<PAGE>
 
                                   FORM 10-Q

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


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

          For the quarterly period ended   September 28, 1998
                                          -----------------------------
             
     [X]  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         1-9684
                        ------------------------


                         CHART HOUSE ENTERPRISES, INC.
----------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)


               Delaware                             33-0147725
----------------------------------------------------------------------------
    (State of other jurisdiction of            (I.R.S. Employer
    Incorporation or organization)             Identification No.)


               640 North LaSalle, Suite 295, Chicago, IL, 60610
----------------------------------------------------------------------------
         (Address of principal executive offices, including zip code)

                                (312) 266-1100
----------------------------------------------------------------------------
             (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 periods 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
                                -------     ---------

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of November 9, 1998:

                Common Stock ($.01 par value) -   11,762,561  
                                                ---------------
<PAGE>
 
                        PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements.

                CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                       (In Thousands, Except Share Data)
                                        
<TABLE>
<CAPTION>
                                                             September 28,     December 29,
ASSETS                                                           1998              1997
                                                           ---------------     ------------
                                                             (Unaudited)
<S>                                                        <C>                 <C>
Current Assets:
  Cash and Equivalents                                         $    210          $    205
  Accounts Receivable                                             2,444             3,249
  Refundable Income Taxes                                             -               537
  Inventories                                                     1,915             2,624
  Prepaid Expenses and Other Current Assets                         397               429
                                                               --------          --------
      Total Current Assets                                        4,966             7,044
                                                               --------          --------

Property and Equipment, at Cost:
  Land                                                            6,001             6,582
  Buildings                                                      16,745            19,145
  Equipment                                                      31,321            29,236
  Leasehold Interests & Improvements                             48,896            46,541
  Construction in Progress                                        1,777               924
                                                               --------          --------
                                                                104,740           102,428

Less:  Accumulated Depreciation and Amortization                 43,028            40,726
                                                               --------          --------
      Net Property & Equipment                                   61,712            61,702
                                                               --------          --------

Leased Property under Capital Leases, Less Accumulated
 Amortization of $6,346 in 1998 and $5,479 in 1997                4,158             5,026
                                                               --------          --------
Deferred Tax Asset                                                5,346             5,675
                                                               --------          --------
Other Assets and Goodwill, Net                                    8,316             8,798
                                                               --------          --------
                                                               $ 84,498          $ 88,245
                                                               ========          ========
</TABLE>
   The accompanying notes are an integral part of these consolidated balance
                                    sheets.

                                      -1-
<PAGE>
 
                CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                       (In Thousands, Except Share Data)



<TABLE>
<CAPTION>
                                                            September 28,   December 29,
LIABILITIES AND STOCKHOLDERS' EQUITY                            1998            1997
                                                            -------------   ------------
                                                             (Unaudited)    
<S>                                                         <C>              <C>
Current Liabilities:                                                        
  Current Portion of Obligations under Capital Leases          $   813         $   816
  Accounts Payable                                               3,409           4,955
  Accrued Liabilities                                           15,269          17,723
                                                               -------         -------
      Total Current Liabilities                                 19,491          23,494
                                                               -------         -------
Long-Term Debt                                                     325               -
                                                               -------         -------
Long-Term Obligations under Capital Leases                       4,952           5,746
                                                               -------         -------
Stockholders' Equity:                                                       
Preferred Stock, $1.00 par value, authorized 10,000,000                     
 shares; none outstanding                                            -               -
Common Stock, $.01 par value, authorized 30,000,000                         
 shares; 11,762,561 shares outstanding in 1998 and                          
 11,727,409 in 1997                                                         
                                                                   118             117
Additional Paid-In Capital                                      61,102          60,926
Accumulated Deficit                                             (1,490)         (2,038)
                                                               -------         -------
      Total Stockholders' Equity                                59,730          59,005
                                                               -------         -------
                                                               $84,498         $88,245
                                                               =======         =======
</TABLE>

             The accompanying notes are an integral part of these
                         consolidated balance sheets.

                                      -2-
<PAGE>
 
                CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In Thousands, Except Per Share Data)
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                Thirteen Weeks      Thirteen Weeks      Thirty-Nine Weeks    Thirty-Nine Weeks
                                                Ended Sept. 28,     Ended Sept. 29,      Ended Sept. 28,      Ended Sept. 29,
                                                     1998                1997                 1998                1997
                                                     ----                ----                 ----                ----
<S>                                             <C>                 <C>                 <C>                  <C>
Revenues                                            $37,018            $ 39,273             $112,692            $116,964
                                                    -------            --------             --------            --------
Costs and Expenses:                                                                      
  Cost of Sales                                      12,336              12,217               36,465              35,904
  Restaurant Labor                                   11,051              10,851               31,855              31,989
  Other Operating Costs                               8,708               9,351               26,494              27,977
  Selling, General and Administrative                                                    
    Expenses                                          3,655               3,784               11,092               9,875
  Depreciation and Amortization                       1,717               2,378                5,361               7,128
  Write Down of Assets and                                                               
    Restructuring and Unusual Charges                     -              43,241                    -              44,174
  Interest Expense                                      193                 586                  583               2,738
  Interest Income                                       (13)               (450)                 (14)             (1,439)
                                                    -------            --------             --------            --------

    Total Costs and Expenses                         37,647              81,958              111,836             158,346
                                                    -------            --------             --------            --------

Income/(Loss) Before Income Taxes                      (629)            (42,685)                 856             (41,382)
Provision/(Benefit) for Income Taxes                   (153)            (10,193)                 308              (9,789)
                                                    -------            --------             --------            --------

Net Income/(Loss)                                   $  (476)           $(32,492)            $    548            $(31,593)
                                                    =======            ========             ========            ========
                                                                                         
Net Income/(Loss) Per Common Share                  $ (0.04)           $  (2.78)            $   0.05            $  (3.06)
                                                    =======            ========             ========            ========
                                                                                         
Weighted Average Shares Outstanding                  11,752              11,696               11,742              10,341
                                                    =======            ========             ========            ========
</TABLE>


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



                                      -3-
<PAGE>
 
                CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In Thousands)
                                  (Unaudited)
<TABLE>
<CAPTION>
 
 
                                                                  Thirty-Nine Weeks     Thirty-Nine Weeks
                                                                 Ended September 28,   Ended September 29,
                                                                        1998                  1997                 
                                                                 -------------------   -------------------
<S>                                                              <C>                   <C>
Cash Flows from Operating Activities:
Net Income/(Loss)                                                       $   548              $(31,593)
Adjustments to Reconcile Net Income/(Loss) to
  Cash Flows from Operating Activities:
    Depreciation and Amortization                                         5,361                 7,128
    Deferred Income Taxes                                                   329                (8,976)
    Loss on Write-Down and Disposition of Assets                              8                38,627
    Change in Net Current Liabilities                                    (1,917)               10,642
                                                                        -------              --------

         Cash Provided by Operating Activities                            4,329                15,828
                                                                        -------              --------
 
Cash Flows from Investing Activities:
  Expenditures for Property and Equipment                                (6,820)               (4,133)
  Reductions/(Additions) of Other Assets                                    (11)                  489
  Proceeds from Disposition of Assets                                     2,802                 3,069
  Payments Received on Notes                                                  -                   718
                                                                        -------              --------
 
         Cash (Used in)/Provided by Investing Activities                 (4,029)                  143
                                                                        -------              --------
 
Cash Flows from Financing Activities:
  Principal Payments on Obligations under Capital Leases                   (797)                 (576)
  Net Borrowings/(Payments) under Revolving Credit Agreement                325               (19,200)
  Payments of Long-Term Debt                                                  -               (12,000)
  Net Proceeds from Sale/Issuance of Common Stock                           177                18,742
                                                                        -------              --------
 
         Cash Used in Financing Activities                                 (295)              (13,034)
                                                                        -------              --------
 
Increase in Cash                                                              5                 2,937
Cash, Beginning of Period                                                   205                   204
                                                                        -------              --------
 
Cash, End of Period                                                     $   210              $  3,141
                                                                        =======              ========
</TABLE>


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


                                      -4-
<PAGE>
 
                CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
                                (In Thousands)
                                  (Unaudited)
<TABLE>
<CAPTION>
 
 
                                                          Thirty-Nine Weeks       Thirty-Nine Weeks
                                                         Ended September 28,     Ended September 29,
                                                                1998                    1997
                                                         -------------------     -------------------
<S>                                                      <C>                     <C>
The Change in Net Current Liabilities is Comprised of                          
  the Following:                                                               
    Decrease in Accounts Receivable                           $   805                 $ 1,939
    Decrease in Refundable Income Taxes                           537                   1,050
    Decrease in Inventories                                       709                     547
    Decrease in Prepaid Expenses and Other                                         
      Current Assets                                               32                     292
    Increase/(Decrease) in Accounts Payable                    (1,546)                  1,829
    Increase/(Decrease) in Accrued Liabilities                 (2,454)                  4,985
                                                              --------                -------
                                                                                   
        Change in Net Current Liabilities                     $(1,917)                $10,642
                                                              =======                 =======
Supplemental Cash Flow Disclosures:                                              
  Cash Paid/(Received) During the Period for:                                    
    Interest (Net of Amount Capitalized)                      $   526                 $ 3,222
    Income Taxes (Net of Refunds)                             $  (376)                $(2,082)
 
</TABLE>


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



                                      -5-
<PAGE>
 
                CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              September 28, 1998
                                  (Unaudited)
                                        

(1)  BASIS OF PRESENTATION

     The accompanying consolidated financial statements of Chart House
Enterprises, Inc. and subsidiaries (the "Company") for the third quarter and
thirty-nine weeks ended September 28, 1998 and September 29, 1997 have been
prepared in accordance with generally accepted accounting principles, and with
the instructions to Form 10-Q.  These financial statements have not been audited
by independent public accountants, but include all adjustments (consisting of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of the financial condition, results of operations and
cash flows for such periods.  However, these results are not necessarily
indicative of results for any other interim period or for the full year due to a
number of factors including, but not limited to, seasonality.

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results could differ from those estimates.

     Certain information and footnote disclosures normally included in financial
statements in accordance with generally accepted accounting principles have been
omitted pursuant to requirements of the Securities and Exchange Commission.
Management believes that the disclosures included in the accompanying interim
financial statements and footnotes are adequate to make the information not
misleading, but should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's annual report on Form 10-
K for the year ended December 29, 1997.

(2)  NET INCOME (LOSS) PER COMMON SHARE

     Earnings per share calculations are based on the weighted average number of
common shares and common stock equivalents (stock options) outstanding during
the period.  Common stock equivalents are anti-dilutive, by definition, in
periods reporting losses and are therefore excluded from the weighted average
number of shares calculation. Anti-dilutive securities are excluded from
calculations of any income per share. Diluted earnings per share equals basic
earnings per share for all periods presented. The incremental effect of dilutive
securities on weighted average shares outstanding used to compute diluted
earnings per share was not material at September 28, 1998 or September 29, 1997.


                                      -6-
<PAGE>
 
(3)  COMPREHENSIVE INCOME

     The Company implemented Statement of Financial Accounting Standards No.
130, ("Comprehensive Income"), effective January 1, 1998.  This statement
requires disclosure of comprehensive income, including per share amounts, in
addition to the consolidated statements of income.  Comprehensive income is
defined as the change in equity resulting from transactions and other events,
exclusive of changes resulting from investments of or distributions to owners.
For the quarters ended September 28, 1998 and September 29, 1997, the Company
had no components of comprehensive income other than net income as reported on
the consolidated statements of operations.  As of September 28, 1998 there were
no items requiring separate disclosure in accordance with this statement.

(4)  NEW ACCOUNTING PRONOUNCEMENTS

     In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up
Activities." This statement is effective for fiscal years beginning after
December 15, 1998. SOP 98-5 provides authoritative guidance on the financial
reporting of start-up and organization costs, including the costs incurred prior
to the opening of a restaurant, or pre-opening costs. This statement requires
that such costs be expensed as incurred as opposed to capitalized and amortized.
The Company will adopt SOP 98-5 for its fiscal year beginning December 29, 1998
and commence expensing pre-opening costs, if any, as incurred. At September 28,
1998, the Company does not have any capitalized costs that would be affected by
this pronouncement.

     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures about
Segments of an Enterprise and Related Information." It is effective for
financial statements for periods beginning after December 15, 1997 but is not
required in interim period financial statements in the first year of
implementation. The standard requires public companies to report upon and
disclose certain information about the company's operating segments. Criteria
defining "operating segments" include the requirement that the chief operating
decision-maker regularly review the segment's operating results to make
decisions about resources to be allocated to the segment and assess its
performance. Currently, management does not operate the business based upon
operating segments. Accordingly, management has not provided segment disclosures
in these financial statements. Should the chief operating decision-maker begin
to use operating segment financial information in making decisions related to
resource allocation and segment performance, the Company would officially comply
with the provisions of SFAS No. 131. If implemented, these provisions will only
have a disclosure impact on the consolidated financial statements.

(5)  LONG-LIVED ASSETS

     On a regular basis, the Company evaluates and assesses its assets and
properties for impairment under the guidelines of Financial Accounting Standards
Board Statement No. 121 ("Accounting for Long-Lived Assets and for Long-Lived
Assets to be Disposed of"), and makes appropriate adjustments if and when an
asset is deemed to be impaired.


                                      -7-
<PAGE>
 
(6)  SPECIAL CHARGES

     During 1996 and 1997 the Company incurred significant restructuring charges
in connection with the Company's strategy to, among other things, revitalize its
core Chart House restaurants, dispose of non-core assets and selected under-
performing Chart House restaurants, and reorganize senior management.

     Five restaurants were held for disposal at December 29, 1997.  One of these
had been written down in the restructuring actions of 1996 and was disposed of
in the third quarter of 1998. Of the four remaining restaurants, one was closed
early in 1998 and was sold during the second quarter. One was closed and
disposed of during the third quarter. Therefore, two of the five held for
disposal at December 29, 1997 remain open at the end of the third quarter. All
restaurants written down in restructuring actions of 1996 and previous years
have been disposed of as of September 28, 1998. The Solana Beach Baking Company,
wholly owned by the Company and held for disposal at December 29, 1997, was sold
during the fourth quarter of 1998.

     Management is uncertain as to the timing of or ability to dispose of the
remaining two restaurants held for disposal at December 29, 1997. Accordingly,
in accordance with criteria for determining assets held for disposal under
Financial Accounting Standards Board Statement No. 121 ("SFAS No. 121"),
"Accounting for Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
the Company no longer defines these restaurant assets as "held for disposal" and
began recognizing depreciation and amortization for these two restaurants in the
second quarter. The impact on depreciation and amortization expense resulting
from the reclassification from "held for disposal" was additional expense of
approximately $48,000 in the second quarter and $38,000 in the third quarter.

     In the third quarter of 1998, amounts paid and charged against the
liability for severance and other special costs totaled $921,000.  At September
28, 1998 and December 29, 1997, the balance of the liability (included in
accrued liabilities) was $740,000 and $4,087,000, respectively.  The Company
anticipates that the remaining liability will be exhausted by the end of the
fiscal year.

(7)  STOCKHOLDERS' EQUITY

     In the third quarter of 1998, options for an aggregate of 200,300 shares of
common stock were cancelled under the Company's various stock option plans at
exercise prices ranging from $5.125 to $13.50 per share.  The weighted average
price of options cancelled during the period was $8.121. The options were
cancelled upon employee resignations from the Company prior to vesting.

     Option grants and option exercises during the third quarter of 1998 were
not significant.


                                      -8-
<PAGE>
 

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

Results of Operations

     The following is a comparative discussion of the results of operations for
the third quarter and thirty-nine week periods ended September 28, 1998 and
September 29, 1997. The results of operations for the thirty-nine weeks of 1998
are not necessarily indicative of the results to be expected for the fiscal year
ending December 28, 1998 due to a number of factors, including, but not limited
to, seasonality. The dollar amounts in the table below are in thousands.

<TABLE>
<CAPTION>
                                      Thirteen Weeks       Thirteen Weeks      Thirty-Nine Weeks    Thirty-Nine Weeks
                                      Ended Sept. 28,      Ended Sept. 29,      Ended Sept. 28,      Ended Sept. 29,
                                           1998                 1997                 1998                 1997
                                     -----------------    ----------------     -----------------    -----------------
                                     Dollars   Percent    Dollars   Percent    Dollars   Percent    Dollars   Percent
                                     -------   -------    -------   -------    -------   -------    -------   -------
                                                  (Unaudited)                               (Unaudited)
<S>                                  <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>
Revenues                              37,018     100.0     39,273     100.0    112,692     100.0    116,964     100.0
                                      ------    ------    -------    ------    -------     -----    -------     -----
                                     
Costs and Expenses:                  
 Cost of Sales                        12,336      33.3     12,217      31.1     36,465      32.4     35,904      30.7
 Restaurant Labor                     11,051      29.9     10,851      27.6     31,855      28.3     31,989      27.4
 Other Operating Costs                 8,708      23.5      9,351      23.8     26,494      23.5     27,977      23.9
 Selling, General and                
  Administrative Expenses              3,655       9.9      3,784       9.6     11,092       9.8      9,875       8.4
 Depreciation and Amortization         1,717       4.6      2,378       6.1      5,361       4.8      7,128       6.1
 Write Down of Assets and            
  Restructuring and Unusual          
  Charges                                  -       0.0     43,241     110.1          -         -     44,174      37.8
 Interest Expense                        193       0.5        586       1.5        583       0.5      2,738       2.3
 Interest Income                         (13)      0.0       (450)     (1.1)       (14)      0.0     (1,439)     (1.2)
                                      ------    ------    -------    ------    -------     -----    -------     -----
                                     
    Total Costs and Expenses          37,647    (101.7)    81,958    (208.7)   111,836      99.2    158,346     135.4
                                      ------    ------    -------    ------    -------     -----    -------     -----
                                     
Income/(Loss) Before Income Taxes       (629)     (1.7)   (42,685)   (108.7)       856       0.8    (41,382)    (35.4)
Provision/(Benefit) for Income       
 Taxes                                  (153)     (0.4)   (10,193)    (26.0)       308       0.3     (9,789)     (8.4)
                                      ------    ------    -------    ------    -------     -----    -------     -----
                                     
Net Income/(Loss)                       (476)     (1.3)   (32,492)    (82.7)       548       0.5    (31,593)    (27.0)
                                      ======    ======    =======    ======    =======     =====    =======     =====
</TABLE>

     Management believes that the most meaningful approach to analyzing results
of operations is through margin analysis, which requires critically reviewing
the relationships that certain costs and expenses bear to revenues. Accordingly,
the discussion below follows this approach.

     Revenues for the third quarter decreased by $2,255,000 from $39,273,000 in
1997 to $37,018,000 in 1998, and for the thirty-nine week period decreased by
$4,272,000 from $116,964,000 in 1997 to $112,692,000 in 1998. The disposition of
five restaurants accounted for $1,278,000 or 57% of the decrease in the third
quarter and $3,864,000 or 90% of the decrease for the thirty-nine week period.
Revenues for comparable restaurants decreased by $977,000 or 2.5% for the third
quarter and $408,000

                                      -9-
<PAGE>
 
or 0.3% for the thirty-nine week period, over the respective periods of the
prior year. The decrease in comparable restaurant revenues resulted from the
introduction during the third quarter of a new, more contemporary menu in nine
restaurants. Six restaurants had previously implemented the new menu in the
second quarter, bringing a total of fifteen restaurants with the new menu. The
successful implementation required greater focus on perfecting the new products
permitting only limited resources to service large party reservations during
this phase. All fifteen restaurants are now accepting large party reservations
as usual.

     The 1997 operating results are impacted by special charges, as referred to
in Note 6 of the accompanying financial statements. The 1997 third quarter
included special charges of $43.2 million, consisting of asset write downs and
other charges. The amount included (i) approximately $21.2 million in write
downs to estimated realizable value of non-core assets and certain Chart House
restaurants held for disposal, and other restaurant assets to be disposed of in
connection with the plan to revitalize the Chart House restaurants, and (ii)
approximately $17.0 million in asset write downs to estimated fair value of
several Chart House restaurants to be used in ongoing operations, including a
$4.2 million write down of goodwill associated with impaired assets. The
remaining $5.0 million represented approximate costs associated with hiring
senior management, severance and other costs related to management and
organizational changes, and estimated termination benefits to be paid to
employees in connection with the relocation of the Company's headquarters. Total
special charges for the 1997 thirty-nine week period were $44.2 million, which
additionally included severance costs, approximately $1.0 million, for
terminated management employees in the 1997 second quarter.

     Chart House restaurant overall operating margins in 1998 diminished over
1997, net of the restructuring charge, both for the third quarter and for the
thirty-nine week period. Revenues, lower due to restaurant closures and the
price reductions taken in the new menu roll-out, affected operating margins in
percentage terms. Cost of sales as a percentage of revenues has increased over
the comparable periods in 1997 primarily because of the larger portions and
better quality food associated with the new menu implementation. In addition,
better quality seafood and pre-portioned meat added to cost of sales. Restaurant
labor was higher as a percentage of revenues in the 1998 periods, again as a
result of new menu implementation and execution. Further, additional field
management was introduced to champion and support the strategic changes required
throughout the system. Other operating costs as a percentage of revenues
decreased in both 1998 periods primarily due to lower insurance costs and fewer
losses on disposition of assets.

     Selling, general and administrative expenses decreased by $129,000 for the
third quarter but were $1,217,000 more than last year in the thirty-nine week
comparison. As a percentage of revenues, both periods show increases over the
comparable periods in 1997. Expenses for the quarter are down from the
comparable period in 1997 as the Company realized the final costs of relocation,
completed in June 1998. For the thirty-nine week period relocation costs of
approximately $850,000 in 1998 had no comparable cost in 1997.

     Depreciation and amortization decreased in actual dollars and as a
percentage of revenues due to significant asset dispositions resulting from the
restructuring efforts.

     Interest expense was $393,000 lower in the 1998 third quarter than in the
comparable period in 1997, and $2,155,000 lower in the current thirty-nine week
period than in the comparable period in 1997

                                     -10-
<PAGE>
 
mostly because the Company reduced outstanding debt balances through the sale of
shares of common stock and the sale of assets. Revolving credit debt balances
have been significantly lower than in 1997, the effect of which has reduced
interest expense.

     Interest income in 1997 was earned principally from the note received in
connection with the sale of the Islands restaurant operations in May 1996. This
note was paid in the fourth quarter of 1997.

     The effective rate for the benefit for income taxes was approximately 24%
for the third quarter period in 1998. The effective rate for the provision for
income taxes was 36% for the thirty-nine week period of 1998. The effective
rates for the benefit for income taxes for the third quarter and thirty-nine
week periods of 1997 were approximately 24%. The losses for those periods were
applied against previous years' taxable income to generate an income tax refund
received in the 1998 fiscal year.

     As a result of the foregoing, net loss, including the special charges,
decreased by $32,016,000 for the third quarter of 1998, from ($32,492,000) to
($476,000), and $32,141,000 for the thirty-nine week period of 1998, from
($31,593,000) to $548,000, from the respective periods of the prior year.
Excluding the 1997 special charges, net income decreased by $812,000 for the
third quarter of 1998, from $336,000, net of taxes, in the third quarter in
1997, to ($476,000). Excluding the special charges in the thirty-nine week
period in 1997, net income decreased by $1,239,000 from $1,787,000, net of
taxes, in the thirty-nine week period in 1997, to $548,000.

Liquidity and Capital Resources
-------------------------------

     The Company requires capital principally for the acquisition and
construction of new restaurants and for the remodeling and refurbishing of
existing restaurants. The Company's primary sources of working capital are cash
flows from operations and borrowings under a revolving credit agreement with two
banks which provides a $20 million loan credit limit with interest at the lead
bank's base rate (or LIBOR plus a maximum 1.25%). Net cash flows from operating,
financing and investing activities are used primarily to reduce or increase
those borrowings. During the nine months of 1998, the Company increased its line
of credit borrowings by $325,000.

     Capital expenditures for the third quarter and the thirty-nine week period
in 1998 were primarily focused on remodeling two restaurants. Additional
expenditure was required to redesign kitchen layouts in some of the restaurants
with the new menu. Management has intentions of continuing restaurant remodels
and other necessary enhancements for the remaining periods in 1998.

     In the opinion of management, based on current estimates related to extent
and timing of revitalization activities, cash flows from operations plus
availability under the $20 million revolving credit agreement should be
sufficient to fund working capital and regular capital expenditure commitments
for 1998. Also, the Company will reduce debt borrowings, if any, to the extent
that proceeds are received from the sale of certain remaining assets held for
disposal. Significant unanticipated changes in the extent and timing of
remodeling and revitalization activities may require seeking alternative sources
of long-term financing. However, no assurance can be given that such financing
will be available or on terms satisfactory to the Company.

                                     -11-
<PAGE>
 
Cost Increases
--------------

     On September 1, 1997, the Federal minimum hourly wage increased from $4.75
to $5.15 per hour. Additionally, the minimum hourly wage to employees based in
California (a state in which the Company operates 19 restaurants), increased
from its current rate of $5.00 to $5.15 per hour, with a further increase to
$5.75 effective March 1, 1998. These measures will impact the Company's
comparability of labor costs throughout the remainder of 1998.

Seasonality and Other Information
---------------------------------

     Historically, the Company's business is seasonal in nature with revenues
and net income for the second and third quarters generally being greater than in
the first and fourth quarters.

     Increased sales at Solana Beach Baking Company, sold in the fourth quarter
of 1998, accounted for an increase in revenues of $114,000 for the third quarter
from $1,443,000 to $1,557,000 and $375,000 for the thirty-nine week period from
$4,373,000 to $4,748,000, from the respective periods of the prior year.
Operating profits decreased by approximately $91,000 from $283,000 to $192,000
for the quarter and $210,000 from $996,000 to $786,000 for the thirty-nine week
period, from the respective periods of the prior year.

Year 2000
---------

     Many software applications and operational programs written in the past
were not designed to recognize calendar dates beginning in the year 2000. The
failure of such applications or systems to properly recognize the dates
beginning in the year 2000 could result in miscalculations or system failures
that may result in an adverse effect on the Company's operations. The Company
has instituted a Year 2000 project to in an attempt to prevent these
occurrences. As of September 28, 1998, the Company is 25% complete in achieving
compliance. The Company has completed Awareness and Assessment and is beginning
the Replacement, Testing and Implementation phases of this project. The Company
expects these phases to be substantially completed by the third quarter of 1999.

     The operation of Chart House restaurants does not rely heavily on
information technology. The most direct operational issue the Company faces with
its information technology is the point-of-sale system at each of the
restaurants. The replacement of the point-of-sale system is one part of a
significant operational and financial systems overhaul expected to be complete
by mid-1999. The overhaul was scheduled and represents the most cost-effective
way of enhancing reporting capabilities; the Company has received assurances
from the manufacturers that the replacement technology will be Year 2000
compliant. The Company expects to fund the overhaul with operating cash flows.
Since the overhaul was contemplated prior to the institution by the Company of a
Year 2000 project, the Company does not believe it will incur significant
incremental expense with respect to Year 2000 compliance. The Company does not
believe that it faces any significant operational issues with embedded
technology or non-IT systems.

     The Company's potential third party risk is with its food distributors.
Preliminary evaluations, including review of disclosures in third-party SEC
filings, indicate that such distributors are addressing

                                     -12-
<PAGE>
 
the issue on a timely basis and do not expect significant operational
difficulties as a result thereof. In identifying a "worst case scenario" the
Company believes that a failure of the project will only affect internal
reporting capabilities. As a result, if the worst case scenario should occur,
the Company's restaurants should be able to function with no anticipated
interruption. Under this scenario, the Company's contingency plan consists of
administrative personnel analyzing source data information, if necessary, to
continue daily operations support for the Company.

     Due to the general uncertainty inherent in the Year 2000 issue as well as
the uncertainty of third party suppliers and distributors becoming Year 2000
compliant, the Company is unable at this time to determine if consequences of
Year 2000 failures, both internal and external, will have a material impact on
the Company's results of operations, liquidity and financial condition. The
Company believes that its Year 2000 compliance efforts should reduce the
likelihood of a material and adverse impact to normal operations.

Forward-Looking Statements
--------------------------

     Certain of the statements contained in this report may be forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
include financial projections, estimates and statements regarding plans,
objectives and expectations of the Company and its management. Examples of
certain forward-looking statements are the Company's estimates of the cost,
timing and effect of its Year 2000 compliance efforts, the anticipated effect of
menu changes and the Company's intentions to dispose of assets. Although the
Company believes that the expectations reflected in all such forward-looking
statements are based upon reasonable assumptions, it can give no assurance that
its expectations will be achieved. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements.

                                     -13-
<PAGE>
 
                          PART II - OTHER INFORMATION
                                        
Item 1.  Legal Proceedings

     In the second quarter of 1997, an action was commenced against the Company
entitled The Edward Fineman Company v. Chart House Enterprises, Inc. & Chart
House, Inc., and Does 1 to 50, Case Number 711373, San Diego Superior Court.
Plaintiff alleges, inter alia, the breach of a five-year cost-plus requirements
contract entered into by the parties on or about July 5, 1995. In May 1997, the
Company terminated the contract on the grounds that one or more Events of
Default, as defined in the terms of the contract, had occurred. Plaintiff claims
$180,000 for non-payment of goods delivered; $65,000 in "cover damages"; $1.75
million in lost profits; and other damages not quantified, including reasonable
attorneys' fees. The Company continues to vigorously defend the lawsuit. A four-
week bench trial commenced in October 1998 and is expected to conclude on or
about November 19, 1998.


Item 6.  Exhibits and Reports on Form 8-K.
    (a)  Exhibits.
         Exhibit No. 27   Financial Data Schedule (required for electronic
         filing only).

    (b)  Reports on Form 8-K.  No reports on Form 8-K were filed during the
         quarter of which this report is filed.


                                  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.


                                 CHART HOUSE ENTERPRISES, INC. (Registrant)



Date:  November 11, 1998         By:  /s/ THOMAS J. WALTERS          
                                      ---------------------                   
                                          Thomas J. Walters
                                          President and Chief Executive Officer


                                 By:  /s/ CYNTHIA T. QUIGLEY
                                      ----------------------  
                                          Cynthia T. Quigley
                                          Vice President - Finance and Chief
                                          Financial Officer

                                     -14-