<PAGE>
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UNITED STATES SECURITEIS AND EXCHANGE OCMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For quarterly period ended September 30, 2000
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
ROYAL WATERLILY, INC.
---------------------
(Exact Name of Registrant as Specified in Charter)
NEVADA 86-0840145
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1-A Driemarkweg, Winterswijk, The Netherlands
---------------------------------------------
011-31-543-533-136
------------------
(Registrant's Telephone Number, Including Area Code)
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.
X YES NO
--- ---
There were 3,000,000 shares of the Registrant's $.0001 par value common stock as
of September 30, 2000
Transitional Small Business Format (check one) Yes X No
--- ---
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<PAGE>
ROYAL WATERLILY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<PAGE>
ROYAL WATERLILY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
Financial Statements
Royal Waterlily, Inc.
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<PAGE>
ROYAL WATERLILY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
ROYAL WATERLILY, INC.
FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
CONTENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS:
BALANCE SHEET FOR SEPTEMBER 30, 2000 (UNAUDITED)..........................................1
STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)...............................................2
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)...............................................3
NOTES TO FINANCIAL STATEMENTS...........................................................4-8
</TABLE>
<PAGE>
ROYAL WATERLILY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
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<TABLE>
<CAPTION>
September 30, 2000
------------------
(unaudited)
<S> <C>
ASSETS
Current assets
Cash $ 61,281
Trade accounts receivable 88,382
Due from related party 22,708
Inventory 76,793
Income taxes receivable 68,329
Prepaid expenses 5,878
-------------
Total current assets 323,371
Property and equipment 362,674
Accumulated depreciation (139,675)
-------------
Net property and equipment 222,999
Other 32,089
-------------
$ 578,459
=============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Bank line of credit $ 79,598
Accounts payable 363,794
Payroll and other taxes payable 29,546
Due to related parties 557,223
Warranty reserve 54,649
Other 202,471
-------------
Total current liabilities 1,287,281
Long-term warranty reserve 552,560
Deferred revenue 6,931,586
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 3,000,000 3,000
Additional paid-in capital 1,161,180
Accumulated other comprehensive income 1,926,522
Accumulated deficit (11,283,670)
-------------
(8,192,968)
-------------
$ 578,459
=============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-1-
<PAGE>
ROYAL WATERLILY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue
Sales $ 711,350 $ 529,400 $ 1,571,576 $ 1,764,358
Gain on sale of installment contracts 42,683 30,993 134,043 114,353
Commission 6,234 4,638 99,543 20,805
------------- ------------- ------------- -------------
Net revenue 760,267 565,031 1,805,162 1,899,516
Costs and expenses
Material cost of sales 154,786 247,433 501,602 998,418
Sales and marketing 124,875 715,665 766,979 2,188,353
General and administrative 450,842 900,046 2,066,783 2,362,455
Depreciation and amortization 15,294 18,382 48,055 51,913
------------- ------------- ------------- -------------
745,797 1,881,526 3,383,419 5,601,139
------------- ------------- ------------- -------------
Operating income (loss) 14,470 (1,316,495) (1,578,257) (3,701,623)
Other expense (income)
Interest income (2,228) 179 (10,993) -
Interest expense (5,928) 11,253 42,030 23,196
Investment banking fees - 650,000 - 650,000
------------- ------------- ------------- -------------
(8,156) 661,432 31,037 673,196
------------- ------------- ------------- -------------
Income (loss) before taxes 22,626 (1,977,927) (1,609,294) (4,374,819)
Income taxes (benefit) (4,856) (848) (16,290) (58,802)
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 27,482 $ (1,977,079) $ (1,593,004) $ (4,316,017)
============= ============= ============= =============
Basic net income (loss) per share $ .01 $ (.66) $ (.53) $ (1.44)
============= ============= ============= =============
Weighted average number of common
shares outstanding 3,000,000 3,000,000 3,000,000 3,000,000
============= ============= ============= =============
Comprehensive income (loss)
Net income (loss) $ 27,482 $ (1,977,079) $ (1,593,004) $ (4,316,017)
Change in cumulative translation
adjustment 709,175 (210,599) 1,102,203 376,741
------------- ------------- ------------- -------------
Comprehensive income (loss) $ 736,657 $ (2,187,678) $ (490,801) $ (3,939,276)
============= ============= ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-2-
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended
September 30, September 30,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
CASH FROM OPERATING ACTIVITIES
Net loss $ (1,593,004) $ (4,316,017)
Adjustments to reconcile net loss to net cash from operating activities
Depreciation 48,055 51,913
Gain on sale of installment contracts (134,043) (114,353)
Stock issued for compensation 491,200 650,000
Deferred revenue 867,206 3,343,903
Changes in operating assets and liabilities
Accounts receivable (1,637,838) (5,266,051)
Inventory 67,094 (75,228)
Refundable income taxes 189,540 (251,392)
Prepaid expenses and other 1,454 33,082
Accounts payable (30,806) 450,597
Accrued expenses (83,070) 312,190
------------- -------------
Net cash from operating activities (1,814,212) (5,181,356)
CASH FROM INVESTING ACTIVITIES
Proceeds from the sale of installment contracts 1,691,230 5,425,872
Purchase of property and equipment (3,526) (103,137)
Increase in other assets (301) (7,339)
------------- -------------
Net cash from investing activities 1,687,403 5,315,396
CASH FROM FINANCING ACTIVITIES
Borrowings under bank line of credit - 97,852
Dividends paid - (146,778)
------------- -------------
Net cash from investing activities - (48,926)
------------- -------------
Effect of exchange rate changes on cash (17,682) (8,176)
------------- -------------
Net change in cash (144,491) 76,938
Cash at beginning of period 205,772 83,660
------------- -------------
Cash at end of period $ 61,281 $ 160,598
============= =============
Supplemental disclosure of cash paid
Interest paid $ 5,972 $ 19,695
Income taxes paid - 192,589
Supplemental schedule of noncash investing and financing activities
Stock issued for acquisition of public shell - 2,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
ROYAL WATERLILY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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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.; and RayPro, B.V.) in the manufacture and direct marketing of
custom waterbeds in the Netherlands. In addition, the consolidated financial
statements includes RayFin B.V. a brother-sister company in the business of
providing financing services for the customers of the Company. Effective
December 10, 1999 the RayFin B.V.'s stockholders contributed the stock of RayFin
B.V. to the Company. The transaction was accounted for in a manner similar to a
pooling of interest.
INTERIM RESULTS: The accompanying condensed consolidated balance sheet at
September 30, 2000 and the condensed consolidated statements of operations and
cash flows for the three- and nine-month periods ended September 30, 2000 and
1999 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, 1999
financial statements and notes thereto contained in the Company's Form 10-SB
Registration Statement filed in September 2000.
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
and its ability to sell its installment sales contracts. 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 - SUBSEQUENT EVENTS
On June 1, 2000, the Company authorized and effectuated a 1 to 25 reverse stock
split of all outstanding common shares of the Company. In addition, the Company
recapitalized ownership and as a result, the Company recorded compensation
expense of $491,200 during 2000 for certain shareholders and officers whose
ownership interest increased as a result of this recapitalization. Further, on
July 18, 2000, the Company changed its name to Royal Waterlily, Inc. The
Company's calculation of loss per share has been restated to reflect the reverse
stock split and the recapitalization.
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<PAGE>
ROYAL WATERLILY, INC. AND SUBSIDIARIES
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 and nine
months ended September 30, 2000 and 1999. 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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Sales $ 711,350 $ 529,400 $ 1,571,576 $ 1,764,358
Gain on sale of installment contracts 42,683 30,993 134,043 114,353
Commission 6,234 4,638 99,543 20,805
---------- ------------ ------------ ------------
Net revenue 760,267 565,031 1,805,162 1,899,516
Costs and expenses
Material cost of sales 154,786 247,433 501,602 998,418
Sales and marketing 124,875 715,665 766,979 2,188,353
General and administrative 450,842 900,046 2,066,783 2,362,455
Depreciation and amortization 15,294 18,382 48,055 51,913
---------- ------------ ------------ ------------
745,797 1,881,526 3,383,419 5,601,139
---------- ------------ ------------ ------------
Operating income (loss) 14,470 (1,316,495) (1,578,257) (3,701,623)
Other expense (income)
Interest income (2,228) 179 (10,993) -
Interest expense (5,928) 11,253 42,030 23,196
Investment banking fees - 650,000 - 650,000
---------- ------------ ------------ ------------
(8,156) 661,432 31,037 673,196
---------- ------------ ------------ ------------
Income (loss) before taxes 22,626 (1,977,927) (1,609,294) (4,374,819)
Income taxes (benefit) (4,856) (848) (16,290) (58,802)
---------- ------------ ------------ ------------
Net income (loss) $ 27,482 $ (1,977,079) $ (1,593,004) $ (4,316,017)
========== ============ ============ ============
</TABLE>
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(Continued)
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<PAGE>
ROYAL WATERLILY, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
REVENUES: Revenues for the three months ended September 30, 2000 increased
$195,236, or 35%, to $760,267 from $565,031 for the three months ended September
30, 1999. During 2000, there was a 44% decrease in waterbed unit sales from
1999. 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 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 $35,631 in 1999 to $48,917 in 2000.
COSTS AND EXPENSES: Costs and expenses for the three months ended September 30,
2000 decreased $1,135,729, or 60%, to $745,797 from $1,881,526 for the three
months ended September 30, 1999. 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 2000 was $(5,928)
versus $11,253 in 1999. This decrease is associated with a reversal of an
interest over accrual to a related party.
NET INCOME (LOSS): Net income (loss) for the three months ended September 30,
2000 increased $1,949,597 to $27,482 compared to $1,977,927 loss reported for
the three months ended September 30, 1999. The decrease was due to the various
factors discussed above.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
REVENUES: Revenues for the nine months ended September 30, 2000 decreased
$94,354, or 5%, to $1,805,162 from $1,899,516. This decrease is attributed to a
50% decrease in waterbed unit sales. Because of the discontinuance of the
cash-back program, the Company's recorded sales revenue has increased due to the
elimination of any associated deferred revenue relating to the cash-back
program.
COSTS AND EXPENSES: Costs and expenses decreased by $2,217,720, or 40%, to
$3,383,419 from $5,601,139 for the nine months ended September 30, 1999. This
decrease is principally due to decreases in numbers of personnel, decreases in
cash-back premiums paid, and decreases in certain transportation costs. Total
amounts charged to operations for cash-back premiums amounted to $213,343 for
the nine months ended September 30, 2000 compared to $1,093,098 for the nine
months ended September 30, 1999.
NET LOSS: Net loss for the nine months ended September 30, 2000 decreased
$2,723,013, or 62%, to $1,593,004 compared to the $4,316,017 loss reported for
the nine months ended September 30, 1999. The decrease was due to various
factors discussed above.
--------------------------------------------------------------------------------
(Continued)
-6-
<PAGE>
ROYAL WATERLILY, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
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 shareholders 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 watered
after a 12.5-year period if certain conditions and restrictions are met. For the
nine months ended September 30, 2000 and 1999, we expensed $213,343 and
$1,093,098, respectively, 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 $800,086 and
$3,210,885 of revenue for the nine months ended September 30, 2000 and 1999,
respectively.
Net cash from operating activities was $(1,814,212) and $(5,181,356) for the
nine months ended September 2000 and 1999, 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 $1,687,403 and $5,315,396 for the nine
months ended September 30, 2000 and 1999, 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.
On August 6, 1999, Autocapital, Inc. exchanged 57,450 shares of its common stock
in exchange for each share of Wapro B.V. common stock. This transaction was
accounted for as a reverse merger in accordance with Accounting Principles Board
Opinion No. 16. As a result, the shareholders of Wapro B.V. retained the
majority of the outstanding stock of Autocapital, Inc. after the merger.
Autocapital, Inc. was a public shell company.
During January 1999, we established a bank line of credit of $106,045. The line
bears interest at 1.75% over the bank's prime rate and is due on demand.
Borrowings are secured by substantially all the assets of the Company and the
guarantee of certain shareholders. This line also requires the Company to
maintain certain financial covenants. As of December 31, 1999, we were in
default of one of the financial covenants.
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(Continued)
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<PAGE>
ROYAL WATERLILY, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
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.
RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1998, the Financial Accounting
Standards Board issued FAS 133, "Accounting for Derivative Instruments and
Hedging Activities." We are required to adopt FAS 133 for the year ending
December 31, 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 is expected to have no material impact on our financial position or results
of operations.
INTEREST RATE RISK: As of September 30, 2000, we have an outstanding balance of
$79,598 under a bank line of credit with interest at prime rate plus 1.75%. A
10% movement in market interest rates would not significantly impact our
financial position or results of operations.
-8-
<PAGE>
ROYAL WATERLILY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
--------------------------------------------------------------------------------
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) EXHIBITS INCLUDED HEREWITH ARE:
(27) FINANCIAL DATA SCHEDULE
(b) REPORTS ON FORM 8-K. NONE.
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: NOVEMBER 17, 2000 BY: /s/ C. A. R. BONGERS
------------------- -------------------------------
C. A. R. BONGERS
CHAIRMAN OF THE BOARD
CHIEF EXECUTIVE OFFICER
DATED: NOVEMBER 17, 2000 BY: /s/ G. J. HIETKAMP
------------------- -------------------------------
G. J. HIETKAMP
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER,
PRINCIPAL ACCOUNTING OFFICER,
SECRETARY AND DIRECTOR
