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