<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