**UNITED
STATES**
 **SECURITIES
AND EXCHANGE COMMISSION**
 **Washington,
D.C. 20549**
 
 
 **FORM
10-KSB**
 
 x
    **ANNUAL
      REPORT PURSUANT SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934****For
      the year ended December 31, 2004** ̈
    **TRANSITION
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934.****For
      the transition period from _____****to
      _____******
    **Commission
file number 000-29905**
 
 **RAYBOR
MANAGEMENT, INC.** ****
 **(Name
of small business issuer in its charter)**
 
 **Delaware**
    **98-0220848****(State
      or other jurisdication of****incorporation
      or organization)**
    **(I.R.S.
      employer****identification
      number)****221
      West 10****th****Street, Medford, Oregon**
    **97501****(Address
      of Principal Executive Offices)**
    **(Zip
      Code)**
 
 **Issuer’s
telephone number: (541) 494-4001**
 
 **Securities
registered under 12(b) of the Exchange Act:**
 
 **Title
      of each class**
    **Name
      of each exchange on which registered****None**
    **None**
 
 **Securities
registered under Section 12(g) of the Exchange Act:**
 
 **Common
Stock, $.0001 par value per share**
 **(Title
of class)**
 Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days.    Yes x No  ̈
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.  ̈
 
 The
issuer’s revenues for its most recent fiscal year: $19,341,000
 
 The
aggregate market value of the issuer’s common stock held by non-affiliates as of
March 28, 2005 (assuming for this purpose that only directors, officers, and 10%
or more shareholders of the registrant are affiliates of the registrant)
computed by reference to the price at which the common stock was most recently
sold, was approximately $282,096
 
 As of
March 28, 2005, there were 58,419,276 shares of the issuer’s common stock
outstanding.
 
 Documents
incorporated by reference: None
 
 Transitional
Small Business Disclosure Format (Check
one):    Yes  ̈ No x
 
 
  
  **PART
I**
 
 **Item
1. Description of Business**
 
 CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
 A number
of the presentations and disclosures in this Form 10-KSB, including any
statements preceded by, followed by or which include the words “expects,”
“intends,” “anticipates,” “plans,” “projects,” “estimates,” or similar
expressions constitute forward-looking statements.
 
 These
forward-looking statements, implicitly and explicitly, include the assumptions
underlying the statements and other information with respect to our beliefs,
plans, objectives, goals, expectations, anticipations, estimates, intentions,
financial condition, results of operations, future performance and business,
including our expectations and estimates with respect to our revenues, expenses,
earnings, return on equity, return on assets, asset quality and other financial
data and capital and performance ratios.
 
 Although
we believe that the expectations reflected in our forward-looking statements are
reasonable, these statements involve risks and uncertainties that could cause
actual results to differ materially from those reflected in such forward-looking
statements. The Company expressly disclaims any obligation or undertaking to
release any updates or revisions to any forward-looking statement contained
herein to reflect any change in the Company’s expectations with regard thereto
or any change in events, conditions or circumstances on which any statement is
based.
 
 COMPANY
OVERVIEW
 
 Raybor
Management Inc. (“the Company” or “Raybor”) was incorporated in Delaware on
March 3, 2000 to serve as a vehicle to effect a merger, exchange of capital
stock, asset acquisition or other business combination with a domestic or
foreign private business.
 
 Raybor is
a holding company owning subsidiaries engaged in a number of diverse activities.
On June 1, 2003, the Company acquired all of the issued and outstanding shares
of capital stock of four corporations in exchange for the issuance of shares of
the Company’s common stock. The acquired corporations, which are now
wholly-owned subsidiaries of the Company, are IC Marketing, Inc., a Nevada
corporation (“ICM”), American Consumer Publishing Association, Inc., an Oregon
corporation (“ACPA”), Back 2 Backs TM Inc., an
Oregon corporation (“B2B”) and Freedom Financial, Inc., an Oregon corporation
(“Freedom”). ICM and ACPA are in the magazine subscription business. B2B is in
the business of operating medical clinics for pain management, with an emphasis
on the treatment of lower back disorders through a new technology called spinal
decompression. Freedom is in the business of providing account receivable
factoring, equipment lease financing, business loans and other financial
advisory services to third parties.
 
 The
acquisition of ICM, ACPA, B2B, and Freedom was conducted as a rollup with ICM
and ACPA as the acquiring entities in accordance with SEC Staff Accounting
Bulletin No. 97, “Accounting and Disclosure for Rollups of Businesses.” For
purposes of historical reporting, the combined financial statements of ICM and
ACPA, the largest operating unit in the group, are shown for comparative
purposes as the historical operating entity of Raybor. Effective with the
acquisition, ICM and ACPA have fully consolidated their financial activity with
B2B and Freedom. B2B and Freedom’s financial activity is included from June 1,
2003 forward. Due to the relative sizes of the combined entities, pro forma
results of Freedom and B2B are not presented.
 
 DESCRIPTION
OF OPERATIONS
 
 (in
thousands)
 
 Raybor is
a diversified holding company profitably operating four subsidiaries: IC
Marketing/ACPA, direct marketing companies, Back 2 Backs TM , a
network of pain management treatment centers for sufferers of chronic back pain
and Freedom Financial, a specialized commercial finance company. Raybor is a
profitable, publicly reporting company, and a leader in corporate administration
currently employing 109 full-time and 18 part-time employees.
 
 The
Company has no collective bargaining agreements or other such labor contracts
with its employees and believes that its employee relationships are
satisfactory. Management does not anticipate encountering problems in its
ability to hire individuals with the requisite employee skill set.
  2
  
 **Direct
Mail Marketing:**
 
 Founded
in 1997, IC Marketing/ACPA (collectively “ICM”) has grown to become one of the
largest direct marketing companies in the nation and a leading contender in the
fragmented multibillion-dollar publishing industry. ICM specializes in direct
marketing of magazine subscriptions and renewals, and is, effectively, a low
cost provider of subscription acquisition focusing on upscale consumers
interested in higher-end business and lifestyle publications. Successfully
reaching over 25 million households annually, ICM has an active customer base of
over 2.1 million individuals. With that active customer base, ICM currently
represents in excess of 800 publications to over 60 million consumers. In 2004,
over 20 million direct mail pieces were circulated by ICM.
 
 ICM has
grown from revenues of $2.6 million in 1998, to $15 million in 2004. This growth
has been driven by highly targeted direct marketing campaigns to affluent
subscribers for subscriptions to high price/high margin publications. Recent
expansion in the number of solicitations has enabled Raybor to effectively add
new customers and generate greater penetration into existing markets.
 
 In
addition to strong growth, Raybor has always maintained a strong focus on
consistent philosophical training of managers, cost containment, and bottom line
results. As Raybor has grown; it has minimized overhead costs by establishing
streamlined processes and cost-effective customer fulfillment. ICM’s successful
strategies and efficient operations have produced a profitable business model.
 
 ICM’s
business model allows Raybor to be poised to take advantage of several growth
trends within the direct marketing industry, including e-commerce, strategic
direct mail partnerships, and an increasing preference for goods and services
delivered directly to the home or office.
 
 **Target
Markets and Focus:**
 
 The
majority of ICM’s target customer base is adults 40 to 70 years of age, with
annual household incomes of over $85 thousand. Seventy percent of these
customers reside in the eastern half of the U.S. Because we represent 800+
publications, we are able to cross sell to customers whose profile fits various
types of higher-end magazines. As a result of the analysis of our customer base,
we can match them with higher subscription price publications, reducing the cost
of acquiring paid circulation for those publishers, while generating higher
margins for ICM.
 
 Within
the fragmented industry for direct marketing of magazine subscriptions, we
believe there are very few significant independent competitors that currently
match ICM’s sophisticated nationwide direct marketing capabilities. We believe
our competitive advantages include:
 
 •
    Direct-marketing
      capabilities allowing us to profile consumers in our database along
      demographic and psychographic dimensions and match subscription offers
      accordingly
 
 •
    Quality
      multi-publisher offering of lifestyle and business
magazines
 
 •
    Large
      national customer database
 
 •
    Experienced
      and effective management
 
 •
    Proprietary
      customer management software
 
 ICM’s
successful growth over the last six years has created a platform for continued
growth and diversification. Building on a profitable core business in magazine
subscription sales, ICM has the opportunity to enhance revenues and profits by
continued growth in this area, and diversification into other direct marketing
venues.
  3
  
 **MARKET
OPPORTUNITY**
 **(in
thousands)**
 
 Over 17
thousand different magazines are distributed in the United States annually.
Approximately 700 of these are major publications that have their subscription
sales tracked by the Audit Bureau of Circulations (ABC). Collectively, these 700
magazines have a paid subscription base of 305 million, generating revenues of
$6.9 million in 2002.
 
 The
Subscription Acquisition Process
 
 Along
with their own marketing efforts, magazine publishers contract with clearing
houses to acquire subscriptions for their publications. The clearinghouses in
turn solicit sales agents to directly market these subscriptions offers to
consumers. Large clearinghouses often have consumer-marketing programs of their
own, but they still work with independent sales agents in the subscription
acquisition process. Publishers, clearinghouses, and sales agents create a
multi-billion dollar per year industry in magazine subscription
sales.
 
 ICM is a
sales agent, concentrating its sales efforts on those magazines that charge
higher subscription rates, thereby generating higher gross dollar volumes for
Raybor. Additionally, subscribers to these publications tend to be of a more
affluent demographic, the resulting database providing an excellent resource for
cross selling to other high-end publications.
 
 Within
the fragmented, subscription acquisition framework, there are few significant
independent sales agents that currently match ICM’s sophisticated nationwide
direct marketing capabilities. The majority of sales agents and clearing houses
have relatively modest profits and do not pose significant competition to ICM.
Individual publishers, however, are well financed and therefore much more
sophisticated in their marketing capabilities.
 
 Despite
the obvious financial advantage publishers have over independent agents,
publishers have a vested interest in seeing the multi-tiered sales structure
succeed. Publishers acquire a substantial number of subscriptions via the
clearing house/sales agent channel. The stability of this channel is vital to
the publishers’ well being as most of their revenue comes from the sale of
advertising within these publications, which is in turn dependent upon the
number of paid subscribers to that publication.
 
 The
financial structure established to pay sales agents and clearing houses for the
subscription sales efforts is highly lucrative for the sales agent. In nearly
all cases, sales agents keep most of the subscription revenues. As an example,
the publisher may offer, through the clearing house/sales agent, a subscription
to one of its magazines for $59.95, but only require the clearing house and
agent to remit to the publisher $5.00. The sales agent keeps the remaining net
dollars, with a small fee of one or two dollars (paid to the clearinghouse) for
processing the order to the publisher. This works to the benefit of all parties
since the clearing houses and agents keep most of the subscription revenue, and
the publishers grow the number of paid subscriptions to their publication, which
in turn is the basis for defining advertising rates within their
magazines.
 
 As ICM
continues to solicit subscriptions for costlier magazines servicing a more
affluent consumer, Raybor can effectively cross-market products and
subscriptions by regularly profiling this growing consumer database. ICM’s
unique approach to subscription acquisition and profiling, in concert with its
direct marketing power, effectively set the stage for the company’s growth and
maintained profitability.
 
 **MARKET
STRATEGY**
 
 ICM’s
strategy focuses on the successful implementation of direct marketing vehicles
to secure magazines subscription sales. Direct mail, supported by our
telemarketing service center, produced revenues of $15 million during 2004. As
Raybor grows, other products will be tested utilizing ICM’s proven ability to
sell directly to customers. We intend to utilize web-based marketing whenever it
can generate the same types of financial returns our current marketing channels
produce.
 
 We
anticipate looking for strategic partners to support our growth and add to our
offerings. Additionally, acquisitions may be appropriate if they fit our growth
pattern, and are accretive to our bottom line. The Company is currently not in
discussion with any prospective strategic partner nor does it have any potential
acquisition candidates under due diligence at this time.
  4
  
 **Products/Services**
 
 ICM is
one of the subscription sales providers used by publishers to sell subscriptions
to over 800+ national magazines. Forbes, Newsweek, U.S. News and World Report,
and Fortune are just a few of the leading publications for which ICM solicits
subscriptions. A developed relationship with each publisher enables ICM to
provide a comprehensive array of top-quality, high profile magazines at very
competitive prices.
 
 ICM
subscription prices are established by the publisher and communicated by way of
clearing houses to sales agents like ICM. Within this current model, ICM has the
freedom to choose how it communicates this offer to the public. Typically, ICM
uses direct mail to target a list of consumers whose profile fits that of the
readers for the specific publication. Subscription orders and payments are then
received and processed in ICM’s White City, Oregon facility. Information
regarding the subscriptions, along with the payment, or remittance, for that
subscription is then sent to the clearinghouse for processing before going on to
the publisher.
 
 ICM also
provides a telemarketing call center to support the sales process, and is
developing a web-based marketing program to enhance the sales and marketing
effort.
 
 **Sales
Strategy**
 
 Positioning
 
 One of
the principal elements of success in the direct marketing industry is the
ability of a supplier to sell its products and services to customers with offers
that are convenient and compelling, often times at the lowest possible price.
ICM has established itself as a leader in the industry, and as a single source
provider of a full range of magazine titles supported by our customer service
department in Oregon.
 
 Target
Customers/ Demographics
 
 ICM’s
target customer base is adults 40 to 70 years of age, with annual household
incomes of over $85 thousand. Seventy percent of these customers reside in the
eastern half of the U.S. As we represent 800+ publications, we are able to cross
sell to customers whose profile fits various types of higher-end magazines. As a
result of the analysis of our customer base, we can match them with higher
subscription price publications, reducing the cost of acquiring paid circulation
for those publishers, while generating higher margins for ICM.
 
 Promotion
 
 ICM uses
two separate but interrelated primary marketing channels to promote the sales of
publications it represents:
 
 •
    Direct
      Mail - ICM has developed a sophisticated direct mail subscription program
      focused on upscale publications offering strong margin potential. In
      addition to our own databases, we acquire mailing lists from external list
      brokers. High margins, along with a customer-requested refund rate of less
      than two percent contribute toward making ICM a profitable
      enterprise.
 
 •
    Telemarketing
      - ICM uses telemarketing to support direct mail efforts at its call center
      in Medford, Oregon. The call center acts as a facility for incoming orders
      solicited by the direct mail subscription pieces, and as a customer
      support center for questions any of the 2 million customers may have.
      Outgoing direct solicitations have also been successful through the call
      center.
 
 **Medical
Services:**
 
 Back 2
Backs TM Medical
Clinics are highly specialized treatment centers for those who suffer from
chronic back pain. Experts in utilizing an innovative, FDA approved non-invasive
technique to alleviate back pain, Back 2 Backs TM physicians have seen a startling 86% success rate in back pain reduction among
their patients. With more than 80 million back pain sufferers in the US, a $100B
cottage industry has emerged with an annual increase of 2.5%. Back 2
Backs TM provides
not only a great opportunity for investors, but also an unparalleled method of
treatment for back pain sufferers. The Back 2 Backs TM model
will allow it to become the national leader in direct patient access to
specialized medical services. With nearly 12 clinics now in operation
nationwide, Back 2 Backs TM is well
on it’s way to becoming the nations most sought after provider of standardized
back pain management.
  5
  
 For
decades, surgery, physical therapy, and pain medication have been the treatment
method of choice prescribed by physicians and chiropractors. The Back 2
Backs TM approach
allows a consistent and effective method of decompression of the spine which
addresses the seminal pain issue and provides long term resolution to chronic
lower back problems resulting from spinal stenosis, herniated discs, and
degenerative disc disease. Back 2 Backs TM customers seek out our services to address chronic lower back pain, in some
cases because they may have health issues which preclude them from being
surgical candidates. We feel most individuals will choose the non-surgical
approach when given the option between a non-surgical solution and a major
invasive surgery.
 
 Due to
the nature of the treatment and the substantial cost reduction in comparison to
surgery, spinal decompression has become an intelligent alternative accepted by
numerous insurance companies. In Oregon, the typical cost for surgery and
hospitalization to relieve a herniated disc is roughly $40 thousand as compared
to approximately $11 thousand for the entire Back 2 Backs TM process.
Back 2 Backs TM methodology has also been found to be effective for many individuals who have
had unsuccessful spinal surgery.
 
 **History
and Status**
 
 In
October of 2000, Raybor completed a yearlong test/study of the viability of the
spinal decompression system in a doctor’s office in a single market. With the
success of this test, Back 2 Backs TM was
formed as a stand-alone clinic offering the spinal decompression system on a
broader base.
 
 Today,
Back 2 Backs TM currently operates 12 clinics with an aggregate of 21 clinics to be in operation
in 2005. Our goal is to make this revolutionary back pain treatment available to
as many people as possible who are suffering from back pain
problems.
 
 We
believe that our competitive advantages are as follows:
 
 •
    86%
      success rate reducing back pain
 
 •
    Low-cost
      provider for relief of chronic back pain versus surgical
      alternatives
 
 •
    Business
      and marketing models developed over four years
 
 •
    Physician
      supervised
  •
    Customized
      methodology based on unique algorithm
 
 •
    Trademark
      pending on “Back 2 Backs” name
 
 •
    Working
      relationship with insurer-payers
 
 •
    Centralized
      IT and billing operations
 
 **Current
Growth Objectives**
 
 •
    Adding
      revenue-generating facilities, services and other revenue streams at
      sustainable margins
 
 •
    Obtaining
      leased space for nine future locations in 2005
 
 •
    Building
      out and outfitting new locations
 
 •
    Maximizing
      sales with an extensive marketing campaign to promote our services and
      establish the Back 2 BacksTMbrand
 
 •
    Training
      Back 2 BacksTMstaff to support and sustain prolonged growth under a new and aggressive
      marketing plan
 
 •
    Testing
      and adding a new line of services and treatment plans during
  2005
  6
  
 **Back
Decompression Technology**
 
 Most
cases of lower back pain have been treated or managed through a variety of
traction devices and manual therapy techniques that date back to the late 19th
century. It was only in 1991 that a viable technology replaced traction and
manual therapy for conditions relating to the lower back. In 1996, the FDA
approved the VAX-D, the first spinal decompression machine based on this
technology, for treatment of lower back pain. Clinical studies showed that it
achieved a 70% success ratio in reducing back pain among patients. Prior to this
development, manual therapy, back braces, complete bed rest and other durable
stabilization equipment were the primary “treatment” option for individuals who
had experienced herniated disks and subsequent painful lower back problems. In
the late 1990s, the DRS system (distraction reduction stabilization) for spinal
decompression was developed, and received approval from the FDA for use in the
United States. The DRX 9000, the current state-of-the-art equipment using this
technology, was developed in 2001 by Axiom Worldwide.
 
 The FDA
approved DRX 9000 system, along with the Back 2 Backs TM treatment protocol includes treatments for:
 
 •
    Herniated/
      Bulging disks
 
 •
    Stenosis
      of the Spine
 
 •
    Recurrent
      pain from failed surgical procedures
 
 •
    Degenerative
      Disk Disease
 
 •
    Sciatica
 
 •
    Posterior
      Facet Syndrome
 
 •
    Inflammation
      of muscular tissue in the lumbar region
 
 **Market
Opportunity**
 
 The back
pain management market is growing, and according to Forbes magazine, the market
for these products and/or services is well in excess of $100 billion, and is
expected to grow annually.
 
 We
believe the area of most promising growth in the pain management market is in
non-surgical procedures allowing for less invasive, less expensive procedures.
Raybor and Back 2 Backs TM management believe that a non-surgical alternative, with a lower cost factor and
a higher success rate over conventional procedures, will be in a position to
experience significant growth and acceptance not only from the patient, but also
by insurance carriers nationwide.
 
 We
estimate the market consists of over 80 million lower back pain sufferers. Our
target market is in the 45 to 75 year-old range, however, younger individuals
also benefit from treatment. Back 2 BacksTM current facilities allow us to serve
markets in seven different states with almost 1 million people in our target
demographic within those markets. Several of our current and planned expansion
markets can support multiple locations due to their significantly higher
demographic content. The market with the smallest number of potential
patient/customers (60) in our target demographic is in Medford, Oregon, and we
have been profitable in that location since inception.
 
 Insurance
providers within our local and interstate market places have approved the Back 2
Backs TM treatment protocol, thereby, giving medical doctors the ability to refer
directly to Back 2 Backs TM . The
independent, contract physicians can refer any walk-in patients. The medical
referral base has increased since our treatments reduce the risks and affiliated
liability of surgery, creating greater benefit not only for patients but also
for the referring physicians and insurance companies. Back 2 Backs TM treatments can often alleviate surgery as a primary means of dealing with lower
back problems, and provide the patient with a safe, non-invasive alternative for
the most serious of back problems.
  7
  **Key
Factors to the Company’s Success**
 
 In 2000,
Back 2 Backs TM was
formed as a medical clinic to serve the growing need and expanding market for
relieving back-related pain and disabilities. Through our proprietary
methodology and the non-surgical DRX System, we believe Back 2 Backs TM is
poised to establish a niche in the multi-billion dollar industry of treating
lower back pain.
 
 Raybor
believes that Back 2 Backs TM anticipated success in the marketplace will derive primarily from the
following:
 
 •
    Back
      2 BacksTMoffers a low, out-of-pocket cost solution to chronic back pain sufferers.
      Back 2 BacksTMtreatment costs for an individual are normally covered by
    insurance.
 
 •
    All
      of Back 2 BacksTMlocations are in class A commercial real estate
properties.
 
 •
    Back
      2 BacksTMutilizes a business and marketing model unique in the pain management
      industry.
 
 •
    Back
      2 BacksTMpatients are treated as customers. A substantial amount of staff training
      is focused on customer relationship management. We believe a satisfied
      customer is our best advertising.
 
 •
    We
      believe we have established good relationships with local physicians and
      receive a portion of our patient/customers from referrals. We also use
      direct mail to a very targeted demographic to increase
  business.
 
 •
    Back
      2 BacksTMhas contracted with independent physicians to examine walk-in customers to
      determine if it is appropriate for them to have the DRX treatment
      prescribed for them.
 
 •
    Back
      2 BacksTMlocations are in easily accessible, high traffic areas that provide safety
      and convenience to our patient/customers.
 
 •
    We
      are establishing relationships with insurance payers with the objective of
      showing them that Back 2 BacksTMcan be a lower cost solution to back pain. In Oregon, the typical cost for
      surgery and hospitalization to relieve a herniated disc is $40 thousand
      Depending on reimbursement rates within individual states and from various
      insurers, the entire Back 2 BacksTMprocess may cost the insurer between $4 and $11 thousand per
      patient.
 
 **Financial
Services:**
 
 Freedom
Financial, Inc. is a specialized commercial finance company principally engaged
in providing small to medium sized companies with working capital through the
discounted purchase of their accounts receivable, the financing of the
manufacturing costs of products for which they have an existing purchase order,
or by providing lines of credit to those companies. By utilizing the services
provided by Freedom Financial, the client can generally achieve a shorter
average collection time on their receivables than they would on their own. This
immediate access to working capital, expedited by a rapid approval process,
enables the client to gain access to and realize improved terms and discounts on
the purchase of goods and services from suppliers. The practice of purchasing
accounts receivables is known as “factoring”, and the practice of short-term
financing of manufacturing costs we practice is known as “purchase-order
financing”. Factoring, purchase-order financing and lines of credit are all
forms of “asset-based financing”.
 
 Freedom
also provides assistance to clients in the form of credit information, accounts
receivable management, accounts receivable collections and financial statement
review. These other services provide value to the client by reducing their
accounts receivable, credit, collection, and accounting costs and
responsibilities.
 
 At the
present time, Raybor does not anticipate pursuing further expansion or growth of
Freedom Financial as it focuses its efforts on the direct mail marketing and
medical side of its business.
  8
  
 
 **RISKS
FACTORS RELATING TO THE COMPANY’S BUSINESS:**
 
 **Direct
Mail marketing:**
 
 1.
    Individual
      publishers can cease using ICM to solicit subscriptions for their
      magazines when it is in their interest to do so. Publishers need paid
      subscribers to validate their worth to advertisers. Sales agents play the
      role of consumer marketing arms for publishers. When, however, a publisher
      doesn’t need sales agents for specific publications during a specific time
      period, the publisher will stop using the agent without any downsizing
      expense. Such actions on a repeated basis would likely materially and
      negatively affect cash flow, financial condition and results of
      operations.2.
    The
      federal government may place more substantial regulations on direct mail,
      as it has on telemarketing, which may cause it to be far less profitable
      to operate direct mail businesses.3.
    Individual
      state agencies may try to regulate direct marketing within their
      jurisdictions, creating a far more complex and time-consuming regulatory
      environment in which to run a business.4.
    Postal
      costs may rise and individual companies have very little, if any, ability
      to affect the timing or degree of those cost increases. These cost
      increases directly affect the operating profits of the
      company.5.
    Publishers
      may require more substantial remittance fees, which will have a direct
      impact on the revenues ICM earns. The level of remittance fees is
      determined purely on market dynamics, and can fluctuate substantially
      within a short period of time.
 
 
  9
  
 **Medical
Services:**
 
 1.
    The
      Company’s business model may not translate into other markets due to
      variation in market size and make-up, reimbursement rate and acceptability
      by insurers, and our ability to successfully market the service in varying
      locations.2.
    Insurance
      coverage could be reduced or eliminated by the government or insurers. The
      Company is dependent on insurance reimbursement from Medicare and private
      insurance carriers. A reduction or elimination of the reimbursement rate
      would likely negatively and materially affect the Company’s
      profitability.3.
    Transitioning
      from 12 facilities to 20+ may present management problems the current
      management team cannot foresee or handle. Expanding too quickly may strain
      the Company’s financial and managerial resources.4.
    Competition
      may arise from strong, well-funded competitors. There is no guarantee that
      competitors will not be able to duplicate our treatment methodology and
      directly compete with the Company in its present and anticipated
      markets.5.
    Patient
      litigation may arise from the use of the DRX spinal decompression system.
      As in many medical procedures, there is an inherent risk of patient
      litigation, which if successful could negatively affect the profitability
      of the Company.
 
 
 **Financial
Services:**
 
 **1.**
    Parties
      responsible for the payment of invoices that Freedom Financial has
      purchased may no longer be capable of paying certain invoices and Freedom
      Financial’s clients may not subsequently be capable of refunding the
      invoice amount to Freedom Financial. During 2004, $1.5 million of
      receivable balances were written off as bad debt expense due to
      uncollectibility. $1.1 million of which was due from a major client, which
      filed for bankruptcy in September 2004.**2.**
    The
      regulatory environment could become much more restrictive regarding
      factoring or the financial requirements imposed by state and federal
      authorities, which could negatively affect future revenues and
      profitability.**3.**
    Banks
      could become more liberal in their credit policies and create more
      competition for us.**4.**
    Growth
      could be limited by the lack of available capital from internal
      operations, the parent company or independent third party sources.
      Expansion of the Company’s factoring business beyond its present level
      will require access to additional capital
 
 
 10
  **Item
2. Description of Property**
 
 1. 
Mortgages or loans on owned property:
 
 During
2004, a single loan with Washington Mutual Bank was received in the amount of
$1,373 million, which was collateralized by real estate.
 
 2. 
No properties comprise of 10% or more of the Company’s total
assets.
 
 The
Company’s headquarters are located in a leased office building in Medford,
Oregon. As of December 31, 2004, the Company owned or leased the following
properties:
 **DESCRIPTION**
    **LOCATION**
    **OWNED/LEASED**Corporate
      headquarters
    Medford, Oregon
    OwnedACPA
      customer service & data entry center
    White City, Oregon
    OwnedFreedom
      Financial, Inc. office building
    Medford,
      Oregon
    OwnedBack
      2 Backs medical clinic
    Medford,
      Oregon
    OwnedBack
      2 Backs medical clinic
    Eugene,
      Oregon
    OwnedBack
      2 Backs medical clinic
    Fresno,
      California
    LeasedBack
      2 Backs medical clinic
    Sacramento, California
    LeasedBack
      2 Backs medical clinic
    Reno/Sparks,
      Nevada
    LeasedBack
      2 Backs medical clinic
    Boise,
      Idaho
    LeasedBack
      2 Backs medical clinic
    Portland,
      Oregon
    LeasedBack
      2 Backs medical clinic
    Miami
      Lakes, Florida
    LeasedBack
      2 Backs medical clinic
    Orlando,
      Florida
    LeasedBack
      2 Backs medical clinic
    Phoenix,
      Arizona
    LeasedBack
      2 Backs medical clinic
    West
      Palm Beach, Florida
    LeasedBack
      2 Backs medical clinic
    Fort
      Lauderdale, Florida
    LeasedBack
      2 Backs medical clinic
    Tuscan,
      Arizona
    LeasedBack
      2 Backs medical clinic
    Fort
      Myers, Florida
    LeasedBack
      2 Backs medical clinic
    Albuquerque,
      NM
    LeasedBack
      2 Backs medical clinic
    Melbourne,
      Florida
    LeasedBack
      2 Backs medical clinic
    Las
      Vegas, Nevada
    LeasedBack
      2 Backs medical clinic
    Tampa,
      Florida
    LeasedBack
      2 Backs medical clinic
    Arcadia,
      California
    LeasedBack
      2 Backs medical clinic
    Fullerton,
      California
    Leased
 The
Company considers its facilities suitable and adequate for the purpose for which
they are used and does not anticipate difficulty in renewing existing leases as
they expire or in finding alternative facilities. The Company maintains tenant
fire and casualty insurance on its properties in an amount deemed appropriate by
the Company.
 
 **Item
3. Legal Proceedings**
 
 The
Company is periodically involved in legal actions and claims that arise as a
result of events that occur in the normal course of operations. In the opinion
of management, the ultimate liability, if any, of the Company from all such
proceedings, will not have a material adverse effect on the Company’s financial
position or results of operations.
 
 In
2004, a lawsuit filed by the State of Oregon in an Oregon state court,
naming American Consumer Publishing Association, Inc. (ACPA), IC Marketing, Inc.
(ICM), and Dennis Simpson as defendants was resolved. Under the settlement, no
penalty, forfeiture or punishment was awarded and there was no admission or
concession of any violation of law. The terms of the settlement included a
payment by the Company to the State of Oregon for $72 thousand,
and mandated compliance with certain refund policy and
solicitation mailer printing requirements.
  In
October of 2004, Ms. Hayter filed suit in the United States District Court for
the District of Oregon, alleging that her employment was terminated by ACPA due
to her pregnancy. Her suit seeks approximately $600 thousand in damages,
including damages for lost past earnings and lost future earnings. Melissa
Hayter was employed as a customer service representative by ACPA. ACPA
terminated Ms. Hayter’s employment in May of 2003. The case is now in the
discovery phase.
 
 On
February 18, 2005, Nina Perez, a former employee of Back 2 Back’s filed suit in
a California State Court in Fresno. Ms. Perez alleges that her employment was
terminated due to her pregnancy. The suit seeks $250 thousand in damages, plus
other damages in unstated amounts, plus punitive damages in an unstated amount.
Back 2 Back’s was served with a copy of the summons and complaint on March 14,
2005.
 
 11
 **Item
4. Submission of Matters to a Vote of Securities Holders**
 The
Company held its annual stockholders meeting on or about July 1, 2004. The
corporate actions involve three proposals (the “Proposals”) that were discussed
and voted in favor of:
 
 ·
    The
      election of the following directors to serve for the ensuing year and
      until their successors are elected: Alan R. Herson, Jeffrey D. Hoyal,
      Stephen A. Pugsley, Sr., William S. Strickler and David A.
      Yost.
 
 ·
    The
      adoption of our 2004 Stock Incentive Plan.
 
 ·
    The
      ratification of the appointment of Pohl, McNabola, Berg & Company LLP
      as our independent auditors for the current fiscal
year.
 **PART
II**
 
 **Item
5. Market for Common Equity, Related Stockholder Matters and Small Business
Issuer Purchases of Equity Securities.**
 
 There is
no public trading market for the Company’s common stock, the issued and
outstanding shares of which are held by twenty stockholders. The Company has
never paid a cash dividend on its common stock and does not expect to pay
dividends in the foreseeable future.
 
 The
Company has no compensation plans or individual compensation arrangements under
which its equity securities are authorized for issuance.
 
 **Recent
Sales of Unregistered Securities**
 
 On April
30, 2004, the Company repurchased 4,080,000 shares of callable common stock from
Jeffrey D. Hoyal at the price of five cents per share.
 
 On
September 30, 2004, the Company repurchased 2,182,310 shares of callable common
stock from Jeffrey D. Hoyal at the price of five cents per share.
 
 On
September 30, 2004, the Company repurchased 2,956,097 shares of callable common
stock from Dennis L. Simpson at the price of five cents per share.
 
 On
October 31, 2004, the Company repurchased 3,203,117 shares of callable common
stock from Dennis L. Simpson at the price of five cents per share.
 
 **Funding
and Dilutive Instruments**
 
 In
January 2005, the Company received debt financing from C3 Capital LLC in the
amount of $1.5 million and issued warrants to purchase 1,272,227 shares of the
Company’s common stock. This financing was obtained to expand both the direct
mail marketing division and the medical services division. Warrants in
connection with this transaction in the amount of 11,321 shares for an exercise
price of $.0001 per share were also issued to our investment bankers. We relied
upon Rule 506 of Regulation promulgated under the Securities Act of 1933, as
amended and Section 4(2) of such Act for all such issuances. This transaction
was previously disclosed in a prior Form 8-K filing.
 
 **Fiscal
year 2004 Stock Issuances**
 
 None.
 
 
 **Item
6. Management’s Discussion and Analysis or Plan of
Operation**
 
 **(in
thousands)**
 
 We
operate in a rapidly changing environment that involves a number of risks, some
of which are beyond our control. Forward-looking statements in this document and
those made from time to time by us are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements concerning the expected future revenues or earnings
or concerning projected plans, performance, product development, product release
or product shipment, as well as other estimates related to future operations are
necessarily only estimates of future results and there can be no assurance that
actual results will not materially differ from expectations. As a result, the
actual results may differ materially from those projected in the forward-looking
statements.
 
 12
 
 
 **Overview:**
 
 Raybor
Management is a rapidly growing, profitable, publicly reporting company
operating in three functional segments: Direct Mail Marketing, Medical Services,
and Financial Services.
 
 Direct
Mail Marketing: The Company markets subscriptions for more than 800+
publications to over 25 million households with an active customer base of 2
million throughout all 50 states.
 
 Medical
Services: Four-year old company operating pain management clinics under the
trade name Back 2 Backs TM Inc. The
Company specializes in the relief of back pain by using an FDA approved spinal
decompression system.
 
 Financial
Services: Focusing on accounts receivable financing (factoring), purchase order
financing, and inventory financing.
   **Results
of Operations:**
 **Fiscal
Year Ended December 31, 2004 Compared With Fiscal Year Ended December 31,
2003**
 
 **(in
thousands)**
 
 For the
year ended December 31, 2004, the Company generated consolidated revenues of
$19.3 million as compared to $23.7 million for the year ended December 31, 2003,
representing a decrease of 19% in revenues. The decrease is attributable to the
significantly reduced number of direct mail subscription offers solicited in
2004 as compared to the previous year. The Company’s direct mail marketing
division solicited 20 million offers in 2004 as compared to 61 million offers in
2003, representing a decrease of 67%. In 2003 the Company was aggressively
building a large customer base. In 2004 the Company capitalized on its existing
customer base therefore, soliciting fewer offers. The Company’s medical division
saw a revenue increase of $3.1 million over 2003 of which approximately $1.6
million was due to the addition of 6 new clinics established in 2004. The
financial division saw a revenue increase of 85 thousand.
 
 Cost of
sales for the Company decreased to $8.1 million in 2004 as compared to $15.1
million in the previous year, representing a decrease of 46%. The decrease is
mainly a result of reducing the number of direct mail subscription offers
delivered in 2004 as compared to the previous year as noted above. The reduction
in direct mail cost of sales was partially offset by an increase in cost of
sales from the medical division. The Company’s medical division cost of sales
increased to $1.7 million in 2004 as compared to $463 thousand in the previous
year. This represents an increase of 267%, which is attributable to the opening
of six additional clinics that increased both labor and supplies.
 
 Although
the per-unit cost of direct mail offers has held steady, the Company mailed
approximately 41 million fewer offers in 2004 as compared to the previous year.
The per unit cost of direct mail offers was $0.28 in 2004 and $0.24 in
2003.
 
 Overall
operating expenses increased to $10.6 million in 2004 versus $4.9 million for
2003, representing an increase of 116%. This is primarily due to an increase in
selling, general and administrative costs and payroll of $5 million associated
with the expansion of the Company’s medical division and a $1.5 million write
down of receivables in bad debt expense at the Company’s financial division. Of
the $1.5 million write down, $1.1 million came from a major client.
 
 The
Company generated operating profit of $697 thousand in 2004 compared to
operating profit of $3.6 million in 2003, representing a decrease of 81%. The
decrease in operating profit is primarily due to the expansion of the Company’s
medical division and the bad debt expense associated with the Company’s
financial services division. These losses were offset by an increase in
operating profit from the Company’s direct mail marketing division. During 2004,
the Company’s medical services division had a net operating loss of $3.3 million
compared to a net operating loss of $651 thousand in 2003. The Company’s
financial services division had a net operating loss of $1.7 million in 2004
compared with a loss of $35 thousand in 2003 and the direct mail marketing
division had an operating profit of $7.1 million in 2004 compared to $5.1
million in 2003. Unallocated operating expense from overhead was $1.4 million in
2004 compared to $865 thousand in 2003.
  13
  Liquidity
and Capital Resources
 
 On
December 31, 2004, the Company had assets of $8.7 million compared to $8.6
million on December 31, 2003. During 2004, the Company increased its property,
plant and equipment by $1.8 million. This increase is primarily due to the
purchase of $2.2 million for the acquisition of four office buildings offset by
depreciation. Also, during 2004, the Company reduced its financial services
accounts and notes receivable by $1.5 million as the single largest client for
the Company’s financial division went bankrupt. This particular client was
accountable for $1.1 million of the $3 million. As a result, the financial
division is reviewing its strategy on how to better manage its credit reviews.
Other changes to assets in 2004 include the recording of $785 thousand in
prepaid income taxes.
 
 The
Company had total stockholders’ equity of $2.9 million at December 31, 2004
compared to $1.2 million at December 31, 2003. This increase of $1.7 million is
primarily due to additional paid in capital from the sale of common stock of
$1.2 million.
 
 Accounts
payable increased to $963 thousand at December 31, 2004 compared to $707
thousand the previous year, representing an increase of 36%. This was primarily
due to an increase in accounts payable of the Company’s medical services
division, which is attributable to the opening of the six addition medical
clinics.
 
 Accrued
expenses decreased to $483 thousand at December 31, 2004 compared with $711
thousand at December 31, 2003, mainly due to the significant decrease in direct
mail offers delivered which, in turn, decreased publisher remittances and
customer refunds.
 
 Liquidity
and Capital Resources - continued
 
 Net cash
generated from operating activities was $274 thousand in 2004 and $1.9 million
in 2003, representing a decrease of 86%. The change in cash from operating
activities in 2004 vs 2003 was principally due to the increase of expense
associated with opening six additional medical services clinics during 2004, and
the effect of the financial services division largest accounts and notes
receivable client filing for bankruptcy.
 
 Also,
cash flow from operations during 2004 includes a provision for income taxes in
the amount of $266 thousand.
 
 Net cash
used in investing activities was $1.1 million and $179 thousand for 2004 and
2003, respectively. This increase is primarily due to the purchase of DRX Spinal
Decompression Systems that are placed in each of the six new clinics that opened
in 2004.
 
 Net cash
provided by financing (used in) activities was $481 thousand and ($2) million
for 2004 and 2003, respectively. During 2004, the Company sold stock for $1.2
million and repurchased stock for $621 thousand. During 2003, prior to being
structured as an S-corporation, there were $1.2 million in distributions paid to
a shareholder.
 
 In
January 2005, the Company received debt financing from C3 Capital LLC in the
amount of $1.5 million and issued warrants to purchase 1,272,227 of the
Company’s common stock. This financing was obtained to expand both the direct
mail marketing division and the medical services division.
 
 **Off
Balance Sheet Arrangements**
 
 The
Company does not have any off balance sheet arrangements that have or are likely
to have a material current or future effect on the Company’s financial
condition, or changes in financial condition, liquidity or capital resources or
expenditures.
 
 **Effects
of Inflation**
 
 In the
opinion of management, inflation has not had a material effect on the operations
of the Company.
 
 **Item
7. Financial Statements**
 
 The
report of independent auditors and financial statements are set forth in this
report beginning on Page F-1.
  14
  
 **Item
8. Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure**
 
 On May 5,
2003, the Company dismissed Stephen J. Busch as the Company’s independent
auditor and appointed Pohl, McNabola, Berg & Company LLP as the Company’s
independent auditors for the year ended December 31, 2003. The change in
independent auditors was made in connection with the Company’s acquisition of
ACPA, ICM B2B and Freedom as described in item 1 above. During the years ended
December 31, 2003 and 2002, there were no disagreements between the Company and
Stephen J. Busch on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
 
 The
Company continues to utilize the appointed independent auditors Pohl, McNabola,
Berg & Company LLP for the year ended December 31, 2004.
 
 **Item
8A. Controls and Procedures.**
 
 (a)
Evaluation of disclosure controls and procedures. In accordance with Rule
13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), an
evaluation was carried out by the Company’s Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures (as defined in Rule 13a-14(c) and
15d-14(c) under the Exchange Act) as of the end of the period covered by this
report. Based upon that evaluation of these disclosure controls and procedures,
the Chief Executive Officer and Chief Financial Officer concluded that the
disclosure controls and procedures were effective as of the end of the period
covered by this report, to ensure that material information relating to the
Company was made known to them particularly during the period for which this
annual report on Form 10KSB was being prepared.
 
 (b)
Changes in internal controls over financial reporting. There was not any change
in the Company’s internal controls over financial reporting that occurred during
the fiscal year to which this report relates that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
 
 **Item
8B. Other Information**
 
 On
December 23, 2004, the Company filed a Current Report on Form 8-K with the
Commission pursuant to the resignation of Mr. David Yost as the Chief Financial
Officer of Raybor Management Inc., effective September 10, 2004. In addition,
the Company appointed Ms. Noel Littlefield, Mr. Ryan Azares and Ms. Tracy Friend
as directors of Raybor Management Inc., on December 21, 2004 to serve until the
next annual meeting of stockholders or until their successors are duly elected
and qualified.
  15
  **PART
III**
 
 **Item
9. Directors, and Executive Officers of the Registrant.**
 
 There are
no known arrangements or understandings between any director or executive
officer and any other person pursuant to which any of the above-named executive
officers or directors was selected as an officer or director of the Company. All
directors hold office until the next annual meeting of stockholders and until
their successors have been duly elected and qualified. Aside from expenses to
attend the Board of Directors meetings, the Company has not compensated its
directors for service on the Board of Directors or any committee thereof.
Certain directors earn compensation solely from their position as an executive
employee of the Company or one of its subsidiaries. The Board of Directors
appoints officers and each executive officer serves at the discretion of the
Board of Directors. The Company does not have any standing committees at this
time.
 
 None of
the directors, officer, affiliates or promoters of the Company have filed any
bankruptcy petition, been convicted or been the subject of any pending criminal
proceedings, or the subject of any order, judgment, or decree involving the
violation of any state or federal securities laws within the past five
years.
 
 The
Company’s officers and directors as of December 31, 2004 consist of the
following persons:
 
 **NAME**
    **AGE**
    
    **OFFICE**
    **SINCE**Jeffrey
      D. Hoyal
    43
    
    President
      and CEO, Director
    2003Noel
      M. Littlefield
    38
    
    Chief
      Financial Officer, Secretary, Director
    2004Stephen
      A. Pugsley, Sr.
    41
    
    Director
    2003Ryan
      C. Azares
    28
    
    Director
    2004Tracy
      L. Friend
    29
    
    Director
    2004
 Each
director serves until the next annual meeting and his successor is elected or
until his earlier resignation or removal.
 
 **Jeffrey
Hoyal, President/CEO, Chairman** , has
been the Company’s President and Chief Executive Officer and a Director since
May 2003. Since 1993, Mr. Hoyal has been the co-founder and director of Hoyal
& Associates, a business-consulting firm in Medford, Oregon and was
President and sole shareholder of Freedom Financial, Inc., a financial services
firm also located in Medford, Oregon. Mr. Hoyal has substantial experience in
advising start-up companies, new business development, tax planning, strategic
planning and human resource planning. He has BS and MS degrees in Business
Administration from Southern Oregon University and has completed his law school
education at Golden Gate University School of Law and Howard Taft University
School of Law. He is currently a PhD candidate at Touro University and working
towards his completion of an L.L.M. in International Tax Law at St. Thomas
University School of Law.
 
 **Noel
M. Littlefield, Chief Financial Officer, Secretary** has been
working on the company’s finances in various capacities since 1999. Mrs.
Littlefield began working with Hoyal & Associates, owned by Jeff Hoyal, CEO
of Raybor, in the capacity of Accounting Manager while American Consumer
Publishing Co. and Back 2 Back’s were in their early stages. From November 2001
to September 2002, Mrs. Littlefield was the Controller for the Company’s
subsidiaries American Consumer Publishing Company, Inc and IC Marketing. In
September 2002, Mrs. Littlefield transitioned over to the Company’s subsidiary,
Freedom Financial, Inc. located in Medford, Oregon as its Chief Financial
Officer, delivering blossoming financial processes and increasingly complex
financial reports to the growing needs of the start-up going public. In,
November 2004, Mrs. Littlefield was elected as the Chief Financial Officer for
Raybor Management.
 
 **Stephen
A. Pugsley, Sr** ., **Director,** has been
a Director of the Company since May 2003. Since August 2002, Mr. Pugsley has
been at Back 2 Backs, Inc., most recently assuming the position of President in
June 2003. From February 1999 to August 2002, he was a consultant with Hoyal
& Associates focusing on business development and from January 1996 to
February 1999, he was a national director with responsibilities in sales and
corporate training at Mannatech, Inc., a manufacturer of
neutraceuticals.
 
 **Ryan
Azares, Director of Marketing, Director,** responsible for the company’s direct mail marketing systems, publisher and
clearing-house relations, and new agent acquisitions. He began working with
Raybor Management in 2001 in his capacity as owner-operator of Western Pacific
Publishing, which delivered order-clearing solutions for IC Marketing, a Raybor
company. Western Pacific became IC Marketing’s top outside agent for order
volume, customer service, and publisher relations, and Ryan subsequently
accepted a position with ACPA, Inc., a Raybor company, in June of 2003. He
joined Raybor’s management team in September 2004.
 
 Previously,
Ryan was a top-producing organizational sales manager for Franklin Covey and
several direct marketing companies. A business development professional with
expertise in direct mail and database marketing, consumer publications, and
ecommerce marketing strategies, Ryan has founded several companies and
demonstrated entrepreneurial skills from launch to exit strategy.
 
 16
 
 Ryan
received his Bachelor of Arts degree from Brigham Young University and is a
candidate for a Masters of Business Administration degree from Touro University
International, in Information Technology Management.
 
 **Tracy
L. Friend, Director** , has
been with the Company since February 2003 and was appointed to the position of
President for American Consumer Publishing Association, Inc. in October 2004.
Tracy’s expertise is in data entry retrieval as well as database programming and
design. Since her hire as a data entry retrieval specialist, Tracy has been an
invaluable asset to the company. Her efforts have largely been behind the
scenes, but her work as a database programmer and designer always placed her on
the front lines. Her valuable contributions and her demonstrated leadership
capacity made her the ideal candidate for each leadership promotion in which she
was considered. With a distinguished and diversified background in Information
Technology, Programming Management, and Graphic Design, in addition to years as
a respected consultant in Database Administration, Tracy has developed a unique
skill set with which to asses and meet ACPA’s business objectives. With the
company’s interest of business in mind, Ms. Friend continues advancing her
education through accredited online classes. Prior to joining our management
team, Ms. Friend graduated with an associate’s of Science degree with an
emphasis networking from Rogue Community College.
 
 **Compliance
with Section 16(a) of the Securities Exchange Act of 1934**
 
 Section
16(a) of the Securities Exchange Act of 1934 requires the Company’s directors
and executive officers, and persons who own more than 10% of a registered class
of the Company’s equity securities to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater than 10% shareholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
 
 We
believe, based solely on our review of the copies of such reports received from
certain Reporting Persons, that each of Ryan Azares, Tracy Friend and Noel
Littlefield, each of whom is a Director of Raybor, failed to file on a timely
basis one Form 3, each of which Form 3 reported one transaction, namely their
election to the Board of Directors of Raybor (and with respect to Ms.
Littlefield, her appointment as the CFO of Raybor) and that Messrs. Simpson and
Hoyal failed to file on a timely basis one Form 4 involving the repurchase of a
portion of their Raybor stock by Raybor.
 
 Based
solely on a review of copies of such reports furnished to the Company and
written representations that no other reports were required during the year
ended December 31, 2004, the Company believes that all persons subject to the
reporting requirements pursuant to Section 16(a) filed the required reports on a
timely basis with the SEC.
 
 There is
no arrangement between any of the directors or executive officers and any other
person or persons, pursuant to which he was or is to be selected as a director
or executive officer.
 
 Effective
July 21, 2004 the Secretary/Director, Alan R. Herson, resigned due to the fact
that full time services were not needed and therefore Mr. Herson felt that he
should not continue as the Company’s director. Mr. Herson continues to work on a
part-time as needed basis.
 
 Effective
September 10, 2004 the Chief Financial Officer, David A. Yost, resigned.
Effective November 8, 2004 Noel M. Littlefield accepted the position of Chief
Financial Officer.
 
 Code of
Ethics:
 
 We have
adopted a “Code of Ethics for Senior Officers.” A copy of the Code Ethics for
Senior Officers is maintained at the Company’s corporate office in Medford, OR,
which may be obtained without charge by any shareholder writing our CFO, Noel
Littlefield, at the Company’s offices in Medford. In the event we make any
amendments to, or grant any waivers of, a provision of the Code Ethics for
Senior Officers that applies to the principal executive officer, principal
financial officer, or principal accounting officer that requires disclosure
under applicable SEC rules, we intend to disclose such amendment or waiver and
the reasons therefor on a Form 8-K or on our next periodic report.
 
 The
Company does not have an audit or any other committees of the Board of
Directors. The Company does not have an outside financial expert serving on the
Board of Directors because the Company is not listed with a stock exchange and
there is no public trading of the Company’s stock. The Company believes that the
current members of its Board of Directors, including its CFO, Noel Littlefield,
although not independent, have adequate knowledge of financial matters to
adequately address the Board’s responsibilities in this area.
 
 17
 **Item
10. Executive Compensation**
 
 The
following table sets forth certain summary information regarding compensation
paid by the Company to corporate officers for services rendered during the
period of January 1, 2002 through December 31, 2004 including payments made from
subsidiary companies. Amounts paid:
 
 **Summary
Compensation Table** ****
 
 **Name
      and Principal Position**
    
    **Year**
    
    **Base****Salary**
    
    **Bonus**
    
    **Stock
      Purchase****Reimbursement**
    
    **Total**Jeffrey
      D. Hoyal, President & CEO
    
    
    20042003
    
    
    131,888
    
    
    172,703
    
    
    -0-
    
    
    304,5912002
    
    
    -0-
    
    
    -0-
    
    
    -0-
    
    
    -0-David
      A. Yost, Chief Financial Officer
    
    
    2004
    
    
    99,500
    
    
    9,925
    
    
    -0-
    
    
    109,4252003
    
    
    96,000
    
    
    500
    
    
    7,000
    
    
    103,500Stephen
      Pugsley, Director
    
    
    2004
    
    
    91,259
    
    
    10,000
    
    
    -0-
    
    
    101,2592003
    
    
    61,807
    
    
    500
    
    
    -0-
    
    
    62,3072002
    
    
    15,108
    
    
    108
    
    
    -0-
    
    
    15,216Ryan
      Azares, Director
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    76,090Noel
      Littlefield, Chief Financial Officer
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    75,162Tracy
      Friend, President ACPA
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    51,209
   **Other
Information:**
 
 Effective
July 21, 2004 the Secretary/Director, Alan R. Herson, resigned due to the fact
that full time services were not needed and therefore Mr. Herson felt that he
should not continue as the Company’s director. Mr. Herson continues to work on a
part-time as needed basis.
 
 Effective
September 10, 2004 the Chief Financial Officer, David A. Yost, resigned to
pursue a new opportunity. There was no disagreement between Mr. Yost and the
Company regarding any matter relating to the Company’s operations, policies or
practices. Effective December 21, 2004 Noel M. Littlfield accepted the position
of Chief Financial Officer.
 
 **Compensation
of Directors:**
 
 Directors
received no remuneration for their services during 2004.
 
 18
  **Item
11. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.**
 
 The
following table sets forth certain information regarding the beneficial
ownership of the Company’s Common Stock as of December 31, 2004 based on
information available to the Company by (I) each person who is known by the
Company to own more than 5% of the outstanding Common Stock based upon reports
filed by such persons with the Securities and Exchange Commission or as
reflected on the books and records of the Company’s stock transfer agent; (ii)
each of the Company’s directors; (iii) each of the Named Executive Officers; and
(iv) all officers and directors of the Company as a group.
 
 **Title
      and Class****of
      Stock**
    **Name
      and Address**
    **Shares Beneficially****Owned
      (1)**
    
    **Percent**Class
      A Common
    Dennis
      L. Simpson
      975
      Roberta Lane, #104
      Sparks,
      NV 89431
    22,095,036
    
    79.80%Class
      A Common
    *
      Jeffrey D. Hoyal
      3976
      Bellinger Lane
      Medford,
      OR 97501
    7,095,036
    
    12.14%Class
      A Common
    Noreen
      M. Ackermann
      147
      Strawberry Lane
      Ashland,
      OR 97520
    2,006,000
    
    3.43%Class
      A Common
    Thomas
      Purtzer
      2335
      Hillside Drive
      Central
      Point, OR 97502
    600,036
    
    1.03%Class
      A Common
    Robert
      Trujillo
      540
      Arnold Lane
      Medford,
      OR 97501
    600,036
    
    1.03%Class
      A Common
    Peterson
      Family LLC
      840
      Royal Ave St #1
      Medford,
      OR 97504
    600,036
    
    1.03%Class
      A Common
    *
      Stephen A. Pugsley, Sr.
      975
      Roberta Lane, #104
      Sparks,
      NV 89431
    200,000
    
    .34%Class
      A Common
    *
      Noel Littlefield
      2510
      Congress Way
      Medford,
      OR 97504
    50,000
    
    .09%Class
      A Common
    *
      Ryan Azares
      944
      Parkdale Ave
      Medford,
      OR 97501
    50,000
    
    .09%Class
      A Common
    *
      Tracy Friend
      830
      Gold Ct
      Grants
      Pass, OR 97527
    5,000
    
    .01%Class
      A Common
    All
      Executive Officers and
      Directors
      as a group (5 persons)
    7,400,036
    
    12.67%
 
  (1)
    A
      person is deemed to be the beneficial owner of securities that can be
      acquired by such person within 60 days from the date of this annual report
      upon the exercise of options or warrants. Each beneficial owner’s
      percentage ownership is determined by assuming that options or warrants
      that are held by such person and which are exercisable within 60 days of
      the date of this annual report have been exercised. Unless otherwise
      indicated, we believe that all persons named in the table have voting and
      investment power with respect to all shares of common stock beneficially
      owned by them.
 
 * Denotes
a Director or Executive Officer of the Company.
 
 19
 
 ****
 **Item
12. Certain Relationships and Related Transactions.**
 
 **(in
thousands)**
 
 A.
 SP&H Corporation
 
 SP&H
is controlled by Jeff Hoyal and Dennis Simpson. Jeff Hoyal is the President and
CEO of Raybor, and Dennis Simpson is a majority shareholder of the Company and
President of one of the Company’s subsidiaries.
 
 During
2003, the Company made or accrued payments to SP&H Corporation totaling $88
thousand for Company use of a private plane owned by S&H.
 
 During
2004, the Company made or accrued payments to SP&H Corporation totaling $92
thousand for Company use of a private plane owned by SP&H
Corporation.
 
 In
December 2004, the Company purchased a private plane owned by SP&H
Corporation for $249 thousand. The valuation was determined by a search of
common and/or similar airplanes.
 
 B. 
Simpson & Hoyal G.P.
 
 Simpson
& Hoyal G.P. is a general partnership owned by Dennis Simpson and Jeff
Hoyal. During 2004, the Company entered into the following transactions with the
partnership:
 
 a). Made
rent payments totaling $16 thousand for properties occupied by the Company and
owned by Simpson & Hoyal, G.P.
 
 b).
Factored accounts receivable in the amount of $30 thousand owed to the
partnership from a third party. This factored account amount was paid in full in
2004.
 
 C.
 Indian Motorcycle of Medford, Inc.
 
 The
Company loaned $200 thousand to Indian Motorcycle of Medford, Inc., a
corporation controlled by Dennis Simpson and Jeff Hoyal. The note was due in
September 2004 and carries an annual interest rate of 12%. As of December 31,
2003 the balance due including accrued interest is $213 thousand. This amount
was repaid in January 2004.
 
 D.
 Jeffrey D. Hoyal
 
 The
following related party transactions were identified with regard to Mr.
Hoyal:
 
 a). The
Company remitted certain magazine subscriptions through Western Pacific
Publishing (WPP), a corporation owned by a relative of Mr. Hoyal. Total
remittances through WPP were $143 thousand in 2004 and $717 thousand in 2003.
 
 b). The
Company remitted certain magazine subscriptions through Mid-West Magazine
Services (MWMS), a corporation owned by a relative of Mr. Hoyal. Total
remittances through MWMS were $522 thousand in 2003.
 
 c). The
Company has a management consulting agreement with Hoyal and Associates, a
company owned by Mr. Hoyal, to provide management expertise. The Company paid
consulting fees totaling $202 thousand in 2004 and $154 thousand in
2003.
 
 d) During
2004, the Company received $209 thousand from two organizations owned by
relatives of Jeffrey D. Hoyal, for processing direct mail subscriptions on their
behalf. The total volume of direct mail subscriptions by the Company for these
entities was 3,979.
  20
  
 E.
 Dennis L. Simpson
 
 a). As of
December 31, 2003, the Company had a note payable to Mr. Simpson in the amount
of $911 thousand as a result of loans from Mr. Simpson to the Company. The note
carries an annual interest rate of 12%. During 2004, the balance due on this
loan including interest payable of $17 thousand was exchanged for a loan
receivable from Premier Home & Improvements, which was due to the
Company.
 
 b).
During the year ended December 31, 2003, the Company loaned $983 thousand to
Premier Home & Improvement, a corporation owned by Mr. Simpson. The loans
were secured by a note with an annual interest rate of 12% and were guaranteed
by Dennis Simpson, the Company’s majority shareholder. Premier Home &
Improvement defaulted on its note receivable and the Company demanded that Mr.
Simpson repay the note. The Company and Mr. Simpson negotiated a settlement of
the note that resulted in a reduction in the note by $928 thousand in a swap for
a loan due from the Company to Dennis Simpson. The remaining balance of $55
thousand on the loan and interest of $79 thousand was written off as bad debt
expense.
 
 c). On
March 31, 2004, the Company sold 24,000,000 shares of common stock callable at
five cents per share to Dennis L. Simpson for $1.2 million in
cash.
 
 F.
 Medford, OR and White City, OR Properties
 
 On March
31, 2004, the Company issued 3,820,730 shares of common stock callable at five
cents per share to Dennis L. Simpson and 3,820,730 shares of common stock
callable at five cents per share to Jeffrey D. Hoyal for the purchase of an
office building in White City, Oregon. The Company also assumed the remaining
mortgage on the property of $140 thousand. The total purchase price of the
property was $523 thousand. Mr. Simpson is a majority shareholder of the
Company’s common stock, and President of one of the Company’s subsidiaries. Mr.
Hoyal is President and Chief Executive Officer of the Company.
 
 On March
31, 2004, the Company issued 2,441,580 shares of common stock callable at five
cents per share to Dennis L. Simpson and 2,441,580 shared of common stock
callable at five cents per share to Jeffrey D. Hoyal for the purchase of an
office building in Medford, Oregon. The Company also assumed the remaining
mortgage on the property of $207 thousand. The total purchase price of the
property was $450 thousand.
 
 The
callable element in each of the stock transaction noted above means that the
company is granted the right, exercisable at any time, to repurchase all or any
portion of the shares at the original purchase price, plus six percent (6%) per
annum simple interest from the date of the purchaser’s original acquisition of
the shares from the Company.
 
 On April
30, 2004, the Company repurchased 4,080,000 shares of callable common stock from
Jeffrey D. Hoyal at the price of five cents per share.
 
 On
September 30, 2004, the Company repurchased 2,182,310 shares of callable common
stock from Jeffrey D. Hoyal at the price of five cents per share.
 
 On
September 30, 2004, the Company repurchased 2,956,097 shares of callable common
stock from Dennis L. Simpson at the price of five cents per share.
 
 On
October 31, 2004, the Company repurchased 3,203,117 shares of callable common
stock from Dennis L. Simpson at the price of five cents per
share.
  21
  
 G.
Northwest Pain Management
 
 Dr.
Thomas Purtzer, shareholder and former member of Back 2 Back’s management, is
sole owner of Northwest Pain Management. Northwest Pain Management is contracted
with Back 2 Back’s to provide management consulting services and patient care
services and the financing of one DRX machine. Payments to Northwest Pain
Management during 2004 were:
 
 (in
      thousands)**Nature
      of Transactions**
    
    
    **Amount
      ($)**Contracted
      Physicians
    
    
    
    344Purchase
      of Equipment
    
    
    
    30Patient
      Refunds
    
    
    
    1375
 
 H.
PainCare Medical Center LLC
 
 Richard
Schork, owner of a 50% interest in and Chief Executive Officer of PainCare
Medical Center, LLC is a relative of Mr. Jeff Hoyal.
 
 I.
Mid-West Magazine Services
 
 The
Company remits certain magazine subscriptions through Midwest Magazine Services
Company, which is owned by a relative of Mr. Hoyal. A total of $552 thousand in
magazine subscription remittances were conducted through Midwest magazine
Services in 2003.
 
 J.
Littlefield Masonry
 
 Littlefield
Masonry is owned by Larry Littlefield, who was related to Noel Littlefield, the
CFO of the Company. The Company loaned Littlefield Masonry $15 thousand in 2004
at 10% interest payable in monthly installments through February
2006.
 
 K. Golden
Services of America - Ackermann
 
 The
Company paid $335 thousand in commissions and $111 thousand for management
consulting services, in the area of telemarketing and other magazine
subscription sales practices, to Golden Services of America in 2004. The Company
paid $154 thousand in commissions to Golden Services of America in 2003. Golden
Services of America is owned by Noreen and John Ackermann. Noreen Ackermann is a
shareholder in the Company and an employee of Raybor as Publisher Relations
Director.
 
 **Item
13. Exhibits.**
 
 3.1
Articles of Incorporation [amended restated]
 
 Filed in
Form 10SB with the Commission on March 9, 2000.
 
 3.2
By-Laws of Raybor and Certificate of Incorporation
 
 Filed in
Form 10SB with the Commission on March 9, 2000.
  22
  
 21.1
Subsidiaries of the Company
 
 IC
Marketing, Inc., American Consumer Publishing, Freedom Financial, Inc. and Back
2 Back’s were filed as subsidiaries to the Company in Form 8-K with the
Commission on May 5, 2003.
 
 1). The
following exhibits were filed on Form 8-K/A on December 23, 2004:
 
 Departure
      of DirectorElection
      of DirectorsAppointment
      of Principal Officers
 
 **Item
14. Principal Accountant Fees and Services.**
  For
      the Years Ended
      December
      31,2004
    
    2003Audit
      Fees
    
    $
    134
    
    $
    102Audit
      Related Feed
    
    $
    19
    
    $
    6Tax
      Fees
    
    $
    31
    
    $
    15Other
      Feed
    
    $
    13
    
    $
    —
 The
audit-related fees relate to review services performed by our accountant; the
tax fees relate to preparation of our tax returns by our
accountant.
  Under the Sarbanes-Oxley Act of 2002, all audit and
non-audit services performed by our independent accountants must now be approved
in advance by the audit committee to assure that those services do not impair
the accountants’ independence. We do
not have an audit committee, so our board of directors reviews and approves
audit and permissible non-audit services performed by Pohl, McNabola, Berg and
Company, P.A., as well as the fees they charge for performing those
services.
  23
  **SIGNATURES** ****
 
 In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
  **Raybor
      Management, Inc.**Dated: March 30, 2005
    By:
    /s/ *Jeffrey D.
      Hoyal**Jeffrey D. Hoyal**Chief Executive
      Officer*
  In
accordance with the Exchange Act, this report has been duly signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
 
 */s/
      Jeffrey D. Hoyal*
      ***Jeffrey D. Hoyal,**Chief Executive Officer*
    *March
      30, 2005**/s/
      Noel M. Littlefield*
      **
      *Noel M. Littlefield,**Chief Financial Officer*
    *March
      30, 2005**/s/
      Stephen A. Pugsley*
      **
      *Stephen
      A. Pugsley**Director*
    *March
      30, 2005**/s/
      Ryan C. Azares*
      ***Ryan C. Azares**Director*
    *March
      30, 2005*
 
 */s/
      Tracy L. Friend*
      ***Tracy L. Friend**Director*
    *March
      30, 2005*
 
   24
   **R** **AYBOR** **M** **ANAGEMENT** **,
I** **NC** **.** **AND
SUBSIDIARIES** ****
 
 **CONSOLIDATED
FINANCIAL** **S** **TATEMENTS** ****
 
 **D** **ECEMBER** **31, 2004** **AND** **2003**
 
  F-1
  **R** **AYBOR** **M** **ANAGEMENT** **,
I** **NC.
AND SUBSIDIARIES** ****
 
 **CONSOLIDATED
FINANCIAL STATEMENTS**
 
 **D** **ECEMBER** **31, 2004** **AND** **2003**
 
 **C
O N T E N T S**
 
 Report
      of Independent Certified Public Accountants
    F-3Consolidated
      Balance Sheets
    F4
      - F5Consolidated
      Statements of Operations
    F-6Consolidated
      Statements of Changes in Shareholder’s Equity
    F-7Consolidated
      Statements of Cash Flows
    F8
      - F9Notes
      to Financial Statements
    F10 - F34
 
  F-2
  **REPORT
OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS**
 
 Board of
Directors and Shareholders
 Raybor
Management, Inc.
 
 We have
audited the consolidated balance sheets of Raybor Management, Inc. and its
subsidiaries, as of December 31, 2004 and 2003, and the related consolidated
statements of operations, shareholder’s equity and cash flows for the years then
ended. 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 auditing standards generally accepted in
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. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes 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 financial position of Raybor Management, Inc. and its
subsidiaries, as of December 31, 2004 and 2003, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America.
 
 */s/
Pohl, McNabola, Berg & Co., LLP*
 
 Pohl,
McNabola, Berg & Company LLP
 San
Francisco, California
 March 11,
2005
   F-3
   **RAYBOR
MANAGEMENT, INC., AND SUBSIDIARIES**
 **C** **ONSOLIDATED** **B** **ALANCE** **S** **HEETS** ****
 **A** **S** **** **OF** **D** **ECEMBER** **31, 2004** **AND** **2003**
 
 **(in
      thousands)****2004**
    
    **2003****Assets**Current
      AssetsCash
      and cash equivalents
    
    $
    220
    
    $
    540Accounts
      receivable - net of allowance for doubtful accounts of $785 and $277 in
      2004 and 2003, respectively
    
    
    1,239
    
    
    2,488Prepaid
      income taxes
    
    
    785
    
    
    —Accrued
      interest receivable
    
    
    5
    
    
    50Notes
      receivable - net of reserve for doubtful accounts of $110 in
      2004
    
    
    332
    
    
    1,033Prepaid
      mail costs - net of accumulated amortization of $45,056 and $39,402 in
      2004 and 2003, respectively
    
    
    1,355
    
    
    1,119Deferred
      tax asset
    
    
    320
    
    
    181Other
      current assets
    
    
    308
    
    
    46Total
      Current Assets
    
    
    4,564
    
    
    5,457Property
      and Equipment - net of accumulated depreciation of $850 and $412 in 2004
      and 2003, respectively
    
    
    4,122
    
    
    2,321Other
      AssetsNotes
      receivable - long term
    
    
    4
    
    
    766Other
    
    
    14
    
    
    12Total
      Other Assets
    
    
    18
    
    
    778Total
      Assets
    
    $
    8,704
    
    $
    8,556
 
 (continued)
  F-4
  
 **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **CONSOLIDATED** **B** **ALANCE** **S** **HEETS** **(** **CONTINUED** **)**
 **A** **S** **** **OF** **D** **ECEMBER** **31, 2004** **AND** **2003**
 
 **(in
      thousands)****2004**
    
    **2003****Liabilities
      and Shareholders’ Equity**Current
      LiabilitiesAccounts
      payable
    
    $
    963
    
    $
    707Commissions
      payable
    
    
    132
    
    
    154Accrued
      expenses
    
    
    483
    
    
    711Income
      taxes payable
    
    
    —
    
    
    11Deferred
      income taxes payable-current
    
    
    —
    
    
    361Current
      portion of long-term debt
    
    
    34
    
    
    42Current
      portion of capital leases
    
    
    167
    
    
    134Deferred
      loan proceeds
    
    
    7
    
    
    —Bank
      line of credit
    
    
    398
    
    
    500Notes
      payable - related party
    
    
    —
    
    
    911Deferred
      revenues
    
    
    1,633
    
    
    2,346Total
      Current Liabilities
    
    
    3,817
    
    
    5,877Long
      Term LiabilitiesCapital
      lease obligations
    
    
    337
    
    
    439Long-term
      debt, net of current maturities
    
    
    1,323
    
    
    997Deferred
      income taxes
    
    
    308
    
    
    15Total
      Long Term Liabilities
    
    
    1,968
    
    
    1,451Total
      Liabilities
    
    
    5,785
    
    
    7,328Minority
      Interest
    
    
    20
    
    —Shareholders’
      EquityCommon
      stock, $0.0001 par value; 100,000,000 shares authorized; 58,419,276 and
      34,156,180 issued and outstanding as of December 31, 2004 and 2003,
      respectively
    
    
    6
    
    
    3Additional
      Paid in Capital
    
    
    1,274
    
    —Retained
      earnings
    
    
    1,619
    
    
    1,225Total
      Shareholders’ Equity
    
    
    2,899
    
    
    1,228Total
      Liabilities and Shareholders’ Equity
    
    $
    8,704
    
    $
    8,556
 
  F-5
  
 **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **C** **ONSOLIDATED** **S** **TATEMENTS** **** **OF** **O** **PERATIONS** ****
 **F** **OR** **T** **HE** **Y** **EARS** **E** **NDED** **D** **ECEMBER** **31, 2004** **AND** **2003**
 
 **(in
      thousands, except**
      **per
      share amounts)****2004**
    
    **2003**Total
      Revenues
    
    $
    19,341
    
    $
    23,681Cost
      of SalesDirect
      mail costs
    
    
    5,654
    
    
    14,537Medical
      related
    
    
    2,441
    
    
    463Other
    
    
    24
    
    
    152Total
      Cost of Sales
    
    
    8,119
    
    
    15,152Gross
      Profit
    
    
    11,222
    
    
    8,529Operating
      ExpenseSales
      and marketing
    
    
    934
    
    
    255Payroll
      and related
    
    
    3,230
    
    
    1,887General
      and administrative
    
    
    5,915
    
    
    2,576Depreciation
      and amortization
    
    
    446
    
    
    214Total
      Operating Expense
    
    
    10,525
    
    
    4,932Income
      from Operations
    
    
    697
    
    
    3,597Other
      Income (Expense)Interest
      income
    
    
    4
    
    
    15Interest
      expense
    
    
    (223
    )
    
    (206
    )Gain
      on sale of asset
    
    
    —
    
    
    95Other
      income
    
    
    2
    
    
    —Total
      Other (Expense)
    
    
    (217
    )
    
    (96
    )Income
      Before Minority Interest andProvision
      for Income Taxes
    
    
    480
    
    
    3,501Minority
      Interest in Loss of Subsidiary
    
    
    180
    
    
    —Income
      Before Provision for Income Taxes
    
    
    660
    
    
    3,501Provision
      for Income Taxes
    
    
    (266
    )
    
    (580
    )Net
      Income
    
    $
    394
    
    $
    2,921Earnings
      per share
    
    $
    0.01
    
    $
    0.09Average
      common shares outstanding, basic and diluted
    
    
    58,448
    
    
    31,611
 
  F-6
  
 **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **C** **ONSOLIDATED** **S** **TATEMENTS** **** **OF** **C** **HANGES** **** **IN** **S** **HAREHOLDERS** **’
E** **QUITY** ****
 **F** **OR** **** **THE** **Y** **EARS** **E** **NDED** **D** **ECEMBER** **31, 2004** **AND** **2003**
 
 **(** **IN** **** **THOUSANDS** **)**
  **Common
      Stock****Shares**
    
    
    **Amount**
    
    
    **AdditionalPaid
      In****Capital**
    
    
    **Retained****Earnings**
    
    
    **Total**Balance,
      December 31, 2002
    
    
    27,156
    
    $
    3
    
    $
    
    
    $
    (240
    )
    $
    (237
    )Net
      income
    
    
    —
    
    
    —
    
    
    —
    
    
    2,921
    
    
    2,921Acquisition
      of Back 2 Back’s
    
    
    3,000
    
    
    —
    
    
    —
    
    
    (52
    )
    
    (52
    )Acquisition
      of Freedom Financial
    
    
    4,000
    
    
    —
    
    
    —
    
    
    (180
    )
    
    (180
    )Shareholder
      contributions
    
    
    —
    
    
    —
    
    
    —
    
    
    817
    
    
    817Shareholder
      distributions
    
    
    —
    
    
    —
    
    
    —
    
    
    (2,041
    )
    
    (2,041
    )Balance,
      December 31, 2003
    
    
    34,156
    
    $
    3
    
    
    —
    
    $
    1,225
    
    $
    1,228Net
      Income
    
    
    —
    
    
    —
    
    
    
    
    
    394
    
    
    394Sale
      of common stock
    
    
    24,000
    
    
    3
    
    
    1,197
    
    
    —
    
    
    1,200Issued
      for employees compensation
    
    
    160
    
    
    —
    
    
    72
    
    
    —
    
    
    72Issuance
      of shares - purchase property
    
    
    12,525
    
    
    1
    
    
    625
    
    
    —
    
    
    626Repurchase
      of shares
    
    
    (12,422
    )
    
    (1
    )
    
    (620
    )
    
    —
    
    
    (621
    )Balance,
      December 31, 2004
    
    
    58,419
    
    $
    6
    
    $
    1,274
    
    $
    1,619
    
    $
    2,899
 
  F-7
  
 **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **C** **ONSOLIDATED** **S** **TATEMENTS** **** **OF** **C** **ASH** **F** **LOWS** ****
 **F** **OR** **** **THE** **Y** **EARS** **E** **NDED** **D** **ECEMBER** **31, 2004** **AND** **2003**
 
 **(in
      thousands)****2004**
    
    **2003**Cash
      Flows From Operating Activities:Net
      Income
    
    $
    394
    
    $
    2,921Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
    
    
    435
    
    
    214Amortization
      of deferred mail costs
    
    
    5,665
    
    
    14,537Allowance
      for bad debt
    
    
    619
    
    
    108Minority
      interest share of net loss
    
    
    (180
    )
    
    —Issuance
      common stocks for employees compensation
    
    
    72
    
    
    —Changes
      in operating assets and liabilities:Accrued
      interest receivable
    
    
    46
    
    
    (40
    )Accounts
      receivable - trade
    
    
    1,295
    
    
    (964
    )Income
      taxes receivable
    
    
    (785
    )
    
    —Notes
      receivable
    
    
    (112
    )
    
    (530
    )Deferred
      mailing costs
    
    
    (5,890
    )
    
    (12,864
    )Advances
      to affiliate
    
    
    —
    
    
    17Prepaid
      expenses
    
    
    (262
    )
    
    48Deferred
      tax asset
    
    
    (139
    )
    
    (181
    )Other
      Assets - others
    
    
    (2
    )
    
    —Accounts
      payable and accrued expenses
    
    
    255
    
    
    (1,273
    )Deferred
      revenue
    
    
    (713
    )
    
    506Income
      taxes payable
    
    
    (11
    )
    
    10Deferred
      taxes payable
    
    
    (68
    )
    
    (418
    )Other
      current liabilities
    
    
    (345
    )
    
    (153
    )Net
      cash provided by operating activities
    
    
    274
    
    
    1,938Cash
      Flows From Investing Activities:Proceeds
      from sale of building
    
    
    —
    
    
    913Purchases
      of capital equipment
    
    
    (1,275
    )
    
    (328
    )Contribution
      from minority investor
    
    
    200
    
    
    —Advances
      on note receivable
    
    
    —
    
    
    (943
    )Cash
      from acquisitions
    
    
    —
    
    
    179Net
      cash used in investing activities
    
    
    (1,075
    )
    
    (179
    )
 
  F-8
  
 
 **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **C** **ONSOLIDATED** **S** **TATEMENTS** **** **OF** **C** **ASH** **F** **LOWS**
 **F** **OR** **** **THE** **Y** **EARS** **E** **NDED** **D** **ECEMBER** **31, 2004** **AND** **2003**
 
 **(in
      thousands)****2004**
    
    **2003**Cash
      Flows From Financing Activities:Advances
      and distribution (to)/from shareholder
    
    $
    —
    
    $
    (1,224
    )Sale
      of common stock
    
    
    1,200
    
    
    —Repurchase
      of common stock
    
    
    (621
    )
    
    —Proceeds
      from capital lease obligations
    
    
    71
    
    
    —Proceeds
      from borrowings
    
    
    1,370
    
    
    97Proceeds
      form borrowings - related party
    
    
    —
    
    
    42Repayment
      of capital lease obligations
    
    
    (140
    )
    
    (107
    )Prepayment
      of debt
    
    
    (1,399
    )
    
    (314
    )Repayment
      of debt - related party
    
    
    —
    
    
    (500
    )Net
      cash provided by (used in) financing activities
    
    
    481
    
    
    (2,006
    )Net
      Decrease in cash and cash equivalents
    
    
    (320
    )
    
    (247
    )Cash
      and cash equivalents, beginning of year
    
    
    540
    
    
    787Cash
      and cash equivalents, end of year
    
    $
    220
    
    $
    540Supplemental
      disclosures of cash flow information:Cash
      paid during the year for:Interest
    
    $
    223
    
    $
    206Taxes
    
    $
    1,248
    
    $
    1,170Supplemental
      schedule of non-cash activities:Acquisition
      of land and buildings at two locations on March 31, 2004:Assets
      acquiredProperty
      and equipment - net
    
    $
    973Liabilities
      acquiredMortgages
    
    
    347Net
      assets acquired
    
    $
    626
 
  F-9
  
 **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **C** **ONSOLIDATED** **S** **TATEMENTS** **** **OF** **C** **ASH** **F** **LOWS** ****
 **F** **OR** **** **THE** **Y** **EARS** **E** **NDED** **D** **ECEMBER** **31, 2004** **AND** **2003**
 
 **(in
      thousands)****2003**Supplemental
      schedule of non-cash activitiesAcquisition
      of Back2 Backs, Inc., on June 1, 2003:Assets
      acquiredProperty
      and equipment, net
    
    $
    2,866Accounts
      receivable and other assets
    
    
    574Cash
    
    
    76Total
      assets acquired
    
    
    3,516Liabilities
      acquired
    
    
    3,568Net
      assets acquired
    
    $
    (52
    )Acquisition
      of Freedom Financial, Inc., on June 1, 2003:Assets
      acquiredProperty
      and equipment, net
    
    $
    34Notes
      receivable
    
    
    1,463Accounts
      receivable and other assets
    
    
    832Cash
    
    
    103Total
      assets acquired
    
    
    2,432Liabilities
      acquired
    
    
    2,612Net
      assets acquired
    
    $
    (180
    )
 
  F-10
  **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 
 
 **1.** **Summary
of Significant Accounting Policies**
 
 Organization
and Business Operations
 
 Raybor
Management Inc. (“the Company” or “Raybor”) was incorporated in Delaware on
March 3, 2000 to serve as a vehicle to effect a merger, exchange of capital
stock, asset acquisition or other business combination with a domestic or
foreign private business.
 
 Effective
as of June 1, 2003, the Company acquired all of the issued and outstanding
shares of capital stock of four corporations in exchange for the issuance of
shares of the Company’s common stock. The acquired corporations, which are now
wholly-owned subsidiaries of the Company, are IC Marketing, Inc., a Nevada
corporation (“ICM”), American Consumer Publishing Association, Inc., an Oregon
corporation (“ACPA”), Back 2 Backs, Inc., an Oregon corporation (“B2B”) and
Freedom Financial, Inc., an Oregon corporation (“Freedom”). ICM and ACPA are in
the magazine subscription business. B2B is in the business of operating medical
clinics which offer the treatment of lower back disorders through a new
technology called spinal decompression and the management of chronic pain.
Freedom is in the business of providing account receivable and equipment lease
financing, business loans and other financial advisory services to third
parties.
 
 The
acquisition of ICM, ACPA, B2B and Freedom was conducted as a rollup with ICM and
ACPA as the acquiring entities in accordance with SEC Staff Accounting Bulletin
No. 97, “Accounting and Disclosure for Rollups of Businesses”. For purposes of
historical reporting, the combined financial statements of ICM and ACPA, the
largest operating unit in the group, are shown for comparative purposes as the
historical operating entity of Raybor Management. Effective with the
acquisition, ICM and ACPA have fully consolidated the financial activity with
B2B and Freedom. B2B’s and Freedom’s financial activities are included from June
1, 2003 forward. Due to the relative sizes of the combined entities, pro forma
results of Freedom and B2B are not presented in periods prior to June 1, 2003.
 
 During
2004, the Company entered into a joint venture partnership to form PainCare
Medical Services, LLC which is a variable interest entity associated with the
Company’s medical services division and the Company is the primary beneficiary.
In accordance with FIN 46, the partnership has been consolidated in the
Company’s financial statements. The partnership has assets of $198 and
nonrecourse debt of $11 as of December 31, 2004.
 
 During
2004, two variable interest entities contracted to receive management services
from the Company’s medical services division. The contracting entities were
consolidated in the Company’s consolidated financial statements in accordance
with FIN 46. The contractors have combined assets of $155 and nonrecourse debt
of $16 as of December 31, 2004.
 
 Basis
of presentation
 
 These
consolidated financial statements represent the financial activity of Raybor, a
publicly reporting company not currently listed on a stock exchange. The
consolidated financial statements for the years ended December 31, 2004 and 2003
have been prepared in accordance with generally accepted accounting principles.
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. All inter-company transactions have been
eliminated. On October 29, 2003, the Company’s Board of Directors changed the
Company’s fiscal year end from February 28  to
December 31.
 
 The
following summary of significant accounting policies of the Company is presented
to assist in understanding the Company’s financial statements. The financial
statements and notes are representations of the Company’s management, who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles in the US and have been
consistently applied in the preparation of the financial statements.
  F-11
  **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
   **1.** **Summary
of Significant Accounting Policies (continued)**
 
 Fair
value of financial instruments
 
 The
Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of the Company’s financial
instruments, including cash and cash equivalents, and accounts payable and
accrued liabilities, the carrying amounts approximate fair value due to their
short maturities.
 
 Use of
estimates
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosures of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Significant estimates include unamortized mail processing costs and
unamortized customer mail list costs. Actual results could differ from those
estimates.
 
 Contingencies
 
 Certain
conditions may exist as of the date the financial statements are issued, which
may result in a loss to the Company but which will only be resolved when one or
more future events occur or fail to occur. The Company’s management and its
legal counsel assess such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to
legal proceedings that are pending against the Company or unasserted claims that
may result in such proceedings, the Company’s legal counsel evaluates the
perceived merits of any legal proceedings or unasserted claims as well as the
perceived merits of the amount of relief sought or expected to be sought
therein.
 
 If the
assessment of a contingency indicates that it is probable that a material loss
has been incurred and the amount of the liability can be estimated, then the
estimated liability would be accrued in the Company’s financial statements. If
the assessment indicates that a potentially material loss contingency is not
probable but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the
range of possible loss if determinable and material, would be disclosed.
 
 Loss
contingencies considered remote are generally not disclosed unless they involve
guarantees, in which case the nature of the guarantee would be disclosed.
 
 Cash
and cash equivalents
 
 For
purposes of the statements of cash flows, cash equivalents include amounts
invested in a money market account with a financial institution. The Company
considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents. Cash equivalents are carried at cost,
which approximates market value.
  F-12
  **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
   **1.** **Summary
of Significant Accounting Policies (continued)**
 
 Property
and equipment
 
 Property
and equipment are recorded at cost less accumulated depreciation and
amortization. Expenditures for major additions and improvements are capitalized,
and minor maintenance, repairs and replacements are charged to expense as
incurred. When property and equipment are retired or otherwise disposed of, the
cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in the results of operations for the
respective period. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the respective assets
which range from 3 to 39 years. Various accelerated methods are used for tax
purposes.
 
 Acquisition
costs—customer mail list
 
 Customer
mail list represents the deferred cost of mail list purchases. The customer list
is being amortized based on an accelerated method over the approximate life of
the mail list purchases, which has been assumed to be 24 months, based on
historical experience. This method amortizes cost at the rate of 78% in the
first year, and 22% in the second year.
 
 Accounts
receivable
 
 Accounts
receivable are typically unsecured. The magazine division has customers who
choose to pay for their subscriptions in two installments, the second
installment due 30 days after the first. The medical division’s accounts
receivable represent amounts due from private insurance, Medicare and private
pay patients. The financing division makes secured accounts receivable loans to
clients and receives customer account receivable payments which are offset
against the loans made and fees charged for those loans.
 
 The
medical services division’s collection of receivables from third-party payors
and patients is a significant source of cash and is critical to its operating
performance. Significant changes in business operations, payor mix, economic
conditions or trends in federal and state governmental health coverage could
affect the Company’s collection of accounts receivable, cash flow and results of
operations.
 
 The
Company provides an allowance for doubtful accounts equal to the estimated
uncollectible amounts which is based upon historical collection experience and a
review of the current status of trade accounts receivable. It is reasonably
possible that the Company’s estimate of the allowance for doubtful accounts will
change.
 
 Loans
Receivable and Allowance for Loan Losses
 
 Loans are
stated at principal amount outstanding, net of the allowance for loan losses.
Interest on loans is primarily calculated by using the simple interest method on
daily balances of the principal amount outstanding. There are loss reserves of
$110 for the period ending December 31, 2004.
 
 F-13
 
  **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 
 
 **1.** **Summary
of Significant Accounting Policies (continued)**
 
 Deferred
revenue
 
 The
Company recognizes revenues as earned when the subscription remittance is made
to the magazine publisher for amounts received for subscriptions. Amounts
received in advance of the corresponding remittance to the magazine publisher
are recorded as a liability under “Deferred revenue.”
 
 Income
taxes
 
 The
Company accounts for its income taxes using the Financial Accounting Standards
Board Statements of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," which requires the establishment of a deferred tax asset or
liability for the recognition of future deductible or taxable amounts and
operating loss and tax credit carry-forwards. Deferred tax expense or benefit is
recognized as a result of timing differences between the recognition of assets
and liabilities for book and tax purposes during the year.
 
 Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Deferred tax assets are recognized for
deductible temporary differences and operating loss, and tax credit carry
forward. A valuation allowance is established to reduce that deferred tax asset
if it is "more likely than not" that the related tax benefits will not be
realized.
 
 Revenue
recognition- magazine subscriptions
 
 Revenues
derived from originating magazine subscriptions are recognized when the Company
has received payment from the customer and the corresponding remittance to the
magazine publisher or clearinghouse has been made by the Company. Revenues are
shown net of amounts remitted to publishers for magazine subscriptions.
 
 Magazine
revenues are reflected net of cancellation and collection reserves as well
amounts due to publishers. Such cancellation and collection reserves are based
upon Raybor’s historical cancellation and collection experience.
 
 Revenue
recognition-medical services
 
 Revenue
from medical services is reported on an accrual basis at established rates, net
of contractual allowances, in the period in which services are provided. A
significant portion of revenue is from federal and state reimbursement programs.
 
 Cost of
sales consists of direct medical technicians costs, medical services and medical
supplies associated with pain relief services and physician fees for evaluation
and interpretation of the treatments.
 
 Direct
response advertising
 
 The
Company capitalizes and amortizes the production costs of direct-response
advertising over its expected period of future benefits.
 
 F-14
 
 
 **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
   **1.** **Summary
of Significant Accounting Policies (continued)**
 
 Direct-response
advertising consists primarily of direct mail solicitations that include order
coupons for the Company’s magazines. The capitalized costs of the advertising
are amortized over the 4-month period following the mailing date based on
historical direct mail response patterns.
 
 Medical
services advertising
 
 Advertising
costs related to the medical services division amounted to $471 in 2004 and $83
in 2003.
 
 Earnings
per Share
 
 The
Company follows SFAS No. 128, "Earnings per Share," which establishes standards
for computing and presenting earnings per share ("EPS") and applies to entities
with publicly held common stock or potential common stock.
 
 Basic EPS
is computed by dividing net income (loss) by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through stock options,
warrants and other convertible securities when the effect would be dilutive.
Shares issued during the period and shares repurchased by the Company are
weighted for the portion of the period that they were outstanding for both basic
and diluted EPS calculations.
 
 The
Company had no dilutive securities in 2004 and 2003.
 
 Segments
of an Enterprise and Related Information
 
 The
Company follows SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information.” SFAS No. 131 requires that a public business enterprise
report financial and descriptive information about its reportable operating
segments on the basis that is used internally for evaluating segment performance
and deciding how to allocate resources to segments. The Company separately
evaluates its activities in each of 3 segments: Magazine subscription sales and
fulfillment, medical services and business financing activities.
 
 Adoption
of SFAS-133, “Accounting for Derivative Instruments and Hedging Activities”
 
 The
Company has adopted Financial Accounting Standards Board Statement No. 133
“Accounting for Derivative Instruments and Hedging Activities”, which requires
that all derivative instruments be recorded on the balance sheet at fair value.
The Company is currently not engaged in hedging activities, nor does it have any
derivative instruments, thus there is no impact on the current period's
financial statements
  F-15
  **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 
 
 **1.**  **Summary
of Significant Accounting Policies (continued)**
 
 Comprehensive
income (loss)
 
 Comprehensive
income consists of net income and other gains and losses affecting shareholder’s
equity that under generally accepted accounting principles are excluded from net
income in accordance with Statement on Financial Accounting Standards No. 130,
“Reporting Comprehensive Income.” The Company, however, does not have any
components of comprehensive income (loss) as defined by SFAS No. 130 and
therefore, for the years ended December 31, 2004 and 2003, comprehensive income
(loss) is equivalent to the Company’s reported net income (loss).
 
 Business
risks and uncertainties
 
 The
Company operates in the field of magazine subscription sales. The Company’s
success is dependent upon having access to clearinghouses and magazine
publishers for the remittance of its subscription sales.
 
 The
Company’s medical division provides a majority of its medical services to
patients receiving Medicare. A change in Medicare billing procedures would have
a profound affect on the medical division’s ability to provide medical
services.
 
 Recent
accounting pronouncements
 
 In
January 2003, the FASB issued Interpretation No. 46 ("FIN 46") "Consolidation of
Variable Interest Entities.” Until this interpretation, a company generally
included another entity in its consolidated financial statements only if it
controlled the entity through voting interests. FIN 46 requires a variable
interest entity, as defined, to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual returns.
Three variable interest entities have been consolidated by the Company into its
healthcare division.
 
 In April
2003, the FASB issued SFAS 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities", which amends SFAS 133 for certain decisions
made by the FASB Derivatives Implementation Group. In particular, SFAS 149: (1)
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative, (2) clarifies when a derivative
contains a financing component, (3) amends the definition of an underlying
instrument to conform it to language used in FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others," and (4) amends certain other
existing pronouncements. This Statement is effective for contracts entered into
or modified after June 30, 2003, and for hedging relationships designated after
June 30, 2003. In addition, most provisions of SFAS 149 are to be applied
prospectively. The adoption of this statement did not have an impact on the
Company’s results of operations or financial position.
 
 In May
2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity" ("SFAS 150").
SFAS 150 changes the accounting for certain financial instruments that under
previous guidance issuers could account for as equity. It requires that those
instruments be classified as liabilities in balance sheets. The guidance in SFAS
150 is generally effective for all financial instruments entered into or
modified after May 31, 2003, and otherwise is effective on July 1, 2003.
Management does not expect the adoption of SFAS 150 to have a material impact on
the Company’s financial position, cash flows or results of operations.
  F-16
  **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 
 
 **1.**  **Summary
of Significant Accounting Policies (continued)**
 
 Recent
accounting pronouncements (continued)
 
 In
December 2004, the FASB issued FASB Statement No. 123 (revised 2004),
“Shared-Based Payment.” Statement 123(R) addresses the accounting for
share-based payment transactions in which an enterprise receives employee
services in exchange for (a) equity instruments of the enterprise or (b)
liabilities that are based on the fair value of the enterprise’s equity
instruments or that may be settled by the issuance of such equity instruments.
Statement 123(R) requires an entity to recognize the grant-date fair-value of
stock options and other equity-based compensation issued to employees in the
income statement. The revised Statement generally requires that an entity
account for those transactions using the fair-value-based method, and eliminates
the intrinsic value method of accounting in APB Opinion No. 25, “Accounting for
Stock Issued to Employees”, which was permitted under Statement 123, as
originally issued. The revised Statement requires entities to disclose
information about the nature of the share-based payment transactions and the
effects of those transactions on the financial statements. Statement 123(R) is
effective for public companies that do not file as small business issuers as of
the beginning of the first interim or annual reporting period that begins after
June 15, 2005 (i.e., fourth quarter 2005 for the Company). All public companies
must use either the modified prospective or the modified retrospective
transition method. Early adoption of this Statement for interim or annual
periods for which financial statements or interim reports have not been issued
is encouraged. The Company has not yet evaluated the impact of adoption of this
pronouncement which must be adopted in the fourth quarter of our fiscal year
2005.
 
 In
November 2004, the FASB issued Statement No. 151, “Inventory Costs”, to amend
the guidance in Chapter 4, “Inventory Pricing”, of FASB Accounting Research
Bulletin No. 43, “Restatement and Revision of Accounting Research Bulletins.”
Statement No. 151 clarifies the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). The Statement
requires that those items be recognized as current-period charges. Additionally,
Statement 151 requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. Statement No. 151 is effective for fiscal years beginning after June
15, 2005. Management does not expect the adoption of FASB Statement No. 151 to
have a material impact on the Company’s results of operations or financial
position.
 
 As part
of its short-term international convergence project with the IASB, on December
16, 2004, the FASB issued Statement 153 to address the accounting for
non-monetary exchanges of productive assets. Statement 153 amends APB No. 29,
“Accounting for Non-monetary Exchanges”, which established a narrow exception
for non-monetary exchanges of similar productive assets from fair value
measurement. This Statement eliminates that exception and replaces it with an
exception for exchanges that do not have commercial substance. Under Statement
153 non-monetary exchanges are required to be accounted for at fair value,
recognizing any gains or losses, if their fair value is determinable within
reasonable limits and the transaction has commercial substance. The Statement
specifies that a non-monetary exchange has commercial substance if future cash
flows of the entity are expected to change significantly as a result of the
exchange. An entity should apply the provisions of Statement 153 prospectively
for non-monetary asset exchange transactions in fiscal periods beginning after
June 15, 2005. The Company will adopt this Statement in fiscal 2005 and adoption
is not expected to have a material impact on our financial position or results
of operations.
  F-17
  **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 
 
 **2.** **Direct-Response
Advertising**
 
 During
2004 and 2003, the Company capitalized direct-response advertising costs of
$4,411 and $12,504, respectively. The unamortized portion of direct response
advertising is reflected in “unamortized mail processing costs” in the
accompanying balance sheets.
 
 Amortized
direct-response advertising expense was $4,476 and $12,799 in 2004 and 2003,
respectively, for amounts related to capitalized direct-response advertising
costs.
 
 Capitalized
direct response advertising costs, net of amortization, were $405 and $486 at
December 31, 2004 and 2003 respectively, and are included in prepaid mail
costs.
 
 
 **3.** **Customer
Mail List**
 
 During
2004 and 2003, the Company capitalized mail list purchases of $1,497 and $430,
respectively. The unamortized portion of mail list purchases is reflected in
“unamortized mail list costs” in the accompanying balance sheets.
 
 Amortized
mail list expense was $1,178 and $1,738 in 2004 and 2003, respectively for
amounts related to certain capitalized direct-response advertising costs.
 
 Capitalized
mail list costs, net of amortization, were $950 and $633 at December 31, 2004
and 2003 respectively, and are included in prepaid mail costs.
 
   F-18
   **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 
 
 **4.**  **Accounts
Receivable**
 
 Accounts
receivable consist of the following:
 
 **2004**
    
    **2003**Medical
      services patient receivables
    
    $
    1,577
    
    $
    378Less:
      allowance for doubtful accounts
    
    
    669
    
    
    143908
    
    
    235Financial
      factored accounts receivable
    
    
    140
    
    
    1,367Less:
      allowance for doubtful accounts
    
    
    70
    
    
    2570
    
    
    1,342Direct
      marketing installment sales receivable
    
    
    307
    
    
    723Less:
      allowance for doubtful accounts
    
    
    46
    
    
    109261
    
    
    614Direct
      marketing purchased services receivable
    
    
    
    
    
    297Total
      accounts receivable, net of allowance for doubtful
accounts
    
    $
    1,239
    
    $
    2,488
 
 
 During
2004, the financial services division wrote down $796 of factored accounts
receivable related to a major client which filed for bankruptcy.
  Medical
services patient receivables
 
 In 2004
and 2003, in the Company’s B2B division, net revenues were derived under federal
(Medicare) and state healthcare reimbursement programs. These revenues are
based, in part, on cost reimbursement principles and are subject to audit and
retroactive adjustment by the respective third-party fiscal intermediaries. In
the opinion of management, retroactive adjustments, if any, would not be
material to the financial position, results of operations or cash flows of the
company. Currently, the Company is undergoing an audit by the fiscal
intermediary for Medicare.
 
 Direct
marketing installment sales receivable
 
 In 2004
and 2003, in the Company’s direct marketing division, accounts receivable
consist of trade sales receivable on an installment basis.
 
 Direct
marketing purchased services receivable
 
 In 2003,
direct marketing provided magazine sales processing services to a related party,
Golden Services at cost.
  F-19
 
 **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 
  **5.** **Notes
Receivable**
 
 Notes
receivable consists of the following at December 31, 2004 and
2003:
  2004
    
    
    2003Due
      from a company and an individual with interest at 12%; payable monthly at
      $313 with final payment due Sept. 2005; collateralized by various business
      assets
    
    $
    17
    
    $
    19Due
      with interest at 10% with payments of $685 per month for 23 months;
      balance due Feb. 2006
    
    
    11
    
    
    -Due
      with interest at 10% in May, 2005 collateralized by
    inventory
    
    
    159
    
    
    -Advance
      collateralized by factored accounts receivable
    
    
    49
    
    
    220Advance
      collateralized by factored accounts receivable
    
    
    31
    
    
    12Due
      with interest at 12% in August, 2003; collateralized by various business
      assets
    
    
    150
    
    
    150Due
      on demand from related party with interest at 12%, collateralized by
      inventory
    
    
    -
    
    
    213Due
      with interest at 5% in March, 2003; collateralized by various business
      assets
    
    
    -
    
    
    21Due
      from an individual with payments of $500 per month through August 2004;
      uncollateralized
    
    
    -
    
    
    4Due
      with interest at 12% with principal and interest due on demand; secured by
      various business assets
    
    
    25
    
    
    25Due
      from two individuals with interest at 12% payable quarterly, principal
      balance due June, 2004
    
    
    -
    
    
    25Due
      from an individual with interest at 12% on demand
    
    
    4
    
    
    2Various
      one year notes with interest at 15% and principal due at the end of the
      note term, with due dates ranging from August to December, 2004,
      guaranteed by major shareholder of the Company
    
    
    -
    
    
    958Due
      on demand with interest at 12%
    
    
    -
    
    
    150446
    
    
    1,799Less
      reserve for uncollectible accounts
    
    
    (110
    )
    
    -Total
      amounts due
    
    
    336
    
    
    1,799Less
      current amounts due
    
    
    (332
    )
    
    (1,033
    )Long
      term amounts due
    
    $
    4
    
    $
    766
 
 
 During
2004, the Company’s financial services division wrote down $474 of notes
receivable primarily due to the bankruptcy of a major client.
 
 F-20
  **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 
 
 **6.** **Property
and Equipment**
 
 Property
and equipment consisted of the following at December 31:
  2004
    
    
    2003Land
    
    $
    392
    
    $
    187Buildings
      and improvements
    
    
    2,085
    
    
    1,225Computer
      Equipment
    
    
    210
    
    
    164Office
      Equipment
    
    
    191
    
    
    88Medical
      Equipment
    
    
    1,842
    
    
    1,035Automobile
    
    
    3
    
    
    -Airplane
    
    
    249
    
    
    -Total
    
    
    4,972
    
    
    2,699Less
      accumulated depreciation
    
    
    (850
    )
    
    (412
    )Construction
      in process
    
    
    -
    
    
    34Net
      property and equipment
    
    $
    4,122
    
    $
    2,321
 
 Depreciation
expense for 2004 and 2003 was $435 and $214, respectively. Construction in
process consisted of building improvements which were completed in
2004.
 
 Leased
equipment consists primarily of DRX 9000 Spinal Decompression Systems. The
estimated useful life, for financial reporting purposes, is 5 years. Office
equipment consists primarily of telephone and electronic
equipment.
 
 **7.** **Accrued
Expenses**
 
 Accrued
expenses consisted of the following at December 31:
  2004
    
    
    2003Insurance
    
    $
    114
    
    $
    -Remittance
      costs
    
    
    -
    
    
    115Refunds
      payable
    
    
    65
    
    
    65Interest
      payable
    
    
    -
    
    
    75Escrow
      reserve
    
    
    27
    
    
    110Interest
    
    
    -
    
    
    27Payroll
      taxes
    
    
    65
    
    
    8Loss
      contingency
    
    
    50
    
    
    200Professional
      fees
    
    
    146
    
    
    80Other
    
    
    16
    
    
    31$
    483
    
    $
    711
  F-21
  **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 
 
 **8.** **Notes
Payable**
 
 Notes
payable consist of the following at December 31:
 
 2004
    
    20036.9%
      note payable to bank, through June 2014, collateralized by real
      estate
    
    $
    1,357
    
    $
    -7.75%
      note payable to bank, through March 2017, collateralized by real
      estate
    
    
    -
    
    
    4217.88%
      note payable to bank, through November 2025, collateralized by real
      estate
    
    
    -
    
    
    5357.98%
      note payable to bank, through July 2011, collateralized by equipment,
      furniture and fixtures
    
    
    -
    
    
    831,357
    
    
    1,039Less
      current portion
    
    
    (34
    )
    
    (42
    )Long-term
      portion of notes payable
    
    $
    1,323
    
    $
    997
 
 
 Future
payments on the notes payable as of December 31, 2004, are summarized as
follows:
 
  2005
    
    $
    342006
    
    
    362007
    
    
    392008
    
    
    422009
    
    
    45Thereafter
    
    
    1,161$
    1,357
 
  **9.**   **Minority
Interest**
 
 On
February 10, 2004, the Company entered into a joint venture partnership between
Back 2 Backs, Inc., and Richard P. Schork to form a limited liability company
under the Beverly-Killea Limited Liability Company Act. Each member owns a 50%
interest in the partnership in exchange for an initial capital contribution of
$300. The partnership was established for the purpose of operating pain
management clinics in southern California, and will operate under the name
PainCare Medical Centers, LLC.
 
 As of
December 31, 2004, the Company made capital contributions of $485 to PainCare
Medical Centers, LLC. Contributions from the other member of the partnership
total $200 as of December 31, 2004. As a result of the additional capital
contributions made by the Company, the partnership is considered a variable
interest entity and is consolidated in the financial statements of the Company
in accordance with FIN-46 as of December 31, 2004.
 
 F-22
 ****
 **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 
 
 **10.** **Stockholders’
Equity**
 The
Company issued shares of common stock callable at $.05 per share during 2004 as
follows:
 
 Number
      of shares
    
    Value
    
    Asset
      acquired12,524,620
    
    $
    626
    
    
    Land
      and buildings24,000,000
    
    $
    1,200
    
    
    Cash36,524,620
    
    $
    1,826
 
 The
callable element in each of the stock transactions noted above means that the
Company is granted the right, exercisable at any time, to repurchase all or any
portion of the shares at the original purchase price of $.05 per share, plus six
percent (6%) per annum simple interest from the date of the purchaser’s original
acquisition of the shares from the Company.
 
 The
Company repurchased 12,421,524 shares of common stock from related parties
during 2004 for $621.
 
 The
Company issued 3,000,180 and 4,000,000 shares of common stock for the
acquisition of the subsidiaries Back 2 Back’s and Freedom Financial,
respectively in 2003.
 
 **11.** **Income
Taxes**
 
 Deferred
taxes are computed based on the expected tax liability or benefit in future
years of the reversal of temporary differences in the recognition of income or
deduction of expenses between financial and tax reporting purposes. The
principal items resulting in the differences are the timing of bad debt write
offs, ACRS/MACRS accelerated depreciation, nondeductible reserves and the IRC
Section 481 cash to accrual income adjustment. The net difference between tax
expense and taxes currently payable is reflected in the balance sheet as
deferred taxes. Deferred tax assets and/or liabilities are classified as current
or non-current based on the classification of related asset or liability for
financial reporting. Valuation allowances are established when necessary to
reduce deferred tax to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
 
 Through
the merger date of June 1, 2003, the Company’s sole shareholder elected S
corporation status and accordingly all taxes were reported on the shareholder’s
tax return through May 31, 2003. Effective June 1, 2003, the Company became a C
corporation and changed its method of reporting to the tax authorities from the
cash basis to the accrual basis which results in additional taxes due of $1,444
of which $722 was paid by the Company’s original shareholder. The Company
elected to pay its share of the tax liability in two installments, one in 2003
and one in 2004.
 
 F-23
  **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 
 
 **11.** **Income
Taxes (continued)**
 
 Components
of the provision (benefit) for taxes based on income for the years ended
December 31 are as follows:
  2004
    
    2003Current
      tax expenseFederal
    
    $
    406
    
    $
    626State
    
    
    67
    
    
    121473
    
    
    747Deferred
      tax expenseFederal
    
    
    (160
    )
    
    (149
    )State
    
    
    (47
    )
    
    (18
    )(207
    )
    
    (167
    )Provision
      for income taxes
    
    $
    266
    
    $
    580
 
 
 A
reconciliation of the provision for income tax expense with the expected income
tax computed by applying the federal statutory income tax rate to income before
provision for (benefit from) income taxes for the years ended December 31 is as
follows:
 
 2004
    
    2003US
      statutory rate
    
    
    34
    %
    
    34
    %State
      income taxes
    
    
    7
    %
    
    4
    %Other
    
    
    (1
    %)
    
    (3
    %)Effective
      rate
    
    
    40
    %
    
    35
    %
 
   F-24
  **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
   **11.** **Income
Taxes (continued)**
 
 The
components of deferred tax assets and liabilities at December 31, 2004 are as
follows:
  Deferred
      income tax assets
    
    
    2004
    
    
    2003Current
    
    
    Federal
    
    
    State
    
    
    Federal
    
    
    StateProvision
      for uncollectible accounts
    
    $
    267
    
    $
    34
    
    $
    34
    
    $
    7Nondeductible
      reserves
    
    
    17
    
    
    2
    
    
    64
    
    
    13State
      tax
    
    
    -
    
    
    -
    
    
    63
    
    
    -NoncurrentNet
      Operating loss carryforwards
    
    
    -
    
    
    -
    
    
    95
    
    
    10Total
      deferred assets
    
    
    284
    
    
    36
    
    
    256
    
    
    30Deferred
      income tax liabilitiesCurrentSection
      481 adjustment
    
    
    -
    
    
    -
    
    
    (299
    )
    
    (62
    )NoncurrentDepreciation
    
    
    (273
    )
    
    (35
    )
    
    (12
    )
    
    (3
    )Total
      deferred tax liabilities
    
    
    (273
    )
    
    (35
    )
    
    (311
    )
    
    (65
    )Net
      deferred tax liabilities before valuation allowance
    
    
    11
    
    
    1
    
    
    (55
    )
    
    (35
    )Valuation
      allowance
    
    
    -
    
    
    -
    
    
    (95
    )
    
    (10
    )Net
      deferred tax liabilities
    
    $
    11
    
    $
    1
    
    $
    (150
    )
    $
    (45
    )
 
 The IRC
Section 481 adjustment which results from the conversion of the tax-reporting
basis from cash to accrual basis was $361 at December 31, 2003.
 
 **12.**  **Line
of Credit**
 
 The
Company has a $750 line of credit collateralized by real estate with a bank at
..5% above “prime rate” with a maturity date of June 28, 2005. The outstanding
balance of the line of credit as of December 31, 2004 is $398.
 
 At
December 31, 2003, the Company borrowed the full amount of its $500 line of
credit with a bank. This amount was repaid during 2004.
 
 F-25
 
 **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 ****
 **13.**  **Segment
and Geographical Operations**
 
 The
Company has adopted SFAS No. 131, “Disclosures about Segments of an Enterprise
and Related Information.” SFAS 131 requires enterprises to report information
about operating segments in annual financial statements and selected information
about reportable segments in interim financial reports issued to shareholders,
on the basis that is used internally for evaluating segment performance and
deciding how to allocate resources to segments. It also established standards
for related disclosures about products and services, geographic areas and major
customers.
 
 The
Company has identified its three primary operating segments as direct mail
marketing, medical services and financial services. Segment revenue for the
years ended December 31, 2004 and 2003 are as follows:
  2004
    
    2003Segment
      Revenues:Direct
      mail marketing
    
    $
    14,923
    
    $
    22,591Medical
      Services
    
    
    4,117
    
    
    874Financial
      services
    
    
    301
    
    
    216Total
      Revenues
    
    $
    19,341
    
    $
    23,681
 
 Segment
      Operating Profit:Direct
      mail marketing
    
    $
    7,126
    
    $
    5,148Medical
      Services
    
    
    (3,322
    )
    
    (651
    )Other
      (Corporate)
    
    
    (1,437
    )
    
    (865
    )Financial
      services
    
    
    (1,670
    )
    
    (35
    )Total
      Operating Profit
    
    $
    697
    
    $
    3,597
 
 Segment
      Assets:Direct
      mail marketing
    
    $
    1,845
    
    $
    2,475Medical
      Services
    
    
    2,733
    
    
    2,363Other
      (Corporate)
    
    
    3,616
    
    
    3,487Financial
      services
    
    
    510
    
    
    231Total
      Assets
    
    $
    8,704
    
    $
    8,556
 
  F-26
 
 
 **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 
 
 **13.** **Segment
and Geographical Operations (continued)**
 
 2004
    
    2003Segment
      Liabilities:Direct
      mail marketing
    
    $
    2,188
    
    $
    3,169Medical
      Services
    
    
    1,133
    
    
    2,331Other
      (Corporate)
    
    
    2,396
    
    
    1,123Financial
      services
    
    
    88
    
    
    705Total
      Liabilities
    
    $
    5,805
    
    $
    7,328
   2004
    
    2003Segment
      Depreciation:Direct
      mail marketing
    
    $
    68
    
    $
    54Medical
      Services
    
    
    338
    
    
    157Other
      (Corporate)
    
    
    21
    
    
    -Financial
      services
    
    
    8
    
    
    3Total
      Depreciation
    
    $
    435
    
    $
    214
 
 
 Geographically,
the Company’s sole segment is domestic; it has no export sales or international
operations.
 
  **14.** **Commitments
and Contingencies**
 
 Legal
 
 The
Company is periodically involved in legal actions and claims that arise as a
result of events that occur in the normal course of operations. The Company has
been named as a defendant in various lawsuits. These claims are in various
stages and include demands for monetary damages and remedial actions. In some
cases, the dollar amounts of the claims have not been specified. The Company is
vigorously defending itself against these lawsuits, based on the advice of the
Company’s legal counsel. The Company accrues costs associated with litigation
matters, on an undiscounted basis, when they become more likely than remote and
are reasonably estimable. As of December 31, 2004, the Company has accrued $50,
which represents its current estimate of the probable settlements, including
legal costs.
 
 However,
if the cases go to trial, the amount of the ultimate loss to the Company, if
any, may equal or exceed the amount of accrued costs.
 
 F-27
  **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 ****
 ****
 **14.** **Commitments
and Contingencies (continued)**
 
 Operating
Leases
 
 As of
December 31, 2004, the Company leased the following medical
offices:
 
 Location
    
    Monthly
      Rent(in
      000’s)
    
    Lease
      TermFresno,
      California
    
    4
    
    60 monthsSacramento,
      California
    
    4
    
    60
      monthsReno/Sparks,
      Nevada
    
    4
    
    60
      monthsLas
      Vegas, Nevada
    
    3
    
    60
      monthsBoise,
      Idaho
    
    3
    
    60
      monthsLake
      Oswego, Oregon
    
    5
    
    60
      monthsMiami
      Lakes, Florida
    
    5
    
    60
      monthsOrlando,
      Florida
    
    4
    
    60
      monthsPhoenix,
      Arizona
    
    5
    
    60
      monthsWest
      Palm Beach, Florida
    
    4
    
    60
      monthsTucson,
      Arizona
    
    5
    
    60
      monthsFort
      Myers, Florida
    
    4
    
    60
      monthsAlbuquerque,
      New Mexico
    
    4
    
    60
      monthsFort
      Lauderdale, Florida
    
    2
    
    60
      monthsReno,
      Nevada
    
    5
    
    60
      monthsDaytona,
      Florida
    
    2
    
    60
      monthsTampa,
      Florida
    
    2
    
    60
      monthsArcadia,
      California
    
    3
    
    76
      monthsFullerton,
      California
    
    4
    
    90
      months
 The
aggregate future lease commitments under these operating leases are:
 
 Year
      Ending December 31,2005
    
    $
    9252006
    
    
    9902007
    
    
    1,0262008
    
    
    9602009
    
    
    580Thereafter
    
    
    166$
    4,647
 
 
 For the
years ended December 31, 2004 and 2003, rent expense was $525 and $115,
respectively.
 
 F-28
 
 **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
   **14.** **Commitments
and Contingencies (continued)**
 
 Capital
Leases
 
 The
Company leases nine DRX-9000 spinal decompression machines in its medical
services subsidiary. Property, Plant and Equipment include gross assets acquired
under capital leases of $730 and $660 at December 31, 2004 and 2003,
respectively. Related amortization included in accumulated depreciation was $322
and $188 at December 31, 2004 and 2003, respectively. Capital leases are
included as Medical Equipment. Amortization of capital leases is included in
depreciation expense. Seven leases have a term of 60 months and one lease has a
term of 48 months.
 
 As of
December 31, 2004, current and long-term lease commitments were:
 
 2005
    
    $
    1672006
    
    
    1892007
    
    
    1112008
    
    
    37$
    504
   **15.** **Concentrations**
 
 Concentration
of cash
 
 The
Company at times maintains cash balances in excess of the federally insured
limit of $100 per institution. There were no uninsured balances as of December
31, 2004 and $198 as of 2003.
 
 Company
is dependent on few major suppliers
 
 The
Company is dependent on third-party clearinghouses for all of its supply of
magazines. In 2004 and 2003 products purchased from the Company’s largest
clearinghouse accounted for approximately 70% of product purchases. The Company
is dependent on the ability of its clearinghouses to provide products on a
timely basis and on favorable pricing terms. The loss of certain principal
suppliers or a significant reduction in product availability from principal
suppliers could have a material adverse effect on the Company. The Company
believes that its relationships with its suppliers are satisfactory. However,
the Company has periodically experienced inadequate supply from certain magazine
clearinghouses.
 
 The
Company is an operator of medical clinics that provide non-chiropractic
treatment for back pain without surgery. The Company’s success is largely
dependent on its ability to provide medical treatment to its customers and to
provide a solution that satisfies patient and doctor demands. The Company’s
failure to anticipate, identify, or react to changes in medical treatment
options for back pain could affect its results of operations in the future.
 
 Net
patient revenue attributable to Medicare and State Healthcare Programs was
approximately 50% of net patient revenue in 2004 and 2003.
 
 F-29
  **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 
 **16.** **Related
Party Transactions**
 
 SP&H
Corporation
 
 SP&H
is controlled by Jeff Hoyal and Dennis Simpson. Jeff Hoyal is the president and
CEO of Raybor Management Inc., and Dennis Simpson is a majority shareholder of
the Company and president of one of the Company’s subsidiaries.
 
 During
2003, the Company made or accrued payments to SP&H Corporation totaling $88
for Company use of a private plane owned by SP&H Corporation.
 
 During
2004, the Company made or accrued payments to SP&H Corporation totaling $92
for Company use of a private plane owned by SP&H Corporation.
 
 In
December 2004, the Company purchased a private plane owned by SP&H
Corporation for $249.
 
 Simpson
& Hoyal G.P.
 
 Simpson
& Hoyal G.P. is a general partnership owned by Dennis Simpson and Jeff
Hoyal. During 2004, the Company entered into the following transactions with the
partnership:
 
 a.)
    Made rent payments
      totaling $16 for properties occupied by the Company and owned by Simpson
      & Hoyal, G.P.
 
 b.)
    Factored accounts
      receivable in the amount of $30 owed to the partnership from a third
      party. This amount was paid in full in
2004.
 
 During
2003, the Company entered into the following transactions with the
partnership:
 
 a)
    Made rent payments
      totaling $61 for properties occupied by the Company and owned by Simpson
      & Hoyal, G.P.
 
 b)
    Paid $16 for
      Company use of a private plane owned by the
partnership.
 
 c)
    Factored accounts
      receivable in the amount of $30 owed to the partnership from a third
      party.
  Indian
Motorcycle of Medford, Inc.
 
 The
Company loaned $200 to Indian Motorcycle of Medford, Inc., a corporation
controlled by Dennis Simpson and Jeff Hoyal. The note is due in September 2004
and carries an annual interest rate of 12%. As of December 31, 2003, the balance
due including accrued interest is $213. This amount was repaid in January
2004.
 
 F-30
 
 **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 ****
 
 **16.** **Related
Party Transactions (continued)**
 
 Jeffrey
D. Hoyal
 
 The
following related party transactions were identified with regard to Mr.
Hoyal.
 
 a)
    The
      Company remitted certain magazine subscriptions through Western Pacific
      Publishing (WPP), a corporation owned by a relative of Mr. Hoyal. Total
      remittances through WPP were $143 in 2004 and $717 in
  2003.b)
    The
      Company remitted certain magazine subscriptions through Mid-West Magazine
      Services (MWMS), a corporation owned by a relative of Mr. Hoyal. Total
      remittances through MWMS were $522 in 2003c)
    The
      Company has a management consulting agreement with Hoyal and Associates, a
      company owned by Mr. Hoyal, to provide management expertise. The Company
      paid consulting fees totaling $202 in 2004 and $154 in
    2003.d)
    During
      2004, the Company received $209 from two organizations owned by relatives
      of Jeffrey D. Hoyal for processing direct mail subscriptions on their
      behalf.
  Dennis
L. Simpson
 
 As of
December 31, 2003, the Company has a note payable to Mr. Simpson in the amount
of $911 as a result of loans from Mr. Simpson to the Company. The note carries
an annual interest rate of 12%. During 2004, the balance due on this loan
including interest payable of $17 was exchanged for a loan receivable from
Premier Home & Improvement which was due to the Company.
 
 During
the year ended December 31, 2003, the Company loaned approximately $983 to
Premier Home & Improvement, a corporation owned by Dennis Simpson. The loans
were secured by a note with annual interest of 12% and were guaranteed by Dennis
Simpson, the Company’s majority shareholder. Premier Home & Improvement
defaulted on its note receivable and the Company demanded that Mr. Simpson repay
the note. The Company and Mr. Simpson negotiated a settlement of the note that
resulted in a reduction in the note by $928 in a swap for a loan due from the
Company to Dennis Simpson. The remaining balance of $55 on the loan and interest
of $79 was written off as bad debt expense.
 
 On March
31, 2004, the Company sold 24,000 shares of common stock callable at $.05 per
share to Dennis L. Simpson for $1,200 in cash.
 
 F-31
 
 **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 ****
 ****
 **16.** **Related
Party Transactions (continued)**
 
 Medford,
OR and White City, OR Properties
 
 On March
31, 2004, the Company issued 3,821 shares of common stock callable at $.05 per
share to Dennis L. Simpson and 3,821 shares of common stock callable at $.05 per
share to Jeffrey D. Hoyal for the purchase of an office building in White City,
Oregon. The Company also assumed the remaining mortgage on the property of $140.
The total purchase price of the property was $523. Mr. Simpson is a majority
shareholder of the Company’s common stock, and President of one of the Company’s
subsidiaries. Mr. Hoyal is President
 and Chief
Executive Officer of the Company.
 
 On March
31, 2004, the Company issued 2,442 shares of common stock callable at $.05 per
share to Dennis
 L.
Simpson and 2,442 shares of common stock callable at $.05 to Jeffrey D. Hoyal
for the purchase of an office building in Medford, Oregon. The Company also
assumed the remaining mortgage on the property of $207. The total purchase price
of the property was $450.
 
 The
callable element in each of the stock transactions noted above means that the
Company is granted the right, exercisable at any time, to repurchase all or any
portion of the shares at the original purchase price, plus six percent (6%) per
annum simple interest from the date of the purchaser’s original acquisition of
the shares from the Company.
 
 On April
30, 2004, the Company repurchased 4,080 shares of callable common stock from
Jeffrey D. Hoyal at a price of $0.05 per share.
 
 On
September 30, 2004, the Company repurchased 2,182 shares of callable common
stock from Jeffrey D. Hoyal at a price of $0.05 per share.
 
 On
September 30, 2004, the Company repurchased 2,956 shares of callable common
stock from Dennis L. Simpson at a price of $0.05 per share.
 
 On
October 31, 2004, the Company repurchased 3,203 shares of callable common stock
from Dennis L. Simpson at a price of $.05 per share.
 
 Northwest
Pain Management
 
 Dr.
Thomas Purtzer, shareholder and former member of Back2Back management, is sole
owner of Northwest Pain Management. Northwest Pain Management is contracted with
Back2Backs to provide management consulting services and patient care services
and the financing of one DRX machine. Payments to Northwest Pain Management
during 2004 were:
 
 Nature
      of Transactions
    
    
    Amount
      ($)Contracted
      Physicians
    
    
    
    344Purchase
      of Equipment
    
    
    
    30Patient
      Refunds
    
    
    
    1375
 
 F-32
  **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
   **16.** **Related
Party Transactions (continued)**
 
 PainCare
Medical Centers LLC
 
 Richard
Schork, who owns 50% of PainCare Medical Centers, LLC and its Chief Executive
Officer is a relative of Mr. Jeff Hoyal.
 
 Mid-West
Magazine Services
 
 The
Company remits certain magazine subscriptions through Midwest Magazine Services
Company, which is owned by a relative of Mr. Hoyal. A total of $552 in magazine
subscription remittances were conducted through Midwest Magazine Services in
2003.
 
 Littlefield
Masonry
 
 Littlefield
Masonry is owned by Larry Littlefield, who was related to Noel Littlefield, the
CFO of the Company. The Company loaned Littlefield Masonry $15 in 2004 at 10%
interest payable in monthly installments through February 2006.
 
 Golden
Services of America - Ackermann
 
 The
Company paid $335 in commissions and $111 for management consulting services, in
the area of telemarketing and other magazine subscription sales practices, to
Golden Services of America in 2004. The Company paid $154 in commissions to
Golden Services of America in 2003. Golden Services of America is owned by
Noreen and John Ackerman. Noreen Ackerman is a shareholder in the company and an
employee of Raybor as Publisher Relations Director.
 ****
 ****
 **17.** **Subsequent
Events**
 Lease
 
 The
Company entered into a lease agreement for the rental of clinic space in Century
City, California for its medical services division in 2005. The monthly rent is
$7 and the term of the lease is 19 months. The Company is obligated to pay $60
in 2005 and $69 in 2006.
 
 Equipment
 
 In March
2005, the medical services division acquired two used DRX machines, for use in
the Century City, California medical clinic, at a total cost of
$55.
 
 
 
 **RAYBOR
MANAGEMENT, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 ****
 ****
 **17.** **Subsequent
Events (continued)**
 
 Financing
Arrangement
 
 On
January 3, 2005, the Company entered into a Securities Purchase Agreement (the
Loan Agreement) with C3 Capital Partners, LP. The maximum amount that may be
borrowed under the Loan Agreement is $4,500. Borrowings will bear interest of
12% per annum.
 
 In
January 2005, the Company issued an initial 12% Secured Note in the principal
amount of $1,500, and a warrant to purchase 1,272,227 shares of the Company’s
common stock at an exercise price of $0.0001 per share. The Warrants are
exercisable at the discretion of the note holder in whole or in part at any time
before the later of the tenth anniversary of the issuance of the warrants or the
date on which all principal and interest on the Notes is indefeasibly paid in
full. The Loan Agreement states that the initial fair value of the initial Note
issued is $1,450 and the fair value of the Warrant is $50. The Company intends
to use the proceeds for general corporate purposes, including working capital
and equipment purchases, and to finance the opening of new medical
clinics.
 
 The Loan
Agreement provides for an additional two borrowings aggregating to $3,000
through January 3, 2006 (the Maturity Date). In connection with these additional
borrowings, the Company must issue an additional 2,544,454 warrants to purchase
shares of the Company’s common stock at a nominal price.
  Under the
terms of the Loan Agreement, the Company granted to the note holder a security
interest in all of the Company’s right, title and interest in all of its
property, wherever located, whether such property of right, title, or interest
is now owned or existing or subsequently acquired. Additionally, the Company has
pledged all the shares of its wholly owned subsidiaries as collateral. The Loan
Agreement has various covenants, that the Company must adhere to for it to be
not in default. If a covenant is breached and it is deemed to have a material
adverse effect on operations, the Company has 15 days to cure the breach. The
Company incurred closing fees of $98 related to this Loan Agreement. The Company
will also incur legal, accounting, and other fees and expenses in connection
with the Loan Agreement.
 
 The
Company incurred additional issuance costs in the form of a warrant to purchase
11,321 shares at an exercise price of $.0001 per share. The Company issued the
warrant to Broadmark Capital, LLC.