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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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Form 10-QSB

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.For quarterly period ended June 30, 2001

OR

TRANSITION REPORT PURSUANT TO 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

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

|Nevada                                                         |  | 86-0840145                             
|-------------------------------------------------------------- |  | ---------------------------------------
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (I.R.S. Employer
Identification Number)

Kobstederstraat 68, Winterswijk, The Netherlands

011-31-543-532-2508(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 June 30, 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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Royal Waterlily, Inc.    Financial Statements    Six Months Ended June 30, 2001 and 2000  (Unaudited)

Contents

|Financial Statements: |                                                                                                                       | 
|--------------------- | --------------------------------------------------------------------------------------------------------------------- | 
|                      | Condensed Consolidated Balance Sheet for June 30, 2001 (Unaudited)                                                    | 
|                      | Condensed Consolidated Statements of Operations for the six and three months ended June 30, 2001 and 2000 (Unaudited) | 
|                      | Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000 (Unaudited)           | 
|                      | Notes to Financial Statements                                                                                         | 

1

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ROYAL WATERLILY, INC. AND SUBSIDIARIES  CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                  |                                                                                               | June 30,
2001             |            | December 31,
2000 |          
|------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------- | ---------- | ----------------- | ---------
|
|ASSETS                                            |                                                                                               |                           |            |                   |          
|Current assets                                    |                                                                                               |                           |            |                   |          
|                                                  | Cash and cash equivalents                                                                     |                           | $          | 1,059,358         |          
|                                                  | Trade accounts receivable                                                                     |                           |            |                   |          
|                                                  | Inventory                                                                                     |                           |            |                   |          
|                                                  | Income taxes receivable                                                                       |                           |            |                  |          
|                                                  | Prepaid expenses                                                                              |                           |            | 4,360             |          
|                                                  |                                                                                               |                           |            |                   |          
|                                                  |                                                                                               | Total current assets      |            |                   | 1,063,718
|Property and equipment                            |                                                                                               |                           |            |                   |          
|Accumulated depreciation                          |                                                                                               |                           |            |                   |          
|                                                  |                                                                                               |                           |            |                   |          
|                                                  | Net property and equipment                                                                    |                           |            |                   |          
|Restricted cash                                   |                                                                                               |                           |            |                   |          
|Other                                             |                                                                                               |                           | 4,805      |                   |          
|                                                  |                                                                                               |                           |            |                   |          
|                                                  |                                                                                               | $                         | 1,068,523  |                   | $        
|                                                  |                                                                                               |                           |            |                   |          
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) |                                                                                               |                           |            |                   |          
|Current liabilities                               |                                                                                               |                           |            |                   |          
|                                                  | Current portion of obligations of divested company                                            |                           | $          | 1,045,164         |          
|                                                  | Bank line of credit                                                                           |                           |            |                   |          
|                                                  | Accounts payable                                                                              |                           |            | 95,030            |          
|                                                  | Payroll and other taxes payable                                                               |                           |            |                   |          
|                                                  | Due to related parties                                                                        |                           |            |                   |          
|                                                  | Warranty reserve                                                                              |                           |            |                   |          
|                                                  | Other                                                                                         |                           |            | 12,625            |          
|                                                  |                                                                                               |                           |            |                   |          
|                                                  |                                                                                               | Total current liabilities |            |                   | 1,152,819
|Long-term warranty reserve                        |                                                                                               |                           |            |                   |          
|Investment obligation                             |                                                                                               |                           | 1,151,567  |                   |          
|Deferred revenue                                  |                                                                                               |                           |           |                   |          
|Obligations of divested company                   |                                                                                               |                           | 1,633,105  |                   |          
|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                                                                    |                           |            | 7,050,991         |          
|                                                  | Accumulated other comprehensive income                                                        |                           |            | 1,891,673         |          
|                                                  | Accumulated deficit                                                                           |                           |            | (11,814,757       | )        
|                                                  |                                                                                               |                           |            |                   |          
|                                                  |                                                                                               |                           | (2,868,968 | )                 |          
|                                                  |                                                                                               |                           |            |                   |          
|                                                  |                                                                                               | $                         | 1,068,523  |                   | $        
|                                                  |                                                                                               |                           |            |                   |          

See
accompanying notes to condensed consolidated financial statements.

2

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

|                                                     |                                             | Six Months Ended
June 30,   |           | Three Months Ended
June 30, |        
|---------------------------------------------------- | ------------------------------------------- | --------------------------- | --------- | --------------------------- | -------
|
|
|Revenue                                              |                                             |                             |           |                             |        
|                                                     | Sales                                       |                             | $         | 590,003                     |        
|                                                     | Gain on sale of installment contracts       |                             |           | 69,161                      |        
|                                                     | Commission                                  |                             |           | 68,779                      |        
|                                                     |                                             |                             |           |                             |        
|                                                     |                                             | Net revenue                 |           |                             | 727,943
|Costs and expenses                                   |                                             |                             |           |                             |        
|                                                     | Material cost of sales                      |                             |           | 119,076                     |        
|                                                     | Sales and marketing                         |                             |           | 186,681                     |        
|                                                     | General and administrative                  |                             |           | 732,760                     |        
|                                                     | Depreciation and amortization               |                             |           | 15,378                      |        
|                                                     |                                             |                             |           |                             |        
|                                                     |                                             |                             | 1,053,895 |                             |        
|                                                     |                                             |                             |           |                             |        
|Operating loss                                       |                                             |                             | (325,952  | )                           |        
|Other expense                                        |                                             |                             |           |                             |        
|                                                     | Interest expense                            |                             |           | 56,534                      |        
|                                                     | Interest income                             |                             |           | (5,178                      | )      
|                                                     |                                             |                             |           |                             |        
|                                                     |                                             |                             | 51,356    |                             |        
|                                                     |                                             |                             |           |                             |        
|Loss before taxes                                    |                                             |                             | (377,308  | )                           |        
|Income taxes (benefit)                               |                                             |                             |          |                             |        
|                                                     |                                             |                             |           |                             |        
|Net loss                                             |                                             | $                           | (377,308  | )                           | $      
|                                                     |                                             |                             |           |                             |        
|Basic and diluted net loss per share                 |                                             | $                           | (.12      | )                           | $      
|                                                     |                                             |                             |           |                             |        
|Weighted average number of common shares outstanding |                                             |                             | 3,125,000 |                             |        
|                                                     |                                             |                             |           |                             |        
|Comprehensive income (loss)                          |                                             |                             |           |                             |        
|                                                     | Net loss                                    |                             | $         | (377,308                    | )      
|                                                     | Change in cumulative translation adjustment |                             |           | 483,816                     |        
|                                                     |                                             |                             |           |                             |        
|                                                     |                                             | Comprehensive income (loss) |           | $                           | 106,508
|                                                     |                                             |                             |           |                             |        

See
accompanying notes to condensed consolidated financial statements.

3

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

|                                                                    |                                                                         | Six Months Ended
June 30,                   |                           
|------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------------------------------------------- | --------------------------
|
|
|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 income taxes                       |                           
|                                                                    |                                                                         | Stock issued for compensation               |                           
|                                                                    |                                                                         | 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                                                |                                             |                           
|                                                                    |                                                                         |                                             |                           
|                                                                    |                                                                         | Net cash from investing activities          |                           
|Cash from financing activities                                      |                                                                         |                                             |                           
|                                                                    | Proceeds from investment obligations                                    |                                             |                           
|                                                                    |                                                                         |                                             |                           
|                                                                    |                                                                         | Net cash from financing activities          |                           
|                                                                    |                                                                         |                                             |                           
|Effect of exchange rate changes on cash                             |                                                                         |                                             | (78,113                   
|                                                                    |                                                                         |                                             |                           
|Net change in cash                                                  |                                                                         |                                             | 982,458                   
|Cash at beginning of period                                         |                                                                         |                                             | 76,900                    
|                                                                    |                                                                         |                                             |                           
|Cash and cash equivalents at end of period                          |                                                                         | $                                           | 1,059,358                 
|                                                                    |                                                                         |                                             |                           
|Supplemental disclosure of cash paid                                |                                                                         |                                             |                           
|                                                                    | Interest paid                                                           |                                             | $                         
|Supplemental schedule of noncash investing and financing activities |                                                                         |                                             |                           
|                                                                    | Divestiture of subsidiary to principal shareholder                      |                                             |                           

(Continued)

4

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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. On April 1, 2001, the Company divested its wholly owned Dutch subsidiaries to its principal stockholder (see Note 3).

Interim Results:The accompanying condensed consolidated balance sheets at June 30, 2001 and the condensed
consolidated statements of operations and comprehensive income (loss) and cash flows for the six-month periods ended June 30, 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. The financial statements as of June 30, 2001 and for the six and three month periods ended
June 30, 2001 have not been reviewed by an independent public accountant as required under Regulation S-X of the Securities and Exchange Commission.

NOTE 2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 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 six months ended June 30, 2001, the Company received proceeds of $1,151,567. The Company did not calculate fully
diluted earnings per share since the impact of this obligation to earnings per share is anti-dilutive.

NOTE 3DIVESTITURE OF SUBSIDIARIES

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. and its wholly owned subsidiaries 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, which
was effective on April 1, 2001. Management believes that the divestiture of Wapro, B.V. and its wholly owned subsidiaries is in the Company's best interest because it will eliminate the
liabilities and defer revenues relating to the operations of Wapro, B.V. As a result of this divestiture, the Company increased additional paid-in-capital by $5,864,936.

As
a consequence to the Company functioning as a director of Wapro B.V. for the time period November 1, 1999 through March 31, 2001, there are uncertainties with respect
to the Company's obligations for any Wapro, B.V. activities. As a result, the Company has maintained these obligations ($2,678,269) in its balance sheet at June 30, 2001. Upon the discharge of
these obligations by Wapro, B.V., the amount will be treated as a contribution to capital.

(Continued)

5

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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. 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. Mr. Bongers has informed the Company that Wapro B.V. has filed for bankruptcy protection in The Netherlands. The
effect of this filing on the Company is uncertain.

(Continued)

6

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and result of operations should be read in conjunction with the financial statements and the
related notes. The financial statements as of June 30, 2001 and for the six and three month periods ended June 30, 2001 have not been received by an independent public accountant as
required under Regulation 5-x of the Security and Exchange Commission. 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.

RESULTS OF OPERATIONS

As more fully described in Note 3 to the Company's financial statements, 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. and its wholly owned subsidiaries 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, which was effective on April 1, 2001. Management believes that the divestiture of Wapro, B.V. and its wholly owned
subsidiaries is in the Company's best interest because it will eliminate the liabilities and defer revenues relating to the operations of Wapro, B.V.

As
a consequence to the Company functioning as a director of Wapro B.V. for the time period November 1, 1999 through March 31, 2001, there are uncertainties with respect
to the Company's obligations for any Wapro, B.V. activities. As a result, the Company has maintained these obligations ($2,678,269) in its balance sheet at June 30, 2001. Upon the discharge of
these obligations by Wapro, B.V., the amount will be treated as a contribution to capital.

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.

As
a result of the above, a comparison of financial results is determined to be not meaningful.

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 though our ability to sell customer lease contracts on a
nonrecourse basis to financing institutions.

(Continued)

7

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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 $(721,494) and $(1,768,356) for the six months ended June 30, 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 $1,776,257 for the six months ended June 30, 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 ($21,226,000 at June 30, 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 six months ended June 30, 2001, the Company received proceeds of $1,151,567.

(Continued)

8

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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

| |       | 
| | ----- | 
| |       | 
| | (a)   | 
| | None.
| | (b)   | 
| | None.

9

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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: | October 19, 2001 |  | By:                  
|Dated: | October 19, 2001 |  | By:                  

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