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UNITED STATES
SECURITEIS AND EXCHANGE OCMMISSIONWashington, D.C. 20549

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Form 10-QSB

(Mark One)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|--- | ----------------------------------------------------------------------------------------

For quarterly period ended March 31, 2001

OR

|/ / | TRANSITION REPORT PURSUANT OT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|--- | -----------------------------------------------------------------------------------------

For the transition period from ,
19, to , 19.

Commission File Number 0-31211
CUSIP NUMBER 78074 V 108

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ROYAL WATERLILY, INC.(Exact Name of Registrant as Specified in Charter)

Nevada(State or Other Jurisdiction of
Incorporation or Organization)

86-0840145(I.R.S. Employer Identification Number)1-A Driemarkweg, Winterswijk, The Netherlands


011-31-543-533-136(Registrant's Telephone Number, Including Area Code)

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Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and has been subject to such filing requirements for the past
90 days. Yes /x/  No / /

There
were 3,125,000 shares of the Registrant's $.0001 par value common stock as of March 31, 2001

Transitional
Small Business Format (check one) Yes /x/  No / /

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PART IFINANCIAL INFORMATION
ITEM 1FINANCIAL STATEMENTS

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Financial Statements
Royal Waterlily, Inc.Three Months Ended March 31, 2001
(Unaudited)

Contents

Financial Statements:

|Balance Sheet for March 31, 2001 (Unaudited)                                                         |  | 4
|---------------------------------------------------------------------------------------------------- |  | -
|Statements of Operations for the three months ended
March 31, 2001 and 2000 (Unaudited)              |  | 5
|Consolidated Statements of Cash Flows for the three months ended
March 31, 2001 and 2000 (Unaudited) |  | 6
|Notes to Financial Statements                                                                        |  | 7

3.

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ROYAL WATERLILY, INC. AND SUBSIDIARIES        CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                  |                                                                                               | March 31,
2001            |            | December 31,
2000 |          
|------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------- | ---------- | ----------------- | ---------
|
|ASSETS                                            |                                                                                               |                           |            |                   |          
|Current assets                                    |                                                                                               |                           |            |                   |          
|                                                  | Cash                                                                                          |                           | $          | 475,563           |          
|                                                  | Trade accounts receivable                                                                     |                           |            | 41,446            |          
|                                                  | Inventory                                                                                     |                           |            | 66,646            |          
|                                                  | Income taxes receivable                                                                       |                           |            |                  |          
|                                                  | Prepaid expenses                                                                              |                           |            | 10,017            |          
|                                                  |                                                                                               |                           |            |                   |          
|                                                  |                                                                                               | Total current assets      |            |                   | 593,672  
|Property and equipment                            |                                                                                               |                           | 366,644    |                   |          
|Accumulated depreciation                          |                                                                                               |                           | (170,519   | )                 |          
|                                                  |                                                                                               |                           |            |                   |          
|                                                  | Net property and equipment                                                                    |                           |            | 196,125           |          
|Restricted cash                                   |                                                                                               |                           | 30,361     |                   |          
|Other                                             |                                                                                               |                           | 19,724     |                   |          
|                                                  |                                                                                               |                           |            |                   |          
|                                                  |                                                                                               | $                         | 839,882    |                   | $        
|                                                  |                                                                                               |                           |            |                   |          
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) |                                                                                               |                           |            |                   |          
|Current liabilities                               |                                                                                               |                           |            |                   |          
|                                                  | Bank line of credit                                                                           |                           | $          | 80,138            |          
|                                                  | Investment obligations                                                                        |                           |            | 374,291           |          
|                                                  | Accounts payable                                                                              |                           |            | 353,434           |          
|                                                  | Payroll and other taxes payable                                                               |                           |            | 215,526           |          
|                                                  | Due to related parties                                                                        |                           |            | 526,560           |          
|                                                  | Warranty reserve                                                                              |                           |            | 50,086            |          
|                                                  | Other                                                                                         |                           |            | 292,283           |          
|                                                  |                                                                                               |                           |            |                   |          
|                                                  |                                                                                               | Total current liabilities |            |                   | 1,892,318
|Long-term warranty reserve                        |                                                                                               |                           | 591,087    |                   |          
|Deferred revenue                                  |                                                                                               |                           | 6,899,682  |                   |          
|Commitments and contingencies                     |                                                                                               |                           |            |                   |          
|Stockholders' equity (deficiency)                 |                                                                                               |                           |            |                   |          
|                                                  | Preferred stock, $.001 par value, authorized 5,000,000, none outstanding                      |                           |            |                  |          
|                                                  | Common stock, $.001 par value, authorized 45,000,000 shares; issued and outstanding 3,125,000 |                           |            | 3,125             |          
|                                                  | Additional paid-in capital                                                                    |                           |            | 1,186,055         |          
|                                                  | Accumulated other comprehensive income                                                        |                           |            | 1,863,451         |          
|                                                  | Accumulated deficit                                                                           |                           |            | (11,595,836       | )        
|                                                  |                                                                                               |                           |            |                   |          
|                                                  |                                                                                               |                           | (8,543,205 | )                 |          
|                                                  |                                                                                               |                           |            |                   |          
|                                                  |                                                                                               | $                         | 839,882    |                   | $        
|                                                  |                                                                                               |                           |            |                   |          

See
accompanying notes to condensed consolidated financial statements.

4.

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ROYAL WATERLILY, INC. AND SUBSIDIARIES        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND        COMPREHENSIVE INCOME (LOSS)

|                                                     |                                             | Three months ended
March 31, |          
|---------------------------------------------------- | ------------------------------------------- | ---------------------------- | ---------
|
|
|Revenue                                              |                                             |                              |          
|                                                     | Sales                                       |                              | $        
|                                                     | Gain on sale of installment contracts       |                              |          
|                                                     | Commission                                  |                              |          
|                                                     |                                             |                              |          
|                                                     |                                             | Net revenue                  |          
|Costs and expenses                                   |                                             |                              |          
|                                                     | Material cost of sales                      |                              |          
|                                                     | Sales and marketing                         |                              |          
|                                                     | General and administrative                  |                              |          
|                                                     | Depreciation and amortization               |                              |          
|                                                     |                                             |                              |          
|                                                     |                                             |                              | 866,413  
|                                                     |                                             |                              |          
|Operating loss                                       |                                             |                              | (138,470 
|Other expense                                        |                                             |                              |          
|                                                     | Interest expense                            |                              |          
|                                                     |                                             |                              |          
|                                                     |                                             |                              | 19,917   
|                                                     |                                             |                              |          
|Loss before taxes                                    |                                             |                              | (158,387 
|Income taxes (benefit)                               |                                             |                              |         
|                                                     |                                             |                              |          
|Net loss                                             |                                             | $                            | (158,387 
|                                                     |                                             |                              |          
|Basic and diluted net loss per share                 |                                             | $                            | (.05     
|                                                     |                                             |                              |          
|Weighted average number of common shares outstanding |                                             |                              | 3,125,000
|                                                     |                                             |                              |          
|Comprehensive income (loss)                          |                                             |                              |          
|                                                     | Net loss                                    |                              | $        
|                                                     | Change in cumulative translation adjustment |                              |          
|                                                     |                                             |                              |          
|Comprehensive income (loss)                          |                                             | $                            | 297,207  
|                                                     |                                             |                              |          

See
accompanying notes to condensed consolidated financial statements.

5.

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ROYAL WATERLILY, INC. AND SUBSIDIARIES        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                        |                                                                         | Three months ended
March 31,                |                           
|--------------------------------------- | ----------------------------------------------------------------------- | ------------------------------------------- | --------------------------
|
|
|Cash from operating activities          |                                                                         |                                             |                           
|                                        | Net loss                                                                |                                             | $                         
|                                        | Adjustments to reconcile net loss to net cash from operating activities |                                             |                           
|                                        |                                                                         | Depreciation                                |                           
|                                        |                                                                         | Gain on sale of installment contracts       |                           
|                                        |                                                                         | Deferred revenue                            |                           
|                                        |                                                                         | Changes in operating assets and liabilities |                           
|                                        |                                                                         |                                             | Accounts receivable       
|                                        |                                                                         |                                             | Inventory                 
|                                        |                                                                         |                                             | Refundable income taxes   
|                                        |                                                                         |                                             | Prepaid expenses and other
|                                        |                                                                         |                                             | Accounts payable          
|                                        |                                                                         |                                             | Accrued expenses          
|                                        |                                                                         |                                             |                           
|                                        |                                                                         |                                             |                           
|Cash from investing activities          |                                                                         |                                             |                           
|                                        | Proceeds from the sale of installment contracts                         |                                             |                           
|                                        | Purchase of property and equipment                                      |                                             |                           
|                                        | Increase in other assets                                                |                                             |                           
|                                        |                                                                         |                                             |                           
|                                        |                                                                         |                                             |                           
|Cash from financing activities          |                                                                         |                                             |                           
|                                        | Proceeds from investment obligations                                    |                                             |                           
|                                        |                                                                         |                                             |                           
|                                        |                                                                         |                                             |                           
|                                        |                                                                         |                                             |                           
|Effect of exchange rate changes on cash |                                                                         |                                             | (19,133                   
|                                        |                                                                         |                                             |                           
|Net change in cash                      |                                                                         |                                             | 398,663                   
|Cash at beginning of period             |                                                                         |                                             | 76,900                    
|                                        |                                                                         |                                             |                           
|Cash at end of period                   |                                                                         | $                                           | 475,563                   
|                                        |                                                                         |                                             |                           
|Supplemental disclosure of cash paid    |                                                                         |                                             |                           
|                                        | Interest paid                                                           |                                             | $                         
|                                        | Income taxes paid (received)                                            |                                             |                           

See
accompanying notes to condensed consolidated financial statements.

6.

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ROYAL WATERLILY, INC. AND SUBSIDIARIES        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business:Royal Waterlily, Inc. (formerly Wapro Group, Inc.) (the Company), a Nevada
corporation, is involved through its wholly owned Dutch subsidiaries (Wapro, B.V.; Premier Waterbedden, B.V.; Wekker Waterbedden B.V.; RayMark, B.V.; RayPro, B.V. and RayFin, B.V.) in the manufacture
and direct marketing of custom waterbeds in the Netherlands.

Interim Results:The accompanying condensed consolidated balance sheets at March 31, 2001 and the condensed
consolidated statements of operations and comprehensive income (loss) and cash flows for the three-month periods ended March 31, 2001 and 2000 are unaudited. In the opinion of management, these
statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of
the results of the interim periods. The results of operations for the interim periods are not necessarily indicative of the results expected for the full calendar year. Because all of the disclosures
required by generally accepted accounting principles are not included, these interim statements should be read in conjunction with the Company's December 31, 2000 financial statements and notes
thereto contained in the Company's Form 10-KSB.

NOTE 2MANAGEMENT'S PLANS REGARDING CONTINUING OPERATIONS

Future operations of the Company are intended to continue. Management has reviewed operating results, replaced certain executives in the sales management team,
and performed other analyses to improve product salability. In addition, the Company discontinued its cash-back incentive program during February 2000. The Company's continued
existence is dependent upon its ability to achieve profitable operations and maintain adequate bank financing and working capital, its ability to sell its installment sales contracts, and its ability
to generate new sources of debt or equity. These financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 3INVESTMENT OBLIGATIONS

During 2001, the Company entered into an informal loan agreement with Baumgartner & Baumgartner Finance Corporation N.V. (B & B). In connection
therewith, B & B agreed to borrow up to 25 million Euro ($21,967,600 at March 31, 2001) at the rate of 12% per annum payable monthly, due April 2006. This loan agreement
also provides the Company with an option to convert this debt into equity of the Company stock at a price equal to the average of the closing price of the Company stock for the thirty days preceding
that date. The loan agreement also provides for limitations on liens or other encumbrances. For the three months ended March 31, 2001, the Company received proceeds of $388,361. The Company
calculated fully diluted earnings per share and found the result to be anti-dilutive.

7.

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ITEM 2MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the
related notes. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions.
Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under
"Description of the Business" and the subheadings thereunder, such as "Risks Related to the Company's Business."

RESULTS OF OPERATIONS

The following table sets forth certain operations data for the three months ended March 31, 2001 and 2000. This information should be read in
conjunction with our financial statements and notes included elsewhere. This financial information has not been audited. However, this information includes all adjustments, consisting of only normal
recurring adjustments, that we consider necessary for a fair presentation of the financial position, operating results, and cash flows for such periods. Results for the interim periods are not
necessarily indicative of results for the full year or any future period.

|                       |                                       | Three Months Ended
March 31, |         
|---------------------- | ------------------------------------- | ---------------------------- | --------
|
|Revenue                |                                       |                              |         
|                       | Sales                                 |                              | $       
|                       | Gain on sale of installment contracts |                              |         
|                       | Commission                            |                              |         
|                       |                                       |                              |         
|                       |                                       | Net income                   |         
|Costs and expenses     |                                       |                              |         
|                       | Material cost of sales                |                              |         
|                       | Sales and marketing                   |                              |         
|                       | General and administrative            |                              |         
|                       | Depreciation and amortization         |                              |         
|                       |                                       |                              |         
|                       |                                       |                              | 866,413 
|                       |                                       |                              |         
|Operating loss         |                                       |                              | (138,470
|Other expense (income) |                                       |                              |         
|                       | Interest expense                      |                              |         
|                       |                                       |                              |         
|                       |                                       |                              | 19,917  
|                       |                                       |                              |         
|Loss before taxes      |                                       |                              | (158,387
|Income taxes           |                                       |                              |        
|                       |                                       |                              |         
|                       | Net loss                              |                              | $       
|                       |                                       |                              |         

THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000

REVENUES:Revenues for the three months ended March 31, 2001 increased $330,896 or 83% to $727,943 from $397,047
for the three months ended March 31, 2000. During 2001, there was a 39% decrease in waterbed unit sales from 2000. The sales of our waterbed units decreased primarily because of the loss of
sales representatives and the discontinuance of the cash-back incentive program in February 2000. Because of the discontinuance of the cash-back program, the Company's
recorded sales

8.

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revenue has increased due to the elimination of any associated deferred revenue relating to the cash-back program. In addition, revenue from commissions and gain on sale of installment
contracts increased from $61,440 in 2000 to $137,940 in 2001.

COSTS AND EXPENSES:Costs and expenses for the three months ended March 31, 2001 decreased $352,808, or 29%, to
$866,413 from $1,219,221 for the three months ended March 31, 2000. This decrease is principally due to reductions in waterbed sales. In addition, during 2000, we streamlined our operations and
made numerous cost cutting measures, which reduced sales, marketing, general, and administrative expenses.

INTEREST EXPENSE:Interest expense for the three months of 2001 was $19,917 versus $4,493 in 2000. This increase is
associated with the interest costs on new investment obligation.

NET INCOME (LOSS):Net loss for the three months ended March 31, 2001 decreased $668,280 to $(158,387) compared
to the $(826,667) reported for the three months ended March 31, 2000. The decrease was due to the various factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES:Our principal capital and liquidity needs historically have been related to funding
the working capital, sales, and marketing activities; developing the manufacturing infrastructure; and establishing customer service and support operations. Our capital needs have been predominantly
met through our ability to sell customer lease contracts on a nonrecourse basis to financing institutions.

During
April 1999, we entered into an agreement with a foundation affiliated with our stockholders to sponsor a cash-back incentive program for our customers. In
return, we pay the foundation 18.5% of the total sales price of each waterbed sold under this incentive program. Under this program, the foundation agreed to refund the customer their purchase price
of the waterbed after a 12.5-year period if certain conditions and restrictions are met. For the three months ended March 31, 2000, we expensed $167,113 for premiums paid to the
foundation under this program. However, we obtained legal advice from counsel in the Netherlands indicating that our customers may have recourse against us under this cash-back incentive
program. Accordingly, we have accounted for this revenue consistently with Statement of Financial Accounting Standards No. 48, "Revenue Recognition When Right of Return Exists." Consequently,
we have deferred $659,356 of revenue for the three months ended March 31, 2000. During February 2000, this cash-back program was discontinued.

Net
cash from operating activities was $(601,063) and $(1,071,222) for the three months ended March 31, 2001 and 2000, respectively. As described below, we sell our installment
contracts to financial institutions. The proceeds received from these financial institutions offset the usages of cash from operating activities.

Net
cash from investing activities was $630,498 and $1,032,241 for the three months ended March 31, 2001 and 2000, respectively. The majority of the cash from investing
activities is from proceeds on the sale of installment contracts. We sell these installment contracts to financial institutions on a nonrecourse basis.

During
2001, the Company entered into an informal loan agreement with Baumgartner & Baumgartner Finance Corporation N.V. (B&B). In connection therewith, B&B agreed to borrow up
to 25 million Euro ($21,967,600 at March 31, 2001) at the rate of 12% per annum payable monthly, due April 2006. This loan agreement also provides the Company with an option to
convert this debt into equity of the Company stock at a price equal to the average of the closing price of the Company stock for the thirty days preceding that date. The loan agreement also provides
for limitations on liens or other encumbrances. For the three months ended March 31, 2001, the Company received proceeds of $388,361.

9.

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Management has reviewed operating results, replaced certain executives in the sales management team, and performed other analyses to improve product salability. In addition, we
discontinued the cash-back incentive program described above. Our continued existence is dependent upon our ability to achieve profitable operations and maintain adequate bank financing
and working capital, as well as our ability to sell our installment sales contracts.

Subsequent
to March 31, 2001, the majority stockholder and management of the Company have determined that it is in the best long-term interest of the Company to
divest itself of Wapro, B.V. to
C.A.R. Bongers Holdings Meddo B.V. (the majority stockholder of the Company). The parties are currently finalizing the terms of this transaction. Management believes that the divestiture of Wapro,
B.V. is in the Company's best interest because it will eliminate the liabilities and deferred revenues relating to the operations of Wapro, B.V.

It
is anticipated that the Company will capitalize Wapro, B.V. with approximately $400,000. Management anticipates that the Company will save approximately $300,000 to $400,000 over
the next 12 months by divesting Wapro, B.V. Management intends to focus upon developing the business strategy and mission of the Company, which is to become a worldwide market leader in the
segmented waterbed market. The Company intends to achieve this objective through an aggressive acquisition program utilizing cash reserves and the Company's securities.

There
are significant conditions that still must be fulfilled in order to finalize the sale of Wapro, B.V. Specifically, the parties need to enter into formal acquisition documents.
The Company will request that a majority of the stockholders, other than C.A.R. Bongers Holdings Meddo B.V., approve this transaction. The Company anticipates filing an information statement in the
near future relating to this transaction. Also, counsel to the Company has recommended that legal opinions be obtained that under Dutch law this transaction would not be considered a fraudulent
conveyance and that liabilities of Wapro, B.V. will not be attributed to the Company. The Company intends to file a Form 8-K at such time as definitive documents are
executed.

RECENTLY ISSUED ACCOUNTING STANDARDS:In June 1998, the Financial Accounting Standards Board issued
FAS 133, "Accounting for Derivative Instruments and Hedging Activities." We had adopted FAS 133 on January 1, 2001. FAS 133 establishes methods of accounting for derivative
financial instruments and hedging activities related to those instruments as well as other hedging activities. Because we hold no derivative financial instruments and do not currently engage in
hedging activities, adoption of FAS 133 did not have a material impact on our financial position or results of operations.

INTEREST RATE RISK:As of March 31, 2001, we have an outstanding balance of $79,598 under a bank line of credit
with interest at prime rate plus 1.75% and $374,291 outstanding under an informal loan agreement, which bears interest at 12%. A 10% movement in market interest rates would not significantly impact
our financial position or results of operations.

10.

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PART II

ITEM 1LEGAL PROCEEDINGS.None.

ITEM 2CHANGES IN SECURITIES.None.

ITEM 4SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.None.

ITEM 5OTHER MATTERS.None.

ITEM 6EXHIBITS AND REPORTS ON FORM 8-K

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned,
thereto duly authorized:

|       |  |              |  | ROYAL WATERLILY, INC.
|------ |  | ------------ |  | ---------------------
|Dated: |  | May 18, 2001 |  | By:                  
|Dated: |  | May 18, 2001 |  | By:                  

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