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 MARCH 29, 1998
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 March 29, 1998, the registrant had 23,782,664 shares of its common stock
and 329,540 shares of its preferred stock outstanding, respectively.
<PAGE>
WATERMARC FOOD MANAGEMENT CO.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
March 29, 1998 and June 29, 1997 2
Condensed Consolidated Statements of Operations - 3
Thirteen Weeks Ended
March 29, 1998 and March 30, 1997
Condensed Consolidated Statements of Operations - 4
Thirty-Nine Weeks Ended
March 29, 1998 and March 30, 1997
Condensed Consolidated Statements of Cash Flows - 5
Thirty-Nine Weeks Ended
March 29, 1998 and March 30, 1997
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1
<PAGE>
WATERMARC FOOD MANAGEMENT CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 29, 1998 JUNE 29, 1997
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $197,630 $263,542
Accounts receivable, trade 249,163 540,406
Accounts receivable from affiliates 267,341 299,518
Inventories 370,080 483,302
Prepaid expenses and other current assets 887,248 73,217
-------------- --------------
Total current assets 1,971,462 1,659,985
Property and equipment, net 5,068,130 6,050,631
Notes and other receivables from affiliate 1,398,583 1,679,374
Intangible assets, net 6,784,150 7,213,457
Other assets 561,349 111,381
-------------- --------------
$15,783,674 $16,714,828
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $3,340,040 $4,780,931
Accrued liabilities 3,570,058 2,263,821
Current portion of long-term debt 1,440,308 2,787,814
-------------- --------------
Total current liabilities 8,350,406 9,832,566
Long-term debt, less current portion 6,823,904 4,984,539
Deferred rent 581,092 577,976
Commitments and contingencies
Stockholders' equity:
Preferred stock 329,540 329,540
Common stock 713,161 713,161
Additional paid-in capital 30,740,048 30,740,131
Accumulated deficit (31,604,475) (30,313,085)
-------------- --------------
178,274 1,469,747
Less treasury stock, cost method (150,000) (150,000)
-------------- --------------
Total stockholders' equity 28,274 1,319,747
$15,783,675 $16,714,828
============== ==============
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
2
<PAGE>
WATERMARC FOOD MANAGEMENT CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED
MARCH 29, 1998 MARCH 30, 1997
----------------- ------------------
<S> <C> <C>
Revenues $10,138,939 $11,427,721
----------------- ------------------
Costs and expenses:
Costs of revenues 3,113,061 3,668,951
Other restaurant operations 5,886,128 7,548,932
Selling, marketing and distribution 224,684 516,590
General and administrative 514,688 770,228
Depreciation and amortization 496,686 648,949
----------------- ------------------
Total costs and expenses 10,235,247 13,153,650
----------------- ------------------
Income (loss) from operations (96,308) (1,725,929)
Non-operating income (expense):
Interest income 30,037 30,038
Interest expense (296,971) (327,331)
Other, net 15,730 28,293
----------------- ------------------
Total non-operating income (expense) (251,204) (269,000)
----------------- ------------------
Income (loss) before income taxes (347,512) (1,994,929)
Income taxes - -
----------------- ------------------
Net income (loss) (347,512) (1,994,929)
Preferred stock dividends 36 74,732
----------------- ------------------
Net income (loss) less preferred stock dividends ($347,548) ($2,069,661)
================= ==================
Net income (loss) per common share ($0.02) ($0.15)
================= ==================
Weighted average common and common equivalent
shares outstanding 16,449,301 13,631,750
================= ==================
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
3
<PAGE>
WATERMARC FOOD MANAGEMENT CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
39 WEEKS ENDED
MARCH 29, 1998 MARCH 30, 1997
---------------------------------
<S> <C> <C>
Revenues $30,457,572 $33,374,792
-------------- --------------
Costs and expenses:
Costs of revenues 9,446,898 10,257,935
Other restaurant operations 18,324,490 19,884,104
Selling, marketing and distribution 664,127 1,389,230
General and administrative 1,896,077 2,126,998
Depreciation and amortization 1,518,271 1,928,454
-------------- --------------
Total costs and expenses 31,849,863 35,586,721
-------------- --------------
Income (loss) from operations (1,392,291) (2,211,929)
Non-operating income (expense):
Interest income 90,149 87,494
Interest expense (631,853) (945,240)
Other, net 642,605 319,440
-------------- --------------
Total non-operating income (expense) 100,901 (538,306)
-------------- --------------
Income (loss) before income taxes (1,291,390) (2,750,235)
Income taxes - -
-------------- --------------
Net income (loss) (1,291,390) (2,750,235)
Preferred stock dividends 83 222,447
-------------- --------------
Net income (loss) less preferred stock dividends ($1,291,473) ($2,972,682)
============== ==============
Net income (loss) per common share ($0.09) ($0.22)
============== ==============
Weighted average common and common equivalent
shares outstanding 14,982,030 13,499,689
============== ==============
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
4
<PAGE>
WATERMARC FOOD MANAGEMENT CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
39 WEEKS ENDED
MARCH 29, 1998 MARCH 30, 1997
------------------- -----------------
<S> <C> <C>
Operating activities:
Net income (loss) for the period ($1,291,426) ($2,750,235)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 1,518,271 1,928,454
Changes in assets and liabilities:
Accounts receivable, trade 291,243 (124,846)
Accounts receivable from affiliates 32,177 (169,030)
Inventories 113,222 207,577
Prepaid expenses and other current assets (814,031) (410,005)
Accounts payable and accrued liabilities (134,654) 1,760,998
Other assets (449,968) 6,600
------------------- ------------------
Net cash provided by (used in) operating activities (735,166) 449,513
Investing activities:
Purchase of property and equipment (473,555) (1,038,363)
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 177,477 (288,363)
------------------- ------------------
Financing activities:
Net proceeds from borrowings 4,281,099 598,365
Purchase of treasury stock - (150,000)
Cash dividends on preferred stock (82) (696)
Payments on borrowings (3,789,240) (1,015,179)
------------------- ------------------
Net cash provided by (used in) financing activities 491,777 (567,510)
------------------- ------------------
Net (decrease) increase in cash and cash equivalents (65,912) (406,360)
Cash and cash equivalents, beginning of period 263,542 463,166
------------------- ------------------
Cash and cash equivalents, end of period $197,630 $56,806
=================== ==================
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
5
<PAGE>
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 40
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 thirty-nine week periods
ended March 29, 1998 and March 30, 1997. 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 $6,378,944 at March 29, 1998 and a net loss
of $1,291,390 for the thirty-nine weeks ended March 29, 1998 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>
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.
3. ISSUANCE OF COMMON STOCK:
In January of 1998, the Company issued 2,119,434 shares of common stock as
payment of a dividend to Preferred Stockholders.
In March of 1998, the Company issued 7,500,000 shares of common stock to
Ghulam Bombaywala, the majority shareholder, officer and a director of the
Company pursuant to the Conversion and Offset Agreement entered into on May
15, 1997 between the Company and Mr. Bombaywala, whereby Mr. Bombaywala
converted $3,750,000 of debt owed to him by the Company into the right to
receive 7,500,000 shares of the Company's common stock at a later date when
the Company had a sufficient number of authorized shares.
On January 23, 1998, the Company's shareholders voted to increase the
authorized shares of common stock to 100,000,000 shares, which allowed the
Company to issue Mr. Bombaywala the 7,500,000 shares.
7
<PAGE>
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 third quarter of fiscal years 1998 and
1997 are to the thirteen week periods ended March 29, 1998 and March 30, 1997
respectively. References to the first half of fiscal year 1998 and 1997 are
to the thirty-nine week periods ending on those same dates.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED MARCH 30, 1997 COMPARED TO THE
THIRTEEN WEEKS ENDED MARCH 29, 1998.
REVENUES. Revenues decreased $1,288,782 or 11.3% to $10,138,939 for the third
quarter of fiscal 1998 as compared to $11,427,721 for the third 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 and the
closing of one Marco's Mexican Restaurant in the third 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 decreased to 30.7% of revenues in
1998 as compared to 32.1% of revenues in 1997. The decrease is due to lower
prices in the third quarter of certain high volume products used in menu item
preparation and management's continuing effort to implement cost controls.
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 decreased from 66.1% of revenues in fiscal 1997 to 58%
of revenues in fiscal 1998 primarily due to management's continuing efforts
to control cost.
Selling, marketing and distribution expenses decreased by $291,906 primarily
due to a reduction in marketing activities during the quarter.
General and administrative expenses decreased by $255,540.
Depreciation and amortization decreased by $152,263 primarily due to the sale
of Pete's Hospitality Co., Inc., the Longhorn Cafe Downtown and one Marco's
Mexican Restaurant location.
8
<PAGE>
NON-OPERATING INCOME (EXPENSE). Interest expense decreased by $30,360 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 $347,512 for the third quarter of fiscal 1998 compared to net loss of
$1,994,929 for the third 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.
THIRTY-NINE WEEKS ENDED MARCH 30, 1997 COMPARED TO THE
THIRTY-NINE WEEKS ENDED MARCH 29, 1998.
REVENUES. Revenues decreased $2,917,220 or 8.7% to $30,457,572 for the first
three quarters of fiscal 1998 as compared to $33,374,792 for the first three
quarters 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 and the closing of one Marco's Mexican Restaurant in February, 1998.
COSTS AND EXPENSES. Total cost of revenues increased to 31% of revenues in
1998 as compared to 30.7% 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 59.6% of revenues in fiscal 1997 to
60.2% 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 $725,103 primarily
due to the reduction in marketing activities.
General and administrative expenses decreased by $230,921 primarily due to
the reorganization of corporate and management personnel.
Depreciation and amortization decreased by $410,183 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 $313,387 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 $1,291,390 for the first three quarters of fiscal 1998 compared to
net loss of $2,750,235 for the first three quarters of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Company continues to experience losses from
operations and as of March 29, 1998 has an accumulated deficit of
$31,604,475.
During the thirty-nine weeks ended March 29, 1998, net cash flow used in
operating activities equaled $735,166 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 $177,477 in cash due to the sale of fixed assets and collection of
bad debt, partially offset by purchases of property and
9
<PAGE>
equipment. Financing activities contributed $491,777 in cash created by
borrowing from banks and a stockholder.
For the thirty-nine weeks ended March 30, 1997 net cash flow provided by
operating activities was $449,513 which resulted from an increase in accounts
payable and accrued liabilities offset by a net loss less non-cash expenses.
Investing activities used $288,363 in cash due to purchases of property and
equipment partially offset by the sale of fixed assets. Financing activities
utilized $567,510 in cash due to payments on borrowings and the purchase of
treasury stock partially offset by new borrowings.
As of March 29, 1998, the Company had negative working capital of $6,378,944
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. The Company can only
achieve positive cash flow 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>
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 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 23, 1998 the Annual Meeting of the shareholders of the Company
was held. The matters which were voted upon at the meeting were as follows:
Proposal No. 1: To amend the Restated Articles of Incorporation of the
Company to increase the number of authorized shares of Common
Stock, $0.05 par value, from 20,000,000 to 100,000,000.
NUMBER OF VOTES
FOR AGAINST ABSTAIN WITHHELD BROKER NON-VOTE
- --------- ------- ------- -------- ---------------
8,531,423 559,267 37,535 N/A 4,085,254
11
<PAGE>
Proposal No. 2: Election of Directors.
NUMBER OF VOTES
BROKER
FOR AGAINST ABSTAIN WITHHELD NON-VOTE
---------- ------- ------- -------- --------
Ghulam Bombaywala 13,109,786 N/A N/A 103,693 -0-
Sarosh Collector 13,109,786 N/A N/A 103,693 -0-
Philip Mount 13,104,786 N/A N/A 108,693 -0-
Nico Letschert 13,083,756 N/A N/A 129,723 -0-
Michael Chadwick 13,109,986 N/A N/A 103,493 -0-
Proposal No. 3: Approval of the selection by the Board of Directors of the
Company of Mann Frankfort Stein & Lipp, P.C. as independent
public accountants for the current fiscal year.
NUMBER OF VOTES
FOR AGAINST ABSTAIN WITHHELD BROKER NON-VOTE
- ---------- ------- ------- -------- ---------------
12,942,017 187,630 73,832 N/A -0-
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 3, 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.
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: 5/13/98 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>
WATERMARC FOOD MANAGEMENT CO.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
3 Articles of Amendment to the Restated Articles of
Incorporation of Watermerc Food Management Co.
11.1 Watermarc Food Management Co. and Subsidiaries -
Computation of Earnings (Loss) Per Common and Common
Equivalent Shares
27 Financial Data Schedule
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
WATERMARC FOOD MANAGEMENT CO.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, Watermarc Food Management Co., the undersigned corporation (the
"Corporation") adopts the following Articles of Amendment to its Restated
Articles of Incorporation:
ARTICLE ONE
AMENDMENT
The following amendment to the Restated Articles of Incorporation of the
Corporation was adopted by the Shareholders of the Corporation on January 23,
1998, in order to provide for the issuance of additional shares of common stock.
Article Four, Section 1 of the Restated Articles of Incorporation of the
Corporation is hereby amended to read in its entirety as follows:
ARTICLE FOUR
CAPITALIZATION, PREEMPTIVE RIGHTS AND VOTING
Section 1. Authorized Shares. The Corporation shall have authority to issue
two classes of shares to be designated respectively "Common Stock" and
"Preferred Stock". The total number of shares which the Corporation is
authorized to issue is ONE HUNDRED FIVE MILLION (105,000,000) shares of which
ONE HUNDRED MILLION (100,000,000) shall be Common Stock and FIVE MILLION
(5,000,000) shall be Preferred Stock. Each share of Common Stock shall have a
par value of FIVE CENTS ($.05), and each share of Preferred Stock shall have a
par value of ONE DOLLAR ($1.00).
ARTICLE TWO
OUTSTANDING SHARES
The number of shares of the Corporation outstanding at the time of such
adoption was 14,163,230 shares of Common Stock, $.05 par value per share; and
the number of shares of Common Stock entitled to vote thereon was 14,163,230.
ARTICLE THREE
VOTE
The number of shares voted for and against such amendment was as follows:
For Against
--- -------
Authorized Shares 8,531,423 559,267
EXECUTED this 30th day of January, 1998.
WATERMARC FOOD MANAGEMENT CO.
By:/s/ Ghulam M. Bombaywala
Ghulum M. Bombaywala,
Chief Executive Officer
EXHIBIT 11.1
WATERMARC FOOD MANAGEMENT CO. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARES
<TABLE>
<CAPTION>
13 WEEKS ENDED
MARCH 29, 1998 MARCH 30, 1997
-----------------------------------
<S> <C>
Computation of primary earnings (loss) per
common and common equivalent shares:
Net earnings (loss) applicable to common stock ($347,548) ($2,069,661)
=============== ==============
Weighted average number of common shares outstanding 16,449,301 13,631,750
=============== ==============
Primary earnings (loss) per common share ($0.02) ($0.15)
=============== ==============
Computation of earnings (loss) per common share
assuming full dilution (A):
Net earnings (loss) applicable to common stock ($347,548) ($2,069,661)
Dividends on preferred stock 36 74,732
Interest on 9% convertible subordinated debentures 4,883 4,882
--------------- --------------
Earnings (loss) assuming full dilution ($342,629) ($1,990,047)
=============== ==============
Weighted average number of shares outstanding 16,449,301 13,631,750
Common shares issuable from stock option plans
and from warrants 3,591,058 0
Less shares assumed repurchased with proceeds (12,833) 0
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 20,482,851 14,087,075
=============== ==============
Earnings (loss) per common and common equivalent
share assuming full dilution ($0.02) ($0.14)
=============== ==============
</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>
WATERMARC FOOD MANAGEMENT CO. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARES
<TABLE>
<CAPTION>
39 WEEKS ENDED
MARCH 29, 1998 MARCH 30, 1997
-------------- --------------
<S> <C>
Computation of primary earnings (loss) per
common and common equivalent shares:
Net earnings (loss) applicable to common stock ($1,291,473) ($2,972,682)
============== ==============
Weighted average number of common shares outstanding 14,982,030 13,499,689
============== ==============
Primary earnings (loss) per common share ($0.09) ($0.22)
============== ==============
Computation of earnings (loss) per common share
assuming full dilution (A):
Net earnings (loss) applicable to common stock ($1,291,473) ($2,972,682)
Dividends on preferred stock 83 222,447
Interest on 9% convertible subordinated debentures 14,649 14,646
-------------- --------------
Earnings (loss) assuming full dilution ($1,276,741) ($2,735,589)
============== ==============
Weighted average number of shares outstanding 14,982,030 13,499,689
Common shares issuable from stock option plans
and from warrants 3,591,058 0
Less shares assumed repurchased with proceeds (12,833) 0
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 19,015,580 13,955,014
============== ==============
Earnings (loss) per common and common equivalent
share assuming full dilution ($0.67) ($0.20)
============== ==============
</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>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM WATERMARC FOOD MANAGEMENT CO. FORM 10-Q FOR THE THIRD QUARTER OF FISCAL
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-28-1998
<PERIOD-END> MAR-29-1998
<CASH> 197,630
<SECURITIES> 0
<RECEIVABLES> 249,163
<ALLOWANCES> 0
<INVENTORY> 370,080
<CURRENT-ASSETS> 1,971,462
<PP&E> 5,068,130
<DEPRECIATION> 496,686
<TOTAL-ASSETS> 15,783,674
<CURRENT-LIABILITIES> 8,350,406
<BONDS> 0
0
329,540
<COMMON> 713,161
<OTHER-SE> (1,014,427)
<TOTAL-LIABILITY-AND-EQUITY> 15,783,675
<SALES> 10,138,939
<TOTAL-REVENUES> 10,138,939
<CGS> 3,113,061
<TOTAL-COSTS> 10,235,247
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 296,971
<INCOME-PRETAX> (347,512)
<INCOME-TAX> 0
<INCOME-CONTINUING> (347,512)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (347,512)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
