**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB**





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





**for
      the quarterly period ended March 31, 2006**





oTransition
      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 oNo x.





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





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





Transitional
      Small Business Disclosure Format (check one) Yes oNo x







**YTB
      INTERNATIONAL, INC.**


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


**Three
      months ended March 31, 2006**





PAGEPART
                I - FINANCIAL INFORMATIONExplanatory
                note
            
            
            2Item
                1. Financial StatementsCondensed
                Consolidated Balance Sheets, March 31, 2006 (Unaudited) and December
                31,
                2005
            
            
            3Condensed
                Consolidated Statements of Operations (Unaudited)
              Three
                months ended March 31, 2006 and 2005
            
            
            4Condensed
                Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)
              Three
                months ended March 31, 2005
            
            
            5Condensed
                Consolidated Statements of Cash Flows (Unaudited)
              Three
                months ended March 31, 2006 and 2005
            
            
            6Notes
                To Condensed Consolidated Financial Statements (Unaudited)
            
            
            8Item
                2.Management's
                Discussion and Analysis or Plan of Operation
            
            
            20Item
                3.Controls
                and Procedures
            
            
            26PART
                II - OTHER INFORMATIONItem
                6.Exhibits
            
            
            26Signatures
            
            
            27Certifications









EXPLANATORY
        NOTE
  During
        a
        review of the Company’s outstanding options and warrants, the Company discovered
        the expense related to 200,000 warrants previously issued had not been
        recognized in the 2005 consolidated financial statements. As a result, the
        Company filed an amended Form 10-KSB for the year ended December 31, 2005
        on
        March 12, 2007 to reflect the additional expense related to the warrants.
        In
        addition, the Company identified that certain items in the Consolidated
        Statement of Cash Flows for the year ended December 31, 2005 should be
        reclassified to enhance disclosure, properly reflect non-cash items and properly
        reflect the gross activity related to the conversion of debt to common stock
        that occurred in the fourth quarter of 2005.
  The
        financial statements for the quarter ended March 31, 2005 were not affected
        by
        the restatement for the warrants or other items discussed above except for
        certain reclassifications that were made to the Condensed Consolidated Statement
        of Cash Flows for the quarter ended March 31, 2005. The affected column headings
        of the financial statements for the quarter ended March 31, 2005 included
        herein, as well as the affected footnotes, have been labeled as “Restated”.
 
 2


**YTB
      INTERNATIONAL, INC.**


**Condensed
      Consolidated Balance Sheets**





March
                31,
              2006
              (Unaudited)
            
            December
                31,
              2005ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            330,649
            
            $
            230,358Available-for-sale
                securities
            
            
            3,108,577
            
            
            3,611,003Accounts
                receivable (less allowance for doubtful accounts of$6,919
                in 2006 and $24,888 in 2005)
            
            
            99,107
            
            
            64,402Notes
                receivable
            
            
            19,720
            
            
            20,000Prepaid
                marketing commissions
            
            
            5,709,467
            
            
            4,212,417Other
                prepaid expenses and current assets
            
            
            507,508
            
            
            285,169Total
                current assets
            
            
            9,775,028
            
            
            8,423,349Property
                and equipment, net
            
            
            704,874
            
            
            631,992Intangible
                assets, net
            
            
            2,523,660
            
            
            2,542,020Goodwill
            
            
            2,224,322
            
            
            2,224,322Other
                assets
            
            
            14,994
            
            
            16,184TOTAL
                ASSETS
            
            $
            15,242,878
            
            $
            13,837,867LIABILITIES
                AND STOCKHOLDERS’ EQUITYCurrent
                liabilities:Notes
                payable
            
            $
            33,067
            
            $
            122,055Current
                maturities of long-term debt
            
            
            20,532
            
            
            19,532Accounts
                payable and accrued expenses
            
            
            1,332,599
            
            
            1,944,640Accrued
                bonuses
            
            
            3,954,532
            
            
            3,451,826Current
                portion of deferred revenue
            
            
            6,286,444
            
            
            4,660,200Convertible
                debt derivative
            
            
            465,180
            
            
            280,000Other
                current liabilities
            
            
            5,799
            
            
            -Total
                current liabilities
            
            
            12,098,153
            
            
            10,478,253Other
                long-term liabilities:Long-term
                debt, less current maturities
            
            
            257,606
            
            
            264,079Deferred
                revenue, less current portion
            
            
            4,366
            
            
            4,366Other
                liabilities
            
            
            23,636
            
            
            23,636Total
                other long-term liabilities
            
            
            285,608
            
            
            292,081TOTAL
                LIABILITIES
            
            
            12,383,761
            
            
            10,770,334STOCKHOLDERS’
                EQUITYCommon
                stock, par value $.001; 50,000,000 shares authorized,27,336,260
                shares issued and outstanding in 2006 and 2005
            
            
            27,336
            
            
            27,336Additional
                paid-in capital
            
            
            19,423,899
            
            
            19,376,053Accumulated
                deficit
            
            
            (16,592,118
            )
            
            (16,335,856
            )TOTAL
                STOCKHOLDERS’ EQUITY
            
            
            2,859,117
            
            
            3,067,533TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            15,242,878
            
            $
            13,837,867




*See
      accompanying notes to condensed consolidated financial
      statements.*


3


**YTB
      INTERNATIONAL, INC.**


**Condensed
      Consolidated Statements of Operations**


(Unaudited)





Three
                months endedMarch
                31, 2006
            
            March
                31, 2005NET
                REVENUESOnline
                travel store sales and monthly fees
            
            $
            6,210,499
            
            $
            2,303,993Travel
                commissions and services
            
            
            1,216,024
            
            
            877,388Franchise
                service fees and other fees
            
            
            84,552
            
            
            114,640Other
            
            
            652,251
            
            
            252,225TOTAL
                NET REVENUES
            
            
            8,163,326
            
            
            3,548,246OPERATING
                EXPENSESMarketing
                commissions
            
            
            4,359,264
            
            
            1,656,742Travel
                commissions
            
            
            643,188
            
            
            591,911Franchise
                services and products
            
            
            27,394
            
            
            57,643Depreciation
                and amortization
            
            
            65,402
            
            
            312,768Marketing
                and selling
            
            
            63,745
            
            
            8,632General
                and administrative
            
            
            3,144,235
            
            
            2,307,164TOTAL
                OPERATING EXPENSES
            
            
            8,303,228
            
            
            4,934,860LOSS
                FROM OPERATIONS
            
            
            (139,902
            )
            
            (1,386,614
            )OTHER
                INCOME (EXPENSES)Change
                in fair value of derivatives
            
            
            -
            
            
            (956,015
            )Interest
                and dividend income
            
            
            32,801
            
            
            1,761Interest
                expense
            
            
            (149,161
            )
            
            (97,269
            )OTHER
                INCOME (EXPENSE)
            
            
            (116,360
            )
            
            (1,051,523
            )NET
                LOSS
            
            $
            (256,262
            )
            $
            (2,438,137
            )NET
                LOSS PER SHARE:Weighted-average
                shares outstanding
            
            
            27,336,260
            
            
            24,094,148Net
                loss per share - basic and diluted
            
            $
            (0.01
            )
            $
            (0.10
            )




*See
      accompanying notes to condensed consolidated financial
      statements.*




4


**YTB
      INTERNATIONAL, INC.**


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


(Unaudited)




**Three
      months ended March 31, 2006**





Additional
            
            
            
            TotalCommon
                Stock
            
            Paid-In
            
            Accumulated
            
            Stockholders’Shares
            
            Amount
            
            Capital
            
            (Deficit)
            
            EquityBalance
                at January 1, 2006
            
            
            27,336,260
            
            $
            27,336
            
            $
            19,376,053
            
            $
            (16,335,856
            )
            $
            3,067,533Stock
                option expense
            
            
            -
            
            
            -
            
            
            47,846
            
            
            -
            
            
            47,846Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (256,262
            )
            
            (256,262
            )Balance
                at March 31, 2006
            
            
            27,336,260
            
            $
            27,336
            
            $
            19,423,899
            
            $
            (16,592,118
            )
            $
            2,859,117




*See
      accompanying notes to condensed consolidated financial
      statements.*


5


**YTB
      INTERNATIONAL, INC.**


**Condensed
      Consolidated Statements of Cash Flow**


(Unaudited)





Three
                months endedMarch
                31, 2006
            
            (RESTATED)
              March
                31, 2005CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                Loss
            
            $
            (256,262
            )
            $
            (2,438,137
            )Adjustments
                to reconcile net loss to net cash
              used in
                operating activities:Depreciation
                and amortization
            
            
            65,402
            
            
            312,768Amortization
                of deferred offering costs
            
            
            -
            
            
            9,668Shares
                issued for services
            
            
            -
            
            
            117,587Stock
                option expense
            
            
            47,846
            
            
            194,495Change
                in fair value of derivative
            
            
            -
            
            
            956,015Amortization of
                discount on convertible debt
            
            
            -
            
            
            22,754Changes
                in operating assets and liabilities:
            
            
            -Accounts
                receivable, net
            
            
            (34,705
            )
            
            1,998Notes
                receivable
            
            
            280
            
            
            -Prepaid
                marketing commissions
            
            
            (1,497,050
            )
            
            (386,005
            )Other
                prepaid expenses and current assets
            
            
            (222,339
            )
            
            (114,947
            )Other
                assets
            
            
            1,190
            
            
            -Accounts
                payable and accrued expenses
            
            
            (612,041
            )
            
            680,645Accrued
                bonuses
            
            
            502,706
            
            
            -Deferred
                revenue
            
            
            1,626,244
            
            
            411,132Convertible
                debt derivative
            
            
            185,180
            
            
            -Other
                current liabilities
            
            
            5,799
            
            
            -NET
                CASH USED IN OPERATING ACTIVITIES
            
            
            (187,750
            )
            
            (232,027
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchases
                of property and equipment
            
            
            (119,924
            )
            
            (753
            )Accrued
                transaction cost
            
            
            -
            
            
            (77,354
            )Proceeds
                from sale of available-for-sale securities
            
            
            1,282,018
            
            
            1,311,987Purchases
                of available-for-sale securities
            
            
            (779,592
            )
            
            (2,118,287
            )NET
                CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
            
            
            382,502
            
            
            (884,407
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Other
                current liabilities
            
            
            -
            
            
            (100,000
            )


Principal
                payments on debt
            
            
            (5,473
            )
            
            (8,935
            )


Repayment
                of notes payable
            
            
            (88,988
            )
            
            (4,381
            )Proceeds
                from convertible debt
            
            
            -
            
            
            2,000,000Cash
                paid for debt issuance costs
            
            
            -
            
            
            (148,020
            )Proceeds
                from shares issued in private placement memorandum
            
            
            -
            
            
            750,000NET
                CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
            
            
            (94,461
            )
            
            2,488,664NET
                INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            100,291
            
            
            1,372,230CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            230,358
            
            
            25,719CASH
                AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            330,649
            
            $
            1,397,949SUPPLEMENTAL
                CASH FLOW INFORMATION:Interest
                paid
            
            $
            4,797
            
            $
            5,189




*See
      accompanying notes to condensed consolidated financial
      statements.*


6


**YTB
      INTERNATIONAL, INC.**


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


(Unaudited)





Three
                months endedMarch
                31, 2006
            
            (RESTATED)
              March
                31, 2005SUPPLEMENTAL
                NON-CASH INVESTING AND FINANCING ACTIVITIES:Increase
                in notes payable and property and equipment
            
            
            -
            
            $
            48,089Warrants
                issued for debt offering costs
            
            
            -
            
            $
            26,000Decrease
                in notes receivable and deferred revenue
            
            
            -
            
            $
            19,003




*See
      accompanying notes to condensed consolidated financial
      statements.*


7


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 a total value of $4,847,928, was effected by means of the former
      REZconnect exchanging 7,430,000 shares of its common stock and 4,092,376 shares
      of its Series B convertible preferred stock for all of the outstanding common
      stock of YTB, Inc.




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




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




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




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




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





NOTE
      2 - BASIS OF PRESENTATION





The
      Condensed Consolidated Balance Sheet as of March 31, 2006, the related Condensed
      Consolidated Statements of Operations for the three months ended March 31,
      2006
      and 2005, the Condensed Consolidated Statement of Changes in Stockholders’
Equity for the three months ended March 31, 2006 and the Condensed Consolidated
      Statements of Cash Flows for the three months ended March 31, 2006 and 2005,
      have been prepared without audit, pursuant to the rules and regulations of
      the
      Securities and Exchange Commission. Certain information and disclosures included
      in financial statements prepared in accordance with accounting principles
      generally accepted in the United States of 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.




8




YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements





The
      results of operations for the interim periods should not be considered
      indicative of results to be expected for the full year. The condensed balance
      sheet as of December 31, 2005 was derived from the audited financial statements
      for the year then ended included in the Company’s 2005 Annual Report on Form
      10-KSB/A No. 1 and No. 2 for the year ended December 31, 2005. The preparation
      of financial statements in conformity with accounting principles generally
      accepted in the United States of America requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      at
      the date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. Actual results could differ from those
      estimates.





NOTE
      3
      - PROPERTY AND EQUIPMENT




Property
      and equipment consists of the following:




March
                31,
              2006
            
            December
                31,
              2005Equipment
            
            $
            292,433
            
            $
            266,025Furniture
                and fixtures
            
            
            195,017
            
            
            187,745Capitalized
                software
            
            
            1,459,062
            
            
            1,378,711Vehicles
            
            
            168,908
            
            
            168,908Leasehold
                improvements
            
            
            116,522
            
            
            110,6292,231,942
            
            
            2,112,018Less:
                Accumulated depreciation
            
            
            (1,527,068
            )
            
            (1,480,026
            )Property
                and equipment, net
            
            $
            704,874
            
            $
            631,992





Depreciation
      and amortization expense on property and equipment was $47,042 and $121,908
      for
      the three months ended March 31, 2006 and 2005, respectively.





As
      of
      March 31, 2006 and December 31, 2005, capitalized software development costs,
      net of accumulated amortization, totaled $178,200 and $105,539, respectively.
      For the three months ended March 31, 2006 and 2005, the Company recorded
      amortization of capitalized software development costs of $7,690 and $108,815,
      respectively.




9


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
      March 31, 2006 and December 31, 2005:




At
                March 31, 2006
            
            At
                December 31, 2005Intangible
                Assets
            
            Cost
            
            Accumulated
              Amortization
            
            Net
            
            Cost
            
            Accumulated
              Amortization
            
            NetAmortized
                intangible assets(1)Non-compete
                agreement
            
            $
            360,000
            
            $
            67,480
            
            $
            292,520
            
            $
            360,000
            
            $
            54,620
            
            $
            305,380RTA
                agreements
            
            
            690,000
            
            
            690,000
            
            
            -
            
            
            690,000
            
            
            690,000
            
            
            -Vendor
                agreements
            
            
            220,000
            
            
            28,860
            
            
            191,140
            
            
            220,000
            
            
            23,360
            
            
            196,640Total
                amortizedintangible
                assets
            
            
            1,270,000
            
            
            786,340
            
            
            483,660
            
            
            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
            
            $
            786,340
            
            $
            2,523,660
            
            $
            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 March 31, 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 months ended March
      31,
      2006 was $502,706. No bonus expense was accrued as of March 31, 2005 as the
      program began in the 4th quarter of that year. Accrued bonuses as of March
      31,
      2006 and December 31, 2005 totaled $3,954,532 and $3,451,826,
      respectively.




10




YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements




NOTE
      6
      - FINANCING ARRANGEMENTS




Notes
      Payable





The
      Company is financing three vehicles in 2006 and four 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 March 31, 2006 and December 31, 2005 totaled
      $33,067 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 March 31, 2006 and December
      31, 2005 was $278,138 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 $465,180 and
                  $280,000 in penalties as of March 31, 2006  and
                  December 31, 2005, respectively, under the terms of the
                  agreement. Such amounts are reflected as a current liability in
                  the
                  Company's balance sheet. See Note 13, "Subsequent
                  Events".




11


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements





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





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





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





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





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




NOTE
      7
      - COMMITMENTS AND CONTINGENCIES




Leases





The
      Company is obligated under an operating office lease for the offices in New
      Jersey which expires on April 30, 2008, to pay minimum annual rentals, currently
      at $48,830 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.




Following
      is a summary of net rental income (expense) for the Wal-Mart locations for
      the
      quarters ended March 31, 2006 and 2005:




Three
                months endedMarch
                31, 2006
            
            March
                31, 2005Sublease
                rental income
            
            $
            33,823
            
            
            37,579Less
                minimum rental expense
            
            
            19,561
            
            
            50,608Net
                rental income (expense)
            
            $
            14,262
            
            $
            (13,029
            )




12


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements




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 6.0%. 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 6.0%. Mr. Michael Y. Brent receives an override on the RTA sales
      and monthly fees generated by “representative position #1” of the
      YourTravelBiz.com sales organization equal to 16.69% of the monthly commissions
      and overrides earned by said position #1, paid monthly. Additionally, Mr.
      Michael Y. Brent receives a cash bonus based on the net pre-tax income of the
      Company equal to 2% if net pre-tax income is between $500,000 and $1,500,000,
      2.25% if net pre-tax income is between $1,500,000 and $3,000,000 and 2.5% if
      net
      pre-tax income is at least $3,000,000. Mr. Michael Y. Brent receives a car
      allowance and health and medical insurance provided by the Company. The Company
      has also taken out a term life insurance policy on the life of Mr. Michael
      Y.
      Brent in an amount equal to three times his annual base salary, payable to
      beneficiaries designated by him.





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




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




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


13


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements




NOTE
      8
      - STOCK OPTIONS




As
      of
      March 31, 2006, the Company had a stock-based employee compensation plan, which
      is described more fully in Note 8 of the Notes to Consolidated Financial
      Statements in the Company’s 2005 Annual Report on Form 10-KSB/A No. 1 and No. 2
      for the year ended December 31, 2005. In December 2004, the Financial
      Accounting Standards Board (“FASB”) issued Statement of Financial
      Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based
      Payment” ** (“SFAS
      123R”). SFAS 123R requires companies to recognize the cost of awards of equity
      instruments, such as stock options and restricted stock, based on the fair
      value
      of those awards at the date of grant and eliminates the choice to account for
      employee stock options under Accounting Principles Board (“APB”) Opinion
      No. 25, “Accounting for Stock Issued to Employees” ** (“APB
      25”). The Company adopted SFAS 123R effective January 1, 2006 using the modified
      prospective method and, as such, results for prior periods have not been
      restated. Under this method, in addition to reflecting compensation expense
      for
      new share-based awards, expense is also recognized to reflect the remaining
      service period of awards that had been included in pro forma disclosures in
      prior periods. Accordingly, the Company recognized $47,846 in compensation
      expense for stock options during the three months ended March 31, 2006.
      Unrecognized expense related to future service on existing stock options as
      of
      March 31, 2006 is $110,396.





The
      following table provides information about awards outstanding at March 31,
      2006:


Shares
              
              Weighted-Average
                Exercise
                  Price
              
              Weighted-
                Average
                Fair
                  ValueOptions
                  outstanding, beginning of period
              
              
              940,000
              
              $
              1.15
              
              $
              0.29For
                  the period from January 1 to March 31, 2006:Granted
              
              
              -
              
              
              -
              
              
              -Forfeited
              
              
              -
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -
              
              
              -Options
                  outstanding, end of period
              
              
              940,000
              
              $
              1.15
              
              $
              0.29Options
                  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 months ended March
      31,
      2005, the Company recognized $22,495 in compensation expense related to options
      granted with an exercise price less than the fair value of the underlying stock
      at the date of the grant. 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 months ended March 31, 2005 was
      compensation expense of $172,000.




14





YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements





Had
      the
      Company accounted for these plans in accordance with SFAS 123R, the fair value
      recognition method would have had the following effect on the condensed
      consolidated financial statements for the first quarter of 2005.





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




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 lives of 1.0;
      dividend yield of 0% and expected volatility of 75%.





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 quarter ended March 31, 2006
      and
      2005, the Company expended $195,629 and $153,571, respectively, for printing
      sales materials. In addition, at March 31, 2006, the Company has a pre-paid
      asset of $346,271 on the balance sheet for payments related to work not yet
      completed.





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





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





The
      combined rental cost of both spaces is $15,000 per month. Combined rent expense
      for these two leases was $45,000 for the three months ended March 31, 2006.
      There was no rent expense related to these two leases during the first quarter
      of 2005. As
      of
      March 31, 2006, neither of the common stock warrants has been
      exercised.




15


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements





NOTE
      10 - CAPITAL STOCK





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





On
      April 5, 2005, the Company executed a warrant agreement with a consultant as
      consideration for services. The warrant agreement provided for the issuance
      of
      warrants to purchase up to 200,000 shares of the Company’s common stock at an
      exercise price of $1.73 per share. The warrant was exercisable as to 66,666
      shares upon execution of the agreement and the warrants to purchase the
      remaining 133,334 shares were to be exercisable upon the following vesting
      schedule; an additional 66,666 shares vest on August 5, 2005 and the final
      66,668 shares vest on December 5, 2005. Shares issuable upon exercise of the
      warrant will be subject to customary demand and piggyback registration rights.
      Expense is recognized over the vesting period. No expense was recognized on
      the
      warrants during the quarter ended March 31, 2005 as the agreement was not
      executed until April 5, 2005, the second quarter. For the year ended December
      31, 2005, the Company recorded consulting expense of $311,028, based on the
      estimated fair value of the vested warrants using the Black-Scholes pricing
      model, with an offsetting adjustment to additional paid in capital. As of March
      31, 2006, none of the warrants have been exercised.





NOTE
      11 - NEW ACCOUNTING PRONOUNCEMENTS




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




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




16


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 is shown
      in
      the following tables. The “parent” column includes corporate items not
      specifically allocated to the segments.




Three
                Months Ended
              March
                31, 2006
            
            Marketing
            
            Travel
            
            Technology
            
            Parent
            
            Elimination
            
            TotalExternal
                and inter-Segment
                revenue
            
            $
            6,818,901
            
            $
            1,415,798
            
            $
            32,488
            
            $
            -
            
            $
            (103,861
            )
            $
            8,163,326Segment
                profit (loss)
            
            
            334,356
            
            
            499,319
            
            
            24,785
            
            
            (1,114,722
            )
            
            -
            
            
            (256,262
            )Assets
            
            $
            7,918,266
            
            $
            2,440,667
            
            $
            -
            
            $
            7,663,747
            
            $
            (2,779,802
            )
            $
            15,242,878Depreciation
                and amortization
            
            $
            42,042
            
            $
            -
            
            $
            -
            
            $
            23,360
            
            $
            -
            
            $
            65,402Capital
                expenditures
            
            $
            119,924
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            119,924





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




17


YTB
      INTERNATIONAL, INC.


Notes
      to
      Condensed Consolidated Financial Statements




NOTE
      13 - SUBSEQUENT EVENTS




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





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





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





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





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




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




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





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





In
      December 2006, upon approval by the Company’s Board of Directors, the Company’s
      Chief Executive Officer announced to the independent marketing
      representatives (“IMRs”) that certain modifications were made to the bonus
      program under which the IMRs earn and receive incentive awards. Under the
      modified program, pursuant to a restricted stock agreement, IMRs reaching the
      director level can elect to receive a certain number of shares of restricted
      stock based upon a previously determined calculation in lieu of cash in
      satisfaction of incentive bonus awards previously earned.  A portion of
      each award would vest immediately and the unvested portion would vest over
      the
      next four years, provided that the IMR has retained his or her status at the
      applicable Director level on such vesting date.  Any unvested portion
      of the award shall be immediately forfeited upon the 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 IMRs under a Restricted Stock Award agreement in
      satisfaction of bonuses previously earned but not paid during the year ended
      December 31, 2006 and the 4 th quarter of 2005.




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




At
        a
        meeting of the Board of Directors (the “ Board ”)
        of YTB
        International, Inc. (the “ Company ”)
        held
        on February 19, 2007, the Board determined that it was necessary to restate
        and
        refile its previously filed Form 10-KSB and financial statements for the
        year
        ended December 31, 2005. The Board made this determination after ratifying
        a
        previously undisclosed issuance of warrants to purchase 200,000 shares of
        the
        Company’s common stock at $1.73 per share. The warrants were issued to an
        advisor of the Company in April 2005, but had not previously been approved
        by
        the Board (see Note 10, “Capital Stock”). As a result, the Company filed an
        amended Form 10-KSB for the year ended December 31, 2005 on March 12, 2007
        to
        reflect the additional expense related to the above warrants.
  18




NOTE
        14 - RESTATEMENT OF FINANCIAL STATEMENTS
  At
        a
        meeting of the Board of Directors (the “ Board ”)
        of YTB
        International, Inc. (the “ Company ”)
        held
        on February 19, 2007, the Board determined that it was necessary to
        restate the financial statements included in its previously filed Form
        10-KSB for the year ended December 31, 2005. The Board made this determination
        after ratifying a previously unrecorded issuance of warrants to purchase
        200,000
        shares of the Company’s common stock at $1.73 per share. The warrants were
        issued to an advisor of the Company in April 2005, but had not previously
        been
        approved by the Board (see Note 10, “Capital Stock”) nor accounted for in the
        original 2005 financial statements.
 
 As
        a
        result, on March 12, 2007 the Company filed an amended Form 10-KSB for the
        year
        ended December 31, 2005 to reflect the additional expense related to the
        above
        warrants. In addition, the Company identified that certain items in the
        Consolidated Statement of Cash Flows for the year ended December 31, 2005
        should
        be reclassified to enhance disclosure, properly reflect non-cash items and
        properly reflect the gross activity related to the conversion of debt to
        common
        stock that occurred in the fourth quarter of 2005.
 
 The
        financial statements for the quarter ended March 31, 2005 were not affected
        by
        the restatement for the warrants or other items discussed above except for
        certain reclassifications that were made to the Condensed Consolidated Statement
        of Cash Flows for the quarter ended March 31, 2005. The affected column headings
        of the financial statements for the quarter ended March 31, 2005 included
        herein, as well as the affected footnotes, have been labeled as “Restated”.
 
 Below
        is
        the effect on the Condensed Consolidated Statement of Cash Flows for the
        three
        months ended March 31, 2005:
 
 
 **Condensed
        Consolidated Statement of Cash Flows for the three months ended March 31,
        2005**
 As
                Originally
                Reported
              
              Adjustment
              
              As
                RestatedCASH
                  FLOWS FROM OPERATING
                ACTIVITIES:
              
              $
              (309,381
              )
              $
              77,354
              
              $
              (232,027
              )CASH
                  FLOWS FROM INVESTING
                ACTIVITIES:
              
              $
              (807,053
              )
              $
              (77,354
              )
              $
              (884,407
              )


19


**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 27,500
      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 27,500 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 27,500 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 commission 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.




20





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





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


21


**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 ofMarch
                  31, 2006
              
              March
                  31, 200527,559
              
              10,384Site
                  sales for the
              
              Site
                  sales for the3
                  months ended
              
              3
                  months endedMarch
                  31, 2006
              
              March
                  31, 20059,935
              
              3,700
  The
        RTA
        numbers represent the number of active RTAs paying $49.95 per month to the
        company as monthly maintenance fees.  The sales numbers represent the sales
        of online travel store sites sold during each respective period.  The
        number of sales and number of recurring monthly maintenance fees paid directly
        impact the revenues and expenses of the company.  As each new site is sold
        for $449.95, marketing commissions are paid on that sale.  Likewise, each
        recurring monthly maintenance fee paid results in marketing commissions paid
        to
        the sales force.  As the number of active RTAs grows, the amount of travel
        commissions revenue grows as well.  Correspondingly, the travel commissions
        expense follows suit.
 
 The
        growth as evidenced in the above numbers on a year-to-year basis directly
        impact
        the financial results of the organization, both on the revenue side, as well
        as
        the expense side.  As more sites are sold and maintained, the amount of
        both marketing and travel commissions correspondingly increase, as do other
        volume related expenses, such as wage and benefit costs.  As more sales are
        made, the entire infrastructure needs to keep pace with or ahead of the sales
        volume.





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





Three
                Months
              Ended
              March
                31, 2006
            
            Three
                Months
              Ended
              March
                31, 2005Net
                RevenuesOnline
                travel store sales and monthly fees
            
            
            76.1
            %
            
            65.1
            %Travel
                commissions and services
            
            
            14.9
            %
            
            24.7
            %Franchise
                service and other fees
            
            
            1.0
            %
            
            3.1
            %Miscellaneous
            
            
            8.0
            %
            
            7.1
            %TOTAL
                NET REVENUES
            
            
            100.0
            %
            
            100.0
            %Operating
                ExpensesMarketing
                commissions
            
            
            53.4
            %
            
            46.7
            %Travel
                commissions
            
            
            7.9
            %
            
            16.7
            %Franchise
                fees
            
            
            0.3
            %
            
            1.6
            %Depreciation
                an amortization
            
            
            0.8
            %
            
            8.8
            %Marketing
                and selling
            
            
            0.8
            %
            
            0.2
            %General
                and administrative
            
            
            38.5
            %
            
            65.0
            %TOTAL
                OPERATING EXPENSES
            
            
            101.7
            %
            
            139.0
            %LOSS
                FROM OPERATIONS
            
            
            (1.7
            %)
            
            (39.0
            %)Other
                Income (Expenses)Change
                in fair value of derivatives
            
            
            0.0
            %
            
            (26.9
            %)Interest
                and dividend Income
            
            
            0.4
            %
            
            0.0
            %Interest
                expense
            
            
            (1.8
            %)
            
            (2.7
            %)TOTAL
                OTHER INCOME (EXPENSE)
            
            
            (1.4
            %)
            
            (29.6
            %)NET
                LOSS
            
            
            (3.1
            %)
            
            (68.6
            %)




22





The
      Company reported a net loss for the first quarter ended March 31, 2006 of
      $256,262or ($0.01) per diluted share compared to a net loss of $2,438,137 or
      ($0.10) per diluted share for the comparable quarter of 2005. The overall
      results for the first quarter of 2005 were impacted by the recording of Other
      Expense totaling $956,015 related to the increase in the embedded derivative
      liability during the first quarter of 2005 associated with the convertible
      note
      agreement the Company entered into in January of 2005.





**Net
      Revenues**





Net
      revenues totaled $8,163,326 and 3,548,246 in the first quarter of 2006 and
      2005,
      respectively.





·
            Online
                travel store sales and monthly fees increased $3,906,506 or 169.6%
                in the
                first quarter of 2006 to $6,210,499 from the $2,303,993 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 first quarter of 2006 increased $338,636
                or
                38.6%to$1,216,024
                from the $877,388 reported in the first 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 $30,088 or 26.2% in the first
                quarter of 2006 to $84,552 from $114,640 reported in the first 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 first quarter of 2006 as compared to the
                first
                quarter 2005 by $400,026 or 158.6% to $652,251 from $252,225. 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 $2,702,522 or 163.1% in the first quarter
                of 2006
                as compared to the first quarter of 2005. The increase is due to
                the
                significant growth of YourTravelBiz.com attributable to the increase
                in
                active RTAs. The increase is due to the significant growth in the
                amount
                of commissions paid to RTAs due to the significant increase in the
                number
                of active RTAs.  The three months ended March 3, 2005 also includes
                $502,706 in bonus expense for the Company's IMRs earned in conjunction
                with a bonus program that began in the fourth quarter of
                2005.





·
            Travel
                commissions for the first quarter of 2006 increased by $51,277 or
                8.7% to
                $643,188 from $591,911 reported in the first 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 $27,394 in the first quarter of
                2006
                compared with $57,643 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 $65,402 in the first quarter of 2006, compared
                to
                $312,768 in the comparable quarter of 2005. In 2005, depreciation
                and
                amortization included $103,815 of amortization of capitalized software
                and
                $172,500 of amortization of an intangible asset for RTA agreements.
                Both
                of these items became fully depreciated by December 31, 2005 and
                were not
                included in the 2006 period.





·
            Marketing
                and Selling Expenses. Marketing and selling expenses increased by
                $55,113
                from 2006 to 2005. The increase is attributable to an increase in
                promotional efforts which led to an increase in
                RTAs.





·
            General
                and administrative expenses increased $837,071 to $3,144,235 in the
                first
                quarter of 2006 from $2,307,164 in the first quarter of 2005. As
                a
                percentage of total net revenues, these expenses were 38.5% in 2006
                and
                65.0% 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.




23


**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 and availability from third
      party suppliers or commission rates paid by travel suppliers, (iii) the
      announcement or introduction of new or enhanced sites, services and products
      by
      the Company or its competitors, (iv) general economic conditions specific to
      the
      Internet, online commerce or the travel industry, (v) the level of use of online
      services and consumer acceptance of the Internet and commercial online services
      for the purchase of consumer products and services such as those offered by
      the
      Company, (vi) the Company’s ability to upgrade and develop its systems and
      infrastructure and to attract new personnel in a timely and effective manner,
      (vii) the level of traffic on the Company’s online sites, (viii) technical
      difficulties, system downtime or Internet brownouts, (ix) the amount and timing
      of operating costs and capital expenditures relating to expansion of the
      Company’s business, operations and infrastructure, (x) governmental regulation
      and (xi) unforeseen events affecting the travel industry, including terrorist
      activities similar to the events of September 11, 2001 and the conflict with
      Iraq.




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




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




**Liquidity
      and Capital Resources**




Net
      cash
      used in operating activities in the first quarter of 2006 decreased to $187,750
      as compared to $232,027 in the first quarter of 2005. The decrease in cash
      used
      in operating activities is primarily the result of the decrease in accounts
      payable for the three moths ended March 31, 2006 of $612,041 compared to the
      increase of $680,645 in the prior year quarter, which is more than offset by
      the
      decrease in net losses attributable to the increase in the number of referring
      travel agents.




Net
      cash
      provided by investing activities increased to $382,502 in the first quarter
      of
      2006 as compared to ($884,407) in the first quarter of 2005 primarily as a
      change in the net position of available-for-sale securities in the first quarter
      of 2005 versus 2006 of $502,426 offset by an increase in capital expenditures
      of
      $119,924 in the first quarter of 2006 versus the comparable prior year
      quarter.




Net
      cash
      used in financing activities for the first quarter of 2006 was $94,461 compared
      with net cash provided by financing activities of $2,488,664 in the comparable
      2005 period. This significant decrease in cash provided by financing activities
      is due to $2,000,000 of capital raised from the sale of a convertible note
      which
      occurred in January 2005 and from the issuance of stock in a private placement
      to investors resulting in gross proceeds of $750,000 in February
      2005.




24




As
      of
      March 31, 2006, the Company had $330,649 in cash and $3,108,577 in short-term
      investments. The Company believes that cash and short term investments on hand
      at March 31, 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.




**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.




25


**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 June 30, 2006 that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.





**Internal
      Inquiry**





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





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




**PART
      II - OTHER INFORMATION**





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





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





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





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




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




26


**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 16, 2007/s/
                John D. ClaggJohn
                D. Clagg, Chief Financial OfficerDated:
                March 16, 2007




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