<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 28, 1997
------------------------------------------------
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)
N/A
- --------------------------------------------------------------------------------
(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 28, 1997, the registrant had 14,163,230 shares of its common
stock and 329,540 shares of its preferred stock outstanding, respectively.
<PAGE> 2
WATERMARC FOOD MANAGEMENT CO.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
December 28, 1997 and June 29, 1997 2
Condensed Consolidated Statements of Operations - 3
Thirteen Weeks Ended
December 28, 1997 and December 29, 1996
Condensed Consolidated Statements of Operations - 4
Twenty-Six Weeks Ended
December 28, 1997 and December 29, 1996
Condensed Consolidated Statements of Cash Flows - 5
Twenty-Six Weeks Ended
December 28, 1997 and December 29, 1996
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 11
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 28, 1997 JUNE 29, 1997
----------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 62,773 $ 263,542
Accounts receivable, trade 181,572 540,406
Accounts receivable from affiliates 230,079 299,518
Inventories 374,245 483,302
Prepaid expenses and other current assets 640,214 73,217
--------------- ---------------
Total current assets 1,488,883 1,659,985
Property and equipment, net 5,333,528 6,050,631
Note receivable 279,148 --
Notes and other receivables from affiliate 1,398,583 1,679,374
Intangible assets, net 6,927,286 7,213,457
Other assets 453,343 111,381
--------------- ---------------
$ 15,880,771 $ 16,714,828
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 3,838,549 $ 4,780,931
Accrued liabilities 3,227,275 2,263,821
Current portion of long-term debt 1,398,586 2,787,814
--------------- ---------------
Total current liabilities 8,464,410 9,832,566
Long-term debt, less current portion 5,962,563 4,484,539
Notes payable to stockholder 500,000 500,000
Deferred rent 577,976 577,976
Commitments and contingencies
Stockholders' equity:
Preferred stock 329,540 329,540
Common Stock 713,161 713,161
Additional paid-in capital 30,740,084 30,740,131
Accumulated deficit (31,256,963) (30,313,085)
--------------- ---------------
525,822 1,469,747
Less treasury stock, cost method (150,000) (150,000)
--------------- ---------------
Total stockholders' equity 375,822 1,319,747
$ 15,880,771 $ 16,714,828
=============== ===============
</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 28, 1997 DECEMBER 29, 1996
----------------- -----------------
<S> <C> <C>
Revenues $9,450,564 $10,464,021
---------- -----------
Costs and expenses:
Costs of revenues 2,884,301 3,133,297
Other restaurant operations 5,709,677 6,220,543
Selling, marketing and distribution 230,182 431,876
General and administrative 482,337 650,146
Depreciation and amortization 459,804 634,591
---------- -----------
Total costs and expenses 9,766,301 11,070,453
---------- -----------
Income (loss) from operations (315,737) (606,432)
Non-operating income (expense):
Interest income 30,037 27,601
Interest expense (152,835) (294,142)
Other, net 10,994 98,969
---------- -----------
Total non-operating income (expense) (111,804) (167,572)
---------- -----------
Income (loss) before income taxes (427,541) (774,004)
Income taxes -- --
---------- -----------
Net income (loss) (427,541) (774,004)
Preferred stock dividends -- 74,149
---------- -----------
Net income (loss) less preferred stock dividends ($427,541) ($848,153)
========== ===========
Net income (loss) per common share ($0.03) ($0.06)
========== ===========
Weighted average common and common equivalent
shares outstanding 14,233,560 13,433,658
========== ===========
</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 28, 1997 DECEMBER 29, 1996
----------------- -----------------
<S> <C> <C>
Revenues $20,318,635 $21,947,071
----------- -----------
Costs and expenses:
Costs of revenues 6,333,833 6,588,984
Other restaurant operations 12,747,992 12,335,172
Selling, marketing and distribution 434,834 872,640
General and administrative 1,079,332 1,356,770
Depreciation and amortization 1,021,588 1,279,505
----------- -----------
Total costs and expenses 21,617,579 22,433,071
----------- -----------
Income (loss) from operations (1,298,944) (486,000)
Non-operating income (expense):
Interest income 60,112 57,456
Interest expense (334,882) (617,909)
Other, net 629,836 291,147
----------- -----------
Total non-operating income (expense) 355,066 (269,306)
----------- -----------
Income (loss) before income taxes (943,878) (755,306)
Income taxes -- --
----------- -----------
Net income (loss) (943,878) (755,306)
Preferred stock dividends 47 148,298
----------- -----------
Net income (loss) less preferred stock dividends ($943,925) ($903,604)
=========== ===========
Net income (loss) per common share ($0.07) ($0.07)
=========== ===========
Weighted average common and common equivalent
shares outstanding 14,248,395 13,433,658
========== ===========
</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 28, 1997 DECEMBER 29, 1996
----------------- -----------------
<S> <C> <C>
Operating activities:
Net income (loss) for the period ($943,878) ($755,306)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 1,021,588 1,279,505
Changes in assets and liabilities:
Accounts receivable, trade 358,834 (160,836)
Accounts receivable from affiliates 69,439 (294,488)
Inventories 109,057 198,503
Prepaid expenses and other current assets (335,811) (541,338)
Accounts payable and accrued liabilities (512,531) 463,512
Other assets (341,962) 10,982
---------- -----------
Net cash provided by (used in) operating activities (575,264) 200,534
Investing activities:
Purchase of property and equipment (365,287) (662,030)
Proceeds from sale of assets 470,663 750,000
Collection of bad debt 453,864 --
Investment in note receivable (279,148) --
Repayment of notes receivable 5,653 --
---------- -----------
Net cash provided by (used in) investing activities 285,745 87,970
---------- -----------
Financing activities:
Net proceeds from borrowings 2,255,047 --
Cash dividends on preferred stock (46) (696)
Payments on borrowings (2,166,251) (718,753)
---------- -----------
Net cash provided by (used in) financing activities 88,750 (719,449)
---------- -----------
Net decrease in cash and cash equivalents (200,769) (430,945)
Cash and cash equivalents, beginning of period 263,542 463,166
---------- -----------
Cash and cash equivalents, end of period $62,773 $32,221
========== ===========
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
5
<PAGE> 7
WATERMARC FOOD MANAGEMENT CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Watermarc Food Management Co. (the "Company"), owns and operates 41
restaurants, primarily in the Houston Metropolitan area, under the names
"Marco's Mexican Restaurants" ("Marco's Restaurants"); "The Original Pasta
Co." ("Pasta Co."); Billy Blues Barbecue Bar & Grill ("Billy Blues"). The
Company also produces and markets two brands of barbecue sauce and a spice
rub, "Billy Blues Barbecue Sauce", "Chris' & Pitt's Bar-B-Que Sauce" and
"Chris' & Pitt's Spice Rub". They are marketed to supermarkets, other
retail stores and food service outlets.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
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 28, 1997 and December 29, 1996. 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 such periods but should not be considered
as indicative of results for a full year.
The June 29, 1997 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 $6,975,527 at December 28, 1997
and a net loss of $943,878 for the twenty-six weeks ended December 28, 1997
and experienced significant losses in fiscal 1997 which raise doubts about
the Company's ability to continue as a going concern. The Company's
continuation as a going concern in both the short-term and the long-term 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 and ultimately attain profitable operations.
For a further discussion of the Company's liquidity and capital resources,
see pages 9 and 10 hereof.
Management's plans include the following:
o Increasing revenues in existing restaurants by remodeling certain
Marco's Restaurants and by improving marketing programs and customer
service at Marco's and Pasta Co.
o 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.
o Maintaining cost controls while increasing revenues.
o Obtaining additional equity capital or debt financing.
6
<PAGE> 8
IMPACT OF NEW ACCOUNTING STANDARDS
In May 1997, the FASB issued SFAS No. 128 "Earnings Per Share" which
changes the manner in which earnings per share are calculated and
presented. The pronouncement is effective for annual and interim periods
ending after December 15, 1997.
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.
(This space intentionally left blank.)
7
<PAGE> 9
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 1998
and 1997 are to the thirteen week periods ended December 28, 1997 and
December 29, 1996 respectively. References to the first half of fiscal year
1998 and 1997 are to the twenty-six week periods ending on those same
dates.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED DECEMBER 29, 1996 COMPARED TO THE
THIRTEEN WEEKS ENDED DECEMBER 28, 1997.
REVENUES. Revenues decreased $1,013,457 or 9.7% to $9,450,564 for the
second quarter of fiscal 1998 as compared to $10,464,021 for the second
quarter of fiscal 1997. The decrease is due primarily to the sale of Pete's
Hospitality Co., Inc. and one Marco's Mexican Restaurant during fiscal 1997
and the sale of the Longhorn Cafe Downtown in the first quarter of fiscal
1998.
To counteract any decline in comparable revenues, management is currently
taking action in an attempt to increase sales, including a new training
program, an intense concentration on increasing customer satisfaction and
the implementation of a marketing program concentrating on local store
marketing and coupon targeting. However, there can be no assurance that
such actions will result in the desired sales increases. Management is also
implementing cost reduction strategies in order to decrease the impact of
any sales decline on the Company's bottom line.
COSTS AND EXPENSES. Total cost of revenues increased to 30.5% of revenues
in 1998 as compared to 29.9% of revenues in 1997. The increase is due to
increases in prices of certain high volume products used in menu item
preparation.
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 59.4% of revenues in fiscal 1997 to
60.4% of revenues in fiscal 1998 primarily due to the decline in comparable
sales and increases in minimum wage requirements.
Selling, marketing and distribution expenses decreased by $201,694
primarily due to a reduction in marketing activities during the quarter.
General and administrative expenses decreased by $167,809.
Depreciation and amortization decreased by $174,787 primarily due to the
sale of Pete's Hospitality Co., Inc., the Longhorn Cafe Downtown and one
Marco's Mexican Restaurant location.
8
<PAGE> 10
NON-OPERATING INCOME (EXPENSE). Interest expense decreased by $141,307 due
to the partial payment of the 12% Subordinated Notes.
NET INCOME (LOSS). As a result of the changes in the relationship between
revenues and costs and expenses discussed above, the Company showed net
loss of $427,541 for the second quarter of fiscal 1998 compared to net loss
of $774,004 for the second quarter of fiscal 1997. The fiscal 1998 loss is
generally due to an increase in restaurant operating costs. If such trends
continue, the Company will incur substantial losses in the future which
would have a material impact upon its cash flow.
TWENTY-SIX WEEKS ENDED DECEMBER 29, 1996 COMPARED TO THE
TWENTY-SIX WEEKS ENDED DECEMBER 28, 1997.
REVENUES. Revenues decreased $1,628,436 or 7.4% to $20,318,635 for the
first half of fiscal 1998 as compared to $21,947,071 for the first half of
fiscal 1997. The decrease is due primarily to the sale of Pete's
Hospitality Co., Inc. and one Marco's Mexican Restaurant during fiscal 1997
and the sale of the Longhorn Cafe Downtown in the first quarter of fiscal
1998.
COSTS AND EXPENSES. Total cost of revenues increased to 31.2% of revenues
in 1998 as compared to 30% of revenues in 1997. The increase is due to
increases in prices of certain high volume products used in menu item
preparation.
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 56.2% of revenues in fiscal 1997 to
62.7% of revenues in fiscal 1998 primarily due to the decline in 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 September 1997.
Selling, marketing and distribution expenses decreased by $437,806
primarily due to the reduction in marketing activities.
General and administrative expenses decreased by $277,438 primarily due to
the reorganization of corporate and management personnel.
Depreciation and amortization decreased by $257,917 primarily due to the
sale of Pete's Hospitality Co., Inc., the Longhorn Cafe Downtown and one
Marco's Mexican Restaurant location.
NON-OPERATING INCOME (EXPENSE). Interest expense decreased by $283,027 due
to the partial payment of the 12% Subordinated Notes.
NET INCOME (LOSS). As a result of the changes in the relationship between
revenues and costs and expenses discussed above, the Company reported net
loss of $943,878 for the first half of fiscal 1998 compared to net loss of
$755,306 for the first half of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Company continues to experience losses from
operations and as of December 28, 1997 has an accumulated deficit of
$31,256,963.
During the twenty-six weeks ended December 28, 1997, net cash flow used in
operating activities equaled $575,264 which resulted from reductions in
accounts payable and increases in current assets, partially offset by
depreciation and amortization added back to net income. Investing
activities generated $285,745 in cash due to the sale of fixed assets and
collection of bad debt, partially offset by purchases of property and
9
<PAGE> 11
equipment. Financing activities contributed $88,750 in cash created by
borrowing from banks and a stockholder.
For the twenty-six weeks ended December 29, 1996 net cash flow 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.
As of December 28, 1997, the Company had negative working capital of
$6,975,527, as compared to negative working capital of approximately
$8,172,581 at June 29, 1997. The decrease is due primarily to the
payment of $1,250,000 on the 12% Subordinated Notes.
CAPITAL REQUIREMENTS. 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,
refinance its debt and to ultimately attain profitable operations.
The material capital commitments of the Company for fiscal 1998 are as
follows:
o Reduction of the Company's working capital deficit, including
payments on notes, accounts payable and accrued liabilities.
o Accumulation of funds for the payment of the principal balance of
$1.25 million owed on the $3 Million 12% Subordinated Notes
originally due July 31, 1997 but extended to July 10, 1998.
o Remodeling Marco's Restaurants.
Management's plans include the following:
o Decreasing food and labor cost while increasing revenues.
o Increasing revenues in existing restaurants by remodeling certain
Marco's Mexican Restaurants and by improving marketing programs
and customer service.
o 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.
o Obtaining additional equity capital or debt financing.
The Company currently does not have positive cash flow from operations with
respect to its Marco's and Pasta Co. Restaurants. The Company can only
achieve positive cash flow from operations if it can increase its
restaurant sales and reduce its labor and operating costs. The Company
plans to supplement cash flow from operations by selling its last barbecue
restaurant, Billy Blues, and three Marco's Mexican Restaurant locations.
However, cash generated from operations may not be sufficient to meet all
of the Company's fiscal 1998 capital commitments set forth above. Without
debt refinancing or additional debt or equity financing in the short-term,
the Company will not be able to (i) reduce its current working capital
deficit, (ii) repay the $1.25 million balance of the Subordinated Notes due
July 10, 1998, or (iii) continue its remodeling efforts on the Marco's
restaurants. There is no assurance that the Company will be able to
refinance its debt or obtain additional debt or equity financing in the
short term or long-term.
10
<PAGE> 12
The Company may experience further losses or negative cash flow from
operations during the remainder of fiscal 1998. Continued losses raise
doubt about the Company's ability to continue as a going concern. The
financial statements do not reflect any adjustments that might result from
the outcome of this uncertainty. If the substantial losses continue, the
value of the Company's long-lived assets may become impaired resulting in
write-downs to such assets to their estimated fair value.
The inability of the Company to obtain substantial additional financing and
achieve profitable operations has resulted in the curtailment of the
Company's expansion activities which may continue indefinitely. Cash
generated from operations will not be sufficient to allow the Company to
timely meet its obligations and continue remodeling the Marco's Restaurants
and continue restaurant expansion. Without obtaining profitable operations
and positive cash flow from operations the Company may have to curtail its
operations, sell core assets or seek further financings on terms which may
prove unfavorable to the Company and its shareholders.
FORWARD-LOOKING INFORMATION.
Information contained in this report on Form 10-Q which are not historical
facts, contains forward-looking statements and information relating to the
Company that are based on the beliefs of the Company's management, as well
as assumptions made by, and information currently available to the
Company's management. When used in this Form 10-Q, words such as
"anticipate," "believe," "estimate," "expect," "intend," and similar
expressions, as they relate to the Company or the Company's management,
identify forward-looking statements. Such statements reflect the current
views of the Company with respect to future events, and are subject to
certain risks, uncertainties, and assumptions relating to the operations
and results of operations of the Company, competitive factors and pricing
pressures, shifts in consumer demand, the costs of products and services,
general economic conditions, and the acts of third parties, as well as
other factors described in this Form 10-Q, and, from time to time, in the
Company's periodic earnings releases and reports filed with the Securities
and Exchange Commission. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual
results or outcomes may vary materially from those described herein as
anticipated, believed, estimated, expected, or intended, or the like.
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 and Exhibit 27 required by Item 601 of Regulation S-K are
filed as part of this report.
(b) Reports on Form 8-K. None.
11
<PAGE> 13
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: 2-16-98 By: /s/ Ghulam Bombaywala
-------- ---------------------------------------------
Ghulam Bombaywala, Chairman of the Board,
Chief Executive Officer and Director (Duly
Authorized Signatory and Principal Executive
Officer and acting as Principal Financial and
Accounting Officer) (1)
(1) The principal financial and accounting officer resigned in July 1997 and
has not been replaced as of the date of this filing. Mr. Bombaywala is
signing as these positions.
12
<PAGE> 14
WATERMARC FOOD MANAGEMENT CO.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
11.1 Watermarc Food Management Co. and Subsidiaries -
Computation of Earnings (Loss) Per Common and Common
Equivalent Shares
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11.1 WATERMARC FOOD MANAGEMENT CO. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARES
<TABLE>
<CAPTION>
13 Weeks Ended
December 28, 1997 December 29, 1996
----------------- -----------------
<S> <C> <C>
Computation of primary earnings (loss) per
common and common equivalent shares:
Net earnings (loss) applicable to common stock ($427,541) ($848,153)
================= =================
Weighted average number of common shares outstanding 14,233,560 13,433,658
================= =================
Primary earnings (loss) per common share ($0.03) ($0.06)
================= =================
Computation of earnings (loss) per common share
assuming full dilution (A):
Net earnings (loss) applicable to common stock ($427,541) ($848,153)
Dividends on preferred stock -- 74,149
Interest on 9% convertible subordinated debentures 4,883 4,883
----------------- -----------------
Earnings (loss) assuming full dilution ($422,658) ($769,121)
================= =================
Weighted average number of shares outstanding 14,233,560 13,433,658
Common shares issuable from stock option plans
and from warrants 3,880,108 123,332
Less shares assumed repurchased with proceeds (14,756,569) (50,120)
Shares assumed issued upon conversion of
preferred stock 411,925 411,925
Shares assumed issued upon conversion of 9%
subordinated debentures 43,400 43,400
----------------- -----------------
Common shares outstanding assuming full dilution 3,812,424 13,962,195
================= =================
Earnings (loss) per common and common equivalent
share assuming full dilution ($0.11) ($0.06)
================= =================
</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.
<PAGE> 2
Exhibit 11.1 WATERMARC FOOD MANAGEMENT CO. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARES
<TABLE>
<CAPTION>
26 WEEKS ENDED
DECEMBER 28, 1997 DECEMBER 29, 1996
----------------- -----------------
<S> <C> <C>
Computation of primary earnings (loss) per
common and common equivalent shares:
Net earnings (loss) applicable to common stock $ (943,925) $ (903,604)
============ ============
Weighted average number of common shares outstanding 14,248,395 13,433,658
============ ============
Primary earnings (loss) per common share $ (0.07) $ (0.07)
============ ============
Computation of earnings (loss) per common share
assuming full dilution (A):
Net earnings (loss) applicable to common stock $ (943,925) $ (903,604)
Dividends on preferred stock 47 148,298
Interest on 9% convertible subordinated debentures 9,766 9,764
------------ ------------
Earnings (loss) assuming full dilution $ (934,112) $ (745,542)
============ ============
Weighted average number of shares outstanding 14,248,395 13,433,658
Common shares issuable from stock option plans
and from warrants 3,880,108 121,668
Less shares assumed repurchased with proceeds (14,756,569) (43,225)
Shares assumed issued upon conversion of
preferred stock 411,925 411,925
Shares assumed issued upon conversion of 9%
subordinated debentures 43,400 43,400
------------ ------------
Common shares outstanding assuming full dilution 3,827,259 13,967,426
============ ============
Earnings (loss) per common and common equivalent
shares assuming full dilution $ (0.24) $ (0.05)
============ ============
</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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WATERMARC
FOOD MANAGEMENT CO. FORM 10-Q FOR THE SECOND QUARTER OF FISCAL 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-28-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> DEC-28-1997
<CASH> 62,773
<SECURITIES> 0
<RECEIVABLES> 460,720
<ALLOWANCES> 0
<INVENTORY> 374,245
<CURRENT-ASSETS> 1,488,883
<PP&E> 5,333,528
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,880,771
<CURRENT-LIABILITIES> 8,464,410
<BONDS> 0
0
329,540
<COMMON> 713,161
<OTHER-SE> (666,879)
<TOTAL-LIABILITY-AND-EQUITY> 15,880,771
<SALES> 9,450,564
<TOTAL-REVENUES> 9,450,564
<CGS> 2,884,301
<TOTAL-COSTS> 9,766,301
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 152,835
<INCOME-PRETAX> (427,541)
<INCOME-TAX> 0
<INCOME-CONTINUING> (427,541)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (427,541)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.24)
</TABLE>
