**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-QSB/A**


Amendment
      No. 4





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





**For
      the quarterly period ended March 31, 2005.**





o
      Transition Report Under
      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.**


**(formerly
      REZconnect Technologies, 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 No.)




**1901
      East Edwardsville
      Rd.**


**Wood
      Rivers, IL 62095**


(Address
      of Principal Executive Offices)





**(618)
      655-9477**


(Registrant’s
      Telephone Number, Including Area Code)


**One
        Country Club View Drive**
 **Edwardsville,
        Illinois 62025**


(Former
      Name, Former Address and Former Fiscal Year,


If
      Changed Since Last Report)





Indicate
      by check mark 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
      90days. Yes o 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
      November 30, 2006 there were 27,690,454 shares, $.001 par value, of the
      Registrant’s common stock outstanding.





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







EXPLANATORY
      NOTE





YTB
      International, Inc. (formerly REZconnect Technologies, Inc., the “former
      REZconnect”) ( “YTB” or the “Company”) is filing this Amendment No. 4 to Form
      10-QSB for the quarter ended March 31, 2005 to reflect the restatement of its
      audited consolidated financial statements for the years ended December 31,
      2004
      and December 31, 2003 and the quarter ended March 31, 2005. The restatements
      arose from actions taken by the Company when it became aware of the lack of
      independence with the Company’s former independent accounting firm. On January
      6, 2006, the Company self-reported to the staff of the United States Securities
      and Exchange Commission ( the “SEC”or the “Staff”) that it became aware that the
      Company’s previous independent accounting firm, Dischino & Associates, P.C.
      (“Dischino”) had provided prohibited services and appeared to have not followed
      the standards of the Public Company Accounting Oversight Board (“PCAOB”). On
      January 19, 2006, the Company initiated an internal inquiry into those
      accounting-related matters which the Company disclosed in the Current Report
      on
      Form 8-K filed with the SEC on January 19, 2006. Based on the findings of the
      inquiry, on February 6, 2006, the Company’s management and the Audit Committee
      of the Company’s Board of Directors concluded that the Company needed to restate
      certain of the Company’s financial statements and that the financial statements
      for the years ended December 31, 2004 and 2003 included in the Company’s Annual
      Report on Form 10-KSB/A No. 5 for the year ended December 31, 2004 and the
      financial statements included in the Company’s Quarterly Reports on Form 10-Q
      for the quarters ended March 31, 2004, June 30, 2004, September 30, 2004, March
      31, 2005, June 30, 2005 and September 30, 2005 could not be relied
      upon.





During
      February 2006, the Company began the restatement of the affected years’ and
      quarters’ financial statements. During the course of the review of 2003 and 2004
      annual and quarterly reports, certain other errors were discovered, resulting
      from a lack of proper internal controls and procedures. These findings and
      the
      related restatement impact are described fully in Item 3 of this document as
      well as Note 14 in the accompanying Notes to Interim Condensed Consolidated
      Financial Statements and Note 14 included in the Company’s Annual Report on Form
      10-KSB/A No. 6 for the
      year ended December 31, 2004.





The
      Company’s Chief Executive Officer and Chief Financial Officer have considered
      the errors giving rise to this restatement and have determined that the errors
      resulted, in part, from a finding of material weaknesses in the Company’s
      internal disclosure controls and procedures. This conclusion was discussed
      and
      concurred with by both the Audit Committee and UHY LLP, the Company’s current
      independent registered public accounting firm. The deficient controls and
      procedures resulted in the improper selection and application of generally
      accepted accounting principles, improper recognition of revenue and expenses
      primarily related to the accounting treatment for the sale of the Company’s
      online travel stores, improper recording of share-based transactions and the
      improper development of accounting estimates. The Company has and is continuing
      to initiate policies and procedures designed to enhance internal controls
      related to financial reporting and disclosure.





Accordingly,
      the Company is filing this amendment to its Form 10-QSB/A No. 3 for the quarter
      ended March 31, 2005 for the purpose of:





·
            amending
                and restating Item 1 “Financial
                Statements”;





·
            amending
                and restated Item 2 “Management’s Discussion and Analysis or Plan of
                Operation”;





·
            amending
                and restating Item 3 “Controls and Procedures” and





·
            amending
                and restating Item 6 “Exhibits”.





**Additionally,
      this Form 10-QSB/A No. 4 does not purport to provide a general update or
      discussion of any other developments at the**  **Company
      subsequent to the original filing, unless specifically stated otherwise in
      this
      report.**





As
      a
      result of this restatement, updated certifications pursuant to Section 302
      and
      Section 906 of the Sarbanes-Oxley Act of 2002 have been re-filed and included
      as
      exhibits to this amended Form 10-QSB.





1


**YTB
      INTERNATIONAL, INC.**


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


**Three
      months ended March 31, 2005**





PAGEPART
                I - FINANCIAL INFORMATIONItem
                1.Financial
                Statements (Unaudited)Condensed
                Consolidated Balance Sheets
              March
                31, 2005 (Unaudited) and December 31, 2004
            3Condensed
                Consolidated Statements of Operations (Unaudited)
              Three
                months ended March 31, 2005 and 2004
            4Condensed
                Consolidated Statement of Changes in Stockholders’ Equity
                (Unaudited)
              Three
                months ended March 31, 2005
            5Condensed
                Consolidated Statements of Cash Flows (Unaudited)
              Three
                months ended March 31, 2005 and 2004
            6Notes
                To Condensed Consolidated Financial Statements (Unaudited)
            7Item
                2.Management’s
                Discussion and Analysis or Plan of Operation
            26.Item
                3.Controls
                and Procedures
            32PART
                II - OTHER INFORMATIONItem
                6.Exhibits
            35Signatures
            36Certifications







2


**YTB
      INTERNATIONAL, INC.**


**Condensed
      Consolidated Balance Sheets**





(RESTATED)
              March
                31, 2005
              (Unaudited)
            
            December
                31,
              2004ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            1,397,949
            
            $
            25,719Available-for-sale
                securities
            
            
            1,334,611
            
            
            528,311Accounts
                receivable (less allowance for doubtful accountsof
                $307,355 in 2005 and $169,644 in 2004)
            
            
            18,413
            
            
            20,411Prepaid
                marketing commissions
            
            
            2,008,650
            
            
            1,622,645Other
                prepaid expenses and current assets
            
            
            114,947
            
            
            -Total
                current assets
            
            
            4,874,570
            
            
            2,197,086Property
                and equipment, net
            
            
            279,982
            
            
            353,047Intangibles
                assets, net
            
            
            3,071,940
            
            
            3,262,800Goodwill
            
            
            2,224,322
            
            
            2,224,322Other
                assets
            
            
            242,054
            
            
            96,705TOTAL
                ASSETS
            
            $
            10,692,868
            
            $
            8,133,960LIABILITIES
                AND STOCKHOLDERS’ EQUITYCurrent
                liabilities:Notes
                payable
            
            $
            146,051
            
            $
            102,342Current
                maturities of long-term debt
            
            
            18,956
            
            
            18,768Accounts
                payable and accrued expenses
            
            
            1,544,392
            
            
            941,101Current
                portion of deferred revenue
            
            
            2,231,940
            
            
            1,820,808Convertible
                debt derivatives
            
            
            83,361Other
                current liabilities
            
            
            -
            
            
            100,000Total
                current liabilities
            
            
            4,024,700
            
            
            2,983,019Other
                long-term liabilities:Long-term
                debt, less current maturities
            
            
            277,666
            
            
            286,789Convertible
                debt derivatives
            
            
            2,879,216
            
            
            -Deferred
                revenue, less current portion
            
            
            67,242
            
            
            86,245Other
                liabilities
            
            
            20,920
            
            
            20,920Total
                other long-term liabilities
            
            
            3,245,044
            
            
            393,954TOTAL
                LIABILITIES
            
            
            7,269,744
            
            
            3,376,973STOCKHOLDERS’
                EQUITYPreferred
                Stock, Series B convertible, par value $.001;liquidation
                preference $1.45 per share; 5,000,000shares
                authorized, 4,092,376 issued and outstanding in 2004
            
            
            -
            
            
            4,092Common
                Stock, par value $.001; 50,000,000 shares authorized,
                24,094,153 shares issued and outstandingin
                2005; and 20,000,000 shares authorized,18,976,125
                shares issued and outstanding in 2004
            
            
            24,094
            
            
            18,976Additional
                paid-in capital
            
            
            13,720,236
            
            
            12,616,988Accumulated
                deficit
            
            
            (10,321,206
            )
            
            (7,883,069
            )TOTAL
                STOCKHOLDER’S EQUITY
            
            
            3,423,124
            
            
            4,756,987TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            10,692,868
            
            $
            8,133,960




*See
      accompanying notes to condensed consolidated financial
      statements.*




3


**YTB
      INTERNATIONAL, INC.**


**Condensed
      Consolidated Statements of Operations**


(Unaudited)





Three
                months ended(RESTATED)
              March
                31, 2005
            
            (RESTATED)
              March
                31, 2004NET
                REVENUESOnline
                travel store sales and monthly fees
            
            $
            2,303,993
            
            $
            106,953Travel
                commissions and services
            
            
            877,388
            
            
            264,733Franchise
                service fees and other fees
            
            
            114,640
            
            
            142,202Other
            
            
            252,225
            
            
            943Total
                net revenues
            
            
            3,548,246
            
            
            514,831OPERATING
                EXPENSESMarketing
                commissions
            
            
            1,656,742
            
            
            -Travel
                commissions
            
            
            591,911
            
            
            219,559Franchise
                services and products
            
            
            57,643
            
            
            50,579Depreciation
                and amortization
            
            
            312,768
            
            
            106,565Marketing
                and selling
            
            
            8,632
            
            
            -General
                and administrative
            
            
            2,307,164
            
            
            281,006Total
                operating expenses
            
            
            4,934,860
            
            
            657,709LOSS
                FROM OPERATIONS
            
            
            (1,386,614
            )
            
            (142,878
            )OTHER
                INCOME (EXPENSES)Change
                in fair value of derivatives
            
            
            (956,015
            )
            
            -Interest
                and dividend income
            
            
            1,761
            
            
            3,314Interest
                expense
            
            
            (97,269
            )
            
            (8,026
            )Total
                other income (expenses)
            
            
            (1,051,523
            )
            
            (4,712
            )NET
                LOSS
            
            $
            (2,438,137
            )
            $
            (147,590
            )NET
                LOSS PER SHARE:Weighted-average
                shares outstanding
            
            
            24,094,148
            
            
            10,663,996Net
                loss per share - basic and diluted
            
            $
            (0.10
            )
            $
            (0.01
            )





*See
      accompanying notes to condensed consolidated financial
      statements.*




4


**YTB
      INTERNATIONAL, INC.**


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


(Unaudited)





**Three
      months ended March 31, 2005 (RESTATED)**





Delaware
                  Series B
                Convertible
                  Preferred
            
            Delaware
                Common Stock
            
            Series
                  B
                Convertible
                  Preferred
            
            Common
                Stock
            
            Additional
                Paid-in
            
            Retained
                Earnings
            
            Total
                Stockholders’Shares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            (Deficit)
            
            EquityBalance
                at January 1, 2005, as restated
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            
            4,092,376
            
            $
            4,092
            
            
            18,976,125
            
            $
            18,976
            
            $
            12,616,988
            
            $
            (7,883,069
            )
            $
            4,756,987Warrants
                issued in conjunction withdebt
                offering
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            42,192
            
            
            -
            
            
            42,192Conversion
                of common stock toDelaware
                common stock uponreincorporation
                in Delaware
            
            
            -
            
            
            -
            
            
            18,976,125
            
            
            18,976
            
            
            -
            
            
            -
            
            
            (18,976,125
            )
            
            (18,976
            )
            
            -
            
            
            -
            
            
            -Conversion
                of Series B preferredStock
                to Delaware preferred stockupon
                reincorporation in Delaware
            
            
            4,092,376
            
            
            4,092
            
            
            -
            
            
            -
            
            
            (4,092,376
            )
            
            (4,092
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Conversion
                of preferred stockto
                common stock
            
            
            (4,092,376
            )
            
            (4,092
            )
            
            4,092,376
            
            
            4,092
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Shares
                issued for services
            
            
            -
            
            
            -
            
            
            88,152
            
            
            88
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            117,499
            
            
            -
            
            
            117,587Shares
                issued throughprivate
                placement
            
            
            -
            
            
            -
            
            
            937,500
            
            
            938
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            749,062
            
            
            -
            
            
            750,000Stock
                option expense
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            194,495
            
            
            -
            
            
            194,495Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,438,137
            )
            
            (2,438,137
            )Balance
                at March 31, 2005, as restated
            
            
            -
            
            $
            -
            
            
            24,094,153
            
            $
            24,094
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            $
            13,720,236
            
            $
            (10,321,206
            )
            $
            3,423,124




*See
      accompanying notes to condensed consolidated financial
      statements.*




5


**YTB
      INTERNATIONAL, INC.**


**Condensed
      Consolidated Statements of Cash Flow**


(Unaudited)




Three
                months ended(RESTATED)
              March
                31, 2005
            
            (RESTATED)
              March
                31, 2004CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (2,438,137
            )
            $
            (147,590
            )Adjustments
                to reconcile net loss to net cash used by operating
                activities:Depreciation
                and amortization
            
            
            312,768
            
            
            106,565Amortization
                of deferred debt offering costs
            
            
            9,668
            
            
            -Deferred
                revenue
            
            
            411,132
            
            
            -Shares
                issued for services
            
            
            117,587
            
            
            39,801Employee
                stock option expense
            
            
            194,495
            
            
            -Change
                in fair value of convertible debt derivative
            
            
            956,015
            
            
            -Accretion
                of discount on convertible debenture
            
            
            22,754
            
            
            -Changes
                in operating assets and liabilities:Accounts
                receivable, net
            
            
            1,998
            
            
            (8,926
            )Prepaid
                marketing commissions
            
            
            (386,005
            )
            
            -Other
                prepaid expenses and current assets
            
            
            (114,947
            )
            
            (39,800
            )Accounts
                payable and accrued expenses
            
            
            603,291
            
            
            22,673NET
                CASH USED IN OPERATING ACTIVITIES
            
            
            (309,381
            )
            
            (27,277
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchases
                of property and equipment
            
            
            (753
            )
            
            -Proceeds
                from sale of available-for-sale securities
            
            
            1,311,987
            
            
            44,778Purchases
                of available-for-sale securities
            
            
            (2,118,287
            )
            
            (22,327
            )NET
                CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
            
            
            (807,053
            )
            
            22,451CASH
                FLOWS FROM FINANCING ACTIVITIES:Other
                current liabilities
            
            
            (100,000
            )
            
            -Repayment
                of notes payable
            
            
            (4,381
            )Principal
                payments on debt
            
            
            (8,935
            )
            
            (4,490
            )Proceeds
                from shares issued in private placement memorandum
            
            
            750,000
            
            
            -Proceeds
                from convertible debenture
            
            
            2,000,000
            
            
            -Cash
                paid for debt issuance costs
            
            
            (148,020
            )
            
            -NET
                CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
            
            
            2,488,664
            
            
            (4,490
            )NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            1,372,230
            
            
            (9,316
            )CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            25,719
            
            
            48,120CASH
                AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            1,397,949
            
            $
            38,804SUPPLEMENTAL
                CASH FLOW INFORMATION:Interest
                paid
            
            $
            97,269
            
            $
            5,232SUPPLEMENTAL
                NON-CASH INVESTING AND FINANCING ACTIVITIES:Increase
                in notes payable and property and equipment
            
            $
            48,089
            
            $
            -Warrants
                issued for debt offering costs
            
            $
            26,000
            
            $
            -Fair
                value of warrants issued with convertible debt
            
            $
            16,192
            
            $
            -Fair
                value of convertible debt derivative
            
            $
            1,923,201
            
            $
            -Decrease
                in notes receivable and deferred revenue
            
            $
            19,003
            
            $
            -





*See
      accompanying notes to condensed consolidated financial
      statements.*




6


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)





NOTE
      1
      - ORGANIZATION AND NATURE OF OPERATIONS




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




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




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




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




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




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




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





NOTE
      2
      - BASIS OF PRESENTATION





The
      Condensed Consolidated Balance Sheet as of March 31, 2005, the related Condensed
      Consolidated Statements of Operations for the three months ended March 31,
      2005
      and 2004, the Condensed Consolidated Statement of Changes in Stockholders’
Equity for the three months ended March 31, 2005 and the Condensed Consolidated
      Statements of Cash Flows for the three months ended March 31, 2005 and 2004,
      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 America have been condensed or
      omitted pursuant to such rules and regulations.




7





YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)





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 2004 Annual Report on Form 10-KSB/A No. 6 for the year
      ended December 31, 2004.




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, 2004 was derived from the audited financial statements
      for the year then ended included in the Company’s 2004 Annual Report on Form
      10-KSB/A No. 6 for the year ended December 31, 2004. 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
      - BUSINESS COMBINATION





On
      December 8, 2004, the Company merged with YTB, Inc. and thereby YTB, Inc. became
      a wholly owned subsidiary of the Company. Pursuant to the terms of the merger
      agreement the holders of YTB, Inc. common stock received in aggregate 7,430,000
      shares of common and 4,092,376 shares of Series B convertible preferred stock
      in
      exchange for all of their holdings in YTB, Inc. In addition, in connection
      with
      the transaction 500,000 shares of common stock were issued pursuant to a
      finder’s agreement and transaction costs of $77,354 were incurred. The merger
      was accounted for as a purchase business combination with the Company, deemed
      the acquirer. Prior to the merger, YTB, Inc. was a significant customer of
      the
      Company. Management’s primary reason for the acquisition was to benefit from the
      increased synergies of the combined companies in exploiting the growth potential
      of YTB, Inc.’s referral-marketing business.





The
      value
      of the shares of the Company issued in connection with the purchase was
      determined by an appraisal conducted by an independent valuation company. The
      assumed assets and liabilities of YTB, Inc. were recorded at fair value and
      were
      determined by independent appraisal. The value of the assets and liabilities
      recorded is as follows:





(RESTATED)AssetsPrepaid
                marketing commissions
            
            $
            1,666,419Property
                and equipment, net
            
            
            241,837Intangible
                assets
            
            
            3,310,000Goodwill
            
            
            2,224,3227,442,578Liabilities
                and EquityAccounts
                payable and accrued expenses
            
            
            (738,070
            )Notes
                payable
            
            
            (102,342
            )Deferred
                revenue
            
            
            (1,754,238
            )(2,594,650
            )Total
            
            $
            4,847,928





The
      operations of YTB, Inc. have been consolidated from the acquisition date. The
      cost to acquire YTB, Inc. has been allocated to the assets acquired and
      liabilities assumed according to their estimated fair values. The purchase
      price
      of $4,847,928 including transaction costs resulted in acquired goodwill of
      $2,224,322 which is not deductible for tax purposes.





8


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)





The
      following unaudited pro forma summary financial information presents the
      consolidated results of operations of the company as if the acquisition of
      YTB
      had occurred as of the beginning of the periods presented. The pro forma results
      are shown for illustrative purposes only and do not purport to be indicative
      of
      the results of the company that would have been reported had the acquisition
      actually occurred on the first day of the periods presented or indicative of
      results that may occur in the future.





(RESTATED)
              Three
                Months EndedMarch
                31,
              2004
            
            March
                31,
              2003Revenue
            
            $
            1,585,970
            
            
            1,185,803Net
                loss
            
            $
            (162,727
            )
            
            (443,558
            )Weighted
                average common shares outstanding
            
            
            22,686,372
            
            
            21,918,692Basic
                and diluted loss per share
            
            $
            (0.01
            )
            
            (0.02
            )





NOTE
      4
      - PROPERTY AND EQUIPMENT




Property
      and equipment consists of the following:




(RESTATED)
              March
                31,
              2005
            
            (RESTATED)
              December
                31,
              2004Equipment
            
            $
            137,230
            
            $
            136,475Furniture
                and fixtures
            
            
            15,340
            
            
            15,340Capitalized
                software
            
            
            1,361,650
            
            
            1,361,650Vehicles
            
            
            143,857
            
            
            95,7691,658,077
            
            
            1,609,234Less:
                Accumulated depreciation
            
            
            (1,378,095
            )
            
            (1,256,187
            )Property
                and equipment, net
            
            $
            279,982
            
            $
            353,047





Depreciation
      and amortization expense on property and equipment was $121,908 and $103,815
      for
      the quarters ended March 31, 2005 and 2004, respectively.





As
      of
      March 31, 2005 and December 31, 2004, capitalized software development costs,
      net of accumulated amortization, totaled $109,343 and $218,158, respectively.
      For the quarters ended March 31, 2005 and 2004, the Company recorded
      amortization of capitalized software development costs of $108,815 and $103,815,
      respectively.





9


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)





NOTE 5
      - INTANGIBLE ASSETS, NET





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




(RESTATED)At
                March 31, 2005
            
            At
                December 31, 2004Intangible
                Assets
            
            Cost
            
            Accumulated
              Amortization
            
            Net
            
            Cost
            
            Accumulated
              Amortization
            
            NetAmortized
                intangible assets(1)Non-compete
                agreement
            
            $
            360,000
            
            $
            16,040
            
            $
            343,960
            
            $
            360,000
            
            $
            3,180
            
            $
            356,820RTA
                agreements
            
            
            690,000
            
            
            215,160
            
            
            474,840
            
            
            690,000
            
            
            42,660
            
            
            647,340Vendor
                agreements
            
            
            220,000
            
            
            6,860
            
            
            213,140
            
            
            220,000
            
            
            1,360
            
            
            218,640Total
                amortized
              intangible
                assets
            
            
            1,270,000
            
            
            238,060
            
            
            1,031,940
            
            
            1,270,000
            
            
            47,200
            
            
            1,222,800Unamortized
                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
            
            $
            238,060
            
            $
            3,071,940
            
            $
            3,310,000
            
            $
            47,200
            
            $
            3,262,800





(1)
      The
      estimated useful lives of non-compete agreements, RTA agreements and vendor
      agreements are seven years, one year and 10 years, respectively.




Amortization
      expense was $190,860 and $0 for the quarters ended March 31, 2005 and 2004,
      respectively.





NOTE
      6
      - FINANCING ARRANGEMENTS




Notes
      Payable





The
      Company is currently financing three vehicles in 2005 and two vehicles in 2004,
      payable in monthly installments ranging from approximately $1,000 to $1,200,
      at
      the rate of approximately 6.25%. The loans are payable through March 2008.
      The
      balance due on these vehicle loans as of March 31, 2005 and December 31, 2004
      totaled $146,051 and $102,342, 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
      president. The outstanding loan balance as of March 31, 2005 and December 31,
      2004 was $296,622 and $305,557, 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:





10


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)





·
            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. See Note
                10.





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





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





The
      embedded derivative was initially recorded at fair value, and adjusted to fair
      value at each subsequent balance sheet date. The net increase in the embedded
      derivative liability in the first quarter of 2005 was $956,015, and is recorded
      as Other Expense in the Consolidated Statement of Operations. The difference
      between the stated principal of the Note of $2,000,000 and its allocated
      carrying value is being 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 are being amortized over
      the
      term of the Note.





NOTE
      7
      - COMMITMENTS AND CONTINGENCIES





Leases





The
      Company is obligated under an operating office lease for the offices in New
      Jersey which expires on April 30, 2008, to pay minimum annual rentals, currently
      at $46,837 per year plus real estate taxes and operating cost charges. In
      addition, the Company has entered into various operating lease agreements with
      Wal-Mart Stores, Inc. (Wal-Mart) for 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.





11


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)




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




(RESTATED)2005
            
            2004Sublease
                rental income
            
            $
            37,579
            
            
            44,887Less
                minimum rental expense
            
            
            50,608
            
            
            39,533Net
                rental income (expense)
            
            $
            (13,029
            )
            $
            5,354





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) and Mr. Derek J. Brent, (Secretary). All
      employment agreements expire December 31, 2009 and subject each officer to
      confidentiality provisions, as well as non-raid and non-compete provisions
      for
      an additional 2 years following termination of employment.





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





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





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





12


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)





NOTE
      8
      - STOCK OPTIONS





As
      of
      March 31, 2005, the Company had a stock-based employee compensation plan which
      is described more fully in Note 8 of the Notes to Consolidated Financial
      Statements in the Company’s 2005 Annual Report on Form 10-KSB.  The Company
      accounts for the plan in accordance with APB No. 25, “Accounting for Stock
      Issued to Employees”, and related Interpretations.   As of March 31,
      2005, the Company recognized $22,495 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. Financial Accounting Standards Board Interpretation
      Number 44 requires variable accounting for compensation expense when stock
      options have been cancelled and reissued with a change in stock price. The
      variable compensation associated with these types of stock options for the
      first
      quarter of 200 5  was
      compensation expense of $172,000. The
      following table illustrates the effect on net loss and loss per share if the
      Company had applied the fair value recognition provisions of SFAS No. 123,
      “Accounting for Stock-Based Compensation”.





Three
                months ended(RESTATED)
              March
                31,
              2005
            
            (RESTATED)
              March
                31,
              2004Net
                loss - as reported
            
            $
            (2,438,137
            )
            $
            (147,590
            )Add:
                Stock-based compensation expenseincluded
                in reported net loss
            
            
            194,495
            
            
            -Less:
                Additional stock-based compensationexpense
                determined under fair value basedmethod
                for all awards
            
            
            (33,630
            )
            
            (111
            )Net
                loss - pro forma
            
            $
            (2,277,272
            )
            $
            (147,701
            )Net
                loss per common share - basic and dilutedAs
                reported
            
            $
            (0.10
            )
            $
            (0.01
            )Pro
                forma
            
            $
            (0.09
            )
            $
            (0.01
            )





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





NOTE
      9
      - RELATED PARTY TRANSACTIONS




During
      the quarter ended March 31, 2004, the Company incurred consulting fee expenses
      $12,000 for services provided by an entity owned by the Company's then Chief
      Executive Officer, a significant shareholder of the Company. Under a new
      employment agreement reached in December 2004, such consulting fees have been
      eliminated.





Certain
      members of management of the Company also own a company that YTB Marketing
      utilizes for printing of its sales materials. During the first three months
      of
      2005, the Company expended $153,571 for printing sales materials. There were
      no
      payments made to this company in the first quarter of the prior
      year.





13




YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)





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. Each investor
      also received warrants exercisable into a like amount of shares at an exercise
      price of $1.75, exercisable for 5 years from date of issuance.





NOTE
      11 - NEW ACCOUNTING PRONOUNCEMENTS





In
      December 2004, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based
      Payment.” SFAS No. 123(R) requires employee stock options and rights to purchase
      shares under stock participation plans to be accounted for under the fair value
      method, and eliminates the ability to account for these instruments under the
      intrinsic value method prescribed by Accounting Principles Board (APB) Opinion
      No. 25, and allowed under the original provisions of SFAS No. 123 “Accounting
      for Stock-Based Compensation.” SFAS No. 123(R) requires the use of an option
      pricing model for estimating fair value, which is amortized to expense over
      the
      service periods. In April 2005, the Securities and Exchange Commission (SEC)
      delayed the effective date of SFAS No. 123(R), which is now effective for public
      companies for annual, rather than interim, periods that begin after June 15,
      2005. If the company had applied the provisions of SFAS No. 123(R) to the
      financial statements for the quarter ending March 31, 2005, net income would
      have been reduced by approximately $33,630 ($111 in the first quarter of 2004).
      SFAS No. 123(R) allows for either prospective recognition of compensation
      expense or retrospective recognition. The company currently intends to apply
      the
      prospective recognition method and implement the provisions of SFAS No. 123(R)
      beginning in fiscal 2006.





NOTE
      12 - SEGMENT INFORMATION





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




Summarized
      financial information concerning the Company’s reportable segments is shown in
      the following tables. (Note: The amounts for the three months ended March 31,
      2004 reflect pre-merger activity.) The “parent” column includes corporate items
      not specifically allocated to the segments.




(RESTATED)Three
                Months Ended
              March
                31, 2005
            
            Marketing
            
            Travel
            
            Technology
            
            Parent
            
            Elimination
            
            TotalExternal
                and inter-segment
                revenue
            
            $
            2,525,103
            
            $
            992,467
            
            $
            43,081
            
            
            -
            
            $
            (12,405
            )
            $
            3,548,246Segment
                profit (loss)
            
            
            (88,280
            )
            
            134,420
            
            
            (88,726
            )
            
            (2,395,551
            )
            
            -
            
            
            (2,438,137
            )Assets
            
            
            3,141,609
            
            
            1,290,800
            
            
            0
            
            
            7,568,711
            
            
            (1,308,252
            )
            
            10,692,868Depreciation
                and amortization
            
            
            13,093
            
            
            -
            
            
            103,815
            
            
            195,860
            
            
            -
            
            
            312,768Capital
                expenditures
            
            
            48,843
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            48,843








14




YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)





(RESTATED)Three
                Months Ended
              March
                31, 2004
            
            Marketing
            
            Travel
            
            Technology
            
            Parent
            
            Elimination
            
            TotalExternal
                and inter-segment
                revenue
            
            $
            -
            
            $
            407,878
            
            $
            106,953
            
            $
            -
            
            $
            -
            
            $
            514,831Segment
                profit (loss)
            
            
            -
            
            
            (53,010
            )
            
            (94,580
            )
            
            -
            
            
            -
            
            
            (147,590
            )Assets
            
            
            -
            
            
            905,786
            
            
            621,510
            
            
            -
            
            
            -
            
            
            1,527,296Depreciation
                and amortization
            
            
            -
            
            
            -
            
            
            106,565
            
            
            -
            
            
            -
            
            
            106,565Capital
                expenditures
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -





NOTE
      13 - SUBSEQUENT EVENTS





On
      October 12, 2005, the lender on the convertible note transaction described
      in
      Note 6 converted the remaining principal balance at that time of $1,800,000
      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 investor
      immediately converted the additional loan into common stock, receiving 800,000
      shares.





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





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





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





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





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





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





15




YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)




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





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





NOTE
      14 - RESTATEMENT OF FINANCIAL STATEMENTS





On
      February 6, 2006, the Company concluded that its financial results for the
      years
      ended December 31, 2003 and 2004 and the interim periods ended March 31, June
      30
      and September 30, 2003, the interim periods ended March 31, June 30, and
      September 30, 2004 and the interim periods ended March 31, June 30, and
      September 30, 2005 would be restated to reflect certain errors identified in
      its
      previously filed financial statements.





The
      Company recently filed its amended Annual Report on Form 10-KSB/A No. 6 for
      its
      fiscal year ended December 31, 2004 to reflect the restatement of its audited
      financial statements for the fiscal years ended December 31, 2004 and 2003.
      The
      restatements arose from actions taken by the Company when it became aware of
      the
      lack of independence with the Company’s former independent accounting firm.
      Subsequently, the Company began a review of the financial statements for the
      years ended December 31, 2004 and 2003, which gave rise to additional
      adjustments. An in-depth discussion of the items that have been restated in
      the
      Company’s financial statements for the years ended December 31, 2003 and 2004 as
      well as the interim periods ended March 31, June 30, September 30, 2004, is
      provided in Note 14 included in the Company’s Annual Report on Form 10-KSB/A No.
      6 for the year ended December 31, 2004, which is being incorporated herein
      by
      reference.





The
      following tables summarize in a condensed format the financial statements
      previously reported and as restated as of December 31, 2004 and March 31, 2005
      and for the three months ended March 31, 2005 and 2004. A detailed discussion
      of
      the restated items for March 31, 2005 and the three months then ended follows
      the summary.





16




YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)





**2004
      RESTATEMENT SUMMARY**





As
                of December 31, 2004As
              Previously
              Reported
            
            Adjustment
            
            As
                RestatedASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            25,449
            
            $
            270
            
            $
            25,719Available-for-sale
                securities
            
            
            528,311
            
            
            -
            
            
            528,311Accounts
                receivable (less allowance for doubtful accountsrestated
                $169,644 and $65,009 originally reported)
            
            
            383,033
            
            
            (362,622
            )
            
            20,411Prepaid
                marketing commissions
            
            
            1,716,958
            
            
            (94,313
            )
            
            1,622,645Other
                prepaid expenses and current assets
            
            
            15,312
            
            
            (15,312
            )
            
            -Current
                portion of notes receivable
            
            
            24,240
            
            
            (24,240
            )
            
            -Loans
                receivable
            
            
            122,195
            
            
            (122,195
            )
            
            -Total
                current assets
            
            
            2,815,498
            
            
            (618,412
            )
            
            2,197,086Property
                and equipment, net
            
            
            73,121
            
            
            279,926
            
            
            353,047Intangible
                assets, net
            
            
            6,458,333
            
            
            (3,195,533
            )
            
            3,262,800Goodwill
            
            
            9,436,118
            
            
            (7,211,796
            )
            
            2,224,322Other
                assets:Capitalized
                software (less accumulated amortization of$1,141,964
                in 2004 and $105,222 originally reported)
            
            
            79,514
            
            
            (79,514
            )
            
            -Security
                deposits receivable and other assets
            
            
            10,460
            
            
            -
            
            
            10,460Prepaid
                commissions, less current portion
            
            
            1,845,936
            
            
            (1,845,936
            )
            
            -Notes
                receivable
            
            
            137,360
            
            
            (51,115
            )
            
            86,245Total
                other assets
            
            
            2,073,270
            
            
            (1,976,565
            )
            
            96,705TOTAL
                ASSETS
            
            $
            20,856,340
            
            $
            (12,722,380
            )
            $
            8,133,960LIABILITIES
                AND STOCKHOLDERS’ EQUITYCurrent
                liabilities:Notes
                payable
            
            $
            202,342
            
            $
            (100,000
            )
            $
            102,342Current
                maturities of long-term debt
            
            
            19,532
            
            
            (764
            )
            
            18,768Accounts
                payable and accrued expenses
            
            
            743,743
            
            
            197,358
            
            
            941,101Current
                portion of deferred revenue
            
            
            1,737,984
            
            
            82,824
            
            
            1,820,808Other
                current liabilities
            
            
            -
            
            
            100,000
            
            
            100,000Total
                current liabilities
            
            
            2,703,601
            
            
            279,418
            
            
            2,983,019Other
                long-term liabilities:Long-term
                debt, less current maturities
            
            
            283,221
            
            
            3,568
            
            
            286,789Deferred
                revenue, less current portion
            
            
            1,956,324
            
            
            (1,870,079
            )
            
            86,245Other
                liabilities
            
            
            20,920
            
            
            -
            
            
            20,920Total
                other long-term liabilities
            
            
            2,260,465
            
            
            (1,866,511
            )
            
            393,954TOTAL
                LIABILITIES
            
            
            4,964,066
            
            
            (1,587,093
            )
            
            3,376,973STOCKHOLDERS’
                EQUITYPreferred
                stock, Series B, 4,092,376 shares issued andoutstanding
            
            
            4,092
            
            
            -
            
            
            4,092Common
                stock, 18,976,125 shares issued and outstanding as restated and originally
                reported
            
            
            18,976
            
            
            -
            
            
            18,976Additional
                paid-in capital
            
            
            22,055,712
            
            
            (9,438,724
            )
            
            12,616,988Accumulated
                deficit
            
            
            (6,186,506
            )
            
            (1,696,563
            )
            
            (7,883,069
            )TOTAL
                STOCKHOLDERS’ EQUITY
            
            
            15,892,274
            
            
            (11,135,287
            )
            
            4,756,987TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            20,856,340
            
            $
            (12,722,380
            )
            $
            8,133,960






17




YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)




Three
                  months ended March 31, 2004NET
                  REVENUE
              
              As
                Previously
                Reported
              
              Adjustment
              
              As
                  RestatedOnline
                  travel store sales and monthly fees
              
              $
              -
              
              $
              106,953
              
              $
              106,953Online
                  travel income
              
              
              106,953
              
              
              (106,953
              )
              
              -Travel
                  commissions and services
              
              
              -
              
              
              264,733
              
              
              264,733Travel
                  products and services
              
              
              325,794
              
              
              (325,794
              )
              
              -Franchise
                  service fees and other fees
              
              
              139,542
              
              
              2,660
              
              
              142,202Franchise
                  fees
              
              
              3,745
              
              
              (3,745
              )
              
              -Other
              
              
              2,349
              
              
              (1,406
              )
              
              943TOTAL
                  NET REVENUES
              
              
              578,383
              
              
              (63,552
              )
              
              514,831OPERATING
                  EXPENSESCost
                  of travel services and products
              
              
              80,108
              
              
              (80,108
              )
              
              -Travel
                  commissions
              
              
              -
              
              
              219,559
              
              
              219,559Commissions
              
              
              199,807
              
              
              (199,807
              )
              
              -Franchise
                  services and products
              
              
              -
              
              
              50,579
              
              
              50,579Depreciation
                  and amortization
              
              
              11,112
              
              
              95,453
              
              
              106,565Marketing
                  and selling
              
              
              14,874
              
              
              (14,874
              )
              
              -General
                  and administrative
              
              
              302,064
              
              
              (21,058
              )
              
              281,006TOTAL
                  OPERATING EXPENSES
              
              
              607,965
              
              
              49,744
              
              
              657,709LOSS
                  FROM OPERATIONS
              
              
              (29,582
              )
              
              (113,296
              )
              
              (142,878
              )OTHER
                  INCOME (EXPENSES)Interest
                  and dividend income
              
              
              3,314
              
              
              -
              
              
              3,314Interest
                  expense
              
              
              (5,297
              )
              
              (2,729
              )
              
              (8,026
              )Gain
                  (loss) on sale of short term investments
              
              
              536
              
              
              (536
              )
              
              -TOTAL
                  OTHER INCOME (EXPENSES)
              
              
              (1,447
              )
              
              (3,265
              )
              
              (4,712
              )LOSS
                  BEFORE INCOME TAXES
              
              
              (31,029
              )
              
              (116,561
              )
              
              (147,590
              )INCOME
                  TAX
              
              
              957
              
              
              (957
              )
              
              -NET
                  LOSS
              
              $
              (31,986
              )
              $
              (115,604
              )
              $
              (147,590
              )LOSS
                  PER SHAREWeighted-average
                  shares outstanding
              
              
              9,912,983
              
              
              751,013
              
              
              10,663,996Basic
                  and diluted loss per share
              
              $
              (.00
              )
              $
              (.01
              )
              $
              (.01
              )








18


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)





**2005
      RESTATEMENT SUMMARY**





As
                of March 31, 2005As
              Previously
              Reported
            
            Adjustment
            
            As
                RestatedASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            1,567,831
            
            $
            (1,317,749
            )
            $
            250,082Available-for-sale
                securities
            
            
            1,484,231
            
            
            998,247
            
            
            2,482,478Accounts
                receivable (less allowance for doubtful accountsRestated
                $307,355 and $65,009 originally reported)
            
            
            389,167
            
            
            (370,754
            )
            
            18,413Prepaid
                marketing commissions
            
            
            2,060,514
            
            
            (51,864
            )
            
            2,008,650Other
                prepaid expenses and current assets
            
            
            301,765
            
            
            (186,818
            )
            
            114,947Current
                portion of notes receivable
            
            
            52,766
            
            
            (52,766
            )
            
            -Loans
                receivable
            
            
            336,359
            
            
            (336,359
            )
            
            -Total
                current assets
            
            
            6,192,633
            
            
            (1,318,063
            )
            
            4,874,570Property
                and equipment, net
            
            
            70,381
            
            
            209,601
            
            
            279,982Intangible
                assets, net
            
            
            6,333,333
            
            
            (3,261,393
            )
            
            3,071,940Goodwill
            
            
            9,436,118
            
            
            (7,211,796
            )
            
            2,224,322Other
                assets:Capitalized
                software (less accumulated amortization of$1,141,964
                in 2004 and $113,480 originally reported)
            
            
            62,159
            
            
            (62,159
            )
            
            -Security
                deposits receivable and other assets
            
            
            10,460
            
            
            164,352
            
            
            174,812Prepaid
                marketing commissions, less current portion
            
            
            2,283,409
            
            
            (2,283,409
            )
            
            -Notes
                receivable
            
            
            300,009
            
            
            (232,767
            )
            
            67,242Total
                other assets
            
            
            2,656,037
            
            
            (2,413,983
            )
            
            242,054TOTAL
                ASSETS
            
            $
            24,688,502
            
            $
            (13,995,634
            )
            $
            10,692,868LIABILITIES
                AND STOCKHOLDERS’ EQUITYCurrent
                liabilities:Notes
                payable
            
            $
            97,962
            
            $
            48,089
            
            $
            146,051Current
                maturities of long-term debt
            
            
            49,340
            
            
            (30,384
            )
            
            18,956Accounts
                payable and accrued expenses
            
            
            575,846
            
            
            968,546
            
            
            1,544,392Current
                portion of deferred revenue
            
            
            2,080,226
            
            
            151,714
            
            
            2,231,940Convertible
                debt derivatives
            
            
            -
            
            
            83,361
            
            
            83,361Other
                current liabilities
            
            
            12,016
            
            
            (12,016
            )
            
            -Total
                current liabilities
            
            
            2,815,390
            
            
            1,209,310
            
            
            4,024,700Other
                long-term liabilities :Long-term
                debt, less current maturities
            
            
            1,949,646
            
            
            (1,671,980
            )
            
            277,666Convertible
                debt derivatives
            
            
            -
            
            
            2,879,216
            
            
            2,879,216Deferred
                revenue, less current portion
            
            
            2,495,111
            
            
            (2,427,869
            )
            
            67,242Other
                liabilities
            
            
            20,920
            
            
            -
            
            
            20,920Total
                other long-term liabilities
            
            
            4,465,677
            
            
            (1,220,633
            )
            
            3,245,044TOTAL
                LIABILITIES
            
            
            7,281,067
            
            
            (11,323
            )
            
            7,269,744STOCKHOLDERS’
                EQUITYCommon
                stock, 24,094,153 shares issued and outstanding as restated and asoriginally
                reported
            
            
            24,094
            
            
            -
            
            
            24,094Additional
                paid-in capital
            
            
            23,592,063
            
            
            (9,871,827
            )
            
            13,720,236Accumulated
                deficit
            
            
            (6,207,063
            )
            
            (4,114,143
            )
            
            (10,321,206
            )Accumulated
                other comprehensive income
            
            
            (1,248
            )
            
            1,248
            
            
            -Footing
                error
            
            
            (411
            )
            
            411
            
            
            -TOTAL
                STOCKHOLDERS’ EQUITY
            
            
            17,407,435
            
            
            (13,984,311
            )
            
            3,423,124TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            24,688,502
            
            $
            (13,995,634
            )
            $
            10,692,868






19




YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)




Three
                  months ended March 31, 2005REVENUES
              
              As
                Previously
                Reported
              
              Adjustment
              
              As
                  RestatedOnline
                  travel store sales and monthly fees
              
              $
              -
              
              $
              2,303,993
              
              $
              2,303,993Online
                  travel income
              
              
              184,441
              
              
              (184,441
              )
              
              -Travel
                  commissions and services
              
              
              -
              
              
              877,388
              
              
              877,388Travel
                  products and services
              
              
              784,105
              
              
              (784,105
              )
              
              -Commissions
              
              
              233,185
              
              
              (233,185
              )
              
              -Franchise
                  service fees and other fees
              
              
              74,273
              
              
              40,367
              
              
              114,640Franchise
                  fees
              
              
              2,139
              
              
              (2,139
              )
              
              -New
                  RTA sales
              
              
              513,602
              
              
              (513,602
              )
              
              -Monthly
                  maintenance fees
              
              
              1,449,456
              
              
              (1,449,456
              )
              
              -Printing
                  and administrative service fees
              
              
              395,879
              
              
              (395,879
              )
              
              -Advertising
                  and other
              
              
              39,927
              
              
              (39,927
              )
              
              -Other
              
              
              -
              
              
              252,225
              
              
              252,225GROSS
                  REVENUES
              
              
              3,677,007
              
              
              (128,761
              )
              
              3,548,246Less
                  returns and allowances
              
              
              129,813
              
              
              (129,813
              )
              
              -TOTAL
                  NET REVENUES
              
              
              3,547,194
              
              
              1,052
              
              
              3,548,246OPERATING
                  EXPENSESCost
                  of travel services and products
              
              
              532,634
              
              
              (532,634
              )
              
              -Marketing
                  commissions
              
              
              -
              
              
              1,656,742
              
              
              1,656,742Travel
                  commissions
              
              
              -
              
              
              591,911
              
              
              591,911Commissions
              
              
              1,111,303
              
              
              (1,111,303
              )
              
              -Franchise
                  services and products
              
              
              -
              
              
              57,643
              
              
              57,643Depreciation
                  and amortization
              
              
              145,347
              
              
              167,421
              
              
              312,768Marketing
                  and selling
              
              
              -
              
              
              8,632
              
              
              8,632General
                  and administrative
              
              
              1,523,002
              
              
              784,162
              
              
              2,307,164TOTAL
                  OPERATING EXPENSES
              
              
              3,312,286
              
              
              1,622,574
              
              
              4,934,860INCOME
                  (LOSS) FROM OPERATIONS
              
              
              234,908
              
              
              (1,621,522
              )
              
              (1,386,614
              )OTHER
                  INCOME (EXPENSES)Change
                  in fair market value of derivatives
              
              
              -
              
              
              (956,015
              )
              
              (956,015
              )Interest
                  and dividend income
              
              
              7,228
              
              
              (5,467
              )
              
              1,761Interest
                  expense
              
              
              (255,047
              )
              
              157,778
              
              
              (97,269
              )Loss
                  on sale of short term investments
              
              
              (5,671
              )
              
              5,671
              
              
              -TOTAL
                  OTHER INCOME (EXPENSES)
              
              
              (253,490
              )
              
              (798,033
              )
              
              (1,051,523
              )LOSS
                  BEFORE INCOME TAXES
              
              
              (18,582
              )
              
              (2,419,555
              )
              
              (2,438,137
              )INCOME
                  TAX
              
              
              2,386
              
              
              (2,386
              )
              
              -NET
                  LOSS
              
              $
              (20,968
              )
              $
              (2,417,169
              )
              $
              (2,438,137
              )LOSS
                  PER SHAREWeighted-average
                  shares outstanding
              
              
              22,760,206
              
              
              1,333,942
              
              
              24,094,148Basic
                  and diluted loss per share
              
              $
              (0.00
              )
              $
              (0.10
              )
              $
              (0.10
              )








20


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)


The
      following provides an in-depth discussion of the items that have been restated
      in the Company’s financial statements as of and for the three months ended March
      31, 2005 as summarized above:





**Cash
      and Cash Equivalents**





The
      Company identified errors in its bank and investment account reconciliation
      process which resulted in adjustments to the recorded balances. In addition,
      certain amounts previously reported as cash were reclassified to
      available-for-sale securities.





**Available-for-sale
      Securities**





The
      restatement represents a reclassification of previously-reported amounts that
      were incorrectly classified as cash.





**Accounts
      Receivable (including Allowances for Doubtful Accounts)**





The
      Company had not previously properly assessed the collectibility of its recorded
      accounts receivable balances. Upon an in-depth review the Company concluded
      that
      certain accounts should have been written off and the allowance for doubtful
      accounts should have been increased to allow for potentially uncollectible
      accounts.





**Prepaid
      Marketing Commissions and Deferred Revenue**





Based
      upon a more detailed analysis by Company management, the Company concluded
      that
      the proper estimated life of an RTA was 12 months. Previously, the company
      had
      estimated the life of an RTA to be 36 months. The change resulted in all prepaid
      commissions being categorized as current as well as reduction in the overall
      amount of the prepaid commissions. Additionally, the change in the RTA life
      had
      a similar impact upon deferred revenue. Adjustments were also made to the
      prepaid commissions as a result of the Company not previously analyzing the
      actual marketing commissions paid in relation to original enrollments.




**Other
      Prepaid Expenses and Current Assets**





The
      restatement represents a reclassification of previously - reported
      amounts.





**Loans
      Receivable**





The
      Company had not properly reconciled the certain accounts including the loans
      receivable.account. Upon an in-depth review the Company concluded that the
      amounts reflected in loans receivable did not represent valid collectible loans.
      Accordingly, the Company recorded an adjustment to write off this
      balance.





**Property
      and Equipment (net) (Capitalized Software)**





As
      discussed in the 2003 restatement summary included in Note 14 in the Company’s
      Annual Report on Form 10-KSB/A No. 6 for the year ended December 31, 2004,
      the
      Company previously wrote down capitalized software during 2003, and had
      determined that the write down was not appropriate, The restatement reflects
      the
      reversal of the original write-down of capitalized software occurring in 2003,
      less additional amortization of such capitalized software recorded in 2004
      and
      in the first quarter of 2005. Additionally, the balances in the previously
      separately reported Capitalized Software caption have been reclassified and
      are
      now included in the Property and Equipment caption.





Additionally,
      the restatement is a result of the previously issued financial statements not
      properly reflecting property and equipment acquired in conjunction with the
      merger transactions on December 8, 2004. In addition the Company had not
      properly capitalized certain equipment purchases from the date of acquisition
      through March 31, 2005.





21




YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)





**Intangible
      Assets (net) and Goodwill**





Upon
      the
      merger of YTB, Inc. and REZconnect, the excess of the value of the equity issued
      for the assets was recorded as Intangible Assets, including Goodwill. An
      independent appraisal was not performed. During 2005, the Company retained
      a
      qualified firm to perform valuations to determine the value of the consideration
      exchanged in the transaction as well as the value of identifiable intangible
      assets as of the acquisition date. As a result of the appraisal the Company
      determined that the total fair value of the consideration provided in the
      purchase was $4,847,928. Previously, the Company had reflected the value of
      the
      consideration to be $15,257,445. The allocation of the revised purchase price
      to
      the fair value of assets acquired resulted in a reduction in the value
      attributable to intangible assets of $3,190,000 and a reduction in the residual
      value allocated to goodwill in the amount of $7,211,796. In addition, the
      appraisal identified differing lives for the recorded intangible assets. The
      combination of different asset values and different amortization periods
      resulted in an increase in amortization in the amount of $71,393.





**Security
      Deposits Receivable and Other Assets, Convertible Debt Derivatives, Long-term
      Debt Less Current Maturities, Long-term Convertible Debt
      Derivatives**





The
      restatements represent corrections that were made to properly account for the
      convertible term note (the “NOTE”) the Company entered into in January 2005. The
      previous accounting treatment was revised and the transaction was recorded
      in
      accordance with SFAS No. 133 and EITF Issue No. 00-19. The corrected initial
      allocation of the gross proceeds of $2,000,000 was $1,923,201 allocated to
      the
      embedded derivative, $16,192 allocated to stock warrants and $60,607 allocated
      to the term note. The embedded derivative was initially recorded at fair value,
      and adjusted to fair value each subsequent balance sheet date. The net increase
      in the embedded derivative liability in the first quarter of 2005 was $956,015
      and is recorded as Other Expense in the Consolidated Statement of Operations.
      The difference between the stated principal of the Note of $2,000,000 and its
      allocated carrying value is being amortized as debt discount using the effective
      interest rate method over the term of the Note. In addition, the Company
      incurred debt issuance costs related to the Note in the amount of $174,020,
      which are being amortized over the term of the Note. See Note 6.





**Notes
      Receivable and Deferred Revenue**





In
      addition to the evaluation of the collectibility of accounts receivable
      performed by the Company the Company identified that it had not previously
      properly assessed the collectibility of its recorded notes receivable related
      to
      franchise operations. Upon an in-depth review, the Company concluded that
      certain notes should have been written off. The Company’s policy with respect to
      revenue recognition relative to franchise operations requires the collection
      of
      any amounts owed from franchisees before it is deemed appropriate to record
      revenue. Accordingly, the balances recorded in notes receivable are fully offset
      by a liability for deferred revenue. The deferred revenue balance was adjusted
      to reflect an offsetting adjustment to the write down of notes
      receivable.





**Notes
      Payable**





The
      Company determined that it did not record the note payable for a
      vehicle.





**Accounts
      Payable and Accrued Expenses**





As
      a
      result of a lack of internal controls related to proper cut-off and recording
      of
      expenses, the balances previously-reported were not proper. Company management
      reviewed and analyzed transactions, making appropriate cut-off corrections
      for
      these transactions, resulting in changes to previously-reported results in
      the
      amount of $933,968 with an equivalent increase in expenses.





As
      discussed in the 2003 restatement summary included in Note 14 in the Company’s
      Annual Report on Form 10-KSB/A No. 6, the Company identified unrecorded
      liabilities related to revolving credit card debt that had not been recorded
      in
      prior periods.  The Company recorded expense for amounts charged to the
      cards based on payments made. During the first quarter ending March 31, 2005
      credit card payments were made in excess of charges in the amount of $34,578.




22


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)




**Other
      Current Liabilities**





The
      restatement represents a reclassification of previously-reported amounts that
      were incorrectly classified as other current liabilities.





**Current
      Maturities of Long-Term Debt and Long Term Debt**





The
      Company determined that it had incorrectly identified the current portion of
      its
      long-term debt and recorded an adjustment to properly reflect the principal
      amounts currently due.





**Preferred
      Stock, Common Stock and Additional Paid In Capital**





In
      its
      originally filed financial statements the Company did not maintain an adequate
      accounting of shares issued to employees and others in compensation for services
      and did not properly apply generally accepted principles to record the issuance
      of those shares. In its restated financial statements, the Company has corrected
      the following errors:





·
            During
                2004, additional equity compensation in the amount of $1,113,612
                has been
                recorded as a result of shares issued for services to vendors and
                employees that had not been previously recorded. The amount recorded
                as
                equity compensation was the fair value of the shares as of the date
                of
                issuance.





·
            As
                discussed previously, the Company has corrected a previously recorded
                prior period adjustment it had recorded to reflect the issuance of
                900,000
                shares to an officer of the Company. The shares were issued in 2004.
                The
                total expense of $252,000 was recorded as a result of the share issuance.
                The company had previously reflected a prior period adjustment $201,600.
                As no binding agreement had been entered into by the Company to justify
                the accrual of an expense in the prior period the expense properly
                belongs
                in the period in which the shares were issued. Accordingly, the Company
                has reversed the previously recorded prior period adjustment and
                reflected
                the all of the expense in 2004





·
            In
                2001 the Company cancelled and reissued and repriced its outstanding
                options. Under the requirements of FIN 44 the reissuance and repricing
                subjects the stock option to variable accounting. In 2004 and the
                first
                quarter of 2005, the Company recorded additional equity compensation
                to
                reflect the change in value of its stock options under the provisions
                of
                APB No. 25 as interpreted by FIN 44 in the amount of $111,061 and
                $172,000, respectively.





·
            During
                the first quarter of 2005, equity compensation in the amount of $81,377
                was previously recorded as a result of 88,152 shares issued as
                compensation for services to non-empolyees with an offsetting adjustment
                to common stock in the amount of $88 and additional paid in capital
                in the
                amount of $81,289. The Company adjusted the amount recorded to additional
                paid in capital by $36,210 to reflect the fair value of the shares
                as of
                the date of issuance.





During
      2004, as a result of the appraisal performed on the value of shares issued
      in
      connection with the purchase of YTB as more fully describe above the Company
      concluded that the value previously attributed to the shares issued was in
      error. Accordingly the Company revised the value of the consideration given
      in
      the transaction. The value originally subscribed to the transaction was reduced
      by $10,687,621.





During
      the first quarter of 2005, the Company had previously recorded an incorrect
      entry to reflect the convertible debt offering entered into in January 2005.
      As
      a result, the Company reversed the original entry of $706,000 to additional
      paid
      in capital and recorded $42,192 to reflect the value of warrants issued in
      conjunction with the convertible debt. (See separate caption for all changes
      relative to this item.)





23


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)





As
      a
      result of the various restatement items identified by the Company, the following
      changes have been reflected in stockholders’ equity:





Total
                Stockholders’ Equity at March 31, 2005 previously-reported
            
            $
            17,407,4352004
                adjustment for shares issued to employees
            
            
            1,267,7002004
                adjustment for shares issued to non-employees
            
            
            46,6622004
                adjustment in value of shares issued in purchase of YTB
            
            
            (10,687,621
            )2004
                change in previously-reported net loss
            
            
            (1,905,039
            )2004
                stock option compensation for 2001 repriced options
            
            
            111,061Q105
                adjustment for value of shares issued for services
            
            
            36,210Q105
                value of warrants issued in conjunction with debt offering
            
            
            42,192Q105
                stock option compensation for 2001 repriced options
            
            
            172,000Q105
                compensation expense recognized for in-the-money options
            
            
            22,495Q105
                reversal of incorrect entry for convertible debt
            
            
            (706,000
            )Q105
                change in previously-reported net loss
            
            
            (2,417,169
            )Other
            
            
            33,198Total
                Stockholders’ Equity as restated
            
            $
            3,423,124





**Net
      Revenues**





Based
      upon a more detailed analysis by company management, the Company concluded
      that
      the proper life of an RTA was 12 months. Previously, the Company had estimated
      the life of an RTA to be 36 months. This resulted in a reduction in deferred
      revenue and an increase in recorded revenue which was offset by previously
      overstated revenue related to intercompany website user fees and travel
      commission revenue. In addition, certain travel related revenue had previously
      been recognized on a gross rather than net basis for transactions in which
      the
      Company was an agent. In addition, the Company has reclassified amounts within
      the reported revenue captions to accurately reflect the components of
      revenue.





**Commissions
      Expense (Represents Marketing Commission Expense and Travel Commission Expense)
      and Cost of Travel Services and Products/Marketing and
      Selling**





Previously-reported
      results reflected Travel Commission Expenses on a cash basis rather than a
      full
      accrual basis. Restatements were necessary to properly reflect such expense
      on
      an accrual basis. In addition, certain reclassifications have been made from
      Marketing and Selling expense and Cost of Travel Services and Products to the
      Commissions Expense account.





**Franchise
      Services and Products**





After
      additional review by Company management, it was determined that numerous
      adjustments were necessary to properly classify Franchise Services and Products.
      This review was performed in conjunction with the review of franchise revenue
      discussed above. The restatements are a result of the need to record such
      expenses on an accrual basis and also due to the reclassification of certain
      expenses to more closely related to the applicable revenue
      segments.





**Depreciation
      and Amortization Expense**





As
      a
      result of the change in values assigned to Intangible Assets described
      previously and changes to the estimated useful lives of the assets amortization
      expense has been adjusted from previously-reported amounts. Additionally,
      adjustments have been recorded to reflect the continued amortization of
      capitalized software costs that had previously been written off, but for which
      write-off was reversed in 2003 (see 2003 Restatement Summary in Note 14 included
      in the Company’s Annual Report on Form 10-KSB/A No. 6 for the year ended
      December 31, 2004).




24


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)




**Marketing,
      Selling, General and Administrative Expenses**





The
      increase is a result of recording additional expense related to certain
      share-based transactions that were not originally recorded as discussed above,
      in addition to the reclassification of certain previously-reported amounts.
      In
      addition, as previously discussed the company failed to achieve a proper cut-off
      of expenses and properly record certain credit card transactions and adjusted
      accounts payable and accrued expenses to reflect additional amounts recorded
      as
      of March 31, 2005.





**Change
      in Fair Market Value of Derivatives**





Corrections
      were made to properly account for the convertible term note (the “NOTE”) the
      Company entered into in January 2005. The previous accounting treatment was
      revised and the transaction was recorded in accordance with SFAS No. 133 and
      EITF Issue No. 00-19. The corrected initial allocation of the gross proceeds
      of
      $2,000,000 was $1,923,201 allocated to the embedded derivative, $16,192
      allocated to stock warrants and $60,607 allocated to the term note. The embedded
      derivative was initially recorded at fair value, and adjusted to fair value
      at
      teach subsequent balance sheet date. The net increase in the embedded derivative
      liability in the first quarter of 2005 was $956,015 and is recorded as Other
      Expense in the Consolidated Statement of Operations. See Note 6.





**Loss
      from Sales of Short-Term Investments and Interest Expense**





Sales
      of
      investments were included in the investment analysis prepared by management.
      The
      review determined that there were no losses associated with the sale of
      short-term investments and amounts reflected as expense should have been
      reported as interest expense; therefore a reclassification between these
      accounts was necessary.




**Interest
      and Dividend Income**





Interest
      income was previously overstated due to improper interest income recognition
      and
      reclassifications from previous reported amounts.





**Interest
      Expense**





Interest
      expense was previously overstated due to improper accounting for the interest
      expense associated with the convertible term debt.





**Income
      Taxes**





As
      a
      result of the Company’s operating losses, no income taxes need to be
      provided.




**Net
      Loss**





As
      a
      result of the various restatement items identified by the Company, the following
      changes have been reflected in net loss for the quarter ended March 31,
      2005.





Net
                loss as previously-reported
            
            $
            (20,986
            )Revenue
                gross to net
            
            
            (79,005
            )Travel
                Commission expense gross to net
            
            
            79,005Variable
                accounting on repriced stock options
            
            
            (172,000
            )Stock
                option compensation
            
            
            (22,495
            )Accrual
                basis accounting for operating expenses
            
            
            (771,188
            )Accounts
                Receivable bad debt expense
            
            
            (169,644
            )Change
                in fair market value of derivatives
            
            
            (956,015
            )Amortization
                of capitalized software
            
            
            (312,768
            )Other
            
            
            (13,041
            )Net
                loss as restated
            
            $
            (2,438,137
            )






25




**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. In-house sales personnel have generally
      handled marketing of franchisees. All of the Company’s franchised operations are
      independently owned and operated.





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 14,000
      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 marketing the Referring Travel Agent
      (“RTA”) online business opportunity and has sold 12,000 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 sales force. YTB Marketing
      is a
      referral marketing group providing support products and services for the sales
      representatives. Currently, there are over 12,000 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.





26


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.





Our
      revenues are divided among our franchise systems. YTB Travel and REZcity, plus
      our online website (Book My Travel), fees and travel services to date have
      come
      from the franchise system, travel services and online site fees. The Company
      expects that Technologies will continue to play an important part in our 2005
      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 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. 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.





YTB
      Marketing services an RTA network, while Technologies services the travel agent
      community. They both typically charge $49.95 per month on a non-contract basis
      to own and operate an online travel site, plus the Company can earn
      transactional compensation from travel purchased off each website. 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.





27


Results
      of Operations





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





(RESTATED)
              Three
                Months
              Ended
              March
                31, 2005
            
            (RESTATED)
              Three
                Months
              Ended
              March
                31, 2004Net
                RevenuesOnline
                travel store sales and monthly fees
            
            
            65.1
            %
            
            20.9
            %Travel
                commissions and services
            
            
            24.7
            %
            
            51.4
            %Franchise
                service and other fees
            
            
            3.1
            %
            
            27.5
            %Miscellaneous
            
            
            7.1
            %
            
            0.2
            %TOTAL
                NET REVENUES
            
            
            100.0
            %
            
            100.0
            %Operating
                ExpensesMarketing
                commissions
            
            
            46.7
            %
            
            0.0
            %Travel
                commissions
            
            
            16.7
            %
            
            42.7
            %Franchise
                fees
            
            
            1.6
            %
            
            9.8
            %Depreciation
                an amortization
            
            
            8.8
            %
            
            20.7
            %Marketing
                and selling
            
            
            0.2
            %
            
            0.0
            %General
                and administrative
            
            
            65.0
            %
            
            54.6
            %TOTAL
                OPERATING EXPENSES
            
            
            139.0
            %
            
            127.8
            %LOSS
                FROM OPERATIONS
            
            
            (39.0
            %)
            
            (27.8
            %)Other
                Income (Expenses)Change
                in FMV of derivatives
            
            
            (26.9
            %)
            
            0.0
            %Interest
                and dividend Income
            
            
            0.0
            %
            
            0.6
            %Interest
                expense
            
            
            (2.7
            %)
            
            (1.6
            %)TOTAL
                OTHER INCOME (EXPENSE)
            
            
            (29.6
            %)
            
            (1.0
            %)NET
                LOSS
            
            
            (68.6
            %)
            
            (28.8
            %)





NOTE:
      The
      consolidated results for the three-months ended March 31, 2005 include the
      accounts of the Company and its three wholly-owned subsidiaries, Technologies;
      YTB Travel; and YTB Marketing. The results for the three-months ended March
      31,
      2004 represent the accounts of the former REZconnect only, because at March
      31,
      2004, the merger and subsequent consolidation had not yet occurred. As such,
      comparisons between March 31, 2005 and March 31, 2004 will reflect variances
      causing incompatibility between those two periods.




28




Revenues





Franchise
      service fees and other fees decreased $27,562 for the three-month period
      ended March 31, 2005, as compared to the three-month period ended March 31,
      2004.





Travel
      commissions and services increased by $612,655 in the 2005 three-month
      period, an increase of 231.4%. The increase is attributable to an increase
      in
      the representatives utilizing the Company as their travel provider.





The
      online travel stores sales and monthly fees increases are attributable to the
      merger with YTB, Inc. (see note above).





Other
      income increased $251,282 for the three-month period ended March 31, 2005,
      as
      compared to the three-month period ended March 31, 2004.





Expenses





Marketing
      commissions are attributable to the merger with YTB, Inc. (see note
      above).





The
      cost
      of travel commissions increased by $372,352 or 169.6% for the 2005 three month
      period, as compared to the 2004 three-month period.





Franchise
      services and products increased by $7,064 or 14% for the 2005 three month
      period, as compared to the 2004 three month period.





Depreciation
      and amortization expenses increased by $206,203 for the 2005 three month period,
      as compared to the 2004 three month period, which is attributable mainly to
      the
      amortization of the sales representative agreements acquired in the merger
      with
      YTB, Inc..





The
      cost
      of marketing commissions for the 2005 three month period increased compared
      to
      the 2004 three month period which is attributable to the merger with YTB, Inc.
      (see note above).





General
      and administrative expenses increased by $2,026,157 for the 2005 three month
      period, as compared to the 2004 three month period. As a percentage of total
      revenues, general and administrative expenses were 65.0% in 2005 as compared
      to
      54.6% in 2004. The increase in general and administrative expense in 2005 is
      attributable to the merger with YTB, Inc.





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





Variability
      of results





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.




29





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.





The
      material effects on our operations that the Company anticipates as a result
      of
      the merger with YTB, Inc. will be a significant increase in RTAs and membership
      revenue, as well as a commensurate increase in related commission
      expense.





Liquidity
      and capital resources




Cash
      used
      by operating activities for the first quarter of 2005 was $309,381 as compared
      to cash used by in operating activities of $27,277 in the comparable prior
      year
      period.





Cash
      used
      by investing activities was $807,053 in the 2005 three month period as compared
      to cash provided by investing activities of $22,451 in the 2004 three month
      period.





Cash
      provided by financing activities was $2,488,664 in the first quarter of 2005
      versus cash consumed by financing activities of $4,490 during the first quarter
      of 2004. As of March 31, 2005, the Company had $1,397,949 in cash and $1,334,611
      in marketable securities, as a result of raising of capital from the sale of
      a
      $2,000,000 convertible note which occurred in January 2005 and from $750,000
      in
      proceeds from the issuance of stock in a private placement
      transaction.





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




New
      Accounting Pronouncements




In
      December 2004, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based
      Payment.” SFAS No. 123(R) requires employee stock options and rights to purchase
      shares under stock participation plans to be accounted for under the fair value
      method, and eliminates the ability to account for these instruments under the
      intrinsic value method prescribed by Accounting Principles Board (APB) Opinion
      No. 25, and allowed under the original provisions of SFAS No. 123 “Accounting
      for Stock-Based Compensation.” SFAS No. 123(R) requires the use of an option
      pricing model for estimating fair value, which is amortized to expense over
      the
      service periods. In April 2005, the Securities and Exchange Commission (SEC)
      delayed the effective date of SFAS No. 123(R), which is now effective for public
      companies for annual, rather than interim, periods that begin after June 15,
      2005. If the company had applied the provisions of SFAS No. 123(R) to the
      financial statements for the quarter ending March 31, 2005, net income would
      have been reduced by approximately $33,630 ($111 in the first quarter of 2004).
      SFAS No. 123(R) allows for either prospective recognition of compensation
      expense or retrospective recognition. The company currently intends to apply
      the
      prospective recognition method and implement the provisions of SFAS No. 123(R)
      beginning in fiscal 2006.




30




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 2004 Annual
      Report on Form 10-KSB/A No. 6 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 2004 Annual Report on Form 10-KSB/A No.
      6.




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.




31


**ITEM
      3.**  **CONTROLS
      AND PROCEDURES**





**a.**  **Evaluation
      of disclosure controls and procedures.**





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





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





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





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





The
      restatements are described in more detail in Note 14 in the Notes to
      Consolidated Financial Statements included in the Company’s Annual Report filed
      on Form 10-KSB/A No. 6 for the year ended December 31, 2004 and Note 13 in
      the
      Notes to Condensed Consolidated Financial Statements included in the Company’s
      Condensed Financial Statements included herein. Internal controls over financial
      reporting, including the application of accounting policies and principles,
      are
      within the scope of disclosure controls. Therefore, management has concluded
      that there were material weaknesses in the Company’s disclosure controls as of
      March 31, 2005 and 2004. Remediation of those internal control issues is
      currently in process. The following is a summary of those weaknesses identified
      by management:





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





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






32





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





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





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





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





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





It
      should
      be noted that a control system, no matter how well designed and operated, can
      provide only reasonable, not absolute, assurance that the objectives of the
      control system are met. As a result, there can be no assurance that a control
      system will succeed in preventing all possible instances of error and fraud.
      The
      Company’s disclosure controls and procedures are designed to provide reasonable
      assurance of achieving their objectives, and the conclusions of our Chief
      Executive Officer and Chief Financial Officer are made at the “reasonable
      assurance” level.





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





There
      were no changes in the Company’s internal controls over financial reporting that
      materially affected, or are reasonably likely to materially affect the Company’s
      internal control over financial reporting during the quarters ended March 31,
      2005 and 2004.





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





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





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





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




33





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





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





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




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





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





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





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





**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 of Greenberg Traurig were
      presented to the Company’s Audit Committee of the Board of Directors. As a
      result, the Audit Committee presented certain resolutions to the Board of
      Directors which were adopted on April 24, 2006. The resolutions included, but
      were not limited to, enhanced controls over an executive’s ability to enter into
      contracts on behalf of the Company, additional controls over safeguarding
      Company assets and changes to enhance the Company’s record retention
      procedures.





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





34


**PART
      II-- OTHER INFORMATION**





Item
      6: Exhibits





10.1
            Employment
                Agreement dated January 1, 2005 by and between Michael Y. Brent and
                YTB
                International, Inc.(incorporated
                by reference to YTB International, Inc.’s Annual Report for fiscal year
                2005 on Form 10-KSB, exhibit 10.9 filed November 22,
                2006).





10.2
            Employment
                Agreement dated January 1, 2005 by and between Derek Brent and YTB
                International, Inc.(incorporated
                by reference to YTB International, Inc.’s Annual Report for fiscal year
                2005 on Form 10-KSB, exhibit 10.10 filed November 22,
                2006).





10.3
            Employment
                Agreement dated January 1, 2005 by and between J. Scott Tomer and
                YTB
                International, Inc.(incorporated
                by reference to YTB International, Inc.’s Annual Report for fiscal year
                2005 on Form 10-KSB, exhibit 10.11 filed November 22,
                2006).





10.4
            Employment
                Agreement dated January 1, 2005 by and between J. Kim Sorensen and
                YTB
                International, Inc.(incorporated
                by reference to YTB International, Inc.’s Annual Report for fiscal year
                2005 on Form 10-KSB, exhibit 10.12 filed November 22,
                2006).





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.





35


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 TomerJ.
                Scott Tomer, CEODated:
                January 16, 2007


/s/
                  John D. ClaggJohn
                  D. Clagg, CFODated:
                  January 16, 2007
 
 36