**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-KSB**





(Mark
      One)




[X]
      Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
      for the fiscal year ended **December 31, 2004**




[ 
]
      Transition Report under Section 13 or 15(d) of the Securities Exchange Act
      of
      1934 for the transition period from to **Commission
      file number: 0-24798**




**XYNERGY
      CORPORATION**


[formerly
      known as Raquel, Inc].


**(Name
      of small business issuer in its charter)**




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


**18851
      NE 29th Ave., Suite 700**


Aventura,
      FL33180


(Address
      of principal executive offices) (Zip
      Code)




Issuer's
      telephone number: **(305) 749-2525**




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


**Common
      Stock, $.001 Par Value**


(Title
      of
      Class)




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act during the preceding 12 months (or for
      such
      shorter period that the registrant was required to file such reports), and
      (2)
      has been subject to such filing requirements for the past 90 days. Yes X No
      __




Check
      if
      no disclosure of delinquent filers in response to Item 405 of Regulation S-B
      is
      contained in this form, and no disclosure will be contained, to the best of
      registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSB or any amendment
      to
      this Form 10-KSB. [_]




The
      issuer had no revenues for the fiscal year ended December 31, 2004.




The
      aggregate market value of the voting stock held by non-affiliates of the
      registrant was $203,099 as of January 18, 2006.




The
      number of shares of the registrant's Common Stock, $.001 par value, outstanding
      as of January 18, 2006 was 184,635,697.




Documents
      incorporated by reference: None.




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


-1-


PART
        I




**Item
      1. Description of Business.**




Business
      Development .


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




Historical
      Development .


In
      1989,
      Raquel Zepeda founded Colecciones de Raquel, now **Raquel
      of Beverly Hills,** creating **** a
      complete line of cosmetics for the Latin/Hispanic woman consisting of color,
      skin care and fragrance. The color collection was meticulously designed to
      enhance olive skin tones. Ms. Zepeda's inspiration was born from her experience
      in an attempt to sell another brand of cosmetics: they were unsuitable for
      olive
      and sallow skin tones. That experience, coupled with her background in modeling,
      inspired her to create a cosmetics line for Latina women. In 1983, she
      introduced Mor ena Cosmetics in the San Francisco/Bay Area. Ms. Zepeda had
      quite
      an impact in that area, Raquel needed more capital to continue. While marketing
      Morena Cosmetics on a small scale, Raquel dedicated the next 5 years of her
      life
      to further research and development. Raquel developed even more unique and
      effective color formulations, along with guidelines for the golden-skinned
      woman. Of this, Raquel of Beverly Hills was created.




Ms.
      Zepeda also designed a line of greeting cards named "Think Blots©." The cards
      can be viewed at www.dementeddiagnosis.com. Additionally, the residual products,
      "Demented Diagnosis©" and "Evoc©" have been created from the "Think Blots"
      format. These products are now the property of Machinations, Inc., a Xynergy
      wholly-owned subsidiary.




Public
      Offering.


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




The
      Company utilized all of the net proceeds from the initial public offering during
      the year ended December 31, 1994. In 1995, the Company received proceeds from
      the A and B warrants totaling $1,250,000. As a result, the Company was able
      to
      expand its operations. The C Warrants were canceled. For more details, see
      Item
      7, Notes to Financial Statements.




With
      proceeds of the Company's public offering it produced its proprietary
      fragrances, "Sabor A Mi®," "Peligro!®,"a complete line of colors cosmetics and
      skin care and opened two boutiques in Beverly Hills and Los Angeles.
      Additionally, the Company produced a music compact disc which it planned to
      cross-market with the sale of the fragrance, "Sabor A Mi®" which is also the
      name of a very popular Spanish love song. Initially, the compact disc contained
      information on the Company's line of cosmetics along with a sample fragrance
      strip and product ordering information. From 1995 through 2000 the Company
      operated two retail boutiques. However, the sales from these operations were
      not
      enough to maintain their operations and eventually both boutiques were
      closed.


-2-




Recent
      Operations .


During
      the period of September 2003 through February, 2004, Xynergy negotiated the
      acquisition of Intervest Group, Ltd. After months of negotiations, Intervest
      Group, Ltd. breached their agreement with Xynergy Corporation in February,
      2004.




In
      February 2004, the Company engaged consultants Alexander and Wade for assistance
      in expansion of operations in exchange for 1,000,000 S-8 shares. However, the
      contract was subsequently canceled. Alexander & Wade returned 750,000 shares
      to the Company. Xynergy did obtain interim financing secured by the Company
      stock in March, 2004.




Edward
      A.
      Rose, Jr. was appointed as Chief Financial Officer, Director and Corporate
      Secretary in March of 2004. Mr. Rose has worked for the Company in the past
      in
      the same positions and most recently, worked with Xynergy as Due Diligence
      Consultant. He has a formidable background in legal, finance, and accounting
      matters.




On
      March
      26, 2004, Xynergy commenced trading on the Berlin Stock Exchange under the
      Symbol UYW German Cusip Number US 9841531067. This event is expected to expand
      Xynergy's exposure for European investors and enhance in the Company's plans
      for
      expansion.




In
      June,
      2004 Xynergy Corp signed an agreement with Incredible Discoveries for production
      of an infomercial for selling Raquel of Beverly Hills products. Subsequently,
      in
      2005 the contract was canceled. Xynergy is now interviewing other production
      companies to film the infomercial.




In
      August, 2004 Xynergy initiated the acquisition of Indigo Technologies. (See
      8K
      filing of August 23, 2004) In December, 2004 the acquisition was canceled.
      For
      more information, consult the Company's 8KA filing.




In
      December, 2004, Xynergy formed  a wholly-owned subsidiary, Machinations,
      Inc., ("Machinations."), a Florida corporation.  Machinations'
      role in Xynergy was anticipated in 2001 when the Company acquired Think Blots©
greeting cards.




In
      February, 2005, the Company moved its principal address to Florida.




For
      more
      information about other significant events, see 8K filings.




-3-


***Principal
      Products, Markets and Marketing Strategy*** **.**




**Raquel
      of Beverly Hills**


The
      Company markets premium cosmetics (color), skin care, under the trademark,
      "Raquel of Beverly Hills" and the fragrances "Sabor A Mi, Melody of Eternal
      Passion®" and "¡Peligro!®". Raquel of Beverly Hills cosmetics are unique in that
      they are designed for a niche market: golden-skinned consumers, which include
      Hispanics, Asians, and Mediterraneans; specifically targeting the Hispanic/Latin
      market. The Company's cosmetic line is intended to appeal to these markets
      by
      complementing their "golden" skin tones.




The
      Hispanic/Latino purchasing power reached $699.78 billion in the summer of 2004
      according to a HispanTelligence® analysis
      of data
      recently released by the U.S. Bureau of Economic Development.  Direct sales
      and the DRTV market is a selling style that is emerging as the consumers'
      preference to the tune of $154.1 billion per year in the U.S.
      alone.




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




Raquel
      of
      Beverly Hills will be producing an infomercial for the Spanish speaking media
      to
      re-launch its line of cosmetics, skin care and fragrance. The launch will
      introduce the line with three special color collections, Colección de la Luna,
      Colección del Sol, and Colección Terrestre contained in elegant compacts. Additionally,
      to compound the direct sales approach, the infomercial will be fashioned for
      promoting both product sales and recruiting salespeople for expansion directly
      and aggressively through network/multi-level marketing using an "Avon" business
      model.




In
      addition to marketing its products through infomercials, the Company will also
      launch a promotional campaign for the music CD to be sold along with the
      fragrance in music stores. The advertising budget also provides for music
      promoters via radio air-play in the Latin genre.




During
      the near term, the Company intends to concentrate on marketing its products
      in
      areas containing large and growing number of Hispanics such as California,
      Texas, Florida, and New York. (See Item 6. Management's Discussion and Analysis
      or Plan of Operation.)




**Machinations,
      Inc.**


Machinations
      is Xynergy's vehicle for production and distribution of Think Blots©, Demented
      Diagnosis, and 'Evoc, the evil day-trader invader, " a game specifically
      targeted to traders. New products in the Machinations family will include board,
      computer and video games. Although this market is new to Xynergy, the Company
      believes an excellent success potential (See:
      www.xynergycorp.com/machinations.htm)




Software
      sales of computer and video games reached $7.3 billion in 2004, according to
      a
      recent report issued by the NPD Group. Additionally, the industry is expected
      to
      have double-digit growth in the next five years.




-4-


According
      to the Greeting Card Association, this industry generates more than $7.5 billion
      in retail sales. Women purchase approximately 80% of all greeting cards.




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




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




*Competition* .




**Raquel
      of Beverly Hills**


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




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




**Machinations,
      Inc.**


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




Demented
      Diagnosis and Evoc (computer games) - Recent reports regarding growth in the
      computer and video game industry have increased competition in this industry.
      Nonetheless, Xynergy's research indicates that the concepts for "Demented
      Diagnosis" and "Evoc" are unique to the extent of possibly creating a niche
      within this market.


-5-




*Raw
      Materials* .


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




*Patents
      and Trademarks* .


Xynergy
      has obtained the trademarks for the following: "¡Peligro!", its fragrance for
      men, "Sabor A Mi, Melody of Eternal Passion," "Chic'a Beverly Hills," a
      cosmetics line for teens and Raquel of Beverly Hills logo. Additionally,
      copyrights are held for the following: Color
      Me Golden ,
      a
      beauty guide for golden skin tones; Sound Recording for "Sabor A Mi," along
      with
      the music Compact Disc, Raquel of Beverly Hills' logo, Raquel of Beverly Hills'
      product brochure, Think Blots greeting cards, Evoc, YooHoo, and Demente d
      Diagnosis. The formulas for the fragrances "Sabor A Mi," and "¡Peligro!" were
      developed by Ms. Zepeda for Raquel of Beverly Hills and are the proprietary
      formulas of Xynergy.




*Government
      Regulation* .


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




*Employees* .


As
      of
      December 31, 2004, Xynergy employed one (1) person full time. Xynergy may hire
      additional part-time secretarial and retail sales employees depending on its
      level of operations.




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


-6-




**Edward
      A. Rose, Jr., CPA, Esq.** ,
      as of
      March, 2004 is Chief Financial Officer. Mr. Rose has worked with Xynergy in
      several capacities since January, 2000. Mr. Rose has held positions as Internal
      Auditor, and Contracts Administrator for several Fortune 500 companies,
      conducting field due diligence reviews of multimillion dollar operating
      companies in the U.S. South America, and Europe for corporate acquisitions.
      He
      is a Certified Public Accountant licensed to practice both in and California
      and
      New York. Additionally, he is an attorney and member of the California Bar.
      Xynergy may engage consultants to assist it in various aspects of its business.
      See "Item 9. Directors, Executive Officers, Promoters and Control
      Persons".




**Item
      2. Description of Property.**


Xynergy
      is in the process of moving all operations to Florida.  The Company's
      principal executive offices are located at 18851 NE 29th Ave., Suite 700,
      Aventura, FL 33180. Currently, the Company maintains an office in Ms. Zepeda's
      home in Los Angeles, California.




**Item
      3. Legal Proceedings.**


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




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


Not
      applicable


-7-


PART
      II




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


Xynergy's
      common stock may be traded in the over-the-counter market which are posted
      by
      the OTC "Electronic Bulletin Board", which reports quotations by brokers or
      dealers in particular securities. Because of the lack of readily available
      quotations and the limited trading volume frequently associated with these
      securities, there is a greater risk of market volatility of such securities
      than
      for securities traded on national exchanges. Trading in Xynergy's stock is
      reported under the symbol XYNY (formerly RAQL). As of January 18, 2006, there
      were 184,635,697 common shares outstanding.




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




**Year
      Ended December 31, 2002** Closing Bid Closing Ask




**Open**
              ******High**
              ******Low******
              **Close**First
                  Quarter
              .117
              .31
              .01
              2.00Second
                  Quarter
              .214
              .53
              .04
              .30Third
                  Quarter
              .046
              .16
              .01
              .03Forth
                  Quarter
              .01
              .01
              .01
              .01
  **Year
        Ended December 31, 2003**
 **Open**
              ******High**
              ******Low******
              **Close**First
                  Quarter
              .02
              .035
              .003
              .02Second
                  Quarter
              .01
              .019
              .006
              .01Third
                  Quarter
              .01
              .025
              .005
              .01Forth
                  Quarter
              .07
              .145
              .01
              .07
  **Year
        Ended December 31, 2004**
 **Open**
              ******High**
              ******Low******
              **Close**First
                  Quarter
              .08
              .05
              .04
              .06Second
                  Quarter
              .015
              .02
              .008
              .012Third
                  Quarter
              .007
              .009
              .003
              .006Fourth
                  Quarter
              .007
              .0011
              .002
              .003


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


-8-




As
      of
      December 31, 2004, there were 1,039 record holders of Xynergy's common stock.
      In
      July, 2004 the Company increased its amount of authorized common stock to nine
      hundred million (900,000,000) and its preferred to one hundred million
      (100,000,000).




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




*Preferred
      Stock* .
      The
      authorized capital stock of Xynergy also includes 100,000,000 shares of
      preferred stock, par value $.001 per share, with an issue price and liquidation
      value of $.01. The Board of Directors of Xynergy has the right to determine
      the
      characteristics of any preferred stock. Such characteristics include voting
      rights, dividend requirements, redemption provisions and/or liquidation
      preferences. In October, 2003 the Company filed a Certificate of Designation
      of
      Class A Convertible Preferred Stock. Maximum number of shares in Series A stock
      is 100,000,000 shares with a twenty to one conversion rate and twenty cumulative
      votes per share.




On
      December 31, 2003 two million (2,000,000) shares of Common Stock issued to
      Raquel Zepeda from the exercise of options through the Think Blots acquisition
      were canceled. With an exercise price of $.10, Ms. Zepeda had signed a
      Promissory Note to the Company for payment. The Note and stock were canceled,
      however the options have no expiration date and remain in effect.




As
      of
      December 31, 2004, there were 184,635,697 shares of common stock outstanding,
      with each share entitled to one vote. As the holder of 5,539,200 Common shares,
      28,000,000 Preferred shares, and control person for 13,000,000 shares, (an
      aggregate of 16,999,200 Common shares and 28,000,000 Preferred shares with
      twenty to one cumulative votes, Ms. Zepeda will continue to be able to elect
      all
      of Xynergy's directors and continue to control Xynergy. See "Item 11. Security
      Ownership of Certain Beneficial Owner and Management".




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


-9-




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


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




Plan
      of Operation


Now
      that
      Xynergy is current in its filing with the SEC, management is taking steps to
      re-list on the OTC Bulletin Board. Management's main focus in 2005 is the
      attainment of financing to execute its marketing and sales plans for Raquel
      of
      Beverly Hills cosmetics and Machinations products. Legal counsel has been
      engaged to prepare a private placement convertible-debt offering memorandum.
      The
      Company has also engaged investment banker services for placement of units
      in
      the offering. This memorandum will only be offered to accredited investors.
      Monies from this offering are to be used for execution of its business plans
      for
      both Raquel of Beverly Hills and Machinations which are discussed in further
      detail below.




**Raquel
      of Beverly Hills** is now
      in the process of manufacturing a thirteen-well color compact, Sabor A Mi®
fragrance samples and music CD, and "up-sell" items to be sold through
      infomercials. Since these products are custom manufactured and not
      private-labeled, the time elapsed for producing them has been much longer than
      anticipated.




The
      Company is working with two manufacturers to produce the compacts which will
      be
      sold at approximately $70 each. At present, the Company plans to start with
      five
      thousand pieces, bringing a potential revenue stream of approximately $350,000
      within the first few weeks of the product rollout. Costs of goods at this level
      would be approximately 13%.




Prior
      to
      the launch, the Company will also commence a campaign to cross market the music
      CD, "Sabor A Mi' and the fragrance in select music stores. In conjunction,
      music
      promoters will be engaged to seek radio air play on romantic Latin genre
      stations.




To
      compound the DRTV sales approach, a competitive compensation package has been
      fashioned for promoting both product sales and recruiting salespeople for
      expansion directly and aggressively through network/multi-level marketing. During
      the near term, the Company will commence its DRTV campaign in Florida, further
      concentrating on marketing its products in markets such as California, Texas,
      and New York that have a prominence in the Hispanic market. Eventually, the
      Company plans to enter the international markets.




-10-


**Machinations**


Xynergy
      is currently in the due diligence process with vendors for production of
      greeting cards and game designs. Since the company currently has over 50
      different greeting card designs, this process should be relatively
      uncomplicated. The Company has also obtained valuable information and resources
      regarding distribution and sales through the Greeting Card
      Association.




The
      Company is also seeking game designers for production of Machinations' products,
      Demented Diagnosis, and 'Evoc, the evil day-trader invader " games. Once these
      games are produced, they will be tested-marketed through the internet's many
      game sites.




Acquisitions


In
      regard
      to acquisitions, Xynergy's criteria has changed. In the future, Xynergy will
      only consider acquisitions of private companies having growth potential and
      revenues; whose owners are looking for an exit strategy.




Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations


Cash
      and
      cash equivalents increased by 16,327% to $90,544 at December 31, 2004, from
      prior year which was $554. Xynergy managed to secure interim financing through
      a
      504 offering for its acquisition of Indigo Technologies which was ultimately
      canceled.




While
      some of Xynergy's expenses remain relatively low due to its limited operations,
      the obligations under the new rules pertaining to the Sarbanes-Oxley Act, have
      caused accounting expenses to rise approximately 314%. No cash monies have
      been
      spent toward office rent, or salaries, greatly minimizing cash spent out for
      selling, general and administrative expenses. Although expenses appear to be
      substantial, 71% are attributed to common stock, non-cash transactions.
      Valuations of these transactions are in compliance with the SEC's adoption
      of
      the "fair value" computation method in accordance with FAS 123 and FAS 148.
      See
      Statements of Cash Flows and Notes to Financial Statements.




Management
      believes that by implementing its current Plan of Operation of raising working
      capital and executing its marketing strategies, future revenues and share value
      will increase.




-11-


**Item
      7. Financial Statements.**




XYNERGY
        CORPORATION
 (A
        Development Stage Company)
  INDEX
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 PageReport
                  of Independent Registered Public Accounting
                  Firm
                13Independant
                  Auditors Consent
                14Financial
                    Statements(a)Balance Sheet as of December 31, 2004
                15(b)
Statements
                    of Operations -Year Ended
                16December
                    31,
                    2004 and 2003 and Period fromInception
                    (August 6,1993) to December 31, 2004(c)
Statement
                    of Stockholders'  Equity-
                17Period
                    from Inception (August 6,1993) to December 31, 2004(d)
Statements
                    of Cash Flows- Year Ended
                21December
                    31,
                    2003 and 2004 and Period fromInception
                    (August 6, 1993) to December 31, 2004(e)
Notes
                    to Financial Statements
                22





-12-


REPORT
        OF
        INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Shareholders
        and Board of Directors
 Xynergy
        Corporation
 
 We
        have
        audited the accompanying balance sheet of Xynergy Corporation (the “Company”) as
        of December 31, 2004, and the related consolidated 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 audit. The financial statements for the period August 6, 1993 (inception)
        through December 31, 2003, were audited by other auditors whose report dated
        October 26, 2004 expressed an unqualified opinion on those statements. The
        financial statements for the period August 6, 1993 (inception) through December
        31, 2003 include accumulated losses of $1,933,722. Our opinion on the statements
        of operations, shareholders’ equity and cash flows for the period from August 6,
        1993 (inception) through December 31, 1003, is based on the report of other
        auditors.
 
 We
        conducted our audit in accordance with the auditing standards of the Public
        Company Accounting Oversight Board (United States). Those standards require
        that
        we plan and perform the audit to obtain reasonable assurance about whether
        the
        financial statements are free of material misstatement. An audit includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements. An audit also includes assessing the accounting
        principles used and significant estimates by management, as well as evaluating
        the overall financial statement presentation. We believe that our audit,
        and the
        report of other auditors, provides a reasonable basis for our opinion.
 
 In
        our
        opinion, based on our audit and the report of other auditors, the financial
        statements referred to above present fairly, in all material respects, the
        financial position, results of operations and cash flows for the year ended
        December 31, 2004 and the period August 6, 1993 (inception) through December
        31,
        2003, in conformity with accounting principles generally accepted in the
        United
        States of America.
 
 The
        accompanying financial statements have been prepared assuming that the Company
        will continue as a going concern. As discussed in Note 2 to the financial
        statements, the Company has suffered significant losses from operations.
        This
        factor raises substantial doubt about the Company’s ability to continue as a
        going concern. Management’s plans in regard to this matter are also discussed in
        Note 2. The financial statements do not include any adjustments that might
        result from the outcome of this uncertainty.
 
 
 
 /s/
        Stark Winter Schenkein & Co., LLP
 Denver,
        Colorado


December
          20, 2005
 
 -13-


**Report of Independent Registered Public Accounting Firm**To the Board of Directors and Audit CommitteeXYNERGY CORPORATIONI have audited the accompanying balance sheets of XYNERGY Corporation, as of December 31, 2003 and 2002 and the related statements of operations, stockholders' equity, and cash flows for the years ended December 31, 2003 and 2002. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audits.I conducted my audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of XYNERGY Corporation, as of December 31, 2003 and 2002 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2003, are in conformity with accounting principles generally accepted in the United States.The accompanying financial statements have been prepared assuming that the company will continue as a going concern. The Company is ten years old and has had a net loss in each of those years resulting in a substantial deficit in retained earnings. This raises substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from this uncertainty.Shelley International, CPADate: October 26, 2004By:/s/ Shelley International, CPAShelley International, CPAMesa, Arizona **INDEPENDENT AUDITOR'S CONSENT**
  We
        do hereby consent to the use of our report
        dated October 26, 2004 on the financial statements of Xynergy Corporation
        (a Nevada Corporation) included in and made part of the 10KSB report for
        Xynergy
        Corporation for the year ended December 31, 2004.
  Certified
        Public
        Accountants
  /s/
        Mark Shelley
 Mark
        Shelley
 Shelley
        International CPA
 -14-
  **XYNERGY
        CORPORATION**
 (A
        Development Stage Company)
 **Consolidated
        Balance Sheet** **December
          31, 2004**
 
 **Assets**Current
                  AssetsCash
                  and equivalents
              
              $
              90,293Total
                  Current Assets
              
              
              90,293Equipment,
                  furniture & fixtures,net
                  of accumulated depreciation
              
              
              974Deposits
                  and other assets
              
              
              6,900Total
                  Assets
              
              $
              98,167**Liabilities
                  and Stockholders Equity**Current
                  LiabilitiesAccounts
                  payable
              
              $
              10,607Notes
                  payable
              
              
              11,200Notes
                  payable to related parties
              
              
              66,663Total
                  current liabilities
              
              
              88,470Stockholders'
                  equityCommon
                  stock - $.001 par value, 900,000,000 sharesauthorized,
                  184,635,697shares
                  issued and outstanding
              
              
              184,636Preferred
                  stock authorized 100,000,000 shares,$0.001
                  par value: issue price, liquidation value is .01Issued
                  and outstanding 30,000,000 shares
              
              
              30,000Additional
                  paid in capital
              
              
              2,483,624Stock
                  subscriptions receivable
              
              
              (205,000
              )(Deficit)
                  accumulated during the development stage
              
              
              (2,483,563
              )Total
                  stockholders' equity
              
              
              9,697Total
                  liabilities and stockholders' equity
              
              $
              98,167
 See
        Notes
        to Consolidated Financial Statements
 -15-
  **XYNERGY
        CORPORATION**
 (A
        Development Stage Company)
 **Consolidated
        Statements of Operations**
 
 **Year
                  Ended**
              **Period
                  from Inception August 6, 1993****December
                  31,**
              **To
                  December 31,****2004**
              
              **2003**
              
              **2004**Sales
              
              $
              -
              
              $
              -
              
              $
              48,074Cost
                  of goods sold
              
              
              -
              
              
              -
              
              
              24,627Stock
                  Issued for services
              
              
              407,300
              
              
              -
              
              
              407,300Selling,
                  general, and administrative expenses
              
              
              50,689
              
              
              314,365
              
              
              2,020,007(Loss)
                  from operations
              
              
              (457,989
              )
              
              (314,365
              )
              
              (2,403,860
              )Interest
                  expense
              
              
              (36,121
              )
              
              (2,151
              )
              
              (136,720
              )(Loss)
                  on write-off of investment
              
              
              (63,000
              )
              
              -
              
              
              (63,000
              )(557,111
              )
              
              (316,516
              )
              
              (2,627,028
              )Other
                  income
              
              
              7,269
              
              
              -
              
              
              126,417(Loss)
                  before provision for income taxes
              
              
              (549,841
              )
              
              (316,516
              )
              
              (2,477,163
              )Income
                  taxes
              
              
              -
              
              
              -
              
              
              (6,400
              )Net
                  (loss)
              
              
              ($549,841
              )
              
              ($316,516
              )
              
              ($2,483,563
              )Basic and
                  dilutedNet
                  (loss) per common share
              
              
              a
              
              
              a
              
              
              $0.02
  a
        = net
        loss equals less than ($0.01) per share
  Weighted
                        average number of common shares outstanding
                
                
                127,308,197
                
                
                18,966,667
 See
            Notes
            to Consolidated Financial Statements
 -16-
 **XYNERGY
        CORPORATION**
 **Consolidated
        Financial Statements**
 **Statement
        of Stockholders' Equity**
 **From
        inception (August 6, 1993)  To**
 **December
        31, 2004**
  **Preferred
                  Stock**
              ****
              **Common
                  Stock**
              ****
              **Paid
                In**
              ********
              ****
              **Shares**
              ****
              **Amount**
              ****
              **Shares**
              ****
              **Amount**
              ****
              **Capital**Net
                  (loss) from Inception to Dec 31, 1993
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              $
              -Common
                  Shares issued to Founder
              
              
              -
              
              
              -
              
              
              200,000
              
              
              200
              
              $
              36,554Common
                  Shares issued for cash in IPO w/A warrants attached
              
              
              -
              
              
              -
              
              
              10,000
              
              
              10
              
              
              91,080Preferred
                  shares issued in exchange for common shares
              
              
              100,000
              
              
              100
              
              
              (200,000
              )
              
              (200
              )
              
              100Common
                  shares issued in exercise of A warrants
              
              
              -
              
              
              -
              
              
              10,000
              
              
              10
              
              
              249,990Net
                  (Loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance
                  Dec. 31, 1994
              
              
              100,000
              
              
              100
              
              
              20,000
              
              
              20
              
              
              377,724Common
                  shares issued in exercise of "B" warrants
              
              
              -
              
              
              -
              
              
              20,000
              
              
              20
              
              
              999,980Cash
                  proceeds from MMI
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  (Loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance
                  Dec. 31, 1995
              
              
              100,000
              
              
              100
              
              
              40,000
              
              
              40
              
              
              1,377,704Common
                  shares issued in exchange for preferred shares
              
              
              (100,000
              )
              
              (100
              )
              
              200,000
              
              
              200
              
              
              (100
              )Cash
                  Proceeds from MMI
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  (Loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance
                  Dec. 31, 1996
              
              
              -
              
              
              -
              
              
              240,000
              
              
              240
              
              
              1,377,604Net
                  (Loss )
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance
                  Dec. 31, 1997
              
              
              -
              
              
              -
              
              
              240,000
              
              
              240
              
              
              1,377,604Common
                  shares issued for consulting services
              
              
              -
              
              
              -
              
              
              33,000
              
              
              33
              
              
              297Net
                  (Loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance
                  Dec. 31, 1998
              
              
              -
              
              
              -
              
              
              273,000
              
              
              273
              
              
              1,377,901Common
                  shares canceled for services unrendered
              
              
              -
              
              
              -
              
              
              (26,000
              )
              
              (26
              )
              
              26Net
                  (Loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance,
                  Dec. 31, 1999
              
              
              -
              
              
              -
              
              
              247,000
              
              
              247
              
              
              1,377,927Net
                  (Loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance,
                  Dec. 31, 2000
              
              
              -
              
              
              -
              
              
              247,000
              
              
              247
              
              
              1,375.297
  See
          Notes
          to Consolidated Financial Statements
 -17-
  **Subscriptions****Receivable**
              
              
              **Stock
                  owned****by
                  Subs.**
              
              **Deficit
                  Accumulated during Develop****ment
                  Stage**
              
              **Total
                  Equity**Net
                  (loss) from Inception to Dec 31, 1993
              
              
              -
              
              
              
              -
              
              $
              (36,640
              )
              $
              (36,640
              )Common
                  Shares issued to Founder
              
              
              -
              
              
              
              -
              
              
              -
              
              
              36,754Common
                  Shares issued for cash in IPO with A warrants attached
              
              
              -
              
              
              
              -
              
              
              -
              
              
              91,090Preferred
                  shares issued in exchange for common shares
              
              
              -
              
              
              
              -
              
              
              -
              
              
              -0-Common
                  shares issued in exercise of A warrants (see Note 3)
              
              
              (250,000
              )
              
              
              -
              
              
              (94,692
              )
              
              33,152Net
                  (Loss)
              
              
              -
              
              
              
              -
              
              
              -
              
              
              -Balance
                  Dec 31, 1994
              
              
              (250,000
              )
              
              
              -
              
              
              (94,962
              )
              
              33,152Common
                  shares issued in exercise of "B" warrants (see Note 3)
              
              
              (1,000,000
              )
              
              
              -
              
              
              -
              
              
              -Cash
                  proceeds from MMI
              
              
              849,875
              
              
              
              -
              
              
              -
              
              
              849,875Net
                  (Loss)
              
              
              -
              
              
              
              -
              
              
              -
              
              
              -Balance
                  Dec 31,  1995
              
              
              (400,125
              )
              
              
              -
              
              
              (221,210
              )
              
              756,509Common
                  shares exchange for preferred shares
              
              
              -
              
              
              
              -
              
              
              -
              
              
              -Cash
                  Proceeds from MMI
              
              
              400,125
              
              
              
              -
              
              
              -
              
              
              400,125Net
                  (Loss)
              
              
              -
              
              
              
              -
              
              
              -
              
              
              -Balance
                  Dec 31,  1996
              
              
              -
              
              
              
              -
              
              
              (529,347
              )
              
              848,497Net
                  (Loss )
              
              
              -
              
              
              
              -
              
              
              (250,579
              )
              
              (250,579
              )Balance
                  Dec 31, 1997
              
              
              -
              
              
              
              -
              
              
              (819,926
              )
              
              557,918Common
                  shares issued for consulting services
              
              
              -
              
              
              
              -
              
              
              -
              
              
              330Net
                  (Loss)
              
              
              -
              
              
              
              -
              
              
              -
              
              
              -Balance
                  Dec 31,  1998
              
              
              -
              
              
              
              -
              
              
              (1,037,508
              )
              
              340,666Common
                  shares canceled for services unrendered
              
              
              -
              
              
              
              -
              
              
              -
              
              
              -Net
                  (Loss)
              
              
              -
              
              
              
              -
              
              
              -
              
              
              -Balance,
                  Dec. 31, 1999
              
              
              -
              
              
              
              -
              
              
              (1,207,185
              )
              
              170,989Net
                  (Loss)
              
              
              -
              
              
              
              -
              
              
              -
              
              
              -Balance,
                  Dec. 31, 2000
              
              
              -
              
              
              
              -
              
              
              (1,304,860
              )
              
              73,314
  See
          Notes
          to Consolidated Financial Statements
 -18-
 **Preferred
                    stock**
                ****
                **Common
                    stock**
                ****
                **Paid
                  In**
                ********
                ****
                **Shares**
                ****
                **Amount**
                ****
                **Shares**
                ****
                **Amount**
                ****
                **Capital**
 Common
                  pre-split shares issued byexercise
                  of options for cash
              
              
              -
              
              
              -
              
              
              54,000
              
              
              54
              
              
              70,742Net
                  (Loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance,
                  December 31, 2001
              
              
              -
              
              
              -
              
              
              301,000
              
              
              301
              
              
              1,448,399Common
                  stock issued for cash in exercise of options through subscriptions
                  receivable
              
              
              -
              
              
              -
              
              
              3,765,000
              
              
              3,765
              
              
              296,235Common
                  stock issued for acquisitions
              
              
              -
              
              
              -
              
              
              10,500,000
              
              
              10,500
              
              
              -Common
                  stock issued for services
              
              
              -
              
              
              -
              
              
              13,035,851
              
              
              13,036
              
              
              98,935Common
                  stock issued to subsidiaries
              
              
              -
              
              
              -
              
              
              13,000,000
              
              
              13,000
              
              
              -Common
                  stock canceled for termination of acquisitions
              
              
              -
              
              
              -
              
              
              (9,500,000
              )
              
              (9,500
              )
              
              (144,000)Cash
                  received on subscriptions receivable
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              20,250Net
                  (Loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance,
                  December 31, 2002
              
              
              -
              
              
              -
              
              
              31,101,851
              
              
              31,102
              
              
              1,843,569Preferred
                  stock issued for services
              
              
              1,250,000
              
              
              1,250
              
              
              -
              
              
              -
              
              
              23,750Common
                  stock issued for services
              
              
              -
              
              
              -
              
              
              3,398,846
              
              
              3,399
              
              
              167,290Common
                  stock canceled - unrendered services
              
              
              -
              
              
              -
              
              
              (900,000
              )
              
              (900
              )
              
              -Common
                  stock canceled re Subsidiary term.
              
              
              -
              
              
              -
              
              
              (2,500,000
              )
              
              (2,500
              )
              
              (222,500
              )Write-off
                  uncollectible subscriptions rec.
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  (Loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance,
                  December 31, 2003
              
              
              1,250,000
              
              
              1,250
              
              
              31,100,697
              
              
              31,101
              
              
              1,812,109Common
                  stock issued for services (at prices between .005 and .06 per
                  share)
              
              
              -
              
              
              -
              
              
              4,975,000
              
              
              4,975
              
              
              114,325Common
                  stock issued for financing expense
              
              
              -
              
              
              -
              
              
              1,500,000
              
              
              1,500
              
              
              58,500Reclasification
              
              
              -
              
              
              -
              
              
              (13,000,000
              )
              
              (13,000
              )
              
              -Adjust
                  for reverse-split
              
              
              -
              
              
              -
              
              
              60,000
              
              
              60
              
              
              (60
              )Preferred
                  stock issued for compensation
              
              
              38,750,000
              
              
              38,750
              
              
              -
              
              
              -
              
              
              348,750Common
                  stock issued for cash  in 504 offering
              
              
              -
              
              
              -
              
              
              220,000,000
              
              
              220,000
              
              
              330,000Common
                  stock issued for acquisition
              
              
              -
              
              
              -
              
              
              36,000,000
              
              
              36,000
              
              
              144,000Common
                  stock canceled due to termination of acquisition
              
              
              -
              
              
              -
              
              
              (36,000,000
              )
              
              (180,000
              )
              
              (144,000)Common
                  stock and 504 offering canceled
              
              
              -
              
              
              -
              
              
              (60,000,000
              )
              
              (60,000
              )
              
              (90,000
              )Preferred
                  stock canceled
              
              
              (10,000,000
              )
              
              (10,000
              )
              
              -
              
              
              -
              
              
              (90,000)Net
                  (loss)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance,
                  December 31, 2004
              
              
              30,000,000
              
              $
              30,000
              
              
              184,635,697
              
              $
              184,636
              
              $
              2,483,624
  See
          Notes
          to Consolidated Financial Statements
 -19-
 **Subscripions****Receivable**
              
              
              
              **Stock
                  owned by****Subs.**
              
              **(Deficit)accumulated
                  during Develop****ment
                  Stage**
              
              **Total****Equity**Common
                  pre-split shares issued byexercise
                  of options for cash
              
              
              -
              
              
              
              
              -
              
              
              -
              
              
              70,526Net
                  (Loss)
              
              
              -
              
              
              
              
              -
              
              
              (113,167
              )
              
              (113,167
              )Balance,
                  December 31, 2001
              
              
              -
              
              
              
              
              -
              
              
              (1,418,027
              )
              
              30,673Common
                  Stock Issued for cash in exercise of options through subscriptions
                  receivable
              
              
              (300,000
              )
              
              
              
              -
              
              
              -
              
              
              10,500Common
                  Stock issued for acquisitions
              
              
              -
              
              
              
              
              -
              
              
              -
              
              
              -Common
                  Stock issued for services
              
              
              -
              
              
              
              
              -
              
              
              -
              
              
              111,971Common
                  Stock issued to Subsidiaries
              
              
              -
              
              
              
              
              (13,000
              )
              
              -
              
              
              -Common
                  Stock canceled for termination of acquisitions
              
              
              -
              
              
              
              
              -
              
              
              -
              
              
              (9,500
              )Cash
                  received on Subscriptions Receivable
              
              
              20,250
              
              
              
              
              -
              
              
              -
              
              
              20,250Net
                  (Loss)
              
              
              -
              
              
              
              
              -
              
              
              (199,179
              )
              
              (119,179
              )Balance,
                  December 31, 2002
              
              
              (279,750
              )
              
              
              
              (13,000
              )
              
              (1,617,206
              )
              
              (35,285
              )Preferred
                  stock issued for services
              
              
              -
              
              
              
              
              -
              
              
              -
              
              
              25,000Common
                  stock issued for services
              
              
              -
              
              
              
              
              -
              
              
              -
              
              
              170,689Common
                  stock canceled - unrendered services
              
              
              -
              
              
              
              
              -
              
              
              -
              
              
              (900
              )Common
                  stock canceled re Subsidiary term.
              
              
              225,000
              
              
              
              
              -
              
              
              -
              
              
              -Write-off
                  uncollectible Subscriptions Rec.
              
              
              54,750
              
              
              
              
              -
              
              
              -
              
              
              54,750Net
                  (Loss)
              
              
              -
              
              
              
              
              -
              
              
              (316,516
              )
              
              (316,516
              )Balance,
                  December 31, 2003
              
              
              -
              
              
              
              
              (13,000
              )
              
              (1,933,722
              )
              
              (102,262
              )Common
                  stock issued for services (at prices between .005 and .06 per
                  share)
              
              
              -
              
              
              
              
              -
              
              
              -
              
              
              119,300Common
                  stock issued for financing expense
              
              
              -
              
              
              
              
              -
              
              
              -
              
              
              60,000Reclassification
              
              
              -
              
              
              
              
              13,000
              
              
              -
              
              
              -Adjust
                  for reverse-split
              
              
              -
              
              
              
              
              -
              
              
              -
              
              
              -Preferred
                  stock issued for compensation
              
              
              -
              
              
              
              
              -
              
              
              -
              
              
              387,500Common
                  stock issued for cash in 504 offering
              
              
              (355,000
              )
              
              
              
              -
              
              
              -
              
              
              195,000Common
                  stock issued for acquisition
              
              
              -
              
              
              
              
              -
              
              
              -
              
              
              180,000Common
                  stock canceled due to termination of acquisition
              
              
              -
              
              
              
              
              -
              
              
              -
              
              
              (180,000
              )Common
                  stock and 504 offering canceled
              
              
              150,000
              
              
              
              
              -
              
              
              -
              
              
              -Preferred
                  stock canceled
              
              
              -
              
              
              
              
              -
              
              
              -
              
              
              (100,000
              )Net
                  (loss)
              
              
              -
              
              
              
              
              -
              
              
              (549,841
              )
              
              (549,841
              )Balance,
                  December 31, 2004
              
              $
              (205,000
              )
              
              
              
              
              
              $
              (2,483,563
              )
              $
              9,697
  See
          Notes
          to Consolidated Financial Statements
 -20-
 **XYNERGY
        CORPORATION**
 (A
        Development Stage Company)
 **Consolidated
        Statements of Cash Flows**
  **Period
                  from Inception****Year
                  Ended**
              
              **August
                  6, 1993****December
                  31,**
              
              **December
                  31****2004**
              
              **2003**
              
              **2004****Cash
                  flows from operating activities**Net
                  (loss)
              
              $
              (549,841
              )
              $
              (316,516
              )
              $
              (
                  2,483,563
              )Adjustments
                  to reconcile
              
              
              -
              
              
              -
              
              
              -net
                  (loss) to net cash (used in) operating activities
              
              
              -
              
              
              -
              
              
              -Preferred
                  stock issued for services
              
              
              287,500
              
              
              25,000
              
              
              312,500Common
                  stock issued for acquisitions
              
              
              -
              
              
              -
              
              
              1,000Non
                cash financing expense
              
              
              32,568
              
              
              -
              
              
              32,568Common
                  stock issued for services
              
              
              119,300
              
              
              169,789
              
              
              438,144Accrued
                  interest
              
              
              1,200
              
              
              -
              
              
              1,200Write-off
                  subscriptions receivable -
              
              
              -
              
              
              54,750
              
              
              54,750Depreciation
                  expense
              
              
              243
              
              
              -
              
              
              34,262Loss
                  on write-off of investment
              
              
              63,000
              
              
              -
              
              
              63,000Change
                  in assets and liabilities
              
              
              -
              
              
              -
              
              
              -(Increase)
                  decrease in deposits & other assets
              
              
              (6,900
              )
              
              21,475
              
              
              (6,900
              )Increase
                  (decrease) in accounts payable
              
              
              (20,270
              )
              
              1,676
              
              
              10,607Cash
                  (used in) operating activities
              
              
              (73,200
              )
              
              (43,826
              )
              
              (1,542,432
              )**Cash
                  flows from investing activities**Purchase
                  of equipment
              
              
              (1,217
              )
              
              -
              
              
              (35,236
              )Cash
                  paid for acquisition
              
              
              (63,000
              )
              
              
              
              
              (63,000
              )Net
                  cash (used in) investing activities
              
              
              (64,217
              )
              
              -
              
              
              (98,236
              )**Cash
                  flows from financing activities**Proceeds
                  from related party notes
              
              
              23,424
              
              
              -
              
              
              23,424Repayment
                  of related party notes
              
              
              (18,700
              )
              
              -
              
              
              (18,700
              )Proceeds
                  from loans
              
              
              27,432
              
              
              43,952
              
              
              99,371Proceeds
                  from sale of common stock
              
              
              195,000
              
              
              
              
              
              1,606,616Cash
                  provided by financing activities
              
              
              227,156
              
              
              43,952
              
              
              1,730,961Net
                  increase in cash
              
              
              89,739
              
              
              126
              
              
              90,293**Cash
                  beginning of period**
              
              
              554
              
              
              428**Cash,
                  end of period**
              
              **$**
              90,293
              
              $
              554
              
              **$**
              90,293**Cash
                paid for interest**
              ****
              **$**
              3,587
              
              **$**
              2,151
              ****
              **$**
              104,186
              ******Cash
                paid for income taxes**
              
              $
              ****0
              ****
              **$**
              0
              ****
              **$**
              6,400
  **Significant
        Non-Cash Transactions**
  During
        2003 1,250,000 preferred shares were issued for services valued at $25,000;
        3,398,846 common shares were issued for consulting services valued at $170,689;
        900,000 common shares were canceled for services not rendered valued at ($900);
        2,500,000 common shares were canceled for termination of $225,000 subscriptions
        receivable; and $54,750 of subscriptions receivable were written-off as
        uncollectible.
  During
        2004, the Company issued 4,975,000 common shares in compensation to employees
        and consultants valued at $119,300; 1,500,000 common shares were issued as
        collateral for a loan, and common shares were issued in exchange for
        subscriptions receivable of $205,000.
  See
          Notes
          to Consolidated Financial Statements
 -21-
 Xynergy
        Corporation
 (A
        Development Stage Compamy)
 Notes
        to
        Financial Statements
 December
        31, 2004
  NOTE
        1.
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Organization
        and Line of Business
  Xynergy
        Corporation (formerly know as Raquel, Inc. the "Company") was organized under
        the laws of the state of Nevada on August 6, 1993. On May 9, 2002, Xynergy
        became a holding company for the following wholly-owned subsidiaries:
        Raquel of Beverly Hills, a cosmetics company, and Machinations, Inc. a greeting
        card company. Operations for the subsidiaries are minimal and all inter-company
        balances and transactions have been eliminated.
  Xynergy
        started as "Colecciones de Raquel, Inc." with its IPO in 1994. In 1998,
        Colecciones de Raquel became "Raquel, Inc." In February 2002, after its
        acquisition of Think Blots greeting cards, Raquel, Inc. elected to change
        its
        name to Xynergy Corporation and expand its mission and purpose as a holding
        company. The Company's stated mission is revenue enhancement through an
        integration of companies in growth and emerging markets, which will protect
        its
        value as markets change and fluctuate.
  Summary
        and Effect of Recently Issued Accounting Standards
  The
        preparation of the Company's financial statements are in conformity with
        accounting principles generally accepted in the United States of America
        (GAAP),
        as interpreted by the Securities and Exchange Commission. Below is a listing
        of
        the most recent accounting standards and their effect on the Company.
   -22-
 In
        December 2003, The Financials Accounting Standards Board issued FASB
        Interpretation Number 46-R. "Consolidation of Variable Interest Entities."
        FIN
        46-R, which modifies certain provisions and effective dates of FIN 46, sets
        forth the criteria to be used in determining whether an investment is a variable
        interest entity that should be consolidated. These provisions are based on
        the
        general premise that if a company controls another entity through interests
        other than voting interests, that company should consolidate the controlled
        entity. The Company believes that currently, it does not have any material
        arrangements that meet the definition of a variable interest entity, which
        would
        require consolidation.
  In
        November 2004, the FASB issued SFAS 151, "Inventory Costs." SFAS 151 amends
        the
        accounting for abnormal amounts of idle facility expense, freight, handling
        costs, and wasted material (spoilage) under the guidance in ARB 43, Chapter
        4,
        "Inventory Pricing." This statement is effective for inventory costs incurred
        during the fiscal years beginning after June 15, 2005. Management does not
        expect adoption of SFAS 151 to have a material impact on the Company's financial
        statements.
  In
        December 2004, the FASB issued SFAS 152, "Accounting for Real Estate
        Time-Sharing Transaction." The FASB issued this Statement as a result of
        the
        guidance provided in AICPA Statement of Position (SOP) 04-2, "Accounting
        for
        Real Estate Time-Sharing Transactions." SOP 04-2 applies to all real restate
        time-sharing transactions. Management does not expect adoption of SFAS 152
        to
        have a material impact on the Company's financial statements.
  In
        December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary Assets,"
        an
        amendment to Opinion No. 29, "Accounting for Nonmonetary Transactions."
        Statement 153 eliminates certain differences in the guidance in Opinion No.
        29
        as compared to the guidance contained in standards issued by the International
        Accounting Standards Board. The amendment to Opinion No. 29 eliminates the
        fair
        value exception for nonmonetary exchanges of similar productive assets and
        replaces it with general exception for exchanges of nonmonetary assets that
        do
        not have commercial substance. Such an exchange has commercial substance
        if the
        future cash flows of the entity are expected to change significantly as a
        result
        if the exchange. SFAS 153 is effective for nonmonetary asset exchanges occurring
        in periods beginning after June 15, 2005. Earlier application is permitted
        for
        nonmonetary asset exchanges occurring in periods beginning after December
        16,
        2004. Management does not expect adoption of SFAS 153 to have a material
        impact
        on the Company's financial statements.
  In
        December 2004, the FASB issued SFAS 123(R), "Share-based payment." SFAS 123(R)
        amends SFAS 123, "Accounting for Stock-Based Compensation," and APB Opinion
        25,
        "Accounting for Stock Issued to Employees." SFAS 123(R)( requires that the
        cost
        of share-based payment for transactions (including those with employees and
        non-employees) be recognized in the financial statements. SFAS 123(R) applies
        to
        all share-based payment transactions in which an entity acquires goods or
        services by issuing (or offering to issue) its shares, share options, or
        other
        equity instruments (except for those held by an ESOP) or by incurring
        liabilities (1) in amounts based (even in part) on the price of the entity's
        shares or other equity instruments, or (2) that require (or may require)
        settlement by the issuance of an entity's shares or other equity instruments.
        This statement is effective (1) for public companies qualifying as SEC small
        business issuers, as of the first interim period or fiscal year beginning
        after
        December 15, 2005, or (2) for all other public companies, as of the first
        interim period or fiscal year beginning after June 15, 2005, or (33) for
        all
        non-public entities, as of the first fiscal year beginning after December
        15,
        2005. Management is currently assessing the effect of SFAS No. 123(r) on
        the
        Company's financial statements.
 -23-
  The
        adoption of these new Statements is not expected to have a material effect
        on
        the Company's current financial position, results of operations, or cash
        flows.
  Cash
        and Cash Equivalents
 For
        financial statement presentation purposes, the Company considers all short-term
        investments with a maturity date of three months or less to be cash
        equivalents.
  Property
        and Equipment
 Property
        and equipment is recorded at cost and depreciated using the straight-line
        method
        over the estimated useful lives, which is five years.
  Long-lived
        Assets
 The
        Company reviews the value of its non-current assets
        for impairment whenever events indicate that the carrying amount of the asset
        may not be recoverable.  An impairment loss is recorded if the sum of the
        future cash flows is less than the carrying amount of the asset.  The
        amount of the loss is determined by comparing the fair market value of the
        asset
        to the carrying amount of the asset.  Such assessments did not result in
        any adjustment to the value of non-current assets.
  Use
        of
        Estimates
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America (GAAP), requires management
        to make estimates and assumptions that affect the reported amounts and the
        disclosure of contingent amounts in the Company's financial statements and
        the
        accompanying notes. Actual results could differ from those
        estimates.
  Revenue
        Recognition
 Revenue
        from product sales is recognized when delivery
        has occurred, persuasive evidence of an agreement exists, the amount is fixed
        or
        determinable and no further obligation exists and collectability is
        probable.  Generally, title passes on the date of shipment.  Cost of
        products sold consists of the cost of raw materials and labor related to
        the
        corresponding sales transaction.
  Loss
        Per Share
 The
        basic
        (loss) per share is calculated by dividing the Company's net income available
        to
        common shareholders by the weighted average number of common shares during
        the
        year.
  On
        December 31, 2004, the Company has potentially dilutive securities outstanding
        in the form of 30,000,000 shares of preferred stock that can each be exchanged
        for 20 shares of common stock. These shares are not considered in the
        presentation of loss per share as their inclusion would be
        anti-dilutive.
  Income
        Taxes
 The
        Company provides for income taxes under Statement of Financial Accounting
        Standards No. 109, Accounting for Income Taxes. SFAS No. 109 requires the
        use of
        an asset and liability approach in accounting for income taxes. Deferred
        tax
        assets and liabilities are recorded based on the differences between the
        financial statement and tax bases of assets and liabilities and the tax rates
        in
        effect currently.
  Stock
        Based Compensation
 The
        Company periodically issues stock to various service providers as a form
        of
        compensation. The Company accounts for its stock based compensation
        based upon provisions in SFAS No. 123, Accounting for Stock-Based
        Compensation.  The services are valued at the fair market value of the
        services performed.
  -24-
 Note
        2.
        GOING CONCERN
  The
        accompanying financial statements have been prepared assuming that the company
        will continue as a going concern. The Company has accumulated a $2,717,563
        loss
        during its development phase, and had a loss from operations in 2004 and
        2003.
        This raises substantial doubt about the Company's ability to continue as
        a going
        concern. The Company's ability to continue as a going concern is dependent
        upon
        its success in developing additional capital.
  There
        is
        no assurance that the Company will be successful in its efforts to raise
        additional proceeds or achieve profitable operations. The financial statements
        do not include any adjustments that might result from this uncertainty.
  Xynergy
        has engaged an attorney for the preparation of a Private Placement Memorandum
        for a convertible debt offering.
  Note
        3.
        STOCKHOLDERS' EQUITY
  Initially,
        the Company had 10,000,000 shares of preferred stock authorized at a $0.001
        par
        value and 50,000,000 common shares authorized at a $0.001 par value. On January
        31, 1994, the Company increased the preferred stock authorized to 50,000,000
        shares and the authorized common stock to 250,000,000 shares.
  In
        1993,
        the Company founder was issued 20,000,000 common shares to cover the $36,754
        costs of organization and registration. Afterward, 1,000,000 common shares
        were
        issued in a public offering for $100,000 less $8,910 offering expenses;
        3,000,000 common shares were issued through the exercise of the "A" and "B"
        Warrants for $1,250,000 see "Exercise of Warrants" below; 700,000 shares
        were
        issued for services valued at $70; 5,400,000 shares were issued through the
        exercise of options for $70,526 and 1,500,000 shares were issued through
        the
        exercise of options by subscriptions receivable of $37,350. The total common
        stock issued and outstanding was 31,600,000 shares.
  On
        January 22, 2002 the Company authorized a reverse stock split of common shares
        at one hundred to one (100:1) leaving 316,000 post-split common shares
        outstanding as of that date. The Company subsequently increased par value
        of its
        common shares to $0.001 each. The reverse split has been retroactively applied
        to the Statement of Stockholders' Equity.
  Afterward,
        the Company issued a net of 1,000,000 post-split common shares for company
        acquisitions valued at $1,000; 13,000,000 post-split common shares were issued
        to and are held by the Company's subsidiaries to assist in their capitalization;
        a net of 1,250,000 post-split common shares (3,750,000-2,500,000) were issued
        through the exercise of options by subscriptions receivable with total cash
        proceeds of $20,250; and 15,534,697 post-split common shares were issued
        for
        services valued at $281,760.
  On
        December 31, 2003, 2,000,000 shares of common stock issued to Raquel Zepeda
        from the exercise of options through the Think Blots acquisition were canceled.
        With an exercise price of $.10, Ms. Zepeda had signed a Promissory Note to
        the
        Company for payment. The Note and stock were canceled, however the options
        have
        no expiration date and remain in effect.
  -25-
 In
        July,
        2004, the Company increased its authorized shares to 900,000,000 for common
        stock and 100,000,000 for preferred stock.
  On
        August
        8, 2004 the Company signed an agreement with Indigo Technologies, Inc.
        ("Indigo") to acquire all their equity interests in exchange for 36,000,000
        shares of Xynergy stock. On December 20, 2004, the Company terminated the
        acquisition of Indigo Technologies, Inc. and canceled the 36,000,000 shares
        of
        Xynergy stock issued to Indigo. Additionally, 60,000,000 shares of common
        stock
        pending sale through the 504 offering were canceled, leaving subscriptions
        receivable at $205,000.
  Public
        Offering
  In
        August
        1994, the Company completed an initial public offering of its securities.
        The
        Company sold 1,000,000 units at $0.10 per unit for gross proceeds of $100,000
        on
        a self-underwritten basis. Expenses of the offering were $8,910. Each unit
        consists of one share of common stock and one Class "A" Warrant. The Class
        "A"
        Warrants' were exercisable for one share of common stock and two Class "B"
        Warrants at a price of $0.25 each. The Class "B" Warrants were exercisable
        for
        one share of common stock and one Class "C" Warrant at a price of $.50 each.
        The
        Class "C" Warrants' were to be exercisable for one share of common stock
        at a
        price of $1.00 each. The offering costs must be written off against paid
        in
        capital and this does not appear in the statement of stockholders'
        equity.
  Exercise
        of Warrants
  In
        November 1994, all of the "A" Warrants were exercised in a transaction the
        Company claims was fraudulent. The Company's transfer agent issued 1,000,000
        shares of common stock and 2,000,000 "B" Warrants without the knowledge of
        the
        Company's officers or directors. At the time the Company did not receive
        any
        portion of the $250,000 exercise price
  In
        February 1995, all of the "B" Warrants were exercised in a transaction which
        the
        Company also claims was fraudulent. The Company's transfer agent issued
        2,000,000 shares of common stock and 2,000,000 "C" Warrants without the
        knowledge of the Company's officers or directors. At the time the Company
        did
        not receive any portion of the $1,000,000 exercise price.
  The
        4,000,000 shares of common stock issued in the Company's initial public offering
        and upon exercise of the "A" and "B" Warrants have been publicly traded and
        the
        Company has canceled the all of the "C" Warrants.
  -26-
 In
        September 1995, the Company entered into an Agreement with Moore McKenzie,
        Inc.,
        a Philippine corporation (MMI), which purchased and resold the shares following
        the exercise of the warrants by third party entities. MMI has expressly denied
        any involvement in the exercise of the Warrants. Solely for the purpose of
        protecting and preserving its investment in the shares and its reputation
        and
        goodwill, MMI agreed to pay the Company the exercise price of the "A" Warrants
        ($250,000) and "B" Warrants ($1,000,000). As of June 30, 1996, the Company
        has
        received all of the $1,250,000 settlement.
  For
        reporting purposes, we have treated the exercise of the Warrants and the
        MMI
        settlement as stock subscribed.
  Exercise
        of Options and Subscriptions Receivable
  From
        the
        period of 2001 to December 31, 2004, through various consulting and purchase
        agreements the company issued 10,650,000 options to purchase common stock
        at
        exercise prices ranging from $0.025 to $0.10 per share. Because of the need
        for
        capital, the Company accepted the exercise of 5,400,000 options that had
        an
        exercise price of $0.025 per share for a total of $70,526, instead of $135,000.
        It is important to note that all shares issued prior to January 22, 2002
        have
        been subjected to a reverse stock split of 100 to 1. Shares issued prior
        and
        after this transaction are referred to as "pre-split" and "post split"
        respectively. (See Note 3, paragraph 3.) Additionally, 2,000,000 options
        issued
        for the acquisition of Think Blots, greeting cards were exercised at $0.10
        per
        share through receipt of a note recorded as subscriptions receivable of
        $200,000; 2,500,000 options were exercised at $0.025 through receipt of notes
        recorded as subscriptions receivable of $62,500 and 750,000 options were
        exercised at $0.05 per share through receipt of notes recorded as subscriptions
        receivable of $37,500. From the 2,500,000 options referred to above, 1,500,000
        shares were pre-split, and 1,000,000 were post-split. On December 31, 2003
        the Company canceled 2,500,000 common shares and their associated subscriptions
        receivable of $262,500 because of canceled subscriptions. The Company also
        expensed $54,750 of subscriptions receivable as not collectable. As of December
        31, 2003 the Company has received a net of $20,250 cash for the net of 1,250,000
        common shares issued with subscriptions receivable. As of December 31, 2004,
        the
        Company has $205,000 in subscriptions receivable that resulted from a 504
        offering which was attached to the proposed acquisition of Indigo. As of
        December 31, 2004 there are 2,000,000 options, which have no expiration date,
        exercisable to Raquel Zepeda at $.10 per share.
  Preferred
        Stock
  The
        Company has 100,000,000 authorized shares of Preferred Stock with a par value
        of
        $0.001 per share, with an issue price and liquidation value of $.01. On December
        31, 2003 the Company issued 1,250,000 shares of preferred stock for consulting
        services valued at $25,000. Each share of preferred stock can be exchanged
        for
        20 shares of common stock thereby having a potential dilutive impact to the
        number of common shares outstanding. During 2004, the Company issued an
        additional 38,750,000 preferred stock as compensation to employees.
 -27-
 Stock
        Incentive Plan
  The
        Company adopted a Stock Incentive Plan which was revised in its September
        2002,
        S-8 Registration Statement. Under the plan, the Company can issue stock to
        consultants, employees, directors and company officers in exchange for services.
  Acquisitions
        by Exchange of Stock
  On
        April
        22, 2002 the Board of Directors authorized the formation of two wholly owned
        subsidiaries, Raquel of Beverly Hills, Inc. and Machinations, Inc. These
        subsidiaries were issued 10,000,000 and 3,000,000 shares of common stock
        respectively in exchange for all the stock in each company. The stock issue
        was
        for the purpose of raising capital for the subsidiaries and has been eliminated
        in the accompanying consolidated in the balance sheets.
  In
        March
        of 2004 the Company received a loan of $28,875 for operating expenses pledging
        1,500,000 common shares as collateral. The collateral was cashed in by the
        lender during 2004, resulting in a loss of $31,335.
  On
        August
        8, 2004 Xynergy signed an agreement with Indigo Technologies, Inc., a Georgia
        corporation, to acquire all of Indigo's issued and outstanding stock in exchange
        for 36,000,000 shares of Xynergy common stock and $300,000 cash to be raised
        by
        the sale of Xynergy stock through a $1,000,000 504D offering to an accredited
        investor. The Company canceled that acquisition in December of 2004 for failure
        to provide financial statements.
  Note
        4.
        INCOME TAXES:
  SFAS
        No.
        109 requires the reduction of deferred tax assets by a valuation allowance
        if,
        based on the weight of available evidence, it is more likely than not that
        some
        or all of the deferred tax assets will not be realized. In the Company's
        opinion, it is uncertain whether they will generate sufficient taxable income
        in
        the future to fully utilize the net deferred tax asset. Accordingly, a valuation
        allowance equal to the deferred tax asset has been recorded. The total deferred
        tax asset is $506,426, which is calculated by multiplying a 22% estimated
        tax
        rate by the cumulative NOL of $2,301,938. The total valuation allowance is
        a
        comparable $506,426. Details for the last two years follow
 -28-
  **12/31/04**
                
                **12/31/03**Deferred
                    Tax Asset
                
                $
                506,426
                
                $
                424,793Valuation
                    Allowance
                
                
                (506,426
                )
                
                (424,793
                )$
                -
                
                $
                -
 
 The
        estimated corporate federal net operating losses (NOLs) expire through
        2024.
  Note
        5. NOTES
        PAYABLE
  Notes
        payable consist of the following:
  **12/31/04**
              
              **12/31/03**Demand
                    Note, Related PartiesNo Interest
              
              $
              66,663
              
              $
              61,939Demand
                    Note6% Interest, Due August 2, 2003
              
              $
              11,200
              
              $
              10,000
  In
        March,
        2004, Xynergy obtained a stock loan for $27,000, using 1,500,000 shares of
        common stock as collateral. According to the initial terms, the interest
        was at
        the rate of prime plus 2 points; the Note was due in three years. The
        lender cashed in the collateral during 2004.
  -29-
 NOTE
        6.
        SUBSEQUENT EVENTS
  In
        October 2005, Xynergy signed a non-binding letter of intent to acquire the
        assets of a fitness nutrition and weight-loss company based out of Pompano
        Beach, Florida.
  **Item
        8.Changes In and Disagreements with Accountants on Accounting and Financial
        Disclosures.**
  In
        February, 2004, Xynergy Corporation signed an engagement letter with Weinberg
        & Co., P.A.CPA. This change was reported in the Company's 8-K filing of Mar
        ch, 2004 to replace the firm of Henry Schiffer, CPA. The decision to change
        independent auditors was approved by the Company's Board of Directors. This
        change was not affected as a result of a dispute or
        disagreement.
  On
        June
        3, 2004, the Company dismissed Weinberg & Company, P.A., CPA ("Weinberg") to
        perform its audit for the fiscal year ended December 31, 2003 for unreasonable
        delays by Weinberg. Prior to Weinberg's dismissal, Xynergy had delivered
        several
        correspondences and communications to Weinberg regarding the consequences
        of
        their delays in completing the audit. On May 27, 2004 the Company's symbol
        commenced trading with an "E" to signify that Xynergy had not yet filed its
        financials for the year ended December 31, 2003. On June 1, 2004, Xynergy
        sent a
        demand letter to Weinberg asking if they would be able to finish the report
        prior to June 14, 2004. On June 3, 2004, Xynergy delivered a letter to Weinberg,
        dismissing their services. (Exhibit 10.38) The decision to change independent
        auditors was approved by the Company's Board of Directors. At this time,
        the
        Company has retained outside legal counsel for potential action against
        Weinberg.
  In
        connection with the audits of the Company's financial statements for the
        year
        ended December 31, 2003 and through the subsequent period ended as of the
        date
        of this report, there were no disagreements ("Disagreements") as defined
        in Item
        304 (a) (1) (iv) and the instructions to Item 304 of Regulation S-K, as amended,
        promulgated by the Securities and Exchange Commission ("Regulation S-K")
        with
        Weinberg on any matters of accounting principles or practices, financial
        statement disclosure, or auditing scope and procedure which, if not resolved
        to
        the satisfaction of Weinberg, would have caused Weinberg to make reference
        to
        the matter in its reports.
  On
        June
        16, 2004, the Company engaged Shelly International CPA as its independent
        auditors for the fiscal year ended December 31, 2003. At no time preceding
        June
        16, 2004 has the Company (or anyone on behalf of the Company) consulted with
        Shelly International CPA, on matters regarding the (i) application of accounting
        principles to a specific transaction, either completed or proposed, or the
        type
        of audit opinion that might be rendered on the Company's financial statements,
        or (ii) any matter that was the subject of a disagreement with Weinberg or
        a
        Reportable Event.
  On
        November 22, 2004, the Company engaged De Leon & Company, PA, as its
        independent auditors for the fiscal year ended December 31, 2004. At no time
        preceding , 2004 has the Company (or anyone on behalf of the Company) consulted
        with DeLeon & Company, PA,, on matters regarding the (i) application of
        accounting principles to a specific transaction, either completed or proposed,
        or the type of audit opinion that might be rendered on the Company's financial
        statements, or (ii) any matter that was the subject of a disagreement with
        Shelly International or a Reportable Event.
  On
        July
        22, 2005 the Company engaged Stark, Winter, Schenkein & Co. LLP as its
        independent auditors for the fiscal year ended December 31, 2004.


**Item
        8A. Controls and
        Procedures**


We
        carried out an evaluation, under the supervision and with the participation
        of
        our Chief Executive Officer and Chief Financial Officer, of the effectiveness
        of
        the design and operation of our disclosure controls and procedures as defined
        in
        Exchange Act Rule 13a-14c as of the end of the period covered by this Annual
        Report on form 10-KSB.
 -30-
 **PART
        III**
  **Item
        9.Directors,  Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act.**
  The
        directors and executive officers of Xynergy are as follows:
  Name
              Age
              PositionRaquel
                  Zepeda
              53
              President
                  & ChairmanEdward
                  A. Rose, Jr.
              53
              Chief
                  Fin. Officer, Director & Corp. Secretary.Thomas
                  Lupo
              55
              Director
  Directors
        serve until the next annual meeting of shareholders and until their successors
        have been elected and have been qualified. Officers serve until the meeting
        of
        the Board of Directors following the next annual meeting of shareholders
        and
        until their successors have been elected and have been qualified.
  **RAQUEL
        ZEPEDA** ,
        is the
        founder and has served as President and as Chief Executive Officer of Xynergy
        since its inception on August 6, 1993. Ms. Zepeda established Colecciones
        de
        Raquel as a sole proprietorship in 1987. She continues to be the source of
        product development and has maintained all aspects of the Company's operations
        since its inception. (See "Business.")
  **EDWARD
        A. ROSE, JR.** is
        serving as Chief Financial Officer, Director, and Corporate Secretary. and
        was
        previously acting as the Xynergy's due diligence advisor. He has worked with
        Xynergy in several capacities since January, 2000. Mr. Rose has held positions
        as Internal Auditor, and Contracts Administrator for several Fortune 500
        companies, conducting field due diligence reviews of multimillion dollar
        operating companies in the U.S. South America, Europe and for corporate
        acquisitions. Mr. Rose is a CPA licensed in both New York and California
        and an
        attorney and a member of the State Bar of California. Mr. Rose holds the
        additional position of General Manager of Border Motor Parts, Inc., a wholesale
        distributor of automobile parts in California, Arizona, and Mexico.
  **TOM
        LUPO** is
        serving as a Director on Xynergy's Board and has a vast knowledge and experience
        in the network marketing industry. Mr. Lupo is a Senior Executive with 30
        years'
        experience in Direct Sales and Network marketing in the US, Canada and Europe
        with such major international companies such as Avon, Shaklee, Twinlab and
        Japanese-owned Noevir cosmetics. Managed sales, marketing operations, product
        development and international sales and marketing efforts. Considered a "pro"
        in
        direct-to-consumer marketing with an extensive background in the Skin Care
        and
        Wellness industries. Has worked in large, small and "start up" business
        models.
  Compliance
        with Section 16(a) of the Exchange Act
  Section
        16(a) of the Securities Exchange Act of 1934 and the rules thereunder require
        Xynergy's officers and directors and persons who own more than 10% of Xynergy's
        common stock to file reports of ownership and changes in ownership with the
        Securities Exchange Commission
        and to furnish Xynergy with copies.




-31-


**Item
      10. Executive Compensation.**


*Compensation
      of Officers* .
      No
      executive officer of Xynergy was paid cash or non-cash compensation in excess
      of
      $100,000 during calendar years 2001, 2002, or 2003 and Xynergy filed a Stock
      Incentive Plan with its September, 2002 S-8. In February 2004, the Company
      filed
      an S-8 Registration Statement. The following table sets forth the cash
      compensation paid by Xynergy to its chief executive officer for services
      rendered during calendar years 2003, and 2004.




**Annual
                  Compensation (1)****Name
                  &**
              
              
              **Stock**
              **Annual****Principal
                  Position**
              **Year**
              **Salary**
              **($)
                  Bonus**
              **($)
                  Compensation**Raquel
                  Zepeda, President
              2004
              -
              -
              -2003
              -
              -
              -Edward
                  A. Rose, Jr., CFO
              2004
              -
              -
              -


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




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




-32-


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




*Security
      Ownership of Certain Beneficial Owners and Security Ownership of
      Management* .
      The
      following table sets forth information for each person who is known to Xynergy
      to be the beneficial owner of more than five percent of any class of Xynergy's
      voting stock and beneficially owned by all of Xynergy's directors and nominees,
      each of the named executive officers and by all of Xynergy's directors and
      executive officers as a group:


of
        Xynergy's directors and executive officers as a group:
  %
                  of Issued
              Percentage**Name
                  and Address of**
              
              ****
              **&
                  Outstng**
              **of
                Ttl Votes*****Class**
              **Beneficial
                  Owner**
              **No.
                  of Shares**
              **Votes**
              **of
                  Class**
              **All
                  Classes**Common
              Raquel
                  Zepeda
              5,539,200
              5,539,200
              3%
              71%c/o
                  Xynergy Corp.18851
                  NE 29th Ave., #700Aventura,
                  FL 33180Edward
                  A. Rose, Jr.
              500,000
              500,000
              .1%
              5%c/o
                  Xynergy Corp.18851
                  NE 29th Ave., #700Aventura,
                  FL 33180Preferred
              Raquel
                  Zepeda
              28,000,000
              560,000,000
              93%Edward
                  A. Rose, Jr.
              2,000,000
              40,000,000
              7%Common
              All
                  executive
              6,039,200
              6,039,200
              3%officers
                  & directorsas
                  a group


As
      of
      December 31, 2004, there were 184,636,697 shares of common stock outstanding,
      with each share entitled to one vote and 30,000,000 preferred stock outstanding
      with each share entitled to twenty cumulative votes. Therefore, Xynergy has
      securities outstanding with an aggregate of 784,636,697 shares. *Changes
      in Control* . 
      There are no agreements, arrangements, or pledges of securities of Xynergy,
      the
      operation of which may at a subsequent date result in a change of control of
      Xynergy.




-33-


**Item
      12. Certain Relationships and Related Transactions.**


The
      Company maintains an office in Ms. Zepeda's home in Los Angeles,
      California.




**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.




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




-34-


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




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




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




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




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




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




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




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




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




-35-


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




10 .5 Agreement
      dated December 31, 1993 between The Company and Raquel Zepeda, incorporation
      by
      reference from Amendment No. 1 to Form SB-2 Registration Statement No.
      33-76464-LA as filed on May 9, 1994, Exhibit 10(e),




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




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




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




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




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




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




10.12  Trademark
      No.
      2,050,606 for Raquel, Inc. [formerly known as Colecciones de Raquel] Face Logo"
      incorporated by re ference 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".




-36-


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




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




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




10.19  Contract
      with
      Con Estilo Latino




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




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




10.22  Employment
      agreement with Edward A. Rose, Jr.




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




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




10.30  Dissolution
      agreement between Xynergy and CSPIE dated August, 2002




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




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




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




-37-


**(b)
      Reports on Form 8-K.**




Form
      8K
      was filed on May 23, 2005 announcing the Company's change of auditors to
      Stark Winter Schenkein & Co., LLP from De Leon & Co.  On May 23,
      2005, the Company filed a lawsuit against James M. Farinella and Integrated
      Capital Partners for the collection of monies owed to Xynergy.





**Item
      14. Principal Accountant Fees and
      Services**




Our
      Board of Directors has selected Stark Winter
      Schenkein & Co., LLP, independent accountants, as our auditors for the year
      ended December 31, 2004.




**Audit
      Fees**




Stark
      Winter Schenkein & Co., LLP billed us $____
      in fees for our anual audit for the year ended December 31, 2004, and DeLeon
      & Co. billed us $____in fees for our annual audit for the year ended
      December 31, 2004.  Shelley International billed us $____ in fees for the
      review of our quarterly financial statements for the year.




Shelly International
      billed us $____ in fees for our annual audit for the year ended December 31,
      2003, and  $____ in fees for the review of the quarterly financial
      statements for that year.




**Audit-Related
      Fees**




We
      did not pay any fees to Stark Winter Schenkein
& Co., LLP for assurance and related services that are not reported under
      Audit Fees above in 2004.




We
      did not pay any fees to DeLeon & Co. for
      assurance and related services that are not reported under Audit Fees above
      in 2004.




We
      did not pay any fees to Shelley International for
      assurance and related services that are not reported under Audit Fees above
      in 2004 or 2003.




**Tax
      and All Other
      Fees**




We
      did not pay any fees to Stark Winter Schenkein
& Co., LLP, DeLeon & Co. or Shelly International for tax compliance, tax
      advice, tax planning or other work during the years ended December 31, 2004
      or
      2003.




**Pre-Approval
      Policies and
      Procedures**




We
      have implemented pre-approval policies and
      procedures related to the provision of audit and non-audit services.  Under
      these porcedures, our board of directors pre-approves all services to be
      provided by Stark Winter Schenkein & Co., LLP, DeLeon & Co., and Shelley
      International, and the estimated fees related to these services.




With
      respect to the audit of our financial statements
      as of December 31, 2004 and for the year then ended, none of the hours expended
      on Stark Winter Schenkein & Co., LLP's engagement to audit those financial
      statements were attributed to work by persons other than Stark Winter Shenkein
      & Co., LLp's full time permanant employees.




With
      respect to the review of our quarterly financial
      statements for the year ended December 31, 2001, none of the hours expended
      on
      Shelley International's engagement to review those financial statements were
      attributed to work by persons other than Shelley International's full-time,
      permanant employees.




-38-


SIGNATURES




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




**XYNERGY
                CORPORATION**Dated:
                January 19, 2006
              By:
              /s/ Raquel
                ZepedaRaquel
                ZepedaPresident,
                Chief
                Executive Officer & Chairman
   -39-