<PAGE>
 
                                 UNITED STATES

                      SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, DC 20549

                                   FORM 10-Q


(MARK ONE)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934


                FOR THE QUARTERLY PERIOD ENDED OCTOBER 4, 1998


                                      OR


[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934


            FOR THE TRANSITION PERIOD FROM __________ TO __________


                        COMMISSION FILE NUMBER 0-22802


                             BOSTON CHICKEN, INC.

            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                    DELAWARE                         36-3904053
        (State or other jurisdiction of             (IRS Employer
         incorporation or organization)           Identification No.)


                           14123 Denver West Parkway
                               Golden, CO 80401
         (Address of principal executive offices, including zip code)


                                (303) 278-9500
             (Registrant's telephone number, including area code)


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  _____
                            -------           

Number of shares of common stock, $.01 par value per share, outstanding as of
November 17, 1998:  77,130,853


                    APPLICABLE ONLY TO ISSUERS INVOLVED IN
            BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.


                       Yes  _____    No     X
                                         -------
<PAGE>
 
                             BOSTON CHICKEN, INC.
               (DEBTOR-IN-POSSESSION EFFECTIVE OCTOBER 5, 1998)


                                     INDEX

<TABLE>
<CAPTION>
                                                                                                    Page No.
                                                                                                    -------
<S>                                                                                                 <C>
PART I.   FINANCIAL INFORMATION

          Item 1.     Financial Statements

                      Consolidated Balance Sheets as of December 28, 1997 and
                      October 4, 1998.........................................................         3

                      Consolidated Statements of Operations for the quarter and
                      three quarters ended October 5, 1997 and October 4, 1998................         4

                      Consolidated Statements of Cash Flows for the three quarters
                      ended October 5, 1997 and October 4, 1998...............................         5

                      Notes to Consolidated Financial Statements..............................         6

          Item 2.     Management's Discussion and Analysis of Financial
                      Condition and Results of Operations.....................................        15

PART II.  OTHER INFORMATION

          Item 1.     Legal Proceedings.......................................................        23

          Item 2.     Changes in Securities...................................................        23

          Item 6.     Exhibits and Reports on Form 8-K........................................        23

          Signature Page......................................................................        25

          Exhibit Index.......................................................................        26
</TABLE>

                                       2
<PAGE>
 
                     BOSTON CHICKEN, INC. AND SUBSIDIARIES
                (DEBTOR-IN-POSSESSION EFFECTIVE OCTOBER 5, 1998)

                          CONSOLIDATED BALANCE SHEETS
                       (in thousands, except share data)

<TABLE>
<CAPTION>
 
                                                                     December 28,   October 4,
                                                                         1997          1998
                                                                     -------------  -----------
                                                                                    (unaudited)
<S>                                                                  <C>            <C>
ASSETS
------
Current Assets:
  Cash and cash equivalents........................................    $   90,559   $   16,852
  Accounts receivable, net.........................................        13,894        3,793
  Inventories......................................................        16,132       25,053
  Prepaid expenses and other current assets........................         1,436        7,945
                                                                       ----------   ----------
     Total current assets..........................................       122,021       53,643
Property and Equipment, net........................................       530,582      648,247
Notes Receivable, net..............................................       609,175       33,622
Deferred Financing Costs, net......................................        24,570       19,706
Goodwill, net......................................................       639,364      894,757
Other Assets, net..................................................        77,062       59,384
                                                                       ----------   ----------
     Total assets..................................................    $2,002,774   $1,709,359
                                                                       ==========   ==========
 
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
  Accounts payable.................................................    $   33,205   $   23,326
  Accrued expenses.................................................        85,207      163,352
  Other current liabilities........................................        14,119       11,266
  Secured debt obligation..........................................            --      166,437
  Senior Secured Revolver-Boston Chicken, Inc......................            --       87,300
                                                                       ----------   ----------
     Total current liabilities.....................................       132,531      451,681
Deferred Franchise Revenue.........................................         5,723           --
Convertible Subordinated Debt-Boston Chicken, Inc..................       417,020      417,020
Convertible Subordinated Debt - Einstein/Noah Bagel Corp...........       125,000      125,000
Liquid Yield Option Notes..........................................       197,442      209,704
Senior Debt-Einstein/Noah Bagel Corp...............................        24,000       20,700
Other Noncurrent Liabilities.......................................        44,753       57,607
Minority Interests.................................................       253,630      243,721
Commitments and Contingencies (Note 8)
Redeemable Preferred Stock.........................................            --       83,373
Stockholders' Equity:
  Preferred Stock - $.01 par value; 20,000,000 shares authorized;
     no shares issued and outstanding..............................            --           --
  Common Stock - $.01 par value; 480,000,000 shares authorized;
     issued: 71,400,179 shares in December and
     77,130,853 shares in October..................................           714          771
  Additional paid-in capital.......................................       918,266      941,117
  Accumulated deficit..............................................      (116,305)    (841,335)
                                                                       ----------   ----------
     Total stockholders' equity....................................       802,675      100,553
                                                                       ----------   ----------
       Total liabilities and stockholders' equity..................    $2,002,774   $1,709,359
                                                                       ==========   ==========
</TABLE>

The accompanying notes to the consolidated financial statements are an integral
                           part of these statements.

                                       3
<PAGE>
 
                     BOSTON CHICKEN, INC. AND SUBSIDIARIES
               (DEBTOR-IN-POSSESSION EFFECTIVE OCTOBER 5, 1998)

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                   Quarter Ended          Three Quarters Ended
                                              ------------------------  ------------------------
                                              October 5,   October 4,   October 5,   October 4,
                                                 1997         1998         1997         1998
                                              -----------  -----------  -----------  -----------
<S>                                           <C>          <C>          <C>          <C>
Revenue:
  Company stores............................    $ 57,804    $ 260,885     $165,982   $  635,397
  Royalties and franchise related fees......      28,999          146      107,749        4,833
  Interest income...........................      24,023           --       70,455        3,221
                                                --------    ---------     --------   ----------
   Total revenue............................     110,826      261,031      344,186      643,451
Costs and Expenses:
  Store operations:
   Food and paper...........................      21,156       90,065       61,371      221,739
   Labor....................................      14,877       77,098       41,639      187,524
   Other controllable costs.................       5,761       24,160       15,756       60,667
   Rent, occupancy and related costs........       5,911       30,523       14,026       69,771
   Contractual and discretionary marketing..       5,853       18,805       15,111       39,961
General and Administrative..................      14,218      255,515       47,895      376,379
Reorganization..............................          --        5,074           --        5,074
Depreciation and amortization
   (excluding goodwill amortization)........       9,830       16,193       25,624       45,743
Goodwill amortization.......................       1,661        6,184        5,338       16,877
Provision for loan losses...................          --       25,500           --      237,500
Losses of Boston Chicken Inc.'s
  area developers...........................          --          298           --       93,635
                                                --------    ---------     --------   ----------
   Total costs and expenses.................      79,267      549,415      226,760    1,354,870
                                                --------    ---------     --------   ----------
Income (Loss) from Operations...............      31,559     (288,384)     117,426     (711,419)
Other Income (Expense):
  Interest expense, net.....................     (10,782)     (18,258)     (27,322)     (48,950)
  Gain (loss) on issuances of
    subsidiary's stock......................        (130)          --          (48)         (17)
  Other income (expense), net...............         (43)         (95)       1,598       (3,025)
                                                --------    ---------     --------   ----------
    Total other income (expense)............     (10,955)     (18,353)     (25,772)     (51,992)
                                                --------    ---------     --------   ----------
Income (Loss) before Income Taxes and
  Minority Interest.........................      20,604     (306,737)      91,654     (763,411)
Income Taxes................................      10,257           --       38,199           --
Minority Interest in (Earnings) Loss
  of Subsidiaries...........................         617       18,758       (3,805)      38,382
                                                --------    ---------     --------   ----------
Net Income (Loss)...........................      10,964     (287,979)      49,650     (725,029)
Preferred Dividends.........................          --       (2,822)          --       (2,822)
                                                --------    ---------     --------   ----------
Net Income (Loss) Available to Common
  Stockholders..............................    $ 10,964    $(290,801)    $ 49,650   $ (727,851)
                                                ========    =========     ========   ==========
Basic Earnings (Loss) per Common Share......    $   0.16    $   (3.79)    $   0.75   $    (9.93)
                                                ========    =========     ========   ==========
Diluted Earnings (Loss) per Common Share....    $   0.16    $   (3.79)    $   0.72   $    (9.93)
                                                ========    =========     ========   ==========
Weighted Average Number of Common
  Shares Outstanding:
    Basic...................................      68,391       76,732       66,126       73,286
                                                ========    =========     ========   ==========
    Diluted.................................      69,562       76,732       72,925       73,286
                                                ========    =========     ========   ==========
</TABLE>

The accompanying notes to the consolidated financial statements are an integral
                           part of these statements.

                                       4


                     
<PAGE>
 
                     BOSTON CHICKEN, INC. AND SUBSIDIARIES
               (DEBTOR-IN-POSSESSION EFFECTIVE OCTOBER 5, 1998)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                      Three Quarters Ended
                                                                 -------------------------------
                                                                  October 5,        October 4,
                                                                    1997              1998
                                                                 --------------   --------------
<S>                                                              <C>              <C>
Cash Flows from Operating Activities:
  Net income (loss)............................................  $    49,650         $(725,029)   
  Adjustments to reconcile net income (loss) to net cash                                          
     used in operating activities:                                                                
     Depreciation and amortization.............................       30,962            62,620    
     Interest on liquid yield option notes.....................       11,338            12,263    
     Deferred income taxes.....................................        6,318                --    
     Loss (gain) on sale of subsidiary's stock.................           48                17    
     Minority interests........................................        3,805           (38,382)   
     Warrant and option exercise...............................           --             4,030    
     Provision for write-down of assets........................           --           270,674    
     Provision for loan losses.................................           --           237,500    
     Revenue not recognized from Boston Chicken, Inc.'s                                           
       area developers.........................................           --            94,995    
     Losses of Boston Chicken, Inc.'s area developers..........           --            93,635    
     Gain on disposal of assets................................          423                --    
     Changes in assets and liabilities (excluding effects                                         
       from acquisition):                                                                         
       Accounts receivable and due from affiliates.............       (4,765)              890    
       Accounts payable and accrued expenses...................      (29,944)          (32,727)   
       Deferred franchise revenue..............................       (8,668)               --    
       Other assets and liabilities............................      (15,387)             (914)   
                                                                 -----------         ---------    
          Net cash provided by (used in) operating activities..       43,780           (20,428)   
                                                                 -----------         ---------    
Cash Flows from Investing Activities:                                                             
  Purchase of property and equipment...........................      (36,704)          (17,077)   
  Proceeds from sale of assets.................................       12,142             3,118    
  Cost of acquisitions, net of cash received...................           --           (18,645)   
  Acquisition of other assets..................................       (8,655)               --    
  Issuance of notes receivable.................................   (1,067,431)         (341,496)   
  Repayment of notes receivable................................      648,420           240,801    
                                                                 -----------         ---------    
     Net cash used in investing activities.....................     (452,228)         (133,299)   
                                                                 -----------         ---------    
Cash Flows from Financing Activities:                                                             
  Proceeds from issuance of common stock.......................        9,479               982    
  Proceeds from issuance of subsidiary's common stock..........       10,350                --    
  Proceeds from issuance of convertible subordinated debt......      412,500                --    
  Increase in deferred financing costs.........................      (10,956)           (4,962)   
  Proceeds from credit facilities..............................      283,200           134,400    
  Repayments of credit facilities..............................     (283,200)          (50,400)   
                                                                 -----------         ---------    
     Net cash provided by financing activities.................      421,373            80,020    
                                                                 -----------         ---------    
Net Increase (Decrease) in Cash and Cash Equivalents...........       12,925           (73,707)   
Cash and Cash Equivalents, beginning of period.................      100,800            90,559    
                                                                 -----------         ---------    
Cash and Cash Equivalents, end of period.......................  $   113,725         $  16,852    
                                                                 ===========         =========     
</TABLE>

The accompanying notes to the consolidated financial statements are an integral
part of these statements.

                                       5
<PAGE>
 
                     BOSTON CHICKEN, INC. AND SUBSIDIARIES
               (DEBTOR-IN-POSSESSION EFFECTIVE OCTOBER 5, 1998)


                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. PETITION FOR REORGANIZATION UNDER CHAPTER 11

  On October 5, 1998, Boston Chicken, Inc. (the "Company") and its Boston 
Market-related subsidiaries filed voluntary petitions for reorganization under
Chapter 11 of the Federal Bankruptcy Code in the U.S. Bankruptcy Court for the
District of Arizona in Phoenix. The Company is currently operating its business
as a debtor-in-possession, subject to the jurisdiction of the Bankruptcy Court.
The Chapter 11 cases are being jointly administered for procedural purposes by
the Bankruptcy Court under Case No. 98-12547, Caption In re: BCE West, L.P. All
court filings in connection with the Company's bankruptcy can be accessed on the
internet at http://ecf.azb.uscourts.gov. Einstein/Noah Bagel Corp., a majority-
owned subsidiary of the Company ("ENBC"), is not included in the Chapter 11
filings.

  As a debtor-in-possession, the Company is authorized to operate its business,
but may not engage in transactions outside of the normal course of business
without approval, after notice and hearing, of the Bankruptcy Court.  An
unsecured creditors' committee was formed by the U.S. Trustee on October 21,
1998, which has the right to review and object to business transactions outside
the ordinary course and participate, as do certain other parties with claims
against the Company's bankruptcy estate, in any plan of reorganization.  The
Company plans to develop a plan of reorganization for submission to the
Bankruptcy Court.

  As of the petition date, actions to collect pre-petition indebtedness are
stayed and other contractual obligations may not be enforced against the
Company.  In addition, the Company may reject executory contracts and lease
obligations, and parties affected by these rejections may file claims with the
Bankruptcy Court in accordance with the reorganization process.  As part of its
"first day orders," the Bankruptcy Court approved the Company's payment of pre-
petition employee compensation, benefits and reimbursements and withholding
taxes, and the continued payment of these items.  The Bankruptcy Court also
approved the timely payment, without interruption, of substantially all pre-
petition trade payables incurred in the ordinary course of business, including
vendor bills submitted prior to the filing, provided that the vendors continued
to offer the Company credit terms that were the same or better than those
offered pre-petition, subject to a $13.0 million cap.  To date, all of the
Company's pre-petition vendors are providing the Company credit on these terms
and payments to these vendors have aggregated less than the $13.0 million cap
approved by the Bankruptcy Court.

  On October 29, 1998, the Bankruptcy Court gave final approval to the Company's
debtor-in-possession financing agreement providing for up to $70.0 million to
refinance up to $35.0 million of pre-petition senior debt and to give the
Company access to $35.0 million of additional funds to pay, among other things,
employee salaries and benefits, vendors, and interest and certain other payments
on senior secured debt. On November 4, 1998, the Bankruptcy Court approved
suspension of all principal and certain other payments on the senior secured
debt pending approval of a final plan of reorganization. See Note 4(a). On
October 27, 1998, the Bankruptcy Court approved an approximately $18.0 million
employee retention bonus program.

  Prior to the appointment of the creditor's committee, an ad hoc committee of
holders of the Company's convertible subordinated debt, including holders of the
Company's liquid yield option notes, indicated general support of a plan of
reorganization that would permit the bondholders and certain other unsecured
creditors to exchange their debt for all of the equity of the reorganized
company.  The Company continues to negotiate these issues with the creditor's
committee, which is composed of a majority of members who were also members of
the ad hoc committee, as well as certain other creditor representatives.
Although the Company continues to negotiate with the creditor committee in an
attempt to maximize value for all of the Company's constituencies, including the
holders of the Company's capital stock, there can be no assurance that the
Company will be successful in its negotiations or that holders of the Company's
capital stock will receive or retain any property under a plan of reorganization
or otherwise.

  As permitted under the Bankruptcy Code and approved by the Bankruptcy Court,
the Company has elected to assume certain pre-petition employment contracts and
to reject certain real estate leases and other executory contracts. The Company
has not yet completed its review of all of its pre-petition contracts and leases
for assumption or rejection. The accompanying consolidated interim financial
statements include a reserve for an estimated amount that may be claimed by
lessors for Boston



                                       6
<PAGE>
 
Market stores closed through October 5, 1998. The Company will continue to
analyze, and may assume or reject, additional leases and other executory
contracts. The Company cannot presently determine or reasonably estimate the
aggregate liability resulting from rejection of executory contracts and
unexpired leases for which claims have been, or may be, filed. The Chapter 11
filing, the uncertainty regarding the eventual outcome of the reorganization of
the Company and the effect of other unknown adverse factors could threaten the
Company's existence as a going concern.

  The accompanying consolidated interim financial statements have been prepared
on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business.  As a result of the Company's Chapter 11 filing, however, such matters
are subject to significant uncertainty.  In addition, on May 19, 1998, the
Company's former independent public accountants, Arthur Andersen LLP, reissued
its report for the Company's fiscal year ended December 28, 1997 to include a
qualification expressing substantial doubt about the Company's ability to
continue as a going concern. Continuing on a going concern basis is dependent
upon, among other things, the Company's formulation of an acceptable plan of
reorganization, the success of future business operations, and the generation of
sufficient cash from operations and financing sources to meet the Company's
obligations. The accompanying consolidated interim financial statements do not
reflect (a) the realizable value of assets on a liquidation basis or their
availability to satisfy liabilities, (b) aggregate pre-petition liability
amounts that may be allowed for claims or contingencies, or their status or
priority, (c) the effect of any changes to the Company's capital structure or in
the Company's business operations as the result of an approved plan of
reorganization, or (d) adjustments to the carrying value of assets or liability
amounts that may be necessary as the result of actions by the Bankruptcy Court.
All costs and expenses associated with the bankruptcy and plan of reorganization
incurred through October 4, 1998 have been reflected as reorganization expense
in the accompanying consolidated statements of operations. At October 4, 1998,
the reorganization expenses consisted primarily of professional fees incurred by
the Company and fees incurred by the Company's secured lenders and the holders
of the Company's convertible subordinated debt, which the Company is obligated
to pay.

2. BASIS OF PRESENTATION; SECURITIES AND EXCHANGE COMMISSION COMMENTS

  The consolidated interim financial statements have been prepared by the
Company and are unaudited. The financial statements have been prepared in
accordance with the instructions for Form 10-Q and, therefore, do not
necessarily include all information and footnotes required by generally accepted
accounting principles. In the opinion of the Company, all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the Company's consolidated financial position, results of operations and cash
flows as of October 4, 1998 and for all periods presented have been made. The
statements are subject to year-end audit adjustment. A description of the
Company's accounting policies and other financial information are included in
the audited consolidated financial statements filed with the Securities and
Exchange Commission ("Commission") in the Company's Form 10-K for the year ended
December 28, 1997. The consolidated results of operations for the quarter and
three quarters ended October 4, 1998 are not necessarily indicative of the
results expected for the full year. Certain reclassifications have been made to
the 1997 financial statements to conform to the 1998 presentation.

  As previously reported, the Company has received comments from the staff of
the Division of Corporation Finance (the "Staff") of the Commission regarding
the Company's Annual Report on Form 10-K for the fiscal year ended December 28,
1997, Quarterly Report on Form 10-Q for the quarter ended April 19, 1998 and
Current Reports on Form 8-K dated May 19, 1998 and June 16, 1998 (together, the
"SEC Documents"). The comments relate primarily to the Company's accounting for
transactions with its area developers and have been since May 1998, and continue
to be, the subject of ongoing discussions and correspondence between the Company
and the Staff.

  The Company's accounting and reporting in this Form 10-Q are generally
consistent with the SEC Documents and the Company's previous filings with the
Commission.  There can be no assurance that the Staff will accept the Company's
historic accounting and reporting positions and, if not accepted, the Company
may be required to modify or restate previously disclosed information, as well
as information contained in this Form 10-Q.  Until the Company resolves the
issues raised by the Staff's comments, transactions entered into by the Company
requiring Commission review will be delayed.  See Note 3(c).  In addition, any
material additional or restated disclosure may affect the progress or outcome of
the Company's outstanding securities class action lawsuit.  See Note 8.

                                       7
<PAGE>
 
3. AREA DEVELOPERS

  (A) AREA DEVELOPER FINANCING

  The Company historically offered convertible and non-convertible secured debt
financing to Boston Market area developers to partially finance store
development and working capital needs.  Each of the loans was secured by a
pledge of substantially all of the assets of the area developer and generally by
a pledge of the equity interests of the area developer's owners.  Interest was
set at the applicable reference rate of Bank of America National Trust and
Savings Association as established from time to time (8.25% at October 4, 1998
and an average rate of 8.5% in 1998) plus 1%, and is payable each four-week
period.

  At the beginning of 1998, there were 14 area developer loans outstanding that
the Company had not converted to ownership interests in these area developers.
In 1997, 12 of these area developers waived the loan conversion moratorium
period provided under the loan agreements and in 1998 the Company converted 11
of these area developer loans into majority equity interests in the area
developers.

  (B) LOAN CONVERSIONS

  In March 1998, the Company converted its $119.2 million of gross loans ($84.8
million of net loans) to BC Great Lakes, L.L.C. into an 85% equity interest in
BC Great Lakes, L.L.C.  On July 15, 1998, the Company converted a total of
$564.2 million of convertible and non-convertible gross loans ($173 million of
net loans) to ten additional area developers into majority ownership interests
in these area developers. On the same date, the Company acquired the BCEF and
Market Partners preferred equity interests in these 10 area developers, as well
as an additional area developer, and BCEF and Market Partners merged into a
wholly-owned subsidiary of the Company. See Note 3(c). The Company did not
convert loans to its three remaining area developers, BC Northwest, L.P., Boston
West, L.L.C. and Platinum Rotisserie, L.L.C. On October 5, 1998, the Company
notified BC Northwest, L.P. and Boston West, L.L.C. that it would not provide
them with any additional funding because they had exceeded their respective
borrowing limits. Subsequent to that date, BC Northwest, L.P. closed all of its
56 Boston Market store locations, Boston West, L.L.C. closed 11 of its Boston
Market locations, and both area developers filed voluntary petitions for
reorganization under Chapter 11 of the Federal Bankruptcy Code. See Note 10.

  The BC Great Lakes, L.L.C. transaction added 113 Boston Market stores to the
Company store base.  As part of the transaction, the Company assumed
approximately $11.0 million in liabilities owed to third parties.  The
transaction was accounted for as a purchase, and, accordingly, the purchase
price was allocated to identified assets and liabilities based upon their
estimated fair values at the date of the transaction, resulting in goodwill of
approximately $63.0 million (based upon a preliminary allocation), which is
being amortized over a 35-year life. The operating results of BC Great Lakes,
L.L.C. are included in the Company's consolidated results of operations from the
date of acquisition.

  The Company's conversion of its outstanding loans to an additional ten area
developers into majority equity interests and acquisition of the BCEF and Market
Partners preferred equity interests of these area developers added 527 Boston
Market stores to the Company store base.  The following sets forth the amount of
the gross loans converted (in thousands) and the percentage of common equity
interests in each area developer acquired by the Company:

<TABLE>
<CAPTION>
                                                                               Common Equity 
             Area Developer                         Loan Converted            Interest Acquired
------------------------------------------    ------------------------     ------------------------
<S>                                           <C>                          <C>
P&L Food Services, L.L.C..................             $ 52,277                      86%            
BC Boston, L.P............................               51,585                      91%            
BCE West, L.P.............................               47,540                      83%            
BC GoldenGate, L.L.C......................               57,759                      96%            
Finest Foodservice, L.L.C.................               87,936                      98%            
BC Superior, L.L.C........................               56,893                      74%            
BC Heartland, L.L.C.......................                7,370                      97%            
B.C.B.M. Southwest, L.P...................               60,002                      95%            
BC Tri-States, L.L.C......................               39,636                      75%            
R&A Food Services, L.P....................              103,154                      90%             
</TABLE>

                                       8
<PAGE>
 
  The acquisitions of these ten area developers were accounted for as purchases,
and, accordingly, the purchase prices were allocated to identified assets and
liabilities based upon their estimated fair value at the date of acquisition.
As part of these transactions, the Company assumed approximately $76.0 million
in liabilities owed to third parties.  The purchase price allocation (including
the BCEF and Market Partners preferred equity interests) resulted in goodwill of
approximately $249.0 million (based upon a preliminary allocation), which is
being amortized over a 35-year life.  The operating results of the ten area
developers are included in the Company's consolidated results of operations from
the date of acquisition.

  The following represents the unaudited pro forma results of operations for the
three quarters ended October 4, 1998, and the year ended December 28, 1997, as
if the purchase of BC Great Lakes, L.L.C. and the ten additional area developers
(including the BCEF and Market Partners preferred equity interests) had occurred
at the beginning of each respective period (in thousands, except per share
data):

<TABLE>
<CAPTION>
                              December 28,   October 4,
                                 1997          1998
                             -------------  -----------
<S>                          <C>            <C>
   Total revenue...........    $1,024,971    $ 915,962
   Net loss................      (285,940)    (618,249)
   Basic loss per share....         (4.29)       (8.63)
   Diluted loss per share..         (4.29)       (8.63)
</TABLE>

   (C) ACQUISITION OF PREFERRED EQUITY INTERESTS


  BCEF and Market Partners originally invested an aggregate of approximately
$131.7 million in 11 of the Company's area developers.  If the Company had not
acquired the BCEF and Market Partners preferred equity interests in ten of these
area developers at the time the Company converted its loans into a majority
equity interest, the ten area developers would have been required under the
terms of the preferred equity instruments to redeem the preferred interests for
cash, including accrued and unpaid dividends and redemption premiums, which
totaled approximately $158.3 million as of the transaction date.

  In exchange for the BCEF and Market Partners preferred equity interests in the
ten area developers referenced above and one additional area developer, the
Company paid to the members of BCEF an aggregate of $4.5 million in cash and
issued to the members of BCEF an aggregate of 1,553,991 shares of the Company's
common stock and 1,204,593 shares of the Company's 10% Series A exchangeable
preferred stock ("Preferred Stock") with an aggregate liquidation preference of
$60.2 million, initially redeemable at 50% of the face amount increasing over
time to 110% of the face amount.  The Company paid to the members of Market
Partners an aggregate of $5.5 million in cash and issued to the members of
Market Partners an aggregate of 1,946,000 shares of the Company's common stock
and 1,331,400 shares of Preferred Stock with an aggregate liquidation preference
of $66.6 million, initially redeemable at 50% of the face amount increasing over
time to 110% of the face amount.

  The Company agreed to register the common stock and Preferred Stock issued to
the members of BCEF and Market Partners by September 13, 1998 and to use
reasonable best efforts to cause a registration statement to be declared
effective by December 12, 1998. The Company did not register the shares by the
required deadline and the terms of the registration rights agreement imposes an
aggregate $2.5 million penalty, currently due and payable by the Company, to
certain holders of the common stock and Preferred Stock. In addition, commencing
December 13, 1998, the annual dividend rate on the Preferred Stock will increase
to 11% and will further increase by 0.5% for each 90-day period thereafter, up
to a maximum rate of 12%. At the option of the Company, the quarterly dividends
may be paid in cash or additional shares of Preferred Stock for the first twelve
dividend payments. Commencing with the thirteenth dividend payment, the annual
dividend rate will permanently increase by 25 basis points per quarter for each
dividend period in which dividends are not paid. The Company considers these
obligations to be liabilities subject to compromise and, as a result, will
resolve these issues as part of a final plan of reorganization approved by the
Bankruptcy Court. As such, the Company will not pay dividends on the Preferred
Stock during the bankruptcy proceedings.

  The holders of the Preferred Stock do not have any voting rights, except as
provided by Delaware law.  In the event of dissolution, liquidation or winding
up of the Company, the Preferred Stock ranks senior to the common stock.  The
Company is required to redeem the Preferred Stock on July 15, 2005 at a
redemption price equal to

                                       9
<PAGE>
 
100% of its liquidation preference, plus any unpaid dividends. The Company has
the option to redeem the Preferred Stock at any time at prices ranging from 50%
to 110% of the original liquidation preference, plus unpaid dividends.

  (D) AREA DEVELOPER INFORMATION

  The following table summarizes area developer financing activity (in
thousands) during the fiscal year ended December 28, 1997 and for the three
quarters ended October 4, 1998: 

<TABLE>
<CAPTION>
                                                                    Fiscal Year Ended            Three Quarters Ended
                                                                ----------------------       --------------------------
                                                                      December 28,                    October 4,
                                                                          1997                           1998
                                                                ----------------------       --------------------------
<S>                                                             <C>                          <C>
Area developer loan balances, beginning of year...........             $ 647,265                      $ 800,043         
Additional loan advances..................................               925,386                        339,496         
Loan repayments...........................................              (636,589)                      (240,636)        
Loans converted into equity or eliminated                                                                               
   in consolidation.......................................              (136,019)                      (678,956)        
                                                                       ---------                      ---------
Area developer loan balances, end of period...............             $ 800,043                      $ 219,947           
                                                                       =========                      =========
</TABLE>

  The majority of the loan advance and repayment activity reflects the revolving
nature of the loans; that is, amounts are drawn and repaid to optimize cash
management.

  As of October 4, 1998, the loan balances of $219.9 million were comprised of
amounts from Boston West, L.L.C., Platinum Rotisserie, L.L.C. and BC Northwest,
L.P., which accounted for approximately 42%, 31% and 27%, respectively, of the
gross loans receivable.  BC Northwest, L.P. and Boston West, L.L.C. have
exceeded their loan borrowing limits and the Company will not provide them
additional loans or advances.  See Note 3(b).  As of October 4, 1998, Platinum
Rotisserie, L.L.C. had approximately $1.1 million available under its loan
agreement and the Company's debtor-in-possession financing agreement, which was
approved by the Bankruptcy Court on October 29, 1998, provides for continued
funding in accordance with the area developer loan agreement.

  (E) AREA DEVELOPER LOAN IMPAIRMENTS

  A loan is considered impaired if it is probable that the Company will be
unable to collect all contractual principal and interest when due.  Once a loan
is deemed impaired, the Company determines whether the loan is ultimately
collectible, without regard to the contractual terms of the existing loan.  This
evaluation resulted in a provision for potential loan losses of $237.5 million
during the three quarters ended October 4, 1998.  The provision for potential
loan losses was based upon management's review of use of loan proceeds, the form
and amount of consideration paid to BCEF and Market Partners for their preferred
equity interests in ten of the Company's area developers, and evaluations
regarding the cost and availability of capital and the value of the collateral
securing the loans.  Management will continue to evaluate the impaired loans to
determine if additional provisions for potential loan losses are required.  The
provision for potential loan losses does not relieve the area developers of
their obligation to repay their indebtedness to the Company. The activity in the
allowance for loan losses during the three quarters ended October 4, 1998 was as
follows (in thousands):

<TABLE>
<S>                                                  <C>
     Balance at December 28, 1997..................  $ 128,000
     Provision for loan losses.....................    237,500
     Area developer loan conversions...............   (208,225)
     Costs charged to the allowance................    (10,775)
     Loan write-offs...............................          -
                                                     ---------
     Balance at October 4, 1998....................  $ 146,500
                                                     =========
</TABLE>

                                       10
<PAGE>
 
  The Boston Market area developer notes receivable balance as of December 28,
1997 (14 area developers) and October 4, 1998 (three area developers) is
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                          DECEMBER 28,   OCTOBER 4,
                                             1997          1998
                                         ------------   ---------- 
<S>                                      <C>           <C> 
   Notes Receivable..............         $ 800,043     $ 219,947
   Provision for loan losses.....          (128,000)     (146,500)
   Losses of area developers.....          ( 49,352)      (19,385)
   Revenue from area developers
     not recognized..............           (21,019)      (31,691)
                                          -----------   ----------
   Notes Receivable, net.........         $ 601,672     $  22,371
                                          ===========   ==========
</TABLE>

  The Company continues to charge all of its area developers royalties,
franchise and related fees and interest, but no longer recognizes these payments
as revenue.


4. SENIOR BANK CREDIT AGREEMENTS AND DEBTOR-IN-POSSESSION FINANCING

  (A) SENIOR BANK CREDIT AGREEMENTS

  On July 15, 1998, the Company amended its senior revolving credit facility,
which as of such date had $48.0 million outstanding (as amended, the "Senior
Credit Facility"), and amended its 1996 master lease facility (as amended, the
"1996 Master Lease"). The Senior Credit Facility provided the Company an
additional revolving credit facility of $39.3 million, consisting of a $4.3
million revolving loan and a $35.0 million revolving liquidity facility.
Proceeds of the $4.3 million loan were used to satisfy required payments on the
Company's 1995 master lease facility (the "1995 Master Lease"). In connection
with the Senior Credit Facility, the Company executed a written guarantee of a
total of $4.9 million principal amount of obligations, plus interest on, and
expenses related to, these obligations, owed by certain employees and former
employees of the Company to the Company's senior lenders. The Company has been
advised that, as of October 4, 1998, approximately $4.4 million principal amount
of these obligations was in default. Borrowings under the Senior Credit
Facility bear interest at the agent's base rate, plus an applicable margin
(together, 10.25% on the $35.0 million revolving liquidity facility portion of
the Senior Credit Facility and 9.75% for the remaining portion of the Senior
Credit Facility at October 4, 1998). The Senior Credit Facility also provides
for a commitment fee of 0.5% per annum of the average daily unused portion of
the Senior Credit Facility. All borrowings outstanding under the Senior Credit
Facility became due on October 17, 1998.

  Under the terms of the 1996 Master Lease, the Company purchased all of the
assets leased under the facility and agreed to pay the $166.1 million
outstanding balance due under the facility on October 17, 1998.  The estimated
fair market value of the assets acquired pursuant to the 1996 Master Lease was
approximately $55.4 million.  Therefore, the Company has recorded a provision of
$110.7 million in general and administrative expense to write down the assets to
their estimated fair market value.

  On November 4, 1998, the Bankruptcy Court approved the payment of interest on
amounts outstanding under the Senior Credit Facility and the 1996 Master Lease
and certain payments under the 1995 Master Lease. The Company utilized a portion
of its debtor-in-possession financing facility to pay the liquidity facility
portion of the outstanding balance due under the Senior Credit Facility. See
Note 4(b). All principal payments under the Senior Credit Facility and the 1996
Master Lease, and certain payments under the 1995 Master Lease were suspended
pending approval of a final plan of reorganization.

  (B) DEBTOR-IN-POSSESSION FINANCING

  On October 29, 1998, the Bankruptcy Court gave final approval of the Company's
debtor-in-possession financing agreement, providing for up to $70.0 million (the
"DIP Facility"). The Company utilized $35.0 million of the DIP Facility to pay
the liquidity facility portion of the outstanding balance due under the
Company's Senior Credit Facility. The Company is utilizing the additional $35.0
million of revolving funds available under the DIP Facility to pay the Company's
operating expenses, including employee salaries and benefits, payments to
vendors and certain professionals approved by the Bankruptcy Court, interest
payments on the Senior Credit Facility and 1996 Master Lease and certain
payments under the 1995 Master Lease. Under the terms of the DIP Facility, the
revolving funds are available to the Company until the earlier of April 4, 2000,
the date on which the DIP Facility expires, or the Company's emergence from
Chapter 11. Draws made under the DIP Facility bear interest at a rate

                                       11
<PAGE>
 
equal to the prime lending rate plus 1.50%. The Company is required to pay an
unused line fee of 0.375%, and a letter of credit fee of 2.0%. The DIP Facility
is secured by substantially all of the assets of the Company and its
subsidiaries. The DIP Facility contains restrictive covenants including, among
other things, requiring the maintenance of minimum systemwide earnings before
interest, taxes, depreciation, amortization and payments under the 1995 Master
Lease, as defined (EBITDAL), limiting additional indebtedness, liens, contingent
obligations and capital expenditures, limiting sales of assets by the Company
and prohibiting dividend payments.

  The Company is exploring opportunities to obtain long-term financing to
support the Company's business plan after it emerges from Chapter 11; however,
there can be no assurance that the Company will be able to obtain such financing
on satisfactory terms, if at all.


5. ROYALTIES AND FRANCHISE RELATED FEES

   Royalties and franchise related fees are comprised of the following (in
thousands):

<TABLE>
<CAPTION>
                                                  Quarter Ended                      Three Quarters Ended
                                             -------------------------              ----------------------
                                              October 5,    October 4,               October 5,  October 4,
                                                1997          1998                     1997        1998   
                                             -----------    ----------              ----------  ----------- 
<S>                                          <C>            <C>                      <C>        <C>
Royalties..................................    $14,757         $ 105                 $ 50,921      $2,087
Lease and real estate services income......      7,331            41                   24,022       2,575
Initial franchise and area developer fees..      3,373            --                   15,448          --
Software license and maintenance fees......      3,538            --                   17,358         171
                                               -------         -----                 --------      ------
                                               $28,999         $ 146                 $107,749      $4,833
                                               =======         =====                 ========      ======
</TABLE>

6. BOSTON MARKET STORE CLOSINGS


  In connection with the bankruptcy filing, the Company recorded an $85.0
million charge related to the closing and disposal of 178 Boston Market stores
with declining sales and profits, all of which have been closed. The charge
consisted of estimated amounts for reductions in carrying amounts of assets to
net realizable value, the write-off of a portion of goodwill related to certain
stores, accruals for closing and disposal costs, and obligations for rejected
leases permitted under the Bankruptcy Code. The charge is reflected in general
and administrative expense in the accompanying consolidated statements of
operations. In connection with these store closings, the Company terminated
approximately 500 store and field employees and recorded a related $1.1 million
severance charge.

  The 1997 and 1998 operating results for the 178 closed Boston Market stores
for the periods these stores were owned by the Company were as follows (in
thousands):

<TABLE>
<CAPTION>
                                   Year Ended    Three Quarters Ended
                                 --------------  ---------------------
                                   December 28,        October 4,
                                      1997               1998
                                 --------------  ---------------------
<S>                              <C>             <C> 
Sales..........................  $   19,182             $34,629
Store operating profit (loss)..         (23)             (3,681)
</TABLE>

  As discussed in Notes 3(b) and 10, BC Northwest, L.P. closed 56 stores and
Boston West, L.L.C. closed 11 stores in October 1998.  Both area developers have
filed voluntary petitions for reorganization under Chapter 11 of the Federal
Bankruptcy Code.  As a result, the Company recorded a $14.3 million impairment
associated with certain real estate and equipment owned by the Company and
leased to these area developers.

7. IMPAIRMENT OF PROGRESSIVE FOOD CONCEPTS, INC. ASSETS

  The Company acquired Progressive Food Concepts, Inc. ("PFCI") to explore
additional home meal replacement opportunities, including fresh, ready-to-heat
product offerings.  PFCI owns certain proprietary technology, trademarks and
rights related to a retail ready-to-heat format. The Company has determined to
focus on its existing store concept and formats and will not pursue brand
extensions through the PFCI format or utilize the technology or rights owned by
PFCI.  Consequently, the Company recorded a provision of $12.6 million in 1998
associated with the impairment of all PFCI trademarks, copyrights and goodwill.
The provision is reflected in general and administrative expense in the
accompanying consolidated statements of operations.

                                       12
<PAGE>
 
     PFCI provided Harry's Farmer's Market, Inc. ("Harry's") with two credit
facilities, pursuant to which PFCI loaned Harry's $15.5 million, with a
remaining $2.0 million commitment through January 31, 2002. PCFI is obligated to
contribute the principal amount of one of the loans in exchange for common
equity of Harry's. As of October 4, 1998, the net carrying value of PFCI's loans
to Harry's was $8.4 million, which reflects estimated fair value after
consideration of the required conversion feature.

8. COMMITMENTS AND CONTINGENCIES

     Bagel Store Development Funding, L.L.C. ("Bagel Funding") has invested a
total of approximately $89.5 million, representing an approximately 21% equity
interest, in Einstein/Noah Bagel Partners, L.P. ("Bagel Partners"), a majority
owned subsidiary of ENBC. ENBC is the manager of Bagel Funding. Bagel Funding
has the right to require Bagel Partners or ENBC to redeem Bagel Funding's equity
interest in Bagel Partners at a pre-determined formula price based on store
level cash flow of Bagel Partners in the event that, at any time after December
5, 1999 and prior to June 5, 2001, ENBC does not consent to a public offering of
such equity interests or the termination of certain rights and obligations under
franchise and license agreements between ENBC and Bagel Partners. Such right
becomes exercisable prior to December 5, 1999 if there is a Change in Control
(as defined in the Bagel Partners partnership agreement) of ENBC. ENBC or Bagel
Partners may pay the purchase price for such equity interests in cash, shares of
ENBC common stock or any combination thereof.

     The Company and ENBC have entered into agreements with certain vendors,
which provide for minimum purchases over specified terms. Such agreements call
for retroactive rate adjustments or cash settlement in the event of purchase
shortfalls. In 1998, the Company established a provision of $12.6 million for
the amount of rate adjustments or cash settlements anticipated to result from
projected shortfalls. In the event there are additional projected shortfalls,
the Company and ENBC will be subject to additional charges.

     The Company, individual defendants Saad J. Nadhir, Scott A. Beck and Mark
W. Stephens, each a former officer and director of the Company, underwriters of
the Company's securities and the Company's former independent public accountants
are defendants in a class action lawsuit filed in the United States District
Court for the District of Colorado. The federal proceeding is comprised of
separate actions that were consolidated into one action for pre-trial purposes.
The same defendants are also named in a separate class action lawsuit filed in
Jefferson County District Court in the State of Colorado. The state proceeding
is comprised of two separate actions that were consolidated into one action,
which has been stayed until resolution of the federal proceeding. The complaints
in both the federal and state proceedings allege, among other things, that the
defendants violated Sections 11, 12(2) and 15 of the Securities Act of 1933, as
amended (the "Securities Act") and Section 10(b) of, and Rule 10b-5 promulgated
under, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
well as certain similar provisions of Colorado state statutes. The plaintiffs
are seeking, among other things, (a) to certify each of the complaints as a
class action on behalf of all persons who purchased securities of the Company
during the purported class period, (b) an award of unspecified compensatory
damages, interests and costs, and (c) equitable relief permitted by law, equity
or federal or state statutes. On February 10, 1998, the Company filed a motion
to dismiss the complaint in the federal case. The Company believes that the
complaints are without merit and intends to vigorously defend against the
allegations made in the complaints.

     ENBC, individual defendants Scott A. Beck and Mark R. Goldston, each a
former director and officer of ENBC, Theodore R. Heininger, a former officer of
ENBC, and W. Eric Carlborg, a current officer of ENBC, the underwriters in
ENBC's initial public offering and ENBC's independent public accountants are
defendants in a class action lawsuit filed in the United States District Court
for the District of Colorado. The lawsuit is comprised of separate actions that
were consolidated into one action for pre-trial purposes. ENBC and certain of
the other defendants are also defendants in a class action lawsuit filed in
state court in Jefferson County Colorado, which has been stayed pending
resolution of the federal case. The complaints allege, among other things, that
the defendants violated Sections 11, 12(2) and 15 of the Securities Act and
Section 10(b) of, and Rule 10b-5 promulgated under, the Exchange Act, as well as
certain similar provisions of Colorado state statutes. In each case, the
plaintiffs are seeking, among other things, (a) to certify their complaint as a
class action on behalf of all persons who purchased securities of ENBC during
the purported class period, (b) an award of unspecified compensatory damages,
interest and costs, and (c) equitable relief permitted by law, equity or federal
or state statutes. On February 10, 1998, ENBC filed a motion to dismiss the

                                       13
<PAGE>
 
complaint in the federal case. ENBC has stated in its most recent Form 10-Q that
it believes that the complaints are without merit and intends to vigorously
defend against the allegations made in the complaints.

     The Company is subject to various other lawsuits, claims, and other legal
matters in the course of conducting its business, including its business as a
franchisor.  The Company believes that the outcome of such lawsuits, claims, and
other legal matters will not have a material impact on the Company's
consolidated financial position or results of operations.


9.   SEGMENT INFORMATION

     The Company's Boston Market stores operate in the casual dining segment and
ENBC's stores operate in the retail bagel segment.  The following provides
information on the Company's segments (in thousands):

<TABLE>
<CAPTION>
                                            Three Quarters Ended                            Three Quarters Ended
                                              October 5, 1997                                 October 4, 1998
                                ------------------------------------------     -------------------------------------------
                                    Casual Dining          Retail Bagels           Casual Dining            Retail Bagels
                                -------------------     ------------------     -------------------      ------------------
<S>                             <C>                     <C>                    <C>                      <C>
Revenue from external
customers.......................     $  300,301               $ 43,885              $  357,752                $285,699
Inter-segment revenue...........         12,096                     --                   5,229                      --
Income (loss) before
income taxes and minority
interests.......................         69,079                 22,575                (731,960)                (31,451)
Total assets....................      1,480,766                522,008               1,072,789                 636,570
</TABLE>

10. SUBSEQUENT EVENTS

     On October 5, 1998, the Company and its Boston Market-related subsidiaries 
filed voluntary petitions for reorganization under Chapter 11 of the Federal 
Bankruptcy Code in the U.S. Bankruptcy Court for the District of Arizona in 
Phoenix. The Company is currently operating its business as a 
debtor-in-possession, subject to the jurisdiction of the Bankruptcy Court. See 
Note 1.

     On October 5, 1998, the Company announced that its board of directors had
approved the engagement of PricewaterhouseCoopers LLP as principal accountant to
audit the Company's consolidated financial statements, replacing Arthur Andersen
LLP. The Company reported that there had been no disagreements between
management of the Company and Arthur Andersen LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure of a nature that, if not resolved to the satisfaction of Authur
Andersen LLP, would have caused it to make reference in connection with its
report to the subject matter of the disagreements.

     Also on October 5, 1998, the Company notified BC Northwest, L.P. and Boston
West, L.L.C. that the Company would not provide them any additional funding
under their loans from the Company.  On October 11, 1998, BC Northwest, L.P.
closed all of its 56 Boston Market store locations and on October 23, 1998 filed
a voluntary petition for reorganization under Chapter 11 of the Federal
Bankruptcy Code.  Boston West, L.L.C. closed 11 of its Boston Market stores and,
on November 9, 1998, filed a voluntary petition for reorganization under Chapter
11 of the Federal Bankruptcy Code.

                                       14
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     CERTAIN STATEMENTS IN THIS FORM 10-Q CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF BOSTON CHICKEN, INC. (THE "COMPANY"), EINSTEIN/NOAH BAGEL
CORP. ("ENBC") AND THEIR RESPECTIVE BOSTON MARKET(R), EINSTEIN BROS.(R) BAGELS
AND NOAH'S NEW YORK BAGELS(R) STORES, TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-
LOOKING STATEMENTS.

     ON OCTOBER 5, 1998, THE COMPANY AND ITS BOSTON MARKET-RELATED SUBSIDIARIES
FILED VOLUNTARY PETITIONS FOR PROTECTION UNDER CHAPTER 11 OF THE FEDERAL
BANKRUPTCY CODE AND ARE OPERATING AS DEBTORS-IN POSSESSION.  ALL FORWARD-LOOKING
STATEMENTS RELATING TO THE COMPANY'S EFFORTS TO NEGOTIATE THE EXCHANGE OF
OUTSTANDING DEBT FOR EQUITY, A REDUCTION OF DEBT LEVELS AND OTHER ASPECTS OF ANY
PLAN OF REORGANIZATION SUBMITTED IN CONNECTION WITH ITS CHAPTER 11 PROCEEDINGS
ARE DEPENDENT UPON, AMONG OTHER THINGS, FURTHER IMPROVEMENTS IN BOSTON MARKET
STORE-LEVEL OPERATING PERFORMANCE, THE FORMULATION OF AN ACCEPTABLE
REORGANIZATION PLAN AND BANKRUPTCY COURT APPROVAL OF THE REORGANIZATION PLAN.

     IN GENERAL, THE RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, ENBC
AND THEIR STORES ARE DEPENDENT UPON A NUMBER OF FACTORS INCLUDING, WITHOUT
LIMITATION, THE FOLLOWING: STORE PERFORMANCE (INCLUDING SALES AND PROFIT
MARGINS); COMPETITION; SUCCESS OF OPERATING INITIATIVES; DEVELOPMENT AND
OPERATING COSTS; ADVERTISING AND PROMOTIONAL EFFORTS; BRAND AWARENESS; ADVERSE
PUBLICITY; ACCEPTANCE OF NEW PRODUCT OFFERINGS (E.G., MENU ITEMS AND PRICING
STRUCTURES); CHANGES IN BUSINESS STRATEGY; CHANGES IN DEVELOPMENT PLANS;
AVAILABILITY AND COST OF CAPITAL; FOOD, LABOR AND EMPLOYEE BENEFIT COSTS;
CHANGES IN GOVERNMENT REGULATIONS; REGIONAL WEATHER CONDITIONS; AND OTHER
FACTORS REFERENCED IN THIS FORM 10-Q AND IN THE COMPANY'S OTHER FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION ("COMMISSION"). THESE CAUTIONARY STATEMENTS
BY THE COMPANY SHOULD NOT BE CONSTRUED AS EXHAUSTIVE OR AS ANY ADMISSION
REGARDING THE ADEQUACY OF DISCLOSURES MADE BY THE COMPANY. THE COMPANY CANNOT
ALWAYS PREDICT OR DETERMINE AFTER THE FACT WHAT FACTORS WOULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY THE FORWARD-LOOKING
STATEMENTS OR OTHER STATEMENTS. IN ADDITION, READERS ARE URGED TO CONSIDER
STATEMENTS THAT INCLUDE THE TERMS "BELIEVES", "BELIEF", "EXPECTS", "PLANS",
"OBJECTIVES", "ANTICIPATES", "INTENDS" OR THE LIKE TO BE UNCERTAIN AND FORWARD-
LOOKING. ALL CAUTIONARY STATEMENTS SHOULD BE READ AS BEING APPLICABLE TO ALL
FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR.

     THE COMPANY IS IN THE PROCESS OF RESOLVING COMMENTS OF THE COMMISSION STAFF
WITH RESPECT TO CERTAIN REPORTS FILED UNDER THE SECURITIES EXCHANGE ACT OF 1934.
THE COMPANY MAY BE REQUIRED TO AMEND SUCH FILINGS UPON RESOLUTION OF THESE
COMMENTS.  SEE NOTE 2 OF NOTES TO THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS.


GENERAL

     On October 5, 1998, the Company and its Boston Market-related subsidiaries
filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy
Code.  Under Chapter 11, the Company will continue to conduct business in the
ordinary course under the protection of the Bankruptcy Court while it formulates
an acceptable reorganization plan to restructure its debt. Transactions outside
the ordinary course of business must be approved, after notice and hearing, by
the Bankruptcy Court. See Note 1 of Notes to the Company's Consolidated
Financial Statements.

     To date, the Company has acquired a controlling interest in 13 of its 16
area developers, changing the focus of the Boston Market store system from a
franchise system to a predominantly company-controlled system, as has ENBC,
which acquired a majority equity interest in all of its area developers in the
fourth quarter of 1997. Prior to these acquisitions, the Company and ENBC
generated revenues primarily as a lender, franchisor and service provider to the
area developers. In 1998, the Company continued to charge its area developers
royalties, franchise and related fees and interest, but the Company no longer
recognized these payments as revenue for a majority of its

                                      15
<PAGE>
 
area developers. Subsequent to the acquisitions, store revenue and operating
results are reflected in the Company's consolidated statements of operations. In
addition, commencing from the date the Company announced its intention to
acquire the BCEF and Market Partners preferred equity interests in the ten area
developers acquired by the Company in July 1998, the Company recognized, in a
single line item on its consolidated statements of operations, the net losses of
those area developers. For all of these reasons, operating results for the
quarter and three quarters ended October 4, 1998 are not readily comparable to
those for the quarter and three quarters ended October 5, 1997.

     The Company has been notified by the Nasdaq Stock Market ("Nasdaq") of 
Nasdaq's determination that the Company is not in compliance with the net 
tangible assets requirement or the alternative $5 minimum closing bid price 
requirement for continued listing of its common stock on the Nasdaq National 
Market. The Company has a hearing scheduled with Nasdaq on November 19, 1998 
regarding these compliance issues. There can be no assurance that the Company's 
common stock will remain listed on the Nasdaq National Market. Delisting of the 
common stock could have a material adverse effect on the market price of, and 
the efficiency of the trading market for, the Company's common stock.

     For purposes of Management's Discussion and Analysis of Financial Condition
and Results of Operations, references to Company owned stores or restaurants
means Boston Market stores owned by the Company and its subsidiaries, and
references to number of stores or restaurants systemwide means Company owned
stores and Boston Market stores owned by the Company's area developers and
franchisees. Subsequent to October 4, 1998, the Company closed 178 stores and
its area developers closed 67 stores. See Notes 3(b), 6 and 10 of Notes to the
Company's Consolidated Financial Statements.

SYSTEMWIDE SALES AND RESTAURANTS

     Systemwide sales include sales by all restaurants systemwide:

<TABLE>
<CAPTION>
                                          Quarter Ended         Three Quarters Ended
                                    -------------------------  ----------------------
                                     October 5,    October 4,  October 5,  October 4,
                                        1997          1998        1997        1998
                                    -------------  ----------  ----------  ----------
<S>                                 <C>            <C>         <C>         <C>
 Boston Market
 -------------
   Restaurant sales..................    $265,062    $207,948    $933,111    $749,121
   Average number of restaurants.....       1,194       1,145       1,151       1,153
   Restaurants at period end.........       1,189       1,143       1,189       1,143
 ENBC
 ----
   Restaurant sales..................    $ 77,000    $ 87,300    $223,400    $285,700
   Average number of restaurants.....         510         543         433         553
   Restaurants at period end.........         546         545         546         545
</TABLE>

     Boston Market total systemwide store net revenue decreased 22% for the
quarter ended October 4, 1998 and 20% for the three quarters ended October 4,
1998 compared to the prior comparable periods, primarily as a result of reduced
customer counts and a decrease in the average number of stores in operation due
to store closings. The Company is attempting to reverse the decline in customer
counts by refocusing its efforts to enhance customer experience. These efforts
include improving store operations and cleanliness, instituting everyday value
pricing rather than relying on coupons and promotions, and allowing for regional
variations in menu offerings to attract new customers and increase the frequency
of existing customer visits. Weekly net sales per store for Boston Market
restaurants systemwide were down approximately 18% and 20% for the quarter and
three quarters ended October 4, 1998, respectively, compared to prior comparable
periods.

     The increase in ENBC's total systemwide store net revenue for both the
quarter ended and three quarters ended October 4, 1998 compared to the
comparable 1997 periods resulted primarily from an increase in the average
number of stores. The 5.0% increase in ENBC weekly net sales for the quarter
ended October 4, 1998 compared to the prior comparable quarter was due to a new
lunch menu and higher menu prices in the third quarter of 1998 and the closure
of under-performing stores in the first and second quarters of 1998. The 1.0%
decrease in ENBC 

                                       16
<PAGE>
 
weekly net sales for the three quarters ended October 4, 1998 compared to 1997
was due to lower revenue generated by Noah's New York Bagels stores during the
1998 period compared to the 1997 period.


RESULTS OF OPERATIONS

     Revenue. Total revenue increased $150.2 million or 136% for the quarter
ended October 4, 1998 over the prior comparable quarter and increased $299.3
million or 87% for the three quarters ended October 4, 1998 over the prior
comparable period.

     Revenue from Company owned restaurants and from retail bagel stores owned
by ENBC is significantly affected by the acquisition of stores from area
developers. The following table sets forth revenue and store statistics for
Company owned Boston Market stores and retail bagel stores owned by ENBC:

<TABLE>
<CAPTION>
                                         Quarter Ended        Three Quarters Ended
                                    -----------------------  ----------------------
                                    October 5,   October 4,  October 5,  October 4,
                                       1997        1998         1997       1998
                                    ---------    ----------  ----------  ----------
<S>                                 <C>           <C>        <C>         <C>
 Boston Market
 -------------
   Restaurant sales...............  $ 57,804      $173,560    $163,879    $349,698
   Average number of restaurants..       261           922         209         523
   Restaurants at period end......       311           932         311         932
 ENBC
 ----
   Restaurant sales...............  $     --      $ 87,325    $  2,103    $285,699
   Average number of restaurants..        --           543           5         553
   Restaurants at period end......        --           545          --         545
</TABLE> 

     The increase in the average number of Company owned Boston Market
restaurants was primarily attributable to the Company's acquisition of majority
equity interests in Mayfair Partners, L.P. in August 1997, BC Great Lakes,
L.L.C. in March 1998, and ten additional area developers in July 1998. The
average number of retail bagel stores owned by ENBC increased due to ENBC's
acquisition of a majority equity interest in all of its area developers in
December 1997. Revenue from Company owned restaurants was also impacted by the
same factors as systemwide revenues - See "--Systemwide Sales and Restaurants."

     Royalties and franchise related fees decreased $28.9 million or nearly 100%
and interest income decreased $24.0 million or 100% for the quarter ended
October 4, 1998 over the quarter ended October 5, 1997.  Royalties and franchise
related fees decreased $102.9 million or 96% and interest income decreased $67.2
million or 95% for the three quarters ended October 4, 1998 over the prior
comparable period.  In October 1997, the Company announced its intention to
acquire ten area developers and the BCEF and Market Partners preferred equity
interests in those area developers and an additional area developer, and in July
1998 the Company completed this acquisition.  Consequently, the Company did not
recognize $70.9 million of royalties, franchise and related fees and interest
income from 11 of its 14 area developers for the three quarters ended October 4,
1998.  Also, as a result of certain area developers generating insufficient cash
on a cumulative basis from store operations, capital contributions and other
sources (excluding borrowings from the Company) to pay royalties, interest and
franchise fees when due, the Company did not recognize revenue aggregating $6.3
million and $25.8 million during the quarter and three quarters ended October 4,
1998, respectively.  Further, ENBC's conversion to a company-owned system
resulted in its royalties and franchise and related fees and interest income
being replaced with revenue from retail bagel stores owned by ENBC.

     Restaurant Margins. Margins for Company owned Boston Market restaurants for
the quarter and three quarters ended October 4, 1998 are not readily comparable
to prior comparable periods because of the significant increase in the number of
Company owned restaurants resulting from the Company's acquisitions of its area
developers. The margins were 4.5% and 5.3% for the quarter and three quarters
ended October 4, 1998, respectively, compared to 7.3% and 10.8% for the prior
comparable periods. The reduced margins are primarily the result of the increase
in the number of Company owned restaurants, the Company's acquisition of certain
under-performing stores in 1998 which were subsequently closed, the short-term
impact of eliminating substantially all coupon and discount programs, and higher
labor costs and lower revenue per store which resulted in rent, utilities and
other fixed store operating costs constituting a greater percentage of
restaurant revenue.

                                       17
<PAGE>
 
     Margins for retail bagel stores owned by ENBC were 9.0% and 7.6% for the
quarter and three quarters ended October 4, 1998, respectively.  During 1998,
the margins have been impacted primarily by larger stores, more complex store
configurations and higher food costs associated with different menu offerings.
In addition, ENBC store costs and expenses for the three quarters ended October
4, 1998 included approximately $0.8 million associated with the closing of a
bagel production plant.  For the three quarters ended October 4, 1998, marketing
expenses were reduced to 3.9% of store revenue from 6.0% for the prior
comparable period as a result of a change in marketing strategy.

     General and administrative expenses. The Company recognized $229.2 million
of nonrecurring charges for the quarter ended October 4, 1998 associated
primarily with the amendment to its 1996 master lease facility (as amended, the
"1996 Master Lease"), Boston Market store closings, and the write-off of certain
Progressive Food Concept, Inc. ("PFCI") assets. In connection with the 1996
Master Lease, the Company recorded a provision of $110.7 million to write down
the acquired assets to estimated fair market value. On October 5, 1998, the
Company closed 178 Company owned Boston Market stores, resulting in a provision
for closing and disposal costs of $85.0 million. The closing costs include
estimated obligations for rejected leases permitted under the Bankruptcy Code.
The Company recorded a $14.3 million charge for impairment of certain real
estate and equipment leased to BC Northwest, L.P. and Boston West, L.L.C. as a
result of store closings by these area developers and their subsequent Chapter
11 bankruptcy filings. Finally, based upon the Company's decisions not to pursue
brand extensions through PFCI's ready-to-heat retail format and not to utilize
the technology or rights owned by PFCI, the Company recorded a $12.6 million
provision related to impairment of all trademarks, copyrights and goodwill of
PFCI.

     Disregarding non-recurring charges of $229.2 million, general and
administrative expenses increased $12.1 million or 85.0% for the quarter ended
October 4, 1998 over the prior comparable quarter.  This increase consisted of
an $8.1 million or 73.0% increase in general and administrative expenses for the
Boston Market system for the quarter ended October 4, 1998 over the prior
comparable quarter and a $4.0 million or 131% increase in general and
administrative expenses for ENBC for the quarter ended October 4, 1998 compared
to the prior comparable quarter.  Disregarding year to date non-recurring
charges of $258.9 million, general and administrative expenses increased $69.6
million or 145% for the three quarters ended October 4, 1998 over the prior
comparable period, consisting of expenses attributable to the Boston Market
system, which increased $52.4 million or 150% for the three quarters ended
October 4, 1998 compared to the prior comparable period, and expenses
attributable to the ENBC system, which increased $17.1 million or 133% for the
three quarters ended October 4, 1998 compared to the prior comparable period.
The increases in both the Boston Market and ENBC general and administrative
expenses were primarily due to larger company-owned restaurants and increased
number of  company-owned stores in 1998 compared to 1997.  On a proforma basis,
cash expenditures for general and administrative expenses for Company owned
stores, the Company's Support Center and the three area developers whose loans
have not been converted by the Company, have decreased approximately 22.0% and 
32.4% for the quarter and three quarters ended October 4, 1998, respectively,
compared to the prior comparable periods.

     Reorganization Expenses.  The reorganization expenses for the quarter ended
October 4, 1998 were comprised of professional fees incurred by the Company, and
fees incurred by the Company's secured lenders and the holders of the Company's
convertible subordinated debt, which the Company is obligated to pay.

     Depreciation and amortization.  Depreciation and amortization (excluding
goodwill amortization) increased $6.4 million and $20.1 million for the quarter
and three quarters ended October 4, 1998 compared to the prior comparable
periods.  Goodwill amortization increased $4.5 million for the quarter ended
October 4, 1998 and $11.5 million for the three quarters ended October 4, 1998,
compared to the prior comparable periods.  The increases were due primarily to a
greater number of Company owned Boston Market stores and retail bagel stores
owned by ENBC resulting from the acquisition of controlling interests in certain
area developers in 1998 and the fourth quarter of 1997.

     Provision for loan losses. Primarily as a result of lower than expected
store sales and customer transactions in 1998, the Company determined that an
additional portion of its loans to certain of its area developers may not be
recoverable. Consequently, the Company established a $25.5 million provision for
potential loan losses in the third quarter of 1998 and $237.5 million provision
for potential loan losses for the three quarters ended October 4, 1998 (in
addition to the $128.0 million provision for potential loan losses established
in the fourth quarter of 1997. The 

                                       18
<PAGE>
 
Company's continued evaluation of its impaired loans could result in additional
provisions for potential loan losses in subsequent quarters. SEE "SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 15.

     Losses of the Company's Area Developers.  Commencing with the Company's
decision in October 1997 to acquire the BCEF and Market Partners preferred
equity interests in 11 of the Company's area developers, the Company has
recognized, in a single line item on its consolidated statements of operations,
the net losses of such area developers. The losses, which totaled $0.3 million
for the quarter ended October 4, 1998 and $93.6 million for the three quarters
ended October 4, 1998, were primarily non-cash, consisting of goodwill and fixed
asset write-downs by the area developers. Such amounts represent the net losses
of the area developers reduced by royalties, franchise and related fees, and
interest not recognized by the Company totaling $70.9 million for the three
quarters ended October 4, 1998. The recognition of area developer losses has
been accounted for as a reduction of the area developers' notes receivable
balance. Subsequent to July 15, 1998, the Company presents the results of
operations of ten of the eleven area developers on a consolidated basis and no
longer reflects the net losses of the ten area developers in a single line item
because the Company acquired a majority equity interest in them through loan
conversion.

     Interest and Other Income (Expense).  The Company incurred $18.4 million of
other expense for the third quarter of 1998 compared to $11.0 million for the
third quarter of 1997. The Company incurred $52.0 million of other expense for
the three quarters ended October 4, 1998 compared to $25.8 million for the prior
comparable period. The increases related primarily to additional interest
expense incurred on the Company's $287.5 million of convertible subordinated
debentures issued in the second quarter of 1997, the interest outstanding on the
Company's senior secured credit facility and ENBC's $125.0 million of
convertible subordinated debentures, also issued in the second quarter of 1997.

     Income Taxes. Due to the uncertainty of having sufficient taxable income to
utilize losses generated in the 1998 quarters, no income tax benefit was
provided.

     Minority Interest.  For the quarter ended October 4, 1998, the minority
interests in subsidiaries absorbed $18.8 million of the subsidiaries' losses
compared to $0.6 million for the prior comparable period. For the three quarters
ended October 4, 1998, the minority interests in subsidiaries absorbed $38.4
million of the subsidiaries' losses, whereas for the three quarters ended 
October 5, 1997, the minority interests in subsidiaries represented a charge of
$3.8 million. The changes were primarily due to ENBC incurring a loss in 1998
compared to reporting income in the prior comparable periods and losses
attributable to the minority interests in the 11 Boston Market area developers
acquired in 1998.


LIQUIDITY AND CAPITAL RESOURCES

     Historic Sources and Uses of Cash

     Cash flows from operations are not readily comparable between the three
quarters of 1998 and 1997 as a result of the refocusing from a franchise
business to a company controlled store operation and the impact of the
deterioration in Boston Market area developer store operations in 1998 prior to
the conversion of a majority of area developer loans. Cash used in operations
totaled $20.4 million for the three quarters ended October 4, 1998 compared to
$43.8 million of cash generated from operations for the three quarters ended
October 5, 1997. The cash flows from operating activities in 1998 include $95.0
million of royalties, franchise related fees and interest paid to the Company by
its area developers, which was not recognized as revenue. Of such amount, $70.9
million was not recognized as revenue because the Company had announced in
October 1997 its intention to acquire ten area developers and the BCEF and
Market Partners preferred equity interests in those and one additional area
developer, and the remaining $24.1 million was not recognized as revenue because
such amounts were paid through loan advances by the Company to the area
developers. In addition, approximately $5.1 million was paid in 1998 related to
reorganization expenses. The $32.8 million used for working capital in 1998 is
primarily due to a reduction in accounts payable and the payment of rent and
other costs associated with closed Company-owned Boston Market stores and closed
retail bagel stores owned by ENBC, which had been accrued for at December 27,
1997.

     Cash flows used in investing activities were primarily related to the net
loan advances made to the area developers, which totaled $100.7 million and
$419.0 million for the three quarters ended October 4, 1998 and October 5, 1997,
respectively. The net loan advances have decreased in 1998 compared to 1997
primarily as a result of ENBC converting its area developer loans in December
1997, the conversion of BC Great Lakes, L.L.C. in March 1998 and the conversion
of loans to ten additional Boston Market area developers in July 1998. The
Company incurred $18.6 million, net of cash acquired, in costs associated with
the 1998 acquisition of these area developers and the BCEF and Market Partners
preferred equity interests.

                                       19
<PAGE>
 
  On July 15, 1998, the Company acquired the BCEF and Market Partners preferred 
equity interests in 11 of the Company's area developers in exchange for
consideration paid to the members of BCEF and Market Partners of $126.8
million aggregate liquidation preference of Preferred Stock, 3.5 million shares
of common stock and $10.0 million in cash. The 10% dividend on the Preferred
Stock is payable in additional shares of Preferred Stock for a period of three
years and payable in cash thereafter. The Preferred Stock is optionally
redeemable by the Company at any time, in cash, at redemption prices which start
at 50% of its face value and increase over time. The Preferred Stock is
mandatorily redeemable in 2005 at a price of 110% of its face value.

  Cash flows from financing activities were $80.0 million in 1998 compared to
$421.4 million in 1997. In 1997, the Company and ENBC each issued convertible
subordinated debt for aggregate proceeds of $412.5 million and the Company
issued common stock for proceeds of $10.4 million. In 1998, the cash flows from
financing activities were primarily generated from the Company's senior secured
revolving credit facility, which was amended in July 1998 (as amended, the
"Senior Credit Facility"). The Senior Credit Facility provided the Company with
an additional revolving credit facility of $39.3 million. During 1998, the
Company utilized the entire amount available under the Senior Credit Facility of
$87.3 million, primarily to fund certain interest payments, reorganization
expenses, advertising expenses and working capital requirements. The Company has
utilized a portion of its debtor-in-possession financing facility, approved by
the Bankruptcy Court on October 29, 1998, to pay the liquidity facility portion
of the outstanding balance due under the Senior Credit Facility. Borrowings
under the Senior Credit Facility bear interest at the agent's base rate, plus an
applicable margin (together, 10.25% on the $35.0 million revolving liquidity
facility portion of the Senior Credit Facility and 9.75% for the remaining
portion of the Senior Credit Facility at October 4, 1998). Under the terms of
the restructured 1996 Master Lease, the Company agreed to purchase all of the
assets leased under the facility and to pay the $166.1 million outstanding
balance due under the facility on October 17,1998. The Bankruptcy Court approved
suspension of all principal payments on the Senior Credit Facility and the 1996
Master Lease Facility and certain payment under the Company's 1995 master lease
facility (the "1995 Master Lease"), pending a final plan of reorganization.

     Expected Sources and Uses of Cash

  The Company's liquidity position for the remainder of 1998 will be impacted
primarily by the success of initiatives undertaken to improve store level cash
flows and customer counts, offset by an initial 7%-9% decline in customer
visits, which the Company believes is the result of negative publicity
concerning the Company's bankruptcy filing.  The Company's uses of capital for
the remainder of 1998 include working capital for store operations, interest
payments on the Senior Credit Facility and the 1996 Master Lease and certain
payments under the 1995 Master Lease, and costs associated with the
reorganization.  ENBC's primary uses of capital in 1998, other than providing
working capital for normal operating expenses, are expected to consist primarily
of satisfaction of current liabilities, expenditures related to maintaining and
refurbishing existing stores, and payment of principal and interest on
outstanding indebtedness.

  In addition to cash flow generated by store operations, the Company has
obtained debtor-in-possession financing agreement to fund its cash requirements.
On October 29, 1998, the Bankruptcy Court gave final approval to the Company's
debtor-in-possession financing, providing for up to $70.0 million (the "DIP
Facility"). The Company utilized $35.0 million of the DIP Facility to pay the
liquidity facility portion of the Senior Credit Facility. The Company is
utilizing the additional $35.0 million of revolving funds available under the
DIP Facility to pay the Company's operating expenses, including employee
salaries and benefits, payments to vendors and certain professionals approved by
the Bankruptcy Court, interest payments on the Senior Credit Facility and 1996
Master Lease and certain payments under the 1995 Master Lease. Under the terms
of the DIP Facility, the revolving funds are available to the Company until the
earlier of April 4, 2000, the date on which the DIP Facility expires, or the
Company's emergence from Chapter 11. Draws made under the DIP Facility bear
interest at a rate equal to the prime lending rate plus 1.50%. The Company is
required to pay an unused line fee of 0.375%, and a letter of credit fee of
2.0%. The DIP Facility is secured by substantially all of the assets of the
Company and its subsidiaries. The DIP Facility contains restrictive covenants
including, among other things, requiring the maintenance of minimum systemwide
earnings before interest, taxes, depreciation, amortization and payments under
the 1995 Master Lease, as defined (EBITDAL), limiting additional indebtedness,
liens, contingent obligations and capital expenditures, limiting sales of assets
by the Company and prohibiting dividend payments.

                                       20
<PAGE>
 
  As a debtor-in-possession under Chapter 11, actions to collect pre-petition
indebtedness are stayed and other contractual obligations may not be enforced
against the Company.  With the approval of the Bankruptcy Court, certain of
these obligations may be paid prior to acceptance of the reorganization plan.
To date, the Company has received approval to pay (i) pre-petition salaries,
wages and benefits to employees and independent contractors and (ii)
substantially all pre-petition trade payables without interruption, including
vendor bills submitted prior to the filing. As permitted under the Bankruptcy
Code and approved by the Bankruptcy Court, the Company has elected to assume
certain pre-petition employment contracts and to reject certain real estate
leases and other executory contracts. The Company has not completed its review
of all of its pre-petition contracts and leases for assumption or rejection. The
ultimate amount of, and settlement terms for, such liabilities are subject to an
approved plan of reorganization and, accordingly, the timing and form of
settlement are not presently determinable.

  While under bankruptcy protection, the Company does not expect to pay the
principal or interest obligations of its subordinated debt, the principal
obligations under the Senior Credit Facility and 1996 Master Lease, certain
payments under the 1995 Master Lease or preferred stock dividends.

  As part of the reorganization, the Company expects to reduce its current debt
by exchanging its outstanding convertible subordinated debt, totaling
approximately $627 million, for equity.  Prior to the appointment of the
creditor committee, an ad hoc committee of holders of the Company's convertible
subordinated debt indicated general support of a plan of reorganization that
would permit these bondholders and certain other unsecured creditors to exchange
their debt for all of the equity of the reorganized company. The Company
continues to negotiate these issues with the creditor's committee, which is
composed of a majority of members who were also members of the ad hoc committee,
as well as certain other creditor representatives. Although the Company is
exploring opportunities to preserve some value for existing stockholders, there
can be no assurance that existing stockholders will receive or retain any
property under a plan of reorganization or otherwise.

  The Company is exploring opportunities to obtain long-term financing to
support the Company's business plan after it emerges from Chapter 11; however,
there can be no assurance that the Company will be able to obtain such financing
on satisfactory terms, if at all.


YEAR 2000

  The Year 2000 issue is the result of computer programs written to identify the
applicable year with two digits rather than four.  As written, these programs
may identify the year "00" as 1900 rather than 2000, which could result in
systems miscalculations or systems failure leading to potentially substantial
business disruptions.  The Company has adopted a comprehensive plan to identify
and resolve its Year 2000 issues.  The Company's Year 2000 plan consists of
assuring that its information technology systems are Year 2000 compliant and
obtaining assurances from its third party vendors that their businesses and
systems will be Year 2000 compliant on a timely basis.

  The Company believes that its information technology systems are, or will be
by September 1999, Year 2000 compliant.  Such systems include back office and
point of sale store systems as well as financial, human resources, payroll and
desktop systems utilized at the Company's Support Center.  With regard to store
systems, the Company has purchased Year 2000 compliant software upgrades for its
back-office systems and is currently in the process of customizing, enhancing
and developing the software to meet the Company's specific needs.  In addition,
the Company has completed limited testing of the Year 2000 compliant software
and expects to continue testing on a broader scale through March 1999, with
systemwide deployment scheduled between March and October 1999.  The Company has
also purchased software upgrades for its point of sale store systems and expects
implementation of the Year 2000 compliant software to follow the same schedule
as for the back office systems.  The Company has also begun testing its store
hardware for Year 2000 compliance.  SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS" ON PAGE 15.

  The primary information technology requirements for the Company's Support
Center include systems related to human resources, including payroll, financial
data and information and desktop services.  In January 1998, the Company
completed the conversion of its human resources-related software, including
payroll, to software which is warranted to be Year 2000 compliant.  The Company
is currently upgrading its financial systems software, including customizing,
developing and enhancing in-house custom interfaces between the financial
reporting 

                                       21
<PAGE>
 
software and other Support Center software programs, and expects its financial
information technology systems to be Year 2000 compliant by June 1999. SEE
"SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 15.

  The Company has also implemented a program to obtain third party vendor
assurances of Year 2000 compliance.  The Company is currently in the process of
identifying all of its third party vendors, including the Company's landlords,
equipment vendors, service providers, banks and utility companies, and assessing
the impact on the Company if vendors are not Year 2000 compliant.  Each vendor
will receive a letter from the Company requesting written assurance of Year 2000
compliance on a timely basis.  The Company expects that substantially all third
party vendor letters will be sent no later than the end of November 1998.
Management will then evaluate all vendor responses and, if any response is
deemed inadequate, will follow-up with letters, telephone calls and/or meetings
with the applicable vendor.  Throughout this process, management of the Company
will assess both the likelihood of compliance by the vendor and the impact on
the Company if it is determined that the vendor will not be compliant on a
timely basis.  To the extent that the Company determines that a significant
vendor is not likely to be Year 2000 compliant in a timely manner, the Company
intends to develop contingency plans, including obtaining alternative sources
for any product or service material to maintaining uninterrupted business
operations.  The Company expects that its third party vendor compliance program,
including the development and implementation of contingency plans, if necessary,
will be complete by June 1999.  SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS" ON PAGE 15.

  The Company has budgeted approximately $4.1 million in connection with its
information technology Year 2000 compliance efforts, which includes expenditures
related to software and hardware upgrades and consulting services.  The
Company's Year 2000 compliance efforts in connection with third party vendors
involve a significant amount of time and effort by management and employees, the
total cost of which is difficult to precisely estimate.  The Company does not,
however, anticipate that these costs will be material to the Company.  The
Company does not expect significant business disruptions arising from the
failure of its information technology systems or the failure of its third party
vendors to be Year 2000 compliant on a timely basis; however, third party
compliance efforts are not within the Company's control.  There can be no
assurance that all of the Company's information technology systems and material
third party vendors will be Year 2000 compliant, or that the Company will
successfully develop and implement satisfactory contingency plans on a timely
basis.  The occurrence of any such event could have a material adverse effect on
the financial condition or results of operations of the Company.  SEE "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 15.

                                       22
<PAGE>
 
     PART II - OTHER INFORMATION

Item 1.    Legal Proceedings

  The information set forth under Note 8 of the Company's Notes to Consolidated
Financial Statements contained in Part I of this Form 10-Q is incorporated
herein by reference thereto.

Item 2.  Changes in Securities

  On July 15, 1998, the Company issued an aggregate of 3,499,991 shares of
common stock and 2,535,993 shares of 10% Series A exchangeable preferred stock
to BCEF and Market Partners in exchange for the preferred equity interests in 11
of the Company's area developers held by BCEF and Market Partners.  The shares
of common and preferred stock were issued without registration under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance on
Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated
under the Securities Act.

  On August, 5, 1998, the Company issued an aggregate of 783,179 shares of
common stock to two accredited investors in payment of certain consulting fees
provided to the Company.  The shares of common stock were issued without
registration under the Securities Act, in reliance on Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated under the Securities
Act.

Item 6.  Exhibits and Reports on Form 8-K

A.       Exhibits:  See Exhibit Index appearing elsewhere herein, which is
         incorporated herein by reference.

B.       Reports on Form 8-K: The Company filed two reports on Form 8-K and also
         filed a Form 8-K/A for the quarter ended October 4, 1998.

  The first report was dated July 15, 1998 and reported under Item 5 (Other
Events) (i) the renegotiation of its senior credit facility with Bank of America
National Trust and Savings Association and General Electric Capital Corporation
to provide the Company with an additional $39.3 million in financing expiring
October 17, 1998, at which time approximately $219 million of other senior debt
also became due, (ii) the engagement of BT Alex.Brown to assist in the
restructuring of the Company's publicly traded convertible subordinated debt,
(iii) conversion by the Company of a total of $564 million of loans to ten area
developers into majority equity interests in those area developers and (iv) the
acquisition of BCEF and Market Partners preferred equity interests in 11 of the
Company's 13 area developers, for aggregate consideration of (a) $126.8 million
of the Company's 10% Series A Exchangeable Preferred stock, (b) 3.5 million
shares of the Company's common stock and (c) $10.0 million in cash.

  The second report was dated July 15, 1998 and reported under Item 2
(Acquisition or Disposition of Assets) that the Company had completed the
acquisition of the following area developers pursuant to the conversion of
approximately $564 million of loans into a majority equity interest in each of
those area developers (the "July 15 Form 8-K"):  B.C.B.M. Southwest, L.P.
(formerly BC Texas, Inc.), R&A Food Services, L.P. (formerly R&A Food Services,
Inc.), Finest Foodservice, L.L.C., P&L Food Services, L.L.C., BC Boston, L.P.,
BCE West, L.P., GoldenGate, L.L.C., BC Tri-States, L.L.C., BC Superior, L.L.C.
and BC Heartland, L.L.C.  The Company also reported that it had acquired BC
Equity Funding, L.L.C. and Market Partners, L.L.C., funds that previously held
preferred equity interests in 11 of the Company's 13 area developers, including
the ten area developers whose loans were converted.  The Company reported that
the required historical and pro forma financial statements for the
aforementioned acquisitions would be filed as soon as practicable.  On September
28, 1998, the Company filed an amendment on Form 8-K/A to the July 15 Form 8-K
setting forth the required financial statements of the businesses acquired and
pro forma financial information.

  Subsequent to the end of the third quarter of 1998, to date the Company has
filed one Current Report on Form 8-K dated October 2, 1998 reporting under Item
3 (Bankruptcy or Receivership) that on October 5, 1998, the Company and its
Boston Market-related subsidiaries had filed voluntary petitions for protection
under Chapter 11 of the Federal Bankruptcy Code in the U.S. Bankruptcy Court for
the District of Arizona in Phoenix.  In addition, the Company reported under
Item 4 (Changes in Registrant's Certifying Accountant) that the Company's board
of directors had approved the engagement of PricewaterhouseCoopers LLP as
principal accountant to audit the Company's consolidated financial statements to
replace Arthur Andersen LLP.  The Company reported that there 

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<PAGE>
 
had been no disagreements between management of the Company and Arthur Andersen
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure of a nature which if not resolved to
the satisfaction of Authur Andersen LLP would have caused it to make reference
in connection with its report to the subject matter of the disagreements.

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<PAGE>
 
                                  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.



Date:  November 17, 1998


                                            /s/ J. Michael Jenkins
                                 --------------------------------------------- 
                                              J. Michael Jenkins
                                 Chairman of the Board, Chief Executive Officers
                                                 and President


Date:  November 17, 1998


                                            /s/ Lawrence E. White
                                 --------------------------------------------- 
                                              Lawrence E. White
                                           Chief Financial Officer
                                        (Principal Financial Officer)

                                       25
<PAGE>
 
                                 EXHIBIT INDEX


4.1  Registration Rights Agreement dated as of July 15, 1998 among the Company,
     BCI Acquisition Sub, L.L.C. and BC Equity Funding, L.L.C. and Market
     Partners, L.L.C. (incorporated by reference to Exhibit 4.1 to the Company's
     Quarterly Report on Form 10-Q for the second quarter ended July 12, 1998).

10.1 1998 Retention Bonus Program of the Company dated as of October 1, 1998 and
     effective as of October 5, 1998.

10.2 Debtor-in-Possession Credit Agreement dated as of October 5, 1998 among the
     Company and other borrowers named therein, General Electric Capital
     Corporation ("GECC"), as Administrative Agent and a Lender, Bank of America
     National Trust and Savings Association ("Bank of America"), as Collateral
     Agent and a Lender, and the Lenders signatory thereto from time to time.

10.3 First Amendment and Consent to Amended and Restated Facilities Agreement
     dated as of July 15, 1998 by and among the Company, Bank of America and
     GECC (each individually and in their representative capacities)
     (incorporated by reference to Exhibit 10.1 to the Company's Quarterly
     Report on Form 10-Q for the second quarter ended July 12, 1998).

10.4 Second Amendment and Consent to Secured Revolving Credit Agreement dated as
     of July 15, 1998 by and among the Company, Bank of America, GECC, LaSalle
     National Bank and Sanwa Business Credit Corporation and Hour LLC (each
     individually and/or in their representative capacities) (incorporated by
     reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
     for the second quarter ended July 12, 1998).

10.5 Amendment No. 2 to Master Lease Agreement No. 2 dated as of July 15, 1998
     by and among the Company and GECC (individually and in its representative
     capacity) (incorporated by reference to Exhibit 10.3 to the Company's
     Quarterly Report on Form 10-Q for the second quarter ended July 12, 1998).

10.6 Second Amendment and Waiver dated as of October 4, 1998 to Amended and
     Restated Secured Credit Agreement dated as of November 21, 1997 among ENBC,
     Bank of America, as Agent and Issuing Lender, GECC, as Co-Agent and the
     Lenders named therein (incorporated by reference to ENBC's Quarterly Report
     on Form 10-Q for the quarter ended October 4, 1998).

27   Financial Data Schedule


_________________ 
In the case of incorporation by reference to documents filed by Einstein/Noah
Bagel Corp. under the Securities Exchange Act of 1934, as amended, Einstein/Noah
Bagel Corp.'s file number under that Act is 0-21097.

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