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, 2000

|_|   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

                                  RAQUEL, INC.
                 (Name of small business issuer in its charter)

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

    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, $.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, 2000 were
$6,637.

      The aggregate market value of the voting stock held by non-affiliates of
the registrant is incalculable inasmuch as the co,mon stock hasn't traded within
the past 60 days.

      The number of shares of the registrant's Common Stock, $.0001 par value,
outstanding as of December 31, 2000 was 24,700,000.

      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.

      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 Raquel, Inc., [formerly known as Colecciones De
Raquel] 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 RAQUEL, INC.
[formerly known as COLECCIONES DE RAQUEL, INC.] and RAQL.

      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

<PAGE>

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 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.

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

      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. The Company warehouses its
inventory at a public warehouse facility in Los Angeles, California which offers
24 hour security.

      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.

<PAGE>

      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, skin care, and lingerie at its downtown
location.

      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.

      In April, 1998, the Company introduced its website for sale and promotion
of products at www.deraquel.com. In addition, the company has obtained
www.raquelinc.com, and plans to introduce www.raquelboutique.com within the near
future.

      In May 31, 1998, the Company entered into a sales agreement with Con
Estilo Latino. Con Estilo Latino is a seasonal catalogue that sells and promotes
various products to Hispanics/Latinos in the United States.

      In June, 1998 the Company entered into agreements with consultants A. R.
Hardy& Associates and John W. Vanover for investor relations services and
promotion of the Company's stock. These agreements facilitated payment to the
consultants via common stock in the Company. Consequently, the Company filed an
S-8 and issued 3.3 million shares for payment of these services. However, both
contracts were terminated some months thereafter for non-performance. Per the
terms of the contract, the Company sought the return of all common stock from
John W. Vanover, along with $10,000 cash through the American Arbitration
Association. The Company prevailed in December, 1999 the 2.6 million shares
issued to John Vanover were canceled.

      A settlement was signed between the Company and A. R. Hardy & Associates
on April 1, 1999 in which the Company will paid $4,000 for services in stead of
the 700,000 shares. In May, 1999 a separate agreement with Ms. Hardy for
investor relations was signed. A dispute over services has occurred, and the
Company believes that litigation is imminent.

      In mid-September, the Company laid off two employees, Elizabeth A. Tovar
and Josephina Vettorazzi, in an effort to decrease the Company's losses. These
cut-backs reduced the Company's costs by $4,300 monthly, or 21%. As of October,
1998, the Company has used contract employees to manage sales at the Downtown
boutique.

      The Company changed its corporate name from Colecciones de Raquel, Inc. To
Raquel, Inc. on October 14, 1999. Additionally, its trading symbol was changed
to "RAQL."

<PAGE>

      In November, 1999 the Company appointed four new members to its Board of
Directors. They are: Robert L. Filiatreaux, Michael Holguin, Isabel Lorraine
Rodriguez, and Noah Luzel "Lou" Sumpter.

      In January, 2000 the Company appointed Edward A. Rose, Jr. as vice
president, chief financial officer, general counsel, and director. However,
since September Mr. Rose's commitments, he now only acts as Corporate Secretary
and Director.

      In February, 2001 the Company entered into an agreement with LBI Group,
Inc. and Vincent Barone for consulting services. An S-8 was filed with the
Securities and Exchange Commission for compensation of such services.

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 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, the
company does maintain product liability insurance may be made against 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 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.

      Companies such as Avon, Estee Lauder, Mabelline, Pavion Ltd., Proctor &
Gamble, and Revlon have made directional changes in advertising to reach the

<PAGE>

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 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. In May, 2001 Liz
Claiborne announced their $20 mil budget to promote their Latin-influenced
fragrance, "Mambo."

      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 website has been established on the Internet to promote both the
product line and stock (www.deRaquel). All advertisements include the Company's
toll-free number and website 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.

      The Company now sells through direct salespeople. See Item 6.

      Competition.

      There are numerous other companies that produce and sell cosmetics.
Substantially all of these companies are significantly larger, better financed

<PAGE>

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 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.

<PAGE>

      In December, 1999, the Company applied for the tradenames "Chi'ca Beverly
Hills" and "Yoohoo." Chi'ca Beverly Hills will be marketed as a mass-market teen
line, along with the fragrance, Yoohoo.

      The Company has obtained the trademarks for the following: "-Peligro!,"
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, the Compact Disc and its product brochure.

      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, 2000, the Company employed one (1) person full time.
The Company may hire additional part-time secretarial and retail sales employees
depending on its level of operations.

      In January, 2000 the Company entered into an employment agreement with
Edward A. Rose, who will be acting as Vice President, General Counsel, and Chief
Financial Office; elected to the Board of Directors. In September, Mr. Rose's
work obligation in his private practice increased, and he will now continue to
act as Corporate Secretary and Director for the Company. Mr. Rose's extensive
experience encompasses over twenty years in finance and law, including positions
with several Fortune 100 companies. He is a Certified Public Accountant both in
New York and California. Additionally, Mr. Rose is a practicing business
litigation and tax attorney in California and was admitted to the State Bar in
1995. Further, he is an adjunct professor of accounting and taxation at National
University. Mr. Rose holds several degrees, J.D. from Western Sierra Law School;
M.B.A. from Fairleigh Dickinson University; and a B.S. from Ohio State
University. He is also a member of several professional organizations: San Diego
County Bar Association, California Society of Certified Public Accountants,
American Institute of Certified Public Accountants, AICPA Division for CPA
Firms, and American Association of Attorney-CPA's.

      The Company 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.

<PAGE>

      The Company maintains its main offices at 100 So Doheny Drive, Suite 320,
Los Angeles, California. However, its mailing address is 269 So Beverly Drive,
Suite 938, Beverly Hills, California.

Item 3. Legal Proceedings.

      In 1999 the Company filed a lawsuit against Angela Z. Hardy for the return
of S-8 stock issued to her for investor relations services. A judgement was
obtained against Ms. Hardy.

      Other than this item, 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.

      Not applicable

<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 RAQL.

      The following table sets forth the quarterly high and low bid prices (to
the nearest $1/8) of the common stock for the last 5 years.

      In December, 1998, Olsen Payne & Company filed a 15c2-11 on behalf of the
Company to restore trading of the Company stock on the OTC. The stock commenced
trading in June of 1999.

Year Ended December 31, 1995              High              Low

      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

Year Ended December 31, 1997                Closing Bid           Closing Ask
                                          High        Low         High   Low

      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

<PAGE>

Year Ended December 31, 1998              Closing Bid             Closing Ask

                                          High        Low         High   Low

      First Quarter                       No Bid      No Bid      None   None
      Second Quarter                      No Bid      No Bid      None   None
      Third Quarter                       No Bid      No Bid      None   None
      Fourth Quarter                      No Bid      No Bid      None   None

Year Ended December 31, 1999                 Closing Bid          Closing Ask
                                           High        Low        High    Low

      First Quarter                       No Bid      No Bid      None   None
      Second Quarter                      No Bid      No Bid      None   None
      Third Quarter                        1.63        .125       2      .156
      Forth Quarter                         .08        .015        .125  .025

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

      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, 2000, there were 1,015 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
noncumulative 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

<PAGE>

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. In 1996, the Board of
Directors 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 brought the total of
issued and outstanding common stock of the Corporation to 24,000,000 shares.
This action was anticipated to have a material dilutive effect on the holders of
the Corporation's outstanding common stock. Further, in June of 1998, the
Company issued 3.3 million shares of common stock through an S-8 filing for
payment of services to two consultants. As of September, 1998 a stop trade order
was placed on the shares issued through the S-8, due to non-performance. A
settlement has been reached with one consultant for return of 700,000 shares. A
settlement for the additional 2.6 million shares are pending a hearing before
the American Arbitration Association.

      As of December 31, 2000, there were 24,700,000 shares of common stock
outstanding, with each share entitled to one vote. As the holder of 19,648,000
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.

Plan of Operation

      On December 11, 2000, the Company issued a press release announcing that
it was changing its marketing structure to direct sales. The Company's
management believes that this structure would better serve its consumers.
Further, direct sales has been very successful among its target market,
Hispanics. Direct cosmetics companies such as Avon, Mary Kay, and Jaffra have a
strong presence and continue to expand in many Latin American countries.

      According to statistics, direct sales in 1999 in the United States totaled
$24.54 billion, with the personal care category representing 24.9%; an
equivalent of $6.11 billion. Raquel, Inc. expects that this new avenue of sales
and distribution will ultimately increase its revenues.

      The Company's available cash position at December 31, 2001 may not be
sufficient to cover the Company's operating expenses through calendar year 2000.
The Company is currently seeking a second round of financing to obtain working
capital.

<PAGE>

      The proceeds for this second round of financing would be to increase the
marketing of its products through direct sales.

Material Changes in Financial Condition

      Cash and cash equivalents were $17,658 at December 31, 2000.

      Revenues from the year 2000 continued to be insufficient to support the
selling, general and administrative expenses of the Company. When the settlement
agreement proceeds are exhausted, the Company's continued existence will be
dependent on either its ability to generate significant product sales or obtain
a secondary financing for working capital.

      On February 9, 2001, the Company entered into a consulting agreement with
LBI Group, Inc. and Vincent Barone. Compensation for consulting services was in
the form of options to purchase 4,000,000 shares of RAQL common stock at $.05
per share. A Form S-8 was duly filed in March, 2001 for issuance of said stock.
On May 2, 2001, the Company received Promissory Notes from members of the LBI
Group and Vincent Barone in order to exercise said options. The Company, per the
terms of the Promissory Note, will receive monthly payments of $6,000 per month,
with a balloon payment due in June, 2002. As such, 4,000,000 shares have been
issued to all parties as specified in said Note. On May 8, 2001, the Company
received its first payment. (See Exhibit 10.23, Promissory Notes of Paul Lovito,
Matthew Lovito, Darrin Lovito, Marc Lovito [LBI Group, Inc.]; and Vincent
Barone.)

Material Changes in Results of Operations

      Selling, general and administrative expenses decreased 43% by $78,488
during the year ended December 31, 2000. The decrease was attributable primarily
to the closing both boutiques, and the reduction of payroll expense. Since the
Company now plans to sell through direct sellers, these retail locations were no
longer required

      Business operations during the year ended December 31, 2000 resulted in
only minimal revenues. Revenues Increased by 1% due to change in distribution.
Interest income also decreased, as the Company's cash decreased. Management does
not believe that historical revenues, operating margins or expenses for the
period ended December 31, 2000 were indicative of future operating results.

<PAGE>

Item 7. Financial Statements.

RAQUEL, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS

Report of Oppenheim & Ostrick, CPA's, Independent Auditors              F-2

Balance Sheet as of December 31, 2000                                   F-3

Statement of Income for the Years Ended December 31, 1999 &
      2000 and Form Inception to Deceber 31, 2000                       F-4

Statement of Stockholders' Equity for the Years Ended December 31
      1999 and 2000                                                     F-5

Statement of Cash Flow the Years Ended December 31,
      1999 and 29000 and from Inception to December 31, 2000            F-6

Notes to Financial Statements                                           F7-F14

<PAGE>

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

Not applicable.

<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:

      Name                          Age         Position

      Raquel Zepeda                 49          President and Chairman
      Edward A.  Rose, Jr.          49          Corporate Secretary and Director

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

      RAQUEL ZEPEDA, has served as President and as a director of the Company
since its inception on August 6, 1993 and as the Treasurer of the Company 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 the Company.

      EDWARD A. ROSE, JR., has served the Company since January, 2000 when they
entered into an employment agreement. He will be acting as Vice President,
General Counsel, and Chief Financial Office; and member to the Board of
Directors. However, since September Mr. Rose's commitments, he now only acts as
Corporate Secretary and Director. Mr. Rose's extensive experience encompasses
over twenty years in finance and law, including positions with several Fortune
100 companies. He is a Certified Public Accountant both in New York and
California. Additionally, Mr. Rose is a practicing business litigation and tax
attorney in California and was admitted to the State Bar in 1995. Further, he is
an adjunct professor of accounting and taxation at National University. Mr. Rose
holds several degrees, J.D. from Western Sierra Law School; M.B.A. from
Fairleigh Dickinson University; and a B.S. from Ohio State University. He is
also a member of several professional organizations: San Diego County Bar
Association, California Society of Certified Public Accountants, American
Institute of Certified Public Accountants, AICPA Division for CPA Firms, and
American Association of Attorney-CPA's.

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, 2000,
and 1996, each of the directors and officers filed the required Form 3.

<PAGE>

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 1999,
1997, or 1996 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 1999, 1998, 1997, 1996, and 1995.

                                    Annual Compensation (1)

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

Raquel Zepeda, President      2000        38,000         ---           ---
                              1999        60,000         ---           ---
                              1998        65,000         ---           ---
                              1997        65,000         ---           ---
                              1996        60,000         ---           ---
                              1995        50,000*        ---           ---

*$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
nonassignable 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.

<PAGE>

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 have received 10,000 shares of common
stock as compensation for their services.

      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.

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, 2000:

<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         18,648,000 shares     75%         75%
                    269 So. Beverly Dr.   owned directly
                    Monica Blvd.
                    Beverly Hills, CA
</TABLE>

      As of December 31, 2000, there were 24,700,000 shares of common stock
outstanding, with each share entitled to one vote. Therefore, the Company has
securities outstanding with an aggregate of 24,700,000 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:

                                                                Amount and
                  Name and Address of     Nature of             Percent of
Title of Class    Beneficial Owner        Beneficial Owner      Class

Common Stock      Raquel Zepeda           18,648,000 shares     75%
                  269 So. Beverly Dr.     owned directly
                  Monica Blvd.
                  Beverly Hills, CA

Common Stock      All executive officers  19,648,000 shares     83%
                  and directors as a
                  group (2 persons)

<PAGE>

      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.

<PAGE>

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

      (a) Exhibits and Index of Exhibits.

Exh.
No.         Description

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

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

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

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

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

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.

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).

<PAGE>

Exh.
No.         Description

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

<PAGE>

Exh.
No.         Description

10.11       Distribution Agreement between Raquel, Inc. [formerly known as
            Colecciones de Raquel, Inc.] 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, Inc.] 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 "Chi'ca Beverly Hills" and "Yoohoo."

10.22       Employment agreement with Edward A. Rose, Jr.

10.23       Promissory Notes of LBI Group and Vincent Barone.

<PAGE>

      (b) Reports on Form 8-K.

      Not applicable.

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 11, 2000                              RAQUEL, INC.
                               [formerly known as COLECCIONES DE 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/ Edward A. Rose               Corporate Secretary               May 11 , 2000
-------------------              and Director)
EDWARD A. ROSE, JR.

<PAGE>

                  [Letterhead of Oppenheim & Ostrick, C.P.A.'s]

                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Raquel, Inc.
(Formerly Known as Colecciones de Raquel, Inc.)
(A Development Stage Company)
Beverly Hills, California

We have audited the accompanying balance sheet of Raquel, Inc. (formerly known
as Colecciones de Raquel, Inc.) as of December 31, 2000 and the related
statements of operations, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The financial statement of Raquel, Inc.
(formerly known as Colecciones de Raquel, Inc.) as of December 31, 1998 and the
statements of operations, stockholders' equity, and cash flows from December 1,
1987 (inception) to December 31, 1998 were audited by other auditors whose
report dated March 25, 1999 expressed an unqualified opinion on these
statements.

We conducted our audit in accordance with generally accepted auditing standards.
These 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 audit provides a reasonable basis for our opinion.

In our opinion, based on our audit and the audit report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Raquel, Inc. (Formerly Known as Colecciones
de Raquel, Inc.) as of December 31, 2000 and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 2000,
and the period from December 1, 1987 (inception) to December 31, 2000 in
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 5 to the
financial statements, the Company incurred a net loss of $97,675 during the year
ended December 31, 2000, and a net loss of $1,304,860 from inception on December
1, 1987 until December 31, 2000. The Company's significant operating losses
raises substantial doubt about its ability to continue as a going concern.
Management's plan regarding those matters also are described in Note 5. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.


/s/ Oppenheim & Ostrick

Culver City, California
May 9, 2000


                                      F-2
<PAGE>

                                  RAQUEL, INC.
                 (FORMERLY KNOWN AS COLECCIONES DE RAQUEL, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                                  BALANCE SHEET
                                DECEMBER 31, 2000

                                     ASSETS

Current assets:
  Cash                                                              $    17,658
  Inventory                                                              57,417
  Prepaid expenses and other receivable                                   2,796
                                                                    -----------
       Total current assets                                         $    77,871

Property and equipment                                                   34,019
  Less accumulated depreciation                                         (33,244)
                                                                    -----------
       Net property and equipment                                           775
                                                                    -----------
                                                                    $    78,646
                                                                    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accrued expenses                                                        5,332

       Total current liabilities                                    $     5,332

Stockholders' equity:
  Preferred stock, $.001 par value, 10,000,000
    shares authorized, 0 shares issued and outstanding
  Common stock, $.0001 par value, 50,000,000
    shares authorized, 24,700,000 shares issued
    and outstanding each year                                             2,470
  Additional paid-in capital                                          1,375,704
  Accumulated deficit during the
    development stage                                                (1,304,860)
                                                                    -----------
        Total stockholders' equity                                       73,314
                                                                    -----------
                                                                    $    78,646
                                                                    ===========

                 See the accompanying notes and auditors' report
                 which are integral parts of this balance sheet


                                      F-3
<PAGE>

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

<TABLE>
<CAPTION>
                                        For the Years
                                      Ended December 31,           From Inception on
                                -------------------------------  December 1, 1987 Until
                                    2000               1999         December 31, 2000
                                ------------       ------------  ----------------------
<S>                             <C>                <C>                <C>
Sales                           $      6,637       $      6,569       $     45,587

Cost of goods sold                     1,392              2,549             23,719
                                ------------       ------------       ------------

Gross profit                           5,245              4,020             21,868

Sell, general and
administrative expenses              104,920            183,408          1,439,036
                                ------------       ------------       ------------

Loss from operations                 (99,675)          (179,388)        (1,417,168)

Other income:
  Interest income                      2,800              7,511             91,946
  Litigation settlement                    0                  0             20,000
  Miscellaneous                            0              3,000              5,962
                                ------------       ------------       ------------

    Total other income                 2,800             10,511            117,908
                                ------------       ------------       ------------

Loss before income taxes             (96,875)          (168,877)        (1,299,260)

Provision for income taxes               800                800              5,600
                                ------------       ------------       ------------

Net loss                        $    (97,675)      $   (169,677)      $ (1,304,860)
                                ============       ============       ============

Basic loss per share            $      (0.01)      $      (0.01)
                                ============       ============

Diluted loss per share          $      (0.01)      $      (0.01)
                                ============       ============

Weighted-average common
shares outstanding                24,700,000         26,000,000
                                ============       ============
</TABLE>

                 See the accompanying notes and auditors' report
                   which are integral parts of this statement


                                      F-4
<PAGE>

                                  RAQUEL, INC.
                 (FORMERLY KNOWN AS COLECCIONES DE RAQUEL, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                        STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                      Deficit
                                                                                   Additional        During the
                                                      Common Stock                   Paid-in         Development
                                                Shares             Amount            Capital            Stage              Total
                                              ----------        -----------        -----------       -----------        -----------
<S>                                           <C>               <C>                <C>               <C>                <C>
Balance, December 31, 1997                    24,000,000        $     2,400        $ 1,375,444       $  (819,926)       $   557,918

Common stock issued
  for consulting services                      3,300,000                330                                                     330

Net loss                                                                                                (217,582)          (217,582)
                                              ----------        -----------        -----------       -----------        -----------

Balance, December 31, 1998                    27,300,000              2,730          1,375,444        (1,037,508)           340,666

Common stock cancelled                        (2,600,000)              (260)               260          (169,677)          (169,677)
                                              ----------        -----------        -----------       -----------        -----------

Balance, December 31, 1999                    24,700,000        $     2,470        $ 1,375,704       $(1,207,185)       $   170,989

Net loss                                                                                                 (97,675)           (97,675)
                                              ----------        -----------        -----------       -----------        -----------

Balance, December 31, 2000                    24,700,000        $     2,470        $ 1,375,704       $(1,304,860)       $    73,314
                                              ==========        ===========        ===========       ===========        ===========
</TABLE>

                 See the accompanying notes and auditors' report
                   which are integral parts of this statement


                                      F-5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                              For the Years
                                                                            Ended December 31,              From Inception on
                                                                     --------------------------------    December 1, 1987 Until
                                                                        2000                 1999           December 31, 2000
                                                                     -----------          -----------    ----------------------
<S>                                                                  <C>                  <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                           $   (97,675)         $  (169,677)         $(1,304,860)
  Adjustment to reconcile net loss to
    net cash used on operating activities:
    Depreciation                                                           6,509                7,202               41,595
    Loss on abandoned leasehold improvement                                5,351                    0                5,351
    Common stock issued for consulting
      services                                                                 0                    0                    0
  (Increase) decrease in:
    Inventory                                                              4,379                6,795              (57,417)
    Prepaid expenses and other assets                                        392                1,600               (2,796)
    Deposits                                                               2,200                    0                    0
  Increase (decrease) in:
    Accounts payable and accrued
      liabilities                                                         (2,861)               3,790                5,332
                                                                     -----------          -----------          -----------

     Net cash used in operating activities                               (81,705)            (150,290)          (1,312,795)
                                                                     -----------          -----------          -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of equipment                                                        0                    0              (47,721)
                                                                     -----------          -----------          -----------

     Net cash used in investing activities                                     0                    0              (47,721)
                                                                     -----------          -----------          -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from MMI settlement agreement                                       0                    0            1,250,000
  Proceeds on sales of common stock                                            0                    0               91,420
  Loans and paid-in capital from preferred
    stockholder                                                                0                    0               36,754
                                                                     -----------          -----------          -----------

     Net cash provided by financing
       activities                                                              0                    0            1,378,174
                                                                     -----------          -----------          -----------

     Net increase (decrease) in cash and
       cash equivalents                                                  (81,705)            (150,290)              17,658

     Cash and cash equivalents, beginning
       of period                                                          99,363              249,653                    0
                                                                     -----------          -----------          -----------

     Cash and cash equivalents, end of
       period                                                        $    17,658          $    99,363          $    17,658
                                                                     ===========          ===========          ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash received during the year for
    interest                                                         $     2,800          $    89,146          $    91,946
                                                                     ===========          ===========          ===========

  Cash paid during the year for income
    taxes                                                            $       800          $     4,800          $     5,600
                                                                     ===========          ===========          ===========

SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING INFORMATION:
  2,600,000 shares of Common stock
  cancelled                                                          $         0          $         0          $       260
                                                                     ===========          ===========          ===========
</TABLE>

                 See the accompanying notes and auditors' report
                   which are integral parts of this statement


                                      F-6
<PAGE>

                                  RAQUEL, INC.
                 (FORMERLY KNOWN AS COLECCIONES DE RAQUEL, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

1. Summary of significant accounting policies:

      Organization and line of Business

      Raquel, Inc. (formerly known as 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, Inc. in a reorganization of entities
under common control accounted for at historic cost in a manner similar to
pooling of interest accounting as the Company's sole stockholder was the sole
proprietor of the predecessor business. Accordingly, the accompanying financial
statements and notes include the accounts of Colecciones de Raquel, Inc. 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. On December 11, 2000 the Company changed its marketing structure to
direct sales. Through December 31, 2000, 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 Pronouncements

      SFAS No. 131 "Disclosure about Segments of an Enterprise and Related
Information", operating segments are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
Company in deciding how to allocate resources and in assessing performance. This
statement is not applicable to the Company.

      SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities," is effective for financial statements with fiscal years beginning
after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The Company does not expect
adoption of SFAS No. 133 to have a material effect, if any, on its financial
position or results of operations.

      SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after
the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise," is effective for financial statements with the first fiscal quarter
beginning after December 15, 1998. The Company does not expect adoption of SFAS
No. 134 to have material effect, if any, on its financial position or results of
operations.

                        See accompanying auditors' report


                                      F-7
<PAGE>

                                  RAQUEL, INC.
                 (FORMERLY KNOWN AS COLECCIONES DE RAQUEL, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

1. Summary of significant accounting policies (cont'd):

      Recently Issued Accounting Pronouncements (cont'd)

      SFAS No. 135, "Rescission of FASB Statement No. 75 and Technical
Corrections," is effective for financial statements with fiscal years beginning
February 1999. This statement is not applicable to the Company.

      SAB No.101 "Revenue Recognition", On December 3, 1999, the Securities and
Exchange Commission released Staff Accounting Bulletin No. 101 (SAB 101),
Revenue Recognition, to provide guidance on the recognition, presentation, and
disclosure of revenue in financial statements. The SAB outlines basic criteria
that must be met before registrants may recognize revenue, including persuasive
evidence of the existence of an arrangements, the delivery of products or
services, a fixed and determinable sales price, and reasonable assurance of
collection. SAB 101 is effective beginning the first fiscal quarter of the first
fiscal year beginning after December 15, 1999. Prior to the release of SAB 101,
the Company's revenue recognition policy was in compliance with generally
accepted accounting principles. The adoption of SAB 101 will not have a material
effect on the Company's financial position or results of operations.

      Cash and Cash Equivalents

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

      Merchandise Inventory

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

      Property and Equipment

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

      Advertising Costs

      Advertising costs are charged to operations when incurred. Advertising
costs were $4,413 and $9,682 for the years ended December 31, 2000 and 1999,
respectively.

                        See accompanying auditors' report


                                      F-8
<PAGE>

                                  RAQUEL, INC.
                 (FORMERLY KNOWN AS COLECCIONES DE RAQUEL, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

1. Summary of significant accounting policies (cont'd):

      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, 2000, 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.
Since the Company does not have any stock options, warrants, or other common
stock equivalents outstanding, basis earnings per share and diluted earnings per
share are the same.

      Comprehensive Income

      For the year ended December 31, 2000, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes standards for
reporting comprehensive income and its components in a financial statement.
Comprehensive income as defined includes all changes in equity (net assets)
during the period from non-owner courses. Examples of items to be included in
comprehensive income, which are excluded from net income, include foreign
currency translation adjustments and unrealized gains and losses on
available-for-sale securities. Comprehensive income is not presented in the
Company's financial statements since the Company did not have any of the items
of comprehensive income in any period presented.

      Start-up Costs

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

                        See accompanying auditors' report


                                      F-9
<PAGE>

                                  RAQUEL, INC.
                 (FORMERLY KNOWN AS COLECCIONES DE RAQUEL, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

1. Summary of significant accounting policies (cont'd):

      Fair Value of Financial Instruments

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

      Estimates

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

2. Cash and Cash Equivalents:

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

3. Common and Preferred Stock Transactions:

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

      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.

                        See accompanying auditors' report


                                      F-10
<PAGE>

                                  RAQUEL, INC.
                 (FORMERLY KNOWN AS COLECCIONES DE RAQUEL, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

3. Common and Preferred Stock Transactions (cont'd):

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

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

      The Company 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
cancelled by the Company. As part of the agreement with MMI, the Company has
consented to MMI commencing legal proceedings in the name of MMI against third
parties to recover MMI's damages suffered as 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 vale 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.

                        See accompanying auditors' report


                                      F-11
<PAGE>

                                  RAQUEL, INC.
                 (FORMERLY KNOWN AS COLECCIONES DE RAQUEL, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

3. Common and Preferred Stock Transactions (cont'd):

      Issuance and Cancellation of Common Stock

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

      Incentive Stock Option Plan

      The Company has adopted an Incentive Stock Plan (the "Plan"). The Plan
authorizes the granting of options to employees of the Company to purchase 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 mat be granted after August 6, 2003. No options
have been granted under the Plan to date.

4. Income Taxes:

      The Company has no material temporary differences that would result in
deferred taxes. The Company does, however, have loss carryforwards which may
result in deferred tax assets in the future. At December 31, 1998, the Company
has approximately 1,260,000 and 1,162,000 of federal and state net operating
loss carryforwards, respectively, that begin to expire in 2018 and 2003,
respectively. For the years ended December 31, 2000 and 1999, the provision for
income taxes represents the minimum state franchise tax.

      The Company's deferred tax assets, which have been offset entirely by
valuation allowances, comprise the following at December 31, 2000.

      Loss carryforwards                                    $ 504,000
      Valuation allowance                                     504,000
                                                            ---------
      Deferred tax assets                                   $       0
                                                            =========

      The valuation allowance has been increased by approximately $39,000 during
the year ended December 31, 2000.

                        See accompanying auditors' report


                                      F-12
<PAGE>

                                  RAQUEL, INC.
                 (FORMERLY KNOWN AS COLECCIONES DE RAQUEL, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

5. Going Concern:

      The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The accompanying financial statements
indicate that the Company incurred a net loss of $97,625 during the year ended
December 31, 2000, a net loss of $1,304,860 from inception on December 1, 1987
until December 31, 2000. The Company's significant operating loss raise
substantial doubt about its ability to continue as a going concern. Management's
plan is to raise equity through private placements.

      In December 2000, the Company changed its marketing structure from retail
to direct sales. The Company's management believes that this change would
generate more revenue, decrease selling and administrative expense and better
serve its customers. In addition, the Company entered into agreements with
business consultants to provide services in restructuring its debts and
financial obligations (See note 7 - subsequent events).

6. Commitments and Contingencies:

      Leases

      The Company leases its office and retail facilities on a month-to-month
basis since October 10, 1999 and the total rent expense for the years ended
December 31, 2000 and 1999 was $6,600 and $23,505, respectively. Early in the
year, the Company relocated its offices to its primary shareholder office. The
related party shareholder does not charge the Company for the use of its office.

      Employment Agreement - Related Party Transactions

      The Company has entered into an employment agreement with an officer
expiring August 1999 with an aggregate annual salary of $60,000, 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.

      The employment agreement has been on a month-to-month basis since
September 1999. For the year ended December 31, 2000, the officer and related
party shareholder received $38,000 primarily for administrative services
rendered.

      In January 2000, the Company has entered into an employment agreement with
another officer expiring January 2001 as Vice President, General Counsel and
Chief Financial Officer. As of December 31, 2000, this officer will now only
serve as Corporate Secretary and Director on a consulting basis.

                        See accompanying auditors' report


                                      F-13
<PAGE>

                                  RAQUEL, INC.
                 (FORMERLY KNOWN AS COLECCIONES DE RAQUEL, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

6. Commitments and Contingencies (cont'd):

      Litigation

      In April 1999, the consultant agreed to return the 700,000 shares of
common stock issued in exchange for consulting services for $4,000 in cash. As
of December 31, 2000, the 700,000 shares are still pending cancellation.

7. Subsequent Event:

      In February 2001, the Company entered into consulting services with
business consultants. The services consist of strategic corporate planning;
restructuring of debt and financial obligations; and developing the Company's
products and services. Compensation for consulting services was in the form of
options to purchase 4,000,000 shares of common stock for $0.05 per share. A Form
S-8 was duly filed in March 2001 for issuance of said stock. There is nothing in
either consulting agreement relating to assisting in a capital raising
transaction or in the promotion of Company's stock.

      In May 2001, the Company received promissory notes from the above
consultants in order to exercise the said options. The Company, per terms of the
Promissory Note, will receive monthly payments of $6,000 per month, with a
balloon payment due in June 2002. As such, 4,000,000 shares have been issued to
all parties. The first payment was made in May 2001.

                        See accompanying auditors' report


                                      F-14