<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 29, 1996
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
------------------------ -----------------------
Commission File Number: 0-20143
Watermarc Food Management Co.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 74-2605598
- --------------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
11111 Wilcrest Green, Suite 350 Houston, Texas 77042
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 783-0500
- -------------------------------------------------------------------------------
(Registrant's telephone number)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ----
As of December 29, 1996, the registrant had 13,433,658 shares of its common
stock and 329,540 shares of its preferred stock outstanding, respectively.
<PAGE> 2
WATERMARC FOOD MANAGEMENT CO.
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets - 2
December 29, 1996 and June 30, 1996
Condensed Consolidated Statements of Operations - 3
Thirteen Weeks Ended
December 29, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations - 4
Twenty-Six Weeks Ended
December 29, 1996 and December 31, 1995
Condensed Consolidated Statements of Cash Flows - 5
Twenty-Six Weeks Ended
December 29, 1996 and December 31, 1995
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 8
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
</TABLE>
1
<PAGE> 3
WATERMARC FOOD MANAGEMENT CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 29, 1996 JUNE 30, 1996
ASSETS ----------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 32,221 $ 463,166
Accounts receivable, trade 558,580 397,744
Accounts receivable from affiliates 546,928 252,440
Inventories 517,035 715,538
Prepaid expenses and other current assets 647,113 105,779
------------ ------------
Total current assets 2,301,877 1,934,667
Property and equipment, net 8,372,002 9,328,526
Notes and other receivables from affiliate 2,217,784 2,217,784
Intangible assets, net 11,789,096 12,200,047
Other assets 172,705 183,686
------------ ------------
$ 24,853,464 $ 25,864,710
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 3,621,380 $ 3,186,690
Accrued liabilities 1,878,195 1,831,055
Current portion of long-term debt and
note payable to stockholder 4,046,816 1,401,825
------------ ------------
Total current liabilities 9,546,391 6,419,570
Long-term debt, less current portion 2,834,948 5,698,692
Notes payable to stockholder 4,569,202 5,069,202
Deferred rent 417,630 435,949
Commitments and contingencies
Stockholders' equity:
Preferred stock 329,540 329,540
Common stock 671,682 671,682
Additional paid-in capital 26,639,689 26,640,385
Accumulated deficit (20,155,618) (19,400,310)
------------ ------------
Total stockholders' equity 7,485,293 8,241,297
------------ ------------
$ 24,853,464 $ 25,864,710
============ ============
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
2
<PAGE> 4
WATERMARC FOOD MANAGEMENT CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED
DECEMBER 29, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Revenues $ 10,464,021 $ 8,442,038
------------ ------------
Costs and expenses:
Costs of revenues 3,133,297 2,541,574
Other restaurant operations 6,220,543 4,398,995
Selling, marketing and distribution 431,876 359,482
General and administrative 650,146 595,346
Depreciation and amortization 634,591 462,515
------------ ------------
Total costs and expenses 11,070,453 8,357,912
------------ ------------
Income (loss) from operations (606,432) 84,126
Non-operating income (expense):
Interest income 27,601 55,149
Interest expense (294,142) (149,799)
Other, net 98,969 103,714
------------ ------------
Total non-operating income (expense) (167,572) 9,064
------------ ------------
Income (loss) before income taxes (774,004) 93,190
Income taxes -- --
------------ ------------
Net income (loss) (774,004) 93,190
Preferred stock dividends 74,149 74,149
------------ ------------
Net income (loss) less preferred stock dividends ($ 848,153) $ 19,041
============ ============
Net income (loss) per common share ($ 0.06) $ 0.00
============ ============
Weighted average common and common equivalent
shares outstanding 13,433,658 11,178,784
============ ============
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
3
<PAGE> 5
WATERMARC FOOD MANAGEMENT CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
26 WEEKS ENDED
DECEMBER 29, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Revenues $ 21,947,071 $ 17,885,372
------------ ------------
Costs and expenses:
Costs of revenues 6,588,984 5,573,950
Other restaurant operations 12,335,172 9,157,732
Selling, marketing and distribution 872,640 848,221
General and administrative 1,356,770 1,267,351
Depreciation and amortization 1,279,505 918,445
------------ ------------
Total costs and expenses 22,433,071 17,765,699
------------ ------------
Income (loss) from operations (486,000) 119,673
Non-operating income (expense):
Interest income 57,456 95,964
Interest expense (617,909) (319,374)
Other, net 291,147 278,552
------------ ------------
Total non-operating income (expense) (269,306) 55,142
------------ ------------
Income (loss) before income taxes (755,306) 174,815
Income taxes -- --
------------ ------------
Net income (loss) (755,306) 174,815
Preferred stock dividends 148,298 148,298
------------ ------------
Net income (loss) less preferred stock dividends ($ 903,604) $ 26,517
============ ============
Net income (loss) per common share ($ 0.07) $ 0.00
============ ============
Weighted average common and common equivalent
shares outstanding 13,433,658 11,145,405
============ ============
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
4
<PAGE> 6
WATERMARC FOOD MANAGEMENT CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
26 WEEKS ENDED
DECEMBER 29, 1996 DECEMBER 31, 1995
------------------ -----------------
<S> <C> <C>
Operating activities:
Net income (loss) for the period ($ 755,306) $ 174,815
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 1,279,505 918,445
Changes in assets and liabilities:
Accounts receivable, trade (160,836) (177,922)
Accounts receivable from affiliates (294,488) (238,064)
Inventories 198,503 21,360
Prepaid expenses and other current assets (541,338) (124,908)
Accounts payable and accrued liabilities 463,512 (1,008,469)
Other assets 10,982 4,383
----------- -----------
Net cash provided by (used in) operating activities 200,534 (430,360)
Investing activities:
Purchase of property and equipment (662,030) (535,189)
Proceeds from sale of equipment 750,000
Repayment of notes receivable -- 6,500
----------- -----------
Net cash provided by (used in) investing activities 87,970 (528,689)
----------- -----------
Financing activities:
Cash dividends on preferred stock (696) --
Payments on borrowings (718,753) (1,025,375)
----------- -----------
Net cash used in financing activities (719,449) (1,025,375)
----------- -----------
Net decrease in cash and cash equivalents (430,945) (1,984,424)
Cash and cash equivalents, beginning of period 463,166 2,101,729
----------- -----------
Cash and cash equivalents, end of period $ 32,221 $ 117,305
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
5
<PAGE> 7
WATERMARC FOOD MANAGEMENT CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
ORGANIZATION
Watermarc Food Management Co. (The "Company"), owns and operates 43
restaurants, primarily in the Houston Metropolitan area, under the names
"Marco's Mexican Restaurants"; "The Original Pasta Co."; "Billy Blues";
"Longhorn Cafe"; "Pete's Barbecue"; and "Hotspurs". All but the Billy
Blues restaurant are operated by wholly-owned subsidiaries of the Company.
The Company also produces and markets two brands of barbecue sauces, "Billy
Blues Barbecue Sauce" and "Chris' & Pitt's Bar-B-Que Sauce". Both are
marketed to supermarkets, other retail stores and food service outlets.
BASIS OF PRESENTATION
The accompanying unaudited financial information includes the results of
operations of the Company for the thirteen week and twenty-six week periods
ended December 29, 1996 and December 31, 1995. In the opinion of
management, the information reflects all adjustments (consisting only of
normal recurring adjustments) which are necessary for a fair presentation of
the results of operations for the periods presented but should not be
considered as indicative of results for a full year.
The June 30, 1996 condensed consolidated balance sheet data was derived
from the audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. Accordingly, the
condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements.
The accompanying financial statements have been prepared assuming the
Company will be able to continue as a going concern. The Company has a
working capital deficit of approximately $7.2 million at December 29, 1996.
The Company's continuation as a going concern is dependent upon its ability
to generate sufficient cash flow to meet its obligations on a timely basis,
to obtain additional financing or capital and to refinance its debt.
Management's plans include the following:
- Increasing revenues in existing restaurants by remodeling certain
Marco's Mexican Restaurants and by improving marketing programs and
customer service.
- Increasing revenues from the sale of food products by reinforcing
existing markets, expanding distribution to new market areas,
introducing more aggressive marketing programs, adding methods of
distribution and developing new products.
- Franchising new restaurants.
- Maintaining cost controls while increasing revenues.
- Obtaining additional equity capital or debt financing.
- Refinancing debt, primarily $3 million in Subordinated Notes due in
July of 1997.
IMPACT OF NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting
for Stock-Based Compensation" which establishes accounting and reporting
standards for stock-based employee compensation plans. Companies are
encouraged to utilize the fair-value method to measure stock based
compensation but may continue to utilize the accounting method prescribed
by APB Opinion No. 25 and disclose the pro-forma effects of the SFAS No. 123
method. The
6
<PAGE> 8
Company has decided to continue to use the accounting method prescribed by
APB Opinion No. 25 and to adopt the disclosure requirements of SFAS No. 123.
In June 1996, the FASB issued SFAS No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" which
provides standards for transfers and servicing of financial assets and
extinguishments of liabilities that are based on a "financial components"
approach that focuses on control. The pronouncement is effective for
transactions occurring after December 31, 1996.
MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of income and expenses during
the reporting periods. Actual results could differ from those estimated.
2. CONTINGENCIES:
The Company is involved in various lawsuits arising in the ordinary course
of its business, but believes that the resolution of these matters will not
have a material adverse impact on its financial position, results of
operations or cash flows.
3. BUSINESS COMBINATIONS:
Effective January 26, 1996, the Company acquired all of the outstanding
common stock of The Original Pasta Co. (Pasta Co.). The purchase price
was $6,666,667, consisting of $3,750,000 of notes and the issuance of
1,666,667 shares of the Company's common stock valued at $2,916,667. The
acquisition has been accounted for as a purchase and, accordingly, the
assets and liabilities of Pasta Co. have been recorded at their fair value
at the date of acquisition. The excess of the purchase price over the fair
value of the net assets acquired is reported as goodwill and is being
amortized over 15 years.
The statement of operations includes the results of Pasta Co. from the date
of acquisition. The following table summarizes the unaudited pro forma
results of operations of the Company as if the acquisition had occurred at
the beginning of the period presented:
13 WEEKS ENDED 26 WEEKS ENDED
-------------- --------------
DECEMBER 31, 1995 DECEMBER 31, 1995
----------------- -----------------
Revenues $10,898,485 $22,895,778
Net loss (343,197) (544,589)
Net loss per common share (.03) (.05)
4. RELATED PARTY TRANSACTIONS:
In October 1996, the Company sold equipment associated with three of its
restaurants to Ghulam Bombaywala, the majority shareholder, officer and a
director of the Company, and subsequently leased the assets back from Mr.
Bombaywala. The Company believes that the selling price of $750,000 and
the lease rate are comparable to those which could be attained from an
unrelated third party. There was no gain or loss to the Company on this
transaction.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)
7
<PAGE> 9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
INTRODUCTION
The Company utilizes a 52-53 week fiscal year which ends on the Sunday
closest to June 30. References to the second quarter of fiscal years 1997
and 1996 are to the thirteen week periods ended December 29, 1996 and
December 31, 1995 respectively. References to the first half of fiscal
year 1997 and 1996 are to the twenty-six week periods ending on those same
dates.
Effective January 26, 1996, the Company acquired The Original Pasta Co.
which operated a chain of ten restaurants (the "Pasta Co. Restaurants").
The acquisition was accounted for as a purchase, and no revenues or
expenses are reported for past periods. Cost percentages for the acquired
restaurants are similar to those of the Company's existing restaurant
operations.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED DECEMBER 31, 1995 COMPARED TO THE
THIRTEEN WEEKS ENDED DECEMBER 29, 1996.
REVENUES. Revenues increased $2,021,983 or 24.0% to $10,464,021 for the
second quarter of fiscal 1997 as compared to $8,442,038 for the second
quarter of fiscal 1996. Revenues attributable to the Pasta Co. Restaurants
were $3,242,923. Remaining revenues decreased by $1,220,940. This
decrease is due to the sale of a Longhorn Cafe restaurant during fiscal
1996, severe weather conditions in the Company's Seattle, Washington market
and a decline in comparable restaurant revenues. The decline in comparable
revenues was generally related to economic conditions in the Company's
Houston, Texas market.
To counteract the decline in comparable revenues, management has taken
action to increase sales, including stepped-up marketing and promotional
activities and restaurant remodeling. There can be no assurance that such
actions will result in the desired sales increases, although comparable
restaurant revenues have shown improvement in January of 1997.
COSTS AND EXPENSES. Total cost of revenues decreased to 29.9% of revenues
in 1997 as compared to 30.1% of revenues in 1996. The decline is due to
operational efficiencies introduced by management.
Restaurant operations include all other unit-level operating expenses,
comprised principally of labor, supplies, rent, utilities, repairs and
maintenance, and other direct expenses. As a percentage of restaurant
revenues, these costs increased from 52.1% of revenues in fiscal 1996 to
59.4% of revenues in fiscal 1997 primarily due to the decline in comparable
sales, since a number of these expenses are fixed or indirectly variable.
Labor expense also increased due to an increase in the federal minimum wage
rate in October 1996.
Selling, marketing and distribution expenses increased by $72,394 primarily
due to the acquisition of the Pasta Co. Restaurants.
General and administrative expenses increased by $54,800 primarily due to
the acquisition of the Pasta Co. Restaurants.
8
<PAGE> 11
Depreciation and amortization increased by $172,076 primarily due to the
acquisition of the Pasta Co. Restaurants.
NON-OPERATING INCOME (EXPENSE). Interest expense increased by $144,343 due
to interest accrued on notes payable associated with the acquisition of the
Pasta Co. Restaurants, partially offset by reductions in other interest
bearing debt.
NET INCOME (LOSS). As a result of the changes in the relationship between
revenues and costs and expenses discussed above, the Company reported a net
loss of $774,004 for the second quarter of fiscal 1997 compared to net
income of $93,190 for the second quarter of fiscal 1996.
TWENTY-SIX WEEKS ENDED DECEMBER 31, 1995 COMPARED TO THE
TWENTY-SIX WEEKS ENDED DECEMBER 29, 1996.
REVENUES. Revenues increased $4,061,699 or 22.7% to $21,947,071 for the
first half of fiscal 1997 as compared to $17,885,372 for the first half of
fiscal 1996. Revenues attributable to the Pasta Co. Restaurants were
$6,424,992. Remaining revenues decreased by $2,363,293. Approximately
$390,000 of this decline is due to revenues associated with a fair held in
the State of Washington. The Company participated in the fair in fiscal
1996, but not in fiscal 1997. The remainder of the decrease is due to the
sale of a Longhorn Cafe restaurant during fiscal 1996, severe weather
conditions in the Company's Seattle, Washington market and a decline in
comparable restaurant revenues. The decline in comparable revenues was
generally related to economic conditions in the Company's Houston, Texas
market.
COSTS AND EXPENSES. Total cost of revenues decreased to 30.0% of revenues
in 1997 as compared to 31.2% of revenues in 1996. The decline is due to
operational efficiencies introduced by management.
Restaurant operations include all other unit-level operating expenses,
comprised principally of labor, supplies, rent, utilities, repairs and
maintenance, and other direct expenses. As a percentage of restaurant
revenues, these costs increased from 51.2% of revenues in fiscal 1996 to
56.2% of revenues in fiscal 1997 primarily due to the decline in comparable
sales, since a number of these expenses are fixed or indirectly variable.
Labor expense also increased due to an increase in the federal minimum wage
rate in October 1996.
Selling, marketing and distribution expenses increased by $24,419 primarily
due to the acquisition of the Pasta Co. Restaurants.
General and administrative expenses increased by $89,419 primarily due to
the acquisition of the Pasta Co. Restaurants.
Depreciation and amortization increased by $361,060 primarily due to the
acquisition of the Pasta Co. Restaurants.
NON-OPERATING INCOME (EXPENSE). Interest expense increased by $298,535 due
to interest accrued on notes payable associated with the acquisition of the
Pasta Co. Restaurants, partially offset by reductions in other interest
bearing debt.
NET INCOME (LOSS). As a result of the changes in the relationship between
revenues and costs and expenses discussed above, the Company reported a net
loss of $755,306 for the first half of fiscal 1997 compared to net income
of $174,815 for the first half of fiscal 1996.
9
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Company has experienced losses from operations
and, as of December 29, 1996, has an accumulated deficit of $20,155,618.
During the twenty-six weeks ended December 29, 1996, net cash provided by
operating activities was $200,534 which resulted from depreciation and
amortization less a net loss for the period. Investing activities generated
$87,970 in cash due to the sale of fixed assets partially offset by
purchases of property and equipment. Financing activities utilized $719,449
in cash due to payments on borrowings.
For the twenty-six weeks ended December 31, 1995, net cash used in
operating activities was $430,360 due primarily to a reduction in current
liabilities. Investing activities utilized $528,689 primarily due to the
purchase of property and equipment. Financing activities utilized
$1,025,375 in cash due to payments on borrowings.
As of December 29, 1996, the Company had negative working capital of
$7,244,514, as compared to negative working capital of $4,484,903 at June
30, 1996. The increase is due primarily to $3 million in Subordinated
Notes being classified as a current liability as of December 29, 1996.
CAPITAL REQUIREMENTS. The Company renegotiated the payment terms of its $3
million 12% Subordinated Notes which were due on March 31, 1996. Principal
is now due on July 31, 1997. The material capital commitments of the
Company over the coming year are related to:
- Expansion of Marco's and Pasta Co. Restaurants.
- Remodeling of certain Marco's Restaurants.
- Reduction of the Company's working capital deficit, including payments
on notes, accounts payable and accrued liabilities.
- Refinancing the Subordinated Notes.
Plans for fiscal 1997 include opening one new Marco's Restaurant and four
additional Pasta Co. Restaurants, two of which have already been opened.
Both Marco's and Pasta Co. Restaurants require an initial capital
investment of approximately $400,000, or a total investment of
approximately $2 million to open five restaurants. The Company intends to
finance these expenditures either through cash flow from operations or from
additional outside financing. There is no assurance that such funds will
be available on a timely basis, especially considering the Company's
upcoming debt service requirements. The actual number of new restaurants
opened will depend upon the availability of capital.
The Company expects to achieve positive cash flow from operations in fiscal
1997, principally from its Marco's and Pasta Co. Restaurants. However,
cash generated from operations will not be sufficient to meet all of the
commitments set forth above. Without additional debt or equity financing
in the short-term, the Company may not be able to (i) repay the $3 million
in 12% Subordinated Notes due July 31, 1997, (ii) meet its targeted
expansion goals, and (iii) reduce its current working capital deficit. If
additional financing is not available, the Company may be forced to curtail
its expansion efforts.
FORWARD LOOKING INFORMATION
The statements contained in this report on Form 10-Q which are not
historical facts, including, but not limited to, statements found under the
caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations", are based on current expectations that involve a
number of risks and uncertainties. The Company cannot provide any
assurance that these expectations will actually be met. The factors that
could cause actual results to differ materially from those described in the
forward-looking statements include, but are not limited to, the following:
changes in general economic and financial conditions within the markets
that the
10
<PAGE> 13
Company serves; changes in the political and/or regulatory environments in
which the Company operates; changes in consumer demand for the Company's
products and services; competitive factors; and other risk factors described
from time to time in the Company's Securities and Exchange Commission
filings. The actual results of the future events described in such
forward-looking statements in this Form 10-Q could differ materially from
those contemplated by such forward-looking statements. The Company does not
undertake, and specifically disclaims any obligation, to publicly release
the results of any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated
events.
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 11.1 required by Item 601 of Regulation S-K is filed as part
of this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
WATERMARC FOOD MANAGEMENT CO.
Date: 02/14/97 By: /s/ Thomas J. Buckley
------------------------ ----------------------------------
Thomas J. Buckley
Chief Financial Officer (Duly
Authorized Signatory and
Principal Financial &
Accounting Officer)
11
<PAGE> 14
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
11.1. Watermarc Food Management Co. and Subsidiaries -
Computation of Earnings (Loss) Per Common and Common
Equivalent Shares
27 Financial Data Schedule
<PAGE> 1
WATERMARC FOOD MANAGEMENT CO. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARES
<TABLE>
<CAPTION>
13 WEEKS ENDED
-----------------------------------
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Computation of primary earnings (loss) per common and common equivalent shares:
Net earnings (loss) applicable to common stock ($ 848,153) $ 19,041
============ ============
Weighted average number of common shares outstanding 13,433,658 11,178,784
============ ============
Primary earnings (loss) per common share ($ 0.06) $ 0.00
============ ============
Computation of earnings (loss) per common share assuming full dilution (A):
Net earnings (loss) applicable to common stock ($ 848,153) $ 19,041
Dividends on preferred stock 74,149 74,149
Interest on 9% convertible subordinated debentures 4,883 4,882
------------ ------------
Earnings (loss) assuming full dilution ($ 769,121) $ 98,072
============ ============
Weighted average number of shares outstanding 13,433,658 11,178,784
Common shares issuable from stock option plans
and from warrants 123,332 0
Less shares assumed repurchased with proceeds (50,120) 0
Shares assumed issued upon conversion of
preferred stock 411,925 411,925
Shares assumed issued upon conversion of 9%
subordinated debentures 43,400 42,200
------------ ------------
Common shares outstanding assuming full dilution 13,982,195 11,632,909
============ ============
Earnings (loss) per common and common equivalent
share assuming full dilution ($ 0.06) $ 0.01
============ ============
</TABLE>
(A) This calculation is submitted in accordance with the Securities and
Exchange Act of 1934, Release No. 9083, although it is contrary to
paragraph 40 of APB Opinion No. 15 because it produced an anti-dilutive
result.
12
<PAGE> 2
WATERMARC FOOD MANAGEMENT CO. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARES
<TABLE>
<CAPTION>
26 WEEKS ENDED
DECEMBER 29, 1996 DECEMBER 31, 1995
--------------------- ---------------------
<S> <C> <C>
Computation of primary earnings (loss) per common and common equivalent shares:
Net earnings (loss) applicable to common stock ($ 903,604) $ 26,517
============ ============
Weighted average number of common shares outstanding 13,433,658 11,145,405
============ ============
Primary earnings (loss) per common share ($ 0.07) $ 0.00
============ ============
Computation of earnings (loss) per common share assuming full dilution (A):
Net earnings (loss) applicable to common stock ($ 903,604) $ 26,517
Dividends on preferred stock 148,298 148,298
Interest on 9% convertible subordinated debentures 9,764 9,764
------------ ------------
Earnings (loss) assuming full dilution ($ 745,542) $ 184,579
============ ============
Weighted average number of shares outstanding 13,433,658 11,145,405
Common shares issuable from stock option plans
and from warrants 121,668 0
Less shares assumed repurchased with proceeds (43,225) 0
Shares assumed issued upon conversion of
preferred stock 411,925 411,925
Shares assumed issued upon conversion of 9%
subordinated debentures 43,400 42,200
------------ ------------
Common shares outstanding assuming full dilution 13,967,426 11,599,530
============ ============
Earnings (loss) per common and common equivalent
share assuming full dilution ($ 0.05) $ 0.02
============ ============
</TABLE>
(A) This calculation is submitted in accordance with the Securities and
Exchange Act of 1934, Release No. 9083, although it is contrary to
paragraph 40 of APB Opinion No. 15 because it produced an anti-dilutive
result.
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
WATERMARC FOOD MANAGEMENT CO. 10-Q FOR SECOND QUARTER OF FISCAL 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-Q REPORT
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-29-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 32,221
<SECURITIES> 0
<RECEIVABLES> 1,105,508
<ALLOWANCES> 0
<INVENTORY> 517,035
<CURRENT-ASSETS> 2,301,877
<PP&E> 8,372,002
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,853,464
<CURRENT-LIABILITIES> 9,546,391
<BONDS> 0
0
329,540
<COMMON> 671,682
<OTHER-SE> 6,484,071
<TOTAL-LIABILITY-AND-EQUITY> 24,853,464
<SALES> 10,464,021
<TOTAL-REVENUES> 10,464,021
<CGS> 3,133,297
<TOTAL-COSTS> 11,070,453
<OTHER-EXPENSES> 167,572
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 294,142
<INCOME-PRETAX> (774,004)
<INCOME-TAX> 0
<INCOME-CONTINUING> (774,004)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (774,004)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
