_______________________________________________________________
                        SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C.  20549

                                    FORM 10-K
      ___
     / X / Annual Report pursuant to Section 13 or 15(d) of the
           Securities Exchange Act of 1934
     For the fiscal year ended December 28, 1997
       __
     /    / Transition Report pursuant to Section 13 or 15(d) of the
          Securities Exchange Act of 1934
     For the transition period from ________ to ________

     Commission file number 1-8881

                                   SBARRO, INC.
              (Exact name of Registrant as specified in its charter)

               NEW YORK                                11-2501939
     (State or other jurisdiction of                (I.R.S. Employer
     incorporation or organization)               Identification No.)

      763 Larkfield Road, Commack, New York                 11725
     (Address of principal executive offices)               (Zip Code)

     Registrant's telephone number,
      including area code:                           (5l6) 864-0200

           Securities registered pursuant to Section 12(b) of the Act:

                                                  Name of each Exchange on
              Title of each class                     which Registered
     Common Stock, par value $.01 per share       New York Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act:  None

          Indicate by check mark whether the registrant (1) has filed all
     reports required to be filed by Section 13 or 15(d) of the Securities
     Exchange Act of 1934 during the preceding 12 months (or for such shorter
     period that the registrant was required to file such reports), and (2)
     has been subject to such filing requirement for the past 90 days.
      Yes       X          No 

          Indicate by check mark if disclosure of delinquent filers pursuant
     to Item 405 of Regulation S-K is not contained herein, and will not be
     contained, to the best of registrant's knowledge, in definitive proxy or
     information statements incorporated by reference in Part III of this
     Form 10-K or any amendment to this Form 10-K  [X].

          The aggregate market value  of Common Stock held  by non-affiliates
     of the registrant as of March 20, 1998 was approximately $390,832,000.

          The number of shares of Common Stock  of the registrant outstanding
     as of March 20, 1998 was 20,517,311.

                       DOCUMENTS INCORPORATED BY REFERENCE

          Portions of the Proxy Statement to be used in connection with the
     registrant's 1998 Annual Meeting of Shareholders are incorporated by
     reference into Part III of this report.<PAGE>





                                    SBARRO, INC.

                                       PART I


          ITEM 1.  BUSINESS


                    Sbarro, Inc., a New York corporation, was organized in
          1977 and is the successor to a number of family food and
          restaurant businesses developed and operated by the Sbarro
          family.  The Company has become a leading operator and franchisor
          of family-style Italian restaurants, with 862 restaurants
          worldwide.  In addition, since 1995, the Company has created,
          through joint ventures, other concepts for the purpose of
          developing growth opportunities in addition to its Sbarro
          restaurants.  (See ``New Ventures'', below.)  As used in this
          Report, the terms "Company" and ``Sbarro'' refers to Sbarro, Inc.
          and its consolidated subsidiaries, unless the context indicates
          otherwise.

            ___________________                    Recent Developments

                    The Company has received a proposal from Mario Sbarro,
          Joseph Sbarro, Anthony Sbarro and the Trust of Carmela Sbarro
          (the ``Sbarro Family'') for the merger of the Company with a
          company to be owned by the Sbarro Family pursuant to which
          shareholders of the Company, other than the Sbarro Family, would
          receive $28.50 per share in cash, or an aggregate of
          approximately $380 million for the approximately 13.4 million
          shares (approximately 65% of the outstanding shares) of the
          Company's Common Stock not owned by the Sbarro Family.  The
          proposal is subject, among other things, to (i) entering into a
          definitive merger agreement, (ii) approval of the transaction by
          the special committee of the Board, the full Board of Directors
          and the Company's shareholders, (iii) receipt of satisfactory
          financing for the transaction, (iv) the immediate suspension of
          dividends by the Company and (v) receipt of a fairness opinion
          from the financial advisor to the special committee of the Board
          stating that the proposed transaction is fair, from a financial
          point of view, to the public shareholders.  The Sbarro Family has
          advised the Company that they have received a letter from an
          investment banking firm which indicates that, subject to certain
          conditions, the firm was highly confident that financing for the
          transaction could be obtained.  The Sbarro Family also advised
          the Company that they are not interested in selling their
          interests in the Company.  The Board of Directors has appointed a
          special committee to evaluate and consider the proposal.

               Seven lawsuits have been instituted by purported
          shareholders of the Company alleging, with respect to the
          proposed transaction, in general, a breach of fiduciary duties by
          the directors of the Company and members of the Sbarro Family,

                                         -2-<PAGE>





          that the proposed price per share to be paid to public
          shareholders is inadequate and that the proposal serves no
          legitimate business purpose of the Company.  (See ``Legal
          Proceedings''in Item 3 of this Report.)

               On February 11, 1998, the Company's Board of Directors
          deferred consideration of the Company's quarterly cash dividend
          pending consideration of the proposed transaction.  (See ``Market
          for Registrant's Common Equity and Related Shareholder Matters''
          in Item 5 of this Report.)

                    General

                    The Company develops and operates or franchises an
          international chain of family-style Italian restaurants
          principally under the "Sbarro" and "Sbarro The Italian Eatery"
          names (``Sbarro restaurants'').  Sbarro restaurants are family-
          oriented cafeteria-style restaurants featuring a menu of popular
          Italian food, including pizza with a variety of toppings, a
          selection of pasta dishes and other hot and cold Italian entrees,
          salads, sandwiches, cheesecake and other desserts.

                    As of December 28, 1997, there were 862 Sbarro
          restaurants, located in 48 states throughout the United States,
          the District of Columbia and in Aruba, Australia, the Bahamas,
          Belgium, Canada, Chile, Cyprus, France, Israel, Japan, Korea,
          Kuwait, Lebanon, New Zealand, the Philippines, Puerto Rico,
          Russia, Saudi Arabia, and the United Kingdom.  At that date, the
          Company owned and operated 623 restaurants and franchised 239
          Sbarro restaurants.  In addition, since 1995, the Company has
          created and operated, through joint ventures, other concepts for
          the purpose of developing growth opportunities in addition to its
          Sbarro restaurants.

                    Restaurant Expansion

                    The Company has expanded significantly in recent years,
          growing from 123 restaurants at the time of the Company's initial
          public offering of Common Stock in 1985 to 587 restaurants at the
          beginning of 1993 to 862 at the end of 1997.  During 1997, 77 new
          Sbarro restaurants were opened, of which 30 were Company-owned
          and 47 were franchised.

                    During 1998, the Company plans to open approximately 80
          restaurants, of which approximately 35 are expected to be
          Company-owned and the balance are expected to be franchised.  The
          actual number of openings will depend on the availability of
          appropriate sites, as well as other factors.

                    While most Sbarro restaurants are located in shopping
          malls, in recent years the Company has been expanding the basic
          Sbarro concept outside the shopping mall environment by adding
          Company and franchise restaurants in downtown areas in major

                                         -3-<PAGE>





          United States cities, such as Boston, Chicago, New York and
          Philadelphia, as well as on toll roads, in strip shopping
          centers, hospitals, convention centers, universities, casinos,
          hotels and airports.  In addition, kiosks have been introduced in
          certain selected markets.

                    The following table indicates the number of Company-
          owned and franchised restaurants (excluding non-mall new venture
          restaurants) during each of the years from 1993 through 1997.

                                                  Fiscal Year            

                                             1997  1996 1995 1994 1993
          Company-owned Sbarro restaurants:
           Opened during period  (*)         30    29   44   53   59
           Acquired from franchisees
             during period                    4     1    -    2    7
           Closed during period  (**)        [8]   [4] [40]  [3]  [7]
           Open at end of period            623   597  571  567  515

          Franchised Sbarro restaurants:
           Opened during period              47    36   40   38   24
           Sold to Company during period     [4]   [1]   -   [2]  [7]
           Closed or terminated during
             period                         [23]  [16]  [2]  [8] [14]
           Open at end of period            239   219  200  162  134

          All Sbarro restaurants:
           Opened during period              77    65   84   91   83
           Closed or terminated during
             period                         [31]  [20] [42] [11] [21]
           Open at end of period            862   816  771  729  649

          Kiosks  (all franchised)            7     7    8    7    7

          (*)  Includes, in 1997 and 1996, two and three mall locations,
          respectively, of a joint venture which operates as Umberto of New
          Hyde Park.

          (**)  In December 1995, the Company announced the planned closing
          of 40 Company-owned Sbarro restaurants.  The costs associated
          with the closing of these restaurants was provided for in the
          1995 financial statements.  See Note A to "Selected Financial
          Data" in Item 6 of this Report.

                    Concept and Menu

                    Sbarro restaurants are family oriented, offering quick,
          efficient, friendly cafeteria and buffet style service designed
          to minimize customer waiting time and facilitate table turnover.
          The decor of a Sbarro restaurant incorporates booth and table
          seating (for "in-line" restaurants), with a contemporary motif
          that blends with the characteristics of the surrounding area.

                                         -4-<PAGE>





                    As of December 28, 1997, there were 260 ``in-line''
          Sbarro restaurants and 597 ``food court'' Sbarro restaurants.  In
          addition, franchisees operated five free-standing Sbarro
          restaurants, including two in the Middle East and one in each of
          the Bahamas, Puerto Rico and Minnesota.  "In-line" restaurants,
          which are self-contained restaurants, usually occupy
          approximately 1,500-3,000 square feet, contain the space and
          furniture to seat approximately 60-120 people and employ 10-40
          persons, including part-time personnel.  "Food court" restaurants
          are primarily located in areas of shopping malls designated
          exclusively for restaurant use and share a common dining area
          provided by the mall.  These restaurants generally occupy
          approximately 500-1,000 square feet and contain only kitchen and
          service areas.  They frequently have a more limited menu than an
          "in-line" restaurant and employ 6-30 persons, including part-time
          personnel.

                    Sbarro restaurants are generally open seven days a week
          serving lunch, dinner and, in a limited number of locations,
          breakfast, with hours conforming to those of the major department
          stores or other large retailers in the mall or trade area.
          Typically, mall restaurants are open to serve customers 10 to 12
          hours a day, except on Sunday, when mall hours may be more
          limited.  For Company-owned restaurants open a full year, average
          sales in 1997 and 1996 were $693,000 and $698,000, respectively,
          for "in-line" restaurants and $493,000 and $486,000,
          respectively, for "food court" restaurants.

                    Sbarro restaurants feature a menu of popular Italian
          food, including pizza with a variety of toppings, a selection of
          pasta dishes and other hot and cold Italian entrees, salads,
          sandwiches, cheesecake and other desserts.  In addition to soft
          drinks, some of the larger restaurants serve beer and wine,
          although alcoholic beverage sales are not emphasized.

                    All food products are prepared fresh daily in each
          restaurant according to special recipes developed by the Sbarro
          family.  Emphasis is placed on serving generous portions of
          quality Italian-style food at value prices.  Entree selections,
          excluding pizza, generally range in price from $2.99 to $5.29.
          The Company believes that pizza, which is sold predominantly by
          the slice, accounts for approximately one-half of Sbarro
          restaurant sales.

                    The Company's ``signature'' cheesecakes are prepared in
          its original kitchen located in Brooklyn, New York.
          Substantially all of the food ingredients and related restaurant
          supplies used by the restaurants are purchased from a national
          independent wholesale food distributor, while breads, pastries,
          produce, fresh dairy and certain meat products are purchased
          locally for each restaurant.  The Company requires that the
          distributor adhere to established product specifications for all



                                         -5-<PAGE>





          food products sold to its restaurants.  The Company believes that
          there are other distributors who would be able to service the
          Company's needs and that satisfactory alternative sources of
          supply are generally available for all items regularly used in
          the restaurants.

                    Restaurant Management

                    Each Sbarro restaurant is managed by one General
          Manager and one or two Co-Managers or Assistant Managers.
          Managers are required to participate in Company training sessions
          in restaurant management and operations prior to the assumption
          of their duties.  In addition, each restaurant Manager is
          required to comply with an extensive operations manual containing
          procedures for assuring uniformity of operations and consistent
          high quality of products.

                    The Company has a Restaurant Management Bonus Program
          which provides the management teams of Company-owned Sbarro
          restaurants with the opportunity to receive a percentage of
          restaurant sales in cash bonuses based on certain performance -
          related criteria.

                    The Company also employs 70 - 75 Area Directors, each
          of whom is typically responsible for the operations of 7 - 15
          Company-owned Sbarro restaurants in a given area.  Before each
          new restaurant opening, the Company assigns an Area Director to
          coordinate opening procedures.  Each Area Director reports to one
          of the nine Regional Directors.  The Regional Directors recruit
          and supervise the managerial staff of all Company-owned Sbarro
          restaurants and report to one of the five Regional Vice
          Presidents.  The Regional Vice Presidents coordinate the
          activities of the Regional Directors assigned to their areas of
          responsibility and report to one of two Corporate Vice
          Presidents.  The Corporate Vice Presidents have total
          responsibility for their geographic areas.

                    Franchise Development

                    While the Company continues to emphasize expansion
          through Company-owned units, growth in franchise operations is
          also anticipated through the establishment of new Sbarro
          restaurants by new franchisees and by existing franchisees
          capable of multi-unit operations.  The Company relies principally
          upon its reputation and the strength of its existing restaurants
          to attract new franchisees.

                    As of December 28, 1997, the Company had 239 franchised
          Sbarro restaurants operated by 73 franchisees in 30 states as
          well as Aruba, Australia, the Bahamas, Belgium, Canada, Chile,
          Cyprus, France, Israel, Japan, Korea, Kuwait, Lebanon, New
          Zealand, the Philippines, Puerto Rico, Russia, Saudi Arabia and
          the United Kingdom.  The Company is presently considering

                                         -6-<PAGE>





          additional franchise opportunities in the United States and other
          countries.

                    In certain instances, franchise locations have been
          established through territorial agreements under which the
          Company granted, for specified time periods, exclusive rights to
          enter into franchise agreements for restaurant units in certain
          geographic areas, primarily in foreign countries, or for
          specified non-mall locations (such as for certain toll roads or
          airports) in the United States or foreign countries.

                    The Company's basic franchise agreement generally
          requires payment of an initial license fee of $35,000 and
          requires continuing payments of royalty fees of 5% - 7% of gross
          revenues. Franchise agreements entered into prior to 1988
          generally have an initial term of 15 years with the franchisee
          having a year renewal option, provided that the agreement has not
          been previously terminated by either party for specified reasons.
          Since 1988, the Company has required the franchise agreements to
          be coterminous with the underlying lease, but generally not less
          than ten nor more than twenty years.  Since 1990, the Company has
          granted a renewal option in the Franchise Agreement subject to
          certain conditions, including a remodel or image enhancement
          requirement.  Franchise agreements granted under territorial
          agreements contain negotiated terms and conditions other than
          those contained in the Company's basic franchise agreement.  The
          agreements also provide the Company with the right to terminate a
          franchisee for a variety of reasons, including insolvency or
          bankruptcy, failure to operate its restaurant according to
          standards, understatement of gross receipts, failure to pay fees,
          or material misrepresentation on an application for a franchise.

                    New Ventures

                    During 1995, the Company entered into joint venture
          arrangements for the purpose of developing three new restaurant
          concepts.  The first venture is a casual dining chain in a Rocky
          Mountain steakhouse motif.  This venture, in which the Company
          has a 40% interest, presently operates four restaurants under the
          name Boulder Creek Steaks & Saloon, with one additional
          restaurant under construction.  The second venture, in which the
          Company has a 70% interest, is a moderately priced, table service
          restaurant chain featuring an Italian Mediterranean menu under
          the names Bice Med Grille, Salute and Cafe Med.  Two restaurants
          in New York City and one on Long Island, New York are currently
          operating.  During 1997, the joint venture determined to closed
          two other restaurants, located on Long Island, resulting in a
          $3,300,000 before tax ($2,046,000 or $.10 basic and diluted
          earnings per share after tax) charge to the Company's earnings.
          The third venture is a family restaurant concept under the name
          Umberto of New Hyde Park, featuring pizza and other Italian-style
          foods, in which the Company has an 80% interest.  This venture
          currently operates three restaurants in strip shopping centers on

                                         -7-<PAGE>





          Long Island and Brooklyn, New York, with two additional
          restaurants under construction, and five food court units in
          regional shopping malls in Chicago, Las Vegas, White Plains and
          Long Island, New York.  The Company continues to monitor the
          results of these three concepts for the purpose of evaluating
          their potential future growth.

                    Employees

                    As of December 28, 1997, the Company (exclusive of
          joint ventures to which the Company is a party) employed
          approximately 7,500 persons, of whom approximately 2,700 were
          full-time field and restaurant personnel, 4,600 were part-time
          restaurant personnel and 200 were headquarters office personnel.
          None of the Company's employees are covered by collective
          bargaining agreements.  The Company believes its employee
          relations are satisfactory.

                    Competition

                    The restaurant business is highly competitive with
          respect to price, service, location and food quality, and is
          often affected by changes in consumer tastes, economic
          conditions, population and traffic patterns.  There is active
          competition for management personnel and attractive commercial
          shopping mall, center city and other locations suitable for
          restaurants.  The Company competes in each market in which it
          operates with locally-owned restaurants as well as with national
          and regional restaurant operations.

                    Trademarks

                    The Sbarro restaurants operate principally under the
          "Sbarro" and "Sbarro The Italian Eatery" service marks, which are
          registered with the United States Patent and Trademark Office for
          terms presently expiring in 2004 and 2001, respectively.
          Registered service marks may continually be renewed for 10 year
          periods.  The Company has also registered or filed applications
          to register "Sbarro" and "Sbarro The Italian Eatery" in several
          other countries.  The Company believes that these marks continue
          to be materially important to the Company's business.  The joint
          ventures to which the Company is a party, have also applied for
          United States trademarks covering trade names used by them.

                    Governmental Regulation

                    The Company is subject to various Federal, state and
          local laws affecting its business.  The restaurants of the
          Company and its franchisees are subject to a variety of
          regulatory provisions relating to wholesomeness of food,
          sanitation, health, safety and, in certain cases, licensing of
          the sale of alcoholic beverages.  The Company is also subject to
          a substantial number of state laws and regulations governing the

                                         -8-<PAGE>





          offer and sale of franchises.  Such laws impose registration and
          disclosure requirements on franchisors in the offer and sale of
          franchises and may also apply substantive standards to the
          relationship between franchisor and franchisee.  The Company is
          also subject to Federal Trade Commission regulations governing
          disclosure requirements in the sale of franchises. In addition,
          the Fair Labor Standards Act, governing such matters as minimum
          wage requirements, overtime, employment of minors and other
          working conditions, is applicable to the Company.  The Company
          believes it is in compliance with such laws in all material
          aspects.  (See ``Legal Proceedings'' in Item 3 of this Report.)

          ITEM 2.  PROPERTIES

                    All Sbarro restaurants are operated in leased premises.
          As of December 28, 1997, the Company leased 641 restaurants, of
          which 34 were subleased to franchisees under terms which cover
          all obligations of the Company under the lease.  The remaining
          franchisees directly lease their restaurant spaces.  Most of the
          Company's restaurant leases provide for the payment of base rents
          plus real estate taxes, utilities, insurance, common area charges
          and certain other expenses, as well as contingent rents generally
          ranging from 8% to 10% of net restaurant sales in excess of
          stipulated amounts.  Leases to which the Company were a party at
          December 28, 1997 have initial terms expiring as follows:

           Years Initial Lease Number of Company-  Number of Franchised
             Terms Expire      owned Restaurants       Restaurants

             1998                   26                     4
             1999 - 2003           336                    25
             2004 - 2008           239                     5
             2009 - 2012             6                     0

                    Since May 1986, the Company's headquarters have been
          located in a two-story 20,000 square foot office building located
          in Commack, New York, which is subleased for a period of fifteen
          years from a partnership owned by certain shareholders of the
          Company at a current annual base rental of $337,000.  In
          addition, the Company pays real estate taxes, utilities,
          insurance and certain other expenses for the facility.

                    In March 1994, the Company purchased a 100,000 square
          foot office building in Melville, New York, for $5,350,000.  The
          Company is in the process of renovating the building at an
          estimated additional cost of approximately $15 million (of which
          approximately $10 million has been expended through fiscal 1997)
          and intends to occupy approximately 25% of the building in 1998
          as its corporate headquarters and lease the remainder of the
          building.  Leases with unaffiliated third parties to occupy, upon
          completion of construction, approximately 40% of the total space
          in the facility have been entered into.

                                         -9-<PAGE>






          ITEM 3.  LEGAL PROCEEDINGS

                    Following the Company's announcement of a proposal for
          the merger of the Company with a company to be owned by the
          Sbarro Family (see ``Business - Recent Developments'' in Item 1
          of this Report), seven lawsuits were instituted against the
          Company, certain directors and/or members of the Sbarro Family.
          While each of the complaints varies, in general, they allege a
          breach of fiduciary duties by the directors and members of the
          Sbarro Family, that the proposed price per share to be paid to
          Public Shareholders is inadequate and that the proposal serves no
          legitimate business purpose of the Company.  Although varying,
          the complaints seek, generally, a declaration of class action
          status, damages in unspecified amounts alleged to be caused to
          the plaintiffs, and other relief (including injunctive relief,
          rescission if the transaction is consummated, including
          rescissory damages), costs and disbursements, including a
          reasonable allowance for counsel fees and expenses.  The actions,
          which are presently pending in the Supreme Court in New York and
          Suffolk County, New York, are in the process of being
          consolidated into one action.  The defendants intend to
          vigorously defend these actions.

                    On June 18, 1997, an action entitled Kenneth Hoffman
          and Gloria Curtis, on behalf of themselves and all others
          similarly situated v. Sbarro, Inc., was filed in the United
          States District Court for the Southern District of New York.  The
          plaintiffs, former restaurant level management employees, allege
          that the company required general managers and co-managers to
          reimburse the Company for cash and certain other shortages
          sustained by the Company and thereby lost their status as
          managerial employees exempt from the overtime compensation
          provisions of the Fair Labor Standards Act (the ``FLSA'').  The
          plaintiffs seek unpaid overtime compensation, as well as
          liquidated damages in an amount equal to any overtime
          compensation awarded, reasonable attorney's fees, costs and
          expenses.  The plaintiffs seek such further and general legal
          and/or suitable relief to which they may be entitled.  The action
          also seeks to join similarly situated past and present employees
          in the lawsuit.  The Company believes that it has substantial
          defenses to the claims, including that it has availed itself of a
          ``window of correction'' which, the Company believes, under
          applicable regulations of the FLSA and court decisions, preserves
          employees' exempt status and, thus, precludes any overtime
          liability.  On October 22, 1997, the Court granted plaintiffs'
          request to send notices to determine whether similarly situated
          past and present employees of the Company wished to join the
          lawsuit.  The Company intends to continue vigorously definding
          this action.




                                        -10-<PAGE>





                    From time to time the Company is also a party to
          certain claims and legal proceedings in the ordinary course of
          business, none of which, in the opinion of the Company, would
          have a material adverse effect on the Company's financial
          position or results of operations.



          ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                    Not applicable.


                                       PART II


          ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY
                    AND RELATED SHAREHOLDER MATTERS

                    The Company's Common Stock is listed on the New York
          Stock Exchange under the symbol ``SBA'', the range of high and
          low sales prices of which for the last two fiscal years is as
          follows:

                    1997                               1996

          Quarter Ended  High      Low       Quarter Ended  High      Low

          April 20    $28.63    $25.13       April 21    $27.00    $21.38
          July 13     $29.75    $26.25       July 14     $28.13    $24.13
          October 5   $29.44    $26.06       October 6   $26.00    $22.88
          December 28 $29.75    $26.00       December 29 $27.50    $24.25

                    As of March 16, 1998, there were approximately 529
          holders of record of the Company's Common Stock, exclusive of
          shareholders whose shares were held by brokerage firms,
          depositories and other institutional firms in "street name" for
          their customers.

                    In 1997 and 1996, the Company declared quarterly
          dividends of $.27 per share and $.23 per share, respectively,
          aggregating $1.08 per share and $.92 per share for the respective
          years.  On February 11, 1998, the Company announced that its
          Board of Directors had deferred consideration of the Company's
          quarterly cash dividend pending consideration of a proposed
          merger of the Company with a Company to be owned by the Sbaro
          Family (see ``Business - Recent Developments'' in Item 1 of this
          Report).  The proposal was conditioned upon, among other things,
          the immediate suspension of dividends by the Company and
          obtaining financing therefor.

                                        -11-<PAGE>





          ITEM 6.  SELECTED FINANCIAL DATA

               The following Selected Financial Data should be read in
          conjunction with Management's Discussion and Analysis included in
          Item 7 of this Report and the consolidated financial statements
          of the Company and the related notes included in Item 8 of this
          Report, which consolidated financial statements have been audited
          and reported on by Arthur Andersen LLP, independent public
          accountants.

                                                     Years Ended
                                  Dec. 28, Dec. 29,Dec. 31,  Jan. 1,  Jan. 2,
          Income Statement Data:    1997     1996    1995      1995     1994
                           (In thousands, except share and per share data)
          Revenues:
       Restaurant sales           $337,723 $319,315 $310,132 $288,808 $259,213
       Franchise related income      7,360    6,375    5,942    5,234    4,758
       Interest income               4,352    3,798    3,081    1,949    1,579
                                   349,435  329,488  319,155  295,991  265,550
       Costs and expenses:
       Cost of food and paper
         products                   69,469   68,668   67,361   61,877   55,428
       Restaurant operating expenses:
       Payroll & other
         employee benefits          84,910   78,258   78,342   70,849   64,653
       Occupancy & other expenses   93,528   85,577   84,371   76,353   68,241
       Depreciation and amortization23,922   22,910   23,630   21,674   18,599
       General and administrative   17,762   14,940   16,089   13,319   12,913
       Provision for unit
         closings (Note A)           3,300        -   16,400        -        -
      Other income                (1,653)   (1,171)  (1,359) (1,351)   (1,244)
                                   291,238  269,182  284,834  242,721  218,590

       Income before income taxes and cumulative
       effect of change in method of accounting
       for income taxes             58,197   60,306   34,321   53,270   46,960
      Income taxes                  22,115   22,916   13,042   20,244   18,612
      Income before cumulative effect
       of accounting change         36,082   37,390   21,279   33,026   28,348
      Cumulative effect of change
       in method of accounting
         for income taxes                -        -        -        -    1,010
      Net income  (Note A)         $36,082  $37,390  $21,279  $33,026  $29,358

      Per share data:
       Basic earnings per share before
        cumulative effect of change
        in method of accounting
        for income taxes             $1.77    $1.84    $1.05    $1.63    $1.40
       Cumulative effect of change
        in method of accounting
        for income taxes                 -        -        -        -      .05
       Basic earnings per share
       (Notes A and B)               $1.77    $1.84    $1.05    $1.63    $1.45
                                    -12-<PAGE>
   




          Income Statement Data:  (continued)

      Basic number of shares
        used in the computation
       (Note B)        20,426,678 20,369,128  20,336,809 20,310,283 20,280,816

      Diluted earnings per share before
       cumulative effect of change
        in method of accounting
        for income taxes             $1.76    $1.83    $1.04    $1.62    $1.39

      Cumulative effect of change
        in method of accounting
        for income taxes                 -        -        -        -      .05

      Diluted earnings per share     $1.76    $1.83    $1.04    $1.62    $1.44

      Diluted number of shares used
       in the
        computation   20,504,303  20,404,620  20,396,704 20,355,275 20,339,945

      Dividends declared             $1.08    $0.92    $0.76    $0.64    $0.52
                                   Dec. 28, Dec. 29,Dec. 31,  Jan. 1,  Jan. 2,
      Balance Sheet Data:            1997    1996     1995     1995     1994
           (In thousands)

      Total assets                $278,649 $258,659 $242,730 $232,051 $207,733
      Working capital               88,006   73,619   57,645   43,271   45,218
      Shareholders' equity         220,439  205,200  185,666  179,580  159,037

          Number of Restaurants at End of Period:

      Company-owned and
       operated (Note A)               623      597      571      567      515
      Franchised                       239      219      200      162      134

      Total  (Note C)                  862      816      771      729      649


          Note A:  In 1997, a provision of $3,300,000 before tax
          ($2,046,000 or $.10 basic and diluted earnings per share after
          tax) relating to the Company's investment in one of its joint
          ventures was established for the closing of certain joint venture
          units.  Had the provision not been made, 1997 net income would
          have been $38,128,000 or $1.87 basic earnings per share and $1.86
          diluted earnings per share.  In 1995, a provision of $16,400,000
          before tax ($10,168,000 or $0.50 basic and diluted per share
          after tax) was established for the closing of approximately 40
          under-performing restaurants.  Had the provision not been made,
          1995 net income would have been $31,447,000 or $1.55 basic
          earnings per share and $1.54 diluted earnings per share.



                                        -13-<PAGE>





          Note B:  All share and per share data have been restated to give
          effect to Statement of Financial Accounting Standards (``SFAS'')
          No. 128 which became effective for the Company at the end of 1997
          and have been adjusted to give effect to a 3-for-2 stock split in
          the form of a 50% stock dividend distributed on September 22,
          1994 to shareholders of record on September 9, 1994.

          Note C:  Excludes kiosks operated by franchisees and restaurants
          owned and operated by joint ventures to which the Company is a
          party (other than five mall locations of a joint venture which
          are included in the table as Company-owned and operated units).

          ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
                    CONDITION AND RESULTS OF OPERATIONS

          Results of Operations

               1997 Compared to 1996

                    Restaurant sales from Company-owned units and
          consolidated joint venture units increased 5.8% to $337,723,000
          in 1997 from $319,315,000 in 1996.  The increase resulted from a
          higher number of units in operation in the current fiscal year
          and the effect of a full year of selective menu price increases
          of approximately .5% and 1%, which became effective in mid April
          1996 and mid July 1996 offset, in part, by a decrease in
          comparable unit sales of .4%.  Comparable unit sales decreased to
          $305,195,000 in 1997 from $306,313,000 in 1996.  Comparable
          restaurant sales are made up of sales at locations that were open
          during the entire current year and entire prior fiscal year.

                    Franchise related income increased 15.5% to $7,360,000
          in 1997 from $6,375,000 in 1996.  This increase resulted from a
          higher number of units in operation in the current year than in
          1996 and an increase in initial franchise and development fees
          due to the opening of more franchise units in 1997 than in 1996.
          During the year ended December 28, 1997, 23 units were closed by
          franchisees.  These units did not produce material levels of
          sales and, consequently, did not generate material amounts of
          royalty income to the Company.  In addition, four franchise units
          were purchased by the Company.  Comparable sales at franchise
          locations did not change significantly in fiscal 1997 from fiscal
          1996.
                    Interest income increased to $4,352,000 in 1997 from
          $3,798,000 in 1996.  This increase was due to higher amounts of
          cash available for investment in 1997 than in 1996 at comparable
          interest rates.

                    Cost of food and paper products decreased as a
          percentage of restaurant sales to 20.6% in 1997 from 21.5% in
          1996.  This improvement resulted from lower food prices,
          primarily of cheese from the fourth quarter of fiscal 1996 into


                                        -14-<PAGE>





               1997 Compared to 1996 (Continued)

          the fourth quarter of fiscal 1997, lower prices of various paper
          products and the effect of a full year of the selective menu
          price increases implemented in mid 1996.  Cheese prices have
          risen since the middle of the fourth quarter of fiscal 1997 and
          currently remain at prices higher than those in the comparable
          prior year period.

                    Restaurant operating expenses - payroll and other
          employee benefits increased to 25.1% of restaurant sales in 1997
          from 24.5% of restaurant sales in 1996.  This percentage increase
          was attributable to the higher costs of providing benefits to
          employees and, to a lesser extent, the effects of the two
          increases in the Federal minimum wage which became effective in
          September 1997 and 1996, as well as the decrease in comparable
          unit sales in fiscal 1997.  Restaurant operating expenses -
          occupancy and other expenses increased to 27.7% of restaurant
          sales in 1997 from 26.8% of restaurant sales in 1996.  This
          percentage increase was primarily attributable to rent and rent
          related charges increasing at a faster rate than sales.

                    Depreciation and amortization expenses increased to
          $23,922,000 in 1997 from $22,910,000 in 1996.  This increase was
          primarily the result of additional Company owned units in
          operation during 1997 over the number of units in operation
          during 1996.

                    General and administrative expenses were $17,762,000 in
          1997 or 5.1% of revenues and $14,940,000 in 1996 or 4.5% of
          revenues.  This increase was due to hiring additional personnel
          in anticipation of the Company's development plans, and increases
          in executive compensation and legal fees.  General and
          administrative expenses in 1998 may be affected by costs
          associated with the proposal made by certain members of the
          Sbarro Family for the merger of the Company with a company to be
          owned by them, which would be expensed if the merger does not
          take place and by potential additional costs associated with
          pending litigation against the Company.  (See Note 6 of Notes to
          Consolidated Financial Statements.)

                    In 1997, a provision of $3,300,000 before tax
          ($2,046,000 or $.10 after tax) relating to the Company's
          investment in one of its joint ventures was established for the
          closing of certain joint venture units.

                    The effective income tax rate was 38.0% for 1997 and
          1996.

               1996 Compared to 1995

                    Restaurant sales from Company-owned units increased
          3.0% to $319,315,000 in 1996 from $310,132,000 in 1995.  The

                                        -15-<PAGE>





          increase resulted from the higher contribution to sales in 1996
          than in 1995 from units opened during 1995 together with the
          contribution to sales from units opened during 1996 offset, in
          part, by the loss of sales from underperforming units closed at
          the end of 1995.  Another factor affecting sales was the
          selective menu price increases of approximately .5% and 1% in mid
          April 1996 and mid July 1996.  Comparable unit sales remained
          relatively unchanged at $292,088,000 in 1996 and $292,622,000 in
          1995.  Comparable restaurant sales are made up of sales at
          locations that were open during the entire current year and
          entire prior fiscal year.

                    Franchise related income increased 7.3% to $6,375,000
          in 1996 from $5,942,000 in 1995.  This increase resulted from
          higher royalties due principally to a larger number of franchise
          units in operation in the current year than in 1995, offset
          somewhat by lower initial franchise licensing fees due to less
          unit openings.  Comparable sales at franchise locations did not
          change significantly.

                    Interest income increased to $3,798,000 in 1996 from
          $3,081,000 in 1995.  This increase was primarily due to larger
          amounts of cash invested, offset somewhat by slightly lower
          yields on cash equivalents and marketable securities for the
          fiscal year.

                    Cost of food and paper products decreased as a
          percentage of restaurant sales to 21.5% in 1996 from 21.7% in
          1995.  This improvement resulted principally from the effects of
          the closing of underperforming units in late 1995, which had
          higher food cost relationships than more typical Company
          locations, lower prices of various paper products and food items
          and, to a limited extent, the selective menu price increases,
          offset by higher cheese prices during the second and third
          quarters of 1996, which increased food costs by approximately
          $1,800,000.

                    Restaurant operating expenses - payroll and other
          employee benefits decreased to 24.5% of restaurant sales in 1996
          from 25.3% of restaurant sales in 1995.  Restaurant operating
          expenses - occupancy and other expenses decreased to 26.8% of
          restaurant sales in 1996 from 27.2% of restaurant sales in 1995.
          These improvements were principally due to the Company's program
          of closing underperforming units which had higher payroll and
          other restaurant cost relationships, improved supervision and
          controls over costs and, to a limited extent, the impact of menu
          price increases.

                    Depreciation and amortization expenses decreased to
          $22,910,000 in 1996 from $23,630,000 in 1995.  This decrease was
          principally due to the closing of underperforming units in late
          1995, offset somewhat from new unit openings in 1996.


                                        -16-<PAGE>





               1996 Compared to 1995  (Continued)

                    General and administrative expenses were $14,940,000 in
          1996 or 4.5% of revenues and $16,089,000 in 1995 or 5.0% of
          revenues.  The decrease in dollars was principally due to
          improved controls in supervising and administering restaurants.
          The decrease in this category of expenses as a percentage of
          revenues was, in addition to the dollar decrease, favorably
          impacted by the spreading of non-variable costs over a larger
          revenue base.

                    The effective income tax rate was 38.0% for 1996 and
          1995.

          Impact of Inflation

                    Food, labor, construction and equipment costs are the
          items most affected by inflation in the restaurant business.
          Although for the past several years inflation has not been a
          significant factor, there can be no assurance that this trend
          will continue.  In addition, food and paper product costs may be
          temporarily or permanently affected by weather, economic and
          other factors beyond the Company's control that may reduce
          available supply and increase the price of food stuff and paper
          products.

          Seasonality

                    The Company's business is subject to seasonal
          fluctuations, the effects of weather and economic conditions.
          Earnings have been highest in its fourth fiscal quarter due
          primarily to increased volume in shopping malls during the
          holiday shopping season.  The fourth fiscal quarter normally
          accounts for approximately 40% of net income for the year.  In
          1997, the fourth fiscal quarter accounted for 38% of net income
          for the year (prior to the provision in 1997 for the closing of
          certain joint venture units).  The length of the holiday shopping
          period between Thanksgiving and Christmas and the number of weeks
          in the fourth quarter produce changes in the fourth quarter
          earnings relationship from year to year.  (See also, ``Accounting
          Period''                 .)

          Accounting Period

                    The Company's fiscal year ends on the Sunday nearest to
          December 31, with fiscal quarters of sixteen weeks in the first
          quarter and twelve weeks in each succeeding quarter (except in a
          53 week year, which has a thirteen week fourth quarter).  The
          Company's 1997, 1996 and 1995 fiscal years each contained 52
          weeks.  Fiscal 1998 will contain 53 weeks.




                                        -17-<PAGE>





          Potential Effect of AICPA Exposure Draft Statement of Position

                    The Accounting Standards Executive Committee of the
          American Institute of Certified Public Accountants has issued an
          Exposure Draft Statement of Position (SOP) which, if adopted in
          its current form, would require all companies which capitalize
          pre-opening and similar costs to write off all existing such
          costs, net of tax benefit, as a ``cumulative effect of accounting
          change'' and to expense all such costs as incurred in the future.
          The exposure draft, if enacted, would be effective beginning with
          the Company's 1999 fiscal year.  The Company does not expect this
          proposal to materially affect future operating income except that
          the Company would be required to write off the accumulated costs
          ($1,219,000 at December 28, 1997) which would be reflected as a
          cumulative effect of accounting change ($756,000 after tax at
          December 28, 1997).

          Liquidity and Capital Resources

                    During 1997, operating activities contributed $61.0
          million to cash flow resulting primarily from net income of $36.1
          million, non-cash expenses of $23.9 million for depreciation and
          amortization, a $3.3 million provision for unit closings and an
          increase in accounts payable and accrued expenses ($3.5 million),
          which were somewhat offset by increases in deferred charges ($1.6
          million) and other assets ($.8 million).  During the year, the
          Company expended approximately $28.6 million for the acquisition
          of property and equipment related primarily, to opening 30
          Company-owned restaurants, construction costs related to joint
          venture operations and the renovation of the Company's new
          headquarters building.  In addition, $21.2 million was used to
          pay four quarterly cash dividends to the Company's shareholders.

                    At December 28, 1997, the Company had cash, cash
          equivalents and marketable securities of approximately $127.3
          million (compared to $114.8 million at the end of fiscal 1996)
          and its working capital was approximately $88.0 million.

                    The Company anticipates that approximately 35 Company-
          owned and operated units will be opened during 1998 and that its
          capital expenditures (including approximately $5.0 million to
          complete the renovation and equipping of the Company's new
          headquarters building) will approximate $28.0 million in 1998.
          The Company does not anticipate making material expenditures for
          remodeling of Company-owned restaurants during 1998.  From time
          to time, the Company has the opportunity to contract for and
          secure price protection for certain of its raw ingredients.  Such
          situations may require the advance outlay of funds for
          inventories of these items.

                    In 1997, the Company declared quarterly dividends of
          $0.27 per share aggregating $1.08 per share (or $22,068,000) for
          the year.  On February 11, 1998, the Company announced that its

                                        -18-<PAGE>





          Liquidity and Capital Resources  (Continued)

          Board of Directors had deferred consideration of the Company's
          quarterly cash dividend pending consideration of a transaction
          that has been proposed by members of the Sbarro Family to merge
          the Company with a Company owned by them in which all of the
          shares of the Company not owned by such members of the Sbarro
          Family would be exchanged for cash.  The proposal was conditioned
          upon, among other things, the immediate suspension of dividends
          by the Company and obtaining financing therefor (such financing
          could adversely affect the Company's liquidity after becoming
          privately owned).

                    The Company believes, based on current projections,
          that its liquid assets presently on hand, together with funds
          expected to be generated from operations, should be sufficient
          for its presently contemplated operations, the investment in
          property and equipment for the opening of additional restaurant
          locations, as well as the completion of the renovation and
          equipping of  the Company's new headquarters building.

          Year 2000

                    In July, 1996, the Emerging Issues Task Force of the
          FASB reached a consensus on Issue 96-14, ``Accounting for the
          Costs Associated with Modifying Computer Software for the Year
          2000,''which requires that costs associated with modifying
          computer software for the Year 2000 be expensed as incurred.  The
          Company does not believe, based upon its internal reviews and
          other factors, that future external and internal costs to be
          incurred relating to the modification of internal-use software
          for the Year 2000 will have a material effect on the Company's
          results of operations or financial position.  In addition, the
          Company has addressed the Year 2000 issue with its principal
          suppliers and has been assured that they will be timely Year 2000
          compliant.

          Forward Looking Statement

                    Certain statements contained in this Report are
          forward-looking statements which are subject to a number of known
          and unknown risks and uncertainties that could cause the
          Company's actual results and performance to differ materially
          from those described or implied in the forward-looking
          statements.  These risks and uncertainties, many of which are not
          within the Company's control, include, but are not limited to,
          general economic weather and business conditions; the
          availability of suitable restaurant sites in appropriate regional
          shopping malls and other locations on reasonable rental terms;
          changes in consumer tastes; changes in population and traffic
          patterns; ability to continue to attract franchisees; the success
          of its present, and any future, joint ventures and other
          expansion opportunities; the availability of food (particularly

                                        -19-<PAGE>





          cheese and tomatoes) and paper products at reasonable prices; no
          material increase occurring in the Federal minimum wage; and the
          Company's ability to attract competent restaurant and executive
          managerial personnel.



          ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                    Annexed hereto starting on Page F-1.



          ITEM 9.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

                    None





                                      PART III

                    The information called for by Part III (Items 10, 11,
          12 and 13) of Form 10-K is incorporated herein by reference to
          such information which will be contained in the Company's
          definitive Proxy Statement to be used in connection with the
          Company's 1998 Annual Meeting.


























                                        -20-<PAGE>





                                       PART IV

          ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS 
                    ON FORM  8-K

          (a) (1) and (a) (2) and (d) Financial Statements and Financial
          Statement Schedule

               Financial Statements                                   Page

               Report of Independent Public Accountants               F-1

               Consolidated Balance Sheets at December 28, 1997 and
               December 29, 1996                                      F-2

               Consolidated Statements of Income for each of the
               years in the three-year period ended December 28, 1997 F-4

               Consolidated Statements of Shareholders' Equity for
               each of the years in the three-year period ended
               December 28, 1997                                      F-5

               Consolidated Statements of Cash Flows for each of the
               years in the three-year period ended December 28, 1997 F-6

               Notes to Consolidated Financial Statements             F-8

               Financial Statement Schedule

               Report of Independent Public Accountants on Schedule   S-1

               II - Valuation and Qualifying Accounts                 S-2

               Information required by other schedules called for under
          Regulation S-X is either not applicable or is included in the
          consolidated financial statements or notes thereto.

          (b)  Reports on Form 8-K

               No Reports on Form 8-K were filed by the Company during the
          fourth quarter of the Company's fiscal year ended December 28,
          1997.

          (c)  Exhibits:

               * 3.01(a) Restated Certificate of Incorporation of the
                         Company as filed with the Department of State of
                         the State of New York on March 29, 1985.
                         (Exhibit 3.01 to the Company's Registration
                         Statement on Form S-1, File No. 2-96807)




                                        -21-<PAGE>





          (c)  Exhibits  (continued):


               * 3.01(b) Certificate of Amendment to the Company's Restated
                         Certificate of Incorporation as filed with the
                         Department of State of the State of New York on
                         April 3, 1989.  (Exhibit 3.01(b) to the Company's
                         Annual Report on Form 10-K for the year ended
                         January 1, 1989, File No. 1-8881)

               * 3.01(c) Certificate of Amendment to the Company's Restated
                         Certificate of Incorporation as filed with the
                         Department of State of the State of New York on
                         May 31, 1989.  (Exhibit 4.01 to the Company's
                         Quarterly Report on Form 10-Q for the quarter
                         ended April 23, 1989, File No. 1-8881)

               * 3.01(d) Certificate of Amendment to the Company's Restated
                         Certificate of Incorporation as filed with the
                         Department of State of the State of New York on
                         June 1, 1990.  (Exhibit 4.01 to the Company's
                         Quarterly Report on Form 10-Q for the quarter
                         ended April 22, 1990, File No. 1-8881)

               * 3.02    By-Laws of the Company, as amended.  (Exhibit 4.3
                         to the Company's Quarterly Report on Form 10-Q for
                         the quarter ended April 21, 1996, File No. 1-8881)

               *10.01    Commack, New York Corporate Headquarters Sublease.
                         (Exhibit 10.04 to the Company's Registration
                         Statement on Form S-1, File No. 2-96807)

            +  *10.02(a) 1985 Incentive Stock Option Plan, as amended.
                         (Exhibit 10.1 to Company's Quarterly Report on
                         Form 10-Q for the quarter ended October 6, 1996,
                         File No. 33-4380)

            +  *10.02(b) 1991 Stock Incentive Plan, as amended.  (Exhibit
                         10.1 to the Company's Quarterly Report on Form 10-
                         Q for the quarter ended April 20, 1997, File No.
                         1-8881)

            +  *10.02(c) Form of Stock Option Agreement dated May 30, 1990
                         between the Company and each of Anthony Sbarro,
                         Joseph Sbarro and Mario Sbarro, together with a
                         schedule, pursuant to Instruction 2 to Item 601 of
                         Regulation S-K, identifying the details in which
                         the actual agreements differ from the exhibit
                         filed herewith.  (Exhibit 10.02(c) to the
                         Company's Annual Report on Form 10-K for the year
                         ended December 30, 1990, File No. 1-8881)


                                        -22-<PAGE>





            +  *10.02(d) 1993 Non-Employee Director Stock Option Plan, as
                         amended.  (Exhibit 10.2 (d) to the Company's
                         Quarterly Report on Form 10-Q for the quarter
                         ended April 20, 1997, File No. 1-8881)

            +  *10.02(e) The Company's Performance Incentive Plan.
                         (Exhibit A to the Company's Proxy Statement dated
                         April 29, 1997, File No. 1-8881)

            +  *10.03    Consulting Agreement (including option) dated June
                         3, 1985 between the Company and Bernard Zimmerman
                         & Company, Inc. (Exhibit 10.04 to the Company's
                         Annual Report on Form 10-K for the year ended
                         January 1, 1989, File No. 1-8881)

            +  *10.04    Form of Indemnification Agreement between the
                         Company and each of its directors and officers.
                         (Exhibit 10.04 to the Company's Annual Report on
                         Form 10-K for the year ended December 31, 1989,
                         File No. 1-8881)

                *21.01   List of subsidiaries.

                 23.01   Consent of Arthur Andersen LLP.

                 27.01   Financial Data Schedule.
          _____________________________
           * Incorporated by reference to the document indicated.
           + Management contract or compensatory plan.























                                        -23-<PAGE>






                                     SIGNATURES



                    Pursuant to the requirements of Section 13 or 15(d) of

          the Securities Exchange Act of 1934, the registrant has duly

          caused this report to be signed on its behalf by the undersigned,

          thereunto duly authorized on March 27, 1998.



                                   SBARRO, INC.



                                   By:  /s/MARIO SBARRO
                                        Mario Sbarro, Chairman of the Board

































                                        -24-<PAGE>






               Pursuant to the requirements of the Securities Exchange Act

          of 1934, this report has been signed below by the following

          persons on behalf of the registrant and in the capacities and on

          the dates indicated.



               Signature                Title               Date




          /s/MARIO SBARRO          Chairman of the Board    March 27, 1998
          Mario Sbarro             (Principal Executive Officer)
                                        and Director




          /s/ROBERT S. KOEBELE     Vice President-Finance   March 27, 1998
          Robert S. Koebele        (Chief Financial and
                                   Accounting Officer)



          /s/JOSEPH SBARRO              Director            March 27, 1998
          Joseph Sbarro



          /s/ANTHONY SBARRO             Director            March 27, 1998
          Anthony Sbarro



          /s/HAROLD KESTENBAUM          Director            March 27, 1998
          Harold Kestenbaum



          /s/RICHARD A. MANDELL         Director            March 27, 1998
          Richard A. Mandell



          /s/CARMELA SBARRO             Director            March 27, 1998
          Carmela Sbarro
                                        -25-<PAGE>










               Signature                Title               Date





          /s/PAUL A. VATTER             Director            March 27, 1998
          Paul A. Vatter



          /s/TERRY VINCE           Director            March 27, 1998
          Terry Vince



          /s/BERNARD ZIMMERMAN          Director            March 27, 1998
          Bernard Zimmerman































                                        -26-<PAGE>





                                 ARTHUR ANDERSEN LLP



                      REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


          To the Board of Directors and Shareholders
           of Sbarro, Inc.:

          We have audited the accompanying consolidated balance sheets of
          Sbarro, Inc. (a New York corporation) and subsidiaries as of
          December 28, 1997 and December 29, 1996, and the related
          consolidated statements of income, shareholders' equity and cash
          flows for each of the three years in the period ended December
          28, 1997.  These financial statements are the responsibility of
          the Company's management.  Our responsibility is to express an
          opinion on these financial statements based on our audits.

          We conducted our audits in accordance with generally accepted
          auditing standards.  Those standards require that we plan and
          perform the audit to obtain reasonable assurance about whether
          the financial statements are free of material misstatement.  An
          audit includes examining, on a test basis, evidence supporting
          the amounts and disclosures in the financial statements.  An
          audit also includes assessing the accounting principles used and
          significant estimates made by management, as well as evaluating
          the overall financial statement presentation.  We believe that
          our audits provide a reasonable basis for our opinion.

          In our opinion, the financial statements referred to above
          present fairly, in all material respects, the financial position
          of Sbarro, Inc. and subsidiaries as of December 28, 1997 and
          December 29, 1996, and the results of their operations and their
          cash flows for each of the three years in the period ended
          December 28, 1997, in conformity with generally accepted
          accounting principles.

                                        /s/  Arthur Andersen LLP



          New York, New York
          February 11, 1998









                                         F-1<PAGE>





                            SBARRO, INC. AND SUBSIDIARIES

                             CONSOLIDATED BALANCE SHEETS

                                       ASSETS


                                                     (In thousands)
                                           December 28,      December 29,
                                             1997              1996

          Current assets:
            Cash and cash equivalents        $119,810         $104,818

            Marketable securities               7,500            2,500

            Receivables:
             Franchisees                          810              743
             Other                              1,565            1,122

                                                2,375            1,865

            Inventories                         2,962            2,841

            Prepaid expenses                    1,768            1,409

             Total current assets             134,415          113,433

          Marketable securities                     -            7,500

          Property and equipment, net
            (Notes 3 and 9)                   136,798          130,993

          Other assets:
            Deferred charges, net of
             accumulated amortization
             of $1,269,000 at December 28,
             1997 and $1,436,000 at
             December 29, 1996                  1,596            1,633
            Other, net                          5,840            5,100

                                                7,436            6,733

                                             $278,649         $258,659








                                     (continued)

                                         F-2
                            SBARRO, INC. AND SUBSIDIARIES<PAGE>






                       CONSOLIDATED BALANCE SHEETS (CONTINUED)

                        LIABILITIES AND SHAREHOLDERS' EQUITY


                                                         (In thousands)
                                           December 28,      December 29,
                                              1997              1996
          Current liabilities:
            Accounts payable                  $10,086           $7,173
            Accrued expenses  (Note 4)         26,025           22,663
            Dividend payable                    5,521            4,691
            Income taxes  (Note 5)              4,777            5,287

             Total current liabilities         46,409           39,814



          Deferred income taxes  (Note 5)      11,801           13,645


          Commitments and contingencies (Note 6)



          Shareholders' equity  (Note 8):
            Preferred stock, $1 par value;
             authorized 1,000,000 shares;
              none issued
            Common stock, $.01 par value;
             authorized 40,000,000 shares;
             issued and outstanding
             20,446,654 shares at
             December 28, 1997 and
             20,392,909 shares at
             December 29, 1996                    204              204
            Additional paid-in capital         32,444           31,219
            Retained earnings                 187,791          173,777
                                              220,439          205,200

                                              $278,649        $258,659





                   See notes to consolidated financial statements

                                         F-3<PAGE>

                            SBARRO, INC. AND SUBSIDIARIES

                          CONSOLIDATED STATEMENTS OF INCOME

                                   (In thousands, except share data)

                                        For the Years Ended

                                   December 28, December 29,  December 31,
                                       1997         1996         1995
          Revenues:
           Restaurant sales           $337,723      $319,315     $310,132
           Franchise related income      7,360         6,375        5,942
           Interest income               4,352         3,798        3,081
             Total revenues            349,435       329,488      319,155

          Costs and expenses:
           Cost of food and paper
             products                   69,469        68,668       67,361
           Restaurant operating expenses:
             Payroll and other employee
             benefits                   84,910        78,258       78,342
             Occupancy and other
             expenses                   93,528        85,577       84,371
           Depreciation and
             amortization               23,922        22,910       23,630
           General and administrative   17,762        14,940       16,089
           Provision for unit
             closings  (Note 9)          3,300                     16,400
           Other income                (1,653)        (1,171)     (1,359)
             Total costs and expenses  291,238       269,182      284,834 

          Income before income taxes    58,197        60,306       34,321
          Income taxes  (Note 5)        22,115        22,916       13,042

          Net income                   $36,082       $37,390      $21,279

          Per share information:
           Net income per share:

           Basic                         $1.77         $1.84        $1.05

           Diluted                       $1.76         $1.83        $1.04

          Shares used in computing
           net income per share:

           Basic                    20,426,678    20,369,128   20,336,809

           Diluted                  20,504,303    20,404,620   20,396,704

          Dividends declared (Note 10)   $1.08         $0.92        $0.76




                   See notes to consolidated financial statements


                                         F-4<PAGE>





                            SBARRO, INC. AND SUBSIDIARIES

                   CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


                              (In thousands, except share data)
                              Common stock

                                              Additional
                         Number of             paid-in    Retained
                          shares       Amount  capital    earnings  Total

          Balance at
           January 1,
            1995          20,328,981    $203   $30,066   $149,311  $179,580

          Exercise of
           stock options      16,502               264                  264

          Net income                                       21,279    21,279

          Dividends declared                              (15,457) (15,457)

          Balance at
           December 31,
            1995          20,345,483     203     30,330   155,133   185,666

          Exercise of
           stock options      47,426       1        889                 890

          Net income                                       37,390    37,390

          Dividends declared                             (18,746)  (18,746)

          Balance at
           December 29,
            1996            20,392,909   204     31,219   173,777   205,200

          Exercise of
           stock options      53,745             1,225                1,225

          Net income                                       36,082    36,082

          Dividends declared                             (22,068)  (22,068)

          Balance at
           December 28,
            1997            20,446,654  $204    $32,444  $187,791  $220,439




                   See notes to consolidated financial statements

                                         F-5
                            SBARRO, INC. AND SUBSIDIARIES<PAGE>






                        CONSOLIDATED STATEMENTS OF CASH FLOWS


                                        (In thousands)

                                        For the Years Ended

                                    December 28,  December 29,December 31,
                                         1997         1996       1995
          Operating activities:

          Net income                     $36,082      $37,390     $21,279
          Adjustments to reconcile
           net income to net cash
            provided by operating
             activities:
            Depreciation and
             amortization                 23,922       22,910      23,630
            Decrease in deferred
             income taxes                (1,844)        (442)      (5,183)
            Provision for unit closings    3,300                   16,400

          Changes in operating assets
           and liabilities:
           (Increase) decrease in
             receivables                   (510)          739          58
           (Increase) decrease in
             inventories                   (121)         (78)          29
           (Increase) decrease in
             prepaid expenses              (359)          268        (292)
           Increase in deferred charges  (1,624)      (1,298)      (1,400)
           Increase in other assets        (844)      (1,750)      (2,425)
           Increase (decrease) in
            accounts payable and
             accrued expenses              3,534      (4,309)       2,638
           Increase (decrease) in
             income taxes payable          (510)          579        (154)

          Net cash provided by
           operating activities           61,026       54,009      54,580









                                     (continued)


                                         F-6
                            SBARRO, INC. AND SUBSIDIARIES<PAGE>





                 CONSOLIDATED STATEMENTS OF CASH FLOWS  (CONTINUED)

                                          (In thousands)

                                        For the Years Ended

                                     December 28, December 29,December 31,
                                         1997        1996        1995
          Investing activities:

          Proceeds from maturities
           of marketable securities        2,500                   28,618
          Purchases of property
           and equipment                (28,556)     (25,928)     (17,513)
          Proceeds from disposition
           of property and equipment          34          266          34

          Net cash (used in) provided
           by investing activities      (26,022)     (25,662)      11,139

          Financing activities:

          Proceeds from exercise of
           stock options                   1,225          890         264
          Cash dividends paid           (21,237)     (17,920)     (14,844)

          Net cash used in
           financing activities         (20,012)     (17,030)     (14,580)

          Increase in cash and cash
           equivalents                    14,992       11,317      51,139
          Cash and cash equivalents at
           beginning of year             104,818       93,501      42,362

          Cash and cash equivalents at
           end of year                  $119,810     $104,818     $93,501













                   See notes to consolidated financial statements


                                         F-7
                            SBARRO, INC. AND SUBSIDIARIES

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<PAGE>






          1.   Summary of significant accounting policies:

               Basis of financial statement presentation:

               The consolidated financial statements include the accounts
               of Sbarro, Inc. and its wholly-owned subsidiaries (together,
               the "Company") and the accounts of its joint ventures.  All
               intercompany accounts and transactions have been eliminated.

               The preparation of financial statements in conformity with
               generally accepted accounting principles requires management
               to make estimates and assumptions that may affect the
               amounts reported in the financial statements and
               accompanying notes.  Actual results could differ from those
               estimates.

               Cash equivalents:

               All highly liquid debt instruments with a maturity of three
               months or less at the time of purchase are considered to be
               cash equivalents.

               Marketable securities:

               The Company classifies its investments in marketable
               securities as ``held to maturity''.  These investments are
               stated at amortized cost, which approximates market, and are
               comprised primarily of direct obligations of the U.S.
               Government and its agencies.

               Inventories:

               Inventories, consisting primarily of food, beverages and
               paper supplies, are stated at cost which is determined by
               the first-in, first-out method.

               Property and equipment and depreciation:

               Property and equipment are stated at cost.  Depreciation is
               provided for by the straight-line method over the estimated
               useful lives of the assets.  Amortization of leasehold
               improvements is provided for by the straight-line method
               over the estimated useful lives of the assets or the lease
               term, whichever is shorter.  One-half year of depreciation
               and amortization is recorded in the year in which the
               restaurant commences operations.




                                         F-8
                            SBARRO, INC. AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)<PAGE>





          1.   Summary of significant accounting policies (continued):

               Deferred charges:

               Certain costs and expenses incurred which are directly
               related to new restaurant openings (primarily crew payroll
               costs and travel expenses incurred prior to opening) are
               deferred and amortized on a straight-line basis over a
               twenty-four month period.  One-half year of amortization is
               recorded in the year in which the restaurant commences
               operations.

               The Accounting Standards Executive Committee of the American
               Institute of Certified Public Accountants has issued an
               Exposure Draft Statement of Position (SOP) which, if adopted
               in its current form, would require all companies which
               capitalize pre-opening and similar costs to write off all
               existing such costs, net of tax benefit, as a ``cumulative
               effect of accounting change'' and to expense all such costs
               as incurred in the future.  The exposure draft, if enacted,
               would be effective beginning with the Company's 1999 fiscal
               year.  The Company does not expect this proposal to
               materially affect future operating income except that the
               Company would be required to write off the accumulated costs
               ($1,219,000 at December 28, 1997) which would be reflected
               as a cumulative effect of accounting change ($756,000 after
               tax at December 28, 1997).

               Deferred income:

               Deferred income relates to vendor cash advances for
               allowances to be based on product usage.

               Franchise related income:

               Initial franchise fees are recorded as income as restaurants
               are opened by the franchisee and all services have been
               substantially performed by the Company.  Development fees
               are amortized over the number of restaurant openings covered
               under each development agreement.  Royalty and other fees
               from franchisees are accrued as earned.  Revenues and
               expenses related to construction of franchised restaurants
               are recognized when contractual obligations are completed
               and the restaurants are opened.






                                         F-9
                            SBARRO, INC. AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          1.   Summary of significant accounting policies  (continued):<PAGE>






               Stock based compensation plans:

               In accordance with Accounting Principles Board Opinion
               (``APB'') No. 25, ``Accounting for Stock Issued to
               Employees,'' and related interpretations, compensation cost
               for stock options is measured as the excess, if any, of the
               quoted market price of the Company's stock at the date of
               grant over the amount an employee must pay to acquire the
               stock.  (See Note 8).

               Income taxes:

               The Company files a consolidated Federal income tax return.
               Deferred income taxes result primarily from differences
               between financial and tax reporting of depreciation and
               amortization.

               Accounting period:

               The Company's fiscal year ends on the Sunday nearest to
               December 31, with fiscal quarters of sixteen weeks in the
               first quarter and twelve weeks in each succeeding quarter
               (except in a 53 week year, which has a thirteen week fourth
               quarter).  The Company's 1997, 1996 and 1995 fiscal years
               each contained 52 weeks.  The Company's 1998 fiscal year
               will contain 53 weeks, with 13 weeks in the fourth quarter.

               Per share data:

               The provisions of Statement of Financial Accounting
               Standards (`` SFAS'') No. 128, ``Earnings Per Share'' became
               effective as to the Company for the quarter and year ended
               December 28, 1997.  SFAS No. 128 requires the presentation
               of both basic and diluted earnings per share on the face of
               the income statement.  SFAS 128 replaces primary and fully
               diluted earnings per share with basic and diluted earnings
               per share, respectively.  Earnings per share is calculated
               using the weighted average number of shares of common stock
               outstanding for the period, with basic earnings per share
               excluding, and diluted earnings per share including,
               potentially dilutive securities, such as stock options that
               could result in the issuance of common stock.  The number of
               shares of common stock subject to stock options included in
               diluted earnings per share were 77,625 in 1997, 35,492 in
               1996 and 59,895 in 1995.  As required by SFAS 128, all prior
               period amounts have been restated to conform to the new
               presentation.

                                        F-10
                            SBARRO, INC. AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

          1.   Summary of significant accounting policies (continued):<PAGE>





               Long-Lived Assets:

               SFAS No. 121, `` Accounting for the Impairment of Long-Lived
               Assets and for Long-Lived Assets to Be Disposed Of,''
               requires that long-lived assets, certain identifiable
               intangibles and goodwill related to those assets to be held
               and used be reviewed for impairment whenever events or
               changes in circumstances indicate that the carrying amount
               of those assets may not be recoverable.  The adoption of
               SFAS No. 121 in fiscal 1997 did not have a material effect
               on the Company's results of operations or financial
               position.

               Supplemental disclosures of cash flow information:

                                              (In thousands)

                                            For the Years Ended

                                 December 28,   December 29,December 31,
                                    1997          1996        1995
               Cash paid for:

                  Income taxes     $24,297       $23,143     $18,880

          2.   Description of business:

               The Company and franchisees develop and operate family
               oriented cafeteria style Italian restaurants principally
               under the `` Sbarro'' and ``Sbarro The Italian Eatery'' names.
               The restaurants are located throughout the United States and
               overseas, principally in shopping malls and other high
               traffic locations.

               The following sets forth the number of units in operation as
               of:
                                     December 28, December 29,December 31,
                                         1997        1996         1995

                    Company-owned        623         597          571
                    Franchised           239         219          200

                                         862         816          771





                                        F-11
                            SBARRO, INC. AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

          3.   Property and equipment:
                                                  (In thousands)
                                          December 28,      December 29,<PAGE>





                                             1997                1996

               Leasehold improvements     $168,581         $154,507
               Furniture, fixtures and
                equipment                   97,688           91,644
               Construction-in-progress  *  20,096           14,139
                                           286,365          260,290
               Less accumulated
                 depreciation and
                  amortization             149,567          129,297

                                          $136,798         $130,993

               (*)  Includes $15,651 in 1997 and $10,609 in 1996 related to
               the acquisition and improvement of the Company's new
               corporate headquarters.

          4.   Accrued expenses:
                                                  (In thousands)
                                           December 28,     December 29,
                                             1997              1996

               Compensation                 $5,051           $4,392
               Payroll and sales taxes       3,494            3,672
               Rent                          6,699            6,427
               Provision for unit
                 closings  (Note 9)          4,351            1,922
               Other                         6,430            6,250
                                           $26,025          $22,663

          5.   Income taxes:
                                                  (In thousands)
                                               For the Years Ended

                                     December 28, December 29,December 31,
                                        1997        1996        1995
               Federal:
                Current                $19,868     $19,216       $14,897
                Deferred               (1,557)        (322)       (4,158)
                                        18,311      18,894        10,739

               State and local:
                Current                  4,091       4,142         3,328
                Deferred                 (287)        (120)       (1,025)
                                         3,804       4,022         2,303
                                       $22,115     $22,916       $13,042

                                        F-12
                            SBARRO, INC. AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

          5.   Income taxes:  (Continued)

               Deferred income taxes are comprised of the following:<PAGE>





                                               (In thousands)
                                        December 28,        December 29,
                                             1997              1996

               Depreciation and
                amortization               $15,782        $16,427
               Deferred charges                475            448
               Other                            60             55
               Gross deferred
                tax liabilities             16,317         16,930

               Accrued expenses            (2,431)        (1,620)
               Deferred income             (1,949)        (1,580)
               Other                         (136)           (85)
               Gross deferred tax assets   (4,516)        (3,285)
                                           $11,801        $13,645

               Actual tax expense differs from `` expected'' tax expense
               (computed by applying the Federal corporate rate of 35% for
               the years ended December 28, 1997, December 29, 1996 and
               December 31, 1995) as follows:

                                               (In thousands)
                                             For the Years Ended

                                   December 28, December 29,  December 31,
                                        1997       1996          1995
               Computed "expected"
                tax expense           $ 20,369     $21,108       $12,012
               Increase (reduction)
                in income taxes
                resulting from:
                 State and local
                  income taxes, net
                   of Federal income
                    tax benefit          2,429       2,614         1,497
                 Tax exempt interest
                  income                  (59)         (63)         (311)
                 Other, net              (624)        (743)         (156)
                                       $22,115     $22,916       $13,042 






                                        F-13
                            SBARRO, INC. AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

          5.   Income taxes:  (Continued)

               Deferred income taxes are provided for temporary differences
               between financial and tax reporting.  These differences and<PAGE>





               the amount of the related deferred tax benefit are as
               follows:

                                             (In thousands)
                                             For the Years Ended

                                      December 28,December 29,December 31,
                                        1997         1996        1995

               Depreciation and
                amortization          $(1,824)     $(1,397)      $(2,781)
               Accrued expenses          (624)       1,791        (2,482)
               Other                      604         (836)           80
                                      $(1,844)       $(442)      $(5,183)


          6.   Commitments and contingencies:

               Commitments:

               The Company conducts all of its operations in leased
               facilities.  Most of the Company's restaurant leases provide
               for the payment of base rents plus real estate taxes,
               utilities, insurance, common area charges and certain other
               expenses, as well as contingent rents generally ranging from
               8% to 10% of net restaurant sales in excess of stipulated
               amounts.

               Rental expense under operating leases, including common area
               charges, other expenses and additional amounts based on
               sales, are as follows:

                                                  (In thousands)
                                                  For the Years Ended

                                     December 28, December 29, December 31,
                                          1997         1996      1995

               Minimum rentals         $40,365     $36,383       $35,142
               Common area charges      12,541      11,303        10,846
               Contingent rentals        2,910       2,819         3,082
                                       $55,816     $50,505       $49,070



                                        F-14
                            SBARRO, INC. AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

          6.   Commitments and contingencies  (continued):

               Commitments  (continued):

               Future minimum rental and other payments required under non-
               cancelable operating leases for Company-operated restaurants<PAGE>





               that were open on December 28, 1997 and the existing
               corporate office are as follows (in thousands):

                    Years ending:

                    January 3, 1999         $57,982
                    January 2, 2000          55,970
                    January 1, 2001          53,678
                    December 31, 2001        50,101
                    December 30, 2002        45,032
                    Later years             106,000
                                           $368,763

               The Company is the principal lessee under operating leases
               for certain franchised restaurants which are subleased to
               the individual franchisees.  Franchisees pay rent and
               related expenses directly to the landlord.  Future minimum
               rental payments required under these non-cancelable
               operating leases for franchised restaurants that were open
               as of December 28, 1997 are as follows (in thousands):

                         Years ending:

                         January 3, 1999         $1,884
                         January 2, 2000          1,717
                         January 1, 2001          1,382
                         December 31, 2001        1,123
                         December 30, 2002          779
                         Later years              1,167
                                                 $8,052

               As of February 11, 1998, future minimum rental payments
               required under non-cancelable operating leases for
               restaurants which had not as yet opened as of December 28,
               1997 are as follows (in thousands):

                         Years ending:

                         January 3, 1999           $857
                         January 2, 2000          1,091
                         January 1, 2001          1,098
                         December 31, 2001        1,137
                         December 30, 2002        1,158
                         Later years              6,195
                                                $11,536
                                        F-15
                            SBARRO, INC. AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

          6.   Commitments and contingencies  (continued):

               Commitments  (continued):

               The Company is a party to contracts aggregating $1,734,000
               with respect to the construction of restaurants and<PAGE>





               approximately $1 million with respect to the Company's new
               corporate headquarters building to be opened in 1998.
               Payments of approximately $246,000 have been made on those
               contracts as of December 28, 1997.

               One of the joint ventures in which the Company is a partner
               has entered into a contract to purchase the land on which a
               restaurant is located, at the end of its five year lease on
               such property in 2002, for $950,000.

               Contingencies:

               The Company has received a proposal from Mario Sbarro,
               Joseph Sbarro, Anthony Sbarro and the Trust of Carmela
               Sbarro (the ``Sbarro Family'') for the merger of the Company
               with a company to be owned by the Sbarro Family pursuant to
               which shareholders of the Company, other than the Sbarro
               Family, would receive $28.50 per share in cash, or an
               aggregate of approximately $380 million for the
               approximately 13.4 million shares (approximately 65% of the
               outstanding shares) of the Company's Common Stock not owned
               by the Sbarro Family.  The proposal is subject, among other
               things, to (i) entering into a definitive merger agreement,
               (ii) approval of the transaction by the special committee of
               the Board, the full Board of Directors and the Company's
               shareholders, (iii) receipt of satisfactory financing for
               the transaction, (iv) the immediate suspension of dividends
               by the Company and (v) receipt of a fairness opinion from
               the financial advisor to the special committee of the Board
               stating that the proposed transaction is fair, from a
               financial point of view, to the public shareholders.

               Following the Company's announcement of a proposal for the
               merger of the Company with a company to be owned by the
               Sbarro Family, seven lawsuits were instituted against the
               Company, certain directors and/or members of the








                                        F-16
                            SBARRO, INC. AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

          6.   Commitments and contingencies  (continued):

               Contingencies  (continued):

               Sbarro Family.  While each of the complaints varies, in
               general, they allege a breach of fiduciary duties by the
               directors and members of the Sbarro Family, that the<PAGE>





               proposed price per share to be paid is inadequate and that
               the proposal serves no legitimate business purpose of the
               Company.  Although varying, the complaints seek, generally,
               a declaration of class action status, damages in unspecified
               amounts alleged to be caused to the plaintiffs, and other
               relief (including injunctive relief, rescission if the
               transaction is consummated, including rescissory damages),
               costs and disbursements, including a reasonable allowance
               for counsel fees and expenses.  The actions, which are
               presently pending in the Supreme Court in New York and
               Suffolk County, New York, are in the process of being
               consolidated into one action.  The defendants intend to
               vigorously defend these actions.

               On June 18, 1997, an action entitled Kenneth Hoffman and
               Gloria Curtis, on behalf of themselves and all others
               similarly situated v. Sbarro, Inc., was filed in the United
               States District Court for the Southern District of New York.
               The plaintiffs, former restaurant level management
               employees, allege that the Company required general managers
               and co-managers to reimburse the Company for cash and
               certain other shortages sustained by the Company and thereby
               lost their status as managerial employees exempt from the
               overtime compensation provisions of the Fair Labor Standards
               Act (the ``FLSA'').  The plaintiffs seek unpaid overtime
               compensation, as well as liquidated damages in an amount
               equal to any overtime compensation awarded, reasonable
               attorney's fees, costs and expenses.  The plaintiffs seek
               such further and general legal and/or suitable relief to
               which they may be entitled.  The action also seeks to join
               similarly situated past and present employees in the
               lawsuit.  The Company believes that it has substantial
               defenses to the claims, including that it has availed itself
               of a `` window of correction'' which, the Company believes,
               under applicable regulations of the FLSA and court
               decisions, preserves employees' exempt status and, thus,
               precludes any overtime liability.  On October 22, 1997, the
               Court granted plaintiffs' request to send notices to
               determine whether similarly situated past and present
               employees of the Company wished to join the lawsuit.  The
               Company intends to continue vigorously definding this
               action.

                                        F-17
                            SBARRO, INC. AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

          7.   Transactions with related parties:

               In May 1986, the Company entered into a fifteen year
               sublease with a partnership owned by certain shareholders of
               the Company for its present corporate headquarters office
               building.  In each of 1996 and 1995, the Company incurred
               rent expense for such building of $298,000.  For 1997 and
               for each of the remaining years of the lease the rent<PAGE>





               expense is $337,000 per year.  Management believes that such
               rents are comparable to the rents that would be charged by
               an unaffiliated third party.

               A member of the Board of Directors acts as a consultant to
               the Company for which he received $116,400 in 1997, $106,100
               in 1996 and $96,000 in 1995.

          8.   Stock options:

               The Company's Board of Directors has adopted and
               shareholders have approved the 1991 Stock Incentive Plan
               (the `` 1991 Plan''), which replaced the Company's 1985
               Incentive Stock Option Plan, and a 1993 Non-Employee
               Director Stock Option Plan (the ``1993 Plan'').

               Under the 1991 Plan, the Company may grant, until February
               2001, incentive stock options and non-qualified stock
               options, alone or in tandem with stock appreciation rights
               (``SARS''), to employees and consultants of the Company and
               its subsidiaries.  Options and SARs may not be granted at
               exercise prices of less than 100% of the fair market value
               of the Company's common stock on the date of grant.  The
               Board of Directors and the Board's Committee administering
               the 1991 Plan are empowered to determine, within the limits
               of the 1991 Plan, the number of shares subject to each
               option and SAR, the exercise price, and the time period
               (which may not exceed ten years) and terms under which each
               may be exercised.

               The 1993 Plan provides for the automatic grant to each non-
               employee director of an option to purchase 3,750 shares of
               common stock following each annual shareholders' meeting.
               Each option has a ten year term and is exercisable in full
               commencing one year after grant at 100% of the fair market
               value of the Company's common stock on the date of grant.
               In 1997, 1996 and 1995, each of the five (six in 1995) non-
               employee directors were granted options to purchase 3,750
               shares at $28.88, $26.88, and $21.50 per share,
               respectively.  In 1997, 11,250 options of one former
               director were exercised at $23.05, $23.71 and $21.50,
               respectively.
                                        F-18
                            SBARRO, INC. AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

          8.   Stock options:  (Continued)

               A summary of the status of the Company's option plans is
               presented in the table below:

                                     1997           1996          1995
                                    Weighted-      Weighted-      Weighted-
                                      Average        Average        Average
                                     Exercise       Exercise       Exercise<PAGE>





                               Shares Price   Shares Price   Shares Price
               Options
                outstanding,
                beginning of
                period        934,836 $25.57 717,712 $24.97 765,958 $24.75
               Granted        777,750 $25.96 378,750 $25.55  37,500 $22.53
               Exercised      (53,745)$22.78 (47,426)$18.24 (16,502)$15.97
               Canceled
                or expired    (20,502)$24.66(114,200)$24.84 (69,244)$21.44
               Options
                outstanding,
                end of
                period      1,638,339 $25.85 934,836 $25.57 717,712 $24.97
               Options
                exercisable,
                end of
                period        573,880 $26.05 534,214 $25.89 463,962 $25.89

               Of the options outstanding at December 28, 1997, options to
               purchase 106,839 shares had exercise prices ranging between
               $15.17 and $22.75, with a weighted average exercise price of
               $21.34 and a weighted average remaining contractual life of
               6.23 years, of which 77,463 were exercisable, with a
               weighted average exercise price of $21.28.  The remaining
               options to purchase 1,531,500 shares had exercise prices
               between $23.05 and $28.88, with a weighted average exercise
               price of $26.17 and a weighted average remaining contractual
               life of 7.21 years, of which 496,417 are exercisable, with a
               weighted average exercise price of $26.79.  At December 28,
               1997, there were an aggregate of 2,061,452 shares available
               for option grants under the 1991 and 1993 Plans.










                                        F-19
                            SBARRO, INC. AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

          8.   Stock options:  (Continued)

               The fair value of each option grant is estimated on the date
               of grant using the Black-Scholes option pricing model with
               the following assumptions:

                                        1997         1996         1995
               Expected life (years)    1.5            4            4
               Interest rate           5.82%        6.53%        6.51%
               Volatility                21%          28%          28%<PAGE>





               Dividend yield          4.00%        3.50%        3.50%
               Weighted average
                fair value
                of options granted     $2.79        $5.75          $5.30

               The Company has adopted the pro forma disclosure provisions
               of Statement of Financial Accounting Standards (SFAS) No.
               123, `` Accounting for Stock-Based Compensation''.
               Accordingly, no compensation cost has been recognized for
               the stock option plans.  Had compensation cost for the
               Company's stock option plans been determined under SFAS No.
               123, the Company's net income and earnings per share would
               approximate the pro forma amounts below:

                                  (In thousands, except per share data)
               Net Income:                 1997         1996        1995
               As Reported               36,082       37,390      21,279
               Pro Forma                 35,089       37,160      21,258

               Per share information:
               Net income per share
                (as reported):
               Basic                      $1.77        $1.84       $1.05
               Diluted                    $1.76        $1.83       $1.04

               Net income per share (pro forma):
               Basic                      $1.72        $1.82       $1.05
               Diluted                    $1.71        $1.82       $1.04


               The foregoing table includes options granted in 1997 under
               the 1991 Plan to the Company's Chairman of the Board and
               President to purchase 100,000 and 150,000 shares at $25.13
               and $28.88 per share, respectively, and to the Company's
               Vice Chairman of the Board and Senior Executive Vice
               President to purchase 100,000 and 100,000 shares,
               respectively, at $25.13 per share; options granted in 1996
               to the Company's Chairman of the Board and President and
               Senior Executive Vice President to purchase 100,000 and

                                        F-20
                            SBARRO, INC. AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

          8.   Stock options:  (Continued)

               50,000 shares, respectively, at $24.75 per share; options
               granted in 1993 under the 1991 Plan to the Company's
               Chairman of the Board and President, Vice Chairman of the
               Board and Senior Executive Vice President and one non-
               employee director to purchase 120,000, 90,000, 75,000 and
               37,500 shares, respectively, at $27.09 per share.  Each such
               option was granted at an exercise price equal to the fair
               market value of the Company's common stock on the date of<PAGE>





               grant and is exercisable for 10 years from the date of
               grant.  Such options remain unexercised.

               In addition to the foregoing, in 1990, shareholder approved
               options were granted to the Company's Chairman of the Board
               and President, Vice Chairman of the Board and Senior
               Executive Vice President to purchase 150,000, 75,000 and
               75,000 shares, respectively, at $20.67 per share, the fair
               market value of the Company's common stock on the date of
               grant, for a period of 10 years from the date of grant.
               Such options remain unexercised.

          9.   Provision for unit closings:

               A provision for restaurant closings in the amount of
               $3,300,000 ($2,046,000 or $.10 basic and diluted earnings
               per share after tax) relating to the Company's investment in
               one of its joint ventures was established in 1997 for the
               closing of certain of the joint venture's units.

               A provision for restaurant closings in the amount of
               $16,400,000 ($10,168,000 or $0.50 basic and diluted earnings
               per share after tax) was established in 1995 for the closing
               of approximately 40 under-performing restaurants.

          10.  Dividends:

               In 1997 and 1996, the Company declared quarterly dividends
               of $0.27 per share and $0.23 per share, respectively,
               aggregating $1.08 per share and $0.92 per share for the
               respective years.  On February 11, 1998, the Company
               announced that its Board of Directors had deferred
               consideration of the Company's quarterly cash dividend
               pending consideration of a transaction that has been
               proposed by the Sbarro Family which would result in the
               acquisition at $28.50 per share in cash of all of the shares
               of the Company not owned by the Sbarro Family.  The proposal
               is conditioned upon, among other things, the immediate
               suspension of dividends by the Company.  (See Note 6)

                                           F-21
                            SBARRO, INC. AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

          11.  Quarterly financial information (unaudited):

                              (In thousands, except share data)

                                  First     Second     Third    Fourth
                                Quarter    Quarter   Quarter   Quarter
          Fiscal year 1997
          Revenues               $95,364   $75,301   $82,678   $96,092
          Gross profit (a)        73,324    57,976    63,314    73,640
          Net income (b)           7,885     6,733     9,206    12,258<PAGE>





          Per share information:
          Net income per share:
            Basic                   $.39      $.33      $.45      $.60
            Diluted                 $.39      $.33      $.45      $.60

          Shares used in computation
           of net income per share:
            Basic          20,401,538 20,428,711  20,440,596 20,444,678
            Diluted        20,454,534 20,599,676  20,526,757 20,529,233

          Fiscal year 1996
          Revenues               $88,057   $71,128   $78,421   $91,882
          Gross profit (a)        66,722    53,560    59,284    71,081
          Net income               6,975     6,642     9,188    14,585

          Per share information:
          Net income per share:
            Basic                   $.34      $.33      $.45      $.72
            Diluted                 $.34      $.33      $.45      $.71

          Shares used in computation
           of net income per share:
            Basic          20,348,179 20,363,607  20,379,932 20,391,774
            Diluted        20,383,628 20,406,051  20,404,755 20,431,626

          (a)  Gross profit represents the difference between restaurant
               sales and the cost of food and paper products.
          (b)  See Note 9.







                                        F-22<PAGE>




                                 ARTHUR ANDERSEN LLP




                REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE




         To the Board of Directors and Shareholders
          of Sbarro, Inc.:

         We have audited, in accordance with generally accepted auditing
         standards, the consolidated financial statements of Sbarro, Inc.
         and subsidiaries, included in this filing and have issued our
         report thereon dated February 11, 1998.  Our audits were made for
         the purpose of forming an opinion on the basic financial statements
         taken as a whole.  The accompanying schedule is the responsibility
         of the Company's management and is presented for purposes of
         complying with the Securities and Exchange Commission's rules and
         is not part of the basic financial statements.  This schedule has
         been subjected to the auditing procedures applied in the audit of
         the basic financial statements and, in our opinion, fairly states
         in all material respects the financial data required to be set
         forth therein in relation to the basic financial statements taken
         as a whole.


                                       /s/  Arthur Andersen LLP




         New York, New York
         February 11, 1998

















                                         S-1<PAGE>

                                                                SCHEDULE II
                            SBARRO, INC. AND SUBSIDIARIES
                          VALUATION AND QUALIFYING ACCOUNTS
                                   (In thousands)

                              FOR THE THREE YEARS ENDED

         COLUMN A          COLUMN B         COLUMN C     COLUMN D  COLUMN E
                                           ADDITIONS
                           Balance   Charged  Charged to
                              at        to      Other Deductions Balance at
                          Beginning Costs and Accounts  Describe    End of
         Description      of Period  Expenses Describe      (1)     Period

         December 28, 1997
         Accumulated
          amortization of
          of deferred
          charges           $1,436    $1,495            $(1,662)    $1,269

         Accumulated
          amortization
          of Canadian
          development
          rights (2)           424        57                           481

         Accumulated
          amortization
          of purchased
          leasehold
          rights (2)           943       213             (1,060)        96
                            $2,803    $1,765            $(2,722)    $1,846

         December 29, 1996:
         Accumulated
          amortization
          of deferred
          charges           $1,573    $1,432            $(1,569)    $1,436

         Accumulated
          amortization
          of Canadian
          development
          rights (2)           368        56                           424

         Accumulated
          amortization
          of purchased
          leasehold
          rights (2)           764       179                           943
                            $2,705    $1,667            $(1,569)    $2,803









                                         S-2
                            SBARRO, INC. AND SUBSIDIARIES<PAGE>

                          VALUATION AND QUALIFYING ACCOUNTS
                                   (In thousands)

                       FOR THE THREE YEARS ENDED  (Continued)


         December 31, 1995:
         Accumulated
          amortization
          of deferred
          charges           $1,548    $1,507            $(1,482)    $1,573

         Accumulated
          amortization
          of Canadian
          development
          rights (2)           311        57                           368

         Accumulated
          amortization
          of purchased
          leasehold
          rights (2)           586       178                           764
                            $2,445    $1,742            $(1,482)    $2,705

         (1)    Write-off of fully amortized deferred charges
         (2)    Included in other assets
































                                         S-3<PAGE>


                                   EXHIBIT INDEX

           Exhibit Number         Description

           * 3.01(a) Restated Certificate of Incorporation of the Company
                        as filed with the Department of State of the State
                        of New York on March 29, 1985.   (Exhibit 3.01 to
                        the Company's Registration Statement on Form S-1,
                        File No. 2-96807)

              * 3.01(b) Certificate of Amendment to the Company's Restated
                        Certificate of Incorporation as filed with the
                        Department of State of the State of New York on
                        April 3, 1989.  (Exhibit 3.01(b) to the Company's
                        Annual Report on Form 10-K for the year ended
                        January 1, 1989, File No. 1-8881)

              * 3.01(c) Certificate of Amendment to the Company's Restated
                        Certificate of Incorporation as filed with the
                        Department of State of the State of New York on May
                        31, 1989.  (Exhibit 4.01 to the Company's Quarterly
                        Report on Form 10-Q for the quarter ended April 23,
                        1989, File No. 1-8881)

              * 3.01(d) Certificate of Amendment to the Company's Restated
                        Certificate of Incorporation as filed with the
                        Department of State of the State of New York on June
                        1, 1990.  (Exhibit 4.01 to the Company's Quarterly
                        Report on Form 10-Q for the quarter ended April 22,
                        1990, File No. 1-8881)

              * 3.02    By-Laws of the Company, as amended.  (Exhibit 4.3 to
                        the Company's Quarterly Report on Form 10-Q for the
                        quarter ended April 21, 1996, File No. 1-8881)

              *10.01    Commack, New York Corporate Headquarters Sublease.
                        (Exhibit 10.04 to the Company's Registration
                        Statement on Form S-1, File No. 2-96807)

           +  *10.02(a) 1985 Incentive Stock Option Plan, as amended.
                        (Exhibit 10.1 to Company's Quarterly Report on Form
                        10-Q for the quarter ended October 6, 1996, File No.
                        33-4380)

           +  *10.02(b) 1991 Stock Incentive Plan, as amended.  (Exhibit
                        10.1 to the Company's Quarterly Report on Form 10-Q
                        for the quarter ended April 20, 1997, File No. 1-
                        8881)












         __________________________         Exhibit Index (continued):<PAGE>


        Exhibit Number          Description

           +  *10.02(c) Form of Stock Option Agreement dated May 30, 1990
                        between the Company and each of Anthony Sbarro,
                        Joseph Sbarro and Mario Sbarro, together with a
                        schedule, pursuant to Instruction 2 to Item 601 of
                        Regulation S-K, identifying the details in which the
                        actual agreements differ from the exhibit filed
                        herewith.  (Exhibit 10.02(c) to the Company's Annual
                        Report on Form 10-K for the year ended December 30,
                        1990, File No. 1-8881)

           +  *10.02(d) 1993 Non-Employee Director Stock Option Plan, as
                        amended.  (Exhibit 10.2 (d) to the Company's
                        Quarterly Report on Form 10-K for the year ended
                        April 20, 1997, File No. 1-8881)

           +  *10.02(e) The Company's Performance Incentive Plan.  (Exhibit
                        A to the Company's Proxy Statement dated April 29,
                        1997, File No. 1-8881.)

           +  *10.03    Consulting Agreement (including option) dated June
                        3, 1985 between the Company and Bernard Zimmerman &
                        Company, Inc. (Exhibit 10.04 to the Company's Annual
                        Report on Form 10-K for the year ended January 1,
                        1989, File No. 1-8881)

           +  *10.04    Form of Indemnification Agreement between the
                        Company and each of its directors and officers.
                        (Exhibit 10.04 to the Company's Annual Report on
                        Form 10-K for the year ended December 31, 1989, File
                        No. 1-8881)

                21.01   List of subsidiaries.

                23.01   Consent of Arthur Andersen LLP.

                27.01   Financial Data Schedule.
         _____________________________
          * Incorporated by reference to the document indicated.
          + Management contract or compensatory plan.<PAGE>