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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------



|                                         |  |                                   |  | 
|---------------------------------------- |  | --------------------------------- |  | 
|For the quarter ended September 28, 2008 |  | Commission file number 333-142081 |  | 





SBARRO, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|NEW YORK                                                       |  | 11-2501939                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|401 Broad Hollow Road, Melville, New York                      |  | 11747-4714                          
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code: (631) 715-4100





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 requirements for the past 90 days.

Yes  x    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated
filer   ̈    Accelerated filer   ̈    Non-accelerated filer  x    Smaller reporting company   ̈

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ̈    No  x

The number of shares of Common Stock of the registrant outstanding as of November 10, 2008 was 100.







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SBARRO, INC.

FORM 10-Q INDEX



|                              |  |                                                                                                                                                                                                                                                                                                                                          |  |    
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---
|                              |  | PAGES                                                                                                                                                                                                                                                                                                                                   
|PART I. FINANCIAL INFORMATION |  |                                                                                                                                                                                                                                                                                                                                         
|                              |  |                                                                                                                                                                                                                                                                                                                                         
|Item 1.                       |  | Consolidated Financial Statements (unaudited):                                                                                                                                                                                                                                                                                           |  |    
|                              |  |                                                                                                                                                                                                                                                                                                                                         
|                              |  | Balance Sheets (unaudited)September 28, 2008 (Successor) and December 30, 2007
(Successor)                                                                                                                                                                                                                                              |  | 3-4
|                              |  |                                                                                                                                                                                                                                                                                                                                         
|                              |  | Statements of Operations (unaudited)Nine months ended September 28, 2008 (Successor), the period January 
31 through September 30, 2007 (Successor) and the period January 1 through January 30, 2007 (Predecessor) and the three months ended September 28, 2008 (Successor) and the three months ended September 30, 2007 (Successor) |  | 5-6
|                              |  |                                                                                                                                                                                                                                                                                                                                         
|                              |  | Statement of Shareholders Equity (unaudited)Nine months ended September 
28, 2008 (Successor) and the period January 31 through December 30, 2007 (Successor)                                                                                                                                                                          |  | 7  
|                              |  |                                                                                                                                                                                                                                                                                                                                         
|                              |  | Statements of Cash Flows (unaudited)Nine months ended September 28, 2008 (Successor), the period January 
31 through September 30, 2007 (Successor) and the period January 1 through January 30, 2007 (Predecessor)                                                                                                                     |  | 8-9
|                              |  |                                                                                                                                                                                                                                                                                                                                         
|                              |  | Notes to Unaudited Consolidated Financial Statements                                                                                                                                                                                                                                                                                     |  | 10 
|                              |  |                                                                                                                                                                                                                                                                                                                                         
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                                                                                                                                                    |  | 26 
|                              |  |                                                                                                                                                                                                                                                                                                                                         
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                                                                                                                                                               |  | 35 
|                              |  |                                                                                                                                                                                                                                                                                                                                         
|Item 4T.                      |  | Controls and Procedures                                                                                                                                                                                                                                                                                                                  |  | 35 
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                                                                                                                                                                                                                                         
|                              |  |                                                                                                                                                                                                                                                                                                                                         
|Item 1.                       |  | Legal Proceedings                                                                                                                                                                                                                                                                                                                        |  | 37 
|                              |  |                                                                                                                                                                                                                                                                                                                                         
|Item 1A.                      |  | Risk Factors                                                                                                                                                                                                                                                                                                                             |  | 37 
|                              |  |                                                                                                                                                                                                                                                                                                                                         
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                                                                                                                                                                              |  | 37 
|                              |  |                                                                                                                                                                                                                                                                                                                                         
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                                                                                                                                                                                                                                          |  | 37 
|                              |  |                                                                                                                                                                                                                                                                                                                                         
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                                                                                                                                                                                                                                      |  | 37 
|                              |  |                                                                                                                                                                                                                                                                                                                                         
|Item 5.                       |  | Other Information                                                                                                                                                                                                                                                                                                                        |  | 37 
|                              |  |                                                                                                                                                                                                                                                                                                                                         
|Item 6.                       |  | Exhibits                                                                                                                                                                                                                                                                                                                                 |  | 38 



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Part I  Financial Information

Item 1. Consolidated Financial Statements

SBARRO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

(Unaudited)

(In thousands)



|                                                                                   |  |                    |         |                   |   |        
|---------------------------------------------------------------------------------- |  | ------------------ | ------- | ----------------- | - | -------
|                                                                                   |  | September 28, 2008 |         | December 30, 2007
|Current assets:                                                                    |  |                    |         |                   |   |        
|Cash and cash equivalents                                                          |  | $                  | 13,445  |                   | $ | 28,867 
|Receivables, net of allowance for doubtful accounts of $80 at September 28, 2008 : |  |                    |         |                   |   |        
|Franchise                                                                          |  |                    | 3,292   |                   |   | 2,938  
|Other                                                                              |  |                    | 3,630   |                   |   | 4,552  
|                                                                                   |  |                    |         |                   |   |        
|                                                                                   |  |                    | 6,922   |                   |   | 7,490  
|Inventories                                                                        |  |                    | 2,855   |                   |   | 3,056  
|Prepaid expenses                                                                   |  |                    | 4,349   |                   |   | 3,480  
|Deferred tax asset                                                                 |  |                    | 4,315   |                   |   | 2,331  
|                                                                                   |  |                    |         |                   |   |        
|Total current assets                                                               |  |                    | 31,886  |                   |   | 45,224 
|                                                                                   |  |                   
|Property and equipment, net                                                        |  |                    | 68,067  |                   |   | 65,343 
|                                                                                   |  |                   
|Intangible assets:                                                                 |  |                    |         |                   |   |        
|Goodwill                                                                           |  |                    | 211,787 |                   |   | 211,236
|Trademarks                                                                         |  |                    | 248,000 |                   |   | 248,000
|Other intangible assets                                                            |  |                    | 30,903  |                   |   | 31,996 
|Deferred financing costs, net                                                      |  |                    | 9,227   |                   |   | 10,069 
|Deferred tax asset                                                                 |  |                    | 27,839  |                   |   | 23,850 
|Other assets                                                                       |  |                    | 907     |                   |   | 1,053  
|                                                                                   |  |                    |         |                   |   |        
|Total assets                                                                       |  | $                  | 628,616 |                   | $ | 636,771
|                                                                                   |  |                    |         |                   |   |        

See notes to unaudited consolidated financial statements.



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SBARRO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

LIABILITIES & SHAREHOLDERS EQUITY

(Unaudited)

(In
thousands except shareholders)

(CONTINUED)



|                                                                                                                      |  |                    |         |   |                   |   |        
|--------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | -------
|                                                                                                                      |  | September 28, 2008 |         |   | December 30, 2007
|Current liabilities:                                                                                                  |  |                    |         |   |                   |   |        
|Accounts payable                                                                                                      |  | $                  | 14,070  |   |                   | $ | 8,586  
|Accrued expenses                                                                                                      |  |                    | 23,804  |   |                   |   | 22,584 
|Accrued interest payable                                                                                              |  |                    | 3,493   |   |                   |   | 7,745  
|Due to former shareholders                                                                                            |  |                    | 2,340   |   |                   |   | 6,200  
|Taxes payable on behalf of former shareholders                                                                        |  |                    |        |   |                   |   | 2,072  
|Insurance premium financing                                                                                           |  |                    | 1,894   |   |                   |   | 1,101  
|Current portion of debt                                                                                               |  |                    | 1,830   |   |                   |   | 1,830  
|                                                                                                                      |  |                    |         |   |                   |   |        
|Total current liabilities                                                                                             |  |                    | 47,431  |   |                   |   | 50,118 
|Deferred rent                                                                                                         |  |                    | 4,484   |   |                   |   | 3,587  
|Deferred tax liability                                                                                                |  |                    | 107,249 |   |                   |   | 107,130
|Due to former shareholders and other liabilities                                                                      |  |                    | 13,999  |   |                   |   | 10,052 
|Long-term debt                                                                                                        |  |                    | 328,883 |   |                   |   | 330,255
|                                                                                                                      |  |                   
|Commitments and contingencies                                                                                         |  |                    |         |   |                   |   |        
|                                                                                                                      |  |                   
|Shareholders equity:                                                                                                 |  |                    |         |   |                   |   |        
|Common stock                                                                                                          |  |                    |         |   |                   |   |        
|Authorized 1,000 shares; $.01 par value issued and outstanding 100 shares at September 28, 2008 and December 30,
2007 |  |                    |        |   |                   |   |       
|Additional paid-in capital                                                                                            |  |                    | 133,000 |   |                   |   | 133,000
|Currency translation adjustments                                                                                      |  |                    | 152     |   |                   |   |       
|Advances to MidOcean SBR Holdings                                                                                     |  |                    | (305    | ) |                   |   |       
|(Accumulated deficit) retained earnings                                                                               |  |                    | (6,277  | ) |                   |   | 2,629  
|                                                                                                                      |  |                    |         |   |                   |   |        
|Total shareholders equity                                                                                            |  |                    | 126,570 |   |                   |   | 135,629
|                                                                                                                      |  |                    |         |   |                   |   |        
|Total liabilities and shareholders equity                                                                            |  | $                  | 628,616 |   |                   | $ | 636,771
|                                                                                                                      |  |                    |         |   |                   |   |        



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SBARRO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands)



|                                                         |  |                                            |         |   |                                                    |   |         |   |             |                                                 |  |   |         |  
|-------------------------------------------------------- |  | ------------------------------------------ | ------- | - | -------------------------------------------------- | - | ------- | - | ----------- | ----------------------------------------------- |  | - | ------- | -
|                                                         |  | For the nine monthsendedSeptember 28, 2008 |         |   | For the periodJanuary 31 throughSeptember 30, 2007 |   |         |   |             | For the periodJanuary 1 throughJanuary 30, 2007 | 
|                                                         |  | SUCCESSOR                                  |         |   | SUCCESSOR                                          |   |         |   | PREDECESSOR |                                                
|Revenues:                                                |  |                                            |         |   |                                                    |   |         |   |             |                                                 |  |   |         |  
|Restaurant sales                                         |  | $                                          | 248,379 |   |                                                    | $ | 219,098 |   |             |                                                 |  | $ | 23,594  |  
|Franchise related income                                 |  |                                            | 12,108  |   |                                                    |   | 10,067  |   |             |                                                 |  |   | 993     |  
|Real estate                                              |  |                                            |        |   |                                                    |   |        |   |             |                                                 |  |   | 323     |  
|                                                         |  |                                            |         |   |                                                    |   |         |   |             |                                                 |  |   |         |  
|Total revenues                                           |  |                                            | 260,487 |   |                                                    |   | 229,165 |   |             |                                                 |  |   | 24,910  |  
|Costs and expenses:                                      |  |                                            |         |   |                                                    |   |         |   |             |                                                 |  |   |         |  
|Cost of food and paper products                          |  |                                            | 56,983  |   |                                                    |   | 44,621  |   |             |                                                 |  |   | 4,308   |  
|Payroll and other employee benefits                      |  |                                            | 70,860  |   |                                                    |   | 60,092  |   |             |                                                 |  |   | 6,762   |  
|Other operating costs                                    |  |                                            | 92,723  |   |                                                    |   | 79,201  |   |             |                                                 |  |   | 8,839   |  
|Other income, net                                        |  |                                            | (2,785  | ) |                                                    |   | (1,924  | ) |             |                                                 |  |   | (497    | )
|Depreciation and amortization                            |  |                                            | 12,720  |   |                                                    |   | 12,289  |   |             |                                                 |  |   | 1,272   |  
|General and administrative                               |  |                                            | 20,975  |   |                                                    |   | 18,406  |   |             |                                                 |  |   | 2,843   |  
|Special event bonuses                                    |  |                                            |        |   |                                                    |   |        |   |             |                                                 |  |   | 31,395  |  
|Asset impairment, restaurant closings/remodels           |  |                                            | 1,184   |   |                                                    |   | 334     |   |             |                                                 |  |   | 74      |  
|                                                         |  |                                            |         |   |                                                    |   |         |   |             |                                                 |  |   |         |  
|Total costs and expenses, net                            |  |                                            | 252,660 |   |                                                    |   | 213,019 |   |             |                                                 |  |   | 54,996  |  
|                                                         |  |                                            |         |   |                                                    |   |         |   |             |                                                 |  |   |         |  
|Operating income (loss)                                  |  |                                            | 7,827   |   |                                                    |   | 16,146  |   |             |                                                 |  |   | (30,086 | )
|                                                         |  |                                            |         |   |                                                    |   |         |   |             |                                                 |  |   |         |  
|Other (expense) income:                                  |  |                                            |         |   |                                                    |   |         |   |             |                                                 |  |   |         |  
|Interest expense                                         |  |                                            | (21,617 | ) |                                                    |   | (21,036 | ) |             |                                                 |  |   | (2,570  | )
|Interest income                                          |  |                                            | 132     |   |                                                    |   | 461     |   |             |                                                 |  |   | 108     |  
|Equity in net (loss) income of unconsolidated affiliates |  |                                            | (185    | ) |                                                    |   |        |   |             |                                                 |  |   | 12      |  
|                                                         |  |                                            |         |   |                                                    |   |         |   |             |                                                 |  |   |         |  
|Net other expense                                        |  |                                            | (21,670 | ) |                                                    |   | (20,575 | ) |             |                                                 |  |   | (2,450  | )
|                                                         |  |                                            |         |   |                                                    |   |         |   |             |                                                 |  |   |         |  
|Loss before income taxes                                 |  |                                            | (13,843 | ) |                                                    |   | (4,429  | ) |             |                                                 |  |   | (32,536 | )
|                                                         |  |                                            |         |   |                                                    |   |         |   |             |                                                 |  |   |         |  
|Income tax (benefit) expense                             |  |                                            | (4,937  | ) |                                                    |   | (1,940  | ) |             |                                                 |  |   | 44      |  
|                                                         |  |                                            |         |   |                                                    |   |         |   |             |                                                 |  |   |         |  
|Net loss                                                 |  | $                                          | (8,906  | ) |                                                    | $ | (2,489  | ) |             |                                                 |  | $ | (32,580 | )
|                                                         |  |                                            |         |   |                                                    |   |         |   |             |                                                 |  |   |         |  

See notes to unaudited consolidated financial statements.



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SBARRO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands)



|                                                |  |                                         |        |   |                                         |   |        |  
|----------------------------------------------- |  | --------------------------------------- | ------ | - | --------------------------------------- | - | ------ | -
|                                                |  | For the quarterended September 28, 2008 |        |   | For the quarterended September 30, 2007 |  
|                                                |  | SUCCESSOR                               |        |   | SUCCESSOR                               |  
|Revenues:                                       |  |                                         |        |   |                                         |   |        |  
|Restaurant sales                                |  | $                                       | 87,483 |   |                                         | $ | 87,047 |  
|Franchise related income                        |  |                                         | 4,384  |   |                                         |   | 3,948  |  
|                                                |  |                                         |        |   |                                         |   |        |  
|Total revenues                                  |  |                                         | 91,867 |   |                                         |   | 90,995 |  
|Costs and expenses:                             |  |                                         |        |   |                                         |   |        |  
|Cost of food and paper products                 |  |                                         | 20,215 |   |                                         |   | 18,008 |  
|Payroll and other employee benefits             |  |                                         | 24,132 |   |                                         |   | 23,001 |  
|Other operating costs                           |  |                                         | 31,523 |   |                                         |   | 30,597 |  
|Other income, net                               |  |                                         | (884   | ) |                                         |   | (793   | )
|Depreciation and amortization                   |  |                                         | 3,986  |   |                                         |   | 4,751  |  
|General and administrative                      |  |                                         | 6,730  |   |                                         |   | 7,145  |  
|Asset impairment, restaurant closings/remodels  |  |                                         | 849    |   |                                         |   | 125    |  
|                                                |  |                                         |        |   |                                         |   |        |  
|Total costs and expenses, net                   |  |                                         | 86,551 |   |                                         |   | 82,834 |  
|                                                |  |                                         |        |   |                                         |   |        |  
|Operating income                                |  |                                         | 5,316  |   |                                         |   | 8,161  |  
|                                                |  |                                         |        |   |                                         |   |        |  
|Other (expense) income:                         |  |                                         |        |   |                                         |   |        |  
|Interest expense                                |  |                                         | (6,572 | ) |                                         |   | (7,673 | )
|Interest income                                 |  |                                         | 25     |   |                                         |   | 57     |  
|Equity in net loss of unconsolidated affiliates |  |                                         | (57    | ) |                                         |   |       |  
|                                                |  |                                         |        |   |                                         |   |        |  
|Net other expense                               |  |                                         | (6,604 | ) |                                         |   | (7,616 | )
|                                                |  |                                         |        |   |                                         |   |        |  
|(Loss) income before income taxes               |  |                                         | (1,288 | ) |                                         |   | 545    |  
|                                                |  |                                         |        |   |                                         |   |        |  
|Income tax (benefit) expense                    |  |                                         | (114   | ) |                                         |   | 42     |  
|                                                |  |                                         |        |   |                                         |   |        |  
|Net (loss) income                               |  | $                                       | (1,174 | ) |                                         | $ | 503    |  
|                                                |  |                                         |        |   |                                         |   |        |  

See notes to unaudited consolidated financial statements.



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SBARRO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

(Unaudited)

(In thousands, except share data)



|                                    |  |                 |  |                          |  |   |                                      |   |  |                                     |        |       |  |   |     |  |   |         |  
|----------------------------------- |  | --------------- |  | ------------------------ |  | - | ------------------------------------ | - |  | ----------------------------------- | ------ | ----- |  | - | --- |  | - | ------- | -
|                                    |  | Common Stock    |  | Additionalpaid-incapital |  |   | RetainedEarnings(AccumulatedDeficit) |   |  | AccumulatedOtherComprehensiveIncome |        | Total | 
|                                    |  | Number ofShares |  | Amount                   |  |   |                                      |  
|Balance at January 31, 2007         |  | 100             |  |                         |  | $ | 133,000                              |   |  | $                                   |       |       |  | $ |    |  | $ | 133,000 |  
|Net Income                          |  |                |  |                         |  |   |                                     |   |  |                                     | 2,629  |       |  |   |    |  |   | 2,629   |  
|                                    |  |                 |  |                          |  |   |                                      |   |  |                                     |        |       |  |   |     |  |   |         |  
|Balance at December 30, 2007        |  | 100             |  |                         |  |   | 133,000                              |   |  |                                     | 2,629  |       |  |   |    |  |   | 135,629 |  
|                                    |  |                 |  |                          |  |  
|Components of comprehensive income: |  |                 |  |                          |  |   |                                      |   |  |                                     |        |       |  |   |     |  |   |         |  
|Net loss                            |  |                 |  |                          |  |   |                                     |   |  |                                     | (8,906 | )     |  |   |    |  |   | (8,906  | )
|Currency translation adjustments    |  |                 |  |                          |  |   |                                     |   |  |                                     |       |       |  |   | 152 |  |   | 152     |  
|                                    |  |                 |  |                          |  |   |                                      |   |  |                                     |        |       |  |   |     |  |   |         |  
|Comprehensive income                |  |                 |  |                          |  |   |                                      |   |  |                                     |        |       |  |   |     |  |   | (8,754  | )
|Advance to MidOcean SBR Holdings    |  |                 |  |                          |  |   | (305                                 | ) |  |                                     |       |       |  |   |    |  |   | (305    | )
|                                    |  |                 |  |                          |  |   |                                      |   |  |                                     |        |       |  |   |     |  |   |         |  
|Balance at September 28, 2008       |  | 100             |  |                         |  | $ | 132,695                              |   |  | $                                   | (6,277 | )     |  | $ | 152 |  | $ | 126,570 |  
|                                    |  |                 |  |                          |  |   |                                      |   |  |                                     |        |       |  |   |     |  |   |         |  

See notes to unaudited consolidated financial statements.



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SBARRO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



|                                                                                          |  |                                            |        |   |                                                    |   |        |   |             |                                                 |  |   |         |  
|----------------------------------------------------------------------------------------- |  | ------------------------------------------ | ------ | - | -------------------------------------------------- | - | ------ | - | ----------- | ----------------------------------------------- |  | - | ------- | -
|                                                                                          |  | For the nine monthsendedSeptember 28, 2008 |        |   | For the periodJanuary 31 throughSeptember 30, 2007 |   |        |   |             | For the periodJanuary 1 throughJanuary 30, 2007 | 
|                                                                                          |  | SUCCESSOR                                  |        |   | SUCCESSOR                                          |   |        |   | PREDECESSOR |                                                
|Operating Activities:                                                                     |  |                                            |        |   |                                                    |   |        |   |             |                                                 |  |   |         |  
|Net loss                                                                                  |  | $                                          | (8,906 | ) |                                                    | $ | (2,489 | ) |             |                                                 |  | $ | (32,580 | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                                            |        |   |                                                    |   |        |   |             |                                                 |  |   |         |  
|Depreciation and amortization                                                             |  |                                            | 12,720 |   |                                                    |   | 12,289 |   |             |                                                 |  |   | 1,272   |  
|Amortization of deferred financing costs                                                  |  |                                            | 841    |   |                                                    |   | 671    |   |             |                                                 |  |   | 112     |  
|Increase (decrease) in deferred rent, net of tenant allowance                             |  |                                            | 1,218  |   |                                                    |   | 1,058  |   |             |                                                 |  |   | (117    | )
|Asset impairment and restaurant closings/remodels                                         |  |                                            | 1,184  |   |                                                    |   | 334    |   |             |                                                 |  |   | 74      |  
|Deferred tax benefit                                                                      |  |                                            | (5,854 | ) |                                                    |   | (2,689 | ) |             |                                                 |  |   |        |  
|Equity in net loss (income) of unconsolidated affiliates                                  |  |                                            | 185    |   |                                                    |   |       |   |             |                                                 |  |   | (12     | )
|Changes in operating assets and liabilities, net of effects of merger:                    |  |                                            |        |   |                                                    |   |        |   |             |                                                 |  |   |         |  
|Decrease in receivables                                                                   |  |                                            | 158    |   |                                                    |   | 1,546  |   |             |                                                 |  |   | 394     |  
|Decrease in inventories                                                                   |  |                                            | 333    |   |                                                    |   | 90     |   |             |                                                 |  |   | 319     |  
|Decrease (increase) in prepaid expenses                                                   |  |                                            | 191    |   |                                                    |   | 1,232  |   |             |                                                 |  |   | (1,434  | )
|(Increase) decrease in other assets                                                       |  |                                            | (111   | ) |                                                    |   | (720   | ) |             |                                                 |  |   | 871     |  
|Increase in accounts payable, accrued expenses & other liabilities                        |  |                                            | 3,305  |   |                                                    |   | 4,204  |   |             |                                                 |  |   | 23,474  |  
|(Decrease) increase in accrued interest payable                                           |  |                                            | (4,252 | ) |                                                    |   | 3,890  |   |             |                                                 |  |   | 2,337   |  
|                                                                                          |  |                                            |        |   |                                                    |   |        |   |             |                                                 |  |   |         |  
|Net cash provided by (used in) operating activities                                       |  |                                            | 1,012  |   |                                                    |   | 19,416 |   |             |                                                 |  |   | (5,290  | )
|                                                                                          |  |                                            |        |   |                                                    |   |        |   |             |                                                 |  |   |         |  

(Continued)



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##### Table of Contents

SBARRO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

(CONTINUED)



|                                                        |  |                                            |         |   |                                                    |   |          |   |             |                                                 |  |   |         |  
|------------------------------------------------------- |  | ------------------------------------------ | ------- | - | -------------------------------------------------- | - | -------- | - | ----------- | ----------------------------------------------- |  | - | ------- | -
|                                                        |  | For the nine monthsendedSeptember 28, 2008 |         |   | For the periodJanuary 31 throughSeptember 30, 2007 |   |          |   |             | For the periodJanuary 1 throughJanuary 30, 2007 | 
|                                                        |  | SUCCESSOR                                  |         |   | SUCCESSOR                                          |   |          |   | PREDECESSOR |                                                
|Investing Activities:                                   |  |                                            |         |   |                                                    |   |          |   |             |                                                 |  |   |         |  
|Purchases of property and equipment                     |  |                                            | (13,371 | ) |                                                    |   | (10,816  | ) |             |                                                 |  |   | (1,691  | )
|Purchases of franchises and other locations             |  |                                            | (1,261  | ) |                                                    |   | (4,790   | ) |             |                                                 |  |   |        |  
|Investment in joint ventures                            |  |                                            | (124    | ) |                                                    |   | (380     | ) |             |                                                 |  |   |        |  
|Cash paid for merger, net of cash acquired              |  |                                            |        |   |                                                    |   | (188,000 | ) |             |                                                 |  |   |        |  
|                                                        |  |                                            |         |   |                                                    |   |          |   |             |                                                 |  |   |         |  
|Net cash used in investing activities                   |  |                                            | (14,756 | ) |                                                    |   | (203,986 | ) |             |                                                 |  |   | (1,691  | )
|                                                        |  |                                            |         |   |                                                    |   |          |   |             |                                                 |  |   |         |  
|                                                        |  |                                            |         |  
|Financing Activities:                                   |  |                                            |         |   |                                                    |   |          |   |             |                                                 |  |   |         |  
|Proceeds from shareholders for issuance of common stock |  |                                            |        |   |                                                    |   | 133,000  |   |             |                                                 |  |   |        |  
|Proceeds from secured term loan                         |  |                                            |        |   |                                                    |   | 183,000  |   |             |                                                 |  |   |        |  
|Proceeds from senior notes                              |  |                                            |        |   |                                                    |   | 150,000  |   |             |                                                 |  |   |        |  
|Paydown of Predecessors notes                          |  |                                            |        |   |                                                    |   | (267,000 | ) |             |                                                 |  |   |        |  
|Repayment of secured term loan                          |  |                                            | (1,373  | ) |                                                    |   | (915     | ) |             |                                                 |  |   |        |  
|Advances to MidOcean SBR Holdings                       |  |                                            | (305    | ) |                                                    |   |         |   |             |                                                 |  |   |        |  
|Mortgage principal repayments                           |  |                                            |        |   |                                                    |   |         |   |             |                                                 |  |   | (17     | )
|Dividends to sellers                                    |  |                                            |        |   |                                                    |   |         |   |             |                                                 |  |   | (76,159 | )
|Repayment of loans by officers                          |  |                                            |        |   |                                                    |   |         |   |             |                                                 |  |   | 5,530   |  
|                                                        |  |                                            |         |   |                                                    |   |          |   |             |                                                 |  |   |         |  
|Net cash (used in) provided by financing activities     |  |                                            | (1,678  | ) |                                                    |   | 198,085  |   |             |                                                 |  |   | (70,646 | )
|                                                        |  |                                            |         |   |                                                    |   |          |   |             |                                                 |  |   |         |  
|(Decrease) increase in cash and cash equivalents        |  |                                            | (15,422 | ) |                                                    |   | 13,515   |   |             |                                                 |  |   | (77,627 | )
|Cash and cash equivalents at beginning of period        |  |                                            | 28,867  |   |                                                    |   |         |   |             |                                                 |  |   | 88,627  |  
|                                                        |  |                                            |         |   |                                                    |   |          |   |             |                                                 |  |   |         |  
|Cash and cash equivalents at end of period              |  | $                                          | 13,445  |   |                                                    | $ | 13,515   |   |             |                                                 |  | $ | 11,000  |  
|                                                        |  |                                            |         |   |                                                    |   |          |   |             |                                                 |  |   |         |  

Supplemental non-cash investing activities:

On January 30, 2007, the Company transferred its interest of $5.6 million of certain non-core assets to a newly-formed company owned
by certain of our former shareholders as a dividend.

See notes to unaudited consolidated financial statements.



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##### Table of Contents

SBARRO INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

1. Basis of Financial Statement Presentation:

On January 31, 2007, entities controlled by MidOcean Partners III, LP, a
private equity firm, and certain of its affiliates (MidOcean) acquired the Company, pursuant to an agreement and plan of merger (Merger Agreement). MidOcean SBR Acquisition Corp., a wholly-owned subsidiary of Sbarro Holdings,
LLC, merged with and into the Company (the Merger), with the Company surviving the Merger. Sbarro Holdings, LLC is a wholly-owned subsidiary of MidOcean SBR Holdings, LLC (Holdings). Sbarro Holdings, LLC owns 100% of our
outstanding common stock and Holdings owns 100% of the limited liability company interests of Sbarro Holdings, LLC.

MidOcean owns
approximately 74% of Holdings and thus acquired control of the Company in the Merger. Certain of our senior managers acquired approximately 5% of the outstanding equity of Holdings in connection with the Merger, with the balance of the equity of
Holdings being owned by other investors.

As a result of the Merger, we are required to present our results for the first nine months of
2007 as two separate periods. Our Predecessor financial period refers to the period from January 1 through January 30, 2007 prior to consummation of the Merger. Our Successor financial period refers to the period beginning January 31
through September 30, 2007 following consummation of the Merger.

The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions for Form 10-Q and Regulation S-X related to interim period financial statements and, therefore, do not include all information and footnotes required by generally accepted accounting principles.
However, in the opinion of our management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the consolidated financial position of Sbarro and our subsidiaries at
September 28, 2008 (Successor) and our consolidated results of operations for the three months ended September 28, 2008 (Successor) and the three months ended September 30, 2007 (Successor) and our consolidated results of operations
and cash flows for the nine months ended September 28, 2008 (Successor) and the period January 31, 2007 through September 30, 2007 (Successor) and the period January 1, 2007 through January 30, 2007 (Predecessor) have been
included. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the entire year. Reference should be made to our annual financial statements, including footnotes thereto, included in our
Annual Report on Form 10-K for the year ended December 30, 2007.

Certain reclassifications have been made to the prior years
financial statements to conform to the current presentation.

2. Recent Accounting Pronouncements:

SFAS 157:

In September 2006, FASB issued Statement
SFAS No. 157, Fair Value Measurements (SFAS No. 157). This statement defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value
measurements. The statement applies whenever other statements require or permit assets or liabilities to be measured at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. This statement does not
require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. The FASB issued FSP 157-1 to exclude FASB Statement No. 13 and its related interpretive
accounting pronouncements that address leasing transactions. In February 2008, the FASB issued FSP 157-2 to allow a one-year deferral of adoption of SFAS No. 157 for non-financial assets and non-financial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring basis. We elected to defer adoption of SFAS No. 157 for non-financial assets and non-financial liabilities and we do not currently anticipate that full adoption in 2009 will
materially impact our consolidated financial statements. We evaluated SFAS No. 157 and determined that the adoption of the provisions effective December 31, 2007 did not have a material effect on our consolidated financial statements.

SFAS 159:

In September 2006, the FASB
issued Statement SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115 (SFAS No. 159), which is effective for fiscal years
beginning after November 15, 2007. Under SFAS No. 159, a company may elect to measure eligible financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected
are reported in earnings at each subsequent reporting date. We evaluated SFAS No. 159 and do not have any items eligible for the fair value accounting option; therefore, SFAS No. 159 had no impact on our consolidated financial statements.



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##### Table of Contents

SBARRO INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Continued)



SFAS 141 (R):

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (FAS 141(R)), which is effective for
annual periods beginning on or after December 15, 2008. In FAS 141(R), the FASB retained the fundamental requirements of Statement No. 141 to account for all business combinations using the acquisition method (formerly the purchase method)
and for an acquiring entity to be identified in all business combinations. However, the new standard requires the acquiring entity in a business combination to recognize the assets acquired and liabilities assumed in the transaction; establishes the
acquisition-date for value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and
financial effect of the business combination. The Company will apply the provisions of this statement prospectively to business combinations for which the acquisition date is on or after December 29, 2008 and is currently assessing the impact
of adoption of SFAS No. 141(R) on its consolidated financial statements.

SFAS 160:

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements  an amendment to ARB No. 51 (SFAS
No. 160) which is effective for fiscal years beginning on or after December 15, 2008. SFAS No. 160 requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial
statements, but separate from the equity of the parent company. The statement further requires that consolidated net income be reported at amounts attributable to the parent and the noncontrolling interest, rather than expensing the income
attributable to the minority interest holder. This statement also requires that companies provide sufficient disclosures to clearly identify and distinguish between the interest of the parent company and the interest of the noncontrolling interest
holder. We have not yet determined the impact that SFAS No. 160 will have on our consolidated financial statements.

FSP 142-3

In April 2008, the FASB issued FASB Staff Position No. FSP 142-3, Determination of the Useful Life of Intangible Assets (FSP
No. 142-3). FSP No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and
Other Intangible Assets. The intent of FSP No. 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of
the asset under SFAS No. 141(R) and other U.S. generally accepted accounting principles. FSP No. 142-3 is effective for the Company in the first quarter of 2009 and will be applied prospectively to future business combinations.



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SBARRO INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Continued)



3. Long Term Debt:

Indenture:

In connection with the Merger, we issued
$150.0 million of senior notes at 10.375% due 2015 (Senior Notes). The interest is payable on February 1 and August 1 of each year.

The Senior Notes are senior unsecured obligations of ours and are guaranteed by all of our current and future domestic subsidiaries and rank equally in right of payment with all existing and future senior indebtedness
of ours. The Senior Notes are effectively subordinated to all secured indebtedness of ours to the extent of the collateral securing such indebtedness, including the Senior Credit Facilities (as defined below). In the event of any distribution or
payment of our assets in any foreclosure, dissolution, winding-up, liquidation, reorganization, or other bankruptcy proceeding, holders of secured indebtedness will have prior claim to those of our assets that constitute their collateral. The Senior
Notes are structurally subordinated to all existing and future indebtedness, claims of holders of preferred stock and other liabilities of our subsidiaries that do not guarantee the Senior Notes. In the event of a bankruptcy, liquidation or
reorganization of any of our non-guarantor subsidiaries, holders of their indebtedness and their trade creditors will generally be entitled to payment of their claims in full from the assets of those subsidiaries before any assets are made available
for distribution to us. The Senior Notes are senior in right of payment to any future subordinated obligations of ours.

The indenture
governing the notes contains certain events of default and restrictive covenants which are customary with respect to non-investment grade debt securities, including limitations on the incurrence of additional indebtedness, dividends, repurchases of
capital stock, sales of assets, liens, mergers and transactions with affiliates.

Senior Credit Facilities:

In connection with the Merger, we entered into senior secured credit facilities. The senior secured credit facilities provide for loans of $208.0 million
under a $183.0 million senior secured term loan facility and a $25.0 million senior secured revolving facility (the Senior Credit Facilities). The revolving facility also provides for the issuance of letters of credit not to exceed $10.0
million at any one time outstanding and swing line loans not to exceed $5.0 million at any one time outstanding. In addition, the Senior Credit Facilities provide for an uncommitted incremental facility of up to $50.0 million. In connection with the
Merger, we borrowed the entire $183.0 million available under the term loan facility. The term loan facility (the Term Loan) will mature in 2014 and the revolving credit facility is scheduled to terminate and come due in 2013.

There were $4.0 million letters of credit outstanding as of September 28, 2008. The letters of credit have been issued instead of
cash security deposits under our operating leases or to guarantee construction costs of our locations, and for run-out claims under our medical plan. On October 17, 2008, we borrowed $8 million under our senior secured revolving facility. The
remaining borrowing availability is $13 million.

In general, borrowings under the Senior Credit Facilities bear interest based, at our
option, at either the Eurodollar rate or an alternate base rate (ABR), in each case plus a margin. The applicable margin will be based on our total leverage ratio (as defined in the credit agreement governing the Senior Credit
Facilities) at the time of determination. Our rate of interest for borrowings under the Senior Credit Facilities is LIBOR plus 2.50% or ABR plus 1.50%. In addition to paying interest on outstanding principal under the Senior Credit Facilities, we
are required to pay an unused line fee to the lenders with respect to the unutilized revolving commitments at a rate that shall not exceed 50 basis points per annum.

Our obligations under the Senior Credit Facilities are unconditionally and irrevocably guaranteed by our domestic subsidiaries. In addition, the Senior Credit Facilities are secured by first priority perfected
security interests in substantially all of our and our domestic subsidiaries capital stock, and up to 65% of the outstanding capital stock of our foreign subsidiaries.

The credit agreement governing the Senior Credit Facilities contains certain events of default and restrictive covenants which are customary with respect to facilities of this type, including
limitations on the incurrence of additional indebtedness, dividends, investments, repayment of certain indebtedness, sales of assets, liens, mergers and transactions with affiliates. In addition, the credit agreement requires compliance with certain
financial and operating covenants, including a minimum cash interest coverage ratio and a maximum net leverage ratio.



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SBARRO INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Continued)



Long-Term Debt matures as follows (In millions):



|                    |  |   |      
|------------------- |  | - | -----
|Year ending 2008    |  | $ | .4   
|2009                |  |   | 1.8  
|2010                |  |   | 1.8  
|2011                |  |   | 1.8  
|2012                |  |   | 1.8  
|2013 and thereafter |  | $ | 323.1

4. Income Taxes:

Effective January 31, 2007, the Company has been organized as a C Corporation. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. We have not provided a valuation allowance for the deferred income tax asset since we believe it is more likely than not that the Companys earnings will be sufficient to ensure the realization of the deferred income tax asset
for federal and state purposes.



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SBARRO INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Continued)



5. Business Segment Information:

We operate our business through two segments. Our company-owned restaurant segment is comprised of the operating activities of our company-owned
QSRs and other concept restaurants. Our franchise restaurant segment is comprised of our franchised restaurants which offer opportunities worldwide for qualified operators to conduct business under the Sbarro name and other trade names owned
by Sbarro. Revenue from our franchised restaurant segment is generated from initial franchise fees, ongoing royalties and other franchising revenue. We do not allocate indirect corporate charges to our operating segments. Such costs are managed on
an entity-wide basis, and the information to reasonably allocate such costs is not readily available. We do not allocate assets by segment because our chief operating decision makers do not review the assets by segment to assess performance, as the
assets are managed on an entity-wide basis. Our operating segments are discussed inNote 3Summary of Significant Accounting Policies and Note 15Business Segment Information to ourConsolidated Financial Statementsincluded
in our Annual Report on Form 10-K for the year ended December 30, 2007.

The following table sets forth the information concerning the
revenue and operating income before unallocated costs of each of our company-owned and franchised restaurant segments:



|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|----------------------------------------- |  | --------------------------- | ------- | - | --------------------- | - | ------ |  | - | ------- | -
|                                          |  | Company-OwnedRestaurants(1) |         |   | FranchisedRestaurants |   | Totals | 
|                                          |  | (In thousands)              |        
|3rdQuarter 2008
(Successor)               |  |                             |         |   |                       |   |        |  |   |         |  
|Total revenue                             |  | $                           | 87,483  |   |                       | $ | 4,384  |  | $ | 91,867  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income before unallocated costs |  |                             | 7,664   |   |                       |   | 3,389  |  |   | 11,053  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Unallocated costs and expenses(2)         |  |                             |         |   |                       |   |        |  |   | 5,737   |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income                          |  |                             |         |   |                       |   |        |  | $ | 5,316   |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|3rdQuarter 2007
(Successor)               |  |                             |         |   |                       |   |        |  |   |         |  
|Total revenue                             |  | $                           | 87,047  |   |                       | $ | 3,948  |  | $ | 90,995  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income before unallocated costs |  |                             | 11,330  |   |                       |   | 2,718  |  |   | 14,048  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Unallocated costs and expenses(2)         |  |                             |         |   |                       |   |        |  |   | 5,887   |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income                          |  |                             |         |   |                       |   |        |  | $ | 8,161   |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|YTD 3rdQuarter 2008 (Successor)           |  |                             |         |   |                       |   |        |  |   |         |  
|Total revenue                             |  | $                           | 248,379 |   |                       | $ | 12,108 |  | $ | 260,487 |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income before unallocated costs |  |                             | 16,700  |   |                       |   | 8,729  |  |   | 25,429  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Unallocated costs and expenses(2)         |  |                             |         |   |                       |   |        |  |   | 17,602  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income                          |  |                             |         |   |                       |   |        |  | $ | 7,827   |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|YTD 3rdQuarter 2007 (Combined)(4)         |  |                             |         |   |                       |   |        |  |   |         |  
|Total revenue                             |  | $                           | 243,015 |   |                       | $ | 11,060 |  | $ | 254,075 |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income before unallocated costs |  |                             | (3,776  | ) |                       |   | 7,343  |  |   | 3,567   |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Unallocated costs and expenses(2)         |  |                             |         |   |                       |   |        |  |   | 17,507  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating loss(3)                         |  |                             |         |   |                       |   |        |  | $ | (13,940 | )
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|1/31/07  9/30/07 (Successor)             |  |                             |         |   |                       |   |        |  |   |         |  
|Total revenue                             |  | $                           | 219,098 |   |                       | $ | 10,067 |  | $ | 229,165 |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income before unallocated costs |  |                             | 24,459  |   |                       |   | 6,749  |  |   | 31,208  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Unallocated costs and expenses(2)         |  |                             |         |   |                       |   |        |  |   | 15,062  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income                          |  |                             |         |   |                       |   |        |  | $ | 16,146  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|1/1/07  1/30/07 (Predecessor)            |  |                             |         |   |                       |   |        |  |   |         |  
|Total revenue                             |  | $                           | 23,917  |   |                       | $ | 993    |  | $ | 24,910  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income before unallocated costs |  |                             | (28,235 | ) |                       |   | 594    |  |   | (27,641 | )
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Unallocated costs and expenses(2)         |  |                             |         |   |                       |   |        |  |   | 2,445   |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating loss(3)                         |  |                             |         |   |                       |   |        |  | $ | (30,086 | )
|                                          |  |                             |         |   |                       |   |        |  |   |         |  



|(1) | Total revenue includes restaurant sales in the Successor period and restaurant sales and real estate revenues in the Predecessor period.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents those general and administrative expenses that are not allocated to a segment.
|--- | -----------------------------------------------------------------------------------------

|(3) | 2007 includes $31.4 million related to a special event bonus.
|--- | -------------------------------------------------------------

|(4) | The combined results of the Successor and Predecessor for the periods in 2007 do not comply with generally accepted accounting principles; however, we believe these results provide
useful information to assess the relative performance of the businesses in all periods presented in the financial statements on an ongoing basis.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

SBARRO INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Continued)



6. Guarantor and Non-Guarantor Financial Statements:

Certain subsidiaries have guaranteed amounts outstanding under our credit facilities. Each of the guaranteeing subsidiaries is a direct or indirect
wholly-owned subsidiary of the Company and each has fully and unconditionally guaranteed the Senior Notes and the Senior Credit Facilities on a joint and several basis.

The following condensed consolidating financial information presents:



| | (1) | Condensed unaudited consolidating balance sheets as of September 28, 2008 and December 30, 2007 and unaudited statements of operations for the three
months ended September 28, 2008 and the three months ended September 30, 2007 and our unaudited statement of operations and cash flows for the nine months ended September 28, 2008 and the period January 31 through
September 30, 2007: (a) Sbarro, (the Parent), (b) the guarantor subsidiaries as a group, (c) the nonguarantor subsidiaries as a group, and (d) Sbarro on a consolidated basis.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Elimination entries necessary to consolidate the Parent with the guarantor and nonguarantor subsidiaries.
| | --- | ---------------------------------------------------------------------------------------------------------

The principal elimination entries eliminate intercompany balances and transactions. Investments in subsidiaries are accounted for by the Parent on the
cost method.



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##### Table of Contents

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Balance
SheetSuccessor

As of September 28, 2008

ASSETS

(In thousands)

(Continued)



|                              |  |        |         |   |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|----------------------------- |  | ------ | ------- | - | --------------------- | - | ------------------------ |  | - | ------------ | - |  | ----------------- | ------- | - |  | - | -------
|                              |  | Parent |         |   | GuarantorSubsidiaries |   | NonguarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal
|Current assets:               |  |        |         |   |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|                              |  |        |         |   |                      
|Cash and cash equivalents     |  | $      | 11,219  |   |                       | $ | 1,659                    |  | $ | 567          |   |  | $                 |        |   |  | $ | 13,445 
|Receivables                   |  |        |         |   |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|Franchise                     |  |        | 3,292   |   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 3,292  
|Other                         |  |        | 2,545   |   |                       |   | 939                      |  |   | 405          |   |  |                   | (259    | ) |  |   | 3,630  
|                              |  |        |         |   |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|                              |  |        | 5,837   |   |                       |   | 939                      |  |   | 405          |   |  |                   | (259    | ) |  |   | 6,922  
|Inventories                   |  |        | 1,146   |   |                       |   | 1,579                    |  |   | 130          |   |  |                   |        |   |  |   | 2,855  
|Prepaid expenses              |  |        | 3,695   |   |                       |   | 394                      |  |   | 260          |   |  |                   |        |   |  |   | 4,349  
|Deferred tax asset            |  |        | 4,315   |   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 4,315  
|                              |  |        |         |   |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|Total current assets          |  |        | 26,212  |   |                       |   | 4,571                    |  |   | 1,362        |   |  |                   | (259    | ) |  |   | 31,886 
|                              |  |        |         |   |                      
|Intercompany receivables      |  |        | (25,975 | ) |                       |   | 27,338                   |  |   | (1,637       | ) |  |                   | 274     |   |  |   |       
|                              |  |        |         |   |                      
|Investment in subsidiaries    |  |        | 66,329  |   |                       |   |                         |  |   | 274          |   |  |                   | (66,603 | ) |  |   |       
|                              |  |        |         |   |                      
|Property and equipment, net   |  |        | 24,521  |   |                       |   | 42,738                   |  |   | 1,038        |   |  |                   | (230    | ) |  |   | 68,067 
|Goodwill                      |  |        | 211,787 |   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 211,787
|Trademarks                    |  |        | 248,000 |   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 248,000
|Other intangible assets       |  |        | 30,903  |   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 30,903 
|Deferred financing costs, net |  |        | 9,227   |   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 9,227  
|Deferred tax asset            |  |        | 27,723  |   |                       |   |                         |  |   | 116          |   |  |                   |        |   |  |   | 27,839 
|Other assets                  |  |        | 912     |   |                       |   | 180                      |  |   |             |   |  |                   | (185    | ) |  |   | 907    
|                              |  |        |         |   |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|Total assets                  |  | $      | 619,639 |   |                       | $ | 74,827                   |  | $ | 1,153        |   |  | $                 | (67,003 | ) |  | $ | 628,616
|                              |  |        |         |   |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        



16



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##### Table of Contents

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Balance
SheetSuccessor

As of September 28, 2008

LIABILITIES AND SHAREHOLDERS EQUITY

(In thousands)

(Continued)



|                                                                                 |  |        |         |   |                       |   |        |                          |  |   |              |   |  |                   |         |   |  |   |         |  
|-------------------------------------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------ | ------------------------ |  | - | ------------ | - |  | ----------------- | ------- | - |  | - | ------- | -
|                                                                                 |  | Parent |         |   | GuarantorSubsidiaries |   |        | NonguarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal |        
|Current liabilities:                                                             |  |        |         |   |                       |   |        |                          |  |   |              |   |  |                   |         |   |  |   |         |  
|Accounts payable                                                                 |  | $      | 13,690  |   |                       | $ | 242    |                          |  | $ | 138          |   |  | $                 |        |   |  | $ | 14,070  |  
|Accrued expenses                                                                 |  |        | 20,891  |   |                       |   | 1,892  |                          |  |   | 1,695        |   |  |                   | (674    | ) |  |   | 23,804  |  
|Accrued interest payable                                                         |  |        | 3,493   |   |                       |   |       |                          |  |   |             |   |  |                   |        |   |  |   | 3,493   |  
|Due to former shareholders                                                       |  |        | 2,340   |   |                       |   |       |                          |  |   |             |   |  |                   |        |   |  |   | 2,340   |  
|Insurance premium financing                                                      |  |        | 1,894   |   |                       |   |       |                          |  |   |             |   |  |                   |        |   |  |   | 1,894   |  
|Current portion of debt                                                          |  |        | 1,830   |   |                       |   |       |                          |  |   |             |   |  |                   |        |   |  |   | 1,830   |  
|                                                                                 |  |        |         |   |                       |   |        |                          |  |   |              |   |  |                   |         |   |  |   |         |  
|Total current liabilities                                                        |  |        | 44,138  |   |                       |   | 2,134  |                          |  |   | 1,833        |   |  |                   | (674    | ) |  |   | 47,431  |  
|                                                                                 |  |        |         |   |                      
|Deferred rent                                                                    |  |        | 538     |   |                       |   | 3,946  |                          |  |   |             |   |  |                   |        |   |  |   | 4,484   |  
|Deferred tax liability                                                           |  |        | 107,249 |   |                       |   |       |                          |  |   |             |   |  |                   |        |   |  |   | 107,249 |  
|Due to former shareholders and other liabilities                                 |  |        | 12,261  |   |                       |   | 1,738  |                          |  |   |             |   |  |                   |        |   |  |   | 13,999  |  
|Long-term debt                                                                   |  |        | 328,883 |   |                       |   |       |                          |  |   |             |   |  |                   |        |   |  |   | 328,883 |  
|                                                                                 |  |        |         |   |                      
|Shareholders equity:                                                            |  |        |         |   |                       |   |        |                          |  |   |              |   |  |                   |         |   |  |   |         |  
|Common stock, $.01 par value, 1000 shares authorized, 100 issued and outstanding |  |        |        |   |                       |   |       |                          |  |   |             |   |  |                   |        |   |  |   |        |  
|Additional paid-in capital                                                       |  |        | 133,000 |   |                       |   | 68,302 |                          |  |   |             |   |  |                   | (68,302 | ) |  |   | 133,000 |  
|Currency translation adjustments                                                 |  |        | 152     |   |                       |   |       |                          |  |   | 28           |   |  |                   | (28     | ) |  |   | 152     |  
|Advances to MidOcean SBR Holding                                                 |  |        | (305    | ) |                       |   |       |                          |  |   |             |   |  |                   |        |   |  |   | (305    | )
|(Accumulated deficit) retained earnings                                          |  |        | (6,277  | ) |                       |   | (1,293 | )                        |  |   | (708         | ) |  |                   | 2,001   |   |  |   | (6,277  | )
|                                                                                 |  |        |         |   |                       |   |        |                          |  |   |              |   |  |                   |         |   |  |   |         |  
|Total shareholders equity                                                       |  |        | 126,570 |   |                       |   | 67,009 |                          |  |   | (680         | ) |  |                   | (66,329 | ) |  |   | 126,570 |  
|                                                                                 |  |        |         |   |                       |   |        |                          |  |   |              |   |  |                   |         |   |  |   |         |  
|Total liabilities and shareholders equity                                       |  | $      | 619,639 |   |                       | $ | 74,827 |                          |  | $ | 1,153        |   |  | $                 | (67,003 | ) |  | $ | 628,616 |  
|                                                                                 |  |        |         |   |                       |   |        |                          |  |   |              |   |  |                   |         |   |  |   |         |  



17



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##### Table of Contents

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Balance
SheetSuccessor

As of December 30, 2007

ASSETS

(In thousands)

(Continued)



|                              |  |        |         |   |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|----------------------------- |  | ------ | ------- | - | --------------------- | - | ------------------------ |  | - | ------------ | - |  | ----------------- | ------- | - |  | - | -------
|                              |  | Parent |         |   | GuarantorSubsidiaries |   | NonguarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal
|Current assets:               |  |        |         |   |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|Cash and cash equivalents     |  | $      | 25,693  |   |                       | $ | 2,893                    |  | $ | 281          |   |  | $                 |        |   |  | $ | 28,867 
|Receivables                   |  |        |         |   |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|Franchise                     |  |        | 2,938   |   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 2,938  
|Other                         |  |        | 3,484   |   |                       |   | 1,001                    |  |   | 67           |   |  |                   |        |   |  |   | 4,552  
|                              |  |        |         |   |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|                              |  |        | 6,422   |   |                       |   | 1,001                    |  |   | 67           |   |  |                   |        |   |  |   | 7,490  
|Inventories                   |  |        | 1,310   |   |                       |   | 1,731                    |  |   | 15           |   |  |                   |        |   |  |   | 3,056  
|Prepaid expenses              |  |        | 3,070   |   |                       |   | 410                      |  |   |             |   |  |                   |        |   |  |   | 3,480  
|Deferred tax asset            |  |        | 2,331   |   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 2,331  
|                              |  |        |         |   |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|Total current assets          |  |        | 38,826  |   |                       |   | 6,035                    |  |   | 363          |   |  |                   |        |   |  |   | 45,224 
|                              |  |        |         |   |                      
|Intercompany receivables      |  |        | (34,460 | ) |                       |   | 35,043                   |  |   | (583         | ) |  |                   |        |   |  |   |       
|                              |  |        |         |   |                      
|Investment in subsidiaries    |  |        | 71,588  |   |                       |   |                         |  |   |             |   |  |                   | (71,588 | ) |  |   |       
|                              |  |        |         |   |                      
|Property and equipment, net   |  |        | 28,420  |   |                       |   | 36,908                   |  |   | 15           |   |  |                   |        |   |  |   | 65,343 
|Goodwill                      |  |        | 211,236 |   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 211,236
|Trademarks                    |  |        | 248,000 |   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 248,000
|Other intangible assets       |  |        | 31,996  |   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 31,996 
|Deferred financing costs, net |  |        | 10,069  |   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 10,069 
|Deferred tax asset            |  |        | 23,850  |   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 23,850 
|Other assets                  |  |        | 959     |   |                       |   | 94                       |  |   |             |   |  |                   |        |   |  |   | 1,053  
|                              |  |        |         |   |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|Total assets                  |  | $      | 630,484 |   |                       | $ | 78,080                   |  | $ | (205         | ) |  | $                 | (71,588 | ) |  | $ | 636,771
|                              |  |        |         |   |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        



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##### Table of Contents

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Balance
SheetSuccessor

As of December 30, 2007

LIABILITIES AND SHAREHOLDERS EQUITY

(In thousands)

(Continued)



|                                                                                 |  |        |         |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|-------------------------------------------------------------------------------- |  | ------ | ------- | --------------------- | - | ------------------------ |  | - | ------------ | - |  | ----------------- | ------- | - |  | - | -------
|                                                                                 |  | Parent |         | GuarantorSubsidiaries |   | NonguarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal
|Current liabilities:                                                             |  |        |         |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|Accounts payable                                                                 |  | $      | 8,345   |                       | $ | 191                      |  | $ | 50           |   |  | $                 |        |   |  | $ | 8,586  
|Accrued expenses                                                                 |  |        | 21,157  |                       |   | 1,466                    |  |   | (39          | ) |  |                   |        |   |  |   | 22,584 
|Accrued interest payable                                                         |  |        | 7,745   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 7,745  
|Due to former shareholders                                                       |  |        | 6,200   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 6,200  
|Taxes payable on behalf of former shareholders                                   |  |        | 2,072   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 2,072  
|Insurance premium financing                                                      |  |        | 1,101   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 1,101  
|Current portion of debt                                                          |  |        | 1,830   |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 1,830  
|                                                                                 |  |        |         |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|Total current liabilities                                                        |  |        | 48,450  |                       |   | 1,657                    |  |   | 11           |   |  |                   |        |   |  |   | 50,118 
|                                                                                 |  |        |         |                       |  
|Deferred rent                                                                    |  |        | 919     |                       |   | 2,668                    |  |   |             |   |  |                   |        |   |  |   | 3,587  
|Deferred tax liability                                                           |  |        | 107,130 |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 107,130
|Due to former shareholders and other liabilities                                 |  |        | 8,101   |                       |   | 1,951                    |  |   |             |   |  |                   |        |   |  |   | 10,052 
|Long-term debt                                                                   |  |        | 330,255 |                       |   |                         |  |   |             |   |  |                   |        |   |  |   | 330,255
|                                                                                 |  |        |         |                       |  
|Shareholders equity:                                                            |  |        |         |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|Common stock, $.01 par value, 1000 shares authorized, 100 issued and outstanding |  |        |        |                       |   |                         |  |   |             |   |  |                   |        |   |  |   |       
|Additional paid-in capital                                                       |  |        | 133,000 |                       |   | 68,302                   |  |   |             |   |  |                   | (68,302 | ) |  |   | 133,000
|Retained earnings (accumulated deficit)                                          |  |        | 2,629   |                       |   | 3,502                    |  |   | (216         | ) |  |                   | (3,286  | ) |  |   | 2,629  
|                                                                                 |  |        |         |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|Total shareholders equity                                                       |  |        | 135,629 |                       |   | 71,804                   |  |   | (216         | ) |  |                   | (71,588 | ) |  |   | 135,629
|                                                                                 |  |        |         |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        
|Total liabilities and shareholders equity                                       |  | $      | 630,484 |                       | $ | 78,080                   |  | $ | (205         | ) |  | $                 | (71,588 | ) |  | $ | 636,771
|                                                                                 |  |        |         |                       |   |                          |  |   |              |   |  |                   |         |   |  |   |        



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##### Table of Contents

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Statement
of OperationsSuccessor

For the nine months ended September 28, 2008

(In thousands)

(Continued)



|                                                |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|----------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------ |  | - | ------------ | - | ----------------- | - | ----- |  | - | ------- | -
|                                                |  | Parent |         |   | GuarantorSubsidiaries |   |         | NonguarantorSubsidiaries |  |   | Eliminations |   | ConsolidatedTotal |  
|Revenues:                                       |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|Restaurant sales                                |  | $      | 107,306 |   |                       | $ | 139,456 |                          |  | $ | 1,617        |   |                   | $ |      |  | $ | 248,379 |  
|Franchise related income                        |  |        | 12,108  |   |                       |   |        |                          |  |   |             |   |                   |   |      |  |   | 12,108  |  
|Intercompany charges                            |  |        | 15,495  |   |                       |   | (15,376 | )                        |  |   | (119         | ) |                   |   |      |  |   |        |  
|                                                |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|Total revenues                                  |  |        | 134,909 |   |                       |   | 124,080 |                          |  |   | 1,498        |   |                   |   |      |  |   | 260,487 |  
|                                                |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|Costs and expenses:                             |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|Cost of food and paper products                 |  |        | 26,708  |   |                       |   | 29,732  |                          |  |   | 543          |   |                   |   |      |  |   | 56,983  |  
|Payroll and other employee benefits             |  |        | 29,012  |   |                       |   | 41,302  |                          |  |   | 546          |   |                   |   |      |  |   | 70,860  |  
|Other operating costs                           |  |        | 39,477  |   |                       |   | 52,468  |                          |  |   | 778          |   |                   |   |      |  |   | 92,723  |  
|Other income, net                               |  |        | (620    | ) |                       |   | (2,119  | )                        |  |   | (46          | ) |                   |   |      |  |   | (2,785  | )
|Depreciation and amortization                   |  |        | 6,339   |   |                       |   | 6,311   |                          |  |   | 70           |   |                   |   |      |  |   | 12,720  |  
|General and administrative                      |  |        | 20,975  |   |                       |   |        |                          |  |   |             |   |                   |   |      |  |   | 20,975  |  
|Asset impairment, restaurant closings           |  |        |        |   |                       |   | 1,184   |                          |  |   |             |   |                   |   |      |  |   | 1,184   |  
|                                                |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|Total costs and expenses, net                   |  |        | 121,891 |   |                       |   | 128,878 |                          |  |   | 1,891        |   |                   |   |      |  |   | 252,660 |  
|                                                |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|                                                |  |        |         |   |                      
|Operating income (loss)                         |  |        | 13,018  |   |                       |   | (4,798  | )                        |  |   | (393         | ) |                   |   |      |  |   | 7,827   |  
|                                                |  |        |         |   |                      
|Other (expense) income:                         |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|Interest expense                                |  |        | (21,581 | ) |                       |   | (1      | )                        |  |   | (35          | ) |                   |   |      |  |   | (21,617 | )
|Interest income                                 |  |        | 130     |   |                       |   | 2       |                          |  |   |             |   |                   |   |      |  |   | 132     |  
|Equity in net loss of unconsolidated affiliates |  |        |        |   |                       |   |        |                          |  |   | (185         | ) |                   |   |      |  |   | (185    | )
|                                                |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|Net other (expense) income                      |  |        | (21,451 | ) |                       |   | 1       |                          |  |   | (220         | ) |                   |   |      |  |   | (21,670 | )
|                                                |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|Equity in loss of subsidiaries                  |  |        | (5,288  | ) |                       |   |        |                          |  |   |             |   |                   |   | 5,288 |  |   |        |  
|                                                |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|(Loss) income before income taxes               |  |        | (13,721 | ) |                       |   | (4,797  | )                        |  |   | (613         | ) |                   |   | 5,288 |  |   | (13,843 | )
|Income tax benefit                              |  |        | (4,815  | ) |                       |   |        |                          |  |   | (122         | ) |                   |   |      |  |   | (4,937  | )
|                                                |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|Net (loss) income                               |  | $      | (8,906  | ) |                       | $ | (4,797  | )                        |  | $ | (491         | ) |                   | $ | 5,288 |  | $ | (8,906  | )
|                                                |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  



20



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##### Table of Contents

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Statement
of OperationsSuccessor

For the period January 31September 30, 2007

(In thousands)

(Continued)



|                                      |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------ |  | - | ------------ | - | ----------------- | - | ----- |  | - | ------- | -
|                                      |  | Parent |         |   | GuarantorSubsidiaries |   |         | NonguarantorSubsidiaries |  |   | Eliminations |   | ConsolidatedTotal |  
|Revenues:                             |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|Restaurant sales                      |  | $      | 96,799  |   |                       | $ | 121,355 |                          |  | $ | 944          |   |                   | $ |      |  | $ | 219,098 |  
|Franchise related income              |  |        | 10,067  |   |                       |   |        |                          |  |   |             |   |                   |   |      |  |   | 10,067  |  
|Intercompany charges                  |  |        | 16,324  |   |                       |   | (16,210 | )                        |  |   | (114         | ) |                   |   |      |  |   |        |  
|                                      |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|Total revenues                        |  |        | 123,190 |   |                       |   | 105,145 |                          |  |   | 830          |   |                   |   |      |  |   | 229,165 |  
|                                      |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|                                      |  |        |         |   |                      
|Costs and expenses:                   |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|Cost of food and paper products       |  |        | 21,542  |   |                       |   | 22,843  |                          |  |   | 236          |   |                   |   |      |  |   | 44,621  |  
|Payroll and other employee benefits   |  |        | 25,226  |   |                       |   | 34,627  |                          |  |   | 239          |   |                   |   |      |  |   | 60,092  |  
|Other operating costs                 |  |        | 34,507  |   |                       |   | 44,366  |                          |  |   | 328          |   |                   |   |      |  |   | 79,201  |  
|Other income, net                     |  |        | (138    | ) |                       |   | (1,771  | )                        |  |   | (15          | ) |                   |   |      |  |   | (1,924  | )
|Depreciation and amortization         |  |        | 6,386   |   |                       |   | 5,905   |                          |  |   | (2           | ) |                   |   |      |  |   | 12,289  |  
|General and administrative            |  |        | 18,079  |   |                       |   | 47      |                          |  |   | 280          |   |                   |   |      |  |   | 18,406  |  
|Asset impairment, restaurant closings |  |        |        |   |                       |   | 334     |                          |  |   |             |   |                   |   |      |  |   | 334     |  
|                                      |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|Total costs and expenses, net         |  |        | 105,602 |   |                       |   | 106,351 |                          |  |   | 1,066        |   |                   |   |      |  |   | 213,019 |  
|                                      |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|                                      |  |        |         |   |                      
|Operating income (loss)               |  |        | 17,588  |   |                       |   | (1,206  | )                        |  |   | (236         | ) |                   |   |      |  |   | 16,146  |  
|                                      |  |        |         |   |                      
|Other (expense) income:               |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|Interest expense                      |  |        | (21,036 | ) |                       |   |        |                          |  |   |             |   |                   |   |      |  |   | (21,036 | )
|Interest income                       |  |        | 446     |   |                       |   | 15      |                          |  |   |             |   |                   |   |      |  |   | 461     |  
|                                      |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|Net other (expense) income            |  |        | (20,590 | ) |                       |   | 15      |                          |  |   |             |   |                   |   |      |  |   | (20,575 | )
|                                      |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|Equity in loss of subsidiaries        |  |        | (1,427  | ) |                       |   |        |                          |  |   |             |   |                   |   | 1,427 |  |   |        |  
|                                      |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|(Loss) income before income taxes     |  |        | (4,429  | ) |                       |   | (1,191  | )                        |  |   | (236         | ) |                   |   | 1,427 |  |   | (4,429  | )
|Income tax benefit                    |  |        | (1,940  | ) |                       |   |        |                          |  |   |             |   |                   |   |      |  |   | (1,940  | )
|                                      |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  
|Net (loss) income                     |  | $      | (2,489  | ) |                       | $ | (1,191  | )                        |  | $ | (236         | ) |                   | $ | 1,427 |  | $ | (2,489  | )
|                                      |  |        |         |   |                       |   |         |                          |  |   |              |   |                   |   |       |  |   |         |  



21



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##### Table of Contents

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Statement
of OperationsSuccessor

For the three months ended September 28, 2008

(In thousands)

(Continued)



|                                                |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |      |   |  |   |        |  
|----------------------------------------------- |  | ------ | ------ | - | --------------------- | - | ------ | ------------------------ |  | - | ------------ | - |  | ----------------- | ---- | - |  | - | ------ | -
|                                                |  | Parent |        |   | GuarantorSubsidiaries |   |        | NonguarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal |     
|Revenues:                                       |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |      |   |  |   |        |  
|Restaurant sales                                |  | $      | 38,413 |   |                       | $ | 48,537 |                          |  | $ | 533          |   |  | $                 |     |   |  | $ | 87,483 |  
|Franchise related income                        |  |        | 4,384  |   |                       |   |       |                          |  |   |             |   |  |                   |     |   |  |   | 4,384  |  
|Intercompany charges                            |  |        | 3,778  |   |                       |   | (3,747 | )                        |  |   | (31          | ) |  |                   |     |   |  |   |       |  
|                                                |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |      |   |  |   |        |  
|Total revenues                                  |  |        | 46,575 |   |                       |   | 44,790 |                          |  |   | 502          |   |  |                   |     |   |  |   | 91,867 |  
|                                                |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |      |   |  |   |        |  
|                                                |  |        |        |   |                      
|Costs and expenses:                             |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |      |   |  |   |        |  
|Cost of food and paper products                 |  |        | 9,433  |   |                       |   | 10,614 |                          |  |   | 168          |   |  |                   |     |   |  |   | 20,215 |  
|Payroll and other employee benefits             |  |        | 9,905  |   |                       |   | 14,066 |                          |  |   | 161          |   |  |                   |     |   |  |   | 24,132 |  
|Other operating costs                           |  |        | 13,399 |   |                       |   | 17,828 |                          |  |   | 296          |   |  |                   |     |   |  |   | 31,523 |  
|Other income, net                               |  |        | (57    | ) |                       |   | (825   | )                        |  |   | (2           | ) |  |                   |     |   |  |   | (884   | )
|Depreciation and amortization                   |  |        | 2,044  |   |                       |   | 1,962  |                          |  |   | (20          | ) |  |                   |     |   |  |   | 3,986  |  
|General and administrative                      |  |        | 6,730  |   |                       |   |       |                          |  |   |             |   |  |                   |     |   |  |   | 6,730  |  
|Asset impairment, restaurant closings           |  |        |       |   |                       |   | 849    |                          |  |   |             |   |  |                   |     |   |  |   | 849    |  
|                                                |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |      |   |  |   |        |  
|Total costs and expenses, net                   |  |        | 41,454 |   |                       |   | 44,494 |                          |  |   | 603          |   |  |                   |     |   |  |   | 86,551 |  
|                                                |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |      |   |  |   |        |  
|                                                |  |        |        |   |                      
|Operating income (loss)                         |  |        | 5,121  |   |                       |   | 296    |                          |  |   | (101         | ) |  |                   |     |   |  |   | 5,316  |  
|                                                |  |        |        |   |                      
|Other (expense) income:                         |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |      |   |  |   |        |  
|Interest expense                                |  |        | (6,563 | ) |                       |   |       |                          |  |   | (9           | ) |  |                   |     |   |  |   | (6,572 | )
|Interest income                                 |  |        | 25     |   |                       |   |       |                          |  |   |             |   |  |                   |     |   |  |   | 25     |  
|Equity in net loss of unconsolidated affiliates |  |        |       |   |                       |   |       |                          |  |   | (57          | ) |  |                   |     |   |  |   | (57    | )
|                                                |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |      |   |  |   |        |  
|Net other (expense) income                      |  |        | (6,538 | ) |                       |   |       |                          |  |   | (66          | ) |  |                   |     |   |  |   | (6,604 | )
|                                                |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |      |   |  |   |        |  
|Equity in loss of subsidiaries                  |  |        | 251    |   |                       |   |       |                          |  |   |             |   |  |                   | (251 | ) |  |   |       |  
|                                                |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |      |   |  |   |        |  
|(Loss) income before income taxes               |  |        | (1,166 | ) |                       |   | 296    |                          |  |   | (167         | ) |  |                   | (251 | ) |  |   | (1,288 | )
|Income tax expense (benefit)                    |  |        | 8      |   |                       |   |       |                          |  |   | (122         | ) |  |                   |     |   |  |   | (114   | )
|                                                |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |      |   |  |   |        |  
|Net (loss) income                               |  | $      | (1,174 | ) |                       | $ | 296    |                          |  | $ | (45          | ) |  | $                 | (251 | ) |  | $ | (1,174 | )
|                                                |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |      |   |  |   |        |  



22



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##### Table of Contents

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Statement
of OperationsSuccessor

For the three months ended September 30, 2007

(In thousands)

(Continued)



|                                      |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |     |   |  |   |        |  
|------------------------------------- |  | ------ | ------ | - | --------------------- | - | ------ | ------------------------ |  | - | ------------ | - |  | ----------------- | --- | - |  | - | ------ | -
|                                      |  | Parent |        |   | GuarantorSubsidiaries |   |        | NonguarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal |    
|Revenues:                             |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |     |   |  |   |        |  
|Restaurant sales                      |  | $      | 38,449 |   |                       | $ | 48,181 |                          |  | $ | 417          |   |  | $                 |    |   |  | $ | 87,047 |  
|Franchise related income              |  |        | 3,948  |   |                       |   |       |                          |  |   |             |   |  |                   |    |   |  |   | 3,948  |  
|Intercompany charges                  |  |        | 6,427  |   |                       |   | (6,377 | )                        |  |   | (50          | ) |  |                   |    |   |  |   |       |  
|                                      |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |     |   |  |   |        |  
|Total revenues                        |  |        | 48,824 |   |                       |   | 41,804 |                          |  |   | 367          |   |  |                   |    |   |  |   | 90,995 |  
|                                      |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |     |   |  |   |        |  
|                                      |  |        |        |   |                      
|Costs and expenses:                   |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |     |   |  |   |        |  
|Cost of food and paper products       |  |        | 8,661  |   |                       |   | 9,253  |                          |  |   | 94           |   |  |                   |    |   |  |   | 18,008 |  
|Payroll and other employee benefits   |  |        | 9,612  |   |                       |   | 13,289 |                          |  |   | 100          |   |  |                   |    |   |  |   | 23,001 |  
|Other operating costs                 |  |        | 13,081 |   |                       |   | 17,385 |                          |  |   | 131          |   |  |                   |    |   |  |   | 30,597 |  
|Other income, net                     |  |        | (100   | ) |                       |   | (694   | )                        |  |   | 1            |   |  |                   |    |   |  |   | (793   | )
|Depreciation and amortization         |  |        | 2,445  |   |                       |   | 2,309  |                          |  |   | (3           | ) |  |                   |    |   |  |   | 4,751  |  
|General and administrative            |  |        | 7,032  |   |                       |   | 13     |                          |  |   | 100          |   |  |                   |    |   |  |   | 7,145  |  
|Asset impairment, restaurant closings |  |        |       |   |                       |   | 125    |                          |  |   |             |   |  |                   |    |   |  |   | 125    |  
|                                      |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |     |   |  |   |        |  
|Total costs and expenses, net         |  |        | 40,731 |   |                       |   | 41,680 |                          |  |   | 423          |   |  |                   |    |   |  |   | 82,834 |  
|                                      |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |     |   |  |   |        |  
|                                      |  |        |        |   |                      
|Operating income (loss)               |  |        | 8,093  |   |                       |   | 124    |                          |  |   | (56          | ) |  |                   |    |   |  |   | 8,161  |  
|                                      |  |        |        |   |                      
|Other (expense) income:               |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |     |   |  |   |        |  
|Interest expense                      |  |        | (7,673 | ) |                       |   |       |                          |  |   |             |   |  |                   |    |   |  |   | (7,673 | )
|Interest income                       |  |        | 54     |   |                       |   | 3      |                          |  |   |             |   |  |                   |    |   |  |   | 57     |  
|                                      |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |     |   |  |   |        |  
|Net other (expense) income            |  |        | (7,619 | ) |                       |   | 3      |                          |  |   |             |   |  |                   |    |   |  |   | (7,616 | )
|                                      |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |     |   |  |   |        |  
|Equity in income of subsidiaries      |  |        | 71     |   |                       |   |       |                          |  |   |             |   |  |                   | (71 | ) |  |   |       |  
|                                      |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |     |   |  |   |        |  
|Income (loss) before income taxes     |  |        | 545    |   |                       |   | 127    |                          |  |   | (56          | ) |  |                   | (71 | ) |  |   | 545    |  
|Income tax expense                    |  |        | 42     |   |                       |   |       |                          |  |   |             |   |  |                   |    |   |  |   | 42     |  
|                                      |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |     |   |  |   |        |  
|Net income (loss)                     |  | $      | 503    |   |                       | $ | 127    |                          |  | $ | (56          | ) |  | $                 | (71 | ) |  | $ | 503    |  
|                                      |  |        |        |   |                       |   |        |                          |  |   |              |   |  |                   |     |   |  |   |        |  



23



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##### Table of Contents

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Statement
of Cash FlowsSuccessor

For the nine months ended September 28, 2008

(In thousands)

(Continued)



|                                                                                                   |  |        |         |   |                       |   |         |                          |  |   |              |   |  |                   |        |   |  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------ |  | - | ------------ | - |  | ----------------- | ------ | - |  | - | ------- | -
|                                                                                                   |  | Parent |         |   | GuarantorSubsidiaries |   |         | NonguarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal |       
|Operating Activities:                                                                              |  |        |         |   |                       |   |         |                          |  |   |              |   |  |                   |        |   |  |   |         |  
|Net (loss) income                                                                                  |  | $      | (8,906  | ) |                       | $ | (4,797  | )                        |  | $ | (491         | ) |  | $                 | 5,288  |   |  | $ | (8,906  | )
|Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: |  |        |         |   |                       |   |         |                          |  |   |              |   |  |                   |        |   |  |   |         |  
|Depreciation and amortization                                                                      |  |        | 6,339   |   |                       |   | 6,311   |                          |  |   | 70           |   |  |                   |       |   |  |   | 12,720  |  
|Amortization of deferred financing costs                                                           |  |        | 841     |   |                       |   |        |                          |  |   |             |   |  |                   |       |   |  |   | 841     |  
|Increase in deferred rent, net                                                                     |  |        | 1,112   |   |                       |   | 106     |                          |  |   |             |   |  |                   |       |   |  |   | 1,218   |  
|Asset impairment, restaurant closings/remodels                                                     |  |        |        |   |                       |   | 1,184   |                          |  |   |             |   |  |                   |       |   |  |   | 1,184   |  
|Deferred tax benefit                                                                               |  |        | (5,854  | ) |                       |   |        |                          |  |   |             |   |  |                   |       |   |  |   | (5,854  | )
|Equity in net loss of unconsolidated affiliates                                                    |  |        |        |   |                       |   |        |                          |  |   | 185          |   |  |                   |       |   |  |   | 185     |  
|Equity in loss of subsidiaries                                                                     |  |        | 5,288   |   |                       |   |        |                          |  |   |             |   |  |                   | (5,288 | ) |  |   |        |  
|                                                                                                   |  |        |         |   |                      
|Changes in operating assets and liabilities:                                                       |  |        |         |   |                       |   |         |                          |  |   |              |   |  |                   |        |   |  |   |         |  
|Decrease (increase) in receivables                                                                 |  |        | 588     |   |                       |   | 27      |                          |  |   | (457         | ) |  |                   |       |   |  |   | 158     |  
|Decrease in inventories                                                                            |  |        | 164     |   |                       |   | 152     |                          |  |   | 17           |   |  |                   |       |   |  |   | 333     |  
|Decrease in prepaid expenses                                                                       |  |        | 168     |   |                       |   | 16      |                          |  |   | 7            |   |  |                   |       |   |  |   | 191     |  
|Increase in other assets                                                                           |  |        | (25     | ) |                       |   | (86     | )                        |  |   |             |   |  |                   |       |   |  |   | (111    | )
|Increase (decrease) in accounts payable and accrued expenses                                       |  |        | 3,518   |   |                       |   | (621    | )                        |  |   | 1,082        |   |  |                   | (674   | ) |  |   | 3,305   |  
|Decrease in accrued interest payable                                                               |  |        | (4,252  | ) |                       |   |        |                          |  |   |             |   |  |                   |       |   |  |   | (4,252  | )
|                                                                                                   |  |        |         |   |                       |   |         |                          |  |   |              |   |  |                   |        |   |  |   |         |  
|Net cash (used in) provided by operating activities                                                |  |        | (1,019  | ) |                       |   | 2,292   |                          |  |   | 413          |   |  |                   | (674   | ) |  |   | 1,012   |  
|                                                                                                   |  |        |         |   |                       |   |         |                          |  |   |              |   |  |                   |        |   |  |   |         |  
|                                                                                                   |  |        |         |   |                      
|Investing Activities:                                                                              |  |        |         |   |                       |   |         |                          |  |   |              |   |  |                   |        |   |  |   |         |  
|Purchases of property and equipment                                                                |  |        | (3,694  | ) |                       |   | (9,677  | )                        |  |   |             |   |  |                   |       |   |  |   | (13,371 | )
|Purchases of other locations                                                                       |  |        |        |   |                       |   | (1,261  | )                        |  |   |             |   |  |                   |       |   |  |   | (1,261  | )
|Investment in joint ventures                                                                       |  |        | (124    | ) |                       |   |        |                          |  |   |             |   |  |                   |       |   |  |   | (124    | )
|                                                                                                   |  |        |         |   |                       |   |         |                          |  |   |              |   |  |                   |        |   |  |   |         |  
|Net cash used in investing activities                                                              |  |        | (3,818  | ) |                       |   | (10,938 | )                        |  |   |             |   |  |                   |       |   |  |   | (14,756 | )
|                                                                                                   |  |        |         |   |                       |   |         |                          |  |   |              |   |  |                   |        |   |  |   |         |  
|                                                                                                   |  |        |         |   |                      
|Financing Activities:                                                                              |  |        |         |   |                       |   |         |                          |  |   |              |   |  |                   |        |   |  |   |         |  
|Repayment of secured term loan                                                                     |  |        | (1,373  | ) |                       |   |        |                          |  |   |             |   |  |                   |       |   |  |   | (1,373  | )
|Advances to MidOcean SBR Holding                                                                   |  |        | (305    | ) |                       |   |        |                          |  |   |             |   |  |                   |       |   |  |   | (305    | )
|Intercompany balances                                                                              |  |        | (7,959  | ) |                       |   | 7,412   |                          |  |   | (127         | ) |  |                   | 674    |   |  |   |        |  
|                                                                                                   |  |        |         |   |                       |   |         |                          |  |   |              |   |  |                   |        |   |  |   |         |  
|Net cash (used in) provided by financing activities                                                |  |        | (9,637  | ) |                       |   | 7,412   |                          |  |   | (127         | ) |  |                   | 674    |   |  |   | (1,678  | )
|                                                                                                   |  |        |         |   |                       |   |         |                          |  |   |              |   |  |                   |        |   |  |   |         |  
|Decrease in cash and cash equivalents                                                              |  |        | (14,474 | ) |                       |   | (1,234  | )                        |  |   | 286          |   |  |                   |       |   |  |   | (15,422 | )
|Cash and cash equivalents at beginning of period                                                   |  |        | 25,693  |   |                       |   | 2,893   |                          |  |   | 281          |   |  |                   |       |   |  |   | 28,867  |  
|                                                                                                   |  |        |         |   |                       |   |         |                          |  |   |              |   |  |                   |        |   |  |   |         |  
|Cash and cash equivalents at end of period                                                         |  | $      | 11,219  |   |                       | $ | 1,659   |                          |  | $ | 567          |   |  | $                 |       |   |  | $ | 13,445  |  
|                                                                                                   |  |        |         |   |                       |   |         |                          |  |   |              |   |  |                   |        |   |  |   |         |  



24



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##### Table of Contents

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Statement
of Cash FlowsSuccessor

For the period January 31September 30, 2007

(In thousands)

(Continued)



|                                                                                                   |  |        |          |   |                       |   |        |                          |  |   |              |   |  |                   |        |   |  |   |          |  
|-------------------------------------------------------------------------------------------------- |  | ------ | -------- | - | --------------------- | - | ------ | ------------------------ |  | - | ------------ | - |  | ----------------- | ------ | - |  | - | -------- | -
|                                                                                                   |  | Parent |          |   | GuarantorSubsidiaries |   |        | NonguarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal |       
|Operating Activities:                                                                              |  |        |          |   |                       |   |        |                          |  |   |              |   |  |                   |        |   |  |   |          |  
|Net (loss) income                                                                                  |  | $      | (2,489   | ) |                       | $ | (1,191 | )                        |  | $ | (236         | ) |  | $                 | 1,427  |   |  | $ | (2,489   | )
|Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: |  |        |          |   |                       |   |        |                          |  |   |              |   |  |                   |        |   |  |   |          |  
|Depreciation and amortization                                                                      |  |        | 6,386    |   |                       |   | 5,905  |                          |  |   | (2           | ) |  |                   |       |   |  |   | 12,289   |  
|Amortization of deferred financing costs                                                           |  |        | 671      |   |                       |   |       |                          |  |   |             |   |  |                   |       |   |  |   | 671      |  
|(Decrease) increase in deferred rent, net                                                          |  |        | (421     | ) |                       |   | 1,479  |                          |  |   |             |   |  |                   |       |   |  |   | 1,058    |  
|Asset impairment, restaurant closings/remodels                                                     |  |        |         |   |                       |   | 334    |                          |  |   |             |   |  |                   |       |   |  |   | 334      |  
|Deferred tax benefit                                                                               |  |        | (2,689   | ) |                       |   |       |                          |  |   |             |   |  |                   |       |   |  |   | (2,689   | )
|Equity in earnings of subsidiaries                                                                 |  |        | 1,427    |   |                       |   |       |                          |  |   |             |   |  |                   | (1,427 | ) |  |   |         |  
|                                                                                                   |  |        |          |   |                      
|Changes in operating assets and liabilities, net of effects of merger:                             |  |        |          |   |                       |   |        |                          |  |   |              |   |  |                   |        |   |  |   |          |  
|Decrease (increase) in receivables                                                                 |  |        | 1,279    |   |                       |   | 312    |                          |  |   | (45          | ) |  |                   |       |   |  |   | 1,546    |  
|Decrease (increase) in inventories                                                                 |  |        | 92       |   |                       |   | (7     | )                        |  |   | 5            |   |  |                   |       |   |  |   | 90       |  
|Decrease in prepaid expenses                                                                       |  |        | 924      |   |                       |   | 308    |                          |  |   |             |   |  |                   |       |   |  |   | 1,232    |  
|Increase in other assets                                                                           |  |        | (710     | ) |                       |   | (10    | )                        |  |   |             |   |  |                   |       |   |  |   | (720     | )
|Increase (decrease) in accounts payable and accrued expenses                                       |  |        | 9,340    |   |                       |   | (5,206 | )                        |  |   | 70           |   |  |                   |       |   |  |   | 4,204    |  
|Increase in accrued interest payable                                                               |  |        | 3,890    |   |                       |   |       |                          |  |   |             |   |  |                   |       |   |  |   | 3,890    |  
|                                                                                                   |  |        |          |   |                       |   |        |                          |  |   |              |   |  |                   |        |   |  |   |          |  
|Net cash provided by (used in) operating activities                                                |  |        | 17,700   |   |                       |   | 1,924  |                          |  |   | (208         | ) |  |                   |       |   |  |   | 19,416   |  
|                                                                                                   |  |        |          |   |                       |   |        |                          |  |   |              |   |  |                   |        |   |  |   |          |  
|                                                                                                   |  |        |          |   |                      
|Investing Activities:                                                                              |  |        |          |   |                       |   |        |                          |  |   |              |   |  |                   |        |   |  |   |          |  
|Purchases of property and equipment                                                                |  |        | (6,150   | ) |                       |   | (4,640 | )                        |  |   | (26          | ) |  |                   |       |   |  |   | (10,816  | )
|Purchases of franchise locations                                                                   |  |        |         |   |                       |   | (4,790 | )                        |  |   |             |   |  |                   |       |   |  |   | (4,790   | )
|Investment in joint ventures                                                                       |  |        | (380     | ) |                       |   |       |                          |  |   |             |   |  |                   |       |   |  |   | (380     | )
|Net cash paid for merger, net of cash acquired                                                     |  |        | (188,000 | ) |                       |   |       |                          |  |   |             |   |  |                   |       |   |  |   | (188,000 | )
|                                                                                                   |  |        |          |   |                       |   |        |                          |  |   |              |   |  |                   |        |   |  |   |          |  
|Net cash used in investing activities                                                              |  |        | (194,530 | ) |                       |   | (9,430 | )                        |  |   | (26          | ) |  |                   |       |   |  |   | (203,986 | )
|                                                                                                   |  |        |          |   |                       |   |        |                          |  |   |              |   |  |                   |        |   |  |   |          |  
|                                                                                                   |  |        |          |   |                      
|Financing Activities:                                                                              |  |        |          |   |                       |   |        |                          |  |   |              |   |  |                   |        |   |  |   |          |  
|Proceeds from shareholders for issuance of common stock                                            |  |        | 133,000  |   |                       |   |       |                          |  |   |             |   |  |                   |       |   |  |   | 133,000  |  
|Proceeds from secured term loan                                                                    |  |        | 183,000  |   |                       |   |       |                          |  |   |             |   |  |                   |       |   |  |   | 183,000  |  
|Proceeds from senior notes                                                                         |  |        | 150,000  |   |                       |   |       |                          |  |   |             |   |  |                   |       |   |  |   | 150,000  |  
|Paydown of Predecessors notes                                                                     |  |        | (267,000 | ) |                       |   |       |                          |  |   |             |   |  |                   |       |   |  |   | (267,000 | )
|Repayment of secured term loan                                                                     |  |        | (915     | ) |                       |   |       |                          |  |   |             |   |  |                   |       |   |  |   | (915     | )
|Intercompany balances                                                                              |  |        | (9,866   | ) |                       |   | 9,272  |                          |  |   | 594          |   |  |                   |       |   |  |   |         |  
|                                                                                                   |  |        |          |   |                       |   |        |                          |  |   |              |   |  |                   |        |   |  |   |          |  
|Net cash provided by financing activities                                                          |  |        | 188,219  |   |                       |   | 9,272  |                          |  |   | 594          |   |  |                   |       |   |  |   | 198,085  |  
|                                                                                                   |  |        |          |   |                       |   |        |                          |  |   |              |   |  |                   |        |   |  |   |          |  
|                                                                                                   |  |        |          |   |                      
|Increase in cash and cash equivalents                                                              |  |        | 11,389   |   |                       |   | 1,766  |                          |  |   | 360          |   |  |                   |       |   |  |   | 13,515   |  
|                                                                                                   |  |        |          |   |                      
|Cash and cash equivalents at beginning of period                                                   |  |        |         |   |                       |   |       |                          |  |   |             |   |  |                   |       |   |  |   |         |  
|                                                                                                   |  |        |          |   |                       |   |        |                          |  |   |              |   |  |                   |        |   |  |   |          |  
|Cash and cash equivalents at end of period                                                         |  | $      | 11,389   |   |                       | $ | 1,766  |                          |  | $ | 360          |   |  | $                 |       |   |  | $ | 13,515   |  
|                                                                                                   |  |        |          |   |                       |   |        |                          |  |   |              |   |  |                   |        |   |  |   |          |  

Supplemental non cash investing activities:

On January 30, 2007, the Company transferred its interest of $5.6 million of certain non-core assets to a newly-formed company owned
by certain of our former shareholders.



25



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Forward-Looking Statements

We make statements in this Quarterly Report that are considered
forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. The words anticipate, believe, estimate, intend, may, will, expect
and similar words often indicate that a statement is a forward-looking statement. Statements about non-historic results also are considered to be forward-looking statements. None of these forward-looking statements are guarantees of
future performance or events, and they are subject to numerous risks, uncertainties and other factors. These risks, uncertainties and other factors include, but are not limited to:



| |  |  | general economic, inflation, national security, weather and business conditions;
| | - |  | --------------------------------------------------------------------------------



| |  |  | decrease in mall traffic, and other events arising from the downturn in the economy, such as continued increases in energy and commodity costs that negatively
affect consumer spending;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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, including the effects that military action and terrorism or other events may have on the willingness of consumers to
frequent malls, airports or downtown areas which are the predominant areas in which our restaurants are located;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to continue to attract franchisees;
| | - |  | -----------------------------------------------



| |  |  | the success of our present, and any future, joint ventures and other expansion opportunities;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | changes in commodity and commodity related prices (particularly cheese and flour), beverage and paper products;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | our ability to pass along cost increases to our customers;
| | - |  | ----------------------------------------------------------



| |  |  | increases in the Federal minimum wage;
| | - |  | --------------------------------------



| |  |  | the continuity of services of members of our senior management team;
| | - |  | --------------------------------------------------------------------



| |  |  | our ability to attract and retain competent restaurant and executive managerial personnel;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | competition;
| | - |  | ------------



| |  |  | the level of, and our ability to comply with, government regulations;
| | - |  | ---------------------------------------------------------------------



| |  |  | our ability to generate sufficient cash flow to make interest payments and principal under our borrowing agreements;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to comply with financial covenants and ratios and the effects the restrictions imposed by those financial covenants and ratios may have on our
ability to operate our business; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to repurchase and/or repay amounts under our borrowing agreements to the extent required in the event of certain circumstances as defined in our
borrowing agreements.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

You are cautioned not to place undue reliance on forward-looking statements, which speak only as
of the date of this report. We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report. Additionally, we do not
undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this report.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated
financial statements, the notes thereto and other data and information appearing elsewhere in this report.

Executive Overview

For the purposes of managements discussion and analysis, the year to date third quarter 2008 is the nine months ended September 28, 2008 and
the year to date third quarter 2007 is the combined Predecessor and Successor period of January 1, 2007 through September 30, 2007. The combined results of the Successor and Predecessor for the nine months ended September 30, 2007 do
not comply with generally accepted accounting principles; however, we believe this provides useful information to discuss the relative performance of the business in all periods presented in the financial statements on an ongoing basis.



26



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##### Table of Contents

We believe we are the worlds leading Italian Quick Service Restaurant (QSR) concept and
the largest shopping mall-focused restaurant concept in the world. We have a global base of 1,075 units in 43 countries, with 510 company-owned units, 551 franchised units and 14 joint venture units. Sbarro restaurants feature a menu of popular
Italian food, including pizza, a selection of pasta dishes and other hot and cold Italian entrees, salads, sandwiches, drinks and desserts.

We operate our business through two segments. Our company-owned restaurant segment is comprised of the operating activities of our company-owned QSRs and other concept restaurants. Our franchised restaurant segment is comprised of our
franchised restaurants which offer opportunities worldwide for qualified operators to conduct business under the Sbarro name and other trade names owned by Sbarro. Our operating segments are discussed inNote 3Summary of Significant
Accounting Policies and Note 15Business Segment Information to ourConsolidated Financial Statementsincluded in our Annual Report on Form 10-K for the year ended December 30, 2007.

Primarily in connection with our acquisition by MidOcean on January 31, 2007, we allocated a significant portion of the purchase price to intangible
assets; goodwill of $212 million, tradename assets of $248 million and other indefinite lived intangibles of $26 million. The carrying value of these assets is subject to annual impairment reviews based on our estimates of the future cash flows as
of the last day of our fiscal year. Interim impairment tests are performed, if deemed necessary, due to significant events or changes in circumstances that could negatively impact the carrying values of these assets. We have determined that there
have been no such triggering events as of September 28, 2008 that would require us to perform an interim impairment test. The estimated future cash flows used in such impairment tests could be negatively impacted due to adverse macroeconomic
factors such as reduced mall traffic during the holiday shopping season, a decline in consumer spending, or adverse changes in other cash flow assumptions which could result in potential impairment of the carrying value of such assets. For a
discussion of the risks associated with an impairment charge, see Item 1A Risk Factors in our Annual Report on Form 10-K for the year ended December 30, 2007.

Our Restaurant Expansion

The following table summarizes the number of company-owned, franchised and
joint venture restaurants in operation during each indicated period:



|                                        |  |                      |   |  |                      |   |  |                      |   |  |                      |  
|--------------------------------------- |  | -------------------- | - |  | -------------------- | - |  | -------------------- | - |  | -------------------- | -
|                                        |  | 3 monthsended9/28/08 |   |  | 3 monthsended9/30/07 |   |  | 9 monthsended9/28/08 |   |  | 9 monthsended9/30/07 |  
|                                        |  | (Successor)          |   |  | (Successor)          |   |  | (Successor)          |   |  | (Combined)           |  
|Company-owned Sbarro restaurants:       |  |                      |   |  |                      |   |  |                      |   |  |                      |  
|Open at beginning of period             |  | 509                  |   |  | 498                  |   |  | 506                  |   |  | 485                  |  
|Opened during period                    |  | 3                    |   |  | 3                    |   |  | 11                   |   |  | 13                   |  
|Acquired from franchisees during period |  | 1                    |   |  |                     |   |  | 2                    |   |  | 11                   |  
|Closed during period                    |  | (3                   | ) |  | (1                   | ) |  | (9                   | ) |  | (9                   | )
|                                        |  |                      |   |  |                      |   |  |                      |   |  |                      |  
|Open at end of period                   |  | 510                  |   |  | 500                  |   |  | 510                  |   |  | 500                  |  
|                                        |  |                      |   |  |                      |   |  |                      |   |  |                      |  
|Franchised Sbarro restaurants:          |  |                      |   |  |                      |   |  |                      |   |  |                      |  
|Open at beginning of period             |  | 546                  |   |  | 499                  |   |  | 524                  |   |  | 478                  |  
|Opened during period                    |  | 22                   |   |  | 17                   |   |  | 70                   |   |  | 57                   |  
|Transferred to Sbarro during period     |  | (1                   | ) |  |                     |   |  | (2                   | ) |  | (11                  | )
|Closed during period                    |  | (16                  | ) |  | (8                   | ) |  | (41                  | ) |  | (16                  | )
|                                        |  |                      |   |  |                      |   |  |                      |   |  |                      |  
|Open at end of period                   |  | 551                  |   |  | 508                  |   |  | 551                  |   |  | 508                  |  
|                                        |  |                      |   |  |                      |   |  |                      |   |  |                      |  
|Joint venture Sbarro restaurants:       |  |                      |   |  |                      |   |  |                      |   |  |                      |  
|Open at beginning of period             |  | 9                    |   |  | 1                    |   |  | 7                    |   |  |                     |  
|Opened during period                    |  | 5                    |   |  | 2                    |   |  | 7                    |   |  | 3                    |  
|Closed during period                    |  |                     |   |  |                     |   |  |                     |   |  |                     |  
|                                        |  |                      |   |  |                      |   |  |                      |   |  |                      |  
|Open at end of period                   |  | 14                   |   |  | 3                    |   |  | 14                   |   |  | 3                    |  
|                                        |  |                      |   |  |                      |   |  |                      |   |  |                      |  
|All restaurants:                        |  |                      |   |  |                      |   |  |                      |   |  |                      |  
|Open at beginning of period             |  | 1,064                |   |  | 998                  |   |  | 1,037                |   |  | 963                  |  
|Opened during period                    |  | 30                   |   |  | 22                   |   |  | 88                   |   |  | 73                   |  
|Closed during period                    |  | (19                  | ) |  | (9                   | ) |  | (50                  | ) |  | (25                  | )
|                                        |  |                      |   |  |                      |   |  |                      |   |  |                      |  
|Open at end of period                   |  | 1,075                |   |  | 1,011                |   |  | 1,075                |   |  | 1,011                |  
|                                        |  |                      |   |  |                      |   |  |                      |   |  |                      |  

Seasonality

Revenues are highest in our fourth quarter due primarily to increased traffic in shopping malls during the holiday shopping season. Our annual revenues, earnings and cash flow from operations can fluctuate due to the
length of the holiday shopping period between Thanksgiving and New Years Day.



27



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##### Table of Contents

Financial Information (Dollars in millions)



|                                                                    |  |                                     |       |   |                                     |   |      |                                    |  |   |                                    |   |  |   |       |  
|------------------------------------------------------------------- |  | ----------------------------------- | ----- | - | ----------------------------------- | - | ---- | ---------------------------------- |  | - | ---------------------------------- | - |  | - | ----- | -
|                                                                    |  | Three monthsendedSeptember 28, 2008 |       |   | Three monthsendedSeptember 30, 2007 |   |      | Nine monthsendedSeptember 28, 2008 |  |   | Nine monthsendedSeptember 30, 2007 |  
|                                                                    |  | (Successor)                         |       |   | (Successor)                         |   |      | (Successor)                        |  |   | (Combined) (2)                     |  
|Comparable sales-percentage change vs. prior comparable period(1):  |  |                                     |       |   |                                     |   |      |                                    |  |   |                                    |   |  |   |       |  
|QSR-owned locations                                                 |  |                                     | -1.0  | % |                                     |   | 3.2  | %                                  |  |   | -0.4                               | % |  |   | 3.0   | %
|Franchise locations:                                                |  |                                     |       |   |                                     |   |      |                                    |  |   |                                    |   |  |   |       |  
|Domestic Franchise                                                  |  |                                     | -2.0  | % |                                     |   | 4.3  | %                                  |  |   | -1.2                               | % |  |   | 4.5   | %
|International Franchise                                             |  |                                     | 15.5  | % |                                     |   | 6.6  | %                                  |  |   | 20.1                               | % |  |   | 5.8   | %
|Franchised sales(3)                                                 |  | $                                   | 104.9 |   |                                     | $ | 90.8 |                                    |  | $ | 287.3                              |   |  | $ | 247.3 |  
|Cost of food and paper products as a percentage of restaurant sales |  |                                     | 23.1  | % |                                     |   | 20.7 | %                                  |  |   | 22.9                               | % |  |   | 20.2  | %
|Payroll and other benefits as a percentage of restaurant sales      |  |                                     | 27.6  | % |                                     |   | 26.4 | %                                  |  |   | 28.5                               | % |  |   | 27.5  | %
|Other operating expense as a percentage of restaurant sales         |  |                                     | 36.0  | % |                                     |   | 35.1 | %                                  |  |   | 37.3                               | % |  |   | 36.3  | %
|General and administrative costs as a percentage of revenues        |  |                                     | 7.3   | % |                                     |   | 7.9  | %                                  |  |   | 8.1                                | % |  |   | 8.4   | %
|EBITDA(4)                                                           |  | $                                   | 9.2   |   |                                     | $ | 12.9 |                                    |  | $ | 20.4                               |   |  | $ | (0.4  | )



|(1) | Comparable and annual percentage changes are based on locations that were open during the entire period within the periods presented.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

|(2) | The combined results of the Successor and Predecessor for the nine months ended September 30, 2007 do not comply with generally accepted accounting principles; however, we
believe this provides useful information to discuss the relative performance of the business in all periods presented in the financial statements on an ongoing basis.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | While we do not record franchised sales as revenues, we believe they are important in understanding our financial performance because these sales are the basis on which we calculate
and record franchised royalties and are indicative of the financial health of the franchisee base.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | EBITDA represents earnings before interest income, interest expense, taxes, depreciation and amortization. EBITDA should not be considered in isolation from, or as a substitute for,
net income, cash flow from operations or other cash flow statement data prepared in accordance with generally accepted accounting principles (GAAP) or as a measure of a companys profitability or liquidity. Rather, we believe that
EBITDA provides relevant and useful information for analysts of, and investors in, our Senior Notes in that EBITDA is one of the factors in the calculation of our compliance with the ratios in the Senior Credit Facilities. We also internally use
EBITDA to determine whether to continue operating restaurant units since it provides us with a measurement of whether we are receiving an adequate cash return on our investment. Our calculation of EBITDA may not be comparable to a similarly titled
measure reported by other companies, since all companies do not calculate this non-GAAP measure in the same manner. Our EBITDA calculations are not intended to represent cash provided by (used in) operating activities since they do not include
interest and taxes and changes in operating assets and liabilities, nor are they intended to represent a net increase in cash since they do not include cash provided by (used in) investing and financing activities. Included in the calculation of
EBITDA for Combined 2007 is $31.4 million related to a special event bonus.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



28



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##### Table of Contents

The following table reconciles EBITDA to our net loss for each of the periods presented, which we believe
is the most direct comparable GAAP financial measure to EBITDA (In thousands):



|                              |  |                                   |         |   |                                   |   |         |                              |  |   |                           |   |  |                                |         |   |                                |   |        |   |  |   |        |  
|----------------------------- |  | --------------------------------- | ------- | - | --------------------------------- | - | ------- | ---------------------------- |  | - | ------------------------- | - |  | ------------------------------ | ------- | - | ------------------------------ | - | ------ | - |  | - | ------ | -
|                              |  | Nine monthsendedSeptember 28,2008 |         |   | Nine monthsendedSeptember 30,2007 |   |         | January 31-September 30,2007 |  |   | January 1-January 30,2007 |   |  | 3 monthsendedSeptember 28,2008 |         |   | 3 monthsendedSeptember 30,2007 |  
|                              |  | (Successor)                       |         |   | (Combined)(*)                     |   |         | (Successor)                  |  |   | (Predecessor)             |   |  | (Successor)                    |         |   | (Successor)                    |  
|EBITDA                        |  | $                                 | 20,362  |   |                                   | $ | (367    | )                            |  | $ | 28,435                    |   |  | $                              | (28,802 | ) |                                | $ | 9,245  |   |  | $ | 12,912 |  
|Interest Expense              |  |                                   | (21,617 | ) |                                   |   | (23,606 | )                            |  |   | (21,036                   | ) |  |                                | (2,570  | ) |                                |   | (6,572 | ) |  |   | (7,673 | )
|Interest Income               |  |                                   | 132     |   |                                   |   | 569     |                              |  |   | 461                       |   |  |                                | 108     |   |                                |   | 25     |   |  |   | 57     |  
|Income Tax Benefit (Expense)  |  |                                   | 4,937   |   |                                   |   | 1,896   |                              |  |   | 1,940                     |   |  |                                | (44     | ) |                                |   | 114    |   |  |   | (42    | )
|Depreciation and Amortization |  |                                   | (12,720 | ) |                                   |   | (13,561 | )                            |  |   | (12,289                   | ) |  |                                | (1,272  | ) |                                |   | (3,986 | ) |  |   | (4,751 | )
|                              |  |                                   |         |   |                                   |   |         |                              |  |   |                           |   |  |                                |         |   |                                |   |        |   |  |   |        |  
|Net (loss) income             |  | $                                 | (8,906  | ) |                                   | $ | (35,069 | )                            |  | $ | (2,489                    | ) |  | $                              | (32,580 | ) |                                | $ | (1,174 | ) |  | $ | 503    |  
|                              |  |                                   |         |   |                                   |   |         |                              |  |   |                           |   |  |                                |         |   |                                |   |        |   |  |   |        |  



|(*) | The combined results of the Successor and Predecessor for the period in 2007 do not comply with generally accepted accounting principles; however, we believe that this provides
useful information to assess the relative performance of the businesses in all periods presented in the financial statements on an ongoing basis. Included in the calculation of EBITDA for combined 2007 is $31.4 million related to a special event
bonus.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table sets forth the information concerning the revenue and operating income before unallocated costs
of each of our Company-Owned and franchised restaurant segments:



|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|----------------------------------------- |  | --------------------------- | ------- | - | --------------------- | - | ------ |  | - | ------- | -
|                                          |  | Company-OwnedRestaurants(1) |         |   | FranchisedRestaurants |   | Totals | 
|                                          |  | (In thousands)              |        
|3rdQuarter 2008
(Successor)               |  |                             |         |   |                       |   |        |  |   |         |  
|Total revenue                             |  | $                           | 87,483  |   |                       | $ | 4,384  |  | $ | 91,867  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income before unallocated costs |  |                             | 7,664   |   |                       |   | 3,389  |  |   | 11,053  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Unallocated costs and expenses(2)         |  |                             |         |   |                       |   |        |  |   | 5,737   |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income                          |  |                             |         |   |                       |   |        |  | $ | 5,316   |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|3rdQuarter 2007 (Successor)               |  |                             |         |   |                       |   |        |  |   |         |  
|Total revenue                             |  | $                           | 87,047  |   |                       | $ | 3,948  |  | $ | 90,995  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income before unallocated costs |  |                             | 11,330  |   |                       |   | 2,718  |  |   | 14,048  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Unallocated costs and expenses(2)         |  |                             |         |   |                       |   |        |  |   | 5,887   |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income                          |  |                             |         |   |                       |   |        |  | $ | 8,161   |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|YTD 3rdQuarter 2008
(Successor)           |  |                             |         |   |                       |   |        |  |   |         |  
|Total revenue                             |  | $                           | 248,379 |   |                       | $ | 12,108 |  | $ | 260,487 |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income before unallocated costs |  |                             | 16,700  |   |                       |   | 8,729  |  |   | 25,429  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Unallocated costs and expenses(2)         |  |                             |         |   |                       |   |        |  |   | 17,602  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income                          |  |                             |         |   |                       |   |        |  | $ | 7,827   |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|YTD 3rdQuarter 2007 (Combined)(4)         |  |                             |         |   |                       |   |        |  |   |         |  
|Total revenue                             |  | $                           | 243,015 |   |                       | $ | 11,060 |  | $ | 254,075 |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income before unallocated costs |  |                             | (3,776  | ) |                       |   | 7,343  |  |   | 3,567   |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Unallocated costs and expenses(2)         |  |                             |         |   |                       |   |        |  |   | 17,507  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating loss(3)                         |  |                             |         |   |                       |   |        |  | $ | (13,940 | )
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|1/31/07  9/30/07 (Successor)             |  |                             |         |   |                       |   |        |  |   |         |  
|Total revenue                             |  | $                           | 219,098 |   |                       | $ | 10,067 |  | $ | 229,165 |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income before unallocated costs |  |                             | 24,459  |   |                       |   | 6,749  |  |   | 31,208  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Unallocated costs and expenses(2)         |  |                             |         |   |                       |   |        |  |   | 15,062  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income                          |  |                             |         |   |                       |   |        |  | $ | 16,146  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|1/1/07  1/30/07 (Predecessor)            |  |                             |         |   |                       |   |        |  |   |         |  
|Total revenue                             |  | $                           | 23,917  |   |                       | $ | 993    |  | $ | 24,910  |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating income before unallocated costs |  |                             | (28,235 | ) |                       |   | 594    |  |   | (27,641 | )
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Unallocated costs and expenses(2)         |  |                             |         |   |                       |   |        |  |   | 2,445   |  
|                                          |  |                             |         |   |                       |   |        |  |   |         |  
|Operating loss(3)                         |  |                             |         |   |                       |   |        |  | $ | (30,086 | )
|                                          |  |                             |         |   |                       |   |        |  |   |         |  



|(1) | Total revenue includes restaurant sales in the Successor period and restaurant sales and real estate revenues in the Predecessor period.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents those general and administrative expenses that are not allocated to a segment.
|--- | -----------------------------------------------------------------------------------------

|(3) | 2007 includes $31.4 million related to a special event bonus.
|--- | -------------------------------------------------------------

|(4) | The combined results of the Successor and Predecessor for the periods in 2007 do not comply with generally accepted accounting principles; however, we believe these results provide
useful information to assess the relative performance of the businesses in all periods presented in the financial statements on an ongoing basis.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



29



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##### Table of Contents

SBARRO, INC. AND SUBSIDIARIES

COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands)



|                                                         |  |                                     |         |   |                                                    |   |         |            |             |                                                 |  |   |                                       |   |  |           |                                      |   |           |                                      |  |   |        |   |  |   |        |  
|-------------------------------------------------------- |  | ----------------------------------- | ------- | - | -------------------------------------------------- | - | ------- | ---------- | ----------- | ----------------------------------------------- |  | - | ------------------------------------- | - |  | --------- | ------------------------------------ | - | --------- | ------------------------------------ |  | - | ------ | - |  | - | ------ | -
|                                                         |  | GAAP                                |         |   | GAAP                                               |   |         | Combined |             |                                                 |  |   | GAAP                                  |  
|                                                         |  | Nine months endedSeptember 28, 2008 |         |   | For the periodJanuary 31 throughSeptember 30, 2007 |   |         |            |             | For the periodJanuary 1 throughJanuary 30, 2007 |  |   | Nine months endedSeptember 30, 2007 * |   |  |           | Three months endedSeptember 28, 2008 |   |           | Three months endedSeptember 30, 2007 | 
|                                                         |  | SUCCESSOR                           |         |   | SUCCESSOR                                          |   |         |            | PREDECESSOR |                                                 |  |   |                                       |   |  | SUCCESSOR |                                      |   | SUCCESSOR |                                     
|Revenues:                                                |  |                                     |         |   |                                                    |   |         |            |             |                                                 |  |   |                                       |   |  |           |                                      |   |           |                                      |  |   |        |   |  |   |        |  
|Restaurant sales                                         |  | $                                   | 248,379 |   |                                                    | $ | 219,098 |            |             |                                                 |  | $ | 23,594                                |   |  | $         | 242,692                              |   |           |                                      |  | $ | 87,483 |   |  | $ | 87,047 |  
|Franchise related income                                 |  |                                     | 12,108  |   |                                                    |   | 10,067  |            |             |                                                 |  |   | 993                                   |   |  |           | 11,060                               |   |           |                                      |  |   | 4,384  |   |  |   | 3,948  |  
|Real estate                                              |  |                                     |        |   |                                                    |   |        |            |             |                                                 |  |   | 323                                   |   |  |           | 323                                  |   |           |                                      |  |   |       |   |  |   |       |  
|                                                         |  |                                     |         |   |                                                    |   |         |            |             |                                                 |  |   |                                       |   |  |           |                                      |   |           |                                      |  |   |        |   |  |   |        |  
|Total revenues                                           |  |                                     | 260,487 |   |                                                    |   | 229,165 |            |             |                                                 |  |   | 24,910                                |   |  |           | 254,075                              |   |           |                                      |  |   | 91,867 |   |  |   | 90,995 |  
|Costs and expenses:                                      |  |                                     |         |   |                                                    |   |         |            |             |                                                 |  |   |                                       |   |  |           |                                      |   |           |                                      |  |   |        |   |  |   |        |  
|Cost of food and paper products                          |  |                                     | 56,983  |   |                                                    |   | 44,621  |            |             |                                                 |  |   | 4,308                                 |   |  |           | 48,929                               |   |           |                                      |  |   | 20,215 |   |  |   | 18,008 |  
|Payroll and other employee                               |  |                                     | 70,860  |   |                                                    |   | 60,092  |            |             |                                                 |  |   | 6,762                                 |   |  |           | 66,854                               |   |           |                                      |  |   | 24,132 |   |  |   | 23,001 |  
|Other operating costs                                    |  |                                     | 92,723  |   |                                                    |   | 79,201  |            |             |                                                 |  |   | 8,839                                 |   |  |           | 88,040                               |   |           |                                      |  |   | 31,523 |   |  |   | 30,597 |  
|Other income, net                                        |  |                                     | (2,785  | ) |                                                    |   | (1,924  | )          |             |                                                 |  |   | (497                                  | ) |  |           | (2,421                               | ) |           |                                      |  |   | (884   | ) |  |   | (793   | )
|Depreciation and amortization                            |  |                                     | 12,720  |   |                                                    |   | 12,289  |            |             |                                                 |  |   | 1,272                                 |   |  |           | 13,561                               |   |           |                                      |  |   | 3,986  |   |  |   | 4,751  |  
|General and administrative                               |  |                                     | 20,975  |   |                                                    |   | 18,406  |            |             |                                                 |  |   | 2,843                                 |   |  |           | 21,249                               |   |           |                                      |  |   | 6,730  |   |  |   | 7,145  |  
|Special event bonuses                                    |  |                                     |        |   |                                                    |   |        |            |             |                                                 |  |   | 31,395                                |   |  |           | 31,395                               |   |           |                                      |  |   |       |   |  |   |       |  
|Asset impairment and restaurant closings/remodels        |  |                                     | 1,184   |   |                                                    |   | 334     |            |             |                                                 |  |   | 74                                    |   |  |           | 408                                  |   |           |                                      |  |   | 849    |   |  |   | 125    |  
|                                                         |  |                                     |         |   |                                                    |   |         |            |             |                                                 |  |   |                                       |   |  |           |                                      |   |           |                                      |  |   |        |   |  |   |        |  
|Total costs and expenses, net                            |  |                                     | 252,660 |   |                                                    |   | 213,019 |            |             |                                                 |  |   | 54,996                                |   |  |           | 268,015                              |   |           |                                      |  |   | 86,551 |   |  |   | 82,834 |  
|                                                         |  |                                     |         |   |                                                    |   |         |            |             |                                                 |  |   |                                       |   |  |           |                                      |   |           |                                      |  |   |        |   |  |   |        |  
|Operating income (loss)                                  |  |                                     | 7,827   |   |                                                    |   | 16,146  |            |             |                                                 |  |   | (30,086                               | ) |  |           | (13,940                              | ) |           |                                      |  |   | 5,316  |   |  |   | 8,161  |  
|                                                         |  |                                     |         |   |                                                    |   |         |            |             |                                                 |  |   |                                       |   |  |           |                                      |   |           |                                      |  |   |        |   |  |   |        |  
|Other (expense) income:                                  |  |                                     |         |   |                                                    |   |         |            |             |                                                 |  |   |                                       |   |  |           |                                      |   |           |                                      |  |   |        |   |  |   |        |  
|Interest expense                                         |  |                                     | (21,617 | ) |                                                    |   | (21,036 | )          |             |                                                 |  |   | (2,570                                | ) |  |           | (23,606                              | ) |           |                                      |  |   | (6,572 | ) |  |   | (7,673 | )
|Interest income                                          |  |                                     | 132     |   |                                                    |   | 461     |            |             |                                                 |  |   | 108                                   |   |  |           | 569                                  |   |           |                                      |  |   | 25     |   |  |   | 57     |  
|Equity in net (loss) income of unconsolidated affiliates |  |                                     | (185    | ) |                                                    |   |        |            |             |                                                 |  |   | 12                                    |   |  |           | 12                                   |   |           |                                      |  |   | (57    | ) |  |   | 0      |  
|                                                         |  |                                     |         |   |                                                    |   |         |            |             |                                                 |  |   |                                       |   |  |           |                                      |   |           |                                      |  |   |        |   |  |   |        |  
|Net other expense                                        |  |                                     | (21,670 | ) |                                                    |   | (20,575 | )          |             |                                                 |  |   | (2,450                                | ) |  |           | (23,025                              | ) |           |                                      |  |   | (6,604 | ) |  |   | (7,616 | )
|                                                         |  |                                     |         |   |                                                    |   |         |            |             |                                                 |  |   |                                       |   |  |           |                                      |   |           |                                      |  |   |        |   |  |   |        |  
|Income (loss) before income taxes                        |  |                                     | (13,843 | ) |                                                    |   | (4,429  | )          |             |                                                 |  |   | (32,536                               | ) |  |           | (36,965                              | ) |           |                                      |  |   | (1,288 | ) |  |   | 545    |  
|                                                         |  |                                     |         |   |                                                    |   |         |            |             |                                                 |  |   |                                       |   |  |           |                                      |   |           |                                      |  |   |        |   |  |   |        |  
|Income tax (benefit) expense                             |  |                                     | (4,937  | ) |                                                    |   | (1,940  | )          |             |                                                 |  |   | 44                                    |   |  |           | (1,896                               | ) |           |                                      |  |   | (114   | ) |  |   | 42     |  
|                                                         |  |                                     |         |   |                                                    |   |         |            |             |                                                 |  |   |                                       |   |  |           |                                      |   |           |                                      |  |   |        |   |  |   |        |  
|Net (loss) income                                        |  | $                                   | (8,906  | ) |                                                    | $ | (2,489  | )          |             |                                                 |  | $ | (32,580                               | ) |  | $         | (35,069                              | ) |           |                                      |  | $ | (1,174 | ) |  | $ | 503    |  
|                                                         |  |                                     |         |   |                                                    |   |         |            |             |                                                 |  |   |                                       |   |  |           |                                      |   |           |                                      |  |   |        |   |  |   |        |  



|* | The combined results of the successor and predecessor for the periods in 2007 do not comply with generally accepted accounting principles; however, we believe these results provide
useful information to assess the relative performance of the businesses in all periods presented in the financial statements on an ongoing basis.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Third Quarter 2008 versus Third Quarter 2007

Restaurant sales increased by .6% to $87.5 million for the three months ended September 28, 2008 compared to $87.0 million for the three months ended September 30, 2007. The increase in
sales is due to sales generated by new stores opened in 2007 and 2008 of $2.3 million offset by stores closed of $1.2 million and a decrease in comparable unit sales of 1% in our QSR restaurants.

Franchise related income increased to $4.4 million for the third quarter of 2008 from $3.9 million for the third quarter of 2007 due to royalties on new
international stores opened in 2007 and 2008 of $.3 million and royalties on increased international comparable unit sales of $.2 million, and fees on international and domestic store openings of $.1 million partially offset by the loss of royalties
on international stores closed of $.1 million. Royalties on new domestic franchise units were offset by royalties on closed domestic stores and the decline in comparable unit sales.

Cost of food and paper products as a percentage of restaurant sales increased to 23.1% for the third quarter of 2008 compared to 20.7% for the third quarter of 2007. The cost of cheese in the
third quarter of 2008 averaged $2.26 per pound compared to an average of $2.16 per pound in the third quarter of 2007. This $.10 per pound increase in cheese costs accounted for $.2 million or .2% of the total percentage of restaurant sales
increase. The cost of flour in the third quarter of 2008 averaged $.47 compared to $.20 in the third quarter of 2007. The $.27 per pound increase accounted for $1.0 million or 1.1% of the total percentage of restaurant sales increase. The remaining
1.1% increase as a percentage of restaurant sales relates to fuel surcharges and cost increases on other products including pasta, oil, sausage and pepperoni.

Payroll and other employee benefits as a percentage of restaurant sales increased to 27.6% in the third quarter of 2008 from 26.4% in the third quarter of 2007. The increase is primarily related to higher wages,
including minimum wage increases, while comparative unit sales declined 1% from the prior year.

Other operating costs as a percentage of
restaurant sales increased to 36.0% in the third quarter of 2008 as compared to 35.1% in the third quarter of 2007. The increase is primarily due to expected increases in occupancy related charges offset by reductions in operating costs in response
to the decline in comparable unit sales of 1% from the prior year.

Depreciation and amortization was $4.0 million for the third quarter of
2008 as compared to $4.8 million in the third quarter of 2007. The $.8 million decrease is due to fully depreciated assets offset by depreciation on new stores opened.

General and administrative expenses decreased slightly to $6.7 million in the third quarter 2008 as compared to $7.1 million in the third quarter of 2007. The decrease is primarily due to severance charges in 2007
relating to management realignment and cost reductions implemented in 2008.

Interest expense of $6.6 million for the third quarter of 2008
and $7.7 million for the third quarter of 2007 relates primarily to the Senior Notes and the Term Loan under our Senior Credit Facility. The decrease in interest expense is due to a decrease in the interest rate on the Term Loan. Included in
interest expense in the third quarter of 2008 and the third quarter of 2007 was the amortization of deferred financing costs for the Senior Notes and Term Loan of $.3 million and $.1 million, respectively.

Equity in net loss of unconsolidated affiliates relates to our joint venture in Beirut.

In our Successor period after January 31, 2007, we are taxed as a C Corporation. The income tax benefit was $.1 million for the third quarter of 2008 and income tax expense was $.1 million
for the third quarter of 2007.

Net loss was $1.2 million for the third quarter of 2008 as compared to a net income of $.5 million in the
third quarter of 2007. The increase in net loss is due to the items discussed above, primarily increased costs, as well as a decline in comparable sales of 1% offset by stores opened in 2007 and 2008.

Year to Date 2008 Versus 2007

Restaurant sales
increased by 2.3% to $248.4 million for the nine months ended September 28, 2008 compared to $242.7 million for the combined nine months ended September 30, 2007. The increase in sales is due to sales generated by new stores opened in 2007
and 2008 of $9.5 million offset by stores closed of $3.6 million and a decrease in comparable unit sales of .4%.

Franchise related income
increased to $12.1 million for the first nine months of 2008 compared to $11.1 million in the combined first nine months of 2007 due to royalties on increased international comparable unit sales of $.7 million and new international stores opened in
2007 and 2008 of $.9 million, partially offset by the loss of royalties on international and domestic stores closed of $.7 million. Royalties on new domestic franchise units were $.2 million offset by a decline in royalties on domestic comparable
unit sales of $.1 million.



31



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Cost of food and paper products as a percentage of restaurant sales increased to 22.9% for first nine
months of 2008 compared to 20.2% for the combined first nine months of 2007. The cost of cheese in the first nine months of 2008 averaged approximately $2.18 per pound compared to an average of approximately $1.82 per pound in the combined nine
months of 2007. This $.36 per pound increase in cheese costs accounted for $2.0 million or .8% of the total percentage of restaurant sales increase. The cost of flour in the first nine months of 2008 averaged $.43 compared to $.20 in the
combined first nine months of 2007. The $.23 per pound increase accounted for $2.4 million or 1.0% of the total percentage of restaurant sales increases. The remaining .9% increase as a percentage of restaurant sales relates to fuel surcharges and
cost increases on other products including pasta, oil, sausage and pepperoni.

Payroll and other employee benefits as a percentage of
restaurant sales increased to 28.5% for the first nine months of 2008 compared to 27.5% in the combined first nine months of 2007. The increase is primarily related to higher wages, including minimum wage increases and increased staffing levels at
some stores, while sales remained relatively flat.

Other operating costs as a percentage of restaurant sales increased to 37.3% in the
first nine months of 2008 compared to 36.3% in the combined first nine months of 2007. The increase is primarily due to expected increases in occupancy related charges offset by reductions in operating costs in response to sales remaining relatively
flat.

Other income, net was $2.8 million for the first nine months of 2008 compared to $2.4 million in the combined first nine months of
2007. The increase is primarily due to an increase in certain rebates we received based on our franchisees level of purchases.

Depreciation and amortization decreased to $12.7 million in first nine months of 2008 compared to $13.6 million for the combined first nine months of 2007. The $.9 million decrease is due to fully depreciated assets offset by depreciation
on new stores opened.

General and administrative expenses remained relatively flat at $21.0 million in the first nine months 2008 as
compared to $21.2 million in the combined first nine months of 2007.

In our Predecessor period in 2007, in connection with the Merger,
special event bonuses paid were $31.4 million.

Interest expense of $21.6 million for the first nine months of 2008 and $23.6 million for
the combined first nine months of 2007 relates primarily to the Senior Notes and the Term Loan under our Senior Credit Facility. The decrease in interest expense is due to a decrease in the interest rate on the Term Loan. Included in interest
expense in the first nine months of 2008 and 2007 was the amortization of deferred financing costs for the Senior Notes and Term Loan of $.8 million and $.7 million, respectively. In our Predecessor period in 2007, interest expense related to the
11%, $255 million senior notes and the 8.4%, $16 million mortgage loan on our corporate headquarters. In connection with the Merger, the 11% Notes were redeemed and the mortgage loan and interests in our corporate headquarters were transferred to a
company owned by certain of our former shareholders.

Equity in net loss of unconsolidated affiliates relates to our joint venture in
Beirut.

In our Successor period after January 31, 2007, we are taxed as a C Corporation. The income tax benefit was $4.9 million for
the first nine months of 2008 and our effective tax rate was 35.7%. The income tax benefit was $1.9 million for the period January 31 through September 30, 2007 (Successor) and our effective tax rate was 43.8% for that period. Prior to
January 31, 2007, we were taxed under the provisions of Subchapter S of the Internal Revenue Code and, where applicable and permitted, under similar state and local income tax provisions. Under the provisions of Subchapter S, substantially all
taxes on our income were paid by our former shareholders rather than by the Company.

Net loss was $8.9 million for the first nine months
of 2008 as compared to a $35.1 million net loss in the combined first nine months of 2007. Included in the combined first nine months of 2007 net loss was $31.4 attributable to special event bonuses in connection with the Merger. After adjusting for
the special event bonuses, the increase in the net loss is due to the items discussed above, primarily an increase in costs while comparable sales remained relatively flat.

Currency translation adjustment primarily relates to our company-owned store in Canada and our consolidated joint venture in India.

Liquidity and Capital Resources

Principal Cash Requirements and Sources

Our liquidity requirements relate to debt service, capital expenditures, working capital, investments in other ventures, and acquisitions. Our primary
source of liquidity will continue to be cash flow from operations and borrowings available under our revolver. We expect these sources will fund our ongoing requirements for working capital and capital expenditures.



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Cash flow generated during our fourth quarter is critical to achieving positive annual operating cash
flow. Adverse macroeconomic factors, such as reduced mall traffic during the holiday shopping season and a decline in consumer spending among other factors, could negatively impact achieving our projected operating cash flow for the fourth quarter
and year.

Our ability to borrow funds under our revolver is subject to our continued compliance with our debt covenant requirements during
future quarters. Such covenants include minimum cash interest coverage ratio and a maximum net leverage ratio. As of September 28, 2008, we are in compliance with these covenants. Beginning in the fourth quarter ending December 28, 2008,
certain covenants become more restrictive. Our results for the year are highly dependent upon the holiday shopping period between Thanksgiving and New Years Day. Current economic uncertainty surrounding our fourth quarter projections which,
together with our year to date results, could impact our compliance with these more restrictive covenants and cause us not to be in compliance.

We estimate that our annual cash interest expense under the Senior Notes and Senior Credit Facilities that we put into place in connection with the Merger will be approximately $28 million. We also may incur additional interest expense for
borrowings under our line of credit.

The Senior Credit Facilities require us to prepay outstanding borrowings, subject to certain
exceptions, with (a) 50% of our annual excess cash flow (subject to step-downs based upon our total leverage ratio); (b) 100% of the net cash proceeds of certain asset sales or other dispositions of property (including casualty insurance
and condemnations) if we do not commit to reinvest such proceeds in accordance with the terms of the Senior Credit Facilities within 365 days of the event giving rise thereto (or, to the extent we have entered into a commitment to reinvest such
proceeds within such time period to the extent such amounts are actually reinvested, within six months of the expiration of such 365 days); and (c) 100% of the net cash proceeds of any incurrence of debt, other than debt permitted under the
Senior Credit Facilities. We are not required to make principal payments, absent the occurrence of certain events, on our Senior Notes until they mature in 2015. In the first nine months of 2008, we purchased four QSR locations for approximately
$1.3 million and we repaid $1.4 million in principal per the terms of our Term Loan. On October 17, 2008, we borrowed $8 million under our senior secured revolving facility. The remaining borrowing availability is $13 million. We believe that
aggregate capital expenditures for all of 2008 will approximate $16 million which we expect will be funded with operating cash. Based upon our projected cash requirements for operations, we believe we have adequate resources to fund operations,
working capital needs, capital expenditures, debt servicing requirements and other cash needs for the next twelve months based upon current cash balances and the availability under the revolving credit facility. If necessary, we may adjust the rate
of capital expenditures, acquisitions, or the timing and magnitude of other controllable expenditures to meet such requirements.

Contractual
Obligations

Our contractual obligations do not materially differ from the information disclosed in Part II, Item 7 of our Annual
Report Form 10-K for the year ended December 30, 2007.

Sources and Uses of Cash

The following table summarizes our cash and cash equivalents and working capital at the end of the first nine months of 2008 and 2007 and the sources and uses of our cash flows during the first
nine months of each of those years (in millions):



|                                           |  |                                     |       |   |                                    |   |        |                              |  |   |       |  
|------------------------------------------ |  | ----------------------------------- | ----- | - | ---------------------------------- | - | ------ | ---------------------------- |  | - | ----- | -
|                                           |  | September 28, 2008                  |       |   | December 30, 2007                  |   |        |                              | 
|Liquidity at the end of period             |  |                                     |       |   |                                    |   |        |                              |  |   |       |  
|Cash and cash equivalents                  |  | $                                   | 13.4  |   |                                    | $ | 28.9   |                              |  |   |       |  
|Working capital                            |  |                                     | (15.5 | ) |                                    |   | (4.9   | )                            |  |   |       |  
|                                           |  |                                     |      
|                                           |  | Nine Months EndedSeptember 28, 2008 |       |   | Period Jan. 31 -September 30, 2007 |   |        | Period Jan. 1 -Jan. 30, 2007 | 
|                                           |  | (Successor)                         |       |   | (Successor)                        |   |        | (Predecessor)                | 
|Net cash flows                             |  |                                     |       |   |                                    |   |        |                              |  |   |       |  
|Provided by (used in) operating activities |  | $                                   | 1.0   |   |                                    | $ | 19.4   |                              |  | $ | (5.3  | )
|Used in investing activities               |  |                                     | (14.7 | ) |                                    |   | (204.0 | )                            |  |   | (1.7  | )
|(Used in) provided by financing activities |  |                                     | (1.7  | ) |                                    |   | 198.1  |                              |  |   | (70.6 | )
|                                           |  |                                     |       |   |                                    |   |        |                              |  |   |       |  
|Net (decrease) increase in cash            |  | $                                   | (15.4 | ) |                                    | $ | 13.5   |                              |  | $ | (77.6 | )
|                                           |  |                                     |       |   |                                    |   |        |                              |  |   |       |  



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We have not historically required significant working capital to fund our existing operations and have
financed our capital expenditures and investments in joint ventures and other acquisitions through cash generated from operations. Since restaurant businesses do not have large amounts of inventory and accounts receivable, there is generally no need
to finance such items. As a result, we, like many other restaurant businesses, may operate with negative working capital. The decline in working capital resulted primarily from lower earnings from operations in the first nine months of 2008, as well
as a decline in cash resulting from interest payments, debt repayments and capital expenditures. Cash flow from current operations and our line of credit support our working capital needs.

Net cash provided by operating activities was $1.0 million during the nine months ended September 28, 2008 and primarily related to the net loss of $8.9 million offset by $10.3 million in
non-cash activities combined with a $.4 million decrease in operating assets and liabilities. Net cash provided by operating activities was $19.4 million in the Successor period January 31 through September 30, 2007 and $5.3 million net
cash was used in operating activities in the Predecessor period January 1 through January 30, 2007.

Net cash used in investing
activities of $14.7 million for the nine months ended September 28, 2008 was mostly related to capital expenditures utilized primarily for restaurant openings and renovation activity. Net cash used in investing activities was $204.0 million for
the Successor period January 31 through September 30, 2007, the majority of which was $188 million net cash paid for the Merger and $10.8 million for capital expenditures. Net cash used in investing activities was $1.7 million for the
Predecessor period January 1 through January 30, 2007.

The cash used in financing activities was $1.7 million for the nine
months ended September 28, 2008 which was primarily for principal payments on our Term Loan. The net cash provided by financing activities for the Successor period January 31 through September 30, 2007 was $198.1 million and
represents proceeds from injected capital, the proceeds from the new debt, less debt issue costs and the paydown of the old debt. Net cash used in financing activities for the Predecessor period of January 1 through January 30, 2007 of
$70.6 million represents dividends to our former shareholders, net of repayments of officer loans.

Critical Accounting Policies and Judgments

Accounting policies are an integral part of the preparation of our financial statements in accordance with accounting principles
generally accepted in the United States of America. Understanding these policies, therefore, is a key factor in understanding our reported results of operations and financial position. Accounting policies often require us to make estimates and
assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in our financial statements. Due to their nature, estimates involve judgments based upon available information. Therefore, actual results or amounts could
differ from estimates and the difference could have a material impact on our consolidated financial statements.

During the nine months
ended September 28, 2008, there were no changes in the accounting policies whose application may have a significant effect on our reported results of financial position and that require judgments, estimates and assumptions by management that
can affect their application and our results of operations and financial position from those discussed under the heading Critical Accounting Policies and Judgments in Part II Item 7 of our Annual Report on Form 10-K for the year
ended December 30, 2007.

Goodwill and Other Intangible Assets

Primarily in connection with our acquisition by MidOcean on January 31, 2007, we allocated a significant portion of the purchase price to intangible assets; goodwill of $212 million, tradename assets of $248
million and other indefinite lived intangibles of $26 million. The carrying value of these assets is subject to annual impairment reviews based on our estimates of the future cash flows as of the last day of our fiscal year. Interim impairment tests
are performed, if deemed necessary, due to significant events or changes in circumstances that could negatively impact the carrying values of these assets. We have determined that there have been no such triggering events as of September 28,
2008 that would require us to perform an interim impairment test. The estimated future cash flows used in such impairment tests could be negatively impacted due to adverse macroeconomic factors such as reduced mall traffic during the holiday
shopping season, a decline in consumer spending, or adverse changes in other cash flow assumptions which could result in potential impairment of the carrying value of such assets. For a discussion of the risks associated with an impairment charge,
see Item 1A Risk Factors in our Annual Report on Form 10-K for the year ended December 30, 2007.

There are inherent assumptions
and estimates used in developing future cash flows requiring managements judgment in applying these estimates to the discounted cash flow model we utilize to estimate fair value, including the projection of revenues, interest rates, the cost
of capital and income tax rates. Financial results achieved during our fourth quarter are critical to our profitability and operating cash flow for the year. Many of the factors used in assessing fair value are outside the control of management and
it is possible that assumptions and estimates will change in future periods. These changes can result in future impairments.



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Recent Accounting Pronouncements

During the nine months ended September 28, 2008, there were no recent accounting pronouncements that had a material effect on our consolidated financial statements. Refer to Note 2  Recent Accounting
Pronouncements to our unaudited consolidated financial statements for further discussion.

Certain Relationships and Related Transactions

As of September 28, 2008, our consolidated joint venture has a loan payable to a company related to a shareholder of the joint
venture for $.6 million.

We loaned Holdings $.3 million and recorded this amount as a reduction of equity. Holdings and the Company
entered into a professional services agreement with MidOcean US Advisor, LP, an affiliate of MidOcean (MidOcean Advisor). The professional services agreement provides that MidOcean Advisor will have the right to receive from the Company
an annual management fee of $1.0 million and reimbursement of expenses reasonably incurred by it for providing management and other similar services to the Company each year.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

The
Company is exposed to certain risks which exist as part of our ongoing business operation.

We have not purchased future, forward, option
or other instruments to hedge against fluctuations in the prices of commodities. As a result, our future commodities purchases are subject to changes in the prices of such commodities. We have entered and sometimes will enter into short-term, fixed
rate contracts for some products that we purchase.

Interest Rate Risk

We currently invest our cash on hand in FDIC insured overnight cash management savings accounts earning interest based on the 91-day Treasury bill rates. The indenture governing the Senior Notes limits the nature of
our investments to those of lower risk. Although our existing investments are not considered at risk with respect to changes in interest rates or markets for these instruments, our rate of return on short-term investments could be affected at the
time of reinvestment as a result of intervening events.

The interest rate on borrowings under our Senior Credit Facilities is floating
and, therefore, is subject to fluctuations. In general, borrowings under the Senior Credit Facilities bear interest based, at our option, at either the Eurodollar rate or an alternative base rate (ABR), in each case plus a margin. The
applicable margin will be based on our total leverage ratio (as defined in the credit agreement governing the Senior Credit Facilities) at the time of determination. Currently, our rate of interest for borrowings under the Senior Credit Facilities
is LIBOR plus 2.50% or ABR plus 1.50%. A 1% change in our current rate would have an annual effect of approximately $1.8 million. Subsequent to the Merger, we entered into an Interest Rate Cap Letter Agreement with a bank for a portion of our Senior
Credit Facility. This agreement caps our LIBOR rate at 6.00% through February 2009 and 6.50% through February 2010.

Foreign Exchange Rate Risk

All of our transactions with foreign franchisees have been denominated in, and all payments have been made in, United States dollars,
thereby reducing the risks in the changes of the values of foreign currencies. As a result, we have not purchased future contracts, options or other instruments to hedge against changes in the values of foreign currencies.



|Item 4T. | Controls and Procedures
|-------- | -----------------------

A control system, no
matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. As there are inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues within our Company have been detected. Inherent limitations include human errors or misjudgments. Controls also can be circumvented by the intentional acts of individuals or groups.

Disclosure Controls and Procedures

The
Companys management, with the participation of the Companys Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of l934, as amended (the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the Companys Chief Executive Officer and Chief Financial Officer have
concluded that the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in our periodic filings under the Exchange Act is accumulated and communicated to our management, including
those officers, to allow timely decisions regarding required disclosure.



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Changes in Internal Controls Over Financial Reporting

There have been no changes in the Companys internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three
months ended September 28, 2008 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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##### Table of Contents

PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

Legal
proceedings included in our Annual Report on Form 10-K for the year ended December 30, 2007 in Note 10 to the Notes to Consolidated Financial Statements have not materially changed.



|Item 1A. | Risk Factors
|-------- | ------------

The risk factors
included in our Annual Report on Form 10-K for the year ended December 30, 2007 have not materially changed. You should consider carefully the risks described under Item 1A Risk Factors in our Annual Report on Form 10-K for the year
ended December 30, 2007. The risks and uncertainties described in our Annual Report on Form 10-K for the period ended December 30, 2007 are not the only ones that may affect us. If any of the events described actually occur, our business
and financial results could be materially adversely affected.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

None.



|Item 3. | Default Upon Senior Securities
|------- | ------------------------------

None.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

None.



|Item 5. | Other Information
|------- | -----------------

None.



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##### Table of Contents

|Item 6. | Exhibits
|------- | --------



|              |  |                                                                                                                                                                                                                                                                         
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                             
|*3.1          |  | Restated Certificate of Incorporation of Sbarro, Inc. (Exhibit 3.1 to our Registration Statement on Form S-4, File No. 333-142081).                                                                                                                                     
|              | 
|*3.2          |  | Amended and Restated Bylaws of Sbarro, Inc. (Exhibit 3.2 to our Registration Statement on Form S-4, File No. 333-142081).                                                                                                                                               
|              | 
|*4.1          |  | Indenture dated as of January 31, 2007 among MidOcean SBR Acquisition Corp., Sbarro, Inc., the subsidiary guarantors party thereto from time to time and the Bank of New York,
as trustee. (Exhibit 4.1 to our Registration Statement on Form S-4, File No. 333-142081).
|              | 
|*4.2          |  | Registration Rights Agreement dated January 31, 2007 among Sbarro, Inc., Credit Suisse Securities (USA) LLC and Banc of America Securities LLC, as Initial Purchasers.
(Exhibit 4.2 to our Registration Statement on Form S-4, File No. 333-142081).                    
|              | 
|31.01         |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                 
|              | 
|31.02         |  | Certification of Vice President, Chief Financial Officer and Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                    
|              | 
|**32.01       |  | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                 
|              | 
|**32.02       |  | Certification of Vice President, Chief Financial Officer and Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                    



|* | Incorporated by reference to the document indicated.
|- | ----------------------------------------------------

|** | These certifications are being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are not being filed as part this Quarterly Report on Form 10-Q or
as a separate disclosure document.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

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.

SBARRO, INC.

Registrant



|                        |  |     |  |                                       |  | 
|----------------------- |  | --- |  | ------------------------------------- |  | 
|Date: November 10, 2008 |  | By: |  | /s/ Peter Beaudrault                  |  | 
|                        |  |     |  | Peter Beaudrault,                     |  | 
|                        |  |     |  | Chairman of the Board of Directors,   |  | 
|                        |  |     |  | President and Chief Executive Officer |  | 
|                        |  |     | 
|Date: November 10, 2008 |  | By: |  | /s/ Anthony J. Puglisi                |  | 
|                        |  |     |  | Anthony J. Puglisi                    |  | 
|                        |  |     |  | Vice President,                       |  | 
|                        |  |     |  | Chief Financial Officer and           |  | 
|                        |  |     |  | Principal Accounting Officer          |  | 



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##### Table of Contents

EXHIBIT INDEX



|Item 6. | Exhibits
|------- | --------



|              |  |                                                                                                                                                                                                                                                                         
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                             
|*3.1          |  | Restated Certificate of Incorporation of Sbarro, Inc. (Exhibit 3.1 to our Registration Statement on Form S-4, File No. 333-142081).                                                                                                                                     
|              | 
|*3.2          |  | Amended and Restated Bylaws of Sbarro, Inc. (Exhibit 3.2 to our Registration Statement on Form S-4, File No. 333-142081).                                                                                                                                               
|              | 
|*4.1          |  | Indenture dated as of January 31, 2007 among MidOcean SBR Acquisition Corp., Sbarro, Inc., the subsidiary guarantors party thereto from time to time and the Bank of New York,
as trustee. (Exhibit 4.1 to our Registration Statement on Form S-4, File No. 333-142081).
|              | 
|*4.2          |  | Registration Rights Agreement dated January 31, 2007 among Sbarro, Inc., Credit Suisse Securities (USA) LLC and Banc of America Securities LLC, as Initial Purchasers.
(Exhibit 4.2 to our Registration Statement on Form S-4, File No. 333-142081).                    
|              | 
|31.01         |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                 
|              | 
|31.02         |  | Certification of Vice President, Chief Financial Officer and Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                    
|              | 
|**32.01       |  | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                 
|              | 
|**32.02       |  | Certification of Vice President, Chief Financial Officer and Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                    



|* | Incorporated by reference to the document indicated.
|- | ----------------------------------------------------

|** | These certifications are being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are not being filed as part this Quarterly Report on Form 10-Q or
as a separate disclosure document.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



40