SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                           FORM 10-KSB AMENDMENT NO. 1

(Mark One)

[X]  Annual Report under Section 13 or 15(d) of the  Securities  Exchange Act of
     1934 for the fiscal year ended December 31, 2002

[ ] Transition  Report under Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 for the transition period from to

Commission file number:  0-24798

                               XYNERGY CORPORATION
                        [formerly known as Raquel, Inc].
                 (Name of small business issuer in its charter)

         Nevada                                        93-1123005
--------------------------------------------------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

269 S. Beverly Drive, Suite 938
Beverly Hills, CA                                           90212
--------------------------------------------------------------------------------
(Address of principal executive offices)                    (Zip Code)

Issuer's telephone number: (310) 274-0086
                           ---------------

Securities to be registered pursuant to Section 12(b) of the Act: None

Securities to be registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.001 Par Value
                                (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  preceding  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 [ ]

         Check if no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B is 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 the fiscal year ended  December  31, 2002 were
     $1,405.   The   aggregate   market  value  of  the  voting  stock  held  by
     non-affiliates  of the registrant is $122,514.  The number of shares of the
     registrant's Common Stock, $.001 par value,  outstanding as of December 31,
     2002 was 31,161,851.

     Documents  incorporated  by reference:  None.  Transitional  Small Business
     Issuer Format (check one): Yes [_] No [X]


<PAGE>

                                     PART I


Item 1.  Description of Business.

Business Development.

Xynergy Corporation [formerly known as "Raquel, Inc."] was organized under the
laws of the State of Nevada on August 6, 1993. [Unless the context indicates
otherwise, the term "Company," "XYNY" or "Xynergy" refers to Xynergy
Corporation]. Xynergy Corporation started as "Colecciones de Raquel, Inc." with
its IPO in 1994. In 1998, Colecciones de Raquel became "Raquel, Inc." In
February, 2002, after its acquisitions of Think Blots(TM)greeting cards, Raquel,
Inc. became Xynergy Corporation.

Historical Development. Raquel Zepeda, CEO and founder of Xynergy, started the
Company as "Colecciones de Raquel of Beverly Hills," a full line of cosmetics,
skin care and fragrance. The line was specifically designed for the needs of
olive skinned women, targeting the Hispanic/Latin market.

Ms. Zepeda's inspiration was born from her experience in an attempt to sell
another brand of cosmetics: they were unsuitable for olive and sallow skin
tones. That experience, coupled with her background in modeling, inspired her to
create a cosmetics line for Latina women. In 1983, she introduced Morena
Cosmetics in the San Francisco/Bay Area. Ms. Zepeda had quite an impact in that
area, Raquel needed more capital to continue. While marketing Morena Cosmetics
on a small scale, Raquel dedicated the next 5 years of her life to further
research and development. Raquel developed even more unique and effective color
formulations, along with guidelines for the golden-skinned woman. Of this,
Colecciones de Raquel was created.

Public Offering. As part of an initial public offering in August 1994, the
Company issued 1,000,000 Units of securities for an aggregate offering price of
$100,000. The Company realized net proceeds of $91,090 from the sale of the
Units. Each Unit consisted of one share of common stock and one A Warrant. Each
A Warrant entitled was exercisable at an exercise price of $.25 per A Warrant
for one share of common stock and two B Warrants. Each B Warrant was exercisable
at an exercise price of $.50 per B Warrant for one share of common stock and one
C Warrant. Each C Warrant was to be exercisable at $1.00 per C Warrant for one
share of common stock.

The Company utilized substantially all of the net proceeds from the public
offering during the year ended December 31, 1994. The Company's business
operations during the year ended December 31, 1994 resulted in only minimal
revenues and, at year end, the Company had only a small amount of cash available
to finance continuing operations on an extremely limited basis.

In 1995, the Company learned that the A and B warrants had been fraudulently
exercised. Transactions for these warrants involved MMI, a brokerage firm based
in the Philippines. In September of 1995 MMI settled with the Company and paid
for the A and B warrants. All C warrants were canceled.


                                       2
<PAGE>

From September 1995 through February 1996, the Company received $1,250,000 in
full payment for the exercise of the A and B warrants. As a result, the Company
was able to expand its operations.

With proceeds of the Company's public offering it has produced its proprietary
fragrance, "Sabor A Mi," a complete line of colors cosmetics and skin care and
opened two boutiques in Beverly Hills and Los Angeles. All products are being
sold and marketed through these boutiques. Additionally, the Company has
produced a music compact disc which it plans to cross-market with the sale of
the fragrance. "Sabor A Mi" is also the name of a very popular Spanish love
song. The compact disc contains information on the Company's line of cosmetics
along with a sample fragrance strip and product ordering information.

Recent Operations. The Company closed its last boutique in the year 2000;
seeking alternative distribution for its products. After several attempts at
department store retail marketing of the Raquel of Beverly Hills products, the
Company changed its marketing tactic to network marketing, also known as
"multi-level marketing" in 2000. A sales and distribution plan has been designed
for this particular style of marketing. Upon further financing, the plan will be
executed.

During the year 2001, the Company changed its strategy and mission. Since the
company's products were not producing revenues, a new approach was taken: to
acquire companies whose revenues or innovative value would amplify the Company's
overall worth.

On September 5, 2001, Xynergy acquired "Think Blots," a greeting card line. The
line is distinctive in that it combines original ink blot art work with humorous
dialogue, and is currently available on the internet at
www.dementeddiagnosis.com.

On November 5, 2001, the Company filed a lawsuit against Rainmaker Development
Corporation ("Rainmaker") and Mattel, Inc. ("Mattel") for copyright and
trademark infringement. The Complaint was filed in the United States District
Court, Southern District of California, Case No. 01CV2027W (LAB). The Complaint
was for the use of the trademark, "Think Blot," for a game produced by Rainmaker
which uses the same name and concept as the Company's greeting card line, "Think
Blots" which were created in 1987. Rainmaker's date of first use is 1997, ten
years after Think Blots' registered copyright.

Previously, March 2001, Rainmaker Corporation filed an Opposition to Raquel
Zepeda's original Application for Trademark Registration for the Think Blots
greeting card line. The proceeding was suspended due to the Company's lawsuit
against Rainmaker and Mattel, Inc. Rainmaker Corporation filed a Motion for
Summary Judgment for the lawsuit in Federal District Court. In April, 2002.
their Motion was granted. Due to Xynergy's limited financial resources, an
appeal was not filed. Nonetheless, the Company will continue to assert its
rights to market the greeting card line under the provisions and protection of
copyright laws.


                                       3
<PAGE>

In March, 2002 the Company changed its name to Xynergy Corporation and affected
a 100 to 1 reverse stock-split. A 14C211 was filed to execute these changes.

On April 22, 2002, by a unanimous vote of the Board of Directors, Xynergy
elected to incorporate Raquel of Beverly Hills in the State of Nevada as a
wholly owned subsidiary. Additionally, Xynergy voted to issue ten million shares
to Raquel of Beverly Hills in exchange for all 10 million shares of Raquel of
Beverly Hills.

In September, 2002 Xynergy filed an S8 Registration Statement to issue 6,000,000
shares for payment of services to consultants and employees. In October, 2002,
4,281,154 shares were issued to pay for independent consultants' services.

Tom Lupo was assigned to Xynergy's Board of Directors in November, 2002. Mr. has
an extensive background in network marketing and specializes in ethnic
marketing. (See Item 9.)

Xynergy signed a Letter of Intent in February, 2003 to acquire Global Leisure
Corp. In April, 2003, the proposed acquisition was dissolved.

Xynergy Corp signed two letters of intent in April, 2003, to acquire NPOWR
Database, Inc. (www.NPOWR.com) and Sound Pictures, LLC. NPOWR has created a
revolutionary technology that facilitates the production and delivery of a new
generation of media products for the emerging interactive television (iTV) and
video on demand industry (VOD). Sound Pictures, LLC specializes in feature film
and television production for theatrical and home release. For more information,
see Item 6, Management's Discussion and Analysis or Plan of Operation, on Page
11.

Xynergy will continue to seek other acquisitions of successful companies in the
private sector who would like to enter the public arena. By procuring companies
with innovate and unique products, Xynergy management believes that it will
accomplish its mission; value enhancement through an integration of companies in
accelerated growth and emerging markets.

Business of the Issuer.

                               PRINCIPAL PRODUCTS.

Raquel of Beverly Hills

The Company markets premium cosmetics (color), skin care, under the trademark,
"Raquel of Beverly Hills,(TM)" and the fragrances "Sabor A Mi, Melody of Eternal
Passion(R)" and "iPeligro!(R)".

Raquel of Beverly Hills cosmetics are unique in that they are designed for a
niche market: golden-skinned consumers, which include Hispanics, Asians, and
Mediterraneans; specifically targeting the Hispanic/Latin market. The Company's
cosmetic line is intended to appeal to these markets by complementing their
"golden" skin tones.


                                       4
<PAGE>

The fragrance was named after a world-famous Latin love song, "Sabor A Mi". The
Company has also produced a music CD containing five (5) songs sung by Ms.
Zepeda, including "Sabor A Mi". Additionally, the CD contains a fragrance strip
of "Sabor A Mi, Melody of Eternal Passion", an ad for the complete line of
products, along with purchasing information. The CD is a giveaway with purchase
of the fragrance and will also be available for purchase in select music stores.

The Company's products are intended for use by individuals. As such, there is a
possibility that claims for product liability may be made against the Company.
Although the producers of the Company's products have advised the Company that
they maintain product liability insurance, there is no assurance that such
insurance is adequate or will be applicable if claims are made against the
Company. The Company also maintains product liability insurance.

Think Blots(TM) Greeting Card Line

Xynergy markets a greeting card line by the tradename "Think Blots(TM)."
Combining original ink blot art work with humorous and flirtatious dialogue,
they offer an introspective avenue of communication. The line was originally
developed in 1987 by Ms. Zepeda and is protected by a registered copyright. The
line can be viewed at www.dementeddiagnosis.com.

In addition, Xynergy will be introducing Demented Diagnosis(C), a "mental test"
as an advertising campaign. Through the Demented Diagnosis(C) ads, people will
acquaint themselves with the cards. Eventually, these ads will be placed
alongside horoscopes and cross-word puzzles.

Principal Markets and Marketing Strategy.

Raquel of Beverly Hills

The Company's principal market is Hispanic/Latin consumer group . It is
estimated that Latina women spend twice as much as anglos on cosmetics, a
double-digit billion-dollar, growing industry. Raquel of Beverly hills further
anticipates a market share of non-Hispanic, golden-skinned consumers such as
Asians, Mediterraneans and some Europeans.

U.S. Hispanic consumers are 20.6 million strong, with a spending power of $440
billion which is expected to double to $880 billion by the year 2010. The U.S.
Hispanic cosmetics is estimated to be 1.6 billion, and the Latin American market
is estimated to be over $5.9 billion, totaling $7.5 billion.

In recognition of the strength of this market, Liz Claiborne launched its
"latino style" fragrance, "Mambo" in 2001; spending $20 million on adverting.
Coty launched "Dulce Vanilla," another "latin fragrance" in 1999. Companies such
as Avon, Estee Lauder, Mabelline, Pavion Ltd., Proctor & Gamble, and Revlon have
made directional changes in advertising content and product orientation in an
effort to more effectively reach the non-Anglo market. Estee Lauder introduced
it "Prescriptives" line targeting ethnic women in 1991. According to NPD Beauty
Trends, Prescriptives was one of the top selling prestige lines in 1996; and in
fiscal 1997 Estee Lauder reported sales of $124.7 million in "other Americas."
In 1994, Avon printed a bilingual brochure targeted to Hispanic women in a small
test-market study.


                                       5
<PAGE>

Avon has identified the Hispanic market as promising because professional
appearance is very important to Hispanics and because Hispanic children are
introduced to makeup and jewelry at an early age. Avon research reflects that
its average order for Hispanics is about $9 higher than for non-Hispanics.
Market studies have confirmed that Hispanics generally spend more on consumer
goods per capita than do other market segments.

Raquel of Beverly Hills now plans to increase sales through expansion directly
and aggressively through network/multi-level marketing. According to the Direct
Selling Association, in 1999 U.S. Retail Sales were equivalent to $24.54
billion. Personal care represented 24.9% or $6.11 billion dollars. In
comparison, according to NPD Beauty Trends, cosmetics sales in department stores
was $6.5 billion in 1999. Leaders in this industry such as Avon and Jafra
reported earnings of $1.343 billion and $76.6 million, respectively for the
third quarter of 2000.

During the near term, the Company intends to concentrate on marketing its
products in the Los Angeles, California area which contains a large and growing
number of Hispanics. Approximately 3.8 million Hispanics reside in the Los
Angeles, California area and comprise approximately 19% of the entire United
States Hispanic population. Simmons Hispanic II Study projected that by the year
2005 the U.S. Hispanic market will comprise the largest minority group in the
United States. According to McGraw-Hill's 1995 Hispanic Consumer Market Report,
Hispanics buying power for 1997 was estimated at $357 billion in the U.S. This
report also estimated that Hispanics spent $6 billion on Personal Care Products
and Services. (This market segment includes cosmetics, fragrance and skin care.)
Latin America`s cosmetic market was $5.9 billion and expected to increase to
$7.6 billion by 1998, according to Euromonitor International. Eventually, the
Company plans to extend its distribution nationally and internationally.

The Company intends to market its products utilizing the services of Ms. Zepeda
and employees, and does not plan to utilize the services of any other individual
or firm spokesperson for these marketing efforts. The Company's ability to
maintain or expand its marketing efforts is directly dependent on the level of
sales and profitability achieved from its marketing of its products.

Think Blots(TM) Greeting Card Line

Think Blots(TM) greeting card line's principal market will commence in the Los
Angeles area and electronically via the internet. Eventually the line will be
marketed nationally and internationally.

Today, the industry generates more than $7.5 billion in retail sales from
consumer purchases of more than 7 billion cards. Greeting card retail growth
recently has been driven primarily by sales of cards for everyday-general and
friendship situations versus seasons (holidays) and by individual cards rather
than from packaged or boxed cards. Women purchase approximately 80% of all
greeting cards. These facts are attributed to the projected need for more
emotion-based me-to-you messages in the form of greeting cards. As such, we now
have cards for every relationship, every occasion, every ethnicity, every age
group, every gender and every special interest group. Additionally, greeting
cards are being sold in more outlets than ever before, as well as being
purchased and sent over the Internet.


                                       6
<PAGE>

To introduce consumers as to how Think Blots concept works, Demented
Diagnosis(C), a "cartoonish" mental test was developed. Demented Diagnosis(C), a
"mental test" using different Think Blots with multiple choice answers. These
answers then provide a humorous conclusion as to the individual's personality.
Through our Demented Diagnosis(C) ads, people will acquaint themselves with
unique concept of self-discovery from ink blot art. Eventually, these ads will
be placed alongside horoscopes and cross-word puzzles.

         Distribution.

Raquel of Beverly Hills

Xynergy has developed a new strategy for distribution of Raquel of Beverly Hills
products. Direct sales in a simple multi-level marketing format has been
developed. Multi-level marketing has several advantages: it is very popular in
the Hispanic/Latina market, advertising costs are minimal, and all product sales
are either pre-paid or C.O.D.

A competitive compensation package has been fashioned for promoting both product
sales and recruiting. Persons who recruit other consultants will be given
override commissions plus a recruiting bonus. Attractive sales kits and a
training program have been created to promote sales. Additional
compensation/incentive programs will be developed in order to keep sales people
motivated.

Think Blots(TM)  Greeting Card Line

Think Blots greeting card line is currently available on the internet.
Additionally, it will be available in stores and has obtained the interest of a
Los Angeles distributor.

Additionally, the Company is seeking syndication of Demented Diagnosis(C) in
weekly newspapers. (See www.dementeddiagnosis.com.) Xynergy believes obtaining
syndication of these "tests" would prove to be an excellent marketing and
advertising tool for the greeting card line.

         Competition.

Raquel of Beverly Hills

There are numerous other companies that produce and sell cosmetics. Many of
these companies are significantly larger, better financed and more established
than Raquel of Beverly Hills. Competitors include Revlon, Estee Lauder,
Maybelline, Mary Kay and Avon. These companies have established customers and
are continually seeking to obtain additional customers.

Although Raquel of Beverly Hills' competitors are in a better position to
effectively market their products, the Company plans to use its focus in the
Hispanic market as an edge to "carve" out a portion of market share into this
industry.


                                       7
<PAGE>

Think Blots(TM)  Greeting Card Line

Estimates indicate that there are nearly 2,000 greeting card publishers in the
U.S. today, ranging from major corporations to small family-run organizations.
As indicated above, Think Blots faces substantial competition. However, the
Company believes that Think Blots' unique style will give the line a competitive
edge.

         Raw Materials.

Xynergy's products are produced by independent third parties who also obtain the
materials used to produce these products. Xynergy believes that these materials
are available from various sources at competitive prices. Although Xynergy has
not entered into any agreement with any companies, Xynergy has been informed
that suppliers will be able to fulfill Xynergy's expected limited need for
products on a timely basis. Xynergy anticipates that it will be required to
prepay a portion of the price for the products purchased from suppliers upon
placing an order and the balance payable upon delivery of the products.
Accordingly, Xynergy does not expect to receive credit terms from suppliers.
Xynergy also anticipates that, in the future, it may be able to obtain thirty
day credit terms from suppliers if the level of its purchases increase. No
discussions have been held regarding any such credit terms and there is no
assurance that Xynergy will be able to purchase products without paying for them
in advance. Xynergy has not experienced any difficulties in obtaining required
products from producers. However, Xynergy's experience in obtaining products may
not be indicative of its ability to obtain products in the future due to its
minimal operations to date.

Xynergy has not entered into any contracts for either the materials used in
producing its products or the production of these products. Accordingly, there
can be no assurance that Xynergy will be able to obtain products in quantities,
at prices, and at required times to meet its needs. These needs include
fulfilling future sales commitments.

Xynergy does not plan to carry significant amounts of either materials or
finished products in its inventory. Therefore, it will be relying on third
parties to supply it with products on a continuing basis.

         Patents and Trademarks.

Xynergy has obtained the trademarks for the following: "iPeligro!", its
fragrance for men, "Sabor A Mi, Melody of Eternal Passion," "Chic'a Beverly
Hills," a cosmetics line for teens and Raquel of Beverly Hills logo.
Additionally, copyrights are held for the following: Color Me Golden, a beauty
guide for golden skin tones; Sound Recording for "Sabor A Mi," along with the
music Compact Disc, Raquel of Beverly Hills' logo, Raquel of Beverly Hills'
product brochure, Think Blots greeting cards, and Demented Diagnosis.

The formulas for the fragrances "Sabor A Mi," and "iPeligro!" were developed by
Ms. Zepeda for Raquel of Beverly Hills and are the proprietary formulas of
Xynergy.


                                       8
<PAGE>

         Government Regulation.

Xynergy does not believe that its products are subject to government
regulations, including those imposed by the United States Food and Drug
Administration. However, Xynergy has not requested nor has it received any
notification that its products are not subject to such regulations. If Xynergy's
products are subject to any government regulation, noncompliance with such
regulations, either presently in effect or subsequently enacted, might adversely
effect its ability to market its product.

         Employees.

As of December 31, 2002, Xynergy employed one (1) persons full time. Xynergy may
hire additional part-time secretarial and retail sales employees depending on
its level of operations.

Raquel Zepeda, is president and CEO. Along with her experience in banking (6
yrs), legal (8 yrs.), has worked in the cosmetics industry for over ten years.
Ms. Zepeda has been the driving force of this venture. Ms. Zepeda used her
inventive abilities to create Raquel of Beverly Hills' original fragrances and
design all of Raquel of Beverly Hills' product lines. Additionally, Ms. Zepeda
created the greeting card line, "Think Blots."

Xynergy may engage consultants to assist it in various aspects of its business.
See "Item 9. Directors, Executive Officers, Promoters and Control Persons".

Item 2.  Description of Property.

Xynergy maintains its main offices at the private home of Ms. Zepeda and
maintains a mailing address at 269 So Beverly Drive, Suite 938, Beverly Hills,
California.

Item 3.  Legal Proceedings.

In March 2001, Rainmaker Corporation filed and Opposition to Xynergy's
Application for trademark for the Think Blots greeting card line. The proceeding
was suspended due Xynergy's lawsuit against Rainmaker and Mattel, Inc. (See
paragraph below.)

The Company filed a lawsuit on November 5, 2001 against Rainmaker Development
Corporation ("Rainmaker") and Mattel, Inc. ("Mattel") for copyright and
trademark infringement. The Complaint was filed in the United States District
Court, Southern District of California, Case No. 01CV2027W (LAB). The Complaint
was for the use of the trademark, "Think Blot," for a game produced by Rainmaker
which uses the same name and concept as the Company's greeting card line, "Think
Blots" which were created in 1987. Rainmaker's date of first use is 1997, ten
years after Think Blots' registered copyright. Rainmaker Corporation filed a
Motion for Summary Judgment. In April, 2002. their Motion was granted. Due to
the Company's limited financial resources, no appeal was filed.

Other than these items, there are no material pending legal proceedings to which
Xynergy or the property of Xynergy are subject. In addition, no proceedings are
known to be contemplated by a governmental authority against Xynergy or any
officer or director of Xynergy.

Item 4.  Submission of Matters to a Vote of Security Holders.

         Not applicable


                                       9
<PAGE>

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

Xynergy's common stock may be traded in the over-the-counter market which are
posted by the OTC "Electronic Bulletin Board", which reports quotations by
brokers or dealers in particular securities. Because of the lack of readily
available quotations and the limited trading volume frequently associated with
these securities, there is a greater risk of market volatility of such
securities than for securities traded on national exchanges. Trading in
Xynergy's stock is reported under the symbol XYNY (formerly RAQL).

The following table sets forth the quarterly high and low bid prices of the
common stock for the last 3 years.

Year Ended December 31,2000             Closing Bid              Closing Ask

                                    High          Low           High     Low
                                    ----          ---           ----     ---

         First Quarter              .07           .017          .153     .025
         Second Quarter             .07           .055          .153     .10
         Third Quarter              .08           .025          .125     .03
         Forth Quarter              .04           .025           .10     .03


Year Ended December 31,2001            Closing Bid              Closing Ask

                                    High          Low           High     Low
                                    ----          ---           ----     ---

         First Quarter              .125           .03          .25      .04
         Second Quarter             .21            .025         .39      .025
         Third Quarter              .21            .031         .29      .06
         Forth Quarter              .062           .021         .075     .025


Year Ended December 31,2002

                                    Open           High          Low     Close
                                    ----           ----          ---     -----

         First Quarter              .117            .31          .01     2.00
         Second Quarter             .214            .53          .04      .30
         Third Quarter              .046            .16          .01      .03
         Forth Quarter              .01             .01          .01      .01


These quotations represent inter-dealer quotations without adjustment for retail
markups, markdowns or commissions and do not necessarily represent actual
transactions.

As of December 31, 2002, there were 1,022 record holders of Xynergy's common
stock.


                                       10
<PAGE>

Common Stock. As of January 25, 2002, authorized capital stock of Xynergy is
250,000,000 shares of common stock which has a par value of $.001 per share. The
holders of common stock (a) have equal rateable rights to dividends from funds
legally available therefor, when and if declared by the Board of Directors of
Xynergy; (b) are entitled to share rateably in all of the assets of Xynergy
available for distribution to holders of common stock upon liquidation,
dissolution or winding up of the affairs of Xynergy; (c) does not have
preemptive, subscription or conversion rights and there are no redemption or
sinking fund provisions applicable thereto; and (d) are entitled to one
noncumulative vote per share on all matters on which shareholders may vote at
all meetings.

Preferred Stock. The authorized capital stock of Xynergy also includes
50,000,000 shares of preferred stock, par value $.001 per share. The Board of
Directors of Xynergy has the right to determine the characteristics of any
preferred stock. Such characteristics include voting rights, dividend
requirements, redemption provisions and/or liquidation preferences.

In May, 2001, the Company issued 4,000,000 shares to individuals for purchase of
stock options. In August, 2001, and December, 2001 the Company issued stock for
exercise of options of 1,000,000 shares, and 500,000 shares, respectively. (See
Item 1, Recent Operations, Pages 3-4.)

As of December 31, 2002, there were 31,161,851 shares of common stock
outstanding, with each share entitled to one vote. As the holder of 5,999,200
shares, and control person for 13,000,000 shares, (an aggregate of 18,999,200
shares) Ms. Zepeda will continue to be able to elect all of Xynergy's directors
and continue to control Xynergy. See "Item 11. Security Ownership of Certain
Beneficial Owner and Management".

Xynergy has not paid any cash dividends since its inception and does not
contemplate paying dividends in the foreseeable future. It is anticipated that
earnings, if any, will be retained for the operation of Xynergy's business.

Item 6.  Management's Discussion and Analysis or Plan of Operation.

The Private Securities Litigation Reform Act of 1995 provides a "safe-harbor"
for forward-looking statements. Certain statements contained in this report that
are not historical fact, including, but not limited to, those concerning its
expectations of future sales revenues, gross profits, research and development,
sales and marketing, and administrative expenses, product introductions and cash
requirements are forward-looking statements. These forward-looking statements
are subject to risks and uncertainties that may cause its actual results to
differ from expectations including variations in the level of orders, general
economic conditions in the markets served by its customers, international
economic and political climates, timing of future product releases, difficulties
or delays in product functionality of performance, its failure to respond
adequately to changes in technology or customer preferences, changes in its
pricing or that of its competitors and its inability to manage growth. All of
the above factors constitute significant risks to its operations. There can be
no assurance that the Company's results of operations will not be adversely
affected by one or more of these factors. As a result, its actual results may
vary materially from its expectations. The words "believe", "expect",
"anticipate", "intend", and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date the statement
was made.

Plan of Operation

Xynergy has expanded its plan of operation substantially, since its change in
strategy as a holding Company. Xynergy's mission is revenue enhancement through
an integration of companies in growth and emerging markets. Xynergy believes
that this plan of operations will protect its value as markets change and
fluctuate.

During 2002, Xynergy completed the acquisitions of Web Marketing Network,
Corporate Space Power Industries & Electric, Inc., and Voyaware, LLC. For
reasons that management believes are in the best interests of Xynergy, all three
of these acquisitions were dissolved.


                                       11
<PAGE>


In April, 2003, Xynergy established relationships with enterprises in the
entertainment industry. Xynergy has signed letters of intent with NPOWR
Database, Inc. and Sound Pictures LLC and is now negotiating acquisition
agreements with both companies. These two enterprises represent substantial
revenue growth potential along with a wealth of management talent.

NPOWR has a patented software technology that automates the creation and
delivery of personalized television programming. In short, this technology will
provide television viewers with "personalized television," through what NPOWR
refers to as their stimTV(TM) Network. NPOWR will be building a nationwide
network of servers that will have a reach of over 24 million US-based broadband
viewers when it is deployed. NPOWR's patented System for the Automated
Generation of Media along with its methodology for aggregating free content for
promotional purposes make the creation of a network featuring entertaining and
revenue-driving direct marketing (a 1.7 trillion dollar industry) media
relatively inexpensive.

NPOWR's management team consists of Robert Whitmore, CEO, Rowland Perkins,
Chairman, and Dwight Marcus, CTO and Inventor. With more than 20 years in the
entertainment industry, Mr. Whitmore is a three-time Golden Globe award winner,
and was nominated for three Academy Awards. Mr. Perkins, the Chairman of NPOWR
and founding president of Creative Artists Agency ("CAA"), has been an
entertainment industry leader and innovator for more than 30 years. Prior to
working with CAA, Mr. Perkins worked as Director of the TV Talent department and
Vice President at the William Morris Agency. Mr. Marcus, NPOWR's Chief
Technology Officer and Inventor of NPOWR's technology has been engaged in
creating technological innovations in the entertainment industry since 1986. An
award-winning media and advertising producer, Mr. Marcus' designs have been
impacting the entertainment industry for over two decades. (For more
information, refer to Xynergy's 4/23/03 press release posted on the internet at
http://biz.yahoo.com/prnews/030423/-law075_1.html.)

Sound Pictures, LLC specializes in feature film and television production for
theatrical and home release. Sound Pictures, LLC was formed by veteran media
producers Robert Whitmore and Dwight Marcus to develop feature films, as well as
made-for-DVD, and television movies along with their ancillary properties. The
mission of Sound Pictures is to make extensive use of new filmmaking
technologies to create entertainment properties with maximum production value
for the dollars expended and with optimal aftermarket life.

Sound Pictures, LLC entered into a letter agreement with Jackson Securities
(www.jacksonsecurities.com) and the Jackson Logo Entertainment Partners on April
24, 2003. Jackson Logo Entertainment Partners is in the process of raising $20
million to be used for the development of a variety of film and television
projects. It is expected that the properties acquired with the funds assets will
leverage a minimum of $100 million in production financing. (For more
information, refer to Xynergy's 4/25/03 press release posted on the internet
http://biz.yahoo.com/prnews/030425/laf029_1.html.)

Material Changes in Financial Condition

Cash and cash equivalents were $148 at December 31, 2002. As a result, revenues
from the year 2002 continued to be insufficient to support the selling, general
and administrative expenses, nor to execute Xynergy's marketing plan for its
products.

Xynergy's available cash position at December 31, 2002 may not be sufficient to
cover Xynergy's operating expenses through calendar year 2003. While its
receivables are substantial, and have been submitted to a collection agency for
retrieval; recovery of these monies is uncertain.

Material Changes in Results of Operations

All expenses for Xynergy have decreased substantially. Xynergy has been
operating in a "hibernative" state. No monies have been spent toward office
rent, or salaries, greatly minimizing selling, general and administrative
expenses.

However, due to the minimal operating activities, Xynergy has not been able to
implement any sales or marketing strategies, resulting in minimal revenues for
the year ended December 31, 2002. Management believes that by implementing its
current Plan of Operation of raising working capital and executing its marketing
strategies, future revenues and share value will increase.

                                       12

<PAGE>

Item 7.  Financial Statements*.


                               XYNERGY CORPORATION
                          (A Development Stage Company)
                          INDEX TO FINANCIAL STATEMENTS



Cover page for Audited Financials.......................................14

Independent Auditor's Report............................................15

Balance Sheet...........................................................16

Statement of Operations.................................................17

Statement of Stockholder's Equity.......................................18

Statement of Cash Flows.................................................19

Notes to Financial Statements...........................................20-25




*The following financial statements represent the fiscal year ended December 31,
2002. An Amendment No. 2 for 10KSB will be filed shortly to represent the
financials for the previous two years of 2000 through 2001.




                                       13
<PAGE>

              XYNERGY CORPORATION (FORMERLY KNOWN AS RAQUEL, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                                 FINANCIAL AUDIT
                               FOR THE YEAR ENDED
                                DECEMBER 31, 2002








                                  PREPARED BY:
                               HENRY SCHIFFER, CPA
                            AN ACCOUNTING CORPORATION
                          315 SO. BEVERLY DRIVE STE 211
                             BEVERLY HILLS, CA 90212
                          INDEPENDENT AUDITORS' REPORT







                                       14
<PAGE>

Board of Directors
Xynergy Corporation (formerly known as Raquel, Inc.)
Beverly Hills, CA

We have audited the accompanying balance sheet of Xynergy Corporation (formerly
known as Raquel, Inc.) as of December 31, 2002 and related statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating an overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of Xynergy
Corporation (formerly known as Raquel, Inc.) as of December 31, 2002 in
accordance with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 5 to the
financial statements, the Company has incurred a net loss of $35,188 during the
year ended December 31, 2002. The Company's significant operating loss raises
substantial doubt about the ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 5. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.


Beverly Hills, California
May 14, 2003


                                       15
<PAGE>


<TABLE>
<CAPTION>
                                                XYNERGY CORPORATION
                                         (FORMERLY KNOWN AS RAQUEL, INC.)
                                           (A DEVELOPMENT STAGE COMPANY)
                                                   BALANCE SHEET
                                                    31-Dec-02
                                                                                    ----------------
                                                                                         2002
                                                                                    ----------------
                ASSETS

Current assets:
<S>                                                                                  <C>
 Cash ............................................................................   $       148.35
 Inventory .......................................................................   $     8,870.00
 Prepaid expenses and other receivables ..........................................   $     3,000.00
 Capital Stock ...................................................................   $    13,665.00
                                                                                     --------------
 Total current assets ............................................................   $    25,683.35

 Loans to employees ..............................................................   $   263,292.02

 Property and Equipment ..........................................................   $    34,018.73
 Less accumulated depreciation ...................................................   $   (34,018.73)
                                                                                     --------------
 Total assets ....................................................................   $   288,975.37
                                                                                     ==============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
 Accounts Payable ................................................................   $    29,051.93
 Accrued Expenses
 Loans Payable ...................................................................   $    27,986.80
                                                                                     --------------
 Total Liabilities ...............................................................   $    57,038.73
                                                                                     --------------

 Stockholders' equity:
 Preferred stock, $.001 par value, 50,000,000 shares authorized, 0 shares
 issued and outstanding
 Common stock $.001 par value;shares authorized 250,000,000
 issued and outstanding 31,162,000 for 2002 and
 30,100,000 for 2001 and 24,700,000 for 2000 .....................................   $    31,162.00
 Paid in Capital .................................................................   $ 1,653,190.00
 Retained earnings (deficit) .....................................................   $(1,452,415.36)
 Total stockholders' equity ......................................................   $   231,936.64
                                                                                     --------------
 Total liabilities and stockholders' equity ......................................   $   288,975.37
                                                                                     ==============
</TABLE>


                                       16
<PAGE>

                               XYNERGY CORPORATION
                        (FORMERLY KNOWN AS RAQUEL, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                             STATEMENT OF OPERATIONS

                                                          For the years
                                                      -----------------------
                                                        ended December 31,
                                                      -----------------------
                                                               2002
                                                               ----

 Sales .............................................   $      1,405.36

 Cost of goods sold ................................   $            --
                                                       ---------------
 Gross profit ......................................   $      1,405.36

 Operating expenses ................................   $     30,479.78
                                                       ---------------

 Interest expense ..................................   $      5,313.94

 Loss from operations ..............................   $    (34,388.36)

 Other income
 Interest income ...................................   $            --
 Lititgation settlement ............................   $            --
 Miscellaneous .....................................   $            --
                                                       ---------------
 Total other income ................................   $            --
                                                       ---------------
 (Loss) before Income Taxes ........................   $    (34,388.36)

 Provision for income taxes ........................   $        800.00
                                                       ---------------
 Net loss ..........................................   $    (35,188.36)
                                                       ===============



 Income (Loss) per share:
 Basic and diluted..................................   $            --
                                                       ===============
 Number of shares used in the per
 share calculation:
 Basic and diluted .................................     31,162,000.00
                                                       ===============


                                       17
<PAGE>



                                              XYNERGY CORPORATION
                                         (FORMERLY KNOWN AS RAQUEL, INC.)
                                           (A DEVELOPMENT STAGE COMPANY)
                                        STATEMENT OF STOCKHOLDERS' EQUITY
                                     FOR THE YEAR ENDED DECEMBER 31, 2002


<TABLE>
<CAPTION>
                                              Common Stock                            Deficit
                                        ------------------------    Additional      during  the       Total
                                         Number                      Paid-In        development    Stockholders'
                                         of Shares       Amount      Capital           stage           Equity
                                         ---------       ------      -------           -----           ------
<S>                                  <C>             <C>           <C>             <C>              <C>
Balance, December 31, 2001.......    30,100,000.00   $  3,010.00   $1,445,690.00   $(1,418,027.00)  $  30,673.00

Common Stock Issued for options..     1,500,000.00   $    150.00   $   37,500.00
                                      ------------   -----------   -------------
Total Before Reverse.............    31,600,000.00   $  3,160.00   $1,483,190.00

Reverse-split (100 to 1).........   (31,284,303.00)  $ (3,128.00)
                                                     -----------
Total After Reverse..............       315,697.00   $     32.00
                                                     -----------
Increase in par value to .001....                    $    316.00

Issuance of shares...............    40,346,000.00   $ 40,346.00   $  170,000.00
Common stock canceled............    (9,500,000.00)  $ (9,500.00)

Net loss for the year ended
December 31, 2002................                                                  $   (34,388.36)  $ (34,388.36)
                                     -----------------------------  -------------  --------------   ------------

Balance, December 31, 2002.......    31,161,697.00     31,162.00    1,653,190.00    (1,452,415.36)    231,936.64
                                     ============================================================================
</TABLE>




                                       18
<PAGE>

                               XYNERGY CORPORATION
                        (FORMERLY KNOWN AS RAQUEL, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                             STATEMENT OF CASH FLOWS

                                                               For the years
                                                               -------------
                                                              ended December 31,
                                                              -----------------
                                                                    2002
                                                                    ----

Cash flows from operating activities:
Net income (loss) ...........................................   $   (34,388.36)

Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation ................................................   $           --
Loss on abandoned leasehold improvement .....................   $           --
(Increase) decrease in:
Inventory ...................................................   $           --
Prepaid expenses and other assets ...........................   $  (222,272.00)
Deposits ....................................................   $           --
Increase (decrease) in:
Accounts payable and accrued liabilities ....................   $    18,435.73
                                                                --------------
Net cash (used in) operating activities .....................   $  (238,224.63)
                                                                --------------
Cash flows used for investing activities:
(Payments) to acquire property and equipment ................   $           --
                                                                 -------------

Net cash provided by (used in) investing activities .........   $           --
                                                                --------------
Cash flows from financing activities:
Proceeds from MMI settlement agreement ......................   $           --
Proceeds (repayment) of note payables .......................   $           --
Proceeds from issuance of common stock and paid in capital ..   $   235,652.00
                                                                --------------
Net cash provided by (used in) financing activities .........   $   235,652.00
                                                                --------------
Net increase (decrease) in cash and cash equivalents ........   $    (2,572.63)

Cash and cash equivalents at beginning of year ..............   $     2,721.00
                                                                --------------

Cash and cash equivalents at end of year ....................   $       148.37
                                                                ==============
Supplemental disclosure of cash flow information:

Interest paid ...............................................   $     5,313.94
                                                                ==============
Income taxes paid ...........................................   $       800.00
                                                                ==============

Supplemental disclosure of non-cash investing
and financing activities:

2,600,000 shares of common stock cancelled ..................   $           --
                                                                 ==============



                                       19
<PAGE>

                               Xynergy Corporation
                          (A Development Stage Company)
                          Notes to Financial Statements



1. Summary of significant accounting policies:

          Organization and line of Business

          Xynergy Corporation (formerly known as Raquel, Inc.) the "company" was
          organized under the laws of the state of Nevada on August 6, 1993. As
          of March 31, 1994, the Company issued 20,000,000 shares of its common
          stock for the business known as Colecciones de Raquel, Inc. in a
          reorganization of entities under common control accounted for at
          historic cost in a manner similar to pooling of interest accounting as
          the Company's sole stockholder was the sole proprietor of the
          predecessor business. The Company elected to change its name from
          Raquel, inc. to Xynergy Corporation on January 22, 2001.

          Cash and Cash Equivalents

          For the purpose of the statement of cash flows, cash equivalents
          include amounts invested in a money market account with a high-quality
          financial institution.

          Merchandise Inventory

          Merchandise Inventory, which is principally merchandise held for sale,
          is stated at the lower of cost or market. Cost is determined by using
          the first-in, first-out method.

          Property and Equipment

          Property and equipment is carried at cost and depreciated using the
          straight-line method over the estimated useful lives, which are
          generally five years. Maintenance and minor replacements are charged
          to expense and major improvements are capitalized as incurred. Gaines
          and losses on disposals due to asset impairment are included in the
          statement of operations.

          Advertising Costs

          Advertising costs are charges to operations when incurred. Advertising
          costs were $22,017 for the year ended December 31, 2002.


                                       20
<PAGE>

                               Xynergy Corporation
                          (A Development Stage Company)
                          Notes to Financial Statements

1. Summary of significant accounting policies (continued):

          Income Taxes

          The Company utilizes SFAS No. 109, "Accounting for Income Taxes,"
          which requires the recognition of deferred tax liabilities and assets
          for the expected future tax consequences of events that have been
          included in the financial statements or tax returns. Under this
          method, deferred income taxes are recognized for the tax consequences
          in future years of differences between the tax bases of assets and
          liabilities and their financial reporting amounts at each year based
          on enacted tax laws and statutory tax rates applicable to the periods
          in which the differences are expected to affect taxable income.
          Valuation allowances are established, when necessary, to reduce
          deferred tax assets to the amount expected to be realized. The
          provision for income taxes represents the tax payable for the period
          and change during the period in deferred tax assets and liabilities.

          Net Loss Per Share

          For the year ended December 31, 2002, the Company adopted SFAS No.
          128, "Earnings per Share." Basic earnings per share is computed by
          dividing income available to common stockholders by the
          weighted-average number of common shares available. Diluted earnings
          per share is computed similar to basic earnings per share except that
          denominator is increased to include the number of additional common
          shares that would have been outstanding if the potential common shares
          had been issued and if the additional common shares were dilutive.
          Since the Company does not have any stock options, warrants, or other
          common stock equivalents outstanding, basis earnings per share and
          diluted earnings per share are the same.

          Comprehensive Income

          For the year ended December 31, 2002, the Company adopted SFAS No.
          130, "Reporting Comprehensive Income." This statement establishes
          standards for reporting comprehensive income and its components in a
          financial statement. Comprehensive income as defines includes all
          changes in equity (net assets) during the period from non-owner
          courses. Examples of items to be included in comprehensive income,
          which are excluded from net income, included foreign currency
          translations adjustments and unrealized gains and losses on
          available-for-sale securities. Comprehensive income is not presents I
          the Company's financial statements since the Company did not have any
          of the items of comprehensive income in any period presented.


                                       21
<PAGE>

                               Xynergy Corporation
                          (A Development Stage Company)
                          Notes to Financial Statements


1. Summary of significant accounting policies (continued):

          Start-up Costs

          The company expenses all start-up and organization costs as incurred
          and is therefore not impacted by this SOP.

          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.

          Estimates

          The preparation of financial statements in conformity with generally
          accepted accounting principles require management to make estimates
          and assumptions that affect the reported amounts of assets and
          liabilities at the date of financial statements, as well as the
          reported amounts of revenues and expenses during the reporting period.
          Actual results could differ from those estimates.

2.  Cash and Cash Equivalents:

          The Company maintains cash deposits in banks and in financial
          institutions located in Southern California. Deposits in banks are
          insured up to $100,000 by the Federal Deposit Insurance Corporation
          ("FDIC"). Deposits in a money market account with a financial
          institution are insured by the Securities Investor Protection
          Corporation (SPIC"). The Company has not experienced any losses in
          such accounts and believes it is not exposed to any significant credit
          risk on cash deposits.

3.  Common and Preferred Stock Transactions:

          As part of an initial public offering in August 1994, the Company
          issued 1,000,000 Units of securities for an aggregate offering price
          of $100,000. Each Unit consists of one share of common stock and one A
          Warrant. Each A Warrant entitles the holder one share of common stock
          and two B Warrants. Each B Warrant entitles the holder to one share of
          common stock and one C Warrant.


                                       22
<PAGE>

                               Xynergy Corporation
                          (A Development Stage Company)
                          Notes to Financial Statements


3. Common and Preferred Stock Transactions (continued):

          In November 1994, all of the A Warrants were exercised in a
          transaction which the Company claims was fraudulent. Although the
          Company received no portion of the $250,000 exercise price, Units
          consisting of one share of common stock and two B Warrants were issued
          by the Company's transfer agent without the knowledge of the Company's
          officers or directors to persons purportedly exercising the A
          Warrants.

          In February 1995, all of the B Warrants were exercised in a
          transaction the Company claims was fraudulent. Although the Company
          received no portion of the $1,000,000 exercise price, Unites
          consisting of one share of common stock and one C Warrant were issued
          by the Company's transfer agent without the knowledge of the Company's
          officers or directors to persons purportedly exercising the B
          Warrants.

          The shares of common stock issued in the Company's initial public
          offering and upon exercise of the A Warrants and B Warrants
          (collectively the `Shares") have been publicly traded. The C Warrants
          were not exercised and were canceled by the Company.

          In September 1995, the Company entered into an Agreement with Moore
          McKenzie, Inc., a Philippine corporation ("MMI"), which purchased and
          resold the shares following their exercise by third-party entities.
          MMI has expressly denied any involvement in the exercise of the A
          Warrants and B Warrants. Solely for the purpose of protecting and
          preserving its investment in the Shares and its reputation and
          goodwill MMI agreed to pay the Company the exercise price of the A
          Warrants ($250,000) and B Warrants ($1,000,000).

          The Company had agreed within one year of the Agreement to sell MMI an
          additional 1,000,000 shares of common stock at a price of $1.00 per
          share in place of the shares, which could have been purchased upon
          exercise of the C Warrants, which were issued upon exercise of the B
          Warrants and subsequently cancelled by the Company. As part of the
          agreement with MMI, the Company has consented to MMI commencing legal
          proceedings in the name of MMI against third parties to recover MMI's
          damages suffered as a result of or in connection with MMI's purchase
          of the Shares and has agreed to assist and cooperate with MMI in


                                       23
<PAGE>

                               Xynergy Corporation
                          (A Development Stage Company)
                          Notes to Financial Statements

3. Common and Preferred Stock Transactions (continued):

          any such action. The agreement has expired and MMI has not purchased
          an additional 1,000,000 shares of common stock.

          In January 2002, the Company executed a reverse split at 100 to 1.

          In January 2002, the Company increased the number of common stock
          shares authorized from 500,000 to 250,000,000 and preferred stock from
          100,000 to 50,000,000.

          Series A Convertible Preferred Stock

          The preferred stock has a redemption price and liquidating value of
          $.001 per share (aggregate $1,000) and is not entitled to dividends.
          Under limited circumstances the Company may elect to redeem the
          preferred stock. If such an election is made, all outstanding shares
          of preferred stock must be redeemed. Upon liquidation, dissolution or
          winding up of the affairs of the Company, each share of preferred
          stock is entitled to receive its par value of $.001 before any
          distributions are made to holders of common stock. In June 1996, the
          Company retired 100,000 shares of Series A convertible preferred stock
          which was exchanged for 20,000,000 shares of common stock.

          Issuance and Cancellation of Common Stock

          In June 1998, the Company issued 2,600,000 shares of common stock in
          exchange for consulting services to be performed. In addition, upon
          signing of the agreement, the Company paid out-of-pocket expenses of
          $15,000 for the first three months. In July 1998, the Company placed a
          stop trade order on the above shares. In August 1999, the Company
          under went arbitration proceedings with the above individual who
          allegedly failed to deliver performance according to the contractual
          agreement and was awarded with the return of 2,600,000 shares of
          common stock and $10,000. The Company later cancelled the 2,600,000
          shares of common stock, and will be filing a judgment with the court
          in order to collect the $10,000. The Company estimates the probability
          of collecting the debt is about 50%.


                                       24
<PAGE>

                               Xynergy Corporation
                          (A Development Stage Company)
                          Notes to Financial Statements


3. Common and Preferred Stock Transactions (continued):

          Incentive Stock Option Plan

          The Company has adopted an Incentive Stock Plan (the "Plan"). The Plan
          authorizes the granting of options to employees of the Company to
          purchase and aggregate of $500,000 shares of common stock at no less
          than the fair market value for the common stock at the date the option
          is granted. For owners of 10% or more of the voting power of the
          Company's stock, the option prices must be at least 20% or more of the
          fair market value of the common stock at the date the option is
          granted. No option may be granted after August 6, 2003. No options
          have been granted under the Plan to date.

4.  Income Taxes:

          The Company has no material temporary differences that would result in
          deferred taxes. The Company does, however, have loss carry forwards,
          which may result in deferred tax assets in the future. At December 31,
          2000, the Company has approximately 1,258,000 and 1,162,000 of federal
          and state net operating loss carry forwards, respectively, which begin
          to expire in 2018 and 2003, respectively. For the years ended December
          31, 2001, and 2000, the provision for income taxes represents the
          minimum state franchise tax.

5.  Going Concern:

          The accompanying financial statements have been prepared assuming that
          the Company will continue as a going concern. The accompanying
          financial statements indicated that the Company incurred a net loss of
          $35,188 during the year ended December 31, 2002. The Company's
          significant operating loss raises substantial doubt about its ability
          to continue as a going concern. Management's plan is revenue
          enhancement through an integration of companies in growth and emerging
          markets.


                                       25
<PAGE>

Item 8. Changes In and Disagreements with Accountants on Accounting and
        Financial Disclosures.


On April 23, 2002, Xynergy Corporation signed an engagement letter with Buetel
Accountancy Corporation. This change was reported in the Company's 8-K filing
dated May 2, 2002.

This change was not affected as a result of a dispute or disagreement.

On May 1, 2003, the Company engaged Henry Schiffer, CPA to perform its audit for
the fiscal year ended December 31, 2002; to replace the firm of Buetel
Accountancy Corporation. The decision to change independent auditors was
approved by the Company's Board of Directors. This change was reported in the
Company's 8-K filing dated May 1, 2003 and was not affected as a result of a
disagreement, per the 8-KA filing of May 7, 2003, along with Mr. Beutel's letter
as Exhibit 10.33.

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act.

         The directors and executive officers of Xynergy are as follows:

         Name                      Age                   Position
         ----                      ---                   --------

         Raquel Zepeda             51                    President and Chairman
         Thomas Lupo               55                    Director

     Directors serve until the next annual meeting of shareholders and until
their successors have been elected and have been qualified. Officers serve until
the meeting of the Board of Directors following the next annual meeting of
shareholders and until their successors have been elected and have been
qualified.

     RAQUEL ZEPEDA, has served as President and as a director of Xynergy since
its inception on August 6, 1993 and as the Treasurer of Xynergy since August
1995. Ms. Zepeda established RAQL as a sole proprietorship in 1987. See
"Business". From July 1993 to July 1994, Ms. Zepeda was employed as a legal
secretary by the law firm of Rosky, Landau, Stall & Sheehy. From July 1992 to
July 1993 she was employed in a similar capacity by the law firm of Turner,
Gerstenfeld, Wilk, Tigerman & Young. From April 1988 to July 1992, Ms. Zepeda
was employed as a temporary legal secretary by various law firms in the Los
Angeles, California area. None of the law firms that employed Ms. Zepeda has any
relation to Xynergy.

     TOM LUPO is serving as a Director on Xynergy's Board and has a vast
knowledge and experience in the network marketing industry. Mr. Lupo is a Senior
Executive with 30 years' experience in Direct Sales and Network marketing in the
US, Canada and Europe with such major international companies such as Avon,
Shaklee, Twinlab and Japanese-owned Noevir cosmetics. Managed sales, marketing


                                       26
<PAGE>

operations, product development and international sales and marketing efforts.
Considered a "pro" in direct-to-consumer marketing with an extensive background
in the Skin Care and Wellness industries. Has worked in large, small and "start
up" business models.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 and the rules thereunder
require Xynergy's officers and directors and persons who own more than 10% of
Xynergy's common stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission and to furnish Xynergy with copies.
During each of the fiscal years ended December 31, 2000, 2001, and 2002, each of
the directors and officers filed the required Form 3.

Item 10.  Executive Compensation.

Compensation of Officers. No executive officer of Xynergy was paid cash or
non-cash compensation in excess of $100,000 during calendar years 2000, 2001, or
2003 and Xynergy filed a Stock Incentive Plan with its September, 2002 S-8. The
following table sets forth the cash compensation paid by Xynergy to its chief
executive officer for services rendered during calendar years, 2000, 2001, and
2002.

                                   Annual Compensation (1)
     Name and                                                  Other Annual
Principal Position          Year    Salary ($)    Bonus ($)    Compensation

Raquel Zepeda, President    2002      ---           ---           ---
                            2001      ---           ---           ---
                            2000      ---           ---           ---

Incentive Stock Option Plan. Xynergy has adopted an Incentive Stock Option Plan
(the "Plan"). The purpose of the Plan is to secure and retain key employees of
Xynergy. The Plan authorizes the granting of options to key employees of
Xynergy. The Plan is administered by Xynergy's Board of Directors. No options
have been granted under the Plan. It may be expected that any options granted
will be exercised only if it is advantageous to the option holder and when the
market price of Xynergy's common stock exceeds the option price. In the event
that Xynergy grants options pursuant to the Plan, the existence of such options
may have a negative effect on the market price of Xynergy's common stock.

Compensation of Directors. Directors will receive a number of shares of common
stock as compensation for their services in an amount determined by the Board of
Directors.


                                       27
<PAGE>

Item 11.  Security Ownership of Certain Beneficial Owners and Management.

Security Ownership of Certain Beneficial Owners. The following table sets forth
information for each person who is known to Xynergy to be the beneficial owner
of more than five percent of any class of Xynergy's voting stock as of December
31, 2002:

                                        Amount and                    Percent of
                 Name and Address of    Nature of         Percent of  all Voting
Title of Class   Beneficial Owner       Beneficial Owner     Class     Classes

Common Stock     Raquel Zepeda          5,999,200 shares     19%       19%
                 269 S. Beverly Dr.     owned directly
                 Beverly Hills, CA

                 Raquel of
                 Beverly Hills, Inc.    10,000,000            32%      32%

                 Machinations           3,000,000             9.6%     9.6%


As of December 31, 2002, there were 31,161,851 shares of common stock
outstanding, with each share entitled to one vote. Therefore, Xynergy has
securities outstanding with an aggregate of 31,161,851 votes.

Security Ownership of Management. The following table sets forth as to each
class of equity securities of Xynergy beneficially owned by all of Xynergy's
directors and nominees, each of the named executive officers and by all of
Xynergy's directors and executive officers as a group:

                                              Amount and
                  Name and Address of         Nature of         Percent of
Title of Class    Beneficial Owner            Beneficial Owner    Class
--------------    ------------------          ----------------  ----------
Common Stock      Raquel Zepeda               5,999,200 shares     19%
                  269 So. Beverly Dr.         owned directly
                  Beverly Hills, CA

Common Stock      All executive officers and  5,999,000 shares     19%
                  directors as a group

Changes in Control. There are no agreements, arrangements, or pledges of
securities of Xynergy, the operation of which may at a subsequent date result in
a change of control of Xynergy.

Item 12.  Certain Relationships and Related Transactions.

                  Not applicable.

Item 13.  Exhibits and Reports on Form 8-K.

         (a)  Exhibits and Index of Exhibits.

         Exh.
          No.      Description

          3.1  Articles of Incorporation, incorporated by reference from Form
               SB-2 Registration Statement No. 33-76464-LA as filed on March 31,
               1994, Exhibit 3(a).

          3.2  Amendment to Articles of Incorporation, incorporated by reference
               from Form SB-2 Registration Statement No. 33-76464-LA as filed on
               March 31, 1994, Exhibit 3(b).

          3.3  Bylaws, incorporated by reference from Form SB-2 Registration
               Statement No. 33-76464-LA as filed on March 31, 1994, Exhibit
               3(c).

          3.4  Amendment to Bylaws, incorporated by reference from Form SB-2
               Registration Statement No. 33-76464-LA as filed on March 31,
               1994, Exhibit 3(d).

          3.5  Certificate of Determination of Rights and Preferences of Series
               A Preferred Stock, incorporated by reference from Form 10K
               Registration Statement No. 41093.4-LA, as filed on December 31,
               1995, Exhibit 3.5(a).


                                       28
<PAGE>


          3.6  Amended and Restated Bylaws, incorporated by reference from Form
               10K Registration Statement No. 41093.4-LA, as filed on December
               31, 1995, Exhibit 3.6(a). 3.7 Amendment to Certificate of
               Determination of Rights and Preferences of Series A Preferred
               Stock, incorporated by reference from Form 10K Registration
               Statement No. 97WLA13270018 as filed on December 31, 1996,
               Exhibit 3.7(a).

          3.8  Certificate amending articles of incorporation changing the
               corporate name from Colecciones de Raquel, Inc. to Raquel, Inc.

          3.9  Certificate of Amendment to Articles of Incorporation filed with
               the Company's 8-K, dated May 2, 2002, and incorporated herein by
               reference.

          4.1  Specimen Certificate of Common Stock, incorporated by reference
               from Form SB-2 Registration Statement No. 33-76464-LA as filed on
               March 31, 1994, Exhibit 4(a).

          4.2  Form of Warrant Agreement, incorporated by reference from Form
               SB-2 Registration Statement No. 33-76464-LA as filed on March 31,
               1994 Exhibit 4(b).

          4.3  Specimen A Warrant Certificate, incorporated by reference from
               Form SB-2 Registration Statement No. 33-76464-LA as filed on
               March 31, 1994, Exhibit 4(c).

          4.4  Specimen B Warrant Certificate, incorporated by reference from
               Form SB-2 Registration Statement No. 33-76464-LA as filed on
               March 31, 1994, Exhibit 4(d).

          4.5  Specimen C Warrant Certificate, incorporated by reference from
               Form SB-2 Registration Statement No. 33-76464-LA as filed on
               March 31, 1994, Exhibit 4(e).

          4.6  Specimen Certificate of Series A Preferred Stock, incorporated by
               reference from Form SB-2 Registration Statement No. 33-76464-LA
               as filed on March 31, 1994, Exhibit 4(g).

          10.1 Incentive Stock Option Plan, incorporated by reference from Form
               SB-2 Registration Statement No. 33-76464-LA as filed on March
               31,1994, Exhibit 4(g).

          10.2 Employment Agreement dated January 31, 1994 between The Company
               and Raquel Zepeda, incorporated by reference from Form SB-2
               Registration Statement No. 33-76464-LA as filed on March 31,
               1994, Exhibit 10(b).

          10.3 Trademark Application for "Colecciones de Raquel", incorporated
               by reference from Form SB-2 Registration Statement No.
               33-76464-LA as filed on March 31, 1994, Exhibit 10(c).

                                       29
<PAGE>


          10.4 Trademark No. 1,709,662 for "Sabor A Mi", incorporated by
               reference from Form SB-2 Registration Statement No. 33-76464-LA
               as filed on March 31, 1994, Exhibit 10(d)

          10.5 Agreement dated December 31, 1993 between The Company and Raquel
               Zepeda, incorporation by reference from Amendment No. 1 to Form
               SB-2 Registration Statement No. 33-76464-LA as filed on May 9,
               1994, Exhibit 10(e),

          10.6 Settlement Agreement and General Mutual Release dated June
               20,1995 between the Raquel Zepeda dba Colecciones de Raquel and
               Rixima, Inc., incorporated by reference from Form 10KSB
               Registration Statement No. 34597.1 as filed on December 31, 1994,
               Exhibit 10.6(a).

          10.7 Agreement dated September, 1994 between The Company and Moore
               McKenzie, Inc., incorporated by reference from Form 10KSB
               Registration Statement No.34597.1-LA as filed on December 31,
               1994, Exhibit 10.7(a).

          10.8 Commercial Lease dated September 29, 1995 between the Company and
               Wallace H. Siegel and Allen Siegel, incorporated by reference
               from Form 10KSB Registration Statement No.34597.1-LA as filed on
               December 31, 1994, Exhibit 10.8(a).

          10.9 Amendment No. 1 to Employment Agreement dated January 1, 1996
               between the Company and Raquel Zepeda, incorporated by reference
               from Form 10KSB Registration Statement No.34597.1-LA as filed on
               December 31, 1994, Exhibit 10.9(a).

         10.10 Commercial Lease dated September 29, 1995 between the Company
               and L.A. Pacific Center, Inc., incorporated by reference from
               Form 10KSB Registration Statement No. 97-WLA-13270018 as filed on
               December 31, 1996.

         10.11 Distribution Agreement between Raquel, Inc. [formerly known as
               Colecciones de Raquel] and R-Town Entertainment incorporated by
               reference from Form 10KSB Registration Statement No.
               98-WLA-123500 as filed March, 1998.

         10.12 Trademark No. 2,050,606 for Raquel, Inc. [formerly known as
               Colecciones de Raquel] Face Logo" incorporated by reference from
               Form 10KSB Registration Statement No. 98-WLA-123500 as filed
               March, 1998..

         10.13 Certificate of Copyright Registration VA 736-099 for "RAQL Mark
               (Logo)" incorporated by reference from Form 10KSB Registration
               Statement No. 98-WLA-123500 as filed March, 1998.

         10.14 Certificate of Copyright Registration SR 190-794 for Sabor A Mi,
               "Melody Of Eternal Passion" incorporated by reference from Form
               10KSB Registration Statement No. 98-WLA-123500 as filed March,
               1998..

         10.15 Certificate of Copyright Registration VA 334-469 for
               "Colecciones De Raquel Color Collection Brochure".

         10.16 Notice of Allowance for Trademark "PELIGRO," SR 75/074408
               incorporated by reference from Form 10KSB Registration Statement
               No. 98-WLA-123500 as filed March, 1998.


                                       30
<PAGE>

         10.17 Request For Extension of Time To File A Statement Of Use With
               Declaration for Trademark "PELIGRO", SR 75/074408 incorporated by
               reference from Form 10KSB Registration Statement No.
               98-WLA-123500 as filed March, 1998..

         10.18 Notice of Approval of Extension Request for Trademark "PELIGRO",
               SR 75/074408 incorporated by reference from Form 10KSB
               Registration Statement No. 98-WLA-123500 as filed March, 1998.

         10.19 Contract with Con Estilo Latino

         10.20 Contracts with A.R. Hardy & Associates and John W. Vanover
               incorporated herein by reference from Form S-8 filed on June 17,
               1998 (File No. 333-57061)

         10.21 Trademark applications for "Chic'a Beverly Hills" and "Yoohoo."

         10.22 Employment agreement with Edward A. Rose, Jr.

         10.28 Acquisition Agreement between Corporate Space Power Industries
               and Electric, Inc. and Xynergy Corporation; incorporated herein
               by reference from Form S-8 filed on May 3, 2002.

         10.29 Letter to Oppenheim & Ostrick incorporated herein by reference
               from Form S-8 filed on May 3, 2002.

         10.30 Dissolution agreement between Xynergy and CSPIE dated August,
               2002

         10.31 Cancellation Agreement of acquisition of Web Marketing Network,
               Inc. dated August 26, 2002,

         10.32 Acquisition agreement between Voyaware, LLC and Xynergy Corp.
               dated September, 2002.

         10.33 Letter from Todd Beutel to SEC re change in accountants to Henry
               Schiffer, CPA.

         (b)      Reports on Form 8-K.

               On September 20, 2000 a Form 8-K was filed, reporting the
               acquisition of Think Blots greeting card line. The filing
               included the Acquisition Agreement as an exhibit and is
               incorporated herein by reference.

               A Form 8-K was filed dated January 23, 2002 to report the
               acquisition of Web Marketing Network,

               8-K filing dated May 2, 2002 reports acquisition of Corporate
               Space Power Industries and Electric Corporation, change in
               auditors, and Amendment to Articles of Incorporation..

               On May 2, 2002 a Form 8-K was filed reporting the acquisition of
               CSPIE.

               In June, 2002 a Form 8-K and subsequent 8-KA were filed to report
               the change in accountants from Ostrick and Oppenheim to Beutel
               Accountancy.

               Form 8K and subsequent 8-KA were filed on May 2003, reporting
               Xynergy's change in auditor from Todd Beutel to Henry Schiffer,
               C.P,A.


                                       31
<PAGE>


SIGNATURES


     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Dated: May 16, 2003               XYNERGY CORPORATION
                                  [formerly known as RAQUEL, INC.]


                             By:   /s/Raquel Zepeda
                                   Raquel Zepeda, President,
                                   Chief Executive Officer
                                   & Chairman


     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

Signature


        /s/ Raquel Zepeda       Corporate Secretary              May 15,  2003
            RAQUEL ZEPEDA       and Director)


     The signing officer has reviewed the report;

     Based on such officer's knowledge, the report does not contain any untrue
statement of material fact or omit a material fact necessary in order to make
statements made, in light of the circumstances under which such statements were
made, not misleading;

     Based on such officer's knowledge, the financial statements and other
financial information included in the report to be filed, fairly present in all
material respects the financial condition and results of operation of the
company as of, and for, the periods presented in the report;

     The signing officers are responsible for establishing and maintaining
internal controls, have designed such internal controls to insure that material
information relating to the company and its consolidated subsidiaries is made
known to such officers, particularly during the period in which the periodic
reports are to be prepared, have evaluated the effectiveness of the controls as
of a date within 90 days prior to the date of the report, and have presented in
the report their conclusions about the effectiveness of the controls based on
their evaluation as of such date;

     The signing officers have disclosed to the company's auditors and the audit
committee all significant deficiencies in the design or operation of internal
controls which could adversely affect the company's ability to record, process,
summarize and report financial data and have identified for the auditors any
material weaknesses in internal controls and any fraud, whether or not material,
that involves management or other employees who have a significant role in the
company's internal controls; and

     The signing officers have indicated in the report whether or not there were
any significant changes in internal controls or other factors that could
significantly affect internal controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.