<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                  FORM 10-KSB
(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, 1997

[ ]  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

                        COLECCIONES DE 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)

9873 S. Santa Monica Boulevard
Beverly Hills, CA                                              90212
(Address of principal executive offices)                       (Zip Code)

Issuer's telephone number: (310) 203-9240

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, $.0001 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, 1997 were 
$7,322.

     The aggregate market value of the voting stock held by non-affiliates of 
the registrant as of March 31, 1998 (based upon the average bid and asked 
prices) was $8,224,000.

     The number of shares of the registrant's Common Stock, $.0001 par value, 
outstanding as of March 31, 1998 was 24,000,000.

     Documents incorporated by reference:  None.

     Transitional Small Business Issuer Format (check one):
     Yes        No  X
          ---      ---


                                      1 
<PAGE>

                                     PART I


ITEM 1.  DESCRIPTION OF BUSINESS.

BUSINESS DEVELOPMENT.

     COLECCIONES DE RAQUEL, INC. (the "Company") was organized under the laws 
of the State of Nevada on August 6, 1993.  As of December 31, 1993, the 
Company issued 20,000,000 shares of its common stock, $.0001 par value, to 
Ms. Raquel Zepeda in exchange for the business known as Colecciones De Raquel 
("CDR") which had been operated by Ms. Zepeda as a sole proprietorship since 
December 1, 1987.  See "Item 12. Certain Relationships and Related 
Transactions".  Unless the context indicates otherwise, the term "Company" 
includes COLECCIONES DE RAQUEL, INC. and CDR.

     HISTORICAL DEVELOPMENT.  Ms. Zepeda decided to develop the Company's 
products primarily because, as a first generation Mexican American, she was 
dissatisfied with the types of cosmetics available specifically for 
Hispanics. In developing the Company's product line, Ms. Zepeda selected 
those colors that she believed would complement the skin tones of the 
targeted market.  In selecting these colors, Ms. Zepeda recognized that the 
persons to whom these products would be marketed may be categorized as having 
light, medium or dark skin tones.  As a result, the shades of colors included 
in each collection have been geared to each particular group.  See "Products" 
below.

     From December 1, 1987 until the closing of the Company's initial public 
offering, Ms. Zepeda, on a part-time basis, developed the Company's present 
product line and conducted minimal marketing activities for these products. 
Due to her limited financial resources, Ms. Zepeda was unable to conduct 
extensive marketing of these products.  From December 1, 1987 to 
September 30, 1994, total sales of products aggregated $4,438 and net losses 
aggregated $70,805.

     During this period, both Ms. Zepeda and her products received publicity 
in both English and Spanish media including AVISA magazine, the Hispanic 
Fashion Designer's Showcase and Spanish publications MUNDO ARTISTICO, 
NEGOCIOS Y FINANZAS, and NOTICIAS DEL MUNDO.  Ms. Zepeda has also been 
interviewed on both English and Spanish television stations.  This publicity 
has featured both Ms. Zepeda and the Company's products.  Since the public 
offering and opening of the boutique, the Company has received recognition in 
publications such as LATINA Magazine, BEAUTY FASHION Magazine, BEVERLY HILLS 
(213), MUNDO Artistico, NUESTRO Tiempo, and HISPANIC Business.  The Company's 
products were described as being designed for people with "golden" 
complexions and designed for the Hispanic and similar markets.  Although the 
Company believes that this publicity will assist it in its future marketing 
efforts, there is no assurance that it will have any benefit.

     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.  On March 6, 1998 the Company entered into a 
distribution agreement with R Town Entertainment for the distribution of both 
the compact disc and fragrance.  R Town Entertainment has distribution in 
approximately 1,500 stores that specialize in Latin artists.  The compact 
disc is either sold separately or given away as a complimentary gift with the 
purchase of the fragrance.

     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 


                                      2 
<PAGE>

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.

     Utilizing the net proceeds from its initial public offering, the Company 
ordered product and packaging and placed print and radio advertisements.  The 
Company's print advertising, which ran for a single month in the Spanish 
language editions of Cosmopolitan, Elle and Marie Claire, resulted in little 
customer response.  The Company's radio advertisements ran over a three month 
period and resulted in numerous requests for product samples from potential 
customers but only limited mail order sales.

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

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

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

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

     In September 1995, the Company entered into an Agreement with Moore 
McKenzie, Inc., a Philippine corporation ("MMI"), which purchased and resold 
the Shares following their exercise by third party entities.  MMI has 
expressly denied any involvement in the exercise of the A Warrants, B 
Warrants and C Warrants.  Solely for the purpose of protecting and preserving 
its investment in the Shares and its reputation and goodwill among its 
present and potential future customers and its goodwill in the securities 
markets in the Asia-Pacific region, MMI has agreed to make installment 
payments to the Company an amount equal to the unpaid exercise price of the A 
Warrants ($250,000) and B Warrants ($1,000,000) which the Company will accept 
as and for full payment of the exercise price.  As of December 31, 1996, the 
Company had received the full $1,250,000 of the exercise price for the A 
Warrants and B Warrants.

     The Company had agreed within one year of the Agreement to sell MMI an 
additional 1,000,000 shares of common stock at a price of $1.00 per share in 
place of the shares which could have been purchased upon exercise of the C 
Warrants which were issued upon exercise of the B Warrants and subsequently 
canceled by the Company.  The year expired without any action by MMI on this 
option.

     As a part of the agreement with MMI, the Company has consented to MMI 
commencing and prosecuting legal proceedings in the name of MMI or the 
Company against third parties to recover MMI's damages suffered as a result 
of or in connection with MMI's purchase of the Shares and has agreed to 
assist and cooperate with MMI in any such action.


                                      3 
<PAGE>

     RECENT OPERATIONS.  In October 1995, as a part of a test marketing 
campaign for the fragrance, "Sabor A Mi, Melody of Eternal Passion", the 
Company licensed the right to use a cart in the Montebello Town Center in 
Montebello, California on a month to month basis.  The Company selected the 
Montebello Town Center for its cart location based on the heavy Hispanic 
traffic in the mall.  Base rent for the cart was $1,500 per month for October 
1995 and $3,500 per month for November and December 1995.  The cart license 
required the Company to pay percentage rent of fifteen percent (15%) of its 
net sales in excess of $10,000 per month for October 1995 and $23,333 per 
month for November and December 1995.  The Company continued licensing the 
cart through February 29, 1996 at a rate of $1,500 per month.  Although sales 
were insufficient to cover the rental and staffing cost of the cart, the 
Company considered the test marketing fulfilled and terminated the cart 
operation in order to expand to a boutique to sell and market its entire 
collection of cosmetics, fragrance and lingerie.

     In September, 1995, the Company entered into a two (2) year lease for a 
700 square foot store front in Beverly Hills, California on little Santa 
Monica Boulevard across from the Peninsula Hotel.  Monthly rent for the space 
which the Company is utilizing for both showroom and offices is $1,100 per 
month. The grand opening of the showroom boutique was May 3, 1996.

     At the showroom boutique location, the Company offers its cosmetics line 
which includes foundation, concealer, face powder and blush products, eye 
shadow, eye liners, mascara, lip liners and lipstick; its Sabor A Mi 
fragrance in both perfume and spray cologne; and its skin care products for 
dry, normal and oily skin types.  The Company also offers a small number of 
lingerie pieces at its showroom location.

     In May 1996, the Company entered into a three (3) year lease for a 
second boutique location in the financial district of downtown Los Angeles.  
Monthly rent for the 900 square foot storefront is $1,451.  The Company 
offers the same full line of its cosmetics, fragrance, skincare, and lingerie 
at its downtown location.

     In March 1997, the Company hired on a full-time basis an executive vice 
president of sales and marketing, responsible for sales and development of 
new distribution channels.  However, the position was terminated in July 
1997, in the best interests of the Company.  In early 1997 the Company 
completed its registration of the trademarks for the Company's logo and 
"Peligro!".  On December 10, 1997 the lease for the Beverly Hills location 
was extended for an additional two years, with no changes in the terms of 
agreement.  The compact disc (see PRINCIPAL MARKETS AND MARKETING STRATEGY.) 
was completed in March 1998.  Subsequently, on March 6, 1998 the Company 
entered into a distribution agreement with R Town Entertainment for 
distribution of the CD entitled "SABOR A MI"  featuring the Artist "RAQUEL 
ZEPEDA" and the fragrance "SABOR A MI".

     The Company warehouses its inventory at a public warehouse facility in 
Los Angeles, California.  The facility offers security 24 hours a day, it 
also offers transportation, and repack services at an additional cost if 
needed.

BUSINESS OF THE ISSUER.

     PRINCIPAL PRODUCTS.

     The Company has developed a line of cosmetics that it believes will have 
appeal to the Hispanic and Asian markets.  These markets also include certain 
Mediterranean, European and Pacific Islanders.  Persons in these markets are 
sometimes referred to as having "golden" skin tones.  The Company's cosmetic 
line is intended to appeal to these markets by complementing their "golden" 
skin tones.

     During the course of developing the Company's cosmetic line, Ms. Zepeda 
also designed other products intended to complement its cosmetic line, 
including a skin care line.  Additionally, Ms. Zepeda is working on the 
design of "!Peligro!", a man's fragrance which the Company plans to launch in
early 1999.  Ms. Zepeda previously designed the fragrance which the Company 
is


                                      4 
<PAGE>

marketing under the trademarked name, "Sabor A Mi, Melody of Eternal 
Passion". As a complement to its cosmetics, skin care and fragrance products, 
the Company is also offering a small selection of lingerie at its showroom 
boutique location.

     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 does not presently plan to obtain 
product liability insurance.  Accordingly, any claims relating to product 
liability may have a negative effect on the Company.

     PRINCIPAL MARKETS AND MARKETING STRATEGY.

     The Company believes that the principal market for its cosmetic and 
fragrance products is among Hispanic women in the U.S. and Latin America. 
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.  Eventually, the Company plans to extend its 
distribution nationally and internationally.  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 Hipsanics 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.

     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.

     The Company's marketing efforts promote the use of the Company's 
products to the "golden" skin tones of Hispanic women.  Marketing efforts 
will also emphasize that the Company's products have been developed by 
Ms. Zepeda who, as a first generation Mexican-American, is familiar with the 
cosmetic needs of Hispanic women.  The Company's marketing efforts will also 
take into account the high levels of service which Hispanic shoppers expect.  
The Company believes that Ms. Zepeda's understanding of the Hispanic customer 
will be a valuable resource in developing a marketing strategy and directing 
the Company's marketing efforts.

     Following the initial public offering, the Company advertised its products
on a limited basis through print advertising in selected Spanish language
magazines and through radio advertising which featured its Sabor A Mi, Melody
of Eternal Passion fragrance.  The Company has discontinued all magazine
advertisements, except for advertisements in LATINA MAGAZINE and HISPANIC
BUSINESS. The Company is principally pursuing some radio advertising on Spanish
language stations which has yielded a more positive customer response.
Additionally, a web-site has been established on the Internet to promote both
the product line and stock (www.internetstockexchange.net/raquel).  All
advertisements include the Company's toll-free


                                      5 
<PAGE>

number and web-site address. Also, product samples are available to potential 
customers as a part of its promotional efforts.

     The fragrance was named after a world-famous Latin love song, "Sabor A 
Mi".  Ms. Zepeda has recorded a jazz-style version of the song which is 
currently a give-away with the purchase of the cologne or perfume.  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 and boutiques, along with purchasing information.  The CD will be 
a give-away with purchase of the fragrance and will also be available for 
purchase in select music stores.

     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.

     DISTRIBUTION.

     On March 6, 1998, the Company entered into a distribution agreement with 
R Town Entertainment for the sale of both the CD entitled "SABOR A MI"  
featuring the Artist "RAQUEL ZEPEDA" and the fragrance "SABOR A MI".  R Town 
Entertainment specializes in distributing music by Latino Artists throughout 
the U.S. and Mexico. Additionally, the Company continues to sell its products 
through its two locations in Beverly Hills and downtown Los Angeles.

     Further, the Company is approaching local boutiques for sales and 
distribution of its products.  As of March 1998, the Company has received 
minimal orders.

     COMPETITION.

     There are numerous other companies that produce and sell cosmetics. 
Substantially all of these companies are significantly larger, better 
financed and more established than the Company.  These companies have 
established customers and are continually seeking to obtain additional 
customers.  The Company's competitors are in a better position to effectively 
market their products and offer various incentives to their customers.  The 
Company will be directly competing with these companies in marketing its 
products.

     The Company faces competition from other cosmetic product companies. 
Major companies with which the Company competes include Revlon, Estee Lauder, 
Maybelline, Mary Kay and Avon.  Many of the Company's competitors have 
extensive consumer loyalty and awareness which is supplemented by ongoing 
advertising and other promotions.  The Company's limited financial resources 
will not enable it to conduct similar advertising and promotions and will 
place the Company at an extreme competitive disadvantage.

     Due to the high level of competition and the Company's limited 
resources, the Company will face continuing intense competition in all 
aspects of its business.

     RAW MATERIALS.

     The Company's products are produced by independent third parties who 
also obtain the materials used to produce these products.  The Company 
believes that these materials are available from various sources at 
competitive prices.  The Company has made arrangements with Your Name 
Cosmetics, an independent manufacturer of cosmetic and other related products 
to be its initial source of supply for its products.  This company produced 
the limited amount of products used by the Company in its previous 
activities.  Although the Company has not entered into any agreement with 
this company, the Company has been informed that this supplier will be able 
to fulfill the Company's expected limited need for products on a timely 
basis.  The Company


                                      6 
<PAGE>

anticipates that it will be required to prepay a portion of the price for the 
products purchased from this supplier upon placing an order and the balance 
payable upon delivery of the products.  Accordingly, the Company does not 
expect to receive credit terms from this supplier.  The Company also 
anticipates that, in the future, it may be able to obtain thirty day credit 
terms from this supplier if the level of its purchases increases.  No 
discussions have been held regarding any such credit terms and there is no 
assurance that the Company will be able to purchase products without paying 
for them in advance.  The Company has not experienced any difficulties in 
obtaining required products from these producers.  However, the Company's 
experience in obtaining these products may not be indicative of its ability 
to obtain products in the future due to its minimal operations to date.

     The Company 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 the Company 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.

     The Company 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.  
The failure of the Company to obtain products sufficient for its needs would 
have a substantial negative effect on its operations.

     PATENTS AND TRADEMARKS.

     The Company has obtained the trademarks for the following: "!Peligro!" 
(extension filed on February of 1998, for future use), its fragrance for men, 
"Sabor A Mi, Melody of Eternal Passion," and the Company logo.  Additionally, 
copyrights are held for the following:   COLOR ME GOLDEN, a beauty guide for 
golden skin tones; Sound Recording for "Sabor A Mi," the Company's logo, and 
its product brochure.  Copyright registration for the Compact Disc is pending.

     The formulas for the fragrances "Sabor A Mi" and "!Peligro!" were 
developed by Ms. Zepeda for the Company and are the proprietary formulas of 
the Company.  There are no other proprietary rights or information, including 
formulas, held by the Company for any of its products.

     GOVERNMENT REGULATION.

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

     EMPLOYEES.

     As of December 31, 1997, the Company employed three (3) persons, all 
full time employees.  The Company may hire additional part-time secretarial 
and retail sales employees depending on its level of operations.

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


                                      7 
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY.

     The Company maintains its principal offices in a 700 square foot store 
front located at 9873 S. Santa Monica Blvd., Beverly Hills, California.  The 
space is a combined office and showroom which the Company leased for two 
years commencing in September 1995 at a monthly rent of $1,100 per month.  
This lease was renewed for two additional years until October 9, 1999.

     In May 1996 the Company entered into a three-year lease for a second 
boutique location in the financial district of downtown Los Angeles.  Monthly 
rent for the 900 square-foot storefront is $1,451.

ITEM 3.  LEGAL PROCEEDINGS.

     There are no material pending legal proceedings to which the Company or 
the property of the Company are subject.  In addition, no proceedings are 
known to be contemplated by a governmental authority against the Company or 
any officer or director of the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     On November 7, 1997, the Company held its Annual Meeting of Shareholders 
at its headquarters.  Two (2) directors were elected at the meeting, Raquel 
Zepeda and Elizabeth A. Tovar.  The ratification of the selection of Singer 
Lewak Greenbaum & Goldstein LLP as independent auditors for the fiscal year 
1997.  Nineteen million nine hundred seventy seven thousand five hundred 
(19,977,500) votes out of a total of twenty-four million (24,000,000) votes 
eligible were present at the meeting, in person or by proxy.  The 2 directors 
were elected and Singer Lewak Greenbaum & Goldstein LLP were ratified as 
independent auditors for fiscal year 1997 uncontested.


                                      8 
<PAGE>

                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     Prior to the completion of the Company's initial public offering, there 
was no trading activity in the Company's common stock.  The Company believes 
that certain market makers began quoting prices for the shares of the 
Company's common stock following the Company's initial public offering which 
closed in August 1994.  The Company's common stock may be traded in the 
over-the-counter market and quoted in what are commonly referred to as the 
National Quotation Bureau's "pink sheets" or 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 the Company's stock is reported 
under the symbol CRQL.

     The following table sets forth the quarterly high and low bid prices (to 
the nearest $1/8) of the common stock for the last 3 years.  Included for 
December 1997 are the high and low ask prices due to no bid prices.

<TABLE>
<CAPTION>
                                     HIGH            LOW
                                     ----            ---
<S>                                  <C>             <C>
YEAR ENDED DECEMBER 31, 1995

     First Quarter                   3               1/2

     Second Quarter                  3-7/8           3

     Third Quarter                   3-3/4           1-3/4

     Fourth Quarter                  2-7/8           2-1/4

YEAR ENDED DECEMBER 31, 1996

     First Quarter                   2-1/4           1-3/4

     Second Quarter                  1-3/4           3/4

     Third Quarter                   No Bid          No Bid

     Fourth Quarter                  No Bid          No Bid
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997         CLOSING BID          CLOSING ASK

                                     HIGH      LOW        HIGH      LOW
                                     ----      ---        ----      ---
<S>                                  <C>       <C>        <C>       <C>
     First Quarter                   No Bid    No Bid     2         2

     Second Quarter                  No Bid    No Bid     2         2

     Third Quarter                   No Bid    No Bid     2         2

     Fourth Quarter                  No Bid    No Bid     2         2
</TABLE>


                                      9 
<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, 1997, there were 1,013 record holders of the 
Company's common stock.

     COMMON STOCK.  The authorized capital stock of the Company includes 
50,000,000 shares of common stock which has a par value of $.0001 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 the Company; (b) are entitled to share rateably in all of the 
assets of the Company available for distribution to holders of common stock 
upon liquidation, dissolution or winding up of the affairs of the Company; 
(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 non-cumulative vote per share on all matters on which 
shareholders may vote at all meetings.

     PREFERRED STOCK.  The authorized capital stock of the Company also 
includes 10,000,000 shares of preferred stock, par value $.001 per share.  
The Board of Directors of the Company has the right to determine the 
characteristics of any preferred stock.  Such characteristics include voting 
rights, dividend requirements, redemption provisions and/or liquidation 
preferences.

     The Board of Directors of the Company has designated 100,000 shares of 
preferred stock as Series A Preferred Stock (the "Preferred Stock"). 
Concurrently with the completion of the Company's initial public offering, 
Ms. Zepeda exchanged the 20,000,000 shares of common stock that she owned for 
100,000 shares of Preferred Stock.  The rights of the holder of the Preferred 
Stock (the entire issue of 100,000 shares being held by the President, Raquel 
Zepeda) have been amended by the Board of Directors to allow the conversion 
of Preferred stock into common stock at the rate of one share of Series A 
Preferred stock for 200 shares of Common stock at any time.  The Board of 
Directors has further directed the Corporation to issue 20,000,000 shares of 
common stock to the President, Raquel Zepeda, in exchange for the 100,000 
shares of Preferred stock held by her, and to retire the Preferred Stock.  
This brings the total of issued and outstanding common stock of the 
Corporation to 24,000,000 shares.  This action is anticipated to have a 
material dilutive effect on the holders of the Corporation's outstanding 
common stock.

     As of December 31, 1997, there were 24,000,000 shares of common stock 
outstanding, with each share entitled to one vote.  As the holder of 
19,888,000 shares, Ms. Zepeda will continue to be able to elect all of the 
Company's directors and continue to control the Company.  See "Item 11. 
Security Ownership of Certain Beneficial Owner and Management".

     The Company 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 the 
Company's business.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

MATERIAL CHANGES IN FINANCIAL CONDITION

     The Company had cash and cash equivalents of $460,939 at December 31, 
1997.

     The Company's available cash position at December 31, 1997 is expected 
to be sufficient to cover the Company's operating expenses through calendar 
year 1998, and possibly for some period thereafter.

     Through December 31, 1997, revenues from operations continued to be 
insufficient to support the selling, general and administrative expenses of 
the Company.  At such time as the settlement agreement proceeds are 
exhausted, the Company's continued existence will be


                                     10 
<PAGE>


dependent on its ability to generate significant product sales and ultimately 
achieve profitable operations.

MATERIAL CHANGES IN RESULTS OF OPERATIONS

     The Company's selling, general and administrative expenses decreased by 
$24,037 during the year ended December 31, 1997 below the level of selling, 
general and administrative expenses incurred during the preceding year.  The 
decrease was attributable primarily to the reduction of legal and accounting 
fees.

     The Company's business operations during the year ended December 31, 
1997 resulted in only minimal revenues.   Management does not believe that 
historical revenues, operating margins or expenses for the period ended 
December 31, 1997 were indicative of future operating results.

     The Company is unable to predict when, if ever, the Company will 
generate sufficient revenues from operations in excess of its cost of goods 
sold and selling, general and administrative expenses.



                                     11 
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS.


                          COLECCIONES DE RAQUEL, INC.
                         (A Development Stage Company)
                         INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

<S>                                                                   <C>
Report of Independent Certified Public Accountants. . . . . . . . . .  14

Balance Sheets as of December 31, 1997  . . . . . . . . . . . . . . .  15

Statements of Operations for the years ended December 31, 1997
     and 1996 and for the period from December 1, 1987 (Inception)
     through December 31, 1997. . . . . . . . . . . . . . . . . . . .  16

Statements of Stockholders' Equity for the period from 
     December 1, 1987 (Inception) to December 31, 1997  . . . . . . .  17

Statements of Cash Flows for the years ended December 31, 1997
     and 1996 and for the period from December 1, 1987 (Inception)
     through December 31, 1997    . . . . . . . . . . . . . . . . . .  18

Notes to Financial Statements . . . . . . . . . . . . . . . . . . . .  20
</TABLE>

                                     12 


<PAGE>

                          COLECCIONES DE RAQUEL, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                             FINANCIAL STATEMENTS
                              FOR THE YEARS ENDED
                          DECEMBER 31, 1997 AND 1996


                                     13 

<PAGE>

              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors and Stockholders
Colecciones de Raquel, Inc.

We have audited the accompanying balance sheet of Colecciones de Raquel, Inc. 
(a development stage company) as of December 31, 1997, and the related 
statements of operations, stockholders' equity, and cash flows for each of 
the two years in the period ended December 31, 1997, and the period from 
December 1, 1987 (inception) to December 31, 1997. These financial statements 
are the responsibility of the Company's management. Our responsibility is to 
express an opinion on these financial statements based on our audits.  We did 
not audit the statements of operations, stockholders' equity, and cash flows 
for the period from inception to December 31, 1995.

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.  
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation.  We believe that our audits and the report 
of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the audit report of the other 
auditors, the financial statements referred to above present fairly, in all 
material respects, the financial position of Colecciones de Raquel, Inc. as 
of December 31, 1997, and the results of its operations and its cash flows 
for each of the two years in the period ended December 31, 1997, and the 
period from December 1, 1987 (inception) to December 31, 1997 in conformity 
with generally accepted accounting principles.



SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
February 4, 1998


                                     14 
<PAGE>

                                                    COLECCIONES DE RAQUEL, INC.
                                                  (A DEVELOPMENT STAGE COMPANY)
                                                                  BALANCE SHEET
                                                              DECEMBER 31, 1997
-------------------------------------------------------------------------------
<TABLE>
                                    ASSETS
<S>                                                           <C>
CURRENT ASSETS
     Cash and cash equivalents (Note 2)                             $  460,939
     Merchandise inventory                                              73,060
     Prepaid expenses and other assets                                   6,770
                                                                    -----------
          Total current assets                                         540,769

EQUIPMENT, net of accumulated depreciation of $18,821                   25,687
DEPOSITS                                                                 2,130
                                                                    -----------
    TOTAL ASSETS                                                    $  568,586
                                                                    -----------
                                                                    -----------

                   LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable and accrued liabilities                       $   10,668
                                                                    -----------
          Total current liabilities                                     10,668
                                                                    -----------

COMMITMENTS AND CONTINGENCIES (Note 5)

STOCKHOLDERS' EQUITY
     Preferred stock, $.001 par value
          10,000,000 shares authorized
          0 shares issued and outstanding (Note 3)                           -
     Common stock, $.0001 par value
          50,000,000 shares authorized
          24,000,000 shares issued and outstanding (Note 3)              2,400
     Additional paid-in capital                                      1,375,444
     Deficit accumulated during the development stage                 (819,926)
                                                                    -----------
          Total stockholders' equity                                   557,918
                                                                    -----------
               TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY           $  568,586
                                                                    -----------
                                                                    -----------
</TABLE>


                                     15 

<PAGE>

                                                    COLECCIONES DE RAQUEL, INC.
                                                  (A DEVELOPMENT STAGE COMPANY)
                                                       STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                    Period From  
                                                                                     December 1, 
                                                           For the Year Ended            1987    
                                                                December 31,       (Inception) to
                                                       --------------------------     December 31,
                                                           1997           1996           1997
                                                       -----------    -----------  ---------------
<S>                                                    <C>            <C>          <C>
SALES                                                  $    7,322     $    5,563      $  26,499

COST OF GOODS SOLD                                          4,546          1,865         11,154
                                                       -----------    -----------     ----------
GROSS PROFIT                                                2,776          3,698         15,345

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES             322,048        346,085        916,614
                                                       -----------    -----------     ----------
LOSS FROM OPERATIONS                                     (319,272)      (342,387)      (901,269)
                                                       -----------    -----------     ----------
OTHER INCOME
     Interest income                                       29,493         35,050         64,543
     Litigation settlement                                      -              -         20,000
                                                       -----------    -----------     ----------
          Total other income                               29,493         35,050         84,543
                                                       -----------    -----------     ----------
LOSS BEFORE PROVISION FOR INCOME TAXES                   (289,779)      (307,337)      (816,726)

PROVISION FOR INCOME TAXES (Note 4)                           800            800          3,200
                                                       -----------    -----------     ----------
NET LOSS                                               $ (290,579)    $ (308,137)     $(819,926)
                                                       -----------    -----------     ----------
                                                       -----------    -----------     ----------
NET LOSS PER SHARE
     BASIC                                             $    (0.01)    $    (0.02)
                                                       -----------    -----------
                                                       -----------    -----------

     DILUTED                                           $    (0.01)    $    (0.02)
                                                       -----------    -----------
                                                       -----------    -----------

WEIGHTED AVERAGE COMMON SHARES
     OUTSTANDING                                        24,000,000     14,382,514
                                                       -----------    -----------
                                                       -----------    -----------
</TABLE>


                                     16 
<PAGE>

                                                    COLECCIONES DE RAQUEL, INC.
                                                  (A DEVELOPMENT STAGE COMPANY)
                                             STATEMENTS OF STOCKHOLDERS' EQUITY
                                               FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                          Deficit
                                                                                Additional     MMI       During the
                                     Preferred Stock         Common Stock        Paid-in   Settlement    Development
                                     Shares    Amount     Shares       Amount    Capital    Agreement       Stage         Total
                                    ---------  ------  ------------  --------  ----------  -----------  ------------  ------------
<S>                                 <C>        <C>     <C>           <C>       <C>         <C>          <C>           <C>
NET LOSS FROM INCEPTION THROUGH
 DECEMBER 31, 1992                          -   $  -          -        $  -        $  -        $  -       $ (29,178)  $   (29,178)
NET LOSS                                                                                                     (7,462)       (7,462)
                                    ---------  ------  ------------  --------  ----------  -----------  ------------  ------------

BALANCE, DECEMBER 31, 1993                                                                                  (36,640)      (36,640)
COMMON STOCK ISSUED IN
 REORGANIZATION                                         20,000,000     2,000       34,754                                  36,754
COMMON STOCK ISSUED IN INITIAL
 PUBLIC OFFERING                                         1,000,000       100       90,990                                  91,090
PREFERRED STOCK EXCHANGED FOR
 COMMON STOCK IN CONNECTION
 WITH INITIAL PUBLIC OFFERING        100,000      100  (20,000,000)   (2,000)       1,900                                       -
EXERCISE OF A WARRANTS                                   1,000,000       100      249,900                                 250,000
MMI SETTLEMENT AGREEMENT                                                                     (250,000)                   (250,000)
NET LOSS                                                                                                    (58,052)      (58,052)
                                    ---------  ------  ------------  --------  ----------  -----------  ------------  ------------
BALANCE, DECEMBER 31, 1994           100,000      100    2,000,000       200      377,544    (250,000)      (94,692)       33,152
EXERCISE OF B WARRANTS                                   2,000,000       200      999,800                               1,000,000
MMI SETTLEMENT AGREEMENT                                                                   (1,000,000)                 (1,000,000)
CASH RECEIVED FROM MMI                                                                        849,875                     849,875
NET LOSS                                                                                                   (126,518)     (126,518)
                                    ---------  ------  ------------  --------  ----------  -----------  ------------  ------------
BALANCE, DECEMBER 31, 1995           100,000      100    4,000,000       400    1,377,344    (400,125)     (221,210)      756,509
CASH RECEIVED FROM MMI                                                                        400,125                     400,125
COMMON STOCK EXCHANGED FOR
 PREFERRED STOCK                    (100,000)    (100)  20,000,000     2,000       (1,900)                                      -
NET LOSS                                                                                                   (308,137)     (308,137)
                                    ---------  ------  ------------  --------  ----------  -----------  ------------  ------------
BALANCE, DECEMBER 31, 1996                 -        -   24,000,000     2,400    1,375,444           -      (529,347)      848,497
NET LOSS                                                                                                   (290,579)     (290,579)
                                    ---------  ------  ------------  --------  ----------  -----------  ------------  ------------

BALANCE, DECEMBER 31, 1997                 -     $  -   24,000,000    $2,400   $1,375,444   $       -     $(819,926)   $  557,918
                                    ---------  ------  ------------  --------  ----------  -----------  ------------  ------------
                                    ---------  ------  ------------  --------  ----------  -----------  ------------  ------------
</TABLE>


                                     17 


<PAGE>

                                                    COLECCIONES DE RAQUEL, INC.
                                                  (A DEVELOPMENT STAGE COMPANY)
                                                       STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                  
                                                                                    Period From   
                                                                                    December 1,   
                                                           For the Year Ended           1987      
                                                               December 31,        (Inception) to 
                                                     ---------------------------   December 31,
                                                         1997           1996           1997
                                                     -----------    -----------    --------------
<S>                                                  <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                            $  (290,579)   $  (308,137)   $  (819,926)
  Adjustments to reconcile net loss to
    net cash used in operating activities
      Depreciation                                          8,636          7,462         18,821
  (Increase) decrease in
    Inventory                                               2,615        (33,525)       (73,060)
    Prepaid expenses and other assets                       2,789         19,779         (6,770)
    Deposits                                                1,521           (537)        (2,130)
  Increase (decrease) in
    Accounts payable and accrued expenses                  (2,601)       (15,881)         10,668
                                                      -----------    -----------    -----------

Net cash used in operating activities                    (277,619)      (330,839)      (872,397)
                                                      -----------    -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of equipment                                    (5,507)       (27,280)       (44,508)
                                                      -----------    -----------    -----------

Net cash used in investing activities                      (5,507)       (27,280)       (44,508)
                                                      -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from MMI settlement Agreement                        -        400,125      1,250,000
  Proceeds on sale of common stock                              -              -         91,090
  Loans and paid-in capital from
    preferred stockholder                                       -         (3,648)        36,754
                                                      -----------    -----------    -----------

Net cash provided by financing activities                       -        396,477      1,377,844
                                                      -----------    -----------    -----------

Net increase (decrease) in cash and cash
  equivalents                                            (283,126)        38,358        460,939

CASH AND CASH EQUIVALENTS, BEGINNING OF
  PERIOD                                                  744,065        705,707              -
                                                      -----------    -----------    -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD               $  460,939     $  744,065     $  460,939
                                                      -----------    -----------    -----------
                                                      -----------    -----------    -----------
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       18

<PAGE>

                                                    COLECCIONES DE RAQUEL, INC.
                                                  (A DEVELOPMENT STAGE COMPANY)
                                           STATEMENTS OF CASH FLOWS (CONTINUED)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
                                                                                  
                                                                                    Period From   
                                                                                    December 1,   
                                                           For the Year Ended           1987      
                                                               December 31,        (Inception) to 
                                                     ---------------------------   December 31,
                                                         1997           1996           1997
                                                     -----------    -----------    --------------
<S>                                                  <C>            <C>            <C>
  INTEREST RECEIVED                                   $  29,493      $  35,050       $  64,543
                                                     ----------     ----------     -----------
                                                     -----------    ----------     -----------

  TAXES PAID                                          $     800      $     800       $   3,200
                                                     -----------    ----------     -----------
                                                     -----------    ----------     -----------
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       19

<PAGE>

                                                    COLECCIONES DE RAQUEL, INC.
                                                  (A DEVELOPMENT STAGE COMPANY)
                                                  NOTES TO FINANCIAL STATEMENTS
                                                              DECEMBER 31, 1997
-------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     ORGANIZATION AND LINE OF BUSINESS
     Colecciones de Raquel, Inc. (the "Company") was organized under the laws
     of the State of Nevada on August 6, 1993.  As of March 31, 1994, the
     Company issued 20,000,000 shares of its common stock for the business
     known as Colecciones de Raquel in a reorganization of entities under
     common control accounted for at historic cost in a manner similar to
     pooling of interest accounting as the Company's sole stockholder was the
     sole proprietor of the predecessor business.  Accordingly, the
     accompanying financial statements and notes include the accounts of
     Colecciones de Raquel since its inception on December 1, 1987.

     The Company intends to market and sell a line of cosmetics, skin care, and
     fragrance products which it believes will have appeal to sallow to olive-
     skinned women.  Through December 31, 1997, the Company was primarily
     involved in preliminary marketing efforts and had not achieved significant
     sales of its products.  Therefore, in accordance with Statement of
     Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by
     Development Stage Enterprises," the Company is accounted for as a
     development stage company.

     RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
     SFAS No. 130, "Reporting Comprehensive Income." issued by the Financial
     Accounting Standards Board ("FASB") is effective for financial statements
     with fiscal years beginning after December 15, 1997.  SFAS No. 130
     establishes standards for reporting and display of comprehensive income
     and its components in a full set of general-purpose financial statements.
     The Company does not believe the adoption of SFAS No. 130 will have a
     material impact on its financial position or results of operations.

     FAIR VALUE OF FINANCIAL INSTRUMENTS
     The Company measures its financial assets and liabilities in accordance
     with generally accepted accounting principles.  For certain of the
     Company's financial instruments, including cash and cash equivalents and
     accounts payable and accrued expenses, the carrying amounts approximate
     fair value due to their short maturities.

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

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

                                      20

<PAGE>


                                                    COLECCIONES DE RAQUEL, INC.
                                                  (A DEVELOPMENT STAGE COMPANY)
                                                  NOTES TO FINANCIAL STATEMENTS
                                                              DECEMBER 31, 1997
-------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     EQUIPMENT
     Equipment is carried at cost and depreciated using the straight-line
     method over the estimated useful lives which is generally five years.
     Maintenance and minor replacements are charged to expense as incurred.
     Gains and losses on disposals are included in the statements of
     operations.

     ADVERTISING COSTS
     Advertising costs are charged to operations when incurred.  Advertising
     costs were $24,211 and $18,641 for the years ended December 31, 1997 and
     1996, respectively.

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

     NET LOSS PER SHARE
     For the year ended December 31, 1997, the Company adopted SFAS No. 128,
     "Earnings per Share."  Basic earnings per share is computed by dividing
     income available to common stockholders by the weighted average number of
     common shares available. Diluted earnings per share is computed similar to
     basic earnings per share except that the denominator is increased to
     include the number of additional common shares that would have been
     outstanding if the potential common shares had been issued and if the
     additional common shares were dilutive.  Earnings per share for 1996 has
     been restated using the methodologies of SFAS No. 128.  Since the Company
     does not have any stock options, warrants, or other common stock
     equivalents outstanding, basic earnings per share and diluted earnings per
     share are the same.

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

                                      21


<PAGE>

                                                    COLECCIONES DE RAQUEL, INC.
                                                  (A DEVELOPMENT STAGE COMPANY)
                                                  NOTES TO FINANCIAL STATEMENTS
                                                              DECEMBER 31, 1997
-------------------------------------------------------------------------------
NOTE 2 - CASH AND CASH EQUIVALENTS

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

NOTE 3 - COMMON AND PREFERRED STOCK TRANSACTIONS

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

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

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

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

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

                                      22

<PAGE>

                                                    COLECCIONES DE RAQUEL, INC.
                                                  (A DEVELOPMENT STAGE COMPANY)
                                                  NOTES TO FINANCIAL STATEMENTS
                                                              DECEMBER 31, 1997
-------------------------------------------------------------------------------
NOTE 3 - COMMON AND PREFERRED STOCK TRANSACTIONS (CONTINUED)

     WARRANTS AND RELATED SETTLEMENT AGREEMENT (Continued)
     The Company has agreed within one year of the Agreement to sell MMI an
     additional 1,000,000 shares of common stock at a price of $1.00 per share
     in place of the shares which could have been purchased upon exercise of
     the C Warrants which were issued upon exercise of the B Warrants and
     subsequently canceled by the Company.  As part of the Agreement with MMI,
     the Company has consented to MMI commencing legal proceedings in the name
     of MMI against third parties to recover MMI's damages suffered as a result
     of or in connection with MMI's purchase of the Shares and has agreed to
     assist and cooperate with MMI in any such action.  The Agreement has
     expired and MMI has not purchased an additional 1,000,000 shares of common
     stock.

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

     In June 1996, the Company retired 100,000 shares of Series A convertible
     preferred stock which was exchanged for 20,000,000 shares of common stock.

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


NOTE 4 - INCOME TAXES

     The Company has no material temporary differences that would result in
     deferred taxes. The Company does, however, have loss carryforwards which
     may result in deferred tax assets in the future.  At December 31, 1997,
     the Company has approximately $776,000 and $773,000 of federal and state
     net operating loss carryforwards, respectively, that begin to expire in
     2011 and 2001, respectively.  For the years ended December 31, 1997 and
     1996, the provision for income taxes represents the minimum state
     franchise tax.

                                      23

<PAGE>

                                                    COLECCIONES DE RAQUEL, INC.
                                                  (A DEVELOPMENT STAGE COMPANY)
                                                  NOTES TO FINANCIAL STATEMENTS
                                                              DECEMBER 31, 1997
-------------------------------------------------------------------------------
NOTE 4 - INCOME TAXES (CONTINUED)

     The Company's deferred tax assets, which have been offset entirely by
     valuation allowances, comprise the following at December 31, 1997:

<TABLE>
<CAPTION>
        <S>                                            <C>
        Loss carryforwards                             $  309,000
        Valuation allowance                              (309,000)
                                                       ----------
           DEFERRED TAX ASSETS                         $        -
                                                       ----------
                                                       ----------
</TABLE>
     The valuation allowance has been increased by approximately $127,000
     during the year ended December 31, 1997.


NOTE 5 - COMMITMENTS AND CONTINGENCIES

     LEASES
     The Company leases its office and retail facilities under operating leases
     which expire through October 1999.  Minimum annual rental commitments
     under the lease are as follows:

<TABLE>
<CAPTION>
         Year Ending
         December 31,
       ---------------
        <S>                                            <C>
        1998                                            $  31,000
        1999                                               19,000
                                                       ----------
          TOTAL                                         $  50,000
                                                       ----------
                                                       ----------
</TABLE>

     Rent expense for the years ended December 31, 1997 and 1996 was $30,614
     and $25,333, respectively.

     EMPLOYMENT AGREEMENT
     The Company has entered into an employment agreement with an officer
     expiring August 1999 with an aggregate annual salary of $65,000,
     increasing at the beginning of each subsequent calendar year by the
     Consumer Price Index.  In addition, the employee is entitled to incentive
     compensation each year to be determined by the Company's Board of
     Directors.

                                      24
<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.


     Not applicable.



                                      25

<PAGE>

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 the Company are as follows:

<TABLE>
<CAPTION>

     Name                     Age            Position
     ----                     ---            --------
     <S>                      <C>            <C>
     Raquel Zepeda            47             President and Director

     Elizabeth A. Tovar       27             Secretary

</TABLE>

     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 the Company
since its inception on August 6, 1993 and as the Treasurer of the Company since
August 1995.  Ms. Zepeda established CDR 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 the Company.

     ELIZABETH A. TOVAR,(a.k.a. Elizabeth A. Camacho) has served as Secretary
of the Company since August, 1995.  Mrs. Tovar is employed by the Company as
its Administrator.  From May 1994 through September 1995, Mrs. Tovar was the
vault manager for a large food services company where she was responsible for
all cash transactions and vault audit procedures.  Mrs. Tovar also served as a
financial administrator for the company maintaining accounts receivable and
account payable ledgers.  Prior thereto, from July 1991 through April 1994,
Mrs. Tovar was a security officer for the U.S. Department of Justice.  Mrs.
Tovar attended El Paso Community College where she majored in business
management.


COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require the Company's officers and directors and persons who own
more than 10% of the Company's common stock to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and to furnish
the Company with copies.  During each of the fiscal years ended December 31,
1997, and 1996, each of the directors and officers filed the required Form 3.


ITEM 10.  EXECUTIVE COMPENSATION.

     COMPENSATION OF OFFICERS.  No executive officer of the Company was paid
cash or non-cash compensation in excess of $100,000 during calendar year 1997,
1996, or 1995 and the Company had and has no compensation plans in place and no
officer has received non-cash compensation, other than employee benefits made
available to all employees of the Company.  The following table sets forth the
cash compensation paid by the Company to its chief executive officer for
services rendered during calendar years 1997, 1996, and 1995.

                                      26

<PAGE>

<TABLE>
<CAPTION>

                                           Annual Compensation (1)
                             ------------------------------------------------
     Name and                                                     Other Annual
Principal Position            Year      Salary ($)     Bonus ($)  Compensation
-----------------------       ----      ---------      --------  -------------
<S>                           <C>       <C>             <C>       <C>
Raquel Zepeda, President      1997      65,000              ---            ---

                              1996      60,000              ---            ---

                              1995      50,000*             ---            ---

</TABLE>

*$15,149 of Ms. Zepeda's 1995 salary was accrued.


     INCENTIVE STOCK OPTION PLAN.  The Company has adopted an Incentive Stock
Option Plan (the "Plan").  The purpose of the Plan is to secure and retain key
employees of the Company.  The Plan authorizes the granting of options to key
employees of the Company to purchase an aggregate of 500,000 shares of commons
stock, subject to adjustment for various forms of reorganizations that may
occur.  No options may be granted after August 6, 2003 and the fair value of an
option to each optionee cannot exceed $100,000 per year.  An employee must have
six months of continuous employment with the Company before he or she may
exercise an option granted under the Plan.  The option exercise price may not
be less than 100% of the fair market value of the shares at the time of the
granting of such option.  In the event an option is granted to a stockholder
who owns 10% or more of the Company's shares at the time of the grant of the
option, the option price must not be less than 110% of the fair market value of
the shares at the time of such grant.  Options granted under the Plan are non-
assignable and terminate three months after employment by the optionee ceases,
except if employment terminates due to the disability of the optionee, in which
event the option will expire twelve months from the date employment ceases.
The Plan is administered by the Company'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 the company's common stock exceeds the option price.  In the
event that the Company grants options pursuant to the Plan, the existence of
such options may have a negative effect on the market price of the Company's
common stock.

     COMPENSATION OF DIRECTORS.  Directors receive no compensation for their
services as such.

     EMPLOYMENT AGREEMENT.  In January, 1996, the Company and Ms. Zepeda
entered into an Amendment No. 1 to the original Employment Agreement which
provides for her full time employment by the Company.  The Amendment provides a
base salary effective January 1, 1995 of $50,000 per annum, increasing to
$60,000 per annum effective January 1, 1996 and thereafter increasing only for
cost of living adjustments.  The Amendment provides for incentive compensation
as determined by the Board of Directors of the Company considering as a factor
in such incentive compensation the profitability of the Company.  In 1997, Ms.
Zepeda received an 8.33% increase to $65,000 per year.

                                      27

<PAGE>

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.  The following table sets
forth information for each person who is known to the Company to be the
beneficial owner of more than five percent of any class of the Company's voting
stock as of December 31, 1997:

<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        19,888,000 shares   83%        83%
                 9873 S. Santa       owned directly
                 Monica Blvd.
                 Beverly Hills, CA

</TABLE>

     As of December 31, 1997, there were 24,000,000 shares of common stock
outstanding, with each share entitled to one vote.  Therefore, the Company has
securities outstanding with an aggregate of 24,000,000 votes.


     SECURITY OWNERSHIP OF MANAGEMENT.  The following table sets forth as to
each class of equity securities of the Company beneficially owned by all of the
Company's directors and nominees, each of the named executive officers and by
all of the Company's directors and executive officers as a group:

<TABLE>
<CAPTION>

                                         Amount and
                Name and Address of      Nature of           Percent of
Title of Class  Beneficial Owner         Beneficial Owner    Class
--------------  ---------------------    -----------------   ----------
<S>             <C>                      <C>                 <C>
Common Stock    Raquel Zepeda            19,888,000 shares   83%
                 9873 S. Santa            owned directly
                 Monica Blvd.
                 Beverly Hills, CA

Common Stock    Elizabeth A. Tovar       10,000 shares       .004%
                 9873 S. Santa
                 Monica Blvd.
                 Beverly Hills, CA

Common Stock    All executive officers   19,898,000 shares   83%
                 and directors as a 
                 group (2 persons)

</TABLE>

     CHANGES IN CONTROL.  Other than the Employment Agreement with Ms. Zepeda,
there are no agreements, arrangements, or pledges of securities of the Company,
the operation of which may at a subsequent date result in a change of control
of the Company.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Not applicable.

                                      28

<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

     (A)  EXHIBITS AND INDEX OF EXHIBITS.

<TABLE>
<CAPTION>

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

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

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

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

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

     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).

     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).

</TABLE>

                                      29

<PAGE>

<TABLE>
<CAPTION>

     Exh.                                                                    
     No.   Description                                                      
    -----  -----------                                                         
    <S>    <C>                                                                

     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).

    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
           L.A. Pacific Center, Inc., incorporated by reference from Form
           10KSB Registration Statement No. 97-WLA-13270018 as filed on 
           December 31, 1996.

</TABLE>
                                      30

<PAGE>

<TABLE>
<CAPTION>

     Exh.                                                                      
     No.   Description                                                         
    -----  -----------                                                         
    <S>    <C>                                                                 

    10.11  Distribution Agreement between Colecciones de Raquel, Inc.          
           and R-Town Entertainment.

    10.12  Trademark No. 2,050,606 for  "Colecciones De Raquel, Inc.           
           Face Logo".

    10.13  Certificate of Copyright Registration VA 736-099 for "CRQL          
           Mark (Logo)".

    10.14  Certificate of Copyright Registration SR 190-794 for Sabor          
           A Mi, "Melody Of Eternal Passion".

    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.          

    10.17  Request For Extension of Time To File A Statement Of Use            
           With Declaration for Trademark "PELIGRO", SR 75/074408.

    10.18  Notice of  Approval of Extension Request for Trademark              
           "PELIGRO", SR 75/074408.
</TABLE>

          (b)  REPORTS ON FORM 8-K.


     No reports on Form 8-K were filed by the Company during the fourth 
quarter of the fiscal year ended December 31, 1997.

                                      31

<PAGE>


SIGNATURES


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

Dated:  March 24, 1998      COLECCIONES DE RAQUEL, INC.



                         By: /s/ RAQUEL ZEPEDA
                             ----------------------------------
                               Raquel Zepeda, President



     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       President (Principal Executive           March 24,1998
----------------------  Officer, Principal Financial Officer)
RAQUEL ZEPEDA           and Director

/s/ ELIZABETH A. TOVAR  Corporate Secretary                       March 24,1998 
----------------------  (Principal Executive Officer, 
ELIZABETH A. TOVAR      and Director)


                                      32