The idea seemed almost too good to be true: The founders of Boston Market, maybe the fastest-growing restaurant chain ever, developed a way to build a network of 1,200 restaurants in only a few years and yet still record a profit right from the get-go.

Start-up costs? They weren't a problem. Development costs? No sweat. In a business where everything takes time, Boston Market seemed to offer instant gratification.

When the company went public in 1993, Wall Street took a big bite of this ripe fruit. And it was sweet. As profits rose from $16 million in 1994 to $67 million last year, the stock soared and investors gorged.

But the fruit has begun to sour, according to Wall Street analysts and some investors. In the past few months, Boston Market has gone from a wild success story to a cautionary tale of marketing mistakes, operational difficulties and declining sales. Stores have been closed, the stock has plummeted and Boston Market, once a phenom, is now looking for a "turnaround."

One small sign of the changes at the company is its name. Originally, the stores were called Boston Chicken, and that's still the name of the parent company, based in Golden, Colo. But in 1995, the company moved to a broader menu -- and changed its brand name to Boston Market. (In this article, Boston Market is used throughout.)

A growing number of investors and analysts are now arguing that the company's problems began with its basic structure. More than a dozen lawsuits have contended that the parent company concealed the true health of the chain all along, through what they allege was a complex organizational structure and aggressive accounting.

"If you had accounted for all of this in a more traditional way, then there would've been an indication a long time ago that this pig had to pop," said Joel Sternberg, vice president of DDJ Capital Management in Boston.

The company's executives deny they hid anything in their accounting. And they say they have plans to restore the chain's financial health.

In a nutshell, the Boston Market formula worked like this: the company raised money in the stock market and then loaned it to large, sophisticated franchisees (known as "area developers"), who used the funds to open lots of Boston Market stores in a short time.

These developers then paid the company a franchise fee for each new store, royalties on food sales and interest on the loans. So right away, the Boston Market operation looked hugely profitable. That boosted the stock, which gave the company yet more cheap capital to lend to developers, to open yet more stores.

Even if the individual Boston Market franchisees were hemorrhaging money, that would have no impact on the parent company's bottom line. The franchisees' costs and losses were their own problem.

And it all might have worked out, if everything had gone perfectly at the store level. But it hasn't. Boston Market and its franchisees have had the typical problems of fast-growing start-ups. But they've made additional mistakes along the way, such as overdiscounting their products and overpaying for real estate.

"It was brilliantly conceived, but poorly executed," said Wayne Daniels, a restaurant analyst with Schroder & Co. in New York.

The company is taking steps to revive its flagging operations. It has scaled back expansion plans, streamlined management functions and is testing a store format with more salads, desserts and even some grocery items. Executives predict that store results will rebound in the fourth quarter. Analysts say they'd better be right.

"I don't think the brand is broken, and I don't think some of their {operating} gaffes were as bad as some people say," said Mitchell Pinheiro, a restaurant analyst with Janney Montgomery Scott Inc. in Philadelphia. "But if they have an extra two or three quarters of pain, it could be fatal." Wall Street Darling

Boston Market was an easy sell to Wall Street right from the beginning, in part because its management team had a distinguished pedigree. Two former Blockbuster Video executives, Scott Beck and Saad Nadhir, bought the chain when it was a small Boston operation with just 14 stores. They told investors they could do for chicken what they had done for videos.

Beck and Nadhir planned to franchise, but the key difference would be that they would pick distinguished business executives as franchisees and then lend them the money they needed to open stores. Typically, a franchisee must raise funds independently, which slows the expansion process. Beck wanted to reach critical mass quickly, to build his brand.

"We wanted to basically establish, and preempt anyone else from establishing, a brand in home-meal replacement," said company Chairman Beck.

The beauty of Boston Market's system was that the money the parent company raised was cheap: Rather than going to a bank, the parent company just issued stock. And as long as the stock was hot, money was plentiful.

"The ability to grow that many stores that rapidly would not have happened if they had followed the traditional franchising model," said Ron Paul, president of Technomics Inc., a Chicago-based restaurant consulting firm.

Millions of dollars in franchise fees, sales royalties and interest on loans flowed into Boston Market headquarters. Meanwhile, development costs were being borne by the franchisees -- so the parent company started generating profits almost immediately, and the stock became a darling on Wall Street. The loans the parent company made to the developers were recorded on its books as assets, much as a bank would, so its balance sheet looked especially healthy.

Yet many of the Boston Market franchisees themselves were borrowing heavily and incurring losses. As private companies, the area developers did not have to report their results; the parent company didn't have to report them either, so it was hard for investors to gauge the true health of the restaurants, analysts say.

"Because of the unusual organizational structure, they did not have to report either unit-level profitability or system-wide profitability to help investors understand what was really going on," said analyst Daniels.

Beck, the company's chairman, responded: "Our accounting has always been absolutely accurate relative to the stores that we've owned and the loans that we've had, and we've always presented all that information." He added: "We went far beyond our legal obligation in presenting store information on stores we didn't own."

The first public hint of the problems came at the end of 1995, when the parent company began reporting the area developers' losses, which it explained as a natural function of rapid expansion. Those losses for 1996 totaled $156.5 million, on sales of $865 million.

The company has been releasing steadily more information about its franchisees and their stores in subsequent financial statements. But some analysts complain they still don't have a clear explanation of why the franchisees are losing so much money. Is it because development costs are so high, or because the store network isn't profitable?

What's clear is that business is bad at many Boston Market outlets. Average weekly sales at Boston Market restaurants fell 9 percent, to $20,334, during this year's second quarter, compared with the year-earlier quarter. Analysts estimate sales were down 20 percent in the fiscal third quarter, which ended earlier this month.

And as Boston Market sales have fallen, so has Boston Chicken's stock, dropping from a high of $41 in December to close at $14.12 1/2 on Friday.

The parent company, Boston Chicken Inc., has now had more than a dozen suits filed against it on behalf of shareholders, who argue that the franchisees were controlled by the parent and that their results, therefore, should have been fully disclosed. In one lawsuit, shareholders also allege that the parent was wrong to report as revenue "franchise fees from its Area Developers, the source of which was loans provided to the Area Developers by {Boston Chicken} itself."

The company responded that loans were not used for payments back to the parent. "The stores themselves give off cash; that's what they use to pay royalties and their fees," said Karen Rugen, a company spokeswoman.

But if the franchisees are losing money, it's "silly" to argue that the loans are not ultimately financing the franchise fees, said Richard G. Sloane, associate professor of accounting at the University of Michigan Business School who has been studying Boston Market for the past three years.

"Yeah, you could label the bank notes as they come in and out," he said. "That doesn't change the fact that at the end of the day, the only reason they have enough money to do that is because they have the money coming in from Boston Chicken." A Failed Strategy

Boston Market's business "is all about store performance," according to its chairman, Beck. And if the stores had performed as hoped, he had a sound exit strategy.

The company planned to bankroll the area developers long enough for their stores to become profitable. Once the brand became widely recognized, the parent would convert the developers' debt into equity by taking stock in the businesses.

Then, rather than being owed millions of dollars by a franchisee, the parent would instead own a controlling stake in the franchisee's business. The loan would be erased, the stores would be company-owned rather than franchised, and both the parent and the original franchisee would share in the future profits of the restaurants.

But the stores never became as successful as everyone had planned. Real estate sources say the franchisees, in their fervor to expand, overpaid for locations. That reduced their profitability. Then in 1995, the company began rolling out a new food preparation system to cut costs, in which some dishes were prepared in central kitchens and delivered to the stores. Some analysts said that hurt the quality of Boston Market's food and turned customers off.

The company concedes it made a major mistake when it pushed its lunch business to compete with fast-food restaurants. It blanketed entire markets with coupons that not only cut profits, but also undercut Boston Market's image as offering "home-meal replacement." The lunch business grew, but dinner business fell.

"We were going down the wrong track," said company spokeswoman Rugen.

The franchisees, meanwhile, were stuck. "Normally in a franchise situation, the franchisee would tell {off} the parent," said a former executive with Mayfair Partners, the area developer for Washington and Baltimore. "In this particular case, they had such a strong upper hand, because for every dollar Mayfair was putting up, the parent was putting up two." A Boost From Bagels

Despite sluggish Boston Market sales, the parent company's financial results have been boosted this year by income from a new concept: bagels.

Last year, the company bought two large bagel chains -- Einstein Bros. and Noah's New York Bagels -- and took them public. Since the bagel company is 53 percent-owned by the parent, its income is consolidated with Boston Market's.

And bagels have been good business. In the first half of this year, the bagel operation accounted for 57 percent of the parent company's royalties and franchise fees.

The bagel boom has helped boost the company's financial results in the short term. But its future earnings will depend increasingly on the health of its Boston Market restaurants. That's because in the past two years, the company has bought out three of its area developers -- in New York, Philadelphia and Washington-Baltimore -- transferring those results to the parent company.

The New York and Philadelphia operations are profitable, the company says. But it said the acquisition of Mayfair, which owns the Washington-Baltimore stores, will decrease earnings for the year.

"We wanted a flatter organization," said Rugen in explaining why the company bought out those franchisees. Boston Market is moving quickly now to shore up its operations. In addition to consolidating management, it has fired some of its headquarters staff and is working on product improvements, such as the recently introduced double-marinated chicken.

The company is even testing a new concept for Boston Market stores. An outlet in Charlotte has offered a greater assortment of fresh salads, more desserts, chilled entrees to cook at home and even some grocery products. The initial results have been positive, and the company expanded the test to Denver, but there has been no decision yet to expand it further.

"When you take all of that and add to it the fact that we've been able to redirect so much of our energy as a result of slowing down the store openings, that's really given us a big plus," Beck said.

Certainly, Boston Market has something to work with as it looks for the winning formula of food and financing.

"They have a brand that stands for generally higher quality, perceived {as} healthier food than fast food," said Steven Rockwell, an analyst with BT Alex. Brown in Baltimore. "They have 1,200 relatively new locations in good shape, that are on average well located, so they have a good distribution base."

What they don't have anymore, however, is easy access to capital. With the stock price depressed, the parent company has had to issue bonds to fund franchisees -- and may need to borrow more money for the 150 to 200 stores it plans to open next year. Already, the debt on the company's books has more than quadrupled in the last year, to $542 million.

Beck said the additional debt won't be a problem if store sales turn around, which he is expecting in the fourth quarter. "There's various sources of capital that are available to us on a go-forward basis and, at the end of the day, it's really driven by store performance," he said. BOSTON CHICKEN MONTHLY CLOSING STOCK PRICES Nov. 30, 1996: $38.75 Friday: $14.121/2 SOURCE: Bloomberg News HOW BOSTON MARKET GREW Boston Chicken raises money in the stock market. The company lends the money to franchisees to open Boston Market restaurants. The franchisees pay a franchise fee for each new store, royalties on sales and interest on loans back to Boston Chicken. Boston Chicken records that money as revenue, which steadily increases as more stores open. That pushes the stock up even higher.