<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 March 31, 1999

                                      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 9,445,926 shares of the registrant's common stock outstanding as of
May 12, 1999.
<PAGE>
 
                          BLIMPIE INTERNATIONAL, INC.

                         QUARTERLY REPORT ON FORM 10-Q
                     FOR THE QUARTER ENDED MARCH 31, 1999


                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                          PAGE
                                                                         NUMBER
                                                                         ------
<S>                                                                      <C>
   PART I.   FINANCIAL INFORMATION                                          
                                                                            
   Item 1.   Financial Statements (Unaudited):                              
                                                                            
             Condensed Consolidated Balance Sheets - March 31, 1999         
                and June 30, 1998                                           3
                                                                            
             Condensed Consolidated Statements of Income - Three and Nine   
                Months Ended March 31, 1999 and 1998                        4
                                                                            
             Condensed Consolidated Statements of Cash Flows - Nine         
                Months Ended March 31, 1999 and 1998                        5
                                                                            
             Notes to Condensed Consolidated Financial Statements           6
                                                                            
   Item 2.   Management's Discussion and Analysis of Financial              
                Condition and Results of Operations                         7
                                                                            
   PART II.  OTHER INFORMATION                                              
                                                                            
   Item 6.   Exhibits and Reports on Form 8-K                              13
                                                                           
   SIGNATURES                                                              14
</TABLE>

                                       2
<PAGE>
 
                         PART 1. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                 BLIMPIE INTERNATIONAL, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
(in thousands)                                                    MARCH 31                JUNE 30
                                                                    1999                    1998
                                                                 ------------           -------------
ASSETS                                                           (UNAUDITED)               (NOTE)
Current assets:                                                  
<S>                                                              <C>                    <C>    
    Cash and cash equivalents                                    $      3,715           $       4,021
    Investments                                                         5,583                   4,495
    Accounts receivable, net                                            2,893                   3,007
    Prepaid expenses and other current assets                             449                     498
    Deferred income taxes                                                 211                     211
    Current portion of notes receivable                                   561                     569
                                                                 ------------           -------------
Total current assets                                                   13,412                  12,801
                                                                 ------------           -------------
Property and equipment, net                                             1,722                   1,584
                                                                 ------------           -------------
Other assets:                                                                
    Notes receivable less current portion, net                            934                   1,324
    Investments                                                         1,002                   3,686
    Trademarks, net                                                     8,545                   8,568
    Other                                                                 404                     360
                                                                 ------------           -------------
Total other assets                                                     10,885                  13,938
                                                                 ------------           -------------
                                                                 $     26,019           $      28,323
                                                                 ============           =============
LIABILITIES AND SHAREHOLDERS' EQUITY                                         
Current liabilities:                                                         
    Accounts payable and other current liabilities               $      2,802           $       3,060
    Income taxes payable                                                  164                     276
                                                                 ------------           -------------
Total current liabilities                                               2,966                   3,336
Deferred revenue                                                          725                     736
Deferred income taxes                                                     218                     218
Trademark obligations                                                     204                   3,408
Shareholders' equity:                                                        
    Common stock, $.01 par value                                           96                      96
    Additional paid-in capital                                          8,638                   8,420
    Retained earnings                                                  13,581                  12,519
    Net unrealized gain on marketable securities                           72                      51
                                                                 ------------           ------------- 
                                                                       22,387                  21,086
    Treasury stock                                                       (421)                   (251)
    Subscriptions receivable                                              (60)                   (210)
                                                                 ------------            ------------ 
Total shareholders' equity                                             21,906                  20,625 
                                                                 ------------           -------------
                                                                 $     26,019            $     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             NINE MONTHS ENDED
(in thousands, except for per share amounts)                    MARCH 31                       MARCH 31
                                                            1999           1998           1999            1998
                                                       ------------   ------------   ------------    ------------ 
Revenues                                                                                                          
<S>                                                    <C>            <C>            <C>             <C>          
    Continuing fees                                    $      4,527   $      4,202   $     13,864    $     12,599 
    Subfranchisor fees, master license fees                                                                       
       and sale of franchises                                   805          1,130          2,987           3,263 
    Store equipment sales                                     2,107          2,672          7,181          11,190 
    Management fees and other income                            335            305          1,028             944 
                                                       ------------   ------------   ------------    ------------ 
                                                              7,774          8,309         25,060          27,996 
Expenses                                                                                                          
    Subfranchisors' share of franchise                                                                            
       and continuing fees                                    2,458          2,486          8,528           7,773 
    Store equipment cost of sales                             1,852          2,420          6,284           9,469 
    Selling, general and administrative expenses              2,927          2,909          8,673           8,116 
                                                       ------------   ------------   ------------    ------------ 
                                                              7,237          7,815         23,485          25,358 
                                                       ------------   ------------   ------------    ------------ 
                                                                                                                  
Operating income                                                537            494          1,575           2,638 
Interest income                                                 178            197            598             582 
                                                       ------------   ------------   ------------    ------------ 
                                                                                                                  
Income before income taxes                                      715            691          2,173           3,220 
Income taxes                                                    258            255            782           1,220 
                                                       ------------   ------------   ------------    ------------ 
                                                                                                                  
Net income                                             $        457   $        436   $      1,391    $      2,000 
                                                       ============   ============   ============    ============ 
                                                                                                                  
Basic earnings per share                               $       0.05   $       0.05   $       0.15    $       0.21 
                                                       ============   ============   ============    ============ 
Diluted earnings per share                             $       0.05   $       0.05   $       0.15    $       0.21 
                                                       ============   ============   ============    ============ 
                                                                                                                  
Weighted average basic shares outstanding                     9,477          9,538          9,486           9,542 
                                                       ============   ============   ============    ============ 
Weighted average diluted shares outstanding                   9,482          9,547          9,488           9,563 
                                                       ============   ============   ============    ============ 
</TABLE>

See notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
                 BLIMPIE INTERNATIONAL, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                          NINE MONTHS ENDED
(in thousands)                                                                                 MARCH 31
                                                                                         1999            1998
                                                                                     ------------    ------------ 
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                  <C>             <C>    
    Net income                                                                       $      1,391    $      2,000
    Adjustments to reconcile net income to net
      cash provided by operating activities:
        Depreciation and amortization                                                         552             490
        Incentive stock granted                                                                14              98
        Decrease (increase) in:
          Accounts receivable                                                                 114            (466)
          Prepaid expenses and other current assets                                            49            (755)
          Other assets                                                                        (44)           (171)
          Notes receivable                                                                    398             176
        Increase (decrease) in:
          Accounts payable and other current liabilities                                     (258)           (950)
          Income taxes payable                                                               (112)            249
          Deferred revenue                                                                    (11)           (279)
                                                                                     ------------    ------------ 
            Net cash provided by operating activities                                       2,093             392
                                                                                     ------------    ------------ 

CASH FLOWS FROM INVESTING ACTIVITIES                                                  
    Purchase of available-for-sale securities                                              (1,720)         (4,015)
    Proceeds from sale of available-for-sale securities                                     3,337           4,026
    Reinvested dividends of available-for-sale securities                                       0              (4)
    Purchase of trademarks                                                                 (3,045)           (109)
    Acquisition of property and equipment                                                    (472)           (219)
                                                                                     ------------    ------------ 
            Net cash used in investing activities                                          (1,900)           (321)
                                                                                     ------------    ------------ 

CASH FLOWS FROM FINANCING ACTIVITIES
    Purchase of treasury stock                                                               (170)           (251)
    Proceeds from stock warrants/options exercised                                              0              12
    Cash dividend paid                                                                       (329)           (669)
    Repayment of long-term debt                                                                 0              (5)
                                                                                     ------------    ------------ 
            Net cash used in financing activities                                            (499)           (913)
                                                                                     ------------    ------------ 

Net increase in cash and cash equivalents                                                    (306)           (842)
Cash and cash equivalents at beginning of period                                            4,021           3,532
                                                                                     ------------    ------------
Cash and cash equivalents at end of period                                           $      3,715    $      2,690
                                                                                     ============    ============ 
</TABLE>

See notes to condensed consolidated financial statements.

                                       5
<PAGE>
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1999 (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 March 31, 1999 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           NINE MONTHS ENDED
                                                                  MARCH 31,                   MARCH 31,
(in thousands, except per share amounts)                     1999          1998          1999          1998
                                                          -----------   -----------   -----------   -----------
<S>                                                       <C>           <C>           <C>           <C>   
Net income                                                $       457   $       436   $     1,391   $     2,000
                                                          ===========   ===========   ===========   ===========
Calculation of weighted average shares 
  outstanding plus assumed conversions:
      Weighted average basic shares outstanding                 9,477         9,538         9,486         9,542
      Effect of dilutive employee stock options                     5             9             2            21
                                                          -----------   -----------   -----------   -----------
      Weighted average diluted shares outstanding               9,482         9,547         9,488         9,563
                                                          ===========   ===========   ===========   ===========
Basic earnings per share                                  $      0.05   $      0.05   $      0.15   $      0.21
                                                          ===========   ===========   ===========   ===========
Diluted earnings per share                                $      0.05   $      0.05   $      0.15   $      0.21
                                                          ===========   ===========   ===========   ===========
</TABLE> 


COMPREHENSIVE INCOME

Comprehensive income consists of the following:

<TABLE> 
<CAPTION> 
                                                              THREE MONTHS ENDED           NINE MONTHS ENDED
                                                                   MARCH 31,                   MARCH 31,
(in thousands)                                                 1999          1998          1999          1998
                                                           ----------    ----------    ----------    ----------
<S>                                                        <C>           <C>           <C>           <C> 
Net income                                                 $      457    $      436    $    1,391    $    2,000
Net unrealized gain (loss) on
   marketable securities                                          (36)            0            21            (4)
                                                           ==========    ==========    ==========    ==========  
Comprehensive income                                       $      421    $      436    $    1,412    $    1,996
                                                           ==========    ==========    ==========    ==========   
</TABLE>

                                       6
<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 March 31, 1999, there were 2,071
Blimpie locations franchised by the Company in operation in the United States
and 12 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 Company has since sold two more subfranchise
territories, and currently has several locations under lease.

As of March 31, 1999, there were 16 Smoothie Island locations in operation, all
of which were located in Blimpie or Maui Tacos locations. The first two Pasta
Central locations were opened as co-brands with Blimpie locations in Boise,
Idaho and Marshall, Missouri in March 1999. As anticipated, each of the new
brands was generating revenues for the Company as of March 31, 1999.

The Company believes that these new concepts will be well received and that the
Blimpie brand will continue to be successful. 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 

                                       7
<PAGE>
 
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 NINE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE AND NINE MONTHS
ENDED MARCH 31, 1998

         The Company's net income increased 4.8% to $457,000 in the three months
ended March 31, 1999 from $436,000 in the three months ended March 31, 1998. The
Company's basic and diluted earnings per share was unchanged at $0.05 per share
in the three months ended March 31, 1999. The Company's net income decreased
30.5% to $1,391,000 in the nine months ended March 31, 1999 from $2,000,000 in
the nine months ended March 31, 1998. The Company's basic and diluted earnings
per share decreased 28.6% to $0.15 per share in the nine months ended March 31,
1999 from $0.21 per share in the nine months ended March 31, 1998. The decreases
for the nine months ended March 31, 1999 were the result of a slow down in the
number of new store openings, which resulted in lower franchise fees and store
equipment sales. This decline began in the third quarter of fiscal 1998, and
therefore did not affect the three-month comparisons. Additionally, the Company
invested heavily in the new brands, which caused selling, general and
administrative costs to increase in the nine-month period ended March 31, 1999.

         The Company's continuing fees derived from franchises increased 7.7% to
$4,527,000 in the three months ended March 31, 1999 from $4,202,000 in the three
months ended March 31, 1998. During the nine months ended March 31, 1999,
continuing fees derived from franchises increased 10.0% to $13,864,000 from
$12,599,000 for the nine months ended March 31, 1998. These increases were due
to the 9.3% increase in the number of open outlets from 1,895 at March 31, 1998
to 2,071 at March 31, 1999. The 9.3% increase in total open outlets is net of
outlets closed, and includes a 4.8% increase in traditional outlets, a 12.6%
increase in non-traditional outlets, and a 48.5% 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 decreased 28.8% to $805,000 in the three months ended
March 31, 1999 from $1,130,000 in the three months ended March 31, 1998.
Subfranchisor fees represent amounts paid to the Company by subfranchisors for
the right to develop a specified domestic territory. Master license fees are
similar to subfranchisor fees, but relate to international territories.
Franchise fees represent the fees paid by a prospective franchisee for the right
to open a specific location. Resale fees represent a transfer fee charged by the
Company when a subfranchise, master license, or franchise is sold to a new
owner.

                                       8
<PAGE>
 
         The following table summarizes the components of these fees for the
three and nine months ended March 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                    Three Months Ended
                                                                         March 31,
                                                               1999            1998           Change
                                                       -----------------------------------------------
         <S>                                           <C>             <C>              <C> 
         Subfranchisor fees                                 $ 224,000       $  246,000          -8.9%
         Master license fees                                   23,000           88,000         -73.9%
         Franchise and resale fees                            558,000          796,000         -29.9%
                                                       -----------------------------------------------
            Total                                           $ 805,000       $1,130,000         -28.8%
                                                       ===============================================

         Outlets opened in period                                  58              133         -56.4%
                                                       ===============================================
</TABLE> 

<TABLE> 
<CAPTION> 
                                                                     Nine months Ended
                                                                         March 31,
                                                               1999            1998           Change
                                                       -----------------------------------------------
         <S>                                           <C>                  <C>               <C> 
         Subfranchisor fees                                $  627,000       $  588,000           6.6%
         Master license fees                                  123,000          300,000         -59.0%
         Franchise and resale fees                          2,237,000        2,375,000          -5.8%
                                                       -----------------------------------------------
            Total                                          $2,987,000       $3,263,000          -8.5%
                                                       ===============================================

         Outlets opened in period                                 224              357         -37.3%
                                                       ===============================================
</TABLE>

         Subfranchisor fees decreased 8.9% in the three months ended March 31,
1999 as compared to 1998 due to an absence of existing subfranchise expansions
in the current year and lower annual renewal fees, partially offset by new
territory sales by Maui Tacos. Subfranchisor fees increased 6.6% in the nine
month period due primarily to the sale of three Maui Tacos subfranchise
territories in the current year. Master license fees decreased 73.9% in the
three months ended March 31, 1999 due to fewer annual renewals. Master license
fees decreased 59.0% in the nine month period due to the recognition of deferred
fees from previously sold territories in the 1998 period, with no corresponding
revenues in the current period. Revenues from sales of franchises and resale
fees decreased 29.9% in the three months ended March 31, 1999 and 5.8% in the
nine months ended March 31, 1999 due primarily to a decrease in the number of
new outlets opened in the 1999 periods.

         As of March 31, 1999, the Company had Master Licensors operating in 26
countries, and 49 Blimpie outlets operating in 12 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 21.1% to $2,107,000 in the three months
ended March 31, 1999 from $2,672,000 in the three months ended March 31, 1998.
Store equipment sales decreased 35.8% to $7,181,000 in the nine months ended
March 31, 1999 from $11,190,000 in the nine months ended March 31, 1998. These
decreases were due to fewer store openings in the fiscal 1999 periods, as well
as a greater percentage of the new franchises being "new 

                                       9
<PAGE>
 
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 March 31, 1999
increased 9.8% to $335,000 from $305,000 in the three months ended March 31,
1998. Management fees and other income for the nine months ended March 31, 1999
increased 8.9% to $1,028,000 from $944,000 in the nine months ended March 31,
1998. These increases primarily 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 1.1%
to $2,458,000 in the three months ended March 31, 1999 from $2,486,000 in the
three months ended March 31, 1998. The Subfranchisors' shares of continuing and
franchise fees increased 9.7% to $8,528,000 in the nine months ended March 31,
1999 from $7,773,000 in the nine months ended March 31, 1998. These increases
were due to the increases in continuing fees, and were partially offset by the
decreases in franchise and resale fees.

     Store equipment cost of sales decreased 23.5% to $1,852,000 in the three
months ended March 31, 1999 from $2,420,000 in the three months ended March 31,
1998. Store equipment cost of sales decreased 33.6% to $6,284,000 in the nine
months ended March 31, 1999 from $9,469,000 in the nine months ended March 31,
1998. These decreases were due to the decreases in store equipment sales. The
gross margin on store equipment sales increased to 12.1% in the three months
ended March 31, 1999 from 9.4% in the three months ended March 31, 1998 and
decreased to 12.5% in the nine months ended March 31, 1999 from 15.4% in the
nine months ended March 31, 1998. The fluctuations in the gross margins are due
to changes in the product mix between periods.

     Selling, general and administrative expense rose 0.6% to $2,927,000 in the
three months ended March 31, 1999 from $2,909,000 in the three months ended
March 31, 1998. Selling, general and administrative expense rose 6.9% to
$8,673,000 in the nine months ended March 31, 1999 from $8,116,000 in the nine
months ended March 31, 1998. 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 March 31, 1999 decreased by 9.6%
to $178,000 from $197,000 in the three months ended March 31, 1998. Interest
income in the nine months ended March 31, 1999 increased by 2.7% to $598,000
from $582,000 in the nine months ended March 31, 1998. The decrease in the
three-month period was due to lower average cash and investments caused by the
payment of approximately $2,850,000 for trademark interests in February 1999.
The increase in the nine-month period was due to higher average cash and
investment balances outstanding in the fiscal 1999 period prior to the payment
referred to above.

     The effective income tax rates (income taxes expressed as a percentage of
pre-tax income) were approximately 36% in the three and nine months ended March
31, 1999 compared to approximately 36.9% and 37.9% in the three and nine months
ended March 31, 1998, respectively. The decreases were due to a lower effective
state income tax rate in the fiscal 1999 periods.

                                       10
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

     The Company generated cash flows from operating activities of $2,093,000
and $392,000 in the nine months ended March 31, 1999 and 1998, respectively. The
increase in the nine months ended March 31, 1999 was primarily the result of
decreases in accounts receivable and prepaid expenses in the fiscal 1999 period
compared to large increases in the prior period. Additionally, accounts payable
and other current liabilities decreased more in the fiscal 1998 period than in
the fiscal 1999 period. These sources of cash flows were partially offset by
lower net income in the 1999 period.

     Net cash used in investing activities during the nine months ended March
31, 1999 and 1998 totaled $1,900,000 and $321,000, respectively. On February 10,
1999, the Company paid a total of $2,850,000 in satisfaction of certain amounts
due to two officers of the Company, net of amounts due from the officers. See
"Trademark Interests" footnote to the December 31, 1998 Quarterly Report on Form
10-Q for additional information regarding these payments. These payments
resulted in a large use of cash, which was partially offset by the sale of
investments required to generate a portion of the funds used in the cash
payments. The Company does not anticipate any similar uses of cash in the next
12 to 18 months.

     Net cash used in financing activities was $499,000 in the nine months ended
March 31, 1999 and $913,000 in the nine months ended March 31, 1998. The
decrease in the cash used in financing activities was due to the timing of the
semi-annual dividend payment. In fiscal 1998, the payment was made in March,
whereas in fiscal 1999 the payment was made in April, and was not reflected in
the cash flows for the nine months ended March 31, 1999.

     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 June 1999. The majority of the costs of installing and
implementing the aforementioned software and hardware was incurred prior to
March 31, 1999. 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.

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<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)  A Current Report on Form 8-K was filed by the Company on February
               10, 1999 describing the acquisition of certain trademark rights.

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

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