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
$-0-. 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 18,101,581.

                   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.


                                       1
<PAGE>

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.

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. In May, 2000, the Company
entered into an agreement with Susana Consultants for drug store distribution.
Raquel of Beverly Hills products were placed in four independent drug stores.
Sales were minimal due to the line's premium category which is not typically
sold in drug stores.

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.


                                       2
<PAGE>

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. 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.

Tom Lupo was assigned to Xynergy's Board of Directors in November, 2002. Tom
Lupo has a vast knowledge and experience in the network marketing industry.

Xynergy signed a Letter of Intent in February, 2003 to acquire Global Liesure
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.


                                       3
<PAGE>

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.

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.


                                       4
<PAGE>

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. 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.


                                       5
<PAGE>

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.

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.


                                       6
<PAGE>

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.

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.


                                       7
<PAGE>

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.

      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.


                                       8
<PAGE>

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


                                       10
<PAGE>

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.

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 18,101,851 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.


                                       11
<PAGE>

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 Voyawaare, LLC. For
reasons that management believes are in the best interests of Xynergy, all three
of these acquisitions were dissolved.

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 acquistion
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.


                                       12
<PAGE>

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 $428 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 2002. While its
receivables are substantial, and have been submitted to a collection agency for
retrieval; recovery of these monies is uncertain. (See Item 1, Recent
Operations, Pages 3-4.)

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.


                                       13
<PAGE>

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.

Item 7. Financial Statements.

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

The following financial statements represent the fiscal year ended December 31,
2002.

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

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.

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       --           --             --


                                       14
<PAGE>

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.

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:

<TABLE>
<CAPTION>
                                                Amount and                           Percent of
                      Name and Address of       Nature of              Percent of    all Voting
Title of Class        Beneficial Owner          Beneficial Owner       Class         Classes
--------------        ----------------          ----------------       ----------    ----------
<S>                   <C>                       <C>                       <C>            <C>
Common Stock          Raquel Zepeda             5,999,200 shares          58%            58%
                      269 S. Beverly Dr.        owned directly
                      Beverly Hills, CA

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

                      Machinations               3,000,000
</TABLE>

As of December 31, 2002, there were 18,101,851 shares of common stock
outstanding, with each share entitled to one vote. Therefore, Xynergy has
securities outstanding with an aggregate of 18,101,851 votes.


                                       15
<PAGE>

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     33%
                  269 So. Beverly Dr.         owned directly
                  Monica Blvd.
                  Beverly Hills, CA

Common Stock      All executive officers and  5,999,200 shares     33%
                  directors as a group
                  (1 person)

Changes in Control

Other than the Employment Agreement with Ms. Zepeda, 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).


                                       16
<PAGE>

Exh.
No.   Description
---   -----------

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).

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).

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).

                                       17
<PAGE>

Exh.
No.   Description
---   -----------

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.

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.*

31    Certification.

32    Certification.

----------
*     Previously filed.

      (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 acqusition 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.


                                       19
<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
-----------------------------------     and Director)
RAQUEL ZEPEDA

      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.


                                       20
<PAGE>

             Report of Independent Registered Public Accounting Firm

To the Board of Directors and Audit Committee
XYNERGY CORPORATION

I have audited the accompanying balance sheets of XYNERGY Corporation, as of
December 31, 2002 and the related statements of operations, stockholders'
equity, and cash flows for the year ended December 31, 2002. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit. Other
auditors audited the financial statements of XYNERGY Corporation as of December
31, 2001 their audit dated May 2, 2002 expressed an unqualified opinion on those
statements.

I conducted my audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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. I believe that our audit provides a reasonable
basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of XYNERGY Corporation, as of December
31, 2002 and the related statements of operations, stockholders' equity, and
cash flows for the year ended December 31, 2002 are in conformity with
accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. The Company is ten years old and has a
substantial deficit in retained earnings from accumulated losses during each of
those years. This raises substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from this uncertainty.


Shelley International, CPA

September 30, 2004

Mesa, Arizona


                                      F-1
<PAGE>

                              XYNERGY CORPORATION
                         (A Development Stage Comapny)
                           CONSOLIDATED BALACE SHEETS
                           December 31, 2002 and 2001

                                     ASSETS

                                                    December 31,    December 31,
                                                       2002             2001
                                                     -----------    -----------

CURRENT ASSETS
     Cash                                            $       428    $     2,721
     Inventory, at Cost                                                   8,870
     Prepaid Expenses                                     21,475         42,868
                                                     -----------    -----------

     Total Current Assets                                 21,903         54,459
                                                     -----------    -----------

LOANS TO EMPLOYEES                                                       14,817
EQUIPMENT NET                                                 --             --
                                                     -----------    -----------

TOTAL ASSETS                                         $    21,903    $    69,276
                                                     ===========    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Current Liabilities
     Accounts Payable                                $    29,201    $    32,471
     Loans from Shareholder                               27,987          6,132
                                                     -----------    -----------

TOTAL LIABILITIES                                         57,188         38,603
                                                     -----------    -----------

STOCKHOLDERS' EQUITY/(DEFICIT)

     Preferred Stock authorized
     50,000,000 shares, $0.001 par value,
     none outstanding                                         --             --

     Common Stock, authorized
     250,000,000 shares, $0.001 par value
     December 2002, issued and outstanding
     18,101,851 shares and December 2001,
     301,000                                              18,102            301

     Paid in Capital                                   1,843,569      1,448,399

     Common Stock-Subscriptions Receivable              (279,750)

     Accumulated (Loss) during
     development stage                                (1,617,206)    (1,418,027)
                                                     -----------    -----------

     Total Stockholders' Equity/(Deficit)                (35,285)        30,673
                                                     -----------    -----------

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY                                 $    21,903    $    69,276
                                                     ===========    ===========

The accompanying notes are an integral part of these statements


                                      F-2
<PAGE>

                              XYNERGY CORPORATION
                         (A Development Stage Comapny)
                      CONSOLIDATED STATEMENT OF OPERATIONS

                                      Year            Year       From Inception
                                     Ended           Ended       August 6, 1993
                                   December 31,    December 31,  to December 31,
                                      2002            2001           2002
                                   ------------    ------------    ------------

INCOME
      Sales                                       $      2,487    $     48,074
      Other Income                                       1,240         119,148
      Less Cost of Goods Sold                             (908)        (24,627)
                                   ------------    ------------    ------------

      Gross Profit / (Loss)                  --           2,819         142,595
                                   ------------    ------------    ------------

EXPENSES
      General and Administrative   $    193,865         115,186       1,748,087
      Interest Expense                    5,314                           5,314
                                   ------------    ------------    ------------

      Total Expense                     199,179         115,186       1,753,401
                                   ------------    ------------    ------------

Net (Loss) before Income Taxes         (199,179)       (112,367)     (1,610,806)

      Provision for Income Taxes             --            (800)         (6,400)
                                   ------------    ------------    ------------

NET (LOSS)                         $   (199,179)   $   (113,167)   $ (1,617,206)
                                   ============    ============    ============

BASIC AND  DILUTED
Net (Loss) per Common Share                   a               a
                                   ------------    ------------

Weighted Average Number of
      Common Shares Outstanding      22,388,499         316,000
                                   ============    ============

a = Net (Loss) less than ($0.01) per share

The accompanying notes are an integral part of these statements


                                      F-3
<PAGE>

                               XYNERGY CORPORATION
                          (A Development Stage Comapny)
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                from inception August 6, 1993 to December 31,2002

<TABLE>
<CAPTION>
                                                        Preferred Stock                 Common Stock
                                      Price Per    ------------------------------------------------------------     Paid in
                                       Share        Shares           Amount         Shares           Amount         Capital
                                    ------------   ------------    ------------    ------------    ------------    ------------
<S>                                <C>               <C>             <C>            <C>            <C>             <C>
Net (Loss) from Inception to
   December 31, 1993
                                                   ------------     ------------    ------------    ------------    ------------

Balance December 31, 1993

Common shares issued to Founder       $      0.002                                      200,000    $        200    $     36,554
Common shares issued for cash with
   an "A" Warrant attached            $      0.091                                       10,000              10          91,080
Preferred shares issued in exchange
   for common shares                                      100,000   $        100       (200,000)           (200)            100
Common shares issued in exercise
   of  "A" warrants (see Note 3
   Stockholders' Equity)              $      0.250                                       10,000              10         249,990

Net (Loss) for the year
                                                    -------------    -----------   ------------    ------------    ------------
Balance December 31, 1994                                 100,000            100         20,000              20         377,724

Common shares issued in exercise
   of "B" warrants (see Note 3
   Stockholders' Equity)              $      0.500                                       20,000              20         999,980
Cash Proceeds from MMI

Net (Loss) for the year
                                                    -------------    -----------   ------------    ------------    ------------
Balance December 31, 1995                                 100,000            100         40,000              40       1,377,704

Common shares issued in exchange
   for preferred shares                                  (100,000)          (100)       200,000             200            (100)
Cash Proceeds from MMI

Net (Loss) for the year
                                                    -------------    -----------   ------------    ------------    ------------
Balance December 31, 1996                                                     --             --         240,000             240

Net (Loss) for the year
                                                    -------------    -----------   ------------    ------------    ------------
Balance December 31, 1997                                      --             --        240,000             240       1,377,604

Common shares issued for
   consulting services                $     0.0001                                       33,000              33             297

Net (Loss) for the year
                                                    -------------    -----------   ------------    ------------    ------------
Balance December 31, 1998                                      --             --        273,000             273       1,377,901

Common shares cancelled for
   services not rendered                                                                (26,000)            (26)             26

Net (Loss) for the year
                                                    -------------    -----------   ------------    ------------    ------------
Balance December 31, 1999                                      --             --        247,000             247       1,377,927

Net (Loss) for the year
                                                    -------------    -----------   ------------    ------------    ------------
Balance December 31, 2000                                      --             --        247,000             247       1,377,927

Common shares issued by exercise
     of options for cash              $      1.306                                       54,000              54          70,472

Net (Loss) for the year
                                                    -------------    -----------   ------------    ------------    ------------
Balance December 31, 2001                                                               301,000             301       1,448,399

Common shares issued by exercise
     of options thru subscriptions
      receivable                      $      0.025                                       15,000              15          37,485
Common shares issued for company
     acquisitions                     $      0.001                                   10,500,000          10,500
Common shares issued by exercise
     of options thru subscriptions
      receivable                      $      0.100                                    2,000,000           2,000         198,000
Common shares issued by exercise
     of options thru subscriptions
      receivable                      $      0.025                                    1,000,000           1,000          24,000
Common shares issued by exercise
     of options thru subscriptions
      receivable                      $      0.050                                      750,000             750          36,750
Common shares issued for services                                                    13,035,851          13,036          98,935
Common shares issued to and
   held  by subsidiaries              $      0.001                                   13,000,000          13,000
Common shares cancelled for
    termination of acquisitions       $      0.001                                   (9,500,000)         (9,500)
Cash received on Subscriptions

Net (Loss) for the year
                                                    -------------    -----------   ------------    ------------    ------------

Balance, December 31, 2002                                     --   $         --     31,101,851    $     31,102    $  1,843,569
                                                    =============   ============   ============    ============    ============

<CAPTION>
                                                        Stock        Accumulated
                                    Subscriptions      Owned by     (Loss) During        Total
                                      Receivable     Subsidiaries  Development Stage    Equity
                                     ------------    ------------    ------------    ------------
<S>                                   <C>             <C>             <C>            <C>
Net (Loss) from Inception to
   December 31, 1993                                                $    (36,640)   $    (36,640)
                                     ------------    ------------    ------------    ------------

Balance December 31, 1993                                                (36,640)        (36,640)

Common shares issued to Founder                                                           36,754
Common shares issued for cash with
   an "A" Warrant attached                                                                91,090
Preferred shares issued in exchange
   for common shares                                                                          --
Common shares issued in exercise
   of  "A" warrants (see Note 3
   Stockholders' Equity)            $   (250,000)                                             --

Net (Loss) for the year                                                  (58,052)        (58,052)
                                    ------------    ------------    ------------    ------------
Balance December 31, 1994               (250,000)                        (94,692)         33,152

Common shares issued in exercise
   of "B" warrants (see Note 3
   Stockholders' Equity)              (1,000,000)                                             --
Cash Proceeds from MMI                   849,875                                         849,875

Net (Loss) for the year                                                 (126,518)       (126,518)
                                    ------------    ------------    ------------    ------------
Balance December 31, 1995               (400,125)                       (221,210)        756,509

Common shares issued in exchange
   for preferred shares                                                                       --
Cash Proceeds from MMI                   400,125                                         400,125

Net (Loss) for the year                                                 (308,137)       (308,137)
                                    ------------    ------------    ------------    ------------
Balance December 31, 1996              1,377,604              --        (529,347)        848,497

Net (Loss) for the year                                                 (290,579)       (290,579)
                                    ------------    ------------    ------------    ------------
Balance December 31, 1997                                               (819,926)        557,918

Common shares issued for
   consulting services                                                                       330

Net (Loss) for the year                                                 (217,582)       (217,582)
                                    ------------    ------------    ------------    ------------
Balance December 31, 1998                                             (1,037,508)        340,666

Common shares cancelled for
   services not rendered                                                                      --

Net (Loss) for the year                                                 (169,677)       (169,677)
                                    ------------    ------------    ------------    ------------
Balance December 31, 1999                                             (1,207,185)        170,989

Net (Loss) for the year                                                  (97,675)        (97,675)
                                    ------------    ------------    ------------    ------------
Balance December 31, 2000                                             (1,304,860)         73,314

Common shares issued by exercise
     of options for cash                                                                  70,526

Net (Loss) for the year                                                 (113,167)       (113,167)
                                    ------------    ------------    ------------    ------------
Balance December 31, 2001                                             (1,418,027)         30,673

Common shares issued by exercise
     of options thru subscriptions
      receivable                         (37,500)                                             --
Common shares issued for company
     acquisitions                                                                         10,500
Common shares issued by exercise
     of options thru subscriptions
      receivable                        (200,000)                                             --
Common shares issued by exercise
     of options thru subscriptions
      receivable                         (25,000)                                             --
Common shares issued by exercise
     of options thru subscriptions
      receivable                         (37,500)                                             --
Common shares issued for services                                                        111,971
Common shares issued to and
   held  by subsidiaries                            $    (13,000)                             --
Common shares cancelled for
    termination of acquisitions                                                           (9,500)
Cash received on Subscriptions            20,250                                          20,250

Net (Loss) for the year                                                 (199,179)       (199,179)
                                    ------------    ------------    ------------    ------------

Balance, December 31, 2002          $   (279,750)   $    (13,000)   $ (1,617,206)   $    (35,285)
                                    ============    ============    ============    ============
</TABLE>

On January 22, 2002 the Company had a 100:1 reverse stock split and wrote-up par
value from $0.0001 to $0.001. This reverse split and par value write-up has been
retroactively applied to the schedule above except for the price paid per share.
During 2002, 13,000,000 common shares were issued to wholly-owned subsidiaries
and have been consolidated in the balance sheets.

The accompanying notes are an integral part of these statements


                                      F-4
<PAGE>

                               XYNERGY CORPORATION
                          (A Development Stage Comapny)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                               From Inception
                                                  Year Ended      Year Ended   August 6, 1993
                                                  December 31,   December 31,  to December 31,
                                                     2002            2001          2002
                                                  -----------    -----------    -----------
<S>                                               <C>            <C>            <C>
Operating Activities

     Net (Loss)                                   $  (199,179)   $  (113,167)   $(1,617,206)
                                                                                         --
     Significant Non-Cash Transactions                                                   --
          Common Shares issued For Acquisitions         1,000                         1,000
          Common Shares issued for services           111,971                       149,055
          Depreciation Expense                            774                        34,019
     Changes in assets and liabilities
          Decrease in Inventory                         8,870         48,547             --
          Decrease/(Increase) in  Prepaid
                Expense                                36,210        (40,072)       (21,475)
          Decrease/(Increase) in Accounts
                Payable                                (3,270)        33,271         29,201
                                                  -----------    -----------    -----------

Net Cash (Used) by Operating Activities               (44,398)       (70,647)    (1,425,406)
                                                  -----------    -----------    -----------

Investing Activities

          Purchase of Equipment                                                     (34,019)
                                                  -----------    -----------    -----------

Net Cash (Used) by Investing Activities                    --             --        (34,019)
                                                  -----------    -----------    -----------

Financing Activities

     Proceeds Received from collection of
         Subscriptions Receivable                      20,250                        20,250
     Proceeds from loans                               21,855                        27,987
     Proceeds from sale of Common Stock                               55,710      1,411,616
                                                  -----------    -----------    -----------

Cash Provided by Financing Activities                  42,105         55,710      1,459,853
                                                  -----------    -----------    -----------

Net Increase/(Decrease) in Cash                        (2,293)       (14,937)           428

Cash, Beginning of Period                               2,721         17,658             --
                                                  -----------    -----------    -----------

Cash, End of Period                               $       428    $     2,721    $       428
                                                  ===========    ===========    ===========

Significant Non-Cash Transactions
     During 1998 3,300,000 pre-split common shares were issued for consulting
         services valued at $330 of which 2,600,000 shares were cancelled during
         1999 for services not rendered.
     During January 2002 1,500,000 pre-split common shares were issued for
          subscriptions receivable of $37,500.
     On January 22, 2002 outstanding common shares was reduced by 31,284,000
          in a 100:1 reverse stock split. Par value was increased to $0.001 per
          share resulted in a net increase to paid in capital of $2,844.
     During2002 after the reverse stock split the Company issued a net of
          1,000,000 shares for an acquisition valued at $1,000. It also issued
          13,000,000 common shares to subsidiaries valued at $13,000,
          additionally 3,750,000 shares were issued for subscriptions
          receivable of $262,500 and 13,035,851 common shares were issued for
          services valued at $111,971.

Supplemental Information:
     Interest Paid                                $     5,314    $     1,188    $    98,448
     Income Taxes Paid                                                   800          6,400
</TABLE>

The accompanying notes are an integral part of these statements


                                      F-5
<PAGE>

                               XYNERGY Corporation

                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2002

Note 1.           OVERVIEW OF OPERATIONS AND ACCOUNTING POLICIES

Nature of Business

Xynergy Corporation (formerly know as Raquel, Inc.) the "Company" was organized
under the laws of the state of Nevada on August 6, 1993. Xynergy is now a
holding company for the following subsidiaries: Raquel of Beverly Hills, a
cosmetics company, and Machinations, Inc. a greeting card company.

Xynergy started as "Colecciones de Raquel, Inc." with its IPO in 1994. In 1998,
Colecciones de Raquel became "Raquel, Inc." In February 2002, after its
acquisition of Think Blots greeting cards, Raquel, Inc. elected to change its
name to Xynergy Corporation and expand its mission and purpose as a holding
company. The Company's stated mission is revenue enhancement through an
integration of companies in growth and emerging markets, which will protect its
value as markets change and fluctuate.

Founder and Chairman, Raquel Zepeda organized the Company as "Colecciones de
Raquel of Beverly Hills" creating a full line of color cosmetics, skin care, and
fragrance for olive-skinned women, with a focus on the Hispanic/Latin market.
During that period, the Company developed and continues to own several
copyrights, trademarks, and trade secrets. Initially, the Company operated two
boutiques one each in Beverly Hills and Los Angeles, with the intent of
attaining distribution in department stores. Now Xynergy's subsidiary, Raquel of
Beverly Hills, plans to market its line of cosmetic products through direct TV
and network/multilevel marketing.

The Company acquired Think Blots greeting card line that combines original
inkblot artwork with humorous dialogue. The card line is promoted through its
game entitled "Demented Diagnosis," a "mental test" for potential customers to
acquaint themselves with a unique concept of self-discovery from inkblot art.
The Company's subsidiary Machinations, Inc markets the Think Blots greeting card
line and game "Demented Diagnosis."

Xynergy maintains an office in the home of Raquel Zepeda and has a mailing
address at 269 South Beverly Drive, Suite 938, Beverly Hills, California.

Cash and Cash Equivalents

For financial statement presentation purposes, the Company considers all
short-term investments with a maturity date of three months or less to be cash
equivalents.


                                      F-6
<PAGE>

Merchandise Inventory

The Company's inventory was principally merchandise held for sale from the
Raquel of Beverly Hills, Inc. cosmetic line. The inventory is all finished goods
and is stated at lower of cost or market on a FIFO basis. The company has
written off the entire inventory as obsolete as of December 31, 2002. Detail for
the inventory at 12/31/02 and 12/31/01 follows:

                                               12/31/02             12/31/01
                                               --------             --------
Inventory at Cost                               $0.00                 $8,870
                                                =====                 ======

Property and Equipment

Property and Equipment is recorded at cost and depreciated using the
straight-line method over the estimated useful lives, which is five years.
Property and Equipment was fully depreciated as of December 31, 2001 as follows:

                                                        12/31/02    12/31/01
                                                        --------    --------
Property and Equipment                                  $ 34,019    $ 34,019
Less: Accumulated depreciation                           (34,019)    (34,019)
                                                        --------    --------

Net Property and Equipment                              $   0.00    $   0.00
                                                        ========    ========

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (GAAP) requires management to
make estimates and assumptions that affect the reported amounts and the
disclosure of contingent amounts in the Company's financial statements and the
accompanying notes. Actual results could differ from those estimates.

Loss Per Share

The basic (loss) per share is calculated by dividing the Company's net income
available to common shareholders by the weighted average number of common shares
during the year.

The Company has no potentially dilutive securities outstanding at the end of the
statement periods. Therefore, the basic and diluted (loss) per share are
presented on the face of the statement of operations as the same number.

Stock Based Compensation

The Company accounts for its stock based compensation based upon provisions in
SFAS No. 123, Accounting for Stock-Based Compensation. In this statement stock
based compensation is divided into two general categories, based upon who the
stock receiver is, namely: employees/directors and non-employees/directors. The
employees/directors category is further divided based upon the particular stock
issuance plan, namely compensatory and non-compensatory. The employee/directors
non-compensatory securities are recorded at the sales price when the stock is
sold. The compensatory stock is calculated and recorded at the securities' fair
value at the time the stock is given. SFAS 123 also provides that stock
compensation paid to non-employees be recorded with a value which is based upon
the fair value of the services rendered or the value of the stock given,
whichever is more reliable. The common stock paid to non-employees was valued at
the value of the services rendered.


                                      F-7
<PAGE>

Note 2.           GOING CONCERN

The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. The Company has accumulated a
$1,614,362 loss during its development phase. This raises substantial doubt
about the Company's ability to continue as a going concern. The Company's
ability to continue as a going concern is dependent upon its success in
developing additional capital.

There is no assurance that the Company will be successful in its efforts to
raise additional proceeds or achieve profitable operations. The financial
statements do not include any adjustments that might result from this
uncertainty.

Management is currently evaluating several proposals that would bring capital
into the company through a convertible debt offering.

Note 3.           STOCKHOLDERS' EQUITY

Xynergy Corporation (formerly know as Raquel, Inc.) the Company was organized
under the laws of the state of Nevada on August 6, 1993. The Company had
10,000,000 shares of preferred stock authorized at a $0.001 par value and
50,000,000 common shares authorized at a $0.0001 par value. On January 31,1994
the Company increased the preferred stock authorized to 50,000,000 shares and
the authorized common stock to 250,000,000 shares.

On January 22, 2002 the Company authorized a reverse stock split of common
shares at one hundred to one (100:1) leaving 316,000 common shares outstanding
as of that date. The Company subsequently increased par value of a common share
to $0.001. The reverse split has been retroactively applied to the Statement of
Stockholders Equity.

In 1993, the Company founder was issued 20,000,000 pre-split common shares to
cover the $36,754 costs of organization and registration. Afterward, 1,000,000
pre-split common shares were issued in a public offering for $100,000 less
$8,910 offering expenses; 3,000,000 pre-split common shares were issued thru the
exercise of the "A" and "B" Warrants for $1,250,000 see "Exercise of Warrants"
below; 700,000 pre-split shares were issued for services valued at $70;
5,400,000 pre-split shares were issued thru the exercise of options for $70,526
and 1,500,000 pre-split shares were issued thru the exercise of options by
subscriptions receivable of $37,350. The total pre-split common stock issued and
outstanding was 31,600,000 shares.


                                      F-8
<PAGE>

On January 22, 2002 the Company authorized a reverse stock split of common
shares at one hundred to one (100:1) leaving 316,000 post-split common shares
outstanding as of that date. The Company subsequently increased par value of its
common shares to $0.001 each. Afterward, the Company issued a net of 1,000,000
post-split common shares for company acquisitions valued at $1,000; 13,000,000
post-split common shares were issued to and are held by the Company's
subsidiaries to assist in their capitalization and have been consolidated on the
Balance Sheets; 3,750,000 post-split common shares were issued thru the exercise
of options by subscriptions receivable of $262,500; and 13,035,851 post-split
common shares were issued for services valued at $111,971.

Public Offering

In August 1994, the Company completed an initial public offering of its
securities. The Company sold 1,000,000 units at $0.10 per unit for gross
proceeds of $100,000 on a self-underwritten basis. Expenses of the offering were
$8,910. Each unit consists of one share of common stock and one Class "A"
Warrant. The Class "A" Warrants' were exercisable for one share of common stock
and two Class "B" Warrants at a price of $0.25 each. The Class "B" Warrants were
exercisable for one share of common stock and one Class "C" Warrant at a price
of $.50 each. The Class "C" Warrants' were to be exercisable for one share of
common stock at a price of $1.00 each.

Exercise of Warrants

In November 1994, all of the "A" Warrants were exercised in a transaction the
Company claims was fraudulent. The Company's transfer agent issued 1,000,000
shares of common stock and 2,000,000 "B" Warrants without the knowledge of the
Company's officers or directors. At the time the Company did not receive any
portion of the $250,000 exercise price

In February 1995, all of the "B" Warrants were exercised in a transaction which
the Company also claims was fraudulent. The Company's transfer agent issued
2,000,000 shares of common stock and 2,000,000 "C" Warrants without the
knowledge of the Company's officers or directors. At the time the Company did
not receive any portion of the $1,000,000 exercise price.

The 4,000,000 shares of common stock issued in the Company's initial public
offering and upon exercise of the "A" and "B" Warrants have been publicly traded
and the Company has cancelled the all of the "C" Warrants.

In September 1995, the Company entered into an Agreement with Moore McKenzie,
Inc., a Philippine corporation (MMI), which purchased and resold the shares
following the exercise of the warrants by third party entities. MMI has
expressly denied any involvement in the exercise of the 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). As of June 30, 1996, the
Company has received all of the $1,250,000 settlement.


                                      F-9
<PAGE>

For reporting purposes, we have treated the exercise of the Warrants and the MMI
settlement as stock subscribed.

Exercise of Options and Subscriptions Receivable

Through various consulting and purchase agreements the company issued 10,650,000
options to purchase common stock at exercise prices ranging from $0.025 to $0.10
per share. Because of the need for capital, the Company accepted the exercise of
5,400,000 options that had an exercise price of $0.025 per share for a total of
$70,526, instead of $135,000. Additionally, 2,000,000 options issued for the
acquisition of Think Blots, greeting cards were exercised at $0.10 per share
through receipt of a note recorded as subscriptions receivable of $200,000;
2,500,000 options were exercised at $0.025 through receipt of notes recorded as
subscriptions receivable of $62,500 and 750,000 options were exercised at $0.05
per share through receipt of notes recorded as subscriptions receivable of
$37,500. As of December 31, 2002 the Company has received $20,250 against the
total subscription receivable of $300,000.

Preferred Stock

The Company has 50,000,000 authorized shares of Preferred Stock with a par value
of $0.001 per share. As of December 31, 2002 there are no issued and outstanding
shares of Preferred Stock.

Stock Incentive Plan

The Company adopted a Stock Incentive Plan which was revised in its September
2002, S-8 Registration Statement. Under the plan, the Company can issue stock to
consultants, employees, directors and company officers in exchange for services.

Acquisitions by Exchange of Stock

On March 11, 2002 the Company issued 1,000,000 common shares and 2,000,000
options with an exercise price of $0.10 per share for the acquisition of Think
Blots, greeting cards. On March 11, 2002 the Company also issued 6,500,000
shares per its January letter of intent to acquire an e-commerce marketing
company, Web Marketing Network, Inc. of Canada. On May 9, 2002 the Company
issued 3,000,000 shares per its March 26, 2002 letter of intent to acquire a
solar energy company, Corporate Space Power Industries & Electric, Inc. As a
result of material differences the Company terminated the agreements and
cancelled the returned certificates totaling 9,500,000 common shares.

On April 22, 2002 the Board of Directors authorized the formation of two wholly
owned subsidiaries, Raquel of Beverly Hills, Inc. and Machinations, Inc. These
subsidiaries were issued 10,000,000 and 3,000,000 shares of common stock
respectively in exchange for all the stock in each company. The stock issue was
for the purpose of raising capital for the subsidiaries and has been
consolidated in the balance sheets.


                                      F-10
<PAGE>

Note 4.           INCOME TAXES:

The Company provides for income taxes under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. SFAS No. 109 requires the use of
an asset and liability approach in accounting for income taxes. Deferred tax
assets and liabilities are recorded based on the differences between the
financial statement and tax bases of assets and liabilities and the tax rates in
effect currently.

SFAS No. 109 requires the reduction of deferred tax assets by a valuation
allowance if, based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized. In the
Company's opinion, it is uncertain whether they will generate sufficient taxable
income in the future to fully utilize the net deferred tax asset. Accordingly, a
valuation allowance equal to the deferred tax asset has been recorded. The total
deferred tax asset is $355,785, which is calculated by multiplying a 22%
estimated tax rate by the cumulative NOL of $1,617,206. The total valuation
allowance is a comparable $355,785. Details for the last two years follow:

                                                 12/31/02             12/31/01
                                               -----------          -----------
Deferred Tax Asset                             $   355,785          $   311,966
Valuation Allowance                               (355,785)            (311,966)
Current Taxes Payable                                 0.00                 0.00
                                               -----------          -----------
Income Tax Expense                             $      0.00          $      0.00
                                               ===========          ===========

Below is a chart showing the estimated corporate federal net operating loss
(NOL) and the year in which it will expire.

 Year                                              Amount             Expiration
 ----                                              ------             ----------
 1993                                           $  36,640                 2008
 1994                                              58,052                 2009
 1995                                             126,518                 2010
 1996                                             308,137                 2011
 1997                                             290,579                 2012
 1998                                             217,582                 2018
 1999                                             169,677                 2019
 2000                                              97,675                 2020
 2001                                             113,167                 2021
 2002                                             199,179                 2022
                                               ----------
 Total NOL                                     $1,617,206
                                               ==========


                                      F-11
<PAGE>

Note 5.           THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Below is a listing of the most recent accounting standards SFAS 145-150 and
their effect on the Company.

SFAS 146 Accounting for Costs Associated with Exit or Disposal Activities

This statement requires companies to recognize costs associated with exit or
disposal activities, other than SFAS 143 costs, when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of these
costs are lease termination costs, employee severance costs associated with
restructuring, discontinued operation, plant closing, or other exit or disposal
activity. This statement is effective after December 15, 2002.

SFAS 147 Acquisitions of Certain Financial Institutions - an amendment of FASB
Statement No. 72 and 144 and FASB Interpretation No. 9.

This statement makes the acquisition of financial institutions come under the
statements 141 and 142 instead of statement 72, 144 and FASB Interpretation No.
9. This statement is applicable for acquisition on or after October 1, 2002.

SFAS 148 Accounting for Stock-Based Compensation - Transition and Disclosure

Amends FASB 123 to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for stock-based
employee compensation.

SFAS 149 Amendment of Statement 133 on Derivative Instruments and Hedging
Activities

This Statement amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities under FASB Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities.

SFAS 150 Financial Instruments with Characteristics of both Liabilities and
Equity

This statement requires that such instruments be classified as liabilities in
the balance sheet. SFAS 150 is effective for financial instruments entered into
or modified after May 31, 2003.

Interpretation No. 46 (FIN 46)

Effective January 31, 2003, The Financial Accounting Standards Board requires
certain variable interest entities to be consolidated by the primary beneficiary
of the entity if the equity investors in the entity do not have the
characteristics of a continuing financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The Company has not invested
in any such entities, and does not expect to do so in the foreseeable future.

The adoption of these new Statements is not expected to have a material effect
on the Company's current financial position, results or operations, or cash
flows.


                                      F-12
<PAGE>

Note 6.           COMPLIANCE WITH SARBANES-OXLEY ACT OF 2002

The Company does not currently comply with all of the provisions of the
Sarbanes-Oxley Act of 2002. It is the intention of the Company to comply with
the rules and structure mandated therein. To this end the Company is seeking
potential independent directors.

The new Act also requires an audit committee to consist of at least three
independent members, one of which needs to be a financial and accounting expert.
Currently, the Company has no separate audit committee and is also seeking
potential audit committee members to serve on its future audit committee.

It should be noted that the Company might experience trouble attracting
independent directors because, at this time, it does not have Directors and
Officers Liability Insurance in place.

Note 7.           SUBSEQUENT EVENTS

On August 8, 2004 Xynergy signed an agreement with Indigo Technologies, Inc., a
Georgia corporation, to acquire all of Indigo's issued and outstanding stock in
exchange for 36,000,000 shares of Xynergy common stock and $300,000 cash to be
raised by the sale of Xynergy stock through a $1,000,000 504D offering to an
accredited investor. Indigo will continue to operate as a wholly owned
subsidiary of Xynergy.

Indigo is a multidimensional technology company that provides wireless and wired
internet service to the hospitality industry through its premier product,
GuestWorx (TM). Additionally, Indigo is an information technology (IT) provider
whose services include training and supplying IT consultants and programmers,
website development, and installation of IT infrastructure networks.


                                      F-13