notes receivable to reduce the balance to the estimated net realizable value.
      As
      of December 31, 2007, a reserve of $200,907 has been recorded against the notes
      receivable balance of $2,242,658. As of December 31, 2006, no reserve was
      recorded against the notes receivable balance of $1,233,624. Activity in
      the notes receivable reserve is as follows:




2007Beginning
                  balance
              
              $
              -Reserve
                  for notes receivable
              
              
              200,907Notes
                  written off
              
              
              -Ending
                  balance
              
              $
              200,907




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 federally insured limit totaled
      $7,932,322 and $1,083,394 at December 31, 2007 and 2006, 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.





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.





Inventory





Inventories
      are stated at lower of cost or market and consist of marketing sales aids such
      as “Success from Home” and “Fun and Travel” magazines, a promotional tool for
      the Reps, and other printed marketing materials. Cost for all of the Company’s
      inventories is determined on a first-in, first-out (FIFO) basis. At the end
      of
      each reporting period, when required, a provision is made to reduce excess
      and
      obsolete inventory to estimated net realizable value. Inventory items are
      predominantly sales aides material that are sold at Company cost or for a
      nominal profit to Rep’s to help facilitate their sales efforts.





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 buildings
      and building improvements range from 15 to 30 years, 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.





The
      Company capitalizes interest on borrowings during the active construction period
      of major capital projects. Capitalized interest is added to the cost of
      qualified assets and is amortized over the estimated useful lives of the assets.
      Capitalized interest totaled $189,469 in 2007 and $81,226 in 2006.




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.




F9




YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





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.





Accordingly,
      an impairment loss of $376,450 has been reflected in the Company’s reported
      results of operations for year ended December 31, 2007. The Company believes
      that the carrying amounts of its long-lived assets as of December 31, 2007
      are
      fully recoverable.





Intangible
      assets, net





Intangible
      assets other then domain names 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. For further
      discussion of goodwill, see Note 10: “Goodwill.”





Revenue
      Recognition





*Online
      travel store sales and monthly fees*





The
      Company generates revenue from the sale of on-line travel websites, and from
      providing training and ongoing license services to the new business owners
      of
      such on-line travel websites, i.e. RTAs. The recognition of all up-front fees
      received from new travel website sales is deferred and recognized as income
      over
      a twelve-month period, which is the weighted average RTA life. Monthly web
      hosting 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.





*Training
      programs and marketing materials revenue*





Sales
      revenues from the sale of Rep and RTA sales aides and miscellaneous promotional
      and marketing materials are recognized when the related merchandise is shipped
      to the Rep or RTA. Sales revenues from training programs are recognized when
      the
      Rep has completed the related training course.





*Other
      revenue*





Sales
      revenues from convention attendance are recognized during the period in which
      the convention occurs.





F10




YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements


Accounting
        for Taxes Collected from Customers and Remitted to Governmental
        Authorities
 
 In
        June
        2006, the Financial Accounting Standards Board (“ FASB ”)
        ratified the consensus reached by the Emerging Issues Task Force in Issue
        No.
        06-3 (“ EITF
        06-3 ”),
“How
        Taxes Collected from Customers and Remitted to Governmental Authorities Should
        Be Presented in the Income Statement (That is, Gross versus Net Presentation).”
The scope of EITF 06-3 includes any tax assessed by a governmental authority
        that is directly imposed on a revenue-producing activity between a seller
        and a
        customer and may include, but is not limited to, sales, use, value added,
        and
        some excise taxes. EITF 06-3 also concluded that the presentation of taxes
        within its scope on either a gross (included in revenues and costs) or net
        (excluded from revenues) basis is an accounting policy decision subject to
        appropriate disclosure. EITF 06-3 is effective for periods beginning after
        December 15, 2006. The Company currently presents these taxes on a net basis
        and
        has elected not to change its presentation method.
  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 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 (“ SEC ”)
      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 Reps under an arrangement that pays
      the Reps direct sales commissions, override compensation (if qualified) and
      other bonus incentives based on the amounts attributable to each Rep’s personal
      and team travel website sales, or enrolled referrals. The “commission override”
is comprised of a small portion of the monthly web hosting fee RTAs pay to
      the
      Company which is paid to the Rep responsible for selling the on line travel
      store site.  Direct sales commissions and override compensation 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 travel websites, following
      the month earned. All commissions 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,
      which is based upon the estimated RTA life. In the event that the commission
      payout is greater than the average commission revenue collected, the difference
      is immediately charged to expense when incurred.




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 $248,099
      in 2007 and $385,024 in 2006.





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.




The
        Company recognizes tax liabilities when, despite the Company’s belief that its
        tax return positions are supportable, the Company believes that certain
        positions may not be fully sustained upon review by tax authorities. Benefits
        from tax positions are measured at the largest amount of benefit that is
        greater
        than 50 percent likely of being realized upon settlement. The current portion
        of
        tax liabilities is included in Income Taxes Payable and the noncurrent portion
        of tax liabilities is included in Other Liabilities in the Consolidated Balance
        Sheet. To the extent that the final tax outcome of these matters is different
        than the amounts recorded, such differences impact income tax expense in
        the
        period in which such determination is made.
 
 The
        Company generally recognizes interest and penalties related to uncertain
        tax
        positions through income tax expense. As of the date of adoption, the Company’s
        federal income tax returns for the tax years after 2002 remain subject to
        examination (2003 remains open due to amended tax returns). The various states
        in which the Company is subject to income tax are generally open for the
        tax
        years after 2003. There are no federal, state or foreign income tax audits
        in
        process as of December 31, 2007.




Stock-based
      compensation





Effective
      January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised
      2004), “Share-Based Payment” (SFAS No. 123(R)). SFAS No. 123(R) requires
      employee equity awards to be accounted for under the fair value method.
      Accordingly, share-based compensation is measured at the grant date, based
      on
      the fair value of the award.




F11




YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements




Earnings
        Per Share
 
 The
        Company computes earnings per share in compliance with SFAS No. 128 , “Earnings
        per Share”, which requires companies that have multiple classes of equity
        securities to use the “two-class” method in computing earnings per share. Because
        both of the Company’s Class A Common Stock and Class B Common Stock share the
        same rights with respect to dividends, basic and diluted earnings per share
        are
        the same for both classes.
 
 Basic
        earnings (loss) per share is computed based on the weighted average number
        of
        common shares (both Class A and Class B) outstanding for the period. Diluted
        earnings (loss) per share is computed based on the weighted average number
        of
        common shares (both Class A and Class B) and potentially dilutive common
        equivalent shares (both Class A and Class B) outstanding for the period,
        based
        on the treasury stock method.


New
      accounting pronouncements




In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS
      157 defines fair value, establishes a framework for measuring fair value and
      expands disclosures about fair value measurements. SFAS 157 applies under other
      accounting pronouncements that require or permit fair value measurement. SFAS
      157 does not require any new fair value measurement and the Company is currently
      evaluating the impact, if any, of SFAS 157 on its financial position, results
      of
      operations and cash flows. SFAS 157 requires prospective application for fiscal
      years beginning after November 15, 2007.





In
      February 2007, the FASB issued SFAS 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities Including
      an
      amendment of FASB Statement No. 115* (SFAS
      159) *,* which
      permits entities to choose to measure many financial instruments and certain
      other items at fair value. The provisions of SFAS 159 are effective as of the
      beginning of our 2008 fiscal year. We are currently evaluating the impact of
      adopting SFAS 159 on our financial statements.




In
            December 2007, the FASB issued SFAS No. 141R (“SFAS 141R”), “Business
            Combinations”, which establishes principles and requirements for how the
            acquirer recognizes and measures in its financial statements the identifiable
            assets acquired, the liabilities assumed, and any noncontrolling interest
            in the
            acquiree, goodwill acquired in the business combination or a gain from
            a bargain
            purchase. SFAS 141R is effective for business combinations with an acquisition
            date on or after the beginning of the first annual reporting period beginning
            on
            or after December 15, 2008. The Company expects SFAS 141R to have an
            impact on
            the accounting for any future business acquisitions of the effective
            date.
 In
          December 2007, the FASB issued SFAS No. 160, *Noncontrolling
          Interests in Consolidated Financial Statements - an amendment of ARB No.
          51* (“SFAS
          No. 160”). SFAS No. 160 requires the recognition of a noncontrolling interest,
          or minority interest, as equity in the consolidated financial statements
          and
          separate from the parent’s equity. The amount of net income attributable to the
          noncontrolling interest will be included in consolidated net income on
          the face
          of the income statement. SFAS No. 160 also includes expanded disclosure
          requirements regarding the interests of the parent and its noncontrolling
          interest. The Company is currently evaluating the impact his statement
          may have
          in its future financial statements.


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.




F12




YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements




NOTE
      3
      - NET INCOME (LOSS) PER SHARE





The
      Company has two classes of common stock: Class A Common Stock, par value $0.001
      per share (“ Class
      A Common Stock ”)
      and
      Class B Common Stock, par value $0.001 per share (“ Class
      B Common Stock ”).
      Shares of Class B Common Stock are convertible into shares of Class A Common
      Stock at any time, on a one-for-one basis. Shares of Class B Common Stock
      automatically convert into shares of Class A Common Stock upon sale or other
      disposition (except for transfers among related entities, transfers to trusts
      for the benefit of the transferring holder of the Class B Common Stock, bona
      fide pledges under financing arrangements and similar transfers). The Company
      has computed the earnings per share in compliance with Statement of Financial
      Accounting Standards (SFAS) No. 128 , “Earnings per Share”, which requires
      companies that have multiple classes of equity securities to use the “two-class”
method in computing earnings per share. Under the Company’s Amended and Restated
      Certificate of Incorporation, e ach
      share
      of Class A Common Stock and each share of Class B Common Stock are equal with
      respect to the right to receive dividends declared by our Board of Directors
      in
      its discretion from time to time from funds legally available therefore, whether
      in cash, stock or property. Because both classes share the same rights with
      respect to dividends, basic and diluted earnings per share are the same for
      both
      classes.





Basic
      earnings (loss) per share is computed based on the weighted average number
      of
      common shares (both Class A and Class B) outstanding for the period. Diluted
      earnings (loss) per share is computed based on the weighted average number
      of
      common shares (both Class A and Class B) and potentially dilutive common
      equivalent shares (both Class A and Class B) outstanding for the period, based
      on the treasury stock method. A reconciliation of basic and diluted earnings
      (loss) is presented in the table below:


2007
              
              2006Numerator:Net
                  income (loss)
              
              $
              3,208,895
              
              $
              (5,976,377
              )Denominator:Weighted
                  average common shares anddenominator
                  for basic calculation:
              
              
              97,377,194
              
              
              82,300,473Weighted
                  average effects of dilutiveequity
                  based compensation awards:Stock
                  options
              
              
              416,945
              
              
              -Stock
                  warrants
              
              
              3,477,056
              
              
              -Restricted
                  stock awards
              
              
              9,428,501
              
              
              -Denominator
                  for diluted calculation
              
              
              110,699,696
              
              
              82,300,473Net
                  income (loss) per share - basic for Class A and Class B
              
              $
              0.03
              
              $
              (0.07
              )Net
                  income (loss) per share - diluted for Class A and Class B
              
              $
              0.03
              
              $
              (0.07
              )





An
      aggregate of 3,722,080 shares (of both Class A Common Stock and Class B Common
      Stock) was excluded from the computation of diluted earnings per share for
      the
      year ended December 31, 2006 as the inclusion of such shares would have had
      an
      anti-dilutive effect.





F13




YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements




NOTE
      4
      - RESTRICTED CASH





Restricted
      cash as of December 31, 2007 and 2006 was $2,268,344 and $1,250,000,
      respectively. Restricted cash as of December 31, 2006 includes a $750,000
      certificate of deposit representing a reserve held by the Company’s former
      credit card processor and a $500,000 certificate of deposit representing
      collateral for the outstanding note on the property for the new corporate
      headquarters, the latter of which remained in the balance as of December 31,
      2007. As of May 2, 2007, the Company terminated its agreement with its credit
      card processor and signed an agreement with a new credit card processor,
      effective May 2, 2007, which requires a reserve of 3% of daily credit card
      receipts to be withheld. The restricted cash balance held by the former
      processor was returned to the Company. The reserve with the new credit card
      processor totaled $1,768,344 as of December 31, 2007. The terms of the agreement
      with the Company’s former processor allowed for the credit card company to
      withhold daily 15% of the Company’s credit card receipts.





NOTE
      5
      - NOTES RECEIVABLE





Notes
      receivable are generally issued to certain Reps at interest rates that
      approximate current market interest rates and have terms of 1 year or
      less.  The notes receivable are mainly guaranteed by Sales Directors with
      at least 2,000 people or more in their organization, against future earnings
      of
      those Sales Directors.  When appropriate, a reserve is recorded against
      notes receivable to reduce the balance to the estimated net realizable value.
      As
      of December 31, 2007, a reserve of $200,907 has been recorded against the
      balance of $2,242,658. In 2006, no reserve was recorded against the balance
      of
      $1,233,624.




NOTE
      6
      - INVENTORY




Inventory
      consists of the following materials available for sale to Reps:


2007
              
              2006"Success
                  From Home" magazines
              
              $
              2,772,016
              
              $
              906,600"Fun
                  and Travel" magazines
              
              
              1,173,130
              
              
              -"Coach's
                  Playbook" and "Circle of Champions" DVD's
              
              
              576,292
              
              
              -Printed
                  marketing materials
              
              
              381,806
              
              
              110,090Inventory
              
              $
              4,903,244
              
              $
              1,016,690




F14


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements




NOTE
        7
        - LONG-TERM INVESTMENTS
 
 Auction
        rate securities are investments with contractual maturities generally between
        20
        to 30 years. They are usually found in the form of municipal bonds,
        preferred stock, a pool of student loans or collateralized debt obligations
        whose interest rates are reset every seven to 35 days through an auction
        process. At the end of each reset period, investors can sell or continue
        to hold
        the securities at par.
  As
        of
        December 31, 2007, the Company's investment portfolio included $1.0 million
        of auction rate securities, which are primarily backed by student loans
        originated under the Federal Family Education Loan Program, or FFELP, and
        are
        over-collateralized, and guaranteed by the United States Federal Department
        of
        Education. In addition, all auction rate securities held by the Company are
        rated by the major independent rating agencies as either AAA or Aaa at the
        time
        of purchase. Most
        of these auction rate securities were scheduled to reset subsequent to December
        31, 2007. As of February 29, 2008, $1.0 million of the Company's
        auction rate securities have failed auctions due to sell orders exceeding
        buy
        orders. These failures are not believed to be a credit issue, but rather
        caused
        by a lack of liquidity. Under the contractual terms, the issuer is obligated
        to
        pay penalty rates should an auction fail. In the near term, the Company will
        not
        be able to access these funds associated with the failed auctions until one
        of
        the following occurs: a successful auction occurs, the issuer redeems the
        issue,
        a buyer is found outside of the auction process or the underlying securities
        have matured. As a result, the Company has classified the $1.0 million in
        auction rate securities as long-term investments as of December 31, 2007.
        This
        amount represents the entire balance of the auction rate securities as of
        December 31, 2007 and had not been sold by the Company subsequent to the
        end of
        fiscal 2007. The
        Company believes that its cash flows from operations provides it with the
        ability to withstand the loss in liquidity for these securities for the next
        twelve months, if necessary.
  The
        Company determined that no other-than-temporary impairment losses existed
        as of
        December 31, 2007, as all holdings had successful auctions in the periods
        leading up to that date. However, if the issuer of the auction rate securities
        is unable to successfully close future auctions or does not redeem the auction
        rate securities, or the United States government fails to support its guaranty
        of the obligations, the Company may be required to adjust the carrying value
        of
        the auction rate securities and record other-than-temporary impairment charges
        in future periods.
  The
        Company is evaluating the impact of these failed auctions on the fair value
        of
        these securities. If the Company determines that the fair value of these
        auction
        rate securities is temporarily impaired, the Company would record a temporary
        impairment, within other comprehensive loss, a component of shareholders'
        equity, in the period such temporary decline in fair value is determined.
        If it
        is determined that the fair value of these securities is other than temporarily
        impaired, the Company would record a loss, which could be material, in its
        statement of operations in the period such other than temporary decline in
        fair
        value is determined.




NOTE 8
      - PROPERTY AND EQUIPMENT




Property
      and equipment at December 31, 2007 and 2006 consists of the
      following:


2007
              
              2006Equipment
              
              $
              2,736,467
              
              $
              1,105,005Furniture
                  and fixtures
              
              
              847,233
              
              
              436,369Capitalized
                  software
              
              
              2,016,844
              
              
              1,555,003Vehicles
              
              
              164,294
              
              
              168,908Buildings
                  and improvements
              
              
              5,408,154
              
              
              3,085,519Land
              
              
              4,721,218
              
              
              1,538,693Construction
                  in progress and deposits
              
              
              2,209,710
              
              
              -Leasehold
                  improvements
              
              
              120,445
              
              
              116,52218,224,365
              
              
              8,006,019Less:
                  Accumulated depreciation
              
              
              (2,791,863
              )
              
              (1,814,611
              )Property
                  and equipment, net
              
              $
              15,432,502
              
              $
              6,191,408





Depreciation
      and amortization expense on property and equipment was $1,078,119 and $334,585
      for the years ended December 31, 2007 and 2006, respectively. Depreciation
      on
      leasehold improvements on the Company’s former headquarters was accelerated
      during the fourth quarter of 2006 in anticipation of the planned move of the
      headquarters office to the new facility. In 2007, additional leasehold
      improvements were purchased for $5,173.





As
      of
      December 31, 2007 and 2006, capitalized software development costs, net of
      accumulated amortization, totaled $573,444 and $235,299, respectively. For
      the
      years ended December 31, 2007 and 2006, the Company recorded amortization of
      capitalized software development costs of $123,695 and $46,532, respectively,
      which is included in total depreciation and amortization expense
      above.




F15




YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





NOTE 9
      - INTANGIBLE ASSETS, NET





The
      following tables present the components of the Company’s intangible assets as of
      December 31, 2007 and 2006:


At
                  December 31, 2007
              
              At
                  December 31, 2006Accumulated
              
              
              
              
              
              AccumulatedCost
              
              Amortization
              
              Net
              
              Cost
              
              Amortization
              
              NetAmortized
                  intangible assets (1)Non-compete
                  agreement
              
              $
              360,000
              
              $
              157,489
              
              $
              202,511
              
              $
              360,000
              
              $
              106,060
              
              $
              253,940RTA
                  agreements
              
              
              690,000
              
              
              690,000
              
              
              -
              
              
              690,000
              
              
              690,000
              
              
              -Vendor
                  agreements
              
              
              220,000
              
              
              67,360
              
              
              152,640
              
              
              220,000
              
              
              45,360
              
              
              174,640Total
                  amortized intangible assets
              
              
              1,270,000
              
              
              914,849
              
              
              355,151
              
              
              1,270,000
              
              
              841,420
              
              
              428,580Unamortized
                  intangible assetsDomain
                  names
              
              
              2,040,000
              
              
              -
              
              
              2,040,000
              
              
              2,040,000
              
              
              -
              
              
              2,040,000Total
                  unamortized intangible assets
              
              
              
              
              
              
              
              
              
              
              
              2,040,000
              
              
              -
              
              
              2,040,000Total
              
              $
              3,310,000
              
              $
              914,849
              
              $
              2,395,151
              
              $
              3,310,000
              
              $
              841,420
              
              $
              2,468,580
  (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 $73,429 and $73,440 for the years ended December 31, 2007 and
          2006,
          respectively. The estimated amortization expense
          related to intangible assets as of December 31, 2007 over the next five
          years
          follows, assuming no subsequent impairment of the underlying
          assets, is as follows:
  2008
              
              $
              73,4292009
              
              $
              73,4292010
              
              $
              73,4292011
              
              $
              70,2242012
              
              $
              22,000


NOTE 10
      - GOODWILL





The
      Company has elected to perform the annual impairment test on goodwill during
      the
      fourth quarter of each year, unless circumstances arise that require more
      frequent testing. During the fourth quarter of 2007, the Company completed
      the
      annual impairment test of goodwill and concluded goodwill was not
      impaired.




NOTE
      11 - BONUS ACCRUAL







*Sales
      Director Bonus Plans.* During
      the 4th quarter of 2005, the Company began a program to award bonuses to its
      Reps to recognize certain Reps (Sales Director level Reps) for outstanding
      contributions to the growth and success of the Company and to encourage all
      Reps
      to fulfill specific goals or targets for sales levels, enrolling of new RTAs
      or
      other business-critical functions. The awards offered were in the form of the
      Company’s stock, based upon a predetermined calculation. That bonus program was
      terminated in the first quarter of 2007, with an accompanying pay-out of a
      one-time restricted stock award to Sales Director level Reps under the program
      effective as of January 2, 2007. That initial award program was replaced by
      a
      new plan-- the 2007 Sales Director Bonus Plan-- that was approved by the
      Company’s Board of Directors on February 19, 2007 and by its stockholders on
      June 11, 2007.




F16


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





Total
      bonus expense included in marketing commissions expense for the years ended
      December 31, 2007 and 2006 were $636,394 and $4,083,306, respectively, under
      these Sales Director level bonus plans. Accrued bonuses as of December 31,
      2007
      and 2006 totaled $548,070 and $7,435,132, respectively, under these plans.





*Executive
      Employment Agreements.* Under
      the Company’s employment agreements with several of its executives, as in effect
      since the 2005 fiscal year, such executives were entitled to a bonus based
      on
      the level of net pre-tax income of the Company. For fiscal 2007, based on the
      Company’s achievement of $3,422,095 in net pre-tax income, post bonus, the
      Company accrued $380,233 in bonus awards for such executives, representing
      2.5%
      of the Company’s net pre-tax income for such year.





NOTE
      12 - 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. Discretionary
      contributions made by the Company are dependent upon the length of service
      of
      each employee. Such contributions by the Company were $289,109 in 2007 and
      $159,650 in 2006.




NOTE
      13 - FINANCING ARRANGEMENTS




Short-Term
      Debt





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 its new corporate headquarters in Wood River, Illinois.
      The Company financed the purchase of the Property by issuing a note
      (the "Note") in the amount of $2.5 million bearing interest at a 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 after which the
      entire principal will be paid or the note will be refinanced. Although the
      scheduled balloon principal payment is due July 26, 2008, the Note is payable
      upon demand per the terms of the agreement; however, no demand has been made
      to
      date. The Note is collateralized by the first mortgage on the Property and
      a
      $500,000 Certificate of Deposit. The Certificate of Deposit was released on
      January 8, 2008, after the Company made $625,000 of improvements to the
      Property, but it was used by the Company to reduce the principal amount owed
      under the Note. There are no other restrictive covenants included in the Note.
      The Company is planning a $12.0-$15.0 million renovation project to the
      Property. The outstanding loan balance at December 31, 2007 is $2,500,000.




F17






YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements







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 $324,000
      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 was guaranteed by
      the
      President of the REZconnect subsidiary. On December
      27, 2006, the Company, upon approval from its Board of
      Directors, guaranteed the debt, thereby allowing for the release of the
      guarantee by the President of the REZconnect subsidiary. The outstanding loan
      balance as of December 31, 2007 and 2006 was $241,659 and $262,815,
      respectively.




Minimum
      principal payments of long-term debt as of December 31, 2007 are as
      follows:


Year
                  endingDecember
                  31,2008
              
              
              22,0182009
              
              
              22,9152010
              
              
              23,8492011
              
              
              24,821Thereafter
              
              
              148,056Total
              
              $
              241,659





NOTE
      14 - COMMITMENTS AND CONTINGENCIES





Leases





The
      Company leases office space at 600 Country Club View Drive in Edwardsville,
      Illinois under a commercial lease agreement with Meridian Land Company, Inc.
      (“ Meridian
      Land ”),
      the
      owner of the building. The rental cost of 600 Country Club View Drive space
      is
      $5,000 per month. In addition, the lease provides the Company the option to
      purchase the property for a cash price of $2,350,000. Subsequent to December
      31,
      2007, the Company placed an earnest deposit of $500,000 towards the
      purchase of this property.





On
      August
      17, 2007, the Company entered into a Commercial Lease Agreement (the
“ Magnolia
      Lease ”),
      by
      and between Meridian Land, as lessor, and the Company, as lessee, covering
      the
      approximately 5,500 square feet premises located at #112 Magnolia Drive (Lot
      #9
      Magnolia Commons), Glen Carbon, Illinois 62034 (the “ Magnolia
      Leased Premises ”).
      The
      Magnolia Leased Premises will serve as additional office space for the
      Company.





The
      Magnolia Lease runs for an initial term of eighteen (18) months, commencing
      on
      February 15, 2008 and expiring on April 30, 2009. Rent under the Magnolia Lease
      has been set at $8,400 per month. In addition to monthly rental
      payments, the Company will be responsible for utilities and
      maintenance and must pay all real estate taxes assessed on the property on
      which
      the Magnolia Leased Premises are located during the term of the Magnolia Lease,
      as well as all costs of maintaining any common areas used by the Company in
      conjunction with the Magnolia Leased Premises.





The
      consent of Meridian Land is required for assignments or subletting of the
      Magnolia Leased Premises by the Company under the Magnolia Lease, such consent
      not to be unreasonably withheld or delayed. Any assignment or subletting by
      the
      Company will not release the Company from any of its duties or obligations
      under
      the Magnolia Lease. The entry into the Magnolia Lease was approved by the
      independent members of the Company’s Board of Directors.




F18


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





The
      Company is also obligated under an operating office lease for Rezconnect's
      offices in New Jersey, which expires on April 30, 2008. Under the lease the
      Company must pay minimum annual rentals, currently at $49,916 per year,
      plus real estate taxes and operating cost charges. In addition, the Company
      has
      entered into various operating lease agreements with Wal-Mart Stores, Inc.
      (Wal-Mart) for four 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.





The
      Company also leases certain office equipment and one vehicle under
      non-cancellable operating lease agreements with initial terms in excess of
      one
      year and expiring at various dates through fiscal year 2011.





Following
      is a summary of net rental income (expense) for all locations for the years
      ended December 31, 2007 and 2006:


2007
              
              2006Rental
                  expense
              
              $
              295,562
              
              $
              377,662Less
                  sublease rental income
              
              
              90,706
              
              
              110,434Net
                  rental expense
              
              $
              204,856
              
              $
              267,228


Minimum
      future rental payments under non-cancelable operating leases (including the
      Wal-Mart location leases), having remaining terms in excess of one year as
      of
      December 31, 2007 are as follows:


Office
              
              SubleaseYear
                  ending
              
              IL
                  Office
              
              RezConnect
              
              Wal-Mart
              
              Warehouse
              
              Equipment
                  /
              
              Rental
              
              Net
                  RentalDecember
                  31,
              
              
              
              NJ
                  Office
              
              Locations
              
              Indiana
              
              Vehicle
              
              Income
              
              Expense2008
              
              
              189,000
              
              
              28,951
              
              
              63,178
              
              
              11,335
              
              
              40,447
              
              
              72,296
              
              
              260,6152009
              
              
              163,800
              
              
              -
              
              
              21,999
              
              
              -
              
              
              32,048
              
              
              24,447
              
              
              193,4002010
              
              
              84,000
              
              
              -
              
              
              -
              
              
              -
              
              
              24,142
              
              
              -
              
              
              108,142Total
              
              $
              436,800
              
              $
              28,951
              
              $
              85,177
              
              $
              11,335
              
              $
              96,637
              
              $
              96,743
              
              $
              562,157


In
        addition, as of December 31, 2007, the Company had approximately $2,560,000
        in
        purchase obligations related to commitments for future good and services.
        The
        purchase commitments principally include $1,148,800 for future services over
        the
        next five years related to the Company’s annual convention, as well as
        approximately $450,000 related to the construction of the new corporate
        headquarters, approximately $265,000 in commitments for various marketing
        materials and services and
        $213,000 in commitments related to travel training programs for
        RTAs.
  In
        connection with a non-binding letter of intent, the Company has advanced
        $311,332 to a target company and the terms of the agreement will be included
        in
        the definitive asset purchase agreement scheduled to close in the second
        quarter
        of 2008.




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, (President and
      former Treasurer), Mr. Michael Y. Brent, (former President), Mr. Derek J. Brent,
      (former Secretary) and Mr. John D. Clagg, (Chief Financial Officer and
      Treasurer). All employment agreements expire December 31, 2009 and subject
      each
      individual 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, J. Scott Tomer and Michael Y. Brent receives a base
      annual salary of $134,832 (effective January 1, 2007), increasing annually
      at a
      rate of 6%. They each receive an override on RTA sales and monthly fees
      generated by a certain override representative position within the YTB
      compensation program of the YourTravelBiz.com sales organization equal to 33
      1/3% of the monthly commissions and overrides earned by such representative
      position, paid monthly. Additionally, each of Messrs. J. Kim Sorensen, J. Scott
      Tomer and 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. 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, J. Scott Tomer and Michael Y. Brent in an amount equal to three times
      their respective annual base salary, payable to beneficiaries designated by
      each.




F19


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements




Mr.
      John
      D. Clagg, whose contract became effective December 1, 2005, receives a base
      salary of $180,000 increasing annually in $30,000 increments. However, effective
      January 1, 2007, based on a verbal agreement, Mr. Clagg’s base salary was
      increased to $240,000. Mr. Clagg also receives health, life, and medical
      insurance provided by the Company.





Mr.
      Derek
      J. Brent, who provides services only to the REZconnect subsidiary, receives
      a
      base annual salary of $210,000, increasing annually in $30,000 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.





Effective
      January 1, 2008, the Company entered into new employment agreements with each
      of
      Mr. J. Scott Tomer, Mr. J. Kim Sorensen and Mr. John D. Clagg that replaced
      the
      existing employment agreements of these executive officers and furthermore
      entered into employment agreements with each of Mr. J. Lloyd Tomer (Chairman
      of
      the Board) and Mr. Andrew Cauthen (Chief Operating Officer and Secretary. Please
      see Note 21 below (“Subsequent Events”).





NOTE
      15 - COMMON STOCK RECLASSIFICATION





On
      July
      31, 2007 (the “ Reclassification
      Date ”),
      the
      Company filed its Amended and Restated Certificate of Incorporation, previously
      approved by the Company’s stockholders at the Company’s annual meeting of
      stockholders on June 11, 2007, which authorized the issuance of two classes
      of
      common stock - Class A Common Stock and Class B Common Stock - and an increase
      in the Company’s total authorized capital. This amendment and restatement
      enabled a reclassification of the Company’s old common stock, par value $0.001
      per share (“ Old
      Common Stock ”)
      and an
      accompanying stock split (collectively, the “ Reclassification ”)
      pursuant to which stockholders of record received one share of Class A Common
      Stock and two shares of Class B Common Stock for each share of Old Common Stock
      held as of the Reclassification Date. All shares and per share amounts in this
      Annual Report on Form 10-KSB reflect this Reclassification.





The
      Company announced on August 1, 2007, immediately following the effectiveness
      of
      the Reclassification, that the new ticker symbol for the new Class A Common
      Stock was YTBLA. There is no symbol for the Class B Common Stock, as that
      security does not trade.




NOTE
      16 - STOCK-BASED COMPENSATION




**Stock
      Options**





As
      of
      December 31, 2007, the Company had a stock-based employee compensation plan
      and
      a stock-based Sales Director bonus plan.





*2004
      Stock Option and Restricted Stock Plan.* The
      Company’s stock-based employee compensation plan, the 2004 Stock Option and
      Restricted Stock Plan (the “ 2004
      Plan ”)
      was
      approved by the Company’s stockholders in December 2004. The 2004 Plan is
      administered by the compensation committee of the Company’s Board of Directors
      which determines the employees, officers, directors and consultants subject
      to
      receive awards and the terms and conditions of these awards. The purpose of
      the
      2004 Plan is to make available to the Company’s key employees and directors
      certain compensatory arrangements related to the growth in the value of the
      Company’s 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 the Company’s employees
      and directors with the interest of its stockholders. Following the
      Reclassification Date, as amended and restated, the 2004 Plan authorizes
      15,000,000 shares of common stock for issuance. All restricted stock awards
      and
      all shares of stock issuable upon exercise of options that are granted after
      the
      Reclassification Date shall consist of Class A Common Stock. As of December
      31,
      2007, 13,125,000 shares of Class A Common Stock remain available for future
      grants under the 2004 Plan.




F20




YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





On
      April
      24, 2006, the Company’s Board of Directors granted 750,000 options under the
      2004 Plan to certain employees, members of the Board of Directors and two
      outside consultants, 75,000 of which were forfeited September 30, 2006. These
      stock options vest in equal increments on the anniversary date over the next
      five years following the grant and expire six years from the date of grant.
      After the stock option award was granted, the Board of Directors modified the
      stock option award to add a 6 th year to
      the term and such options were re-valued. The modification did not materially
      impact the value of the awards. 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 2006: risk-free
      interest rate of 4.90%; expected life of 6.0 years; dividend yield of 0% and
      expected volatility of 75%. The expected average life represents the period
      of
      time that options granted are expected to be outstanding giving consideration
      to
      vesting schedules, historical exercise and forfeiture patterns. The expected
      dividend yield is based on historical information and management’s plan.
      Expected volatility is based on analysis of historical volatilities of companies
      which are considered YTBI’s peer group. The Company adjusts share-based
      compensation on a quarterly basis for changes to the estimate of expected equity
      awarded for forfeitures based on a review of recent forfeiture activity and
      expected future employee turnover. The effect of forfeiture adjustments in
      2007
      was insignificant.





The
      Company recognized $42,288 and $198,027 in compensation expense for stock
      options granted under the 2004 Plan for the years ended December 31, 2007 and
      2006, respectively. Unrecognized expense related to future service on existing
      stock options granted under the 2004 Plan as of December 31, 2007 and 2006
      is
      $56,594 and $98,882, respectively.





*2007
      Sales Director Bonus Plan.* The
      stock-based Sales Director bonus plan (the “ 2007
      Sales Director Bonus Plan ”)
      is a
      bonus plan under which achievement based unit awards are granted on a
      semi-annual basis to Sales Directors who excel in their performance on behalf
      of
      the Company and its wholly owned operating subsidiaries. Each award under the
      2007 Sales Director Bonus Plan consists of discounted stock options exercisable
      to purchase shares of the Company’s Class A Common Stock. The options have an
      exercise price equal to fifty percent (50%) of the fair market value of the
      Class A Common Stock on the close of business on the business day immediately
      preceding the grant date. The 2007 Sales Director Bonus Plan was approved by
      the
      Company’s Board of Directors on February 19, 2007 and subsequently approved by
      the Company’s stockholders at the Company’s annual meeting of stockholders held
      on June 11, 2007.





On
      July
      16, 2007, three of the Company’s Reps, who have qualified as Sales Directors,
      received performance-based grants consisting of discounted stock options
      pursuant to the 2007 Sales Director Bonus Plan. Each of the three qualifying
      Sales Directors received 70,422 options based upon the defined level of
      achievement measured as of June 30, 2007. These options have an exercise price
      of $0.71, which is equal to fifty percent (50%) of the fair market value of
      our
      Common Stock on the close of business on the business day immediately preceding
      the grant date as defined by the 2007 Sales Director Bonus Plan (as adjusted
      to
      account for the three-for-one stock split that occurred pursuant to the
      Reclassification). All of the options granted vested immediately on the date
      of
      the grant; however, the options are only exercisable in accordance with the
      following schedule: 1/3 are exercisable at any time during the remainder of
      calendar year 2007, 1/3 are exercisable on December 15, 2008 (and only on such
      date) and the remaining 1/3 are exercisable on December 15, 2009 (and only
      on
      such date). The first 1/3 tranche of the award grant was exercised prior to
      December 31, 2007. 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 these grants in 2007: risk-free interest
      rate of 4.88%; expected life (in years) of 0.2-2.4; dividend yield of 0% and
      expected volatility of 55.4%-98.3% (weighted average expected volatility of
      83.9%). The expected average life represents the period of time that options
      granted are expected to be outstanding giving consideration to vesting
      schedules, historical exercise and forfeiture patterns. The expected dividend
      yield is based on historical information and management’s plan. Since the
      Company had sufficient historical data available, expected volatility is based
      on the Company’s historical volatility as measured for the expected term of each
      tranche. The Company adjusts share-based compensation on a quarterly basis
      for
      changes to the estimate of expected equity awarded for forfeitures based on
      a
      review of recent forfeiture activity and expected future employee turnover.
      The
      effect of forfeiture adjustments in 2007 was insignificant. The fair value
      of
      the three awards as of the date of the grant measured on June 30, 2007, based
      upon the Black-Scholes option pricing model, was $187,415 and was recorded
      as
      accrued bonuses on the balance sheet as of June 30, 2007 with a corresponding
      expense recorded as marketing commissions. During
      the third and fourth quarters of 2007, the Company recorded a reduction in
      accrued bonuses of $69,445 and $18,879, respectively, and a related charge
      to
      additional paid in capital associated with the fair value amount related to
      the
      exercisable portion of the grant. As of December 31, 2007, $99,091 of accrued
      bonuses relate to the options that are exercisable in the future.




F21




YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





The
      following table provides additional information with respect to the stock option
      plan activity of the Company’s 2004 Plan and the 2007 Sales Director Bonus
      Plan:




Shares
              
              Weighted-Average
                  Exercise Price
              
              Weighted-Average
                  Fair ValueOptions
                  outstanding, beginning of period
              
              
              1,875,000
              
              $
              0.36
              
              $
              0.21For
                  the period from January 1 to December 31, 2007Granted
              
              
              211,266
              
              
              0.71
              
              
              0.89Forfeited
              
              
              -
              
              
              -
              
              
              -Expired
              
              
              -
              
              
              -
              
              
              -Exercised
              
              
              (1,300,425
              )
              
              0.36
              
              
              0.24Options
                  outstanding, end of period
              
              
              785,841
              
              $
              0.46
              
              $
              0.34Options
                  exercisable, end of period
              
              
              105,000
              
              $
              0.40
              
              $
              0.12




A
      summary
      of stock options outstanding and exercisable as of December 31, 2007 are as
      follows:


Options
                  Outstanding
              
              Options
                  ExercisableWeighted-Average
              
              Weighted-
              
              
              
              Weighted-Number
              
              Remaining
              
              Average
              
              Number
              
              AverageRange
                  of Exercise Prices
              
              
              Outstanding
              
              
              Life
                  (years)
              
              
              Exercise
                  Price
              
              
              Outstanding
              
              
              Exercise
                  Price$0.33
                  - $0.71
              
              
              785,841
              
              
              3.81
              
              $
              0.46
              
              
              105,000
              
              $
              0.40Total
              
              
              785,841
              
              
              3.81
              
              $
              0.46
              
              
              105,000
              
              $
              0.40




F22





YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements







**Restricted
      Stock Awards**





Effective
      January 2, 2007 (the “ Grant
      Date ”),
      the
      Board of Directors of the Company approved a one-time restricted stock award
      of
      an aggregate of 28,950,027 shares (as adjusted to account for the three-for-one
      stock split that occurred pursuant to the Reclassification) (the “ Award
      Shares ”)
      of the
      Company’s common stock, par value $0.001 per share, to thirty Sales Director
      level Reps (each, a “ Grantee ”)
      who
      have made outstanding contributions to the growth and success of the Company
      and/or its wholly owned operating subsidiaries. Of the 30 Grantees, three are
      members of the Company’s Board of Directors and one is the President of an
      operating subsidiary. The Award Shares vest in stages for each Grantee, provided
      various performance-related conditions specified in the restricted stock award
      agreement entered into by the Company and each Grantee (each, a “ Restricted
      Stock Award Agreement ”)
      are
      satisfied at each vesting date. The Grantees are the Company’s most successful
      Reps who have met the criteria for being deemed “Sales Directors”.





An
      aggregate of 9,338,703 of the Award Shares (or approximately 32.3% of each
      award) vested immediately on the Grant Date, while up to an additional
      19,611,324 Award Shares in the aggregate are subject to vesting in four equal
      installments of up to 4,902,831 shares each on the first four anniversary dates
      of the Grant Date. The vesting of any single Grantee’s award shall be determined
      independently of the vesting of any other Grantee’s award; thus, each Grantee
      must independently meet the performance related criteria specified in the
      Restricted Stock Award Agreement between himself or herself and the Company.
      The
      Company’s transfer agent, American Stock Transfer & Trust Company, serves as
      escrow agent with respect to the unvested Award Shares awarded and will retain
      such shares until the relevant vesting conditions in each Restricted Stock
      Award
      Agreement, are met. To the extent that the conditions to the vesting of any
      unvested Award Shares of a Grantee have not been met by the relevant vesting
      date therefor, such shares shall be cancelled by the Company.





On
      January 2, 2008, an additional 1,634,277 shares of Class A Common Stock and
      3,268,554 shares of Class B Common Stock were issued, in the aggregate, to
      the
      Grantees upon the vesting of the second tranche of the Award Shares,
      representing an additional 16.9% of the Award Shares (as adjusted to reflect
      the
      stock split pursuant to the Reclassification).





The
      Company received no cash consideration for the Award Shares, as the shares
      were
      issued in consideration of the outstanding contributions and services rendered
      by the Grantees in their roles as Sales Directors on behalf of the Company
      and/or its wholly owned operating subsidiaries. The grant of the Award Shares
      was exempt from the registration requirements of the Securities Act of 1933,
      as
      amended (the “ Securities
      Act ”),
      pursuant to Section 4(2) thereof, as each of the Grantees has provided
      representations in the Restricted Stock Award Agreement between himself or
      herself and the Company as to his or her status as an “accredited investor” (as
      defined in Regulation D promulgated under the Securities Act). Although not
      obligated to do so under the Restricted Stock Award Agreements, on May 17,
      2007,
      the Company filed a registration statement on Form S-8 to cover the resale
      of
      the Award Shares.




The
      Company calculated the cost for the restricted stock grants by using the fair
      market value of the Company’s common stock on the Grant Date, the number of
      shares issued and an estimate of shares that will not vest due to forfeitures.
      With respect to the 26 Grantees who are not members of management, the Company
      accrued for the cost of the Award Shares during the period over which the Sales
      Directors qualified for the awards and reported these costs as marketing
      commission expense and a corresponding bonus liability in fiscal 2006.
      Therefore, no current period expense with respect to the portion of
      the grants which immediately vested has been incurred. However, additional
      expense has been and will be incurred in subsequent periods during which the
      vesting of Award Shares occurs.




F23





YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements





Furthermore,
      the Company has accounted for the grant of the Award Shares to the four members
      of management as marketing commission expense in the first quarter of 2007,
      the
      period in which the grant was approved by the Board of Directors. Therefore,
      a
      current expense of $2,799,994 with respect to the portion of the grant to
      management which immediately vested has been incurred. The Company also recorded
      $4,889,641, for the year ended December 31, 2007 as marketing commission expense
      related to the amortization of the unvested portion of the Award Shares, which
      includes a nominal forfeiture rate of 4% due to the performance related criteria
      that must be met to determine vesting at each anniversary date.





As
      of
      December 31, 2007, there was approximately $15.2 million of unrecognized
      compensation expense related to the 19,611,324 shares of non-vested restricted
      stock, which the Company expects to recognize over the next 3.0 years.





The
      following table summarizes the status of restricted shares during the year
      ended
      December 31, 2007:





Weighted-averageRestricted
                
                grant-dateshares
                
                fair
                    valueNon-vested
                    at beginning of 2007
                
                
                -
                
                
                -Granted
                
                
                28,950,027
                
                $
                1.03Vested
                
                
                9,338,703
                
                $
                1.03Forfeited
                
                
                -Non-vested
                    at December 31, 2007
                
                
                19,611,324
                
                $
                1.03


F24


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements







NOTE
      17 - STOCKHOLDERS’ EQUITY




During
      the fourth quarter of 2006, equity compensation in the amount of $294,460 was
      recorded as a result of 552,582 shares issued as compensation for services
      to
      non-employees with an offsetting adjustment to common stock in the amount of
      $552 and additional paid in capital in the amount of $293,908.




During
      the third quarter of 2007, equity compensation in the amount of $45,500 was
      recorded as a result of 30,000 shares issued as compensation for services to
      non-employees with an offsetting adjustment to common stock in the amount of
      $30
      and additional paid in capital in the amount of $45,470.


During
        2007, the Company received $470,625 in proceeds from the exercise of 806,784
        common stock warrants associated with its February 2005 Private Placement
        Offering. The Company recorded a corresponding amount of $469,820 to additional
        paid in capital, $269 to Class A Common Stock and $536 to Class B Common
        Stock.
        Each warrant is exercisable to purchase one share of common stock at an exercise
        price of $0.58, exercisable for five years from date of issuance. As of December
        31, 2007, 49.68 of the 64 warrant units (each unit consisting of 56,250 common
        stock purchase warrants) remain unexercised.
  Also
        during 2007, the Company received $446,000 in proceeds related to the exercise
        of 750,000 warrants previously issued for services. The Company recorded
        a
        corresponding amount of $445,250 to additional paid in capital, $250 to Class
        A
        Common Stock and $500 to Class B Common Stock. The Company also recorded
        $602 to
        Class A Common Stock and $1,204 to Class B Common Stock and a corresponding
        amount of $1,806 as a reduction in additional paid in capital related to
        the
        issuance of 1,804,512 net shares of common stock in connection with the cashless
        exercise of 2,400,000 warrants also previously issued for services.




NOTE
      18 - RELATED PARTY TRANSACTIONS




Certain
      members of management of the Company also own a company that YTB Marketing
      utilizes for printing much of its sales materials. During 2007 and 2006, the
      Company expended $3,450,713 and $1,467,402, respectively, for printing sales
      materials, performing shipping services and convention services including design
      and production of the stage. In addition, at December 31, 2007 and 2006,
      the Company has a pre-paid asset of $157,289 and $136,553, respectively,
      reflected on the balance sheet for payments related to work not yet completed.





The
      Company leased office space (which housed the Company’s previous headquarters
      office) in two buildings under separate commercial lease agreements. The
      buildings were owned and controlled by Meridian Land Company, Inc.
      (“ Meridian
      Land ”).
      Meridian Land is controlled by Timothy Kaiser, M.D. and Clay Winfield, each
      of
      whom is a member of the Company’s Board of Directors. The combined rental cost
      of both spaces was $15,000 per month. The first lease (the “ Building
      One Lease ”),
      which
      covered the approximate 13,000 square foot premises located at One Country
      Club
      View, Edwardsville, Illinois 62025 (the “ Building
      One Leased Premises ”),
      commenced July 1, 2005 and was to expire on June 30, 2010. The second lease
      (the
“ Building
      Two Lease ”),
      which
      covers approximately 5,000 square feet at the premises located at 600 Country
      Club View Drive, Edwardsville, Illinois 62025 (the “ Building
      Two Leased Premises ”),
      commenced November 1, 2005 and was to expire on October 31, 2010. Combined
      rent
      expense for these two leases was $137,300 and $180,000 for the years ended
      December 31, 2007 and 2006 respectively.





Each
      lease contained an addendum which granted to Meridian Land a two-year “put”
option to sell the property on which the respective leased premises were located
      in exchange for shares of the Company’s common stock. In the case of the
      Building One Lease, the put option, which expired June 30, 2007, entitled
      Meridian Land to receive 1,500,000 shares of the Company’s common stock upon
      exercise thereof. In the case of the Building Two Lease, the put option entitled
      Meridian Land to receive 1,875,000 shares of the Company’s common stock upon
      exercise thereof.





Separately,
      under each of the Building One Lease and Building Two Lease, the Company had
      the
      option to purchase the property on which the respective leased premises were
      located for cash consideration. In the case of the Building One Lease, the
      cash
      purchase price was set at $1,850,000, while under the Building Two Lease, the
      cash purchase price was set at $2,350,000.





On
      July
      27, 2007, the Company exercised its option (the “ Building
      One Purchase Option ”)
      under
      the Building One Lease to purchase the real property on which the Building
      One
      Leased Premises are located (the “ Building
      One Property ”).
      As a
      result of its exercise of the Building One Purchase Option, the Company entered
      into a contract with Meridian Land (the “ Building
      One Purchase Contract ”).





Consistent
      with the terms of the Building One Purchase Option, under the Building One
      Purchase Contract, the purchase price for the Building One Property was set
      at
      $1,850,000, of which $480,500 was paid by the Company in cash as of the signing
      of the Building One Purchase Contract and the remaining $1,369,500 of which
      constituted obligations of Meridian Land which were paid and/or assumed by
      the
      Company at the closing, consisting of (i) $1,305,525 principal amount of
      aggregate indebtedness owed by Meridian Land to a local bank that was assumed
      by
      the Company, (ii) $57,791 of accrued property taxes owed by Meridian Land for
      the Building One Property for 2006 and for a pro-rata portion of 2007, and
      (iii)
      $6,184 of assorted closing costs of Meridian Land. The indebtedness to the
      local
      bank assumed by the Company at the closing was secured by a mortgage on the
      Building One Property. Closing under the Building One Purchase Contract occurred
      on August 14, 2007. The outstanding indebtedness on the Building One Property
      was subsequently retired by the Company on October 30, 2007.




F25




YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements




As
      previously reported in the Company’s Current Reports on Form 8-K filed with the
      SEC on August 7, 2007 and August 30, 2007 and in its Quarterly Report on Form
      10-QSB filed with the SEC on November 14, 2007, the Company had purportedly
      entered into a contract (the “ Building
      Two Purchase Contract ”)
      with
      Meridian Land to purchase the property on which the Building Two Leased Premises
      are located (the “ Building
      Two Property ”)
      effective as of August 3, 2007 and had purportedly closed upon the acquisition
      of the Building Two Property on August 14, 2007, with the Building Two Property
      to remain subject to $1,996,416 principal amount of existing indebtedness (as
      of
      August 3, 2007) that is owed by Meridian Land to a bank that is secured by
      a
      mortgage on the Building Two Property. The purported acquisition was to have
      resulted from Meridian Land’s exercise of its put option
      (the “ Building
      Two Put Option ”),
      pursuant to the Building Two Lease, pursuant to which the Company was to issue
      to Meridian Land one million eight hundred seventy five thousand (1,875,000)
      shares of its common stock (reflecting the 3 for 1 stock split resulting from
      the Reclassification), of which six hundred twenty-five thousand (625,000)
      shares were to be Class A Common Stock and one million two hundred fifty
      thousand (1,250,000) shares were to be Class B Common Stock (collectively,
      the
“ Meridian
      Option Shares ”).




However,
      because Meridian
      Land had not been aware, as of its entry into the Building Two Lease, that
      the
      Meridian Option Shares were to constitute “restricted securities” (as defined in
      Rule 144 promulgated under the Securities Act of 1933, as amended) and could
      not
      be freely resold without compliance with the then-applicable minimal one year
      holding period under Rule 144, and because the Company was not aware of all
      relevant factors related to acceptance of encumbered title to the Building
      Two
      Property, each of Meridian Land and the Company agreed (on November 8, 2007)
      to
      rescind its respective performance pursuant to the Building Two Put Option,
      given the mutual mistake of fact between the parties. Meridian Land agreed
      to
      return the Meridian Option Shares to the Company for cancellation, and the
      Company agreed to re-convey title to the Building Two Property to Meridian
      Land.
      Each of Meridian Land and the Company agreed to treat its respective performance
      pursuant to the Building Two Put Option (including both the transfer of title
      to
      the Building Two Property and the issuance of the Meridian Option Shares) as
      void. The Company therefore does not reflect in its balance sheet at December
      31, 2007 the Building Two Property nor the issuance of the Meridian Option
      Shares. The Company exercised its separate option under the Building Two Lease
      to purchase the Building Two Property for $2,350,000 in cash in January 2008
      and
      subsequently entered into a purchase contract with Meridian Land pursuant
      thereto. The Company paid $500,000 out of the $2,350,000 purchase price as
      a
      deposit as of the execution of the purchase contract, and the remaining
      $1,850,000 is due at the closing of the acquisition of the Building Two
      Property, which is scheduled to occur in, or prior to May 2008. Please see
      Note
      21 - “Subsequent Events” below.





Because
      Meridian Land is controlled by Timothy Kaiser, M.D. and Clay Winfield, both
      of
      whom are members of the Company’s Board of Directors, the Company’s entry into
      each of the transactions related to the Building One Property and Building
      Two
      Property (including the rescission of the Building Two Purchase Contract),
      was
      approved by the independent members of the Company’s Board of
      Directors.




In
      July
      2006, the Company borrowed $2.5 million from Meridian Bank in connection with
      its acquisition of the land and building which houses its corporate headquarters
      in Wood River, Illinois. The chairman and principal shareholder of, and another
      director and principal shareholder of, Meridian Bank, Timothy Kaiser, M.D.
      and
      Clay Winfield, respectively, are also directors of the Company. This transaction
      was approved by the independent members of the Company’s Board of Directors.





On
      May 4,
      2007, the Company purchased three vehicles for a total of $128,000 from a
      company controlled by the Company’s Chairman of the Board, J. Lloyd Tomer. The
      purchase price paid was set by independent dealers and approximated fair market
      value for the vehicles.





During
      the year ended December 31, 2007, the Company made aggregate payments of
      approximately $1,038,175 pursuant to the terms of the development contract
      for
      its corporate headquarters in Wood River, Illinois. The contract for the
      development of the real property on which such headquarters are located was
      awarded to Winfield Development, which is controlled by Clay Winfield, a member
      of the Company’s Board of Directors.





The
      Company has utilized a corporate aircraft that is owned by an entity (the
“ Aircraft
      Company ”)
      that
      is partially controlled by two of its Board members, Timothy Kaiser and Clay
      Winfield during the year ended December 31, 2007. Payments made to the Aircraft
      Company totaled $48,955 for the period ended December 31, 2007. On February
      29,
      2008, the Company acquired all outstanding membership interests of the Aircraft
      Company. Please see Note 21 - “Subsequent Events” below.




F26


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements




On
      August
      17, 2007, the Company entered into a Commercial Lease Agreement (the
“ Magnolia
      Lease ”),
      by
      and between Meridian Land, as lessor, and the Company, as lessee, covering
      the
      approximately 5,500 square feet premises located at #112 Magnolia Drive (Lot
      #9
      Magnolia Commons), Glen Carbon, Illinois 62034 (the “ Magnolia
      Leased Premises ”).
      The
      Magnolia Leased Premises will serve as additional office space for the
      Company.





The
      Magnolia Lease will extend for an initial term of eighteen (18) months, which
      was originally scheduled to commence on November 1, 2007 and expire on April
      30,
      2009. Due to delays in construction being performed with respect to the Magnolia
      Leased Premises, the term of the Magnolia Lease has been postponed such that
      it
      will commence on February 15, 2008 and extend until August 15, 2009. Rent under
      the Magnolia Lease has been set at $8,400 per month. In addition to monthly
      rental payments, the Company will be responsible for utilities and maintenance
      and must pay all real estate taxes assessed on the property on which the
      Magnolia Leased Premises are located during the term of the Magnolia Lease,
      as
      well as all costs of maintaining any common areas used by the Company in
      conjunction with the Magnolia Leased Premises.





The
      consent of Meridian Land is required for assignments or subletting of the
      Magnolia Leased Premises by the Company under the Magnolia Lease, such consent
      not to be unreasonably withheld or delayed. Any assignment or subletting by
      the
      Company will not release the Company from any of its duties or obligations
      under
      the Magnolia Lease. The entry into the Magnolia Lease was approved by the
      independent members of the Company’s Board of Directors.





During
      2007, REZconnect paid approximately $9,000 in legal fees for work performed
      by
      Harold Kestenbaum, a member of the Company's Board of
      Directors.








F27


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements




NOTE
      19 - SEGMENT INFORMATION






The
      Company operates in the following two business segments: marketing of online
      travel stores including the development of a sales network (“Marketing”);
      and sales of travel through online travel stores (“Travel”). The
      Company’s business segments operate primarily in the United States, but are
      structured for potential international growth.




Prior
      to
      the second quarter of 2007, the Company had reported in three operating
      segments, Marketing, Travel and Technology (as described immediately below).
      The
      Marketing segment was comprised of the YTB Marketing subsidiary and the Travel
      segment was comprised of the YTB Travel subsidiary and an applicable portion
      of
      the operations of the REZconnect subsidiary, with the remaining portion of
      REZconnect reported in the Technology segment. During the second quarter of
      2007, the Company collapsed the Technology segment into the Travel segment
      as
      the amounts related to Technology were immaterial.




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
                  EndedDecember
                  31, 2007
              
              Marketing
              
              Travel
              
              Parent
              
              Elimination
              
              TotalExternal
                  and inter-segment revenue
              
              $
              119,557,753
              
              $
              21,727,319
              
              $
              402
              
              
              
              
              $
              141,285,474Segment
                  profit (loss)
              
              
              2,820,101
              
              
              6,310,352
              
              
              (5,921,558
              )
              
              
              
              
              3,208,895Assets
              
              
              51,429,309
              
              
              12,914,138
              
              
              8,200,369
              
              
              (9,649,830
              )
              
              62,893,986Depreciation
                  and amortization
              
              
              859,310
              
              
              15,012
              
              
              277,226
              
              
              
              
              
              1,151,548Capital
                  expenditures
              
              
              2,567,135
              
              
              310,948
              
              
              8,016,600
              
              
              
              
              
              10,894,683Year
                  EndedDecember
                  31, 2006
              
              
              Marketing
              
              
              Travel
              
              
              Parent
              
              
              Elimination
              
              
              TotalExternal
                  and inter-segment revenue
              
              $
              43,079,472
              
              $
              8,099,015
              
              $
              -
              
              $
              (281,757
              )
              $
              50,896,730Segment
                  profit (loss)
              
              
              (3,276,925
              )
              
              1,767,536
              
              
              (4,466,988
              )
              
              -
              
              
              (5,976,377
              )Assets
              
              
              20,750,647
              
              
              4,381,686
              
              
              10,531,821
              
              
              (6,773,765
              )
              
              28,890,389Depreciation
                  and amortization
              
              
              314,585
              
              
              -
              
              
              93,440
              
              
              -
              
              
              408,025Capital
                  expenditures
              
              
              1,269,787
              
              
              -
              
              
              4,624,214
              
              
              -
              
              
              5,894,001





NOTE 20
      - INCOME TAXES





In
      June
      2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for
      Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in
      income taxes recognized in the financial statements in accordance with FASB
      Statement No. 109, Accounting for Income Taxes.” FIN 48 provides guidance on the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. FIN 48 also provides guidance on
      de-recognition, classification, interest and penalties, accounting in interim
      periods, disclosures, and transition.





The
      Company has adopted FIN 48. The cumulative effect of adopting FIN 48 has been
      recorded as a net decrease to retained earnings (deficit) of $105,091. On the
      date of adoption of FIN 48 and December 31, 2007, the Company had approximately
      $2,000,000 and $1,398,000 of unrecognized tax benefits, respectively. Of
      the
      unrecognized tax liabilities at December 31, 2007, $181,821 if recognized,
      would
      impact the Company’s effective income tax rate. For
      the
      year ended December 31, 2007, taxes in the amount of $87,045 for unrecognized
      tax liabilities were included in the tax provision. The change in unrecognized
      tax benefit resulted primarily from the filing of an automatic change in
      accounting method with the Internal Revenue Service which eliminated the
      previously existing tax uncertainty.




F28


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements




The
      unrecognized tax liabilities relate to certain tax deductions claimed on federal
      and state tax returns that are uncertain as to the ultimate outcome. As a result
      of the federal and state tax uncertainties identified as of the date of adoption
      and as of December 31, 2007, the deferred tax asset related to the Company’s net
      operating losses has been reduced by approximately $1,895,000 and $1,216,000,
      respectively, with a corresponding reduction to the valuation
      allowance.




The
      following table details the activity related to the Company's tax uncertainities
      from the date of adoption through December 31, 2007:


UnrecognizedTax
                  BenefitsBalance
                  at date of adoption
              
              $
              2,000,5492007
                  FIN 48 accrual
              
              
              87,045Adjustments
                  to original estimateresulting
                  from 3115 filing
              
              
              (675,947
              )Expiration
                  of statutes
              
              
              (3,248
              )2007
                  settlements
              
              
              (10,315
              )Balance
                  at December, 31, 2007
              
              $
              1,398,084


The
      Company’s federal income tax returns for the tax years after 2002 remain subject
      to examination (2003 remains open due to amended tax returns). The various
      states in which the Company is subject to income tax are generally open for
      the
      tax years after 2003.





The
      Company classifies interest expense and any related penalties related to income
      tax uncertainties as a component of income tax expense. The total interest
      expense related to tax uncertainties recognized for the year ended December
      31,
      2007 was $7,068. Accrued interest of $7,068 related to income tax uncertainties
      was recognized as a component of other non-current liabilities at December
      31,
      2007. No penalties have been recognized as of December 31, 2007 as management
      believes, when the applicable state returns are filed voluntarily, that it
      will
      successfully be able to have penalties abated.





*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 basis
      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 assesses the likelihood that deferred tax assets will be realized.
      To
      the extent 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 our financial statements or tax returns.
      The
      Company has provided for a full valuation allowance against its deferred tax
      assets at December 31, 2007 and December 31, 2006. Fluctuations in the actual
      outcome of these future tax consequences could materially impact our financial
      position or our results of operations.





At
      December 31, 2007 and 2006 the Company had approximately $11,402,000 and
      $13,285,000, respectively, 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 expire from 2019 to 2027 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.





During
      the second quarter ended June 30, 2007, during the Company’s FIN 48 analysis,
      the Company discovered that a long-term deferred tax liability with a
      corresponding increase to goodwill had not been recorded on the Company’s
      balance sheet pertaining to the intangible assets created during the tax-free
      merger in 2004. The deferred tax liability associated with the intangible assets
      of $1.3 million should have been recorded with a reduction in the valuation
      allowance of approximately $500,000 and an increase to goodwill of $755,000,
      resulting in a net deferred tax liability of $755,000. As these adjustments
      had
      no impact on the Company’s results of operations or cash flows in any period,
      the adjustments were made in the second quarter of 2007, with no prior period
      adjustment.




F29




YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





The
      Company's tax provision for the year ended December 31, 2007 of $213,200
      consists of $76,155 in current state taxes payable, $50,000 in alternative
      minimum taxes and certain state tax obligations recognized as additional
      FIN 48 tax expense of $87,045.





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


As
                  of December 31,2007
              
              2006Computed
                  tax at federal statutory rate at 34%
              
              $
              1,163,512
              
              $
              (2,031,968
              )Alternative
                  minimum tax
              
              
              50,000
              
              
              -Computed
                  state tax net of federal benefit of 34%
              
              
              107,712
              
              
              -Non-deductible
                  meals and entertainment
              
              
              99,931
              
              
              -Other,
                  net
              
              
              59,251
              
              
              (446,032
              )Change
                  in valuation allowance
              
              
              (1,267,206
              )
              
              2,478,000Total
              
              $
              213,200
              
              $
              -





Deferred
      tax assets and liabilities consist of the following:


As
                  of December 31,2007
              
              2006Deferred
                  tax assetsAllowance
                  for doubtful accounts
              
              $
              85,000
              
              $
              3,000Depreciation
              
              
              38,000
              
              
              4,000Accrued
                  vacation
              
              
              104,000
              
              
              28,000Accrued
                  expenses
              
              
              114,000
              
              
              -Capital
                  losses
              
              
              9,000
              
              
              9,000Accrued
                  compensation
              
              
              632,000
              
              
              3,081,000Contributions
                  carryover
              
              
              33,000
              
              
              -Alternative
                  minimum tax deposit
              
              
              50,000
              
              
              -Stock-based
                  compensation
              
              
              1,923,000
              
              
              -Capitalized
                  organizational costs
              
              
              47,000
              
              
              -Net
                  operation loss carryforward
              
              
              3,890,000
              
              
              4,916,0006,925,000
              
              
              8,041,000Deferred
                  tax liabilitiesIntangible
                  assets
              
              
              (1,262,000
              )
              
              -Net
                  deferred tax assetbefore
                  valuation allowance
              
              
              5,663,000
              
              
              8,041,000Less
                  valuation allowance
              
              
              (6,418,000
              )
              
              (8,041,000
              )Net
                  deferred tax liability
              
              $
              (755,000
              )
              $
              -





F30


YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements




NOTE
      21 - SUBSEQUENT EVENTS




**New
      Employment Agreements with Executive Officers**





Effective
      January 1, 2008, the Company entered into a long-term employment agreements
      with
      each of Mr. J. Scott Tomer (Chief Executive Officer), Mr. J. Kim Sorensen
      (President), Mr. J. Lloyd Tomer (Chairman of the Board), Mr. John D. Clagg
      (Chief Financial Officer and Treasurer), and Mr. Andrew Cauthen (Chief Operating
      Officer and Secretary). All employment agreements expire December 31, 2012
      and
      subject each officer to confidentiality requirements, as well as anti-raiding
      and non-competition restrictions for an additional two (2) years following
      termination of employment. The new employment agreements for Messrs.
      J. Scott Tomer and J. Kim Sorensen  supersede
      the previous employment agreements for each such individual that were effective
      January 1, 2005 and had been scheduled to terminate on December 31, 2009.





*Employment
      Agreements with J. Scott Tomer, J. Kim Sorensen, and J. Lloyd
      Tomer*





Under
      their employment agreements with the Company, each of Messrs. J. Scott Tomer,
      J.
      Kim Sorensen, and J. Lloyd Tomer will serve in their positions for five-year
      terms, earning starting annual base salaries (in fiscal 2008) of $325,000,
      which
      shall increase in increments of $25,000 for each successive year under the
      agreements. Each employment agreement automatically renews for additional one
      year terms at the then-current base salary upon the expiration of the initial
      term or any successor term if either party does not provide notice of
      non-renewal at least 90 days prior to such expiration. Each of Messrs. J. Scott
      Tomer, J. Kim Sorensen, and J. Lloyd Tomer will be
      eligible for a cash bonus equal to a percentage of the Company’s net pre-tax
      income for each year in which such income surpasses certain thresholds, in
      the
      following percentages: (i) 2.0%, if net pre-tax income is at least
      $500,000, but less than $1,500,000; (ii) 2.25%, if net pre-tax income is at
      least $1,500,000 but less than $3,000,000; and (iii) 2.5%, if net pre-tax
      income is at least $3,000,000.





Beyond
      providing for compensation payable to each
      of
      Messrs. J. Scott Tomer, J. Kim Sorensen, and J. Lloyd Tomer, th e
      employment agreements acknowledge their existing ownership of overrides on
      RTA
      sales and monthly fees as follows: (i) each of J. Scott Tomer and J. Kim
      Sorensen owns an override on the RTA sales and monthly fees generated by
      Representative position #2 of our YourTravelBiz.com subsidiary’s sales
      organization equal to 50% of the monthly commissions and overrides earned by
      said position #2, paid on a monthly basis ;
      and
      (ii) J. Lloyd Tomer owns an override on the RTA sales and monthly fees generated
      by Representative position #1 of our YourTravelBiz.com subsidiary’s sales
      organization equal to 100% of the monthly commissions and overrides earned
      by
      said position #1, paid on a monthly basis .





Each
      of
      Messrs. J. Scott Tomer, J. Kim Sorensen, and J. Lloyd Tomer is subject
      to non-competition and non-solicitation restrictions for the entire duration
      of
      his employment agreement and for a period of two years thereafter. In the event
      of the termination, by the Company, of the employment of any of each
      of
      Messrs. J. Scott Tomer, J. Kim Sorensen, and J. Lloyd Tomer without
      cause, such individual will be paid his base
      salary for the remaining term of his employment agreement, in accordance with
      the Company’s customary payroll practices, as if such employment had not been
      terminated.





In
      addition to receiving a car
      allowance and health and medical insurance provided by the Company, Messrs.
      J.
      Scott Tomer, J. Kim Sorensen and J. Lloyd Tomer receive term life insurance
      coverage payable to beneficiaries designated by each.





*Employment
      Agreements with John D. Clagg and Andrew Cauthen*





Under
      their employment agreements with the Company, each of Messrs. John D. Clagg
      and
      Andrew Cauthen will serve in their positions for five-year terms at a starting
      annual base salary (in fiscal 2008) of $300,000, which shall increase in
      increments of $25,000 for each successive year under the agreement. The
      agreements automatically renew for additional one year terms at the then-current
      base salary upon the expiration of the initial term or any successor term if
      either party does not provide notice of non-renewal at least 90 days prior
      to
      such expiration.





Beyond
      base salary, each of Messrs. Clagg and Cauthen was awarded an incentive stock
      option to purchase 300,000 shares of YTB’s Class A Common Stock, vesting in five
      equal installments of 60,000 shares on the effective date of the employment
      agreements (January 1, 2008) and the first four anniversaries thereof. Each
      such
      officer is eligible for a bonus equal to two percent (2%) of YTB’s net pre-tax
      income for each year in which such net pre-tax income equals or exceeds
      $4,000,000, subject to the determination of the Compensation Committee of YTB’s
      Board of Directors. Such bonus shall be payable in the form of a restricted
      stock award.




F31




YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





Each
      of
      Messrs. Clagg and Cauthen is subject to non-competition and non-solicitation
      restrictions for the entire duration of his
      employment agreement and for
      a period of two years thereafter. In the event of termination, by YTB, of the
      employment of either of Messrs. Clagg or Cauthen without cause, such individual
      is to be paid his base salary for the remaining term of his employment
      agreement, in accordance with the Company’s customary payroll practices, as if
      such employment had not been terminated.





Each
      of
      Messrs. Clagg and Cauthen also receives health, life, and medical insurance
      from
      YTB under their new employment agreements.




**Restricted
      Cash-Related Transactions**





On
      January 7, 2008, the Company obtained two Standby Letters of Credit
      collateralizing two cruises that were booked by certain Sales Directors. The
      Letters of Credit are for a total amount equal to $1.9 million and will expire
      on or before July 15, 2008, once the related obligations to Carnival Cruise
      Lines with respect to the cruises have been satisfied by the Company. The
      Company also now holds $1.9 million in a restricted money market account until
      the obligations are satisfied.





On
      January 8, , 2008,
      YTB’s $500,000 certificate of deposit representing restricted cash collateral
      for YTB’s outstanding indebtedness related to its corporate headquarters
      property was surrendered in partial repayment of the principal amount
      outstanding under indebtedness. The remaining principal balance as of March
      15,
      2008 was $1,995,990.





As
      of
      March 17, 2008, restricted cash has increased by $1,529,575 to $3,797,919.  The
      increase in restricted cash has been caused primarily by the addition of a
      new
      credit card processor and bank accounts for the Company’s Canadian operations,
      which were launched on February  8,
      2008,
      which have required approximately an additional $129,000 of restricted cash,
      as
      well as the Standby Letters of Credit for $1.9 million which were obtained
      on
      January 7, 2008, collateralizing the two cruises booked by certain Sales
      Directors. The increase in restricted cash has been partially offset by the
      release of the $500,000 certificate of deposit previously held as collateral
      for
      the Company’s outstanding indebtedness with respect to its corporate
      headquarters.





**Additional
      Awards Under 2007 Sales Director Bonus Plan**





On
      January 15, 2008, five of the Company’s Reps, who have qualified as Sales
      Directors ,
      received performance-based grants consisting of discounted stock options to
      purchase shares of Class A Common Stock pursuant
      to the 2007 Sales Director Bonus Plan . Three of
      the qualifying Sales
      Directors received
      285,714 stock options and two of the qualifying Sales
      Directors received
      380,952 stock options,
      in each case based
      upon the defined levels of achievement measured as of December 31, 2007. All
      of
      the options granted have an
      exercise price of $0.525, which was equal to
      fifty percent (50%) of the fair market value of YTB’s
      Class A Common
      Stock on the close of business on the business day immediately preceding the
      grant date , as
      defined under the 2007
      Sales Director Bonus Plan. While
      all of the
      options that
      were granted
      vested immediately on the date of the grant, the options are only exercisable in
      accordance with the
      following schedule: 1/3 are exercisable at any point
      until the end of 2008,
      1/3 are exercisable on December 15, 2009 (and only on such date) and the
      remaining 1/3 are exercisable on December 15, 2010 (and only on such date).
      The
      fair value of the five awards as of the date of the grant, based upon the
      Black-Scholes option pricing model, was $448,979
      and was recorded
      as accrued bonuses on the accompanying balance sheet as of December 31, 2007
      with a corresponding expense recorded as marketing commissions.




F32




YTB
      INTERNATIONAL, INC.


Notes
      to
      Consolidated Financial Statements





**Acquisition
      of Entity Holding Executive Jet**





On February
      29, 2008, the Company acquired all of the outstanding membership interests
      of
      Meridian/Silver, LLC, a Florida limited liability company (“ Meridian/Silver ”),
      which
      had been owned 50% by Meridian Land and 50% by an unaffiliated third party.
      The
      purchase price for the membership interests was $1.3 million. The only
      significant asset held by Meridian/Silver is a Learjet 35A, N360LJ business
      jet
      (the “ Executive
      Jet ”),
      which
      is held free and clear of any and all liens and encumbrances. Meridian/Silver
      is
      not subject to any material liabilities or contractual obligations. The Company
      expects to utilize the Executive Jet for the transport of members of its
      management team for business-related purposes.





Meridian
      Land is controlled
      by its principals, Timothy Kaiser, M.D. and Clay Winfield, each of whom is
      a
      member of the Company’s Board of Directors. The acquisition of the
      Meridian/Silver membership interests was considered and approved by the
      independent members of the Company’s Board of
      Directors .





**Expansion
      of Operations into Canada, Bahamas and Bermuda**





In
      early
      2008, YTB expanded its services into Canada, the Bahamas, and Bermuda. YTB
      Bahamas commenced operations on January 11, 2008, and YTB Canada and YTB Bermuda
      commenced operations in early February, 2008. As a result of this international
      expansion, RTAs living in these countries can now sell travel through websites
      that they acquire from the Company, and, similarly, Reps who are located there
      can market online travel websites to others in the U.S., Puerto Rico, the
      Bahamas, Bermuda and Canada.




**Acquisition
      of Travel Agency for Canadian Operations**





On
      February 8, 2008, the Company completed the acquisition of the
      assets of Sunrise Travel Service, an award-winning travel agency located in
      Ontario, Canada. The
      acquisition is expected to provide YTB with a competitive advantage in three
      very lucrative markets as part of its new Canadian operations: leisure,
      honeymoon, and corporate travel, all of which are areas of expertise for Sunrise
      Travel Service. Additionally, Sunrise Travel Service has developed a niche
      market for travel to Europe and the Middle East, which will increasingly broaden
      YTB’s international travel offerings and create even more opportunities for the
      RTAs who have already joined YTB in Canada.





F33