<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-Q
                                        
           [ X ]  Quarterly report pursuant to Section 13 or 15 (d)
                     of the Securities Exchange Act of 1934
                For the Quarterly Period Ended December 31, 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 0-21036


                          BLIMPIE INTERNATIONAL, INC.
               (Exact name of issuer as specified in its charter)

                                   New Jersey
         (State or Other Jurisdiction of Incorporation or Organization)

                                   13-2908793
                       (IRS Employer Identification No.)

                       740 Broadway, New York, NY  10003
             (Address and Zip Code of Principal Executive Offices)

                                 (212) 673-5900
                          (Issuer's Telephone Number)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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
                                                                -----    -----

There were 9,444,226 shares of the registrant's common stock outstanding as of
February 11, 1999.
<PAGE>
 
                          Blimpie International, Inc.

                         Quarterly Report on Form 10-Q
                    For the Quarter Ended December 31, 1998


                               Table of Contents

                                                                          Page 
                                                                         Number
                                                                         ------
PART I.  FINANCIAL INFORMATION                                            
                                                                          
Item 1.  Financial Statements (Unaudited):                                
                                                                          
         Condensed Consolidated Balance Sheets  December 31, 1998         
         and June 30, 1998                                                 3
                                                                          
         Condensed Consolidated Statements of Income  Three and Six       
         Months Ended December 31, 1998 and 1997                           4
                                                                          
         Condensed Consolidated Statements of Cash Flows  Six             
         Months Ended December 31, 1998 and 1997                           5
                                                                          
         Notes to Condensed Consolidated Financial Statements              6
                                                                          
Item 2.  Management's Discussion and Analysis of Financial                
         Condition and Results of Operations                               8
                                                                          
PART II. OTHER INFORMATION                                                
                                                                          
Item 6.  Exhibits and Reports on Form 8-K                                 14
                                                                          
SIGNATURES                                                                15

                                       2
<PAGE>
 
                        PART 1.  FINANCIAL INFORMATION

Item 1.  Financial Statements

                 BLIMPIE INTERNATIONAL, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE> 
<CAPTION> 
(in thousands)                                                       December 31     June 30
                                                                         1998          1998
                                                                     -----------   -----------
Assets                                                               (Unaudited)      (Note)
<S>                                                                     <C>           <C> 
Current assets:
 Cash and cash equivalents                                              $ 4,738      $ 4,021
 Investments                                                              4,489        4,495
 Accounts receivable, net                                                 3,652        3,007
 Prepaid expenses and other current assets                                  604          498
 Deferred income taxes                                                      211          211
 Current portion of notes receivable                                        665          569
                                                                        -------      -------
Total current assets                                                     14,359       12,801
                                                                        -------      -------
Property and equipment, net                                               1,717        1,584
                                                                        -------      -------
Other assets:
 Notes receivable less current portion, net                               1,049        1,324
 Investments                                                              3,694        3,686
 Trademarks, net                                                          8,612        8,568
 Other                                                                      401          360
                                                                        -------      -------
Total other assets                                                       13,756       13,938
                                                                        -------      -------
                                                                        $29,832      $28,323
                                                                        =======      ======= 
Liabilities and Shareholders' Equity
Current liabilities:
 Accounts payable and other current liabilities                         $ 4,374      $ 3,060
 Income taxes payable                                                       351          276
                                                                        -------      -------
Total current liabilities                                                 4,725        3,336
Deferred revenue                                                            343          736
Deferred income taxes                                                       218          218
Trademark obligations                                                     3,204        3,408
Shareholders' equity:
 Common stock, $.01 par value                                                96           96
 Additional paid-in capital                                               8,634        8,420
 Retained earnings                                                       13,121       12,519
 Net unrealized gain on marketable securities                               108           51
                                                                        -------      -------
                                                                         21,959       21,086
 Treasury stock                                                            (407)        (251)
 Subscriptions receivable                                                  (210)        (210)
                                                                        -------      -------
Total shareholders' equity                                               21,342       20,625
                                                                        -------      -------
                                                                        $29,832      $28,323
                                                                        =======      ======= 

</TABLE> 
Note: The condensed consolidated balance sheet at June 30, 1998 has been derived
from the audited consolidated financial statements of the Company at that date
but does not include all of the information required by generally accepted
accounting principles for complete financial statements.

See notes to condensed consolidated financial statements.

                                       3
<PAGE>
 
                 BLIMPIE INTERNATIONAL, INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                  (Unaudited)

<TABLE> 
<CAPTION> 
                                                Three months ended        Six months ended
(in thousands, except for per share amounts)       December 31               December 31
                                                  1998        1997        1998         1997
                                                --------    -------     --------     --------
<S>                                             <C>         <C>         <C>          <C> 
Revenues
 Continuing fees                                 $4,537      $4,166      $9,337       $8,397
 Subfranchisor fees, master license fees
    and sale of franchises                        1,096         899       2,182        2,133
 Store equipment sales                            2,482       4,244       5,074        8,518
 Management fees and other income                   397         345         693          639
                                                 ------      ------     -------      -------
                                                  8,512       9,654      17,286       19,687
Expenses
 Subfranchisors' share of franchise
    and continuing fees                           3,099       2,530       6,070        5,287
 Store equipment cost of sales                    2,048       3,486       4,432        7,049
 Selling, general and administrative expenses     2,869       2,613       5,746        5,207
                                                 ------      ------     -------      -------
                                                  8,016       8,629      16,248       17,543
                                                 ------      ------     -------      -------

Operating income                                    496       1,025       1,038        2,144
Interest income                                     235         202         420          385
                                                 ------      ------     -------      -------

Income before income taxes                          731       1,227       1,458        2,529
Income taxes                                        263         466         524          965
                                                 ------      ------     -------      -------

Net income                                       $  468      $  761     $   934      $ 1,564
                                                 ======      ======     =======      =======

Basic earnings per share                         $ 0.05      $ 0.08     $  0.10      $  0.16
                                                 ======      ======     =======      =======
Diluted earnings per share                       $ 0.05      $ 0.08     $  0.10      $  0.16
                                                 ======      ======     =======      =======

Weighted average basic shares outstanding         9,484       9,545       9,491        9,544
                                                 ======      ======     =======      =======
Weighted average diluted shares outstanding       9,484       9,570       9,491        9,569
                                                 ======      ======     =======      =======
</TABLE> 
See notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
                 BLIMPIE INTERNATIONAL, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
<TABLE> 
<CAPTION> 
                                                                           Six months ended
(in thousands)                                                               December 31
                                                                           1998        1997
                                                                         --------    --------
<S>                                                                       <C>         <C> 
Cash Flows From Operating Activities
 Net income                                                              $  934       $1,564
 Adjustments to reconcile net income to net
   cash provided by operating activities:
     Depreciation and amortization                                          372          322
     Incentive stock granted                                                 10           86
     Decrease (increase) in:
       Accounts receivable                                                 (645)          10
       Prepaid expenses and other current assets                           (106)        (281)
       Other assets                                                         (41)        (124)
       Notes receivable                                                     179          147
     Increase (decrease) in:
       Accounts payable and other current liabilities                     1,314       (1,350)
       Income taxes payable                                                  75          310
       Deferred revenue                                                    (393)        (196)
                                                                         ------       ------
         Net cash provided by operating activities                        1,699          488
                                                                         ------       ------

Cash Flows From Investing Activities
 Purchase of available-for-sale securities                               (1,553)      (2,338)
 Proceeds from sale of available-for-sale securities                      1,608        2,233
 Reinvested dividends of available-for-sale securities                        0           (3)
 Purchase of trademarks                                                    (188)         (93)
 Acquisition of property and equipment                                     (361)        (141)
                                                                         ------       ------
         Net cash used in investing activities                             (494)        (342)
                                                                         ------       ------

Cash Flows From Financing Activities
 Purchase of treasury stock                                                (156)           0
 Proceeds from stock warrants/options exercised                               0           12
 Cash dividend paid                                                        (332)        (334)
 Repayment of long-term debt                                                  0           (2)
                                                                         ------       ------
         Net cash used in financing activities                             (488)        (324)
                                                                         ------       ------

Net increase in cash and cash equivalents                                   717         (178)
Cash and cash equivalents at beginning of period                          4,021        3,532
                                                                         ------       ------
Cash and cash equivalents at end of period                               $4,738       $3,354
                                                                         ======       ====== 

</TABLE> 
See notes to condensed consolidated financial statements.

                                       5
<PAGE>
 
Notes To Condensed Consolidated Financial Statements
For the Six Months Ended December 31, 1998 (Unaudited)

The unaudited interim financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial statements and
should be read in conjunction with the Company's June 30, 1998 Annual Report on
Form 10-K.

The unaudited financial statements include all adjustments consisting of only
normal recurring accruals which are, in the opinion of management, necessary to
present a fair statement of financial position as of December 31, 1998 and the
results of operations and cash flows for the periods then ended. Results of
operations for the period are not necessarily indicative of the results to be
expected for the full year.

Earnings per Share
Earnings per share on a basic and diluted basis is calculated as follows:

<TABLE>
<CAPTION>
                                                      Three months ended       Six months ended
                                                         December 31,            December 31,
(in thousands, except per share amounts)               1998       1997         1998       1997
                                                      ------     ------       ------     ------
<S>                                                   <C>        <C>          <C>        <C> 
Net income                                            $  468     $  761       $  934     $1,564
                                                      ======     ======       ======     ======
                                                                                         
Calculation of weighted average shares                                                   
   outstanding plus assumed conversions:                                                 
      Weighted average basic shares outstanding        9,484      9,545        9,491      9,544
      Effect of dilutive employee stock options            0         25            0         25
                                                      ------     ------       ------     ------
      Weighted average diluted shares outstanding      9,484      9,570        9,491      9,569
                                                      ======     ======       ======     ======
Basic earnings per share                              $ 0.05     $ 0.08       $ 0.10     $ 0.16
                                                      ======     ======       ======     ======
Diluted earnings per share                            $ 0.05     $ 0.08       $ 0.10     $ 0.16
                                                      ======     ======       ======     ======
</TABLE>
Comprehensive Income
Comprehensive income consists of the following:

<TABLE> 
<CAPTION> 
                                                      Three months ended       Six months ended
                                                         December 31,            December 31,
(in thousands)                                         1998       1997         1998       1997
                                                      ------     ------       ------     ------
<S>                                                   <C>        <C>          <C>        <C> 
Net income                                            $  468     $  761       $  934     $1,564
Net unrealized gain (loss) on marketable securities      (34)         6           57         (4)
                                                      ------     ------       ------     ------
Comprehensive income                                  $  434     $  767       $  991     $1,560
                                                      ======     ======       ======     ======
</TABLE> 

Trademark Interests
On February 3, 1999, Blimpie International, Inc. (the "Company") acquired all of
the rights, titles, and interests in the domestic rights to the Blimpie
trademarks and Blimpie marketing system owned by Anthony P. Conza, the Chairman
and Chief Executive Officer ("Conza") and David L. Siegel, the Vice Chairman and
Chief Operating Officer ("Siegel") (together, the "individuals"). Previously,
such interests in the domestic rights were licensed to the Company by the
individuals under 99 year grants made by Conza and Siegel in 1976. The Company
acquired ownership of the domestic trademark rights in exchange for amending a
1997 agreement relating to international trademark rights, as described below.

Prior to 1997, the international trademark rights were owned 60% by Conza and
Siegel and 40% by Metropolitan Blimpie, Inc. ("MBI"), an unrelated company.
Under a 1997 agreement between the Company and the individuals, the Company
acquired ownership of the 60% interest in the international trademark rights
owned by the individuals for $4.5 million in cash plus certain contingent
consideration. Generally, the individuals were entitled to receive an additional
$150,000 per year for 50 years beginning in 2002, or had the option to elect a
lump sum payment

                                       6
<PAGE>
 
of $3 million ($2 million to Conza and $1 million to Siegel), with such payments
to be made on January 2, 2001.

In order to satisfy the liability for the contingent consideration, and in
consideration of the transfer of the domestic trademark rights, the Company
amended the 1997 agreement. The amended agreement permitted Conza and Siegel to
exercise the lump sum payment options and receive payment on or before February
15, 1999. Both individuals exercised their options, and were paid their lump-sum
payments on February 10, 1999. In connection with such payments, the individuals
repaid certain demand notes aggregating $150,000, plus accrued interest,
relating to purchases of shares of the Company's common stock. Such demand notes
had been recorded as a reduction of shareholders' equity.

As a result of the above transactions, the Company now owns an undivided 60%
interest in the domestic and international Blimpie trademark rights. The
remaining 40% of such rights are owned by MBI. Conza and Siegel no longer own
any of the rights to the Blimpie trademarks and the Blimpie marketing system.
Pursuant to various agreements among the Company, MBI, and the individuals, the
Company now has the exclusive domestic trademark rights for 35 entire states and
various portions of other states. MBI has the exclusive trademark rights in the
remainder of the United States. In 1991, MBI granted the Company the right to
license MBI's Blimpie trademark rights in 10 entire states and various portions
of other states, as well as in all territories outside of the continental United
States. In consideration of the grants made to the Company by MBI, the Company
agreed to pay to MBI specified percentages of all net revenues derived from the
licensed territories (generally 30% of the gross profit of such revenues).

                                       7
<PAGE>
 
Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

          The following discussion contains forward-looking statements subject
to the safe harbor created by the Private Securities Litigation Reform Act of
1995.  The words "may," "would," "could," "will," "expect," "estimate,"
"believe," "intends," "plans" and similar expressions and variations thereof are
intended to identify forward-looking statements.  Management cautions that these
statements represent projections and estimates of future performance and involve
certain risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors including, without limitation, the Company's ability
to successfully implement the new concepts currently being formulated; changes
in global and local business and economic conditions; consumer preferences,
spending patterns and demographic trends; food, labor and other operating costs;
availability and cost of land and construction; currency exchange rates; and
other risks outside the control of the Company referred to in the Company's
registration statement and periodic reports filed with the Securities and
Exchange Commission.

Overview

The Company's principal operations are centered around the Blimpie Subs & Salads
chain of quick service restaurants. As of December 31, 1998, there were more
than 2,060 Blimpie locations franchised by the Company in operation in the
United States and 13 other countries. The chain's growth has been achieved
through a system of subfranchisors that purchased the rights to develop certain
territories. The subfranchisor fees were a significant and profitable revenue
source for the Company through fiscal 1996. By the end of fiscal 1996, the
majority of the domestic subfranchise rights had been sold, and this revenue
stream began to decline. As a result, the Company's profitability also declined,
despite the continued growth in the number of franchised units opened and an
increase in continuing fee revenues.

Faced with declining profitability despite the consistent growth in the number
of Blimpie outlets and continuing fees, the Company implemented several new
initiatives, including the acquisition or development of three new brands. The
three new franchise concepts are Maui Tacos(TM), Pasta Central(TM) and Smoothie
Island(TM). Maui Tacos restaurants provide a health-oriented, affordable menu of
"Maui-Mex" items, including traditional Mexican foods marinated in Hawaiian
spices. Pasta Central's baked pasta meals are designed to address current eating
trends for eat-in or take home replacement meals. Smoothie Island is a selection
of blended beverages of frozen yogurt, fruit and nutritional supplements sold
through the Blimpie, Maui Tacos and Pasta Central locations.

In July 1998 the Company sold the first subfranchise territory for Maui Tacos
covering the greater Atlanta, Georgia market. The Company opened the first
mainland Maui Tacos location in Atlanta, Georgia on October 12, 1998 as a
company-owned store. The store sales were approximately $107,000 through
December 31, 1998, and total food costs were approximately 34% of store sales
for the period. These results were negatively impacted by slow holiday sales and
high grand opening expenses and other promotional food costs. The Company
anticipates that it will open additional company-owned stores for this or its
other new concepts, but does not anticipate that sales from company-owned stores
will represent a significant portion of its revenues. Therefore, net store
operations are recorded in "Management fees and other income" in the Company's
Statement of Income for the three months ended December 31, 1998.

As of December 31, 1998, there were 12 Smoothie Island locations in operation,
all of which were located in Blimpie or Maui Tacos locations. The first two
Pasta Central locations are currently under construction as co-brands with
Blimpie locations, and are scheduled to be opened in March 1999.

                                       8
<PAGE>
 
The Company believes that these new concepts will be well received and that the
Blimpie brand will continue to be successful. The Company anticipates that it
will be generating revenues in each of these new concepts by the end of the
third fiscal quarter ended March 31, 1999. The new concepts have increased
selling, general and administrative expenses during the past year, and
management believes that these expenses will continue to increase as these
brands require additional support through the early stages of their growth.
There can be no assurance that the introduction of these concepts will continue
to result in increased revenues, or that such revenues will exceed the related
costs.

Results of Operations

Three and Six Months Ended December 31, 1998 Compared with Three and Six Months
Ended December 31, 1997

     The Company's net income decreased 38.5% to $468,000 in the three months
ended December 31, 1998 from $761,000 in the three months ended December 31,
1997. The Company's basic and diluted earnings per share decreased 37.5% to
$0.05 per share in the three months ended December 31, 1998 from $0.08 per share
in the three months ended December 31, 1997. Such decreases are attributable
primarily to decreases in store equipment sales and an increase in selling,
general and administrative expenses, all of which are discussed below.

     The Company's continuing fees derived from franchises increased 8.9% to
$4,537,000 in the three months ended December 31, 1998 from $4,166,000 in the
three months ended December 31, 1997. During the six months ended December 31,
1998, continuing fees derived from franchises increased 11.2% to $9,337,000 from
$8,397,000 for the six months ended December 31, 1997. These increases were due
to the 13.3% increase in the number of open outlets from 1,819 at December 31,
1997 to 2,061 at December 31, 1998. The 13.3% increase in total open outlets is
net of outlets closed, and includes a 6.1% increase in traditional outlets, an
18.4% increase in non-traditional outlets, and a 121.7% increase in
international outlets. Generally, the non-traditional outlets are smaller
locations within convenience stores, and have lower sales volumes than the
traditional outlets. Because of the increase in the percentage of non-
traditional outlets versus traditional outlets, revenues from continuing fees
increased at a slower rate than the increase in total open outlets.

     Subfranchisor fees, master license fees and fees from the sales and resales
of franchises increased 21.9% to $1,096,000 in the three months ended December
31, 1998 from $899,000 in the three months ended December 31, 1997. The
following table summarizes the components of these fees for the three and six
months ended December 31, 1998 and 1997:

                                       9
<PAGE>
 
<TABLE>
<CAPTION>
                                        Three Months Ended
                                           December 31,
                                 1998              1997            Change
                             ----------------------------------------------
                             
<S>                          <C>                 <C>               <C>
Subfranchisor fees           $  125,000          $148,000           (15.5)%
Master license fees                 -0-            10,000          (100.0)%
Franchise and resale fees       971,000           741,000            31.0 %
                             ----------------------------------------------
   Total                     $1,096,000          $899,000            21.9 %
                             ==============================================
                             
Outlets opened in period             84               104           (19.2)%
                             ==============================================


                                         Six Months Ended
                                           December 31,
                                 1998              1997             Change
                             ----------------------------------------------
Subfranchisor fees           $  403,000        $  342,000            17.8 %
Master license fees             100,000           212,000           (52.8)%
Franchise and resale fees     1,679,000         1,579,000             6.3 %
                             ----------------------------------------------
   Total                     $2,182,000        $2,133,000             2.3 %
                             ==============================================
                             
Outlets opened in period            166               224           (25.9)%
                             ==============================================
</TABLE>

     Subfranchise fees decreased 15.5% in the three months ended December 31,
1998 as compared to 1997 due to an absence of existing subfranchise expansions
in the current year. Subfranchise fees increased 17.8% in the six month period
due primarily to the sale of a Maui Tacos International, Inc. subfranchise
territory in the current year. There were no master license agreements entered
into in the three months ended December 31, 1998. Master license fees decreased
52.8% in the six month period due to the recognition of deferred fees from
previously sold territories in the 1997 period, with no corresponding revenues
in the current period. Revenues from sales of franchises and resale fees
increased 31.0% in the three months ended December 31, 1998 and 6.3% in the six
months ended December 31, 1998 due primarily to an increase in the number of
franchise fees recognized for franchise agreements awarded for which no store
was opened within two years of the date of the franchise agreement. The number
of new outlets opened decreased 19.2% to 84 new outlets in the three months
ended December 31, 1998 from 104 in the three months ended December 31, 1997.
The number of new outlets opened decreased 25.9% to 166 new outlets in the six
months ended December 31, 1998 from 224 in the six months ended December 31,
1997.

     As of December 31, 1998, the Company had Master Licensors operating in 26
countries, and 51 Blimpie outlets operating in 13 of these countries. The
Company's focus through the remainder of fiscal 1999 will be to continue to sell
new international territories while assisting our Master Licensors with the
aggressive development of the existing areas. Although the Company has
strengthened its infrastructure and created an international department to
support international expansion, the international market has not developed as
rapidly as expected with regard to master license fees and outlet openings.
There can be no assurance that the Company's investment in the international
marketplace will increase either franchise grants, master license fees or outlet
openings, or if such increases do occur, that they will result in material
increments in revenues, or that such revenues will exceed the related costs.

     Store equipment sales decreased 41.5% to $2,482,000 in the three months
ended December 31, 1998 from $4,244,000 in the three months ended December 31,
1997. Store equipment sales decreased 40.4% to $5,074,000 in the six months
ended December 31, 1998 

                                       10
<PAGE>
 
from $8,518,000 in the six months ended December 31, 1997. These decreases were
due to fewer store openings in the current periods, as well as a greater
percentage of the new franchises being "new concept" franchises, which typically
purchase less equipment than traditional locations due to their smaller size.

     Management fees and other income for the three months ended December 31,
1998 increased 15.1% to $397,000 from $345,000 in the three months ended
December 31, 1997. Management fees and other income for the six months ended
December 31, 1998 increased 8.5% to $693,000 from $639,000 in the six months
ended December 31, 1997. These increases were due to higher management fees
resulting from increases in related personnel costs which are charged to
affiliated entities.

     The Subfranchisors' shares of continuing and franchise fees increased 22.5%
to $3,099,000 in the three months ended December 31, 1998 from $2,530,000 in the
three months ended December 31, 1997. The Subfranchisors' shares of continuing
and franchise fees increased 14.8% to $6,070,000 in the six months ended
December 31, 1998 from $5,287,000 in the six months ended December 31, 1997.
These increases were due to the increases in continuing fees and franchise and
resale fees.

     Store equipment cost of sales decreased 41.3% to $2,048,000 in the three
months ended December 31, 1998 from $3,486,000 in the three months ended
December 31, 1997. Store equipment cost of sales decreased 37.1% to $4,432,000
in the six months ended December 31, 1998 from $7,049,000 in the six months
ended December 31, 1997. These decreases were due to the decreases in store
equipment sales. The gross margin on store equipment sales decreased to 17.5% in
the three months ended December 31, 1998 from 17.9% in the three months ended
December 31, 1997 and to 12.7% in the six months ended December 31, 1998 from
17.2% in the six months ended December 31, 1997. The decrease in the six month
period is due to an unfavorable product mix in the first quarter of the current
fiscal year.

     Selling, general and administrative expense rose 9.8% to $2,869,000 in the
three months ended December 31, 1998 from $2,613,000 in the three months ended
December 31, 1997. Selling, general and administrative expense rose 10.4% to
$5,746,000 in the six months ended December 31, 1998 from $5,207,000 in the six
months ended December 31, 1997. These increases were due primarily to additional
personnel and related costs associated with the growth in number of Blimpie
outlets, as well as personnel, legal and other costs incurred in the development
of the Maui Tacos, Smoothie Island and Pasta Central brands.

     Interest income in the three months ended December 31, 1998 increased by
16.3% to $235,000 from $202,000 in the three months ended December 31, 1997.
Interest income in the six months ended December 31, 1998 increased by 9.1% to
$420,000 from $385,000 in the six months ended December 31, 1997. These
increases were due to higher average cash and investment balances outstanding in
the 1998 periods.

     The effective income tax rates (income taxes expressed as a percentage of
pre-tax income) were approximately 36% in the three and six months ended
December 31, 1998 compared to approximately 38% in the 1997 periods. The
decreases were due to a lower effective state income tax rate in the 1998
periods.

                                       11
<PAGE>
 
Liquidity and Capital Resources

     The Company generated cash flows from operating activities of $1,699,000
and $488,000 in the six months ended December 31, 1998 and 1997, respectively.
The increase in the six months ended December 31, 1998 was primarily the result
of an increase in accounts payable and other current liabilities in the 1998
period compared to a decrease in the prior period, partially offset by lower net
income.

     Net cash used in investing activities during the six months ended December
31, 1998 and 1997 totaled $494,000 and $342,000, respectively. The 1998 period
included greater purchases of trademarks and property and equipment, partially
offset by net proceeds from the sale of available-for-sale securities. On
February 10, 1999, the Company paid a total of $2,850,000 in satisfaction of
certain amounts due to and from two officers of the Company. See "Trademark
Interests" footnote to the December 31, 1998 Quarterly Report on Form 10-Q for
additional information regarding these payments.

     Net cash used in financing activities was $488,000 in the six months ended
December 31, 1998 and $324,000 in the six months ended December 31, 1997. The
increase in the cash used in financing activities was due to the implementation
of a plan announced by the Company in fiscal 1998 to repurchase up to 250,000
shares of its Common Stock. As of February 11, 1999 the Company had repurchased
133,000 shares pursuant to this plan.

     The Company's primary liquidity needs arise from expansion, research and
development, capital expenditures and trademark obligations. These needs are
primarily met by the cash flows from operations and from the Company's cash and
investments. The Company believes that the cash flows from operations and the
Company's cash and investments will be sufficient to fund its future liquidity
needs for the foreseeable future.

Impact of Year 2000

     The Company's business and relationships with its business partners and
customers depend significantly on a number of computer software programs,
internal operating systems and connections to other networks. The failure of any
of these programs, systems or networks to successfully address the Year 2000
data rollover problem could have a material adverse effect on the Company's
business, financial condition and results of operations. Many installed computer
software and network processing systems currently accept only two-digit entries
in the date code field and may need to be upgraded or replaced in order to
accurately record and process information and transactions on and after January
1, 2000.

     The Company utilizes personal computers that are connected to a network for
all of its employee workstations. These personal computers all utilize Microsoft
Windows NT as their operating system. The Company believes that the Windows NT
operating system is Year 2000 compliant. Additionally, the Company recently
installed new software to operate all of its accounting operations. The new
software was implemented to improve operating efficiencies, as well as to
address Year 2000 issues. The Company believes this new software, and the
computer hardware on which it runs, is Year 2000 compliant. Management
anticipates that all accounting operations will be performed using the Year 2000
compliant systems by March 1999. The majority of the costs of installing and
implementing the aforementioned software and hardware was incurred prior to
December 31, 1998. The Company anticipates that any additional expenditures to
complete the implementation will be funded from cash flows generated by
operations.

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<PAGE>
 
     The Company primarily does business with its subfranchisors and its
franchisees which in turn deal with retail customers and food distribution
companies. The Company has considered the transactions it conducts with its
subfranchisors and franchisees in its analyses of the Year 2000 issue, and
believes that it has completed substantially all modifications to the computer
systems used in these transactions to ensure the systems are Year 2000
compliant. The Company is not certain as to whether the computer software and
business systems of its franchisees' suppliers are Year 2000 compliant. The
failure or delay of these distributors to successfully address the Year 2000
issue may result in delays in placing or receiving orders for goods and services
at the store level. Such delays may result in lost revenues for the franchisees,
and in turn, lower continuing fee revenue for the Company. The Company
anticipates that such delays and lost revenues, if any, would not be material.

     The Company intends to continue to monitor its Year 2000 compliance and to
correct any noncompliance as it is discovered. Management anticipates funding
such efforts out of operating cash flow. The Company believes that the effects
of any noncompliance on its part, or by its customers and suppliers, will not
have a material adverse effect on the Company's business, financial condition,
results of operations or cash flows.

                                       13
<PAGE>
 
                          PART II.  Other Information
                                        
Item 6.  Exhibits and Reports on Form 8-K

         (a) Exhibits.  The following exhibits are filed as part of this report:
             ---------     

Exhibit no.  Description

27           Financial Data Schedule


         (b) No Current Reports on Form 8-K were filed by the Company during
             the quarter for which this report has been filed.

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<PAGE>
 
                                   SIGNATURES
                                        
     In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                  BLIMPIE International, Inc.
                                         (Registrant)

Dated:  February 12, 1999         By: /s/  Brian D. Lane
                                      ------------------------------------------
                                      Brian D. Lane
                                      Vice President and Chief Financial Officer
                                      (Principal Financial Officer)

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