**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




**FORM
      10-QSB**




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





**for
      the quarterly period ended June 30, 2006**





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


Act
      of
      1934 for the transition period from _______________ to
      ______________





Commission
      File Number: 0-18412





**YTB
      INTERNATIONAL, INC.**


(Exact
      name of small business issuer as specified in its charter)





**Delaware**


(State
      or
      other jurisdiction of incorporation or organization)





**20-2181181**


(IRS
      Employer Identification Number)





**1901
      East Edwardsville Road**


**Wood
      River, Illinois 62095**


**** (Address
      of principal executive offices)





**(618)
      655-9477**


(Registrant's
      telephone number, including area code)





(Former
      name, former address and former fiscal year,


if
      changed since last report)




Check
      whether the issuer (1) has filed all reports required to be filed by Section
      13
      or 15 (d) of the Exchange Act of 1934 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. Yeso No x.





Indicate
      the number of shares outstanding of each of the issuer’s classes of common stock
      as of the latest practicable date:





As
      of
      February 28, 2007, there were 38,971,967 shares, $.001 par value, of the
      Registrant’s common stock outstanding.




Transitional
      Small Business Disclosure Format (check one) Yes o No x











**YTB
      INTERNATIONAL, INC** .


**Index
      to Quarterly Report on Form 10-QSB**


**Three
      and six months ended June 30, 2006**




PAGEPART
                I - FINANCIAL INFORMATIONExplanatory
              Note
            2Item
                1.Financial
                StatementsCondensed
                Consolidated Balance Sheets, June 30, 2006 (Unaudited) and December
                31,
                2005
            3Condensed
                Consolidated Statements of Operations (Unaudited)
              Three
                ended June 30, 2006 and 2005
            4Condensed
                Consolidated Statements of Operations (Unaudited)
              Six
                months ended June 30, 2006 and 2005
            5Condensed
                Consolidated Statement of Changes in Stockholders’ Equity
                (Unaudited)
              Six
                months ended June 30, 2006
            6Condensed
                Consolidated Statements of Cash Flows (Unaudited)
              Six
                months ended June 30, 2006 and 2005
            7Notes
                to Condensed Consolidated Financial Statements (Unaudited)
            9Item
                2.Management's
                Discussion and Analysis or Plan of Operation
            22Item
                3.Controls
                and Procedures
            29PART
                II - OTHER INFORMATIONItem
                6.Exhibits
            29Signatures
            30Certifications






EXPLANATORY
          NOTE
 
 During
          a
          review of the Company’s outstanding options and warrants, the Company discovered
          the expense related to 200,000 warrants previously issued had not been
          recognized in the 2005 consolidated financial statements. As a result,
          the
          Company filed an amended Form 10-KSB for the year ended December 31, 2005
          on
          March 12, 2007 to reflect the additional expense related to the warrants.
          In
          addition, the Company identified that certain items in the Consolidated
          Statement of Cash Flows for the year ended December 31, 2005 should be
          reclassified to enhance disclosure, properly reflect non-cash items and
          properly
          reflect the gross activity related to the conversion of debt to common
          stock
          that occurred in the fourth quarter of 2005.
 
 The
          financial statements for the quarter ended June 30, 2005 included herein
          have
          been restated to reflect additional expense of $181,630 or ($0.01) per
          share
          related to the warrants and the relevant disclosure has been updated. In
          addition, certain reclassifications were made to the Condensed Consolidated
          Statement of Cash Flows for the six months ended June 30, 2005. The affected
          column headings of the financial statements for the three and six months
          ended
          June 30, 2005 included herein, as well as the affected footnotes, have
          been
          labeled as “Restated”.


2


**YTB
      INTERNATIONAL, INC.**


**Condensed
      Consolidated Balance Sheets**





June
                30,
              2006
              (Unaudited)
            
            December
                31,
              2005ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            97,391
            
            $
            230,358Available-for-sale
                securities
            
            
            2,451,310
            
            
            3,611,003Accounts
                receivable (less allowance for doubtful accounts of
              $6,919
                in 2006 and $24,888 in 2005)
            
            
            190,089
            
            
            64,402Notes
                receivable
            
            
            429,720
            
            
            20,000Prepaid
                marketing commissions
            
            
            7,378,318
            
            
            4,212,417Other
                prepaid expenses and current assets
            
            
            622,885
            
            
            285,169Total
                current assets
            
            
            11,169,713
            
            
            8,423,349Property
                and equipment, net
            
            
            794,168
            
            
            631,992Intangible
                assets, net
            
            
            2,505,300
            
            
            2,542,020Goodwill
            
            
            2,224,322
            
            
            2,224,322Other
                assets
            
            
            14,994
            
            
            16,184TOTAL
                ASSETS
            
            $
            16,708,497
            
            $
            13,837,867LIABILITIES
                AND STOCKHOLDERS’ EQUITYCurrent
                liabilities:Notes
                payable
            
            
            29,157
            
            
            122,055Current
                maturities of long-term debt
            
            
            20,738
            
            
            19,532Accounts
                payable and accrued expenses
            
            
            1,696,640
            
            
            1,944,640Accrued
                bonuses
            
            
            4,392,160
            
            
            3,451,826Current
                portion of deferred revenue
            
            
            8,147,730
            
            
            4,660,200Convertible
                debt derivative
            
            
            613,390
            
            
            280,000Total
                current liabilities
            
            
            14,899,815
            
            
            10,478,253Other
                long-term liabilities:Long-term
                debt, less current maturities
            
            
            252,343
            
            
            264,079Deferred
                revenue, less current portion
            
            
            4,366
            
            
            4,366Other
                liabilities
            
            
            23,636
            
            
            23,636Total
                other long-term liabilities
            
            
            280,345
            
            
            292,081TOTAL
                LIABILITIES
            
            
            15,180,160
            
            
            10,770,334STOCKHOLDERS’
                EQUITYCommon
                stock, par value $.001; 50,000,000 shares authorized,
              27,336,260
                shares issued and outstanding in 2006 and 2005
            
            
            27,336
            
            
            27,336Additional
                paid-in capital
            
            
            19,482,634
            
            
            19,376,053Accumulated
                deficit
            
            
            (17,981,633
            )
            
            (16,335,856
            )TOTAL
                STOCKHOLDERS’ EQUITY
            
            
            1,528,337
            
            
            3,067,533TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            16,708,497
            
            $
            13,837,867





*See
      accompanying notes to condensed consolidated financial
      statements* .




3


**YTB
      INTERNATIONAL, INC.**


**Condensed
      Consolidated Statements of Operations**


(Unaudited)





Three
                months endedJune
                30, 2006
            
            (RESTATED)
              June
                30, 2005NET
                REVENUESOnline
                travel store sales and monthly fees
            
            $
            7,571,288
            
            $
            3,120,812Travel
                commissions and services
            
            
            1,856,278
            
            
            1,372,088Franchise
                service fees and other fees
            
            
            90,823
            
            
            101,522Other
            
            
            360,772
            
            
            449,054TOTAL
                NET REVENUES
            
            
            9,879,161
            
            
            5,043,476OPERATING
                EXPENSESMarketing
                commissions
            
            
            5,702,155
            
            
            2,206,745Travel
                commissions
            
            
            1,327,317
            
            
            1,047,179Franchise
                services and products
            
            
            40,143
            
            
            41,773Depreciation
                and amortization
            
            
            68,068
            
            
            219,098Marketing
                and selling
            
            
            265,835
            
            
            53,990General
                and administrative
            
            
            3,757,240
            
            
            1,753,469TOTAL
                OPERATING EXPENSES
            
            
            11,160,758
            
            
            5,322,254LOSS
                FROM OPERATIONS
            
            
            (1,281,597
            )
            
            (278,778
            )OTHER
                INCOME (EXPENSE)Change
                in fair value of derivatives
            
            
            -
            
            
            (1,483,890
            )Interest
                and dividend income
            
            
            42,575
            
            
            29,125Interest
                expense
            
            
            (151,493
            )
            
            (204,431
            )Gain
                on sale of assets
            
            
            1,000
            
            
            -TOTAL
                OTHER INCOME (EXPENSE)
            
            
            (107,918
            )
            
            (1,659,196
            )NET
                LOSS
            
            $
            (1,389,515
            )
            $
            (1,937,974
            )NET
                LOSS PER SHARE:Weighted-average
                shares outstanding
            
            
            27,336,260
            
            
            24,014,545Net
                loss per share - basic and diluted
            
            $
            (0.05
            )
            $
            (0.08
            )




*See
      accompanying notes to condensed consolidated financial
      statements.*




4


**YTB
      INTERNATIONAL, INC.**


**Condensed
      Consolidated Statements of Operations**


(Unaudited)





Six
                months endedJune
                30, 2006
            
            (RESTATED)
                June
                  30, 2005NET
                REVENUESOnline
                travel store sales and monthly fees
            
            $
            13,781,787
            
            $
            5,424,805Travel
                commissions and services
            
            
            3,072,302
            
            
            2,249,476Franchise
                service and other fees
            
            
            175,375
            
            
            216,162Other
            
            
            1,013,023
            
            
            701,279Total
                net revenues
            
            
            18,042,487
            
            
            8,591,722OPERATING
                EXPENSESMarketing
                commissions
            
            
            10,061,419
            
            
            3,863,487Travel
                commissions
            
            
            1,970,505
            
            
            1,639,090Franchise
                services and products
            
            
            67,537
            
            
            99,416Depreciation
                and amortization
            
            
            133,470
            
            
            531,866Marketing
                and selling
            
            
            329,580
            
            
            62,622General
                and administrative
            
            
            6,901,475
            
            
            4,060,633Total
                operating expenses
            
            
            19,463,986
            
            
            10,257,114LOSS
                FROM OPERATIONS
            
            
            (1,421,499
            )
            
            (1,665,392
            )OTHER
                INCOME (EXPENSE)Change
                in fair value of derivatives
            
            
            -
            
            
            (2,439,905
            )Gain
                on sale of assets
            
            
            1,000
            
            
            -Interest
                and dividend income
            
            
            75,376
            
            
            30,886Interest
                expense
            
            
            (300,654
            )
            
            (301,700
            )Total
                other income (expense)
            
            
            (224,278
            )
            
            (2,710,719
            )NET
                LOSS
            
            $
            (1,645,777
            )
            $
            (4,376,111
            )LOSS
                PER SHARE:Weighted-average
                shares outstanding
            
            
            27,336,260
            
            $
            24,014,545Net
                loss per share - basic and diluted
            
            $
            (.06
            )
            $
            (.18
            )





*See
      accompanying notes to condensed consolidated financial
      statements.*




5


**YTB
      INTERNATIONAL, INC.**


**Condensed
      Consolidated Statement of Changes in Stockholders’ Equity**


(Unaudited)





**Six
      months ended June 30, 2006**





Additional
            
            
            
            TotalCommon
                Stock
            
            Paid-In
            
            Accumulated
            
            Stockholders’Shares
            
            Amount
            
            Capital
            
            (Deficit)
            
            EquityBalance
                at January 1, 2006
            
            
            27,336,260
            
            $
            27,336
            
            $
            19,376,053
            
            $
            (16,335,856
            )
            $
            3,067,533Stock
                option expense
            
            
            -
            
            
            -
            
            
            106,581
            
            
            -
            
            
            106,581Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,645,777
            )
            
            (1,645,777
            )Balance
                at June 30, 2006
            
            
            27,336,260
            
            $
            27,336
            
            $
            19,482,634
            
            $
            (17,981,633
            )
            $
            1,528,337




*See
      accompanying notes to condensed consolidated financial
      statements.*




6





**YTB
      INTERNATIONAL, INC.**


**Condensed
      Consolidated Statements of Cash Flows**


(Unaudited)





Six
                months endedJune
                30, 2006
            
            (RESTATED)
              June
                30, 2005CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                Loss
            
            $
            (1,645,777
            )
            $
            (4,376,111
            )Adjustments
                to reconcile net loss to net cash
              provided
                by (used in) operating activities:Depreciation
                and amortization
            
            
            133,470
            
            
            531,866Amortization
                of deferred offering costs
            
            
            
            
            
            24,170Shares
                issued for services
            
            
            -
            
            
            131,005Warrants issued
                for services
            
            
            -
            
            
            181,630Stock
                option expense
            
            
            106,581
            
            
            463,890Amortization
                of discount on convertible debt
            
            
            -
            
            
            100,447Change
                in fair value of derivatives
            
            
            -
            
            
            2,439,905Changes
                in operating assets and liabilities:Accounts
                receivable, net
            
            
            (125,687
            )
            
            (92,579
            )Note
                receivable
            
            
            (409,720
            )
            
            (20,000
            )Prepaid
                marketing commissions
            
            
            (3,165,901
            )
            
            (1,392,337
            )Other
                prepaid expenses and current assets
            
            
            (337,716
            )
            
            (202,338
            )Other
                assets
            
            
            1,190
            
            
            (1,358
            )Accounts
                payable and accrued expenses
            
            
            (248,000
            )
            
            815,518Accrued
                bonuses
            
            
            940,334
            
            
            -Deferred
                revenue
            
            
            3,487,530
            
            
            1,505,395Convertible
                debt derivative
            
            
            333,390
            
            
            40,000Other
                current liabilities
            
            
            -
            
            
            2,714NET
                CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
            
            
            (930,306
            )
            
            151,817CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchases
                of property and equipment
            
            
            (258,926
            )
            
            (129,085
            )Accrued
                transaction cost
            
            
            -
            
            
            (77,354
            )Proceeds
                from sale of available-for-sale securities
            
            
            2,862,253
            
            
            4,512,053Purchase
                of available-for-sale securities
            
            
            (1,702,560
            )
            
            (6,623,500
            )NET
                CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
            
            
            900,767
            
            
            (2,317,886
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Other
                current liabilities
            
            
            -
            
            
            (100,000
            )Principal
                payments on debt
            
            
            (10,530
            )
            
            (10,768
            )Repayment
                of notes payable
            
            
            (92,898
            )
            
            (13,288
            )Cash
                paid from debt issuance costs
            
            
            
            
            
            (148,020
            )Proceeds
                from convertible debt
            
            
            -
            
            
            2,000,000Proceeds
                from shares issued in private placement memorandum
            
            
            -
            
            
            960,000NET
                CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
            
            
            (103,428
            )
            
            2,687,924NET
                (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            (132,967
            )
            
            521,855CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            230,358
            
            
            25,719CASH
                AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            97,391
            
            $
            547,574SUPPLEMENTAL
                CASH FLOW INFORMATION:Interest
                paid
            
            $
            7,875
            
            
            55,418




*See
      accompanying notes to condensed consolidated financial
      statements* .




7


**YTB
      INTERNATIONAL, INC.**


**Condensed
      Consolidated Statements of Cash Flows (continued)**


(Unaudited)


Six
                months endedJune
                30, 2006
            
            (RESTATED)
              June
                30, 2005SUPPLEMENTAL
                NON-CASH INVESTING AND FINANCING ACTIVITIES:Increase
                in notes payable and property and equipment
            
            
            -
            
            $
            73,139Warrants
                issued for debt offering costs
            
            
            -
            
            $
            26,000Decrease
                in notes receivable and deferred revenue
            
            
            -
            
            $
            19,003




*See
      accompanying notes to condensed consolidated financial
      statements*





8


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements





NOTE
      1
      - ORGANIZATION AND NATURE OF OPERATIONS




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




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




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




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




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




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




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




9


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements





NOTE
      2
      - BASIS OF PRESENTATION





The
      Condensed Consolidated Balance Sheet as of June 30, 2006, the related Condensed
      Consolidated Statements of Operations for the three and six months ended June
      30, 2006 and 2005, the Condensed Consolidated Statement of Changes in
      Stockholders’ Equity for the six months ended June 30, 2006 and the Condensed
      Consolidated Statements of Cash Flows for the six months ended June 30, 2006
      and
      2005, have been prepared without audit, pursuant to the rules and regulations
      of
      the Securities and Exchange Commission. Certain information and disclosures
      included in financial statements prepared in accordance with accounting
      principles generally accepted in the United States of American have been
      condensed or omitted pursuant to such rules and regulations.





The
      condensed consolidated financial statements reflect all adjustments (consisting
      only of normal recurring accruals), which are, in the opinion of management,
      necessary for a fair presentation of the results for the interim periods
      presented. The condensed consolidated financial statements should be read in
      conjunction with the consolidated financial statements and notes thereto
      included in the Company’s 2005 Annual Report on Form 10-KSB/A No. 1 and No. 2
      for the year ended December 31, 2005.





The
      results of operations for the interim periods should not be considered
      indicative of results to be expected for the full year. The condensed balance
      sheet as of December 31, 2005 was derived from the audited financial statements
      for the year then ended included in the Company’s 2005 Annual Report on Form
      10-KSB/A No. 1 and No. 2 for the year ended December 31, 2005. 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
      at
      the date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. Actual results could differ from those
      estimates.





NOTE
      3
      - PROPERTY AND EQUIPMENT




Property
      and equipment consists of the following:




June
                30,
              2006
            
            December
                31,
              2005Equipment
            
            $
            385,649
            
            $
            266,025Furniture
                and fixtures
            
            
            200,698
            
            
            187,745Capitalized
                software
            
            
            1,499,166
            
            
            1,378,711Vehicles
            
            
            168,908
            
            
            168,908Leasehold
                improvements
            
            
            116,522
            
            
            110,6292,370,944
            
            
            2,112,018Less:
                Accumulated depreciation
            
            
            (1,576,776
            )
            
            (1,480,026
            )Property
                and equipment, net
            
            $
            794,168
            
            $
            631,992





Depreciation
      and amortization expense on property and equipment was $49,707 and $28,237
      for
      the three months ended June 30, 2006 and 2005, respectively and $96,749 and
      $150,145 for the six months ended June 30, 2006 and 2005,
      respectively.





As
      of
      June 30, 2006 and December 31, 2005, capitalized software development costs,
      net
      of accumulated amortization, totaled $210,615 and $105,539, respectively. For
      the three months ended June 30, 2006 and 2005, the Company recorded amortization
      of capitalized software development costs of $7,690 and $6,732, respectively
      and
      $15,380 and $115,547 for the six months ended June 30, 2006 and 2005,
      respectively.





10


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements





NOTE 4
      - INTANGIBLE ASSETS, NET





The
      following tables present the components of the Company’s intangible assets as of
      June 30, 2006 and December 31, 2005:




At
                June 30, 2006
            
            At
                December 31, 2005Intangible
                Assets
            
            Cost
            
            Accumulated
              Amortization
            
            Net
            
            Cost
            
            Accumulated
              Amortization
            
            NetAmortized
                intangible assets(1)Non-compete
                agreement
            
            $
            360,000
            
            $
            80,340
            
            $
            279,660
            
            $
            360,000
            
            $
            54,620
            
            $
            305,380RTA
                agreements
            
            
            690,000
            
            
            690,000
            
            
            -
            
            
            690,000
            
            
            690,000
            
            
            -Vendor
                agreements
            
            
            220,000
            
            
            34,360
            
            
            185,640
            
            
            220,000
            
            
            23,360
            
            
            196,640Total
                amortized
              intangible
                assets
            
            
            1,270,000
            
            
            804,700
            
            
            465,300
            
            
            1,270,000
            
            
            767,980
            
            
            502,020Unamortized
                intangible assetsDomain
                names
            
            
            2,040,000
            
            
            -
            
            
            2,040,000
            
            
            2,040,000
            
            
            -
            
            
            2,040,000Total
                unamortized
              intangible
                assets
            
            
            2,040,000
            
            
            -
            
            
            2,040,000
            
            
            2,040,000
            
            
            -
            
            
            2,040,000Total
            
            $
            3,310,000
            
            $
            804,700
            
            $
            2,505,300
            
            $
            3,310,000
            
            $
            767,980
            
            $
            2,542,020





(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 $18,360 and $190,860 for the three months ended June 30, 2006 and
      2005, respectively and $36,720 and $381,720 for the six months ended June 30,
      2006 and 2005, respectively.





NOTE
      5
      - BONUS ACCRUAL




During
      the 4th quarter of 2005, the Company began a program to award bonuses to its
      independent marketing representatives ("IMRs") to recognize certain IMRs
      for outstanding contributions made to the growth and success of the Company
      and
      to encourage all IMRs to fulfill specific goals or targets for sales levels,
      recruiting of new referring travel agents or other business-critical functions.
      The awards offered are in the form of cash or Company stock, based upon a
      predetermined calculation. The bonuses that are to be awarded in Company stock
      are recorded at their fair value at each balance sheet date. Total bonus expense
      included in marketing commissions expense for the three and six months ended
      June 30, 2006 was $711,128 and $1,213,834. No bonus expense was accrued as
      of
      June 30, 2005 as the program began in the 4th quarter of that year. Accrued
      bonuses as of June 30, 2006 and December 31, 2005 totaled $4,392,160 and
      $3,451,826, respectively.




11




YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements





NOTE
      6
      - FINANCING ARRANGEMENTS




Notes
      Payable





The
      Company is financing one vehicle in 2006 and four vehicles in 2005, payable
      in monthly installments ranging from approximately $1,000 to $1,477, at the
      rate
      of approximately 6.25%. The loans are payable through March 2008. The balance
      due on these vehicle loans as of June 30, 2006 and December 31, 2005 totaled
      $29,157 and $122,055, respectively.





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 is personally guaranteed by the Company’s
      then-president. The outstanding loan balance as of June 30, 2006 and December
      31, 2005 was $273,081 and $283,611, respectively.




During
      January 2005, the Company entered into an agreement with an investor to raise
      an
      additional $2,000,000 of capital via a convertible term note (“the Note”). The
      Note had a principal balance of $2,000,000, and interest was payable monthly
      at
      prime plus 3%, subject to an 8% floor. The Note was superior to the SBA loan
      of
      approximately $300,000. The terms of the Note provided for interest payments
      only during the first six months, with payments of $66,667 of principal plus
      interest monthly beginning in August 2005. The note was required to be paid
      in
      full by January 2008, unless it was converted by the investor into shares of
      common stock. The Note agreement contained several features, which are discussed
      below:





·
            Interest
                Rate Adjustment Feature - The interest rate stated in the Note could
                subsequently be adjusted downward if the Company maintained an effective
                registration statement and the market price of the Company’s common stock
                exceeded certain targets.


·
              Initial
                  Conversion Ratio - The Note was convertible into shares of the
                  Company’s
                  common stock at a rate of $0.80 per share for the first $1 million
                  of Note
                  principal, and $1.25 per share for any amounts in excess of the
                  first $1
                  million.


·
            Contingent
                Conversion Ratio Adjustment Feature - If the Company were to obtain
                subsequent equity financing at per share prices less than those obtained
                by the investor, the conversion rate would be lowered to that
                amount.


·
              Prepayment
                  penalty - The Note could be prepaid at the Company’s option, with a 30%
                  prepayment penalty.


·
              Warrant
                  Coverage - The Note contained 800,000 detachable stock warrants,
                  which
                  have a 7 year term, and are exercisable for the first 400,000 warrants
                  at
                  $1.58 per share, and the second 400,000 warrants at $1.72 per
                  share.


·
              Additional
                  Loan Option - The investor, at its sole option, had the ability
                  to loan an
                  additional $1,000,000 to the Company on the same terms as the original
                  Note, including proportional warrant
                  coverage.


·
              Registration
                  Rights - As part of the Note agreement, the Company agreed to file
                  a
                  registration statement covering the warrants and potential shares
                  to be
                  issued upon conversion of the Note. The registration statement
                  was to be
                  filed within 30 days of the agreement, and declared effective within
                  120
                  days. The registration statement was to be continuously effective
                  until
                  the investor had sold all of the underlying shares. The registration
                  rights agreement provides for a penalty of 2% per month. The
                  Company has treated this item as an additional derivative and in
                  failing to satisfy the registration rights requirement and has
                  accrued $613,390 and $280,000 as of June 30, 2006 and December 31,
                  2005, respectively, in penalties under the terms of the agreement.
                  Such
                  amounts are reflected as a current liability in the Company's balance
                  sheet. See Note 13, “Subsequent
                  Events”.





12




YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements





Because
      the Note was potentially convertible into an unlimited number of shares of
      common stock, the Company accounted for the Note under the provisions of
      Statement of Financial Accounting Standards (“SFAS”) No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* ,
      and
      EITF Issue No. 00-19, *Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company's Own Stock.* Accordingly, the interest rate adjustment feature, conversion feature, and
      additional loan option were, collectively, considered an embedded derivative,
      which was bifurcated from the host debt instrument. The initial allocation
      of
      the gross proceeds of $2,000,000 is as follows:





Embedded
                Derivative
            
            $
            1,923,201Stock
                Warrants
            
            
            16,192Term
                Note
            
            
            60,607$
            2,000,000





The
      embedded derivative was initially recorded at fair value, and adjusted to fair
      value at each subsequent balance sheet date. The net increase in the embedded
      derivative liability during the three and six months ended June 30, 2005 was
      $1,483,890 and $2,439,905, respectively, and is recorded as Other Expense
      in the Condensed Consolidated Statement of Operations. The difference between
      the stated principal of the Note of $2,000,000 and its allocated carrying value
      was amortized as debt discount using the effective interest rate method over
      the
      term of the Note.





In
      addition to the items noted above, the Company incurred debt issuance costs
      related to the Note of $174,020, of which $148,020 was paid in cash, and $26,000
      was settled by issuing stock warrants. These costs were amortized over the
      term
      of the Note.





On
      October 12, 2005, the investor converted the remaining principal balance at
      that
      time of $1,866,666 into 1,800,000 shares of common stock. On October 31, 2005,
      the investor exercised its option for the additional loan, at which time the
      Company received cash proceeds of $1,000,000. As provided in the agreement,
      the
      investor also received 400,000 additional stock warrants, exercisable at $1.25
      per share, the fair value of which was recorded at $215,812. The investor
      immediately converted the additional loan into common stock, receiving 800,000
      shares.




NOTE
      7
      - COMMITMENTS AND CONTINGENCIES





Leases





The
      Company is obligated under an operating office lease for the offices in New
      Jersey which expires on April 30, 2008, to pay minimum annual rentals, currently
      at $49,364 per year plus real estate taxes and operating cost charges. The
      Company also is obligated under a multi-year lease for its Illinois headquarters
      at $15,000 per month plus operating charges (see Note 9 - Related Party
      Transactions). In addition, the Company has entered into various operating
      lease
      agreements with Wal-Mart Stores, Inc. (Wal-Mart) for eight locations pursuant
      to
      a master lease agreement. The term of the individual location leases is two
      years with two options to extend the lease for one consecutive term of three
      years followed by one consecutive term of five years. The Company has also
      entered into sub-lease agreements with franchisees at these Wal-Mart locations.
      The subleases with the franchises also have a two year term with options that
      mirror the master lease renewal options.




13


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements





Following
      is a summary of net rental income (expense) for the Wal-Mart locations for
      the
      three and six months ended June 30, 2006 and 2005:




Three
                  Months Ended
              
              Six
                  Months Ended2006
              
              2005
              
              June
                  30, 2006
              
              June
                  30, 2005Sublease
                  rental income
              
              $
              26,386
              
              $
              33,357
              
              $
              60,209
              
              $
              70,936Less
                  minimum rental expense
              
              
              24,123
              
              
              20,894
              
              
              43,683
              
              
              71,502Net
                  rental income (expense)
              
              $
              2,263
              
              $
              12,463
              
              $
              16,526
              
              $
              (566
              )




Employment
      agreements




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





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





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





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




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




See
      Note
      13, "Subsequent Events" for a description of certain changes to some of these
      agreements


14


YTB
      INTERNATIONAL, INC.


Notes
      to
      Interim Condensed Consolidated Financial Statements




NOTE
      8
      - STOCK OPTIONS





As
      of
      June 30, 2006, the Company had a stock-based employee compensation plans, which
      are described more fully in Note 8 of the Notes to Consolidated Financial
      Statements in the Company’s 2005 Annual Report on Form 10-KSB/A No. 1 and
      No. 2 for the year ended December 31, 2005. In December 2004, the Financial
      Accounting Standards Board (FASB) issued Statement of Financial Accounting
      Standards (SFAS) No. 123 (revised 2004), “Share-Based
      Payment” ** (SFAS
      123R). SFAS 123R requires companies to recognize the cost of awards of equity
      instruments, such as stock options and restricted stock, based on the fair
      value
      of those awards at the date of grant and eliminates the choice to account for
      employee stock options under Accounting Principles Board (APB) Opinion
      No. 25, “Accounting for Stock Issued to Employees” ** (APB
      25).
      The Company adopted SFAS 123R effective January 1, 2006 using the modified
      prospective method and, as such, results for prior periods have not been
      restated. Under this method, in addition to reflecting compensation expense
      for
      new share-based awards, expense is also recognized to reflect the remaining
      service period of awards that had been included in pro forma disclosures in
      prior periods. On April 24, 2006, the Company's Board of Directors granted
      250,000 options to certain employees and directors and two outside
      consultants.  These stock options vest in equal increments on the
      anniversary date over the next five years.  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 3 years; dividend yield
      of 0% and expected volatility of 75%. The
      expected average risk-free rate is based on U.S. treasury yield curve. 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
      historical volatilities of YTB International, Inc.’s common stock.Accordingly, the Company recognized $58,735 and $106,581, respectively,
      in compensation expense for stock options during the three and six months ended
      June 30, 2006.  Unrecognized expense related to unvested options and to
      future service on vested options as of June 30, 2006 is $139,190 and $62,550,
      respectively.





The
      following table provides information about awards outstanding at June 30,
      2006:


Shares
              
              Weighted-Average
                Exercise
                  Price
              
              Weighted-
                Average
                Fair
                  ValueOptions
                  outstanding, beginning of period
              
              
              940,000
              
              $
              1.15
              
              $
              0.29For
                  the period from January 1 to June 30, 2006:Granted
              
              
              250,000
              
              $
              1.20
              
              $
              0.60Forfeited
              
              
              -
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -
              
              
              -Options
                  outstanding, end of period
              
              
              1,190,000
              
              $
              1.16
              
              $
              0.37Options
                  exercisable, end of period
              
              
              940,000
              
              $
              1.15
              
              $
              0.29




Prior
      to
      January 1, 2006, compensation expense for stock options was recognized over
      the
      vesting period only to the extent that the grant date market price of the stock
      exceeded the exercise price of the options. For the three and six months ended
      June 30, 2005, the Company recognized $22,495 and $44,990 in compensation
      expense related to options granted with an exercise price less than the fair
      value of the underlying stock at the date of the grant. In addition, FASB
      Interpretation No. 44 (“FIN 44”), “Accounting for Certain Transactions Involving
      Stock Based Compensation - an Interpretation of APB No. 25,” requires variable
      accounting for compensation expense when stock options have been cancelled
      and
      re-issued with a change in strike price. The variable compensation associated
      with these types of stock options for the three and six months ended June 30,
      2005 was
      compensation expense of $246,900 and $418,900, respectively.




15


YTB
        INTERNATIONAL, INC.
 Notes
        to
        Interim Condensed Consolidated Financial Statements


Had
      the
      Company accounted for these plans in accordance with SFAS 123R, the fair value
      recognition method would have had the following effect on the condensed
      consolidated financial statements for the three and six months ended June 30,
      2005:





(RESTATED)
            
            (RESTATED)Three
                months
              ended
              June
                30, 2005
            
            Six
                months
              ended
              June
                30, 2005Net
                loss - as reported
            
            $
            (1,937,974
            )
            $
            (4,376,111
            )Add:
                Stock-based compensation expenseincluded
                in reported net loss
            
            
            269,395
            
            
            463,890Less:
                Additional stock-based compensationexpense
                determined under fair value basedmethod
                for all awards
            
            
            (33,630
            )
            
            (67,260
            )Net
                loss - pro forma
            
            $
            (1,702,209
            )
            $
            (3,979,481
            )Net
                loss per share - basic and dilutedAs
                reported
            
            $
            (0.08
            )
            $
            (0.18
            )Pro
                forma
            
            $
            (0.07
            )
            $
            (0.16
            )




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




16


YTB
      INTERNATIONAL, INC.


Notes
      to
      Interim Condensed Consolidated Financial Statements





NOTE
      9
      - RELATED PARTY TRANSACTIONS




Certain
      members of management of the Company own a company that YTB Marketing utilizes
      for printing of its sales materials. During the three and six months ended
      June
      30, 2006, the Company expended $245,754 and $441,383, respectively, for printing
      sales materials and $157,231 and $310,801, respectively, for the three and
      six
      months ended June 30, 2005. In addition, at June 30, 2006 and December 31,
      2005,
      the Company had a pre-paid asset of $351,871 and $192,027, respectively, on
      the
      balance sheet for payments related to work not yet completed.





The
      Company leases office space to house its executive offices in two buildings
      under separate commercial lease agreements. The buildings are owned and
      controlled by company of which a certain members of the Company’s Board of
      Directors are principals. In addition, each lease contains an addendum
      which grants to the landlord a two-year common stock warrant to
      purchase Company stock in exchange for the deed to the property unencumbered.
      The first lease, which covers approximately 13,000 square feet, commenced July
      1, 2005 and expires June 30, 2010. This lease includes an addendum with a
      two-year common stock warrant, which expires June 30, 2007, to purchase 500,000
      shares of Company stock for a total exercise price of $1.00 and the deed to
      the property, unencumbered in which the space is leased. Separately,
      the Company has the option to purchase the property for a cash price of
      $1,850,000.





Correspondingly,
      the second lease, which covers approximately 5,000 square feet, commenced
      November 1, 2005 and expires on October 31, 2010. This lease includes an
      addendum with a two-year common stock purhase warrant, which expires October
      31,
      2007, to purchase 625,000 shares of Company stock for a total price of
      $1.00 and the deed to the property, unencumbered in which the space is
      leased. Separately, the Company has the option to purchase the property for
      a cash price of $2,350,000.





The
      combined rental cost of both spaces is $15,000 per month. Combined rent expense
      for these two leases was $45,000 for the three months ended June 30, 2006 and
      $90,000 and $0 for the three and six months ended June 30, 2005,
      respectively. As
      of
      June 30, 2006, neither of the common stock warrants has been
      exercised.




NOTE
      10 - CAPITAL STOCK




On
      February 8, 2005, the Company commenced a Private Placement Offering for the
      issuance of up to 1,000,000 shares at a price of $0.80 per share. Pursuant
      to
      the terms of the offering, the minimum investment was $15,000 to purchase an
      investment unit consisting of (a) 18,750 shares of common stock and (b) 18,750
      common stock purchase warrants. Each warrant is exercisable to
      purchase one share of common stock at an exercise price of $1.75 per share,
      exercisable for three years from date of issuance.




On
      April
      5, 2005, the Company executed a warrant agreement with a consultant as
      consideration for services. The warrant agreement provided for the issuance
      of
      warrants to purchase up to 200,000 shares of the Company’s common stock at a
      exercise price of $1.73 per share. The warrant was exercisable as to 66,666
      shares upon execution of the agreement and the warrants to purchase the
      remaining 133,334 shares were to be exercisable upon the following vesting
      schedule; an additional 66,666 shares vest on August 5, 2005 and the final
      66,668 shares vest on December 5, 2005. Shares issuable upon exercise of the
      warrant will be subject to customary demand and piggyback registration rights.
      Expense is recognized over the vesting period. For the quarter ended June 30,
      2006, the Company recorded consulting expense of $181,630, based on the
      estimated fair value of the vested warrants using the Black-Scholes pricing
      model, with an offsetting adjustment to additional paid in capital. As of June
      30, 2006, none of the warrants have been exercised.





NOTE
      11 - NEW ACCOUNTING PRONOUNCEMENTS


The
        Company adopted SFAS No. 151, *Inventory
        Costs, an amendment of ARB No. 43, Chapter 4* ,
        effective January 1, 2006. The amendments made by SFAS No. 151 clarify that
        abnormal amounts of idle facility expense, freight, handling costs, and wasted
        materials (spoilage) should be recognized as current-period charges and require
        the allocation of fixed production overheads to inventory based on the normal
        capacity of the production facilities. The adoption of SFAS No. 151 did not
        have
        a material impact on the consolidated financial statements of the Company.
  The
        Company adopted SFAS No. 154, *Accounting
        Changes and Error Corrections—a replacement of APB Opinion No.
        20* (Accounting Changes) and FASB Statement No. 3 ( *Reporting
        Accounting Changes in Interim Financial Statements* ),
        effective January 1, 2006. SFAS No. 154 provides guidance on accounting for
        and
        reporting of accounting changes and error corrections. It requires retrospective
        application to prior periods’ financial statements, unless it is impracticable
        to determine either the specific period effects or the cumulative effect
        of the
        change. The adoption of SFAS No. 154 did not have a material impact on the
        Company’s consolidated financial statements.
  In
        June
        2006, the FASB issued Interpretation No. 48 ("FIN 48") *Accounting for
        Uncertainty in Income Taxes an interpretation of FASB Statement No. 109*("SFAS 109"). This interpretation clarifies the accounting for uncertainty
        in income taxes recognized in a company's financial statements in accordance
        with SFAS 109, *Accounting for Income Taxes*. FIN 48 details how
        companies should recognize, measure, present, and disclose uncertain tax
        positions that have been or are expected to be taken. As such, financial
        statements will reflect expected future tax consequences of uncertain tax
        positions presuming the taxing authorities' full knowledge of the position
        and
        all relevant facts. We are currently analyzing the effect of FIN 48 on our
        financial statements. The Company will adopt FIN 48 in the first quarter
        of
        2007.


17


YTB
        INTERNATIONAL, INC.
 Notes
        to
        Interim Condensed Consolidated Financial Statements


NOTE
      12 - SEGMENT INFORMATION





The
      Company operates in the following three business segments: marketing of online
      travel stores including the development of a sales network (“Marketing”); sales
      of travel through online travel stores (“Travel”); and developing and
      commercializing internet-based technology programs used in supporting online
      travel stores (“Technology”). The Company’s business segments operate primarily
      in the United States, but are structured for potential international
      growth.





Summarized
      financial information concerning the Company's reportable segments for the
      three
      and six months ended June 30, 2006 and 2005 is shown in the following tables.
      The “parent” column includes corporate items not specifically allocated to the
      segments.




Three
                  Months Ended
                June
                  30, 2006
              
              Marketing
              
              Travel
              
              Technology
              
              Parent
              
              Elimination
              
              TotalExternal
                  and inter-
                segment
                  revenue
              
              $
              7,860,647
              
              $
              2,091,809
              
              $
              47,852
              
              $
              -
              
              $
              (121,147
              )
              $
              9,879,161Segment
                  profit (loss)
              
              
              (508,427
              )
              
              328,954
              
              
              35,489
              
              
              (1,245,531
              )
              
              -
              
              
              (1,389,515
              )Assets
              
              $
              10,301,005
              
              $
              3,346,868
              
              $
              -
              
              $
              7,435,850
              
              $
              (4,375,226
              )
              $
              16,708,497Depreciation
                  and amortization
              
              $
              44,708
              
              $
              -
              
              $
              -
              
              $
              23,360
              
              $
              -
              
              $
              68,068Capital
                  expenditures
              
              $
              139,001
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              139,001
 
 (RESTATED)
                Three
                  Months Ended
                June
                  30, 2005
              
              Marketing
              
              Travel
              
              Technology
              
              Parent
              
              Elimination
              
              TotalExternal
                  and inter-
                segment
                  revenue
              
              $
              3,547,200
              
              $
              1,469,790
              
              $
              47,536
              
              $
              -
              
              $
              (21,050
              )
              $
              5,043,476Segment
                  profit (loss)
              
              
              254,418
              
              
              (158,903
              )
              
              29,248
              
              
              (2,062,737
              )
              
              -
              
              
              (1,937,974
              )Assets
              
              $
              4,599,457
              
              $
              1,450,772
              
              $
              -
              
              $
              7,679,244
              
              $
              (1,452,393
              )
              $
              12,277,080Depreciation
                  and amortization
              
              $
              23,238
              
              $
              -
              
              $
              -
              
              $
              195,860
              
              $
              -
              
              $
              219,098Capital
                  expenditures
              
              $
              153,382
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              153,382


Six
                Months Ended
              June
                30, 2006
            
            Marketing
            
            Travel
            
            Tech
            
            Parent
            
            Elimination
            
            TotalExternal
                and inter-
              segment
                revenue
            
            $
            14,679,548
            
            $
            3,507,607
            
            $
            80,340
            
            $
            -
            
            $
            (225,008
            )
            $
            18,042,487Segment
                profit (loss)
            
            
            (174,071
            )
            
            828,273
            
            
            60,274
            
            
            (2,360,253
            )
            
            -
            
            
            (1,645,777
            )Assets
            
            $
            10,301,005
            
            $
            3,346,868
            
            $
            -
            
            $
            7,435,850
            
            $
            (4,375,226
            )
            $
            16,708,497Depreciation
                and amortization
            
            $
            86,750
            
            $
            -
            
            $
            -
            
            $
            46,720
            
            $
            -
            
            $
            133,470Capital
                expenditures
            
            $
            258,925
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            258,925





(RESTATED)
              Six
                Months Ended
              June
                30, 2005
            
            Marketing
            
            Travel
            
            Tech
            
            Parent
            
            Elimination
            
            TotalExternal
                and inter-
              segment
                revenue
            
            $
            6,072,303
            
            $
            2,462,257
            
            $
            90,617
            
            $
            -
            
            $
            (33,455
            )
            $
            8,591,722Segment
                profit (loss)
            
            
            166,139
            
            
            (24,483
            )
            
            (59,478
            )
            
            (4,458,288
            )
            
            -
            
            
            (4,376,110
            )Assets
            
            $
            4,599,457
            
            $
            1,450,772
            
            $
            -
            
            $
            7,679,244
            
            $
            (1,452,393
            )
            $
            12,277,080Depreciation
                and amortization
            
            $
            36,331
            
            $
            -
            
            $
            103,815
            
            $
            391,720
            
            $
            -
            
            $
            531,866Capital
                expenditures
            
            $
            202,225
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            202,225





18


YTB
      INTERNATIONAL, INC.


Notes
      to
      Interim Condensed Consolidated Financial Statements





NOTE
      13 -
      SUBSEQUENT EVENTS




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


On
      November 20, 2006, the Company entered into a Settlement Agreement with Laurus
      Master Fund, Ltd., (Laurus), whereby the Company agreed to issue an additional
      200,000 shares of YTBI stock to Laurus as settlement for liquidated damages
      for
      the Company’s inability to timely file a Registration Statement as stipulated in
      the original documents between Laurus and YTBI. In addition, all of the original
      document provisions are terminated, excluding the January Warrant and the
      October Warrant. The value of these warrants has been recognized in the
      accompanying financial statements. The January Warrant was exercised on January
      23, 2007. As of the date of this filing, the October Warrant is still
      outstanding.





Effective
      November 22, 2006, an agreement has been reached between Michael Brent, Kim
      Sorensen and Scott Tomer for each of them to share a one-third interest in
      YTB
      Rep position #2. Previously, Mr. Brent had a one-sixth share in YTB Rep position
      #1. This agreement was reached to document the verbal agreement between the
      three parties whereby each would receive the same compensation.





Effective
      November 22, 2006, Michael Y. Brent, Derek J. Brent and Darren J. Brent resigned
      as members of the Company’s Board of Directors. Mr. Michael Y. Brent also
      resigned from his position as President of the Company, and Mr. Derek J. Brent
      resigned from his position as Secretary of the Company.




On
        December 14, 2006, the Company purchased 1.08 acres of land contiguous to
        the
        current facility for $500,000 as part of the future facility plan for its
        corporate headquarters that began back in July 2006.





On
      December 27, 2006, J. Kim Sorenson, 56, was appointed as the President of the
      Company, effective immediately.





On
      December 27, 2006, Lou Brock and John Simmons, Esq. were elected to the
      Company’s Board of Directors, effective immediately. Mr. Brock is the chairman
      of the Compensation Committee, and Mr. Simmons is chairman of the Investment
      Committee.





In
      December 2006, upon approval by the Company’s Board of Directors, the Company’s
      Chief Executive Officer announced to the independent marketing representatives
      ("IMRs") that certain modifications were made to the bonus program under
      which the IMRs earn and receive incentive awards. Under the modified program,
      pursuant to a restricted stock agreement, IMRs achieving the director level
      can
      elect to receive a certain number of shares of restricted stock based upon
      a
      previously determined calculation in lieu of cash in satisfaction of incentive
      bonus awards previously earned.  A portion of each award would vest
      immediately and the unvested portion would vest over the next four years,
      provided that the IMR has retained his or her status at the applicable Director
      level on such vesting date.  Any unvested portion of the award shall
      be immediately forfeited upon the IMRs failure for any reason to maintain his
      or
      her Director Level status.





On
      January 2, 2007, the Board of Directors of the Company granted shares of
      restricted stock to certain IMRs under a Restricted Stock Award agreement
      in satisfaction of bonuses previously earned but not paid during the year ended
      December 31, 2006 and the 4 th quarter
      of 2005.




In
      January 2007, the Company moved its executive offices to a new location in
      Wood
      River, Illinois. The Company is in the process of securing a tenant to sublease
      the spaces in Edwardsville, Illinois previously occupied by the
      Company.




At
        a
        meeting of the Board of Directors (the “ Board ”)
        of YTB
        International, Inc. (the “ Company ”)
        held
        on February 19, 2007, the Board determined that it was necessary to restate
        and
        refile its previously filed Form 10-KSB and financial statements for the
        year
        ended December 31, 2005. The Board made this determination after ratifying
        a
        previously undisclosed issuance of warrants to purchase 200,000 shares of
        the
        Company’s common stock at $1.73 per share. The warrants were issued to an
        advisor of the Company in April 2005, but had not previously been approved
        by
        the Board (see Note 10, “Capital Stock”). As a result, the Company filed an
        amended Form 10-KSB for the year ended December 31, 2005 on March 12, 2007
        to
        reflect the additional expense related to the above warrants.
  19
 YTB
          INTERNATIONAL, INC.
 Notes
          to
          Interim Condensed Consolidated Financial Statements
 NOTE
        14 - RESTATEMENT OF FINANCIAL STATEMENTS
 
 At
        a
        meeting of the Board of Directors (the “ Board ”)
        of YTB
        International, Inc. (the “ Company ”)
        held
        on February 19, 2007, the Board determined that it was necessary to restate
        the
        financial statements included in its previously filed Form 10-KSB for the
        year
        ended December 31, 2005. The Board made this determination after ratifying
        a
        previously unrecorded issuance of warrants to purchase 200,000 shares of
        the Company’s common stock at $1.73 per share. The warrants were issued to an
        advisor of the Company in April 2005, but had not previously been approved
        by
        the Board (see Note 10, “Capital Stock”) nor accounted for in the original 2005
        Financial Statements.
 
 As
        a
        result, on March 12, 2007 the Company filed an amended Form 10-KSB for the
        year
        ended December 31, 2005 to reflect the additional expense related to the
        above
        warrants. In addition, certain items in the Consolidated Statement of Cash
        Flows
        for the year ended December 31, 2005 have been reclassified to enhance
        disclosure, properly reflect non-cash items and properly reflect the gross
        activity related to the conversion of debt to common stock that occurred
        in the
        fourth quarter of 2005.
 
 The
        financial statements for the quarter ended June 30, 2005 included herein
        have
        been restated to reflect additional expense of $181,630 or ($0.01) per share
        related to the warrants and the relevant disclosure has been updated. The
        financial statements for the quarter ended March 31, 2005 were not affected
        by
        the restatement for the warrants. In addition, certain reclassifications
        were
        made to the Condensed Consolidated Statement of Cash Flows for the six months
        ended June 30, 2005. The affected column headings of the financial statements
        for the three and six months ended June 30, 2005 included herein, as well
        as the
        affected footnotes, have been labeled as “Restated”.
 
 Below
        is
        the effect of the restatement and reclassifications on the Consolidated Balance
        Sheet as of December 31, 2005 and the Consolidated Statements of Operations
        and
        the Consolidated Statement of Cash Flows for the fiscal year ended December
        31,
        2005:
 
 **Consolidated
        Balance Sheet as of June 30, 2005**
 As
                Previously
                Reported
              
              Adjustment
              
              As
                RestatedAdditional
                  paid-in capital
              $
              14,212,779
              $
              181,630
              $
              14,394,409Accumulated
                  deficit
              $
              (12,077,550)
              $
              (181,630)
              $
              (12,259,180)
 
 **Consolidated
        Statement of Operations for three months ended June 30,
        2005**
 As
                Previously
                Reported
              
              Adjustment
              
              As
                RestatedOPERATING
                  EXPENSESGeneral
                  and administrative
              $
              1,571,839
              $
              181,630
              $
              1,753,469Total
                  operating expenses
              $
              5,140,624
              $
              181,630
              $
              5,322,254LOSS
                  FROM OPERATIONS
              $
              (97,148)
              $
              (181,630)
              $
              (278,778)NET
                  LOSS
              $
              (1,756,344)
              $
              (181,630)
              $
              (1,937,974)NET
                  LOSS PER SHARE:Net
                  loss per share - basic and diluted
              $
              (0.07)
              $
              (0.01)
              $
              (0.08)






20


YTB
          INTERNATIONAL, INC.
 Notes
          to
          Interim Condensed Consolidated Financial Statements
 **Consolidated
        Statement of Operations for six months ended June 30, 2005**
 As
                Previously
                Reported
              
              Adjustment
              
              As
                RestatedOPERATING
                  EXPENSESGeneral
                  and administrative
              $
              3,879,003
              $
              181,630
              $
              4,060,633Total
                  operating expenses
              $
              10,075,484
              $
              181,630
              $
              10,257,114LOSS
                  FROM OPERATIONS
              $
              (1,483,762)
              $
              (181,630)
              $
              (1,665,392)NET
                  LOSS
              $
              (4,194,481)
              $
              (181,630)
              $
              (4,376,111)NET
                  LOSS PER SHARE:Net
                  loss per share - basic and diluted
              $
              (0.17)
              $
              (0.01)
              $
              (0.18)
 
 **Condensed
        Consolidated Statement of Cash Flows for the six months ended June 30,
        2005**
 As
                Previously
                Reported
              
              Adjustment
              
              As
                RestatedCASH
                  FLOWS FROM OPERATING
                ACTIVITIES:
              $
              94,463
              $
              57,354
              $
              151,817CASH
                  FLOWS FROM INVESTING
                ACTIVITIES:
              $
              (2,260,532)
              $
              (57,354)
              $
              (2,317,886)


21




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





YTB
      International, Inc. (the “Company”) is a leading Internet provider of online
      travel stores for travel agencies and home-based representatives using its
      services and technology. As described elsewhere in this report, YTB
      International, Inc. became the successor to the former REZconnect following
      the
      December 8, 2004 merger with YourTravelBiz.com, Inc. (“YTB, Inc.”) and the
      Company’s subsequent reincorporation under the laws of the State of Delaware on
      January 4, 2005. Subsequent to the reincorporation, on January 4, 2005, the
      Company’s three operating groups became distinct wholly owned subsidiaries
      consisting of YourTravelBiz.com, Inc. (“YTB Marketing”), REZconnect Technologies
      Inc. (“Technologies”) and YTB Travel Network, Inc. (“YTB Travel”).





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





Technologies’
      consumer driven websites provide strong content and book-ability with over
      60
      booking engines incorporated into one site, covering all aspects of the travel
      industry. Sites are available for use 24 hours, 7 days a week, allowing travel
      agents the ability to personally follow-up with the online consumer and provide
      customer service. Technologies has signed contracts with numerous Consortium
      groups to build online super sites for their agent base, including Hickory
      Leisure, InteleTravel, OSSN, and ARTA.





YTB
      Travel is a travel management subsidiary that processes travel sales from
      several different marketing systems including storefront and online business
      models, and processes and handle bookings (reservations) from over 34,200
      websites. 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 Internet for travel services presents the
      opportunity for advancement of products and services by referral
      relationships.





YTB
      Marketing is a direct sales organization that utilizes independent
      marketing representatives ("IMRS") to market the Referring Travel Agent
      (“RTA”) online business opportunity and has sold 34,200 online travel stores
      which are currently in the system. The RTAs have the ability to book individual
      and group travel. YTB Marketing conducts business through recruitment,
      enrollment, initial training, and support of its independent sales force. YTB
      Marketing is a referral marketing group providing support products and services
      for the IMRS. Currently, there are over 34,200 RTA consumer websites in
      operation and 1,700 Book MyTravel websites in operation. Site owners are
      permitted to solicit organizations and associations for travel sites allowing
      for site owners to earn more revenue.





Overview





Our
      revenues are comprised of initial and monthly RTA hosting and maintenance fees,
      franchise fees and franchise service fees, commissions paid by travel providers
      and the retail value of travel agency related sales plus online hosting fees
      for
      websites. Additional revenue is derived from other travel products and services.
      Certain travel suppliers pay performance-based compensation known as “override
      commissions” or “overrides.” Commission revenues and gross retail sales, net of
      allowances for cancellations, are recognized generally based on the expected
      date of travel. Overrides are recognized on an accrual basis once the amount
      has
      been confirmed with the travel supplier. Franchise fees are recognized when
      all
      material services and conditions required have been performed and the likelihood
      of collection of the franchise fee is relatively assured. The Company generally
      defers recognition of franchise fees until such amounts have been collected
      from
      the franchisee. Franchise service fees are recognized on the accrual basis
      as
      earned. Online travel income is recorded when earned and is recognized based
      on
      the websites hosted.





The
      Company expects that Technologies will continue to play an important part in
      our
      2006 revenue projections as the Company releases the various applications within
      the travel and entertainment industries. Operational expenses are related to
      franchise system sales and support personnel, executive management and minimal
      administrative personnel. During the last three and one-half years a larger
      portion of our expenses were related to our technology development.




The
      commission rates paid by travel suppliers, in addition to overrides, are
      determined by individual travel suppliers and are subject to change.
      Historically, typical standard base commission rates paid by travel suppliers
      have been approximately 10% for hotel reservations, 5% to 10% for car rentals
      and 10% to 16% for cruises and vacation packages. Airline tickets are a
      non-commissionable item and revenues are earned from service fees, which range
      from $4 to $15 per ticket. Based on 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 weighted average commission of online transaction revenues
      will
      increase due to the fact that its leisure bookings are much greater as a
      percentage of total sales than airline ticketing, the latter offering the
      Company lower commissions rates. There can be no assurance that travel suppliers
      will not reduce commission rates paid to YTB Travel or eliminate such
      commissions entirely, which could, individually or in the aggregate, have a
      material adverse effect on the Company’s business, operating results and
      financial condition.




22





YTB
      Marketing services an RTA network, while Technologies services the travel agent
      community. YTB Marketing typically charge $49.95 to each RTA per month on a
      month-to-month basis to own and operate an online travel site, plus the Company
      can earn transactional compensation from travel purchased off each website.
      Initially, each RTA pays an initial fee of $399.95, plus the first month’s
      membership dues of $49.95. Our brick and mortar franchisee Travel Network and
      Global Travel Network fees range from $3,000 to $29,900 for domestic franchises
      and from $50,000 to $350,000 for individual international territories. Yearly
      service fees range from $2,000 to $9,000 per location.





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





23


**Results
      of Operations**




The
        following table sets forth the number of RTAs for each period covered by
        this
        report, as well as the sales figures for each period.
 
 RTAs
                  as of
              
              RTAs
                  as ofJune
                  30, 2006
              
              June
                  30, 200534,241
              
              14,328Site
                  sales for the
              
              Site
                  sales for the3
                  months ended
              
              3
                  months endedJune
                  30, 2006
              
              June
                  30, 200511,867
              
              6,354Site
                  sales for the
              
              Site
                  sales for the6
                  months ended
              
              6
                  months endedJune
                  30, 2006
              
              June
                  30, 200521,802
              
              10,054
 
 
 The
        RTA
        numbers represent the number of active RTAs paying $49.95 per month to the
        company as monthly maintenance fees.  The sales numbers represent the sales
        of online travel store sites sold during each respective period.  The
        number of sales and number of recurring monthly maintenance fees paid directly
        impact the revenues and expenses of the company.  As each new site is sold
        for $449.95, marketing commissions are paid on that sale.  Likewise, each
        recurring monthly maintenance fee paid results in marketing commissions paid
        to
        the sales force.  As the number of active RTAs grows, the amount of travel
        commissions revenue grows as well.  Correspondingly, the travel commissions
        expense follows suit.
 
 The
        growth as evidenced in the above numbers on a year-to-year basis directly
        impact
        the financial results of the organization, both on the revenue side, as well
        as
        the expense side.  As more sites are sold and maintained, the amount of
        both marketing and travel commissions correspondingly increase, as do other
        volume related expenses, such as wage and benefit costs.  As more sales are
        made, the entire infrastructure needs to keep pace with or ahead of the sales
        volume.


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





Three
                months ended
            
            Six
                months endedJune
                30, 2006
            
            (RESTATED)
              June
                30, 2005
            
            June
                30, 2006
            
            (RESTATED)
              June
                30, 2005Net
                RevenuesOnline
                travel store sales and
              monthly
                fees
            
            
            76.6
            %
            
            61.9
            %
            
            76.4
            %
            
            63.1
            %Travel
                commissions and services
            
            
            18.8
            %
            
            27.2
            %
            
            17.0
            %
            
            26.2
            %Franchise
                service and other fees
            
            
            .9
            %
            
            2.0
            %
            
            1.0
            %
            
            2.5
            %Other
            
            
            3.7
            %
            
            8.9
            %
            
            5.6
            %
            
            8.2
            %TOTAL
                NET REVENUES
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Operating
                ExpensesMarketing
                commissions
            
            
            57.8
            %
            
            43.7
            %
            
            55.8
            %
            
            45.0
            %Travel
                commissions
            
            
            13.4
            %
            
            20.8
            %
            
            10.9
            %
            
            19.1
            %Franchise
                fees
            
            
            0.4
            %
            
            .8
            %
            
            0.4
            %
            
            1.2
            %Depreciation
                an amortization
            
            
            0.7
            %
            
            4.3
            %
            
            0.7
            %
            
            6.2
            %Marketing
                and selling
            
            
            2.7
            %
            
            1.1
            %
            
            1.8
            %
            
            0.7
            %General
                and administrative
            
            
            38.0
            %
            
            34.8
            %
            
            38.3
            %
            
            47.3
            %TOTAL
                OPERATING EXPENSES
            
            
            113.0
            %
            
            105.5
            %
            
            107.9
            %
            
            119.4
            %LOSS
                FROM OPERATIONS
            
            
            (13.0
            %)
            
            (
                5.5
            %)
            
            (7.9
            %)
            
            (19.4
            %)Other
                Income (Expenses)Change
                in fair value of derivatives
            
            
            0.0
            %
            
            (29.4
            %)
            
            0.0
            %
            
            (28.4
            %)Gain on
              sale of
              assets
            
            
            0.0
            %
            
            -
            
            
            0.0
            %
            
            -Interest
                and dividend Income
            
            
            0.4
            %
            
            0.6
            %
            
            0.4
            %
            
            0.4
            %Interest
                expense
            
            
            (1.5
            %)
            
            (4.1
            %)
            
            (1.6
            %)
            
            (3.5
            %)TOTAL
                OTHER INCOME (EXPENSE)
            
            
            (1.1
            %)
            
            (32.9
            %)
            
            (1.2
            %)
            
            (31.5
            %)NET
                LOSS
            
            
            (14.1
            %)
            
            (38.4
            %)
            
            (9.1
            %)
            
            (50.9
            %)





24


**Three
      months ended June 30, 2006 compared to three months ended June 30,
      2005**





The
      Company reported a net loss for the second quarter ended June 30, 2006 of
      $1,389,515 or ($0.05) per diluted share compared to a net loss of $1,937,974
      or
      ($0.08) per diluted share for the comparable quarter of 2005. The overall
      results for the second quarter of 2006 were impacted by the recording of bonus
      expense of $711,128 while the comparable 2005 results were impacted by the
      recording of Other Expense totaling $1,483,890. The Other Expense recorded
      in
      the second quarter of 2005 related to the increase in the embedded derivative
      liability during that quarter associated with the convertible note agreement
      the
      Company entered into in January of 2005.





**Net
      Revenues**





Net
      revenues totaled $9,879,161 and $5,043,476 in the second quarter of 2006 and
      2005, respectively.





·
            Online
                travel store sales and monthly fees increased $4,450,476 or 142.6%
                in the
                second quarter of 2006 to $7,571,288 from the $3,120,812 reported
                in the
                comparable prior year quarter. The increase is due to the significant
                growth of YourTravelBiz.com attributable to the increase in active
                RTAs.
                The Company believes its significant growth in RTAs is attributable
                to the
                emerging market shift to the Internet for travel services which presents
                the opportunity for advancement of products and services by referral
                relationships and the boom in home-based
                businesses.




·
            Travel
                agency commissions for the second quarter of 2006 increased $484,190
                or
                35.3%to$1,856,278
                from the $1,372,088 reported in the second quarter of 2005. The increase
                is attributable to an increase in the number of representatives utilizing
                the Company as their travel provider in 2006 due to the significant
                growth
                in referring travel agents.





·
            Franchise
                service fees and other fees decreased $10,699 or 10.5% in the second
                quarter of 2006 to $90,823 from $101,522 reported in the second quarter
                of
                2005. The decrease is largely attributable to the transition to the
                internet for travel bookings away from traditional/brick-and-mortar
                travel
                agents.





·
            Other
                income decreased in the second quarter of 2006 as compared to 2005
                by
                $88,282 or 19.7% to $360,772 from
                $449,054.





**Operating
      Expenses**




·
            Marketing
                commissions increased by $3,495,410 or 158.4% in the second quarter
                of
                2006 as compared to the third quarter of 2005. The increase is due
                to the
                significant growth of YourTravelBiz.com attributable to the increase
                in
                active RTAs. The three months ended June 30, 2006 also includes $711,128
                in bonus expense for the Company's independent RTAs earned in conjunction
                with a bonus program that began in the fourth quarter of
                2005.





·
            Travel
                commissions for the second quarter of 2006 increased by $280,138
                or 26.8% to $1,327,317 from $1,047,179 reported in the second quarter
                of
                2005. The increase is attributable to an increase in the number of
                representatives utilizing the Company as their travel provider in
                2006 due
                to the significant growth in referring travel
                agents.





·
            Franchise
                services and products expense was $40,143 in the second quarter of
                2006
                compared with $41,773 in the comparable prior year period. The decrease
                is
                largely attributable to the transition to the internet for travel
                bookings
                away from traditional/brick-and-mortar travel
                agents.





·
            Depreciation
                  and amortization was $68,068 in the second quarter of 2006, compared
                  to
                  $219,098 in the comparable quarter of 2005. In 2005, depreciation
                  and
                  amortization included $172,500 of amortization of an intangible
                  asset for
                  RTA agreements which was fully amortized by December 31, 2005 and
                  was not
                  included in the 2006
                  period.





·
            Marketing
                and selling expenses increased by $211,845 from $53,990 in the second
                quarter of 2005 to $265,835 in the second quarter of 2006.  The
                increase is attributed to an increase in promotional efforts which
                led to
                an increase in RTA's.





·
            General
                and administrative expenses increased $2,003,771 to $3,757,240 in
                the
                second quarter of 2006 from $1,753,469 in the second quarter of 2005.
                As a
                percentage of total net revenues, these expenses were 38.0% in 2006
                and
                34.8% in 2005. The increase in general and administrative expense
                in 2006
                is attributable to the significant growth in the number of active
                RTAs
                resulting in increased costs associated with the growth in the Company’s
                infrastructure to support the increased volume. The increase is also
                attributable to costs associated with the ongoing implementation
                of new
                business strategies company-wide.




25




**Six
      months ended June 30, 2006 compared to six months ended June 30,
      2005**




The
      Company reported a net loss for the six months ended June 30, 2006 of $1,645,777
      or ($0.06) per diluted share compared to a net loss of $4,376,111 or ($0.18)
      per
      diluted share for the comparable period of 2005. The overall results for the
      six
      months ended June 30, 2006 were impacted by the recording of bonus expense
      of
      $1,213,834 earned in conjunction with the sales director bonus plan which began
      in the fourth quarter of 2005. The overall results for the first six months
      of
      2005 were impacted by the recording of Other Expense totaling $2,439,905 related
      to the increase in the embedded derivative liability during the six month period
      ended September 30, 2005 associated with the convertible note agreement the
      Company entered into in January of 2005.





**Net
      Revenues**





Net
      revenues totaled $18,042,487 and $8,591,722 in the six months ended September
      30, 2006 and 2005, respectively.





·
            Online
                travel store sales and monthly fees increased $8,356,982 or 154.1%
                in the
                first six months of 2006 to $13,781,787 from the $5,424,805 reported
                in
                the comparable prior year period. The increase is due to the significant
                growth of YourTravelBiz.com attributable to the increase in active
                RTAs.
                The Company believes its significant growth in RTAs is attributable
                to the
                emerging market shift to the Internet for travel services which presents
                the opportunity for advancement of products and services by referral
                relationships and the boom in home-based
                businesses.




·
            Travel
                agency commissions for the first six months of 2006 increased $822,826
                or
                36.6%to$3,072,302
                from the $2,249,476 reported in the first six months of 2005. The
                increase
                is attributable to an increase in the number of representatives utilizing
                the Company as their travel provider in 2006 due to the significant
                growth
                in referring travel agents.





·
            Franchise
                service fees and other fees decreased $40,787 or 18.9% in the first
                six
                months of 2006 to $175,375 from $216,162 reported in the first nine
                months
                of 2005. The decrease is largely attributable to the transition to
                the
                internet for travel bookings away from traditional/brick-and-mortar
                travel
                agents.





·
            Other
                income increased in the six months ended June 30, 2006 as compared
                to the
                comparable period in 2005 by $311,744 or 44.5% to $1,013,023 from
                $701,279. This increase is due to the significant growth of sales
                revenues
                from sales aids and miscellaneous promotional and marketing
                materials sold to an increasing in the number of
                RTAs.





**Operating
      Expenses**




·
            Marketing
                commissions increased by $6,197,932 or 160.4% in the first six months
                of
                2006 to $10,061,419 from $3,863,487 in the comparable period of 2005.
                The
                increase is due to the significant growth of YourTravelBiz.com
                attributable to the increase in active RTAs. The six months ended
                June 30,
                2006 also includes $1,213,834 in bonus expense for the Company’s
                independent RTAs earned in conjunction with a bonus program that
                began in
                the fourth quarter of 2005.





·
            Travel
                commissions for the six months ended June 30, 2006 increased $331,415
                or
                20.2% to $1,970,505 from $1,639,090 reported in the comparable prior
                year
                period. The increase is attributable to an increase in the number
                of
                representatives utilizing the Company as their travel provider in
                2006 due
                to the significant growth in referring travel
                agents.





·
            Franchise
                services and products expense was $67,537 in the six months ended
                June 30,
                2006 compared with $99,416 in the comparable prior year period. The
                $31,879 or 32.1% decrease is largely attributable to the transition
                to the
                internet for travel bookings away from traditional/brick-and-mortar
                travel
                agents.





·
            Depreciation
                  and amortization was $133,470 in the first six months of 2006,
                  compared to
                  $531,866 in the comparable period of 2005. In 2005, depreciation
                  and
                  amortization included $103,815 of amortization of capitalized software
                  and
                  $345,000 of amortization of an intangible asset for RTA agreements.
                  Both
                  of these items became fully amortized by December 31, 2005 and
                  were not
                  included in the 2006
                  period.





·
            Marketing
                and selling expenses increased by $266,958 from $62,622 in the first
                six
                months of 2005 to $329,580 in the comparable six month period of
                2006. The
                increase is attributable to an increase in promotional efforts which
                led
                to an increase in RTAs.




26




·
            General
                and administrative expenses increased $2,840,842 to $6,901,475 in
                the
                first six months of 2006 from $4,060,633 in the comparable period
                of 2005.
                As a percentage of total net revenues, these expenses were 38.3%
                in 2006
                and 47.3% in 2005. Although the two periods are relatively flat as
                a
                percentage of sales, the increase in general and administrative expense
                in
                2006 is attributable to the significant growth in the number of active
                RTAs resulting in increased costs associated with the growth in the
                Company’s infrastructure to support the increased volume. The increase is
                also attributable to costs associated with the ongoing implementation
                of
                new business strategies
                company-wide.




**Variability
      of Results**




The
      Company’s travel products and services gross bookings have increased from 2005
      to 2006 due to increase in the number of hosted websites and an increase in
      products and services sold to travel agencies utilizing our unique private
      label
      agent-only web-based booking site. Cost of travel revenues have similarly
      increased from 2005 to 2006.




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




The
      Company expects to experience fluctuations in its future quarterly operating
      results due to a variety of other factors, many of which are outside the
      Company’s control. Factors that may adversely affect the Company’s quarterly
      operating results include, but are not limited to (i) the Company’s ability to
      retain existing customers, attract new customers at a steady rate and maintain
      customer satisfaction, (ii) changes in inventory availability from third party
      suppliers or commission rates paid by travel suppliers, (iii) the announcement
      or introduction of new or enhanced sites, services and products by the Company
      or its competitors, (iv) general economic conditions specific to the Internet,
      online commerce or the travel industry, (v) the level of use of online services
      and consumer acceptance of the Internet and commercial online services for
      the
      purchase of consumer products and services such as those offered by the Company,
      (vi) the Company’s ability to upgrade and develop its systems and infrastructure
      and to attract new personnel in a timely and effective manner, (vii) the level
      of traffic on the Company’s online sites, (viii) technical difficulties, system
      downtime or Internet brownouts, (ix) the amount and timing of operating costs
      and capital expenditures relating to expansion of the Company’s business,
      operations and infrastructure, (x) governmental regulation and (xi) unforeseen
      events affecting the travel industry, including terrorist activities similar
      to
      the events of September 11, 2001 and the conflict with Iraq.




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




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




**Liquidity
      and Capital Resources**




Net
      cash
      used by operating activities in the first half of 2006 was $930,306 in the
      first
      half of 2006 as compared to cash provided of $151,817 in the first half of
      2005
      primarily resulting from the increase in notes receivable and the decrease
      in
      accounts payable in 2006.




Net
      cash
      provided by investing activities was $900,767 in the first half of 2006 compared
      to cash used of $2,317,886 in the first half of 2005 primarily as a change
      in
      the net positon of available-for-sale securities in the first half of 2006
      compared to 2005.




27




Net
      cash
      used by financing activities for the first half of 2006 was $103,428 compared
      with net cash provided by financing activities of 2,687,924 in the comparable
      2005 period. The descrease is attributable to proceeds from
      the raising of capital from the sale of a convertible note which occurred
      in January 2005 for $2,000,000 and from an issuance of stock in a private
      placement to investors in February 2005 for an aggregate amount of $960,000
      with
      no such similar transactions occurring in the first half of 2006.




As
      of
      June 30, 2006, the Company had $97,391 in cash and $2,451,310 in short-term
      investments. The Company believes that cash and short term investments on hand
      at June 30, 2006, and its cash flow from operations will be sufficient to meet
      its obligation on a timely basis for the next 12 months.




**New
      Accounting Pronouncements**




The
          Company adopted SFAS No. 151, *Inventory
          Costs, an amendment of ARB No. 43, Chapter 4* ,
          effective January 1, 2006. The amendments made by SFAS No. 151 clarify
          that
          abnormal amounts of idle facility expense, freight, handling costs, and
          wasted
          materials (spoilage) should be recognized as current-period charges and
          require
          the allocation of fixed production overheads to inventory based on the
          normal
          capacity of the production facilities. The adoption of SFAS No. 151 did
          not have
          a material impact on the consolidated financial statements of the Company.
  The
          Company adopted SFAS No. 154, *Accounting
          Changes and Error Corrections—a replacement of APB Opinion No.
          20* (Accounting Changes) and FASB Statement No. 3 ( *Reporting
          Accounting Changes in Interim Financial Statements* ),
          effective January 1, 2006. SFAS No. 154 provides guidance on accounting
          for and
          reporting of accounting changes and error corrections. It requires retrospective
          application to prior periods’ financial statements, unless it is impracticable
          to determine either the specific period effects or the cumulative effect
          of the
          change. The adoption of SFAS No. 154 did not have a material impact on
          the
          Company’s consolidated financial statements.
  In
        June
        2006, the FASB issued Interpretation No. 48 (“FIN 48”) *Accounting
        for Uncertainty in Income Taxes an interpretation of FASB Statement No.
        109* (“SFAS
        109”). This interpretation clarifies the accounting for uncertainty in income
        taxes recognized in a company’s financial statements in accordance with SFAS
        109, *Accounting
        for Income Taxes* .
        FIN 48
        details how companies should recognize, measure, present, and disclose uncertain
        tax positions that have been or are expected to be taken. As such, financial
        statements will reflect expected future tax consequences of uncertain tax
        positions presuming the taxing authorities’ full knowledge of the position and
        all relevant facts. We are currently analyzing the effect of FIN 48 on our
        financial statements. The Company will adopt FIN 48 in the first quarter
        of
        2007.




**Application
      of Critical Accounting Policies**




The
      Company’s significant accounting policies are discussed in the Notes to the
      Consolidated Financial Statements that are included in the Company’s 2005 Annual
      Report on Form 10-KSB that is filed with the Securities and Exchange
      Commission.  In most cases, the accounting policies utilized by the Company
      are the only ones permissible under U.S. Generally Accepted Accounting
      Principles for businesses in our industry.  However, the application of
      certain of these policies requires significant judgments or a complex estimation
      process that can affect the results of operations and financial position of
      the
      Company, as well as the related footnote disclosures.  The Company bases
      its estimates on historical experience and other assumptions that it believes
      are reasonable. If actual amounts are ultimately different from previous
      estimates, the revisions are included in the Company’s results of operations for
      the period in which the actual amounts become known.  The accounting
      policies and estimates that can have a significant impact on the operating
      results, financial position and footnote disclosures of the Company are
      described in the Management Discussion and Analysis of Financial Condition
      and
      Results of Operations in the Company’s 2005 Annual Report on Form
      10-KSB.




**Forward-Looking
      Statements**




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




28


**Item
      3.** **Controls
      and Procedures**




**Evaluation
        of disclosure controls and procedures**
  Management
        of the Company is responsible for establishing and maintaining adequate internal
        control over financial reporting as defined in Rule 13a-15(f) under the Exchange
        Act. The Company's internal control system is designed to provide reasonable
        assurance to the Company's management and Board of Directors regarding the
        preparation and fair presentation of published financial statements. All
        internal control systems, no matter how well designed, have inherent
        limitations. Therefore, even those systems determined to be effective can
        provide only reasonable assurance with respect to financial statement
        preparation and presentation.
  The
        Company continues to develop disclosure controls and procedures that are
        designed to ensure that information required to be disclosed in the Company's
        reports under the Securities Exchange Act of 1934, as amended (the "Exchange
        Act"), is recorded, processed, summarized and reported within the time periods
        specified in the SEC's rules and forms, and that such information is accumulated
        and communicated to management, including the Company's Chief Executive Officer
         and Chief Financial Officer , as appropriate, to allow timely decisions
        regarding required disclosure. In designing and evaluating the disclosure
        controls and procedures, management recognized that any controls and procedures,
        no matter how well designed and operated, can provide only reasonable assurance
        of achieving the desired control objectives, as the Company's procedures
        are
        designed to achieve.
  As
        of the
        end of the period covered by this report, our company conducted an evaluation,
        under the supervision and with the participation of our Chief Executive Officer
        and Chief Financial Officer, of our disclosure controls and procedures (as
        defined in Rule 13a-15(e) and of the Exchange Act). Based upon this evaluation,
        our Chief Executive Officer and Chief Financial Officer concluded that there
        were material weaknesses with our disclosure controls and procedures in so
        far
        as they were not effective in gathering, analyzing and disclosing information
        needed to satisfy our disclosure obligations under the Exchange
        Act.
  As
        a
        result of the above, the Company reorganized its executive personnel to address
        these issues. In connection with the reorganization, the Company is developing
        procedures, forms, checklists and reporting packages to address these
        deficiencies, and management believes progress had been made to improve the
        Company's system of internal controls. However, despite management efforts
        there
        continues to exist material weaknesses in the Company's internal controls.
        Management believes additional progress in strengthening its internal controls
        will continue through the end of the first quarter of 2007.


**Changes
      in Internal Control**





There
      were no changes in our internal control over financial reporting that occurred
      during the quarter ended June 30, 2006 that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.





**Internal
      Inquiry**





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





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




**PART
      II - OTHER INFORMATION**





**ITEM
      6.** **EXHIBITS**





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





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





32.1*
            Chief
                Executive Officer and Chief Financial Officer Certification pursuant
                to 18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.




*
            This
                certification is attached as Exhibit 32.1 accompanying this Quarterly
                Report on Form 10-QSB 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.





29


**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      caused this report to be signed on its behalf by the undersigned thereunto
      duly
      authorized.





YTB
                International, Inc./s/
                J. Scott Tomer
              J.
                Scott Tomer, Chief Executive Officer
                Dated: March
                  16, 2007/s/
                John D. Clagg
              John
                D. Clagg, Chief Financial Officer
                Dated: March
                  16, 2007





30