**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-QSB**





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





**For
      the quarterly period ended September 30, 2006.**





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


Act
      of
      1934 for the transition period from _______________ to
      ______________





Commission
      File Number: 0-18412





**YTB
      INTERNATIONAL, INC.**


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





**Delaware**


(State
      or
      other jurisdiction of incorporation or organization)





**20-2181181**


(IRS
      Employer Identification Number)





**1901
      East Edwardsville Road**


**Wood
      River, Illinois 62095**


**** (Address
      of principal executive offices)





**(618)
      655-9477**


(Registrant's
      telephone number, including area code)





(Former
      name, former address and former fiscal year,


if
      changed since last report)




Check
      whether the issuer (1) has filed all reports required to be filed by Section
      13
      or 15 (d) of the Exchange Act of 1934 during the past 12 months (or for such
      shorter period that the registrant was required to file such reports) and (2)
      has been subject to such filing requirements for the past 90 days. Yes x No o.





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





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





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










**YTB
      INTERNATIONAL, INC.**


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


**Three
      and nine months ended September 30, 2006**








PART
              I - FINANCIAL INFORMATION
            PAGEItem 1.
            Financial
                StatementsExplanatory
                note
            2Condensed
                Consolidated Balance Sheets, September 30, 2006 (Unaudited) and December
                31, 2005
            3Condensed
                Consolidated Statements of Operations (Unaudited)Three
                months ended September 30, 2006 and 2005
            4Condensed
                Consolidated Statements of Operations (Unaudited)Nine
                months ended September 30, 2006 and 2005
            5Condensed
                Consolidated Statement of Change in Stockholders’ Equity (Deficit)
                (Unaudited)Nine
                months ended September 30, 2006
            6Condensed
                Consolidated Statements of Cash Flows (Unaudited)Nine
                months ended September 30, 2006 and 2005
            7Notes
                To Condensed Consolidated Financial Statements (Unaudited)
            9Item 2.
            Management's
                Discussion and Analysis or Plan of Operation
            23Item 3.
            Controls
                and Procedures
            32PART
              II - OTHER INFORMATIONItem 6.
            Exhibits
            32Signatures
            33Certifications





EXPLANATORY
      NOTE








During
      a
      review of the Company’s outstanding options and warrants, the Company discovered
      the expense related to 200,000 warrants previously issued had not been
      recognized in the 2005 consolidated financial statements. As a result, the
      Company filed an amended Form 10-KSB for the year ended December 31, 2005 on
      March 12, 2007 to reflect the additional expense related to the warrants. In
      addition, the Company identified that certain items in the Consolidated
      Statement of Cash Flows for the year ended December 31, 2005 should be
      reclassified to enhance disclosure, properly reflect non-cash items and properly
      reflect the gross activity related to the conversion of debt to common stock
      that occurred in the fourth quarter of 2005.





The
      financial statements for the three and nine months ended September 30, 2005
      included herein have been restated to reflect additional expense of $167,253
      or
      ($0.01) per share and $348,883 or ($0.01) per share, respectively, related
      to the warrants and the relevant disclosure has been updated. In addition,
      certain reclassifications were made to the Condensed Consolidated Statement
      of
      Cash Flows for the nine months ended September 30, 2005. The affected column
      headings of the financial statements for the three and nine months ended
      September 30, 2005 included herein, as well as the affected footnotes, have
      been
      labeled as “Restated”.










2




**YTB
      INTERNATIONAL, INC.**


**Condensed
      Consolidated Balance Sheets**




September
                30,
              2006
              (Unaudited)
            
            December
                31,
              2005ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            -
            
            $
            230,358Restricted
                cash
            
            
            1,250,000
            
            
            -Available-for-sale
                securities
            
            
            1,855,878
            
            
            3,611,003Accounts
                receivable (less allowance for doubtful accounts of$6,919
                in 2006 and $24,888 in 2005)
            
            
            121,626
            
            
            64,402Inventory
            
            
            328,060
            
            
            -Notes
                receivable
            
            
            460,000
            
            
            20,000Prepaid
                marketing commissions
            
            
            10,650,109
            
            
            4,212,417Other
                prepaid expenses and current assets
            
            
            472,180
            
            
            285,169Total
                current assets
            
            
            15,137,853
            
            
            8,423,349Property
                and equipment, net
            
            
            3,644,233
            
            
            631,992Intangible
                assets, net
            
            
            2,486,940
            
            
            2,542,020Goodwill
            
            
            2,224,322
            
            
            2,224,322Other
                assets
            
            
            14,994
            
            
            16,184TOTAL
                ASSETS
            
            $
            23,508,342
            
            $
            13,837,867LIABILITIES
                AND STOCKHOLDERS’ EQUITY (DEFICIT)Current
                liabilities:Bank
                overdraft
            
            $
            120,184
            
            $
            -Notes
                payable
            
            
            25,177
            
            
            122,055Current
                maturities of long-term debt
            
            
            20,946
            
            
            19,532Accounts
                payable and accrued expenses
            
            
            4,511,895
            
            
            1,944,640Accrued
                bonuses
            
            
            6,385,780
            
            
            3,451,826Current
                portion of deferred revenue
            
            
            11,483,720
            
            
            4,660,200Convertible
                debt derivative
            
            
            761,910
            
            
            280,000Total
                current liabilities
            
            
            23,309,612
            
            
            10,478,253Other
                long-term liabilities:Long-term
                debt, less current maturities
            
            
            2,747,028
            
            
            264,079Deferred
                revenue, less current portion
            
            
            4,366
            
            
            4,366Other
                liabilities
            
            
            23,636
            
            
            23,636Total
                other long-term liabilities
            
            
            2,775,030
            
            
            292,081TOTAL
                LIABILITIES
            
            
            26,084,642
            
            
            10,770,334STOCKHOLDERS’
                EQUITY (DEFICIT)Common
                stock, par value $.001; 50,000,000 shares authorized,27,490,454
                and 27,336,260 shares issued and outstandingin
                2006 and 2005, respectively.
            
            
            27,490
            
            
            27,336Additional
                paid-in capital
            
            
            19,741,923
            
            
            19,376,053Accumulated
                deficit
            
            
            (22,345,713
            )
            
            (16,335,856
            )TOTAL
                STOCKHOLDERS’ EQUITY (DEFICIT)
            
            
            (2,576,300
            )
            
            3,067,533TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
            
            $
            23,508,342
            
            $
            13,837,867





*See
      accompanying notes to condensed consolidated financial
      statements.*




3


**YTB
      INTERNATIONAL, INC.**


**Condensed
      Consolidated Statements of Operations**


(Unaudited)





Three
                months endedSeptember
                30,
              2006
            
            (RESTATED)September
                30,
              2005NET
                REVENUESOnline
                travel store sales and monthly fees
            
            $
            9,585,262
            
            $
            4,348,697Travel
                commissions and services
            
            
            1,942,876
            
            
            1,257,897Franchise
                service fees and other fees
            
            
            84,888
            
            
            115,885Other
            
            
            1,523,563
            
            
            622,632TOTAL
                NET REVENUES
            
            
            13,136,589
            
            
            6,345,111OPERATING
                EXPENSESMarketing
                commissions
            
            
            9,472,964
            
            
            3,024,180Travel
                commissions
            
            
            1,348,540
            
            
            856,892Franchise
                services and products
            
            
            31,382
            
            
            43,238Depreciation
                and amortization
            
            
            129,376
            
            
            223,696Marketing
                and selling
            
            
            60,830
            
            
            61,797General
                and administrative
            
            
            6,348,579
            
            
            2,893,494TOTAL
                OPERATING EXPENSES
            
            
            17,391,671
            
            
            7,103,297LOSS
                FROM OPERATIONS
            
            
            (4,255,082
            )
            
            (758,186
            )OTHER
                INCOME (EXPENSE)Change
                in fair value of derivatives
            
            
            -
            
            
            (429,673
            )Interest
                and dividend income
            
            
            42,803
            
            
            36,448Interest
                expense
            
            
            (151,801
            )
            
            (337,988
            )TOTAL
                OTHER INCOME (EXPENSE)
            
            
            (108,998
            )
            
            (731,213
            )NET
                LOSS
            
            $
            (4,364,080
            )
            $
            (1,489,399
            )NET
                LOSS PER SHARE:Weighted-average
                shares outstanding
            
            
            27,387,658
            
            
            24,419,877Net
                loss per share - basic and diluted
            
            $
            (0.16
            )
            $
            (0.06
            )





*See
      accompanying notes to condensed consolidated financial
      statements.*




4


**YTB
      INTERNATIONAL, INC.**


**Condensed
      Consolidated Statements of Operations**


(Unaudited)




Nine
                months endedSeptember
                30,
              2006
            
            (RESTATED)
              September
                30,
              2005NET
                REVENUESOnline
                travel store sales and monthly fees
            
            $
            23,367,049
            
            $
            9,773,502Travel
                commissions and services
            
            
            5,015,178
            
            
            3,507,373Franchise
                service and other fees
            
            
            260,263
            
            
            332,047Other
            
            
            2,536,586
            
            
            1,323,911TOTAL
                NET REVENUES
            
            
            31,179,076
            
            
            14,936,833OPERATING
                EXPENSESMarketing
                commissions
            
            
            19,534,383
            
            
            6,887,667Travel
                commissions
            
            
            3,319,045
            
            
            2,495,982Franchise
                services and products
            
            
            98,919
            
            
            142,654Depreciation
                and amortization
            
            
            262,846
            
            
            755,562Marketing
                and selling
            
            
            390,410
            
            
            124,419General
                and administrative
            
            
            13,250,054
            
            
            6,954,127TOTAL
                OPERATING EXPENSES
            
            
            36,855,657
            
            
            17,360,411LOSS
                FROM OPERATIONS
            
            
            (5,676,581
            )
            
            (2,423,578
            )OTHER
                INCOME (EXPENSE)Change
                in fair value of derivatives
            
            
            -
            
            
            (2,869,578
            )Gain
                on the sale of assets
            
            
            1,000
            
            
            -Interest
                and dividend income
            
            
            118,179
            
            
            67,334Interest
                expense
            
            
            (452,455
            )
            
            (639,688
            )TOTAL
                OTHER INCOME (EXPENSE)
            
            
            (333,276
            )
            
            (3,441,932
            )NET
                LOSS
            
            $
            (6,009,857
            )
            
            (5,865,510
            )NET
                LOSS PER SHARE:Weighted–average
                shares outstanding
            
            
            27,353,393
            
            
            24,149,656Net
                loss per share - basic and diluted
            
            $
            (0.22
            )
            $
            (0.24
            )





*See
      accompanying notes to condensed consolidated financial
      statements.*




5


**YTB
      INTERNATIONAL, INC.**


**Condensed
      Consolidated Statement of Changes in Stockholders’ Equity
      (Deficit)**


(Unaudited)




**Nine
      months ended September 30, 2006**





TotalAdditional
            
            
            
            Stockholders’Common
                Stock
            
            Paid-In
            
            Accumulated
            
            EquityShares
            
            Amount
            
            Capital
            
            (Deficit)
            
            (Deficit)Balance
                at January 1, 2006
            
            
            27,336,260
            
            $
            27,336
            
            $
            19,376,053
            
            $
            (16,335,856
            )
            $
            3,067,533Stock
                option expense
            
            
            -
            
            
            -
            
            
            157,064
            
            
            -
            
            
            157,064Shares
                issued for services
            
            
            154,194
            
            
            154
            
            
            208,806
            
            
            -
            
            
            208,960Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (6,009,857
            )
            
            (6,009,857
            )Balance
                at September 30, 2006
            
            
            27,490,454
            
            $
            27,490
            
            $
            19,741,923
            
            $
            (22,345,713
            )
            $
            (2,576,300
            )





*See
      accompanying notes to condensed consolidated financial
      statements.*




6





**YTB
      INTERNATIONAL, INC.**


**Condensed
      Consolidated Statements of Cash Flows**


(Unaudited)




Nine
                months endedSeptember
                30,
              2006
            
            (RESTATED)
              September
                30,
              2005CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                Loss
            
            $
            (6,009,857
            )
            $
            (5,865,510
            )Adjustments
                to reconcile net loss to net cash (used in) provided byoperating
                activities:Depreciation
                and amortization
            
            
            262,846
            
            
            755,562Amortization
                of deferred offering costs
            
            
            -
            
            
            38,672Shares
                issued for services
            
            
            208,960
            
            
            131,005Warrants
                issued for services
            
            
            -
            
            
            348,883Stock
                option expense
            
            
            157,064
            
            
            641,485Change
                in fair value of derivatives
            
            
            -
            
            
            2,869,578Amortization
                of discount on convertible debt
            
            
            -
            
            
            278,945Changes
                in operating assets and liabilities:Accounts
                receivable, net
            
            
            (57,224
            )
            
            (36,788
            )Notes
                receivable
            
            
            (440,000
            )
            
            (20,000
            )Inventory
            
            
            (328,060
            )
            
            –Prepaid
                marketing commissions
            
            
            (6,437,692
            )
            
            (2,390,712
            )Other
                prepaid expenses and current assets
            
            
            (187,011
            )
            
            (86,185
            )Other
                assets
            
            
            1,190
            
            
            (1,357
            )Accounts
                payable and accrued expenses
            
            
            2,567,255
            
            
            895,666Accrued
                bonuses
            
            
            2,933,954
            
            
            -Deferred
                revenue
            
            
            6,823,520
            
            
            2,612,511Convertible
                debt derivatives
            
            
            481,910
            
            
            160,000Other
                current liabilities
            
            
            -
            
            
            2,716NET
                CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
            
            
            (23,145
            )
            
            334,471CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchases
                of property and equipment
            
            
            (720,007
            )
            
            (263,991
            )Accrued
                transaction cost
            
            
            -
            
            
            (77,354
            )Proceeds
                from sale of available-for-sale securities
            
            
            2,062,153
            
            
            4,627,404Purchase
                of available-for-sale securities
            
            
            (307,028
            )
            
            (6,656,155
            )NET
                CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
            
            
            1,035,118
            
            
            (2,370,096
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Bank
                overdraft
            
            
            120,184
            
            
            -Other
                current liabilities
            
            
            -
            
            
            (100,000
            )Principal
                payments on debt
            
            
            (15,637
            )
            
            (15,612
            )Repayment
                of notes payable
            
            
            (96,878
            )
            
            (24,196
            )Restricted
                cash-collateral for outstanding note and reserve for credit card
                processing
            
            
            (1,250,000
            )
            
            -Proceeds
                from convertible debt
            
            
            -
            
            
            2,000,000Cash
                paid for debt issuance costs
            
            
            -
            
            
            (148,020
            )Proceeds
                from shares issued in private placement memorandum
            
            
            -
            
            
            960,000NET
                CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
            
            
            (1,242,331
            )
            
            2,672,172NET
                (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            (230,358
            )
            
            636,547CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            230,358
            
            
            25,719CASH
                AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            -
            
            $
            662,266SUPPLEMENTAL
                CASH FLOW INFORMATION:Interest
                paid
            
            $
            43,869
            
            $
            76,915




*See
      accompanying notes to condensed consolidated financial
      statements.*




7


**YTB
      INTERNATIONAL, INC.**


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


**(Unaudited)**




Nine
                months endedSeptember
                30,
              2006
            
            (RESTATED)
              September
                30,
              2005SUPPLEMENTAL
                NON-CASH INVESTING AND FINANCING ACTIVITIES:Increase
                in long-term obligations and property and equipment
            
            $
            2,500,000
            
            $Increase
                in notes payable and property and equipment
            
            $
            -
            
            $
            73,139Warrants
                issued for debt offering costs
            
            $
            -
            
            $
            26,000Decrease
                in notes receivable and deferred revenue
            
            $
            -
            
            $
            81,879Conversion
                of debt to common stock
            
            $
            -
            
            $
            133,333




*See
      accompanying notes to condensed consolidated financial
      statements.*




8


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements


NOTE
      1
–
      ORGANIZATION AND NATURE OF OPERATIONS




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




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




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




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




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




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




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




9


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements





NOTE
      2 – BASIS
      OF
      PRESENTATION





The
      Condensed Consolidated Balance Sheet as of September 30, 2006, the related
      Condensed Consolidated Statements of Operations for the three and nine months
      ended September 30, 2006 and 2005, the Condensed Consolidated Statement of
      Changes in Stockholders’ Equity (Deficit) for the nine months ended
      September 30, 2006 and the Condensed Consolidated Statements of Cash Flows
      for
      the nine months ended September 30, 2006 and 2005, have been prepared without
      audit, pursuant to the rules and regulations of the Securities and Exchange
      Commission. Certain information and disclosures included in financial statement
      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.





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





The
      results of operations for the interim periods should not be considered
      indicative of results to be expected for the full year. The condensed balance
      sheet as of December 31, 2005 was derived from the audited financial statements
      for the year then ended included in the 2005 Annual Report. The preparation
      of
      financial statements in conformity with accounting principles generally accepted
      in the United States of America requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities at the
      date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. Actual results could differ from those
      estimates.





NOTE
      3
– PROPERTY AND EQUIPMENT




Property
      and equipment consists of the following:




September
                30,
              2006
            
            December
                31,
              2005Equipment
            
            $
            444,020
            
            $
            266,025Furniture
                and fixtures
            
            
            216,711
            
            
            187,745Capitalized
                software
            
            
            1,544,669
            
            
            1,378,711Vehicles
            
            
            168,908
            
            
            168,908Building
            
            
            1,811,195
            
            
            -Land
            
            
            1,030,000
            
            
            -Leasehold
                improvements
            
            
            116,522
            
            
            110,6295,332,025
            
            
            2,112,018Less:
                Accumulated depreciation
            
            
            (1,687,792
            )
            
            (1,480,026
            )Property
                and equipment, net
            
            $
            3,644,233
            
            $
            631,992





Depreciation
      and amortization expense on property and equipment was $111,016 and $32,837
      for
      the three months ended September 30, 2006 and 2005, respectively, and $207,766
      and $182,982 for the nine months ended September 30, 2006 and 2005,
      respectively.





As
      of
      September 30, 2006 and December 31, 2005, capitalized software development
      costs, net of accumulated amortization, totaled $237,231 and $105,539,
      respectively. For the three months ended September 30, 2006 and 2005, the
      Company recorded amortization of capitalized software development costs of
      $18,886 and $7,000, respectively, and $34,266 and $122,547 for the nine months
      ended September 30, 2006 and 2005, respectively.




10


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements




NOTE 4
      – INTANGIBLE ASSETS, NET





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




At
                September 30, 2006
            
            At
                December 31, 2005Intangible
                Assets
            
            Cost
            
            Accumulated
              Amortization
            
            Net
            
            Cost
            
            Accumulated
              Amortization
            
            NetAmortized
                intangible assets(1)Non-compete
                agreement
            
            $
            360,000
            
            $
            93,200
            
            $
            266,800
            
            $
            360,000
            
            $
            54,620
            
            $305,380RTA
                agreements
            
            
            690,000
            
            
            690,000
            
            
            -
            
            
            690,000
            
            
            690,000
            
            -Vendor
                agreements
            
            
            220,000
            
            
            39,860
            
            
            180,140
            
            
            220,000
            
            
            23,360
            
            196,640Total
                amortizedintangible
                assets
            
            
            1,270,000
            
            
            823,060
            
            
            446,940
            
            
            1,270,000
            
            
            767,980
            
            502,020Unamortized
                intangible assetsDomain
                names
            
            
            2,040,000
            
            
            -
            
            
            2,040,000
            
            
            2,040,000
            
            
            -
            
            2,040,000Total
                unamortizedintangible
                assets
            
            
            2,040,000
            
            
            -
            
            
            2,040,000
            
            
            2,040,000
            
            
            -
            
            2,040,000Total
            
            $
            3,310,000
            
            $
            823,060
            
            $
            2,486,940
            
            $
            3,310,000
            
            $
            767,980
            
            $2,542,020





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




Amortization
      expense was $18,360 and $190,860 for the quarters ended September 30, 2006
      and
      2005, respectively, and $55,080 and 572,580 for the nine months ended September
      30, 2006 and 2005, respectively.





NOTE
      5
– BONUS ACCRUAL




During
      the 4th quarter of 2005, the Company began a program to award bonuses to its
      independent marketing representatives ("IMRs") to recognize certain IMRs for
      outstanding contributions made to the growth and success of the Company and
      to
      encourage all IMRs to fulfill specific goals or targets for sales levels,
      recruiting of new referring travel agents or other business-critical functions.
      The awards offered are in the form of cash or Company stock, based upon a
      predetermined calculation. The bonuses that are to be awarded in Company stock
      are recorded at their fair value at each balance sheet date. Total bonus expense
      included in marketing commissions expense for the three and nine months ended
      September 30, 2006 was $2,266,666 and $3,480,500, respectively. No bonus expense
      was accrued as of September 30, 2005 as the program began in the fourth quarter
      of that year. Accrued bonuses as of September 30, 2006 and December 31, 2005
      totaled $6,385,780 and $3,451,826, respectively.




11


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements




NOTE
      6
– FINANCING ARRANGEMENTS




Notes
      Payable





The
      Company is financing one vehicle in 2006 and four vehicles in
      2005, payable in monthly installments ranging from approximately $1,000 to
      $1,477, at the rate of approximately 6.25%. The loans are payable through March
      2008. The balance due on these vehicle loans as of September 30, 2006 and
      December 31, 2005 totaled $25,177 and $122,055, respectively.





Long-Term
      Debt





On
      January 11, 2002, as a result of a decrease in demand for travel related
      services due to the events of September 11, 2001, the Company borrowed $324,000
      from the United States Small Business Administration (“SBA”) under its disaster
      relief program. Payments were to have initially commenced in January 2003.
      However, the SBA extended the commencement date into November 2003. The loan
      is
      repayable via a monthly installment of $2,607, including interest at 4% per
      annum, through October 2017. The loan is personally guaranteed by the Company’s
      then-president. The outstanding loan balance as of September 30, 2006 and
      December 31, 2005 was $267,974 and $283,611, respectively.




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





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


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


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


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


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


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


·
            Registration
                Rights – As part of the Note agreement, the Company agreed to file a
                registration statement covering the warrants and potential shares
                to be
                issued upon conversion of the Note. The registration statement was
                to be
                filed within 30 days of the agreement, and declared effective within
                120
                days. The registration statement was to be continuously effective
                until
                the investor had sold all of the underlying shares. The registration
                rights agreement provides for a penalty of 2% per month. The
                Company has treated this item as an additional derivative and in
                failing to satisfy the registration rights requirement and has accrued
                $761,910 and $280,000, respectively, as of September 30, 2006 and
                December
                31, 2005, in penalties under the terms of the agreement. Such amounts
                are
                reflected as a current liability in the Company's balance sheet. In
                November 2006, this obligation was settled by the issuance of 200,000
                shares of common stock. See Note 13, “Subsequent
                Events”.




12




YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements





Because
      the Note was potentially convertible into an unlimited number of shares of
      common stock, the Company accounted for the Note under the provisions of 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 three and nine months ended September 30, 2005
      was
      $429,673 and $2,869,578, respectively, and is recorded as Other Expense in
      the
      Consolidated Statement of Operations. On October 12, 2005, the investor
      converted the remaining principal balance at the time into shares of common
      stock (discussed below). The difference between the stated principal of the
      Note
      of $2,000,000 and its allocated carrying value was amortized as debt discount
      using the effective interest rate method over the term of the Note.





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





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




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 after which the entire
      principal will be paid or the note will be refinanced. The Note is
      collateralized by the first mortgage on the Property and a $500,000 Certificate
      of Deposit. The Certificate of Deposit will be released after the Company makes
      $625,000 of improvements to the Property. The Company has begun a $6.0 million
      renovation project to the Property. The outstanding loan balance at September
      30, 2006 is $2,500,000.




NOTE
      7
– COMMITMENTS AND CONTINGENCIES





Leases





The
      Company is obligated under an operating office lease for the offices in New
      Jersey which expires on April 30, 2008, to pay minimum annual rentals, currently
      at $49,916 per year plus real estate taxes and operating cost charges. The
      Company also is obligated under a multi-year lease for its Illinois headquarters
      at $15,000 per month plus operating charges (see Note 9 - Related Party
      Transactions). In addition, the Company has entered into various operating
      lease
      agreements with Wal-Mart Stores, Inc. (Wal-Mart) for eight locations pursuant
      to
      a master lease agreement. The term of the individual location leases is two
      years with two options to extend the lease for one consecutive term of three
      years followed by one consecutive term of five years. The Company has also
      entered into sub-lease agreements with franchisees at these Wal-Mart locations.
      The subleases with the franchises also have a two year term with options that
      mirror the master lease renewal options.




13




YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements




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


Three
                  month ended
            
            Nine
                  months endedSeptember
                30, 2006
            
            September
                30,2005
            
            September
                30, 2006
            
            September
                  30, 2005Sublease
                rental income
            
            $
            24,945
            
            $
            30,625
            
            $
            85,154
            
            
            101,561Less
                minimum rental expense
            
            
            21,743
            
            
            30,831
            
            
            65,426
            
            
            102,333Net
                rental income (expense)
            
            $
            3,202
            
            $
            (206
            )
            $
            19,728
            
            $
            (772
            )





Employment
      agreements




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





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





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




Mr.
      Derek
      J. Brent receives a base annual salary of $120,000, increasing annually in
      $12,000 increments. Additionally, Mr. Derek J. Brent receives a cash bonus
      based
      on the net pre-tax income of the Company equal to 2% if net pre-tax income
      is
      between $500,000 and $1,500,000, 2.25% if net pre-tax income is between
      $1,500,000 and $3,000,000 and 2.5% if net pre-tax income is at least $3,000,000.
      In addition, Mr. Derek J. Brent receives a car allowance and health and medical
      insurance provided by the Company. In July 2006, Mr. Derek J. Brent’s annual
      salary was increased to $180,000. This increase was subsequently approved by
      the
      Company’s Board of Directors in December 2006.




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




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




14


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements




NOTE
      8
– STOCK OPTIONS




As
      of
      September 30, 2006, the Company had a stock-based employee compensation plans,
      which are described more fully in Note 8 of the Notes to Consolidated Financial
      Statements in the Company’s 2005 Annual Report. In December 2004, the
      Financial Accounting Standards Board (FASB) issued Statement of Financial
      Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based
      Payment” ** (SFAS
      123R). SFAS 123R requires companies to recognize the cost of awards of equity
      instruments, such as stock options and restricted stock, based on the fair
      value
      of those awards at the date of grant and eliminates the choice to account for
      employee stock options under Accounting Principles Board (APB) Opinion
      No. 25, “Accounting for Stock Issued to Employees” ** (APB
      25).
      The Company adopted SFAS 123R effective January 1, 2006 using the modified
      prospective method and, as such, results for prior periods have not been
      restated. Under this method, in addition to reflecting compensation expense
      for
      new share-based awards, expense is also recognized to reflect the remaining
      service period of awards that had been included in pro forma disclosures in
      prior periods.  On
      April
      24, 2006, the Company’s Board of Directors granted 250,000 options to certain
      employees and directors and two outside consultants. These stock options vest
      in
      equal increments on the anniversary date over the next five years. The fair
      value of each option is estimated on the date of grant using the Black-Scholes
      option pricing model with the following weighted-average assumptions used for
      grants in 2006: risk-free interest rate of 4.90%; expected life of 3.0 years;
      dividend yield of 0% and expected volatility of 75%. The
      expected average risk-free rate is based on U.S. treasury yield curve. The
      expected average life represents the period of time that options granted are
      expected to be outstanding giving consideration to vesting schedules, historical
      exercise and forfeiture patterns. The expected dividend yield is based on
      historical information and management’s plan. Expected volatility is based on
      historical volatilities of YTB International, Inc.’s common stock. Accordingly,
      the Company recognized $50,483 and $157,064 for the three and nine months ended
      September 30, 2006, respectively, in compensation expense for stock options.
      Unrecognized expense related to unvested options and to future service on vested
      options as of September 30, 2006 is $124,530 and $26,693,
      respectively.




The
      following table provides information about awards outstanding at September
      30,
      2006.




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




Prior
      to
      January 1, 2006, compensation expense for stock options was recognized over
      the
      vesting period only to the extent that the grant date market price of the stock
      exceeded the exercise price of the options. For the three and nine months ended
      September 30, 2005, the Company recognized $22,495 and $67,485 in compensation
      expense related to options granted with an exercise price less than the fair
      value of the underlying stock at the date of the grant. In addition, FASB
      Interpretation No. 44 (“FIN 44”), “Accounting for Certain Transactions Involving
      Stock Based Compensation - an Interpretation of APB No. 25,” requires variable
      accounting for compensation expense when stock options have been cancelled
      and
      re-issued with a change in strike price. The variable compensation associated
      with these types of stock options for the three and nine months ended September
      30, 2005 was
      compensation expense of $155,100 and $574,000, respectively.




15


YTB
        INTERNATIONAL, INC.
 Notes
        to
        Condensed Consolidated Financial Statements
  Had
        the
        Company accounted for these plans in accordance with SFAF 123 R, the fair
        value
        recognition method would have had the following effects on the condensed
        consolidated financial statements for the three and nine months ended September
        30, 2005.


(RESTATED)
              Three
                months
              ended
              September
                30,
              2005
            
            (RESTATED)
              Nine
                months
              ended
              September
                30,
              2005Net
                loss - as reported
            
            $
            (1,489,399
            )
            $
            (5,865,510
            )Add:
                Stock-based compensation expenseincluded
                in reported net loss
            
            
            177,595
            
            
            641,485Less:
                Additional stock-based compensationexpense
                determined under fair value basedmethod
                for all awards
            
            
            (33,630
            )
            
            (100,890
            )Net
                loss – pro forma
            
            $
            (1,345,434
            )
            $
            (5,324,915
            )Net
                loss per common share – basic and dilutedAs
                reported
            
            $
            (0.06
            )
            $
            (0.24
            )Pro
                forma
            
            $
            (0.06
            )
            $
            (0.22
            )




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




16




YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements




NOTE
      9
– RELATED PARTY TRANSACTIONS




Certain
      members of management of the Company own a company that YTB Marketing utilizes
      for printing of its sales materials. During the three and nine months ended
      September 30, 2006, the Company expended $669,179 and $1,110,562 respectively,
      for printing sales materials and $113,620 and $424,422, for the three and nine
      months ended September 30, 2005, respectively. In addition, at September 30,
      2006 and December 31, 2005, the Company has a pre-paid asset of  $0 and
      $192,027, respectively, on the balance sheet for payments related to work not
      yet completed.





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





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





The
      combined rental cost of both spaces is $15,000 per month. Combined rent expense
      for these two leases was $45,000 and $135,000 for the three and nine months
      ended September 30, 2006, respectively, and $30,000 for the three and nine
      months ended September 30, 2005. There was no rent expense related to these
      two
      leases during the first quarter of 2005. As
      of
      September 30, 2006, neither of the common stock warrants has been
      exercised.




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




NOTE
      10 – STOCKHOLDERS’ EQUITY




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 per share investment was $15,000 to
      purchase an investment unit consisting of (a) 18,750 shares of common stock
      and
      (b) 18,750 common stock purchase warrants.  Each warrant is exercisable to
      purchase one share of common stock at an exercise price of $1.75,
      exercisable for three years from date of issuance.




On
      April 5, 2005, the Company executed a warrant agreement with a consultant.
      The
      warrant agreement provided for the issuance of warrants to purchase up to
      200,000 shares of the Company’s common stock at a price of $1.73 per share. The
      warrant was exercisable as to 66,666 shares upon execution of the agreement
      and
      the warrants to purchase the remaining 133,334 shares were to be exercisable
      upon the following vesting schedule; an additional 66,666 shares vest on August
      5, 2005 and the final 66,668 shares vest on December 5, 2005. Shares issuable
      upon exercise of the warrant will be subject to customary demand and piggyback
      registration rights. Expense is recognized over the vesting period. For the
      three and nine months ended September 30, 2005, the Company recorded consulting
      expense of $167,253 and $348,883, respectively, based on the estimated fair
      value of the vested warrants using the Black-Scholes pricing model, with an
      offsetting adjustment to additional paid in capital. As of September 30, 2006,
      none of the warrants have been exercised.





During
      the third quarter of 2006, equity compensation in the amount of $208,960 was
      recorded as a result of 154,194 shares issued as compensation for services
      to
      non-employees with an offsetting adjustment to common stock in the amount of
      $154 and additional paid in capital in the amount of $208,806.




17





YTB
        INTERNATIONAL, INC.
 Notes
        to
        Condensed Consolidated Financial Statements




NOTE
      11 - NEW ACCOUNTING PRONOUNCEMENTS




The
      Company adopted SFAS No. 151, *Inventory
      Costs, an amendment of ARB No. 43, Chapter 4* ,
      effective January 1, 2006. The amendments made by SFAS No. 151 clarify that
      abnormal amounts of idle facility expense, freight, handling costs, and wasted
      materials (spoilage) should be recognized as current-period charges and require
      the allocation of fixed production overheads to inventory based on the normal
      capacity of the production facilities. The adoption of SFAS No. 151 did not
      have
      a material impact on the consolidated financial statements of the Company.




The
      Company adopted SFAS No. 154, *Accounting
      Changes and Error Corrections—a replacement of APB Opinion No.
      20* (Accounting Changes) and FASB Statement No. 3 ( *Reporting
      Accounting Changes in Interim Financial Statements* ),
      effective January 1, 2006. SFAS No. 154 provides guidance on accounting for
      and
      reporting of accounting changes and error corrections. It requires retrospective
      application to prior periods’ financial statements, unless it is impracticable
      to determine either the specific period effects or the cumulative effect of
      the
      change. The adoption of SFAS No. 154 did not have a material impact on the
      Company’s consolidated financial statements.




In
      July
      2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for
      Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in
      income taxes recognized in the financial statements in accordance with FASB
      Statement No. 109, “Accounting for Income Taxes.” FIN 48 provides guidance
      on the financial statement recognition and measurement of a tax position taken
      or expected to be taken in a tax return. FIN 48 also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosures, and transition. FIN 48 is effective for fiscal years
      beginning after December 15, 2006. As a result of the Company’s net
      operating losses, this statement will have no impact on its consolidated
      condensed financial statements.




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




In
      September 2006, the FASB issued Statement No. 158, "Employers' Accounting for
      Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
      Statements No. 87, 88, 106, and 132(R) (“SFAS 158”)." SFAS 158 requires
      employers to recognize the funded status of a defined benefit postretirement
      plan as an asset or liability in its statement of financial position and to
      recognize changes in that funded status in comprehensive income in the year
      in
      which the changes occur. Under SFAS 158, employers are required to measure
      plan
      assets and benefit obligations at the date of their fiscal year-end statement
      of
      financial position. SFAS 158 is effective for the Company at the end of the
      2006
      fiscal year. The Company does not currently have any plans under the scope
      of
      this statement.




In
      September 2006, the SEC staff issued Staff Accounting Bulletin
      No. 108, "Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements" ("SAB 108").
      SAB
      108 was issued to provide interpretive guidance on how the effects of the
      carryover or reversal of prior year misstatements should be considered in
      quantifying a current year misstatement. The provisions of SAB 108 must be
      applied to annual financial statements no later than the first fiscal year
      ending after November 15, 2006. The Company is currently assessing the
      impact SAB 108 will have on the Company's consolidated financial position,
      results of operations and cash flows.




18


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements




NOTE
      12 - SEGMENT INFORMATION





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





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




Three
                  Months Ended
                September
                  30, 2006
              
              Marketing
              
              Travel
              
              Technology
              
              Parent
              
              Elimination
              
              TotalExternal
                  and inter-
                segment
                  revenue
              
              $
              11,039,579
              
              $
              2,116,149
              
              $
              21,111
              
              $
              -
              
              $
              (40,250
              )
              $
              13,136,589Segment
                  profit (loss)
              
              $
              (3,602,445
              )
              $
              471,524
              
              $
              11,222
              
              $
              (1,244,381
              )
              $
              -
              
              
              (4,364,080
              )Assets
              
              $
              14,859,898
              
              $
              3,964,070
              
              $
              -
              
              $
              10,200,099
              
              $
              (5,635,909
              )
              $
              23,388,158Depreciation
                  and amortization
              
              $
              106,016
              
              $
              -
              
              $
              -
              
              $
              23,360
              
              $
              -
              
              $
              129,376Capital
                  expenditures
              
              $
              119,886
              
              $
              -
              
              $
              -
              
              $
              2,808,275
              
              $
              -
              
              $
              2,928,161
 
 (RESTATED)
                Three
                  Months Ended
                September
                  30, 2005
              
              Marketing
              
              Travel
              
              Technology
              
              Parent
              
              Elimination
              
              TotalExternal
                  and inter-
                segment
                  revenue
              
              $
              4,925,869
              
              $
              1,375,456
              
              $
              52,031
              
              $
              -
              
              $
              (8,245
              )
              $
              6,345,111Segment
                  profit (loss)
              
              
              (198,685
              )
              
              (133,352
              )
              
              13,969
              
              
              (1,171,331
              )
              
              -
              
              
              (1,489,399
              )Assets
              
              $
              5,783,547
              
              $
              1,212,356
              
              $
              -
              
              $
              7,089,065
              
              $
              (1,115,630
              )
              $
              12,969,338Depreciation
                  and amortization
              
              $
              27,836
              
              $
              -
              
              $
              -
              
              $
              195,860
              
              $
              -
              
              $
              223,696Capital
                  expenditures
              
              $
              134,905
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              134,905


Nine
                Months Ended
              September
                30, 2006
            
            Marketing
            
            Travel
            
            Tech
            
            Parent
            
            Elimination
            
            TotalExternal
                and inter-segment
                revenue
            
            $
            25,719,127
            
            $
            5,623,756
            
            $
            101,451
            
            $
            -
            
            $
            (265,258
            )
            $
            31,179,076Segment
                profit (loss)
            
            $
            (3,776,516
            )
            $
            1,299,797
            
            $
            71,496
            
            $
            (3,604,634
            )
            $
            -
            
            
            (6,009,857
            )Assets
            
            $
            14,859,898
            
            $
            3,964,070
            
            $
            -
            
            $
            10,200,099
            
            $
            (5,635,909
            )
            $
            23,388,158Depreciation
                and amortization
            
            $
            192,766
            
            $
            -
            
            $
            -
            
            $
            70,080
            
            $
            -
            
            $
            262,846Capital
                expenditures
            
            $
            378,811
            
            $
            -
            
            $
            -
            
            $
            2,808,275
            
            $
            -
            
            $
            3,187,086





(RESTATED)
              Nine
                Months Ended
              September
                30, 2005
            
            Marketing
            
            Travel
            
            Tech
            
            Parent
            
            Elimination
            
            TotalExternal
                and inter-segment
                revenue
            
            $
            10,998,172
            
            $
            3,837,713
            
            $
            142,648
            
            $
            -
            
            $
            (41,700
            )
            $
            14,936,833Segment
                profit (loss)
            
            
            (32,546
            )
            
            (157,835
            )
            
            (45,509
            )
            
            (5,629,619
            )
            
            -
            
            
            (5,865,509
            )Assets
            
            $
            5,783,547
            
            $
            1,212,356
            
            $
            -
            
            $
            7,089,065
            
            $
            (1,115,630
            )
            $
            12,969,338Depreciation
                and amortization
            
            $
            64,167
            
            $
            -
            
            $
            103,815
            
            $
            587,580
            
            $
            -
            
            $
            755,562Capital
                expenditures
            
            $
            337,130
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            337,130




19


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements





NOTE
      13 - SUBSEQUENT EVENTS





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





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





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




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


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





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





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





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




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




At
        a
        meeting of the Board of Directors (the “ Board ”)
        of YTB
        International, Inc. (the “ Company ”)
        held
        on February 19, 2007, the Board determined that it was necessary to restate
        and
        refile its previously filed Form 10-KSB and financial statements for the
        year
        ended December 31, 2005. The Board made this determination after ratifying
        a
        previously undisclosed issuance of warrants to purchase 200,000 shares of
        the
        Company’s common stock at $1.73 per share. The warrants were issued to an
        advisor of the Company in April 2005, but had not previously been approved
        by
        the Board (see Note 10, “Capital Stock”). As a result, the Company filed an
        amended Form 10-KSB for the year ended December 31, 2005 on March 12, 2007
        to
        reflect the additional expense related to the above warrants.




20
 YTB
          INTERNATIONAL, INC.
 Notes
          to
          Condensed Consolidated Financial Statements
  NOTE
        14 - RESTATEMENT OF FINANCIAL STATEMENTS


At
        a
        meeting of the Board of Directors (the “ Board ”)
        of YTB
        International, Inc. (the “ Company ”)
        held
        on February 19, 2007, the Board determined that it was necessary to restate
        the
        financial statements included in its previously filed Form 10-KSB and financial
        statements for the year ended December 31, 2005. The Board made this
        determination after ratifying a previously unrecorded issuance of warrants
        to
        purchase 200,000 shares of the Company’s common stock at $1.73 per share. The
        warrants were issued to an advisor of the Company in April 2005, but had
        not
        previously been approved by the Board (see Note 10, “Capital Stock”) nor
        accounted for in the original 2005 Financial Statements.
 
 As
        a
        result, on March 12, 2007, the Company filed an amended Form 10-KSB for the
        year
        ended December 31, 2005 to reflect the additional expense related to the
        above
        warrants. In addition, the Company identified that certain items in the
        Consolidated Statement of Cash Flows for the year ended December 31, 2005
        should
        be reclassified to enhance disclosure, properly reflect non-cash items and
        properly reflect the gross activity related to the conversion of debt to
        common
        stock that occurred in the fourth quarter of 2005.
 
 The
        financial statements for the three and nine months ended September 30, 2005
        included herein have been restated to reflect additional expense of $167,253
        or
        ($0.01) per share and $348,833 or ($0.01) per share, respectively, related
        to
        the warrants and the relevant disclosure has been updated. The financial
        statements for the quarter ended March 31, 2005 were not affected by the
        restatement for the warrants. In addition, certain reclassifications were
        made
        to the Condensed Consolidated Statement of Cash Flows for the nine months
        ended
        September 30, 2005. The affected column headings of the financial statements
        for
        the three and nine months ended September 30, 2005 included herein, as well
        as
        the affected footnotes, have been labeled as “Restated”.
 
 Below
        is
        the effect of the restatement and reclassifications on the Consolidated Balance
        Sheet as of December 31, 2005 and the Consolidated Statements of Operations
        and
        the Consolidated Statement of Cash Flows for the fiscal year ended December
        31,
        2005:
 
 **Consolidated
        Balance Sheet as of September 30, 2005**
 As
                Previously
                Reported
              
              Adjustment
              
              As
                RestatedAdditional
                  paid-in capital
              
              $
              14,523,542
              
              $
              348,883
              
              $
              14,872,425Accumulated
                  deficit
              
              $
              (13,399,696
              )
              $
              (348,883
              )
              $
              (13,748,579
              )
 
 **Consolidated
        Statement of Operations for three months ended September 30,
        2005**
 As
                Previously
                Reported
              
              Adjustment
              
              As
                RestatedOPERATING
                  EXPENSESGeneral
                  and administrative
              
              $
              2,726,241
              
              $
              167,253
              
              $
              2,893,494Total
                  operating expenses
              
              $
              6,936,044
              
              $
              167,253
              
              $
              7,103,297LOSS
                  FROM OPERATIONS
              
              $
              (590,933
              )
              $
              (167,253
              )
              $
              (758,186
              )NET
                  LOSS
              
              $
              (1,322,146
              )
              $
              (167,253
              )
              $
              (1,489,399
              )NET
                  LOSS PER SHARE:Net
                  loss per share - basic and diluted
              
              $
              (0.05
              )
              $
              (0.01
              )
              $
              (0.06
              )
  21
 YTB
        INTERNATIONAL, INC.
 Notes
        to
        Condensed Consolidated Financial Statements
  **Consolidated
        Statement of Operations for nine months ended September 30,
        2005**
 As
                Previously
                Reported
              
              Adjustment
              
              As
                RestatedOPERATING
                  EXPENSESGeneral
                  and administrative
              
              $
              6,605,244
              
              $
              348,883
              
              $
              6,954,127Total
                  operating expenses
              
              $
              17,011,528
              
              $
              348,883
              
              $
              17,360,411LOSS
                  FROM OPERATIONS
              
              $
              (2,074,695
              )
              $
              (348,883
              )
              $
              (2,423,578
              )NET
                  LOSS
              
              $
              (5,516,627
              )
              $
              (348,883
              )
              $
              (5,865,510
              )NET
                  LOSS PER SHARE:Net
                  loss per share - basic and diluted
              
              $
              (0.23
              )
              $
              (0.01
              )
              $
              (0.24
              )
  
 **Condensed
        Consolidated Statement of Cash Flows for the six months ended September 30,
        2005**
 As
                Previously
                Reported
              
              Adjustment
              
              As
                RestatedCASH
                  FLOWS FROM OPERATING
                ACTIVITIES:
              
              $
              277,117
              
              $
              57,354
              
              $
              334,471CASH
                  FLOWS FROM INVESTING
                ACTIVITIES:
              
              $
              (2,312,742
              )
              $
              (57,354
              )
              $
              (2,370,096
              )


22


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





**Overview**




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





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





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





YTB
      Travel is a travel management subsidiary that processes travel sales from
      several different marketing systems including storefront and online business
      models, and processes and handle bookings (reservations) from over 45,200
      websites. The fulfillment is offered through interactive, real time booking
      engines and access to preferred deals with leading travel industry suppliers.
      The emerging market shift to Internet for travel services presents the
      opportunity for advancement of products and services by referral
      relationships.





YTB
      Marketing is a direct sales organization that utilizes independent
      marketing representatives ("IMRs") to market the Referring Travel Agent
      (“RTA”) online business opportunity and has sold 45,200 online travel stores
      which are currently in the system. The RTAs have the ability to book individual
      and group travel. YTB Marketing conducts business through recruitment,
      enrollment, initial training, and support of its independent sales force.
      YTB Marketing is a referral marketing group providing support products and
      services for the IMRs. Currently, there are over 45,200 RTA consumer websites
      in
      operation and 1,700 Book MyTravel websites in operation. Site owners are
      permitted to solicit organizations and associations for travel sites allowing
      for site owners to earn more revenue.





Overview





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





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




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




23





YTB
      Marketing services an RTA network, while Technologies services the travel agent
      community. YTB Marketing typically charge $49.95 to each RTA per month on a
      month-to-month basis to own and operate an online travel site, plus the Company
      can earn transactional compensation from travel purchased off each website.
      Initially, each RTA pays an initial fee of $449.95, plus the first month’s
      membership dues of $49.95. Our brick and mortar franchisee Travel Network and
      Global Travel Network fees range from $3,000 to $29,900 for domestic franchises
      and from $50,000 to $350,000 for individual international territories. Yearly
      service fees range from $2,000 to $9,000 per location.





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




24


**Results
      of Operations**


The
        following table sets forth the number of RTAs for each period covered by
        this
        report, as well as the sales figures for each period.
 
 RTAs
        as
        of
                                                                
RTAs as of
 September
        30, 2006  September
        30, 2005
 45,233                                                               
         19,414
 
 Site
        sales for
        the                                 
                       
Site sales for the
 3
        months
        ended                                                         
3 months ended
 September
        30, 2006  September
        30, 2005
 17,811                                                                            7,503
 
 
 Site
        sales for
        the                                 
                       
Site sales for the
 9
        months
        ended                                                         
9 months ended
 September
        30, 2006  September
        30, 2005
 39,613    
                                                                       
17,557
 
 
 The
        RTA
        numbers represent the number of active RTAs paying $49.95 per month to the
        company as monthly maintenance fees.  The sales numbers represent the sales
        of online travel store sites sold during each respective period.  The
        number of sales and number of recurring monthly maintenance fees paid directly
        impact the revenues and expenses of the company.  As each new site is sold
        for $449.95, marketing commissions are paid on that sale.  Likewise, each
        recurring monthly maintenance fee paid results in marketing commissions paid
        to
        the sales force.  As the number of active RTAs grows, the amount of travel
        commissions revenue grows as well.  Correspondingly, the travel commissions
        expense follows suit.
 
 The
        growth as evidenced in the above numbers on a year-to-year basis directly
        impact
        the financial results of the organization, both on the revenue side, as well
        as
        the expense side.  As more sites are sold and maintained, the amount of
        both marketing and travel commissions correspondingly increase, as do other
        volume related expenses, such as wage and benefit costs.  As more sales are
        made, the entire infrastructure needs to keep pace with or ahead of the sales
        volume.




25




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 net revenues. A summary of consolidated results follows.





Three
                months ended
            
            Nine
                months endedSeptember
                30, 2006
            
            (RESTATED)
              September
                30, 2005
            
            September
                30, 2006
            
            (RESTATED)
              September
                30, 2005Net
                RevenuesOnline
                travel store sales and
              monthly
                fees
            
            
            73.0
            %
            
            68.6
            %
            
            75.0
            %
            
            65.4
            %Travel
                commissions and
              services
            
            
            14.8
            %
            
            19.8
            %
            
            16.1
            %
            
            23.5
            %Franchise
                service and
              other
                fees
            
            
            0.6
            %
            
            1.8
            %
            
            0.8
            %
            
            2.2
            %Miscellaneous
            
            
            11.6
            %
            
            9.8
            %
            
            8.1
            %
            
            8.9
            %TOTAL
                NET REVENUES
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Operating
                ExpensesMarketing
                commissions
            
            
            72.1
            %
            
            47.7
            %
            
            62.7
            %
            
            46.1
            %Travel
                commissions
            
            
            10.3
            %
            
            13.5
            %
            
            10.6
            %
            
            16.7
            %Franchise
                fees
            
            
            0.2
            %
            
            0.7
            %
            
            0.3
            %
            
            1.0
            %Depreciation
                and
              amortization
            
            
            1.0
            %
            
            3.5
            %
            
            0.8
            %
            
            5.1
            %Marketing
                and selling
            
            
            0.5
            %
            
            1.0
            %
            
            1.3
            %
            
            0.8
            %General
                and administrative
            
            
            48.3
            %
            
            45.6
            %
            
            42.5
            %
            
            46.6
            %TOTAL
                OPERATING
              EXPENSES
            
            
            132.4
            %
            
            112.0
            %
            
            118.2
            %
            
            116.3
            %LOSS
                FROM OPERATIONS
            
            
            (32.4
            %)
            
            (12.0
            %)
            
            (18.2
            %)
            
            (16.3
            %)Other
                Income (Expense)Change
                in fair value of
              derivatives
            
            
            0.0
            %
            
            (6.8
            %)
            
            0.0
            %
            
            (19.2
            %)Gain
                on sale of assets
            
            
            0.0
            %
            
            0.0
            %
            
            0.0
            %
            
            0.0
            %Interest
                and dividend Income
            
            
            0.3
            %
            
            0.6
            %
            
            0.4
            %
            
            0.5
            %Interest
                expense
            
            
            (1.1
            %)
            
            (5.3
            %)
            
            (1.5
            %)
            
            (4.3
            %)TOTAL
                OTHER INCOME
              (EXPENSE)
            
            
            (0.8
            %)
            
            (11.5
            %)
            
            (1.1
            %)
            
            (23.0
            %)NET
                LOSS
            
            
            (33.2
            %)
            
            (23.5
            %)
            
            (19.3
            %)
            
            (39.3
            %)





26


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





The
      Company reported a net loss for the third quarter ended September 30, 2006
      of
      $4,364,080 or ($0.16) per diluted share compared to a net loss of $1,489,399
      or
      ($0.06) per diluted share for the comparable quarter of 2005. The overall
      results for the third quarter of 2006 were impacted by the recording of bonus
      expense of $2,266,666 while the comparable 2005 results were impacted by the
      recording of Other Expense totaling $731,213. The Other Expense recorded in
      the
      third quarter of 2005 related to the increase in the embedded derivative
      liability and interest expense during that quarter associated with the
      convertible note agreement the Company entered into in January of 2005.





**Net
      Revenues**





Net
      revenues totaled $13,136,589 and $6,345,111 in the third quarter of 2006 and
      2005, respectively.





·
            Online
                travel store sales and monthly fees increased $5,236,565 or 120.4%
                in the
                third quarter of 2006 to $9,585,262 from the $4,348,697 reported
                in the
                comparable prior year quarter. The increase is due to the significant
                growth of YourTravelBiz.com attributable to the increase in active
                RTAs.
                The Company believes its significant growth in RTAs is attributable
                to the
                emerging market shift to the Internet for travel services which presents
                the opportunity for advancement of products and services by referral
                relationships and the boom in home-based
                businesses.




·
            Travel
                agency commissions for the third quarter of 2006 increased $684,979
                or
                54.4%to$1,942,876
                from the $1,257,897 reported in the third quarter of 2005. The increase
                is
                attributable to an increase in the number of representatives utilizing
                the
                Company as their travel provider in 2006 due to the significant growth
                in
                referring travel agents.





·
            Franchise
                service fees and other fees decreased $30,997 or 26.7% in the third
                quarter of 2006 to $84,888 from $115,885 reported in the third quarter
                of
                2005. The decrease is largely attributable to the transition to the
                internet for travel bookings away from traditional/brick-and-mortar
                travel
                agents.





·
            Other
                income increased in the third quarter of 2006 as compared to 2005
                by
                $900,931 or 144.7% to $1,523,563 from $622,632. This increase is
                due to
                the significant growth of sales revenues from sales aids and miscellaneous
                promotional and marketing materials sold to an increasing number
                of
                RTAs.





**Operating
      Expenses**




·
            Marketing
                commissions increased by $6,448,784 or 213.2% in the third quarter
                of 2006
                as compared to the third quarter of 2005. The increase is due to
                the
                significant growth of YourTravelBiz.com attributable to the increase
                in
                active RTAs. The
                three months ended September 30, 2006 also includes $2, 266,666 in
                bonus
                expense for the Company’s independent RTAs earned in conjunction with a
                bonus program that began in the fourth quarter of
                2005.





·
            Travel
                commissions for the third quarter of 2006 increase by $491,648 or
                57.4% to $1,348,540 from $856,892 reported in the third quarter of
                2005.
                The increase is attributable to an increase in the number of
                representatives utilizing the Company as their travel provider in
                2006 due
                to the significant growth in referring travel
                agents.





·
            Franchise
                services and products expense was $31,382 in the third quarter of
                2006
                compared with $43,238 in the comparable prior year period. The decrease
                is
                largely attributable to the transition to the internet for travel
                bookings
                away from traditional/brick-and-mortar travel
                agents.





·
            Depreciation
                and amortization was $129,376 in the third quarter of 2006, compared
                to
                $223,696 in the comparable quarter of 2005. In 2005 depreciation
                and
                amortization included $172,500 of amortization of an intangible asset
                for
                RTA agreements which was fully amortized by December 31, 2005 and
                was not
                included in the 2006 period.





·
            Marketing
                and selling expenses decreased by $967 from $61,797 in the third
                quarter
                of 2005 to $60,830 in the third quarter of 2006. The increase is
                attributable to an increase in promotional efforts which led to an
                increase in RTAs.





·
            General
                and administrative expenses increased $3,455,085 to $6,348,579 in
                the
                third quarter of 2006 from $2,893,494 in the third quarter of 2005.
                As a
                percentage of total net revenues, these expenses were 48.3% in 2006
                and
                45.6% in 2005. The increase in general and administrative expense
                in 2006
                is attributable to the significant growth in the number of active
                RTAs
                resulting in increased costs associated with the growth in the Company’s
                infrastructure to support the increased volume. The increase is also
                attributable to costs associated with the ongoing implementation
                of new
                business strategies company-wide.




27




**Nine
      months ended September 30, 2006 compared to nine months ended September 30,
      2005**




The
      Company reported a net loss for the nine months ended September 30, 2006 of
      $6,009,857 or ($0.22) per diluted share compared to a net loss of $5,865,510
      or
      ($0.24) per diluted share for the comparable period of 2005. The overall results
      for the nine months ended September 30, 2006 were impacted by the recording
      of
      bonus expense of $3,480,500 earned in conjunction with the sales director bonus
      plan which began in the fourth quarter of 2005. The overall results for the
      first nine months of 2005 were impacted by the recording of Other Expense
      totaling $3,441,932 related to the increase in the embedded derivative liability
      and interest expense during the nine month period ended September 30, 2005
      associated with the convertible note agreement the Company entered into in
      January of 2005.





**Net
      Revenues**





Net
      revenues totaled $31,179,076 and $14,936,833 in the nine months ended September
      30, 2006 and 2005, respectively.





·
            Online
                travel store sales and monthly fees increased $13,593,547 or 139.1%
                in the
                first nine months of 2006 to $23,367,049 from the $9,773,502 reported
                in
                the comparable prior year period. The increase is due to the significant
                growth of YourTravelBiz.com attributable to the increase in active
                RTAs.
                The Company believes its significant growth in RTAs is attributable
                to the
                emerging market shift to the Internet for travel services which presents
                the opportunity for advancement of products and services by referral
                relationships and the boom in home-based
                businesses.




·
            Travel
                agency commissions for the first nine months of 2006 increased $1,507,805
                or 42.9%to$5,015,178
                from the $3,507,373 reported in the first nine months of 2005. The
                increase is attributable to an increase in the number of representatives
                utilizing the Company as their travel provider in 2006 due to the
                significant growth in referring travel
                agents.





·
            Franchise
                service fees and other fees decreased $71,784 or 21.6% in the first
                nine
                months of 2006 to $260,263 from $332,047 reported in the first nine
                months
                of 2005. The decrease is largely attributable to the transition to
                the
                internet for travel bookings away from traditional/brick-and-mortar
                travel
                agents.





·
            Other
                income increased in the nine months ended September 30, 2006 as compared
                to the comparable period in 2005 by $1,212,675 or 91.6% to $2,536,586
                from
                $1,323,911. This increase is due to the significant growth of sales
                revenues from sales aids and miscellaneous promotional and marketing
                materials sold to an increasing number of
                RTAs.




**Operating
      Expenses**




·
            Marketing
                commissions increased by $12,646,716 or 183.6% in the first nine
                months of
                2006 to $19,534,383 from $6,887,667 in the comparable period of 2005.
                The
                increase is due to the significant growth of YourTravelBiz.com
                attributable to the increase in active RTAs. The nine months ended
                September 30, 2006 also includes $3,480,500 in bonus expense for
                the
                Company’s independent RTAs earned in conjunction with a bonus program that
                began in the fourth quarter of
                2005.





·
            Travel
                commissions for the nine months ended September 30, 2006 increased
                $823,063 or 32.9% to $3,319,045 from $2,495,982 reported in the comparable
                prior year period. The increase is attributable to an increase in
                the
                number of representatives utilizing the Company as their travel provider
                in 2006 due to the significant growth in referring travel
                agents.





·
            Franchise
                services and products expense was $98,919 in the nine months ended
                September 30, 2006 compared with $142,654 in the comparable prior
                year
                period. The $43,735 or 30.6% decrease is largely attributable to
                the
                transition to the internet for travel bookings away from
                traditional/brick-and-mortar travel
                agents.




·
            Depreciation
                and amortization was $262,846 in the first nine months of 2006, compared
                to $755,562 in the comparable period of 2005. In 2005, depreciation
                and
                amortization included $103,815 of amortization of capitalized software
                and
                $517,500 of amortization of an intangible asset for RTA agreements.
                Both
                of these items became fully amortized by December 31, 2005 and were
                not
                included in the 2006 period.




·
            Marketing
                and selling expenses increased by $265,991 from $124,419 in the first
                nine
                months of 2005 to $390,410 in the comparable nine month period of
                2006.





28


·
            General
                and administrative expenses increased $6,295,927 to $13,250,054 in
                the
                first nine months of 2006 from $6,954,127 in the comparable period
                of
                2005. As a percentage of total net revenues, these expenses were
                42.5% in
                2006 and 46.6% in 2005. Although the two periods are relatively flat
                as a
                percentage of sales, the increase in general and administrative expense
                in
                2006 is attributable to the significant growth in the number of active
                RTAs resulting in increased costs associated with the growth in the
                Company’s infrastructure to support the increased volume. The increase is
                also attributable to costs associated with the ongoing implementation
                of
                new business strategies
                company-wide.




**Variability
      of Results**




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




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




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




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




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




29


**Liquidity
      and Capital Resources**




Net
      cash
      used in operating activities in the first three quarters of 2006 was $23,145,
      as
      compared to cash provided by operating activities of $334,471 in the same period
      of 2005.





Net
      cash
      provided by investing activities was $1,035,118 during the nine months ended
      September 30, 2006, as compared to cash consumed by investing activities of
      $2,370,096 for the same period in 2005. This $3,405,214 increase in cash
      provided was primarily due to the increase in proceeds from the sales of
      available-for-sale securities being partially offset by an increase in purchases
      of property and equipment.





Net
      cash
      consumed by financing activities was approximately $1,242,331 in the first
      three
      quarters of 2006 and cash provided during the same period of 2005 was
      approximately $2,672,172. The cash consumed by financing activities in the
      first
      three quarters of 2006 was primarily attributable to $500,000 in restricted
      cash
      representing collateral for the outstanding note on the property for the new
      corporate headquarters and $750,000 in restricted cash representing a reserve
      held by the company's credit card processor. The cash provided by financing
      activities in the comparable prior year was primarily the result of raising
      capital from the sale of a convertible note which occurred in January 2005
      for
      $2,000,000 and from an issuance of stock in a private placement to investors
      resulting in gross proceeds of $960,000 in February 2005 for an aggregate amount
      of $960,000.




As
      of
      September 30, 2006, the Company had $1,855,878 in short-term investments. The
      Company also reported a bank overdraft of $120,184 as of September 30, 2006
      which resulted from checks cut on the last business day of the period that
      had
      not yet cleared the bank. This overdraft was covered by receipts of cash in
      the
      subsequent period when the checks were presented to the bank.The Company
      believes that short term investments on hand at September 30, 2006 and its
      cash
      flow from operations will be sufficient to meet its obligation on a timely
      basis
      for the next 12 months.




**New
      Accounting Pronouncements**


The
        Company adopted SFAS No. 151, *Inventory
        Costs, an amendment of ARB No. 43, Chapter 4* ,
        effective January 1, 2006. The amendments made by SFAS No. 151 clarify that
        abnormal amounts of idle facility expense, freight, handling costs, and wasted
        materials (spoilage) should be recognized as current-period charges and require
        the allocation of fixed production overheads to inventory based on the normal
        capacity of the production facilities. The adoption of SFAS No. 151 did not
        have
        a material impact on the consolidated financial statements of the Company.
  The
        Company adopted SFAS No. 154, *Accounting
        Changes and Error Corrections—a replacement of APB Opinion No.
        20* (Accounting Changes) and FASB Statement No. 3 ( *Reporting
        Accounting Changes in Interim Financial Statements* ),
        effective January 1, 2006. SFAS No. 154 provides guidance on accounting for
        and
        reporting of accounting changes and error corrections. It requires retrospective
        application to prior periods’ financial statements, unless it is impracticable
        to determine either the specific period effects or the cumulative effect
        of the
        change. The adoption of SFAS No. 154 did not have a material impact on the
        Company’s consolidated financial statements.


In
        July
        2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for
        Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in
        income taxes recognized in the financial statements in accordance with FASB
        Statement No. 109, “Accounting for Income Taxes.” FIN 48 provides guidance
        on the financial statement recognition and measurement of a tax position
        taken
        or expected to be taken in a tax return. FIN 48 also provides guidance on
        derecognition, classification, interest and penalties, accounting in interim
        periods, disclosures, and transition. FIN 48 is effective for fiscal years
        beginning after December 15, 2006. As a result of the Company’s net
        operating losses, this statement will have no impact on its consolidated
        condensed financial statements.
  In
        September 2006, the FASB issued SFAS No. 157,
        "Fair Value Measurements." SFAS 157 defines fair value, establishes a framework
        for measuring fair value and expands disclosures about fair value measurements.
        SFAS 157 applies under other accounting pronouncements that require or permit
        fair value measurement. SFAS 157 does not require any new fair value measurement
        and the Company is currently evaluating the impact, if any, of SFAS 157 on
        its
        financial position, results of operations and cash flows. SFAS 157 requires
        prospective application for fiscal years beginning after November 15, 2007.




In
      September 2006, the FASB issued Statement No. 158, "Employers' Accounting for
      Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
      Statements No. 87, 88, 106, and 132(R) (“SFAS 158”)." SFAS 158 requires
      employers to recognize the funded status of a defined benefit postretirement
      plan as an asset or liability in its statement of financial position and to
      recognize changes in that funded status in comprehensive income in the year
      in
      which the changes occur. Under SFAS 158, employers are required to measure
      plan
      assets and benefit obligations at the date of their fiscal year-end statement
      of
      financial position. SFAS 158 is effective for the Company at the end of the
      2006
      fiscal year. The Company does not currently have any plans under the scope
      of
      this statement.




In
      September 2006, the SEC staff issued Staff Accounting Bulletin
      No. 108, "Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements" ("SAB 108").
      SAB
      108 was issued to provide interpretive guidance on how the effects of the
      carryover or reversal of prior year misstatements should be considered in
      quantifying a current year misstatement. The provisions of SAB 108 must be
      applied to annual financial statements no later than the first fiscal year
      ending after November 15, 2006. The Company is currently assessing the
      impact SAB 108 will have on the Company's consolidated financial position,
      results of operations and cash flows.




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




**Forward-Looking
      Statements**




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




31


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




**Evaluation
      of disclosure controls and procedures**





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


**Changes
      in Internal Control**





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





**Internal
      Inquiry**





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





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




**PART
      II - OTHER INFORMATION**





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





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





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





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




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





32


**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, Chief Executive OfficerDated:
                March 19, 2007




/s/
                John D. ClaggJohn
                D. Clagg, Chief Financial OfficerDated:
                March 19, 2007




33