YTB INTERNATIONAL, INC. - YTBLA Securities Registration: Small Business (SB-2) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

YTB International, Inc.

Wood River, Illinois 62095

We have audited the accompanying consolidated balance sheets of YTB International, Inc. (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2006 and 2005, and the consolidated results of its operations and its cash flows for each of the years in the two year period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.

/s/ UHY LLP

St. Louis, Missouri

April 2, 2007

F-1

YTB INTERNATIONAL, INC.

Consolidated Balance Sheets

December 31, 2006 and 2005

	December 31, 2006		December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	-	$	230,358
Restricted cash		1,250,000		-
Available-for-sale securities		1,014,591		3,611,003
Accounts receivable (less allowance for doubtful accounts of $6,919 in 2006 and $24,888 in 2005)		103,539		64,402
Notes receivable		1,233,624		20,000
Inventory		1,016,690		-
Prepaid marketing commissions		12,978,516		4,212,417
Other prepaid expenses and current assets		394,125		285,169
Total current assets		17,991,085		8,423,349
Property and equipment, net		6,191,408		631,992
Intangible assets, net		2,468,580		2,542,020
Goodwill		2,224,322		2,224,322
Other assets		14,994		16,184
TOTAL ASSETS	$	28,890,389	$	13,837,867
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank overdraft	$	812,464	$	-
Accounts payable and accrued expenses		5,099,248		1,944,640
Current maturities of long-term debt		21,156		19,532
Deferred revenue		14,769,085		4,660,200
Notes payable				122,055
Accrued bonuses		7,435,132		3,451,826
Short-term debt		2,500,000		-
Convertible debt derivatives		-		280,000
Total current liabilities		30,637,085		10,478,253
Other long-term liabilities:
Long-term debt, less current maturities		241,659		264,079
Deferred revenue, less current portion		4,366		4,366
Other liabilities		23,636		23,636
Total other long-term liabilities		269,661		292,081
TOTAL LIABILITIES		30,906,746		10,770,334

F-2

STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value, 5,000,000 authorized, none issued and outstanding at December 31, 2006 and 2005		-			-
Common stock, $.001 par value, 50,000,000 shares authorized; 27,870,454 and 27,336,260 shares issued and outstanding at December 31, 2006 and December 31, 2005, respectively		27,870			27,336
Additional paid-in capital		20,268,006			19,376,053
Retained earnings (deficit)		(22,312,233	)		(16,335,856	)
Total STOCKHOLDERS' EQUITY (DEFICIT)		(2,016,357	)		3,067,533
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	28,890,389		$	13,837,867

See accompanying notes to consolidated financial statements

F-3

YTB INTERNATIONAL, INC.

Consolidated Statements of Operations

Years Ended December 31, 2006 and 2005

	2006			2005
NET REVENUES
Online travel store sales and monthly fees	$	36,887,611		$	14,302,638
Travel commissions and services		7,364,413			4,941,007
Franchise service fees and other fees		332,345			443,693
Training programs and marketing materials		5,766,081			1,579,960
Other		546,280			326,019
Net revenues		50,896,730			21,593,317
OPERATING EXPENSES
Marketing commissions		29,908,507			13,881,404
Travel commissions		4,893,012			3,454,033
Depreciation and amortization		408,025			944,619
Marketing and selling		3,144,211			239,853
General and administrative		18,595,959			8,954,335
Total operating expenses		56,949,714			27,474,244
LOSS FROM OPERATIONS		(6,052,984	)		(5,880,927	)
OTHER INCOME (EXPENSE)
Change in fair value of derivatives		-			312,143
Interest and dividend income		170,224			102,049
Interest expense		(93,617	)		(2,986,052	)
Total other income (expense)		76,607			(2,571,860	)
NET LOSS	$	(5,976,377	)	$	(8,452,787	)
NET LOSS PER SHARE:
Weighted-average shares outstanding		27,433,491			24,861,904
Net loss per share - basic and diluted	$	(0.22	)	$	(0.34	)

See accompanying notes to consolidated financial statements

F-4

YTB INTERNATIONAL, INC.

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

Years Ended December 31, 2006 and 2005

	Delaware Series B Convertible Preferred						Delaware Common Stock						Series B Convertible Preferred						Common Stock
	Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount
Balance at January 1, 2005		-		$	-			-		$	-			4,092,376		$	4,092			18,976,125		$	18,976
Conversion of common stock to Delaware common stock upon reincorporation in Delaware		-			-			18,976,125			18,976			-			-			(18,976,125	)		(18,976	)
Conversion of series B preferred stock to Delaware common stock upon reincorporation in Delaware		4,092,376			4,092			-			-			(4,092,376	)		(4,092	)		-			-
Conversion of preferred stock to common stock		(4,092,376	)		(4,092	)		4,092,376			4,092			-			-			-			-
Common shares issued for services		-			-			201,091			201			-			-			-			-
Warrants issued for services		-			-			-			-			-			-			-			-
Common shares issued through private placement		-			-			1,200,000			1,200			-			-			-			-
Warrants issued in conjunction with debt offering		-			-			-			-			-			-			-			-
Conversion of debt to common stock		-			-			2,766,668			2,767			-			-			-			-
Common shares issued for options exercised		-			-			100,000			100			-			-			-			-
Stock option compensation		-			-			-			-			-			-			-			-
Net loss		-			-			-			-			-			-			-			-
Balance at December 31, 2005		-			-			27,336,260			27,336			-			-			-			-
Settlement of convertible debt derivative with common shares		-			-			200,000			200			-			-			-			-
Common shares issued for services		-			-			184,194			184			-			-			-			-
Common shares surrendered for cashless option exercise		-			-			(150,000	)		(150	)		-			-			-			-
Common shares issued for cashless option exercise		-			-			300,000			300			-			-			-			-
Stock option compensation		-			-			-			-			-			-			-			-
Net loss		-			-			-			-			-			-			-			-
Balance at December 31, 2006		-					$	27,870,454		$	27,870			-					$	-		$

See accompanying notes to consolidated financial statements

F-5

YTB INTERNATIONAL, INC.

Consolidated Statements of Cash Flows

Years Ended December 31, 2006 and 2005

	2006			2005

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss	$	(5,976,377	)	$	(8,452,787	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		408,025			944,619
Amortization of deferred offering cost		-			174,020
Shares issued for services		294,460			352,988
Warrants issued for services		-			311,028
Employee stock option expense		198,027			5,980
Change in fair value of derivatives		-			(312,143	)
Amortization of remaining debt discount on convertible debt		-			2,369,480
Gain on settlement of convertible debt derivative		(460,820	)		-
Change in operating assets and liabilities:
Accounts receivable, net		(39,137	)		(43,991	)
Notes receivable		(1,213,624	)		(20,000	)
Inventory		(1,016,690	)		-
Prepaid marketing commissions		(8,766,099	)		(2,589,772	)
Other prepaid expenses and current assets		(108,956	)		(285,169	)
Other assets		1,190			(1,358	)
Accounts payable and accrued expenses		2,915,415			1,080,893
Accrued bonuses		3,983,306			3,451,826
Deferred revenue		10,108,885			2,839,392
Convertible debt derivative		580,820			280,000
Other liabilities		-			2,716
NET CASH PROVIDED BY OPERATING ACTIVITIES		908,425			107,722

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(3,154,808	)		(429,645	)
Accrued transaction cost		-			(77,354	)
Proceeds from sale of available-for-sale securities		2,903,440			5,908,078
Purchases of available-for-sale securities		(307,028	)		(8,990,770	)
NET CASH USED IN INVESTING ACTIVITIES		(558,396	)		(3,589,691	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft		812,464			-
Other current liabilities		-			(100,000	)
Repayment of debt		(20,796	)		(21,946	)
Repayment of notes payable		(122,055	)		(53,426	)
Restricted cash-collateral for outstanding note and reserve for credit card processing		(1,250,000	)		-
Proceeds from convertible debentures		-			3,000,000
Cash paid for debt issuance costs		-			(148,020	)
Proceeds from shares issued in private placement memorandum		-			960,000
Shares issued for option exercises		-			50,000
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(580,387	)		3,686,608

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(230,358	)		204,639
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		230,358			25,719
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	230,358		$	-

See accompanying notes to consolidated financial statements.

F-6

YTB INTERNATIONAL, INC.

Consolidated Statements of Cash Flows

Years Ended December 31, 2006 and 2005

SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	95,035	$	81,330

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment included in accounts payable and accrued expenses	$	239,193	$	-
Increase in short-term obligations and property and equipment	$	2,500,000	$	-
Shares issued in settlement of convertible debt derivative	$	400,000	$	-
Shares issued in cashless option exercise	$	150	$	-
Increase in notes payable and property and equipment	$	-	$	73,139
Warrants issued for debt offering costs	$	-	$	26,000
Decrease in notes receivable and deferred revenue	$	-	$	81,879
Convertible debt exchanged for common stock	$	-	$	4,825,333

See accompanying notes to consolidated financial statements.

F-7

YTB INTERNATIONAL, INC.