================================================================================


                            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 July 18, 1999


                          Commission File Number 1-8881


                                   SBARRO, INC.
             (Exact Name of Registrant as Specified in its Charter)

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

 401 Broadhollow Road, Melville, New York                    11747
    (Address of principal executive offices)              (Zip Code)

Registrant's telephone number, including area code:     (516) 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,  and (2) has been  subject to such filing
requirements for the past 90 days.

Yes      X                 No

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock as of the latest practicable date.

Class                                            Outstanding at August 30, 1999

Common Stock, $.01 par value                               20,548,690


--------------------------------------------------------------------------------



<PAGE>




                                   SBARRO, INC.

                                 FORM 10-Q INDEX



PART I.     FINANCIAL INFORMATION                                 PAGES


Consolidated Financial Statements:

Balance Sheets - July 18, 1999 (unaudited) and January 3, 1999 . . . . .  .. 3

Statements of Income  (unaudited) -  Twenty-Eight  Weeks ended July 18,
 1999 and July 12, 1998 and Twelve Weeks ended July 18, 1999 and
 July 12, 1998  .  . . . . . . . . . . . . . . . . . . . . . . . . . . . ..4-5

Statements of Cash Flows (unaudited) - Twenty-Eight Weeks ended
 July 18, 1999 and July 12, 1998. . . . . . . . . . . . . . . . . . . . . .6-7

Notes to Unaudited Consolidated Financial Statements - July 18, 1999 . . ..8-9

Management's Discussion and Analysis of Financial Condition and
 Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . ..10-18

Qualitative and quantitative disclosures of market risk.....................18

PART II.    OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . .  19-21
            -----------------















<PAGE>


                          SBARRO, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                       ASSETS



                                              (In thousands)

                                     July 18, 1999              January 3, 1999
                                       (unaudited)


Current assets:
<S>                                          <C>                    <C>

   Cash and cash equivalents.........     $152,907                 $150,472


       Franchisees........................   1,505                    1,342

       Other.................................2,037                    2,185
                                             -----                    -----
                                             3,542                    3,527

   Inventories                               2,882                    3,122

   Prepaid expenses......................... 5,114                    1,291
                                             -----                    -----
       Total current assets..............  164,445                  158,412

Property and equipment, net................138,397                  138,126
Other assets..............................   8,902                    6,630
                                             -----                    -----
                                          $311,744                 $303,168
                                          ========                 ========

                                        LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable..................     $7,512                   $7,122
     Accrued expenses.......................24,786                   25,764
     Income taxes.............................  75                    4,146
                                            ------                   ------
        Total current liabilities...........32,373                   37,032

Deferred income taxes........................8,882                    9,219

Shareholders' equity:
     Preferred stock, $1 par value; authorized
        1,000,000 shares; none issued.........   --                      --
     Common stock, $.01 par value;
        authorized 40,000,000 shares; issued
        and outstanding 20,548,690 shares at
        July 18, 1999 and 20,531,643 shares
        atJanuary 3, 1999.............         205                      205
     Additional paid-in capital.............35,013                   34,587
     Retained earnings.....................235,271                  222,125
                                           -------                  -------
                                           270,489                  256,917
                                           -------                -------
                                          $311,744                 $303,168
                                          ========                 ========

                  See notes to unaudited consolidated financial statements


</TABLE>

<PAGE>



                          SBARRO, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                        (In thousands, except per share data)
                                          For the twenty-eight weeks ended:
                                       July 18, 1999              July 12, 1998
                                      -------------              -------------

Revenues:
<S>                                          <C>                      <C>

         Restaurant sales..........         $179,051                   $174,028
         Franchise related income............. 4,332                      4,154
         Interest income...................... 2,624                      2,545
                                               -----                      -----
                  Total revenues.............186,007                    180,727
                                             -------                    -------
Costs and expenses:
         Cost of food and paper products..... 36,981                     36,423
         Restaurant operating expenses:
         Payroll and other employee benefits. 49,575                     46,899
         Occupancy and other.. ...............56,205                     52,985
         Depreciation and amortization........12,278                     11,725
         General and administrative...........12,339                     10,367
         Provision for unit closings..........    --                      1,525
         Terminated transaction costs.........    --                        986
         Other income.........................(2,574)                    (1,259)
                                              -------                   -------
                  Total costs and expenses...164,804                    159,651
                                             -------                    -------
Income before income taxes and cumulative
  effect of change in method of accounting
  for start-up costs..........................21,203                     21,076
Income taxes...................................8,057                      8,009
                                               -----                      -----
Income before cumulative effect ..            13,146                     13,067
   of accounting change                       ------                     ------
Cumulative effect of change in method of accounting
         for start-up costs, less income tax benefit
         of $504..............................    --                       (822)
                                              ------                     ------

Net income...................................$13,146                    $12,245
                                             =======                    =======
Per share information:

         Net income per share:
            Basic:
            Income before accounting change.....$.64                       $.64
            Accounting change.................... --                       (.04)
                                               -----                      -----
            Net income......................... $.64                       $.60
                                                ====                       ====
          Diluted:
            Income before accounting change.....$.64                       $.63
            Accounting change...................  --                       (.04)
                                                ----                       ----

            Net income..........................$.64                       $.59
                                                ====                       ====
Shares used in computing net income per share:

         Basic........................... 20,533,176                 20,507,204
                                          ==========                 ==========
         Diluted..........................20,640,299                 20,606,707
                                          ==========                 ==========
</TABLE>
                See notes to unaudited consolidated financial statements
<PAGE>


                         SBARRO, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME

                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                      (In thousands, except per share data)
                                             For the twelve weeks ended:
                                       July 18, 1999              July 12, 1998
                                       -------------              -------------
Revenues:
<S>                                         <C>                          <C>
         Restaurant sales................    $78,697                    $75,897
         Franchise related income........      1,826                      1,848
         Interest Income.................      1,033                      1,099
                                               -----                      -----
                  Total revenues..............81,556                     78,844
                                              ------                     ------
Costs and expenses:
         Cost of food and paper products......16,017                     15,755
         Restaurant operating expenses:
         Payroll and other employee benefits. 21,472                     20,348
         Occupancy and other................  24,264                     23,093
         Depreciation and amortization........ 5,311                      5,055
         General and administrative........... 5,548                      4,403
         Provision for unit closings..........    --                      1,525
         Terminated transaction costs.........    --                        986
         Other income.........................(1,110)                      (559)
                                              -------                     -----

                  Total costs and expenses... 71,502                     70,606
                                             -------                     ------
Income before income taxes .................. 10,054                      8,238
Income taxes.................................. 3,820                      3,131
                                              ------                      -----
Net income....................................$6,234                     $5,107
                                              ======                     ======
Per share information:
         Net income per share:
         Basic:
           Net income......................... .$.30                       $.25

         Diluted:
           Net income...........................$.30                       $.25
                                                ====                       ====
Shares used in computing net income per share:
         Basic............................20,534,480                 20,526,633
                                          ==========                 ==========
         Diluted..........................20,599,281                 20,605,477
                                          ==========                 ==========

</TABLE>
                See notes to unaudited consolidated financial statements
<PAGE>



                          SBARRO, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)

<TABLE>
<CAPTION>


                                                   (In thousands)
                                            For the twenty-eight weeks ended:
                                      July 18, 1999               July 12, 1998
                                      -------------               -------------
Operating activities:
<S>                                          <C>                      <C>

Net income............................... $13,146                      $12,245
Adjustments  to  reconcile   net  income
     to  net  cash  provided  by  operating
     activities:
      Cumulative effect in change in method
        of accounting for start-up costs...    --                          822

      Depreciation and amortization....... 12,278                       11,725
      Deferred income taxes...............   (337)                        (335)
      Provision for unit closings.........     --                        1,525
      Changes in operating assets and
          liabilities:
        Increase in receivables...........    (15)                        (810)
        Decrease in inventories...........    240                          301
        Increase in prepaid expenses.......(3,823)                      (3,040)

        Increase in other assets...........(2,357)                         (70)
        Decrease in accounts payable
          and accrued expenses... .........  (306)                      (2,852)
        Decrease in income taxes payable...(4,071)                      (4,586)
                                           ------                       ------
Net cash provided by operating activities..14,755                       14,925
                                           ------                       ------
Investing activities:

Purchases of property and equipment.......(12,746)                     (15,760)
                                          --------                     --------
Net cash used in investing activities.....(12,746)                     (15,760)
                                          --------                     --------


</TABLE>


                                                     (continued)



<PAGE>


                          SBARRO, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                                   (UNAUDITED)

<TABLE>
<CAPTION>


                                                    (In thousands)
                                          For the twenty-eight weeks ended:
                                     July 18, 1999                July 12, 1998
                                     -------------                -------------
<S>                                     <C>                            <C>

Financing activities:

Proceeds from exercise of stock options..$   426                      $ 2,073
Cash dividends paid......................     --                       (5,521)
                                          ------                       -------
Net cash provided by (used in)financing
     activities......                        426                       (3,448)
                                          -------                      -------
Increase (decrease) in cash and cash
     equivalents.........                  2,435                       (4,283)

Cash and cash equivalents at beginning
     of period.........                  150,472                      119,810
                                         -------                       -------
Cash and cash equivalents at end
     of period...............           $152,907                     $115,527
                                        ========                     ========

Supplemental disclosure of cash flow information:

Cash paid during the period for
     income taxes.............           $13,861                      $13,841
                                         =======                      =======


</TABLE>







                       See notes to unaudited consolidated financial statements


<PAGE>



                          SBARRO, INC. AND SUBSIDIARIES
               Notes to Unaudited Consolidated Financial Statements


1.       Basis of presentation:

         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
         management, all adjustments (consisting of normal recurring adjustments
         and  accruals)  considered  necessary  for a fair  presentation  of the
         consolidated  financial position of the Company and its subsidiaries at
         July  18,  1999,  their  consolidated  results  of  operations  for the
         twenty-eight  and twelve week periods  ended July 18, 1999 and July 12,
         1998 and their consolidated cash flows for the twenty-eight weeks ended
         July 18,  1999 and July 12,  1998 have been  included.  The  results of
         operations for the interim  periods are not  necessarily  indicative of
         the results that may be expected for the entire year.  Reference should
         be  made  to  the  annual  financial  statements,  including  footnotes
         thereto,  included in the Company's  Annual Report on Form 10-K for the
         fiscal year ended January 3, 1999.

2.       Proposed merger:

         On January 19, 1999,  the Company  entered into a merger  agreement for
         the merger of a company  formed by members  of the Sbarro  family,  the
         Company's  principal  shareholders,  with and into the Company in which
         all  outstanding  common  stock  of the  Company  not  owned  by  those
         shareholders  are to be converted  into the right to receive  $28.85 in
         cash. The shares to be purchased  comprise  approximately  65.6% of the
         Company's  outstanding  shares  of  common  stock.  In  addition,   all
         outstanding  stock  options,  including  those  held by  members of the
         Sbarro  family,  will be terminated.  For each such option,  the holder
         thereof  will be paid the  difference  between  $28.85 and the exercise
         price per  share,  multiplied  by the total  number of shares of common
         stock subject to such option.

         Following the Company's  announcement of the proposal by members of the
         Sbarro  family  for  the  merger,  seven  class  action  lawsuits  were
         instituted by  shareholders  against the Company,  those members of the
         Sbarro  family who are  directors of the Company and all or some of the
         other  directors  of the  Company.  In a  memorandum  of  understanding
         entered into on January 19, 1999,  which was  confirmed by a subsequent
         formal  stipulation  of  settlement,  counsel  for the  plaintiffs  and
         counsel for the  defendants  agreed to settle all of the lawsuits,  and
         the Sbarro  Family  agreed to increase  the merger  consideration  from
         $27.50 per share to $28.85 per share.



<PAGE>


                          SBARRO, INC. AND SUBSIDIARIES
        Notes to Unaudited Consolidated Financial Statements (continued)

     On July 16, 1999,  following a hearing held on June 29, 1999,  an order and
     final  judgment  was  entered  which,   among  other  things,   approved  a
     stipulation of settlement  and related  settlement of the class actions and
     awarded   plaintiffs'   counsel   attorneys'  fees  and   disbursements  of
     approximately  $1.6 million in connection with the settlement,  subject to,
     and payable upon,  completion of the merger.  Those fees and  disbursements
     will be capitalized,  and not expensed for financial reporting purposes. On
     August 16, 1999,  the appeal period related to the order and final judgment
     expired.   No  appeals  were  filed.  The  settlement  remains  subject  to
     consummation of the merger.  Reference is made to Item 1 of Part II of this
     Report for additional information.

     The merger was approved at a Special Meeting of Shareholders held on August
     13, 1999.  The merger  agreement  remains  subject to, among other  things,
     receipt  of  financing  for the  transactions  contemplated  by the  merger
     agreement and the continued suspension of dividends by the Company.

3. Cumulative effect of accounting change:

     In  accordance  with  its  early   application   provisions,   the  Company
     implemented  Statement of Position ("SOP") 98-5 of the Accounting Standards
     Executive   Committee  of  the  American   Institute  of  Certified  Public
     Accountants as of the beginning of its 1998 fiscal year.  This SOP required
     companies that  capitalize  pre-opening  and similar costs to write off all
     existing  such  costs,  net of tax  benefit,  as a  "cumulative  effect  of
     accounting change" and to expense all such costs as incurred in the future.

4.   Earnings per share:

     The number of shares of common stock subject to stock  options  included in
     diluted  earnings  per share were  107,123 and 99,503 for the  twenty-eight
     weeks ended July 18, 1999 and July 12, 1998,  respectively,  and 64,801 and
     78,844  for the  twelve  weeks  ended  July 18,  1999  and  July 12,  1998,
     respectively.

5.   Comprehensive income:

     The  Company's  operations  did not give  rise to any items  includible  in
     comprehensive  income  which were not  already  included  in net income for
     either of the  twenty-eight  week periods  ended July 18, 1999 and July 12,
     1998.



<PAGE>



Item 2.       Management's Discussion and Analysis of Financial Condition and
               Results of Operations

         The following  discussion  and analysis of our financial  condition and
results  of  operations  should  be read in  conjunction  with the  Consolidated
Financial Statements, the Notes thereto and other data and information appearing
elsewhere in this Report.

General

         On January 19, 1999,  the Company  entered into a merger  agreement for
the merger of a company  owned by members of the Sbarro  family,  the  Company's
principal  shareholders,  with and into the Company in which all the outstanding
Common Stock of the Company not owned by those  shareholders are to be converted
into the right to receive  $28.85 in cash.  The shares to be purchased  comprise
approximately  65.6% of the Company's  outstanding  shares of Common  Stock.  In
addition,  all outstanding stock options,  including those held by those members
of the Sbarro  family,  will be  terminated.  For each such  option,  the holder
thereof will be paid the  difference  between  $28.85 and the exercise price per
share,  multiplied by the total number of shares of Common Stock subject to such
option.  The merger  agreement was adopted at a Special  Meeting of Shareholders
held on August 13, 1999.

         The merger agreement remains subject to certain  conditions to closing,
including,  among  other  things,  receipt  of  financing  for the  transactions
contemplated by the merger  agreement and the continued  suspension of dividends
by the Company.

         This Report  does not give  effect to changes in the  Company  that may
occur if the merger is consummated.

Results of Operations

         The  Company's  fiscal year ends on the Sunday  nearest to December 31.
The fiscal year which  ended on January 3, 1999  contained  53 weeks.  All other
reported fiscal years  contained 52 weeks.  The Company's 1999 fiscal year began
on January 4, 1999,  six days later than its 1998  fiscal  year,  which began on
December 29, 1997.


<PAGE>


The  following  table  indicates  the  number of  Company-owned  and  franchised
restaurants  (excluding non-mall joint venture  restaurants) in operation during
each indicated period:
<TABLE>
<CAPTION>

                                     28 Weeks 28 Weeks
                                      Ended    Ended     Fiscal Year Fiscal Year
                                     07/18/99 07/12/98        1998      1997
<S>                                     <C>     <C>           <C>       <C>

Company-owned Sbarro restaurants:
   Opened during period   (1)           9        15            26        30
   Acquired from franchisees
     during period-net                 --         1             1         4
   Closed during period                (5)      (13)          (20)       (8)
                                       ---      ----          ----       ---
   Open at end of period   (2)         634       626           630       623

Franchised Sbarro restaurants:
   Opened during period                 19        15            43        47
   Sold to Company during
     period-net                         --        (1)           (1)       (4)
   Closed or terminated during period  (13)       (6)          (13)      (23)
                                       ----       ---          ----      ----
   Open at end of period                274      247           268       239

All Sbarro restaurants:
   Opened during period   (1)            28       30            69        77
   Closed or terminated during period   (18)     (19)          (33)      (31)
                                        ----     ----          ----     ----
   Open at end of period   (2)          908      873           898       862

Kiosks (all franchised) open at
   end of period                          7        9             8         7
</TABLE>
----------------
(1)    Includes,   in  fiscal  1998  and  1997,  one  and  two  mall  locations,
       respectively,  of a joint venture  which  operates as Umberto of New Hyde
       Park.  For  purposes  of this  Report,  the Company  has  included  those
       restaurants  with Sbarro  restaurants.  No mall  locations were opened by
       this joint  venture in either of the  twenty-eight  weeks  ended July 18,
       1999 or July 12, 1998.
(2)    Includes,  as of July 18,  1999 and July 12,  1998 and the end of  fiscal
       1998 and  fiscal  1997,  six,  five,  six and  five  joint  venture  mall
       locations, respectively, which operate as Umberto of New Hyde Park.

Restaurant  sales  from  Company-owned  and  consolidated  joint  venture  units
increased 2.9% to $179.1 million for the twenty-eight  weeks ended July 18, 1999
from $174.0 million for the twenty-eight weeks ended July 12, 1998 and increased
3.7% to $78.7  million  for the  twelve  weeks  ended  July 18,  1999 from $75.9
million for the twelve weeks ended July 12, 1998.  The increase  resulted from a
higher  number of units in  operation  in the  current  fiscal  period  than the
comparable  period in 1998 and selective menu price  increases of  approximately
1.4% and 0.7% at  Company-owned  units which became  effective in September 1998
and February 1998,  respectively.  Comparable unit sales increased 0.9% and 1.8%
for the  twenty-eight and twelve weeks ended July 18, 1999 primarily as a result
of the menu price increases. Comparable restaurant sales are made up of sales at
locations  that were open  during the  entire  current  period and entire  prior
fiscal year.


<PAGE>



Franchise  related income  increased  4.3% to $4.3 million for the  twenty-eight
weeks ended July 18, 1999 from $4.2  million  for the  twenty-eight  weeks ended
July  12,  1998.  This  increase  resulted  primarily  from  greater  continuing
royalties due to a higher number of franchise  units in operation in the current
year period than in the  comparable  period in 1998.  Franchise  related  income
remained  relatively  unchanged  for the twelve  weeks  ended  July 18,  1999 as
compared to the twelve week period ended July 12, 1998  primarily  due to timing
differences in opening new units and recognizing related development fee income.

Interest income increased to $2.6 million for the twenty-eight  weeks ended July
18, 1999 from $2.5  million for the  twenty-eight  weeks ended July 12, 1998 and
decreased  to $1.0 million from $1.1 million for the twelve weeks ended July 18,
1999 as compared to the twelve weeks ended July 12, 1998. These changes were due
to higher cash  balances  being  invested in the current year period than in the
prior year period,  offset by lower interest rates in the first part of the year
and shorter  investment  maturities  in the 1999 periods as compared to the 1998
periods.

Cost of food and paper products as a percentage of restaurant  sales declined to
20.7% for the  twenty-eight  weeks  ended July 18, 1999 as compared to 20.9% for
the  twenty-eight  weeks  ended  July 12,  1998 and to 20.4%  from 20.8% for the
twelve week periods then ended.  Cheese prices,  which fluctuate  throughout the
year,  were slightly  lower during the first 28 weeks of 1999 as compared to the
related  1998  period.  After  the  end of the  second  quarter,  cheese  prices
increased to levels that are higher than cheese prices for the comparable period
in fiscal 1998.

Restaurant  operating  expenses -- payroll and other benefits increased to 27.7%
of restaurant sales for the twenty-eight weeks of fiscal 1999 from 26.9% for the
first  twenty-eight  weeks of fiscal 1998 and to 27.3% from 26.8% for the twelve
week periods ended July 18, 1999 and July 12, 1998,  respectively.  The increase
was primarily due to the tight labor market, resulting in pressures on wages and
salaries and associated increases in amounts paid for payroll taxes.

Restaurant operating expenses -- occupancy and other expenses increased to 31.4%
of restaurant sales for the twenty-eight weeks ended July 18, 1999 from 30.5% of
restaurant  sales for the  twenty-eight  weeks  ended July 12, 1998 and to 30.8%
from 30.5% for the twelve week periods then ended. This increase is attributable
principally  to rent and other  occupancy  related costs  increasing at a higher
rate than restaurant sales.

Depreciation and amortization expense increased by $0.6 million and $0.3 million
for the  twenty-eight and twelve weeks ended July 18, 1999,  respectively,  over
the  corresponding  periods in 1998  primarily as a result of the  Company's new
headquarters building being completed in the fourth quarter of fiscal 1998.

General  and  administrative  expenses  were  $12.3  million,  or 6.6% of  total
revenues,  for the first  twenty-eight  weeks of fiscal 1999,  compared to $10.4
million, or 5.7% of total revenues, for the comparable period in fiscal 1998 and
$5.5  million,  or 6.8% of total  revenues,  for the twelve weeks ended July 18,
1999,  compared to $4.4 million,  or 5.6% or total revenues,  for the comparable
period in fiscal 1998.  These  increases  were  primarily due to higher  payroll
costs and costs associated with the  administration of additional  Company-owned
restaurants and joint venture  start-up  operations,  increases in various field
training and human  resources  functions and  increased  costs  associated  with
expansion into the Company's recently completed corporate headquarters.

The provision  for unit closings of $1.5 million  before tax ($0.9 million after
tax or $.05 after tax basic and diluted  earnings per share) in the twelve weeks
ended July 12, 1998 related to a reserve  established for the closing of certain
Company-owned units.

Terminated  transaction costs of $1.0 million before tax ($0.6 million after tax
or $.03 after tax basic and  diluted  earnings  per  share) in the twelve  weeks
ended July 12, 1998  related to costs  associated  with the  termination  of the
original  proposal by members of the Sbarro  Family to acquire all shares of the
Company not owned by them.

Other income increased by $1.3 million to $2.6 million in the twenty-eight weeks
ended July 18, 1999,  compared to the twenty-eight weeks ended July 12, 1998 and
by $0.6  million to $1.1  million  for the twelve  weeks  ended July  18,1999 as
compared  to the twelve  weeks  ended July 12,  1998,  primarily  as a result of
increased incentives from suppliers and income, net of expenses,  generated from
the leasing of a  significant  portion of the Company's  corporate  headquarters
building to third parties.

The  effective  income tax rate was 38.0% for both the  twenty-eight  and twelve
weeks ended July 18, 1999 and July 12, 1998.



<PAGE>


The  cumulative  effect of the  change in method of  accounting  in fiscal  1998
resulted from the Company's  implementation of the Statement of Position ("SOP")
98-5 of the Accounting  Standards  Executive Committee of the American Institute
of Certified Public  Accountants  which required  companies that had capitalized
pre-opening and similar costs to write off all such existing  costs,  net of tax
benefit,  as a "cumulative  effect of accounting change" and to expense all such
costs as  incurred  in the  future.  In  accordance  with its early  application
provisions,  the  Company  implemented  SOP  98-5  as of  the  beginning  of the
Company's 1998 fiscal year and incurred a one-time charge of $0.8 million ($0.04
basic and  diluted  earnings  per  share),  net of an income tax benefit of $0.5
million,  to write off all start-up  costs  existing as of the beginning of that
year. The Company had no such charges in the 1999 periods.

Impact of Inflation and Other Factors

Food, labor, rent,  construction and equipment costs are the items most affected
by inflation in the  restaurant  business.  Although for the past several  years
inflation has not been a significant factor, there can be no assurance that this
trend  will  continue.  In  addition,  food  and  paper  product  costs  may  be
temporarily  or  permanently  affected by weather,  economic  and other  factors
beyond the Company's  control that may reduce the  availability and increase the
cost of such items.  Historically,  the price of cheese has fluctuated more than
our other food ingredients and related restaurant supplies.

Seasonality

The  Company's  business  is subject to  seasonal  fluctuations,  the effects of
weather and economic  conditions.  Earnings  have been highest in the  Company's
fourth fiscal quarter due primarily to increased volume in shopping malls during
the holiday shopping  season.  The length of the holiday shopping period between
Thanksgiving  and Christmas and the number of weeks in the fourth quarter result
in fluctuations in fourth quarter  financial results from year to year. See also
"--Accounting   Period."  The  fourth  fiscal  quarter  normally   accounts  for
approximately 40% of net income for the year.

Accounting Period

Our fiscal year ends on the Sunday  nearest to December 31. The fiscal year
which ended on  January 3,  1999  contained  53 weeks.  All other reported
fiscal years contained 52 weeks.



<PAGE>


Liquidity and Capital Resources

The Company has  historically not required  significant  working capital to fund
its  existing   operations  and  has  financed  its  capital   expenditures  and
investments in its joint ventures  through cash  generated from  operations.  At
July 18, 1999,  the Company had cash and cash  equivalents of $152.9 million and
working capital of $132.1 million.

Net cash  provided by operating  activities  was $14.8 million and $14.9 million
for the  twenty-eight  week  periods  ended  July 18,  1999  and July 12,  1998,
respectively.  Net cash  used in  investing  activities  consists  primarily  of
capital  expenditures  (including  investments made by joint ventures).  Capital
expenditures  were $12.7  million and $15.8  million for the  twenty-eight  week
periods  ended July 18, 1999 and July 12, 1998,  respectively.  The $3.1 million
decrease in the current  twenty  eight week  period was  primarily  due to lower
spending for the Company's recently completed corporate  headquarters.  Net cash
provided by  financing  activities  was $0.4 million for the  twenty-eight  week
period  ended July 18, 1999 and  consisted  entirely of cash  proceeds  from the
exercise  of stock  options.  Net cash  used in  financing  activities  was $3.4
million for the  twenty-eight  week period ended July 12, 1998 and included $5.5
million of cash  dividends paid in fiscal 1998 that were declared in fiscal 1997
offset by $2.1 million of proceeds from the exercise of stock options.

Dividends

The Company's  Board of Directors has suspended  quarterly cash dividends  since
the last quarter of 1997  pending  consideration  of  proposals  made by certain
members of the Sbarro  Family to merge the Company with a company  owned by them
in which all of the shares of the Company  not owned by them would be  exchanged
for cash and the  consideration of other strategic  alternatives.  The proposals
were, and the merger agreement  entered into with respect to the proposed merger
agreement is, conditioned upon, among other things, the continued  suspension of
dividends by the Company.



<PAGE>


Recent Accounting Pronouncements

Pursuant to SFAS No. 137,  "Accounting  for  Derivative  Instruments  and
Hedging  Activities -- Deferral of the Effective Date of FASB Statement
No. 133 -- An  Amendment  of FASB  Statement  No.  133,"  issued in June 1999,
SFAS No. 133 is  effective  for fiscal years beginning  after  June 15,  2000.
Presently,  the  Company  does not use  derivative  instruments  and  therefore
SFAS No. 133 is not currently applicable.

Year 2000

"Year  2000"  issues  could  arise in  situations  where  computer  software  or
databases  recognize  the two digit year "00" as the year 1900  rather  than the
year 2000.  This could result in system failures or  miscalculations  that could
cause  disruptions in business  operations and increased costs in processing and
analyzing data. Since our IT systems (used primarily for financial,  accounting,
human resources,  payroll,  operations support and point-of-sales processing and
reporting) and non-information  technology  ("non-IT") systems (used principally
in  communications   systems)  use  computer  hardware,   software  and  related
technology, we have conducted a comprehensive review of our computer systems.

State of Readiness.  We have determined that,  while certain  computer  programs
require change to assure that they are Year 2000 compliant, all of our databases
are Year 2000  compliant in that they  contain  four digit year fields,  thereby
allowing positive identification of the century and year.

Our internal IT systems use a combination of in-house software  developed by our
IT department and packaged  software  purchased  from third parties.  During the
past  five  years,  as part  of our  ongoing  IT  enhancements,  we have  either
significantly  updated software or designed new software for our  point-of-sales
system (which  performs cash register and restaurant  management  functions) and
for our restaurant  accounting  system (which handles  centralized  bookkeeping,
sales  analysis  and  cash  control  functions  relating  to  our  Company-owned
restaurants).  Our point-of-sales system is currently installed in approximately
325 restaurant  units.  The balance of our existing  restaurants  use electronic
cash  registers.  We  have  been  orally  advised  by the  manufacturers  of our
electronic  cash  registers that they expect no Year 2000 issues with respect to
these  registers.  We have completed the process of replacing  and/or  upgrading
personal  computers that were part of approximately 115  point-of-sales  systems
installed in fiscal 1995 and early fiscal 1996. These personal computers are now
certified Year 2000  compliant.  We have completed  modifying and testing of our
point-of-sales  software  programs for all 325 restaurants  and, as of August 3,
1999, all of these  locations are operating  under Year 2000 compliant  software
versions.  We are continuing to install a point-of-sale  system in each new unit
and in each existing  restaurant as remodeled and to replace existing  registers
as needed.

We use  software  developed by a recognized  third party  software  provider for
various corporate office functions, including financial and accounting reporting
and analysis,  human resource and payroll processing,  inventory  purchasing and
accounts  payable  functions.  We have reviewed and determined  the  remediation
needed to the third party software,  have made the changes needed and recompiled
all programs within the packaged  software.  We have recently  commenced testing
the remediated  system. All internal testing of these systems has been completed
by IT. The remainder of the testing by the various user  departments is expected
to be completed by October 31, 1999.



<PAGE>


Thereafter,  any  corrections or changes (which are currently not anticipated to
be  significant)  to  programs or systems  that are  required as a result of the
testing of our internal  software and third party  software  will be  addressed.
Final testing is currently anticipated to be completed, and the updated software
installed, by the end of November 1999.

Non-IT  systems  are used by us  primarily  for  voice  communications.  We have
received written  assurances from our  communications  systems provider that our
communications systems and equipment are Year 2000 compliant. We have not as yet
received  confirmation  that  our  voice  messaging  system,  which  utilizes  a
recognized provider, is Year 2000 compliant. We do not believe that interruption
of this service would have a material adverse affect on our operations.

We have received written  confirmation from our principal food distributor that,
while such distributor could operate under its former manual systems, it expects
that its computer  systems will be Year 2000  compliant on a timely  basis.  Our
principal  soft drink mix supplier has publicly  reported that  remediation  and
testing of its key IT systems  has been  completed  for 98% of such  systems and
that completion for  substantially all of the remaining systems is scheduled for
the third quarter of 1999.

Costs. To date, all software  modification and testing has been performed by our
internal IT department  without the need to employ  additional staff and without
significant interruption of the other functions performed by the department.  We
believe we will  complete  this  project  without  additional  staff and without
adversely affecting  day-to-day  operations and support,  although some overtime
for personnel outside the IT department staff may be required during the testing
phase of the remediated systems.

To date, we have  expended less than $50,000 (in addition to hardware  purchased
in the ordinary course,  which purchases were not accelerated as a result of the
Year 2000  issue)  and  anticipate  spending  less than  $150,000  for  testing,
purchasing  hardware and for other modification costs to finish the project.  We
do not  separately  track  internal  costs  (which are  principally  payroll and
related  costs of our IT systems  department)  incurred as part of our Year 2000
project.

Risks.  Although we believe our systems will be timely  compliant with Year 2000
issues,  the most reasonably  likely worst case scenarios facing us in the event
Year 2000 problems arise involve:  (1) the timeliness of internal  reporting and
analyzing corporate  information and the potential of temporarily  supplementing
our  staff  if we are  required  to  rely,  for a  period  of  time,  on  manual
information  reporting and  processing  while  remediation to one or more of our
internal IT systems is effectuated;  (2) the processing of our payroll;  and (3)
our ability to maintain our traditional  levels of revenues should we experience
temporary  supply  shortages of food, soft drink mixes and paper products if our
distributors  experience IT or non-IT Year 2000 problems or should the landlords
of our restaurants  experience non-IT issues (such as with  microprocessors that
control door operators,  elevator service and heating and cooling equipment that
the  landlords  are required to maintain  under their leases with us). Like most
other  companies,  we are also subject to certain  risks that are not within our
control,  such as a failure  of IT  systems  of banks,  financial  institutions,
telephone companies and public utilities.


<PAGE>



Contingency Plans. In the event our IT systems should malfunction, we believe we
will nevertheless be able to generate  revenues at our existing  restaurants and
process  data,   although   delays  may  result  in  reporting  and   processing
information.   Our   electronic   cash  registers   operate   manually  and  our
point-of-sales  cash registers can also operate independent of our IT system. We
still  use  manual  systems  both  for  reporting  to our  corporate  office  by
restaurants  that are not yet on our  point-of-sales  system and as a backup for
units  that are on our  point-of-sales  system.  Depending  upon the  results of
testing  of our  efforts  to  remediate  our  software,  we  intend  to  develop
contingency   plans  with  respect  to  the  internal   reporting  of  corporate
information in the event of a failure of our IT systems.

With respect to our payroll functions, we have recently comprehensively analyzed
and worked with an outside  payroll  processing  service  before  determining to
continue  to  perform  all  payroll  functions  through  our  internal  systems.
Therefore,  we believe that we could either  outsource  this function or have an
outsourcer  of  payroll  services  install  its  system at our  offices  with us
operating the system internally without material delay.





We intend to maintain a higher  inventory  level of food products and soft drink
mixes  and  paper  products  toward  the end of 1999  as a  contingency  against
shortages  in  the  event  our  suppliers  experience  unanticipated  Year  2000
problems.  The levels to be  maintained  will be based upon future  consultation
with our suppliers to obtain updates on the status of their Year 2000 compliance
programs.  We  believe  that  there are  other  distributors  of food  products,
beverages  and paper  products  that would be able to  service  our needs in the
event our primary suppliers  experience Year 2000 problems that adversely affect
their ability to provide us with the quantity of supplies  needed.  We intend to
develop additional contingency plans if and to the extent additional significant
risks become  evident  based on the testing of our  internal  systems and future
discussions  with our  suppliers,  landlords and other third party  providers of
goods and services.


<PAGE>



Forward Looking Statements

Certain statements contained in this Report are forward-looking statements which
are subject to a number of known and unknown risks and uncertainties  that could
cause the Company's  actual results and  performance to differ  materially  from
those described or implied in the  forward-looking  statements.  These risks and
uncertainties,  many of which are not within the Company's control, include, but
are not limited to,  general  economic,  weather and  business  conditions;  the
availability of suitable restaurant sites in appropriate regional shopping malls
and other  locations on  reasonable  rental terms;  changes in consumer  tastes;
changes in population and traffic patterns; the Company's ability to continue to
attract franchisees; the success of the Company's present, and any future, joint
ventures  and  other   expansion   opportunities;   the   availability  of  food
(particularly  cheese and tomatoes) and paper products at reasonable  prices; no
material  increase  occurring in the Federal  minimum  wage;  and the  Company's
ability to attract  competent  restaurant  and executive  managerial  personnel;
government  regulations;  and the Company's  ability to successfully  and timely
complete compliance of its information systems for the Year 2000 and the ability
of certain of its suppliers and landlords to be timely Year 2000 compliant.

Item 3.           Qualitative and quantitative disclosures of market risk

The  Company has  historically  invested  its cash on hand in short term,  fixed
rate, highly rated and highly liquid instruments which mature and are reinvested
throughout the year. Therefore,  although the Company's existing investments are
not  considered at risk with respect to changes in interest rates or markets for
these instruments,  the Company's rate of return on short-term investments could
be affected at the time of reinvestment as a result of intervening  events.  The
Company presently has no borrowings, and does not purchase interest rate swap or
other instruments to hedge against interest rate fluctuations.

The Company has not purchased  future,  forward,  option or other instruments to
hedge against  fluctuations in the prices of the commodities it purchases.  As a
result, the Company's future commodities purchases are subject to changes in the
price of such commodities.

All  transactions  with foreign  franchisees  have been  denominated in, and all
payments have been made in, United States dollars,  reducing the risks attendant
in changes in the values of foreign currencies. Accordingly, the Company has not
purchased  future  contracts,  options  or other  instruments  to hedge  against
changes in values of foreign currencies.



<PAGE>


                                             PART II.  OTHER INFORMATION

Item 1.          Legal Proceedings.

On January 19, 1999, the Company entered into a merger  agreement for the merger
of a company  formed by members of the Sbarro  family,  the Company's  principal
shareholders, with and into the Company in which all outstanding common stock of
the Company not owned by those  shareholders  are to be converted into the right
to receive $28.85 in cash.

Following  the Company's  announcement  of the proposal by members of the Sbarro
family  for  the  merger,   seven  class  action  lawsuits  were  instituted  by
shareholders  against the Company,  those  members of the Sbarro  family who are
directors of the Company and all or some of the other  directors of the Company.
In a memorandum  of  understanding  entered into on January 19, 1999,  which was
confirmed by a subsequent  formal  stipulation  of  settlement,  counsel for the
plaintiffs and counsel for the defendants  agreed to settle all of the lawsuits,
and the Sbarro  Family agreed to increase the merger  consideration  from $27.50
per share to $28.85 per share.

On June 29,  1999,  a hearing was held before the Court.  No  opposition  to the
settlement was presented at the hearing and no shareholder  requested  exclusion
from the class on behalf of whom the actions were brought.  The Court entered an
order and final  judgment on July 16, 1999,  among other  things,  approving the
stipulation of settlement and the settlement,  adjudging the terms thereof to be
fair,  reasonable,  adequate and in the best interests of the Class,  certifying
the class action and class and awarded  plaintiffs'  counsel attorneys' fees and
disbursements of  approximately  $1.6 million in connection with the settlement,
subject  to,  and  payable  upon,  completion  of the  merger.  Those  fees  and
disbursements  will be  capitalized,  and not expensed for  financial  reporting
purposes.

On August 16, 1999,  the appeal period  related to the Order and Final  Judgment
expired. No appeals were filed. The settlement is subject to consummation of the
merger. The closing of the merger is subject to, among other things, the receipt
of financing for the  transaction  and the continued  suspension of dividends by
the Company.

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

On August 13,  1999,  the  Company  held a Special  Meeting of  Shareholders  to
consider a proposal  to adopt the  Amended and  Restated  Agreement  and Plan of
Merger (the "Restated Merger Agreement") by and among the Company, Sbarro Merger
LLC  ("Mergeco"),  Mario  Sbarro,  Joseph  Sbarro,  Joseph  Sbarro (1994) Family
Limited  Partnership,  Anthony Sbarro and Mario Sbarro and Franklin  Montgomery,
not  individually but as trustees under that certain Trust Agreement dated April
28, 1984 for the benefit of Carmela Sbarro and her descendants  (the "Continuing
Shareholders").

<PAGE>

Under the New York Business Corporation Law (the "BCL"), the affirmative vote of
at least two-thirds of all outstanding  shares of the Company's common stock was
required to adopt the Restated Merger Agreement (the "BCL Voting  Requirement").
In addition,  the Restated Merger Agreement  provides that it was a condition to
the  consummation of the Merger that the Restated Merger Agreement be adopted by
at least a majority of the votes cast at the Special  Meeting,  excluding  votes
cast by the  Continuing  Shareholders,  abstentions  and broker  non-votes  (the
"Merger  Agreement   Requirement").   At  the  Special  Meeting,  the  Company's
shareholders approved the Restated Merger Agreement.

A  motion  made by a  shareholder  at the  Special  Meeting  to  table  the vote
concerning the merger was rejected by the following vote:

       For                                           Against
       1,100                                       7,064,028


In meeting the BCL Voting Requirement,  the Company's  shareholders  adopted the
Restated Merger Agreement by the following vote:

       For                            Against                            Abstain
       15,278,273                     727,372                              6,802

In meeting the Merger Agreement Requirement,  the Company's shareholders adopted
the Restated Merger Agreement by the following vote:

       For                                           Against
      8,213,945                                      727,372

Item 6.                  Exhibits and Reports on Form 8-K.

(a)    Exhibits:
       No.                                            Description

       27                                         Financial Data Schedule

(b) Reports on Form 8-K.

The only  Current  Report on Form 8-K filed by the  Company  during  the  period
covered by this report was a report dated (date of earliest event reported) June
17, 1999 reporting under Item 5, Other Events, and Item 7, Financial Statements,
Pro Forma Financial Information and Exhibits. No financial statements were filed
with that report.

<PAGE>


                                                      SIGNATURE


Pursuant  to the  requirements  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:              August  31, 1999                  By:  MARIO SBARRO
                                                     Mario Sbarro
                                                     Chairman of the Board and
                                                     President and Chief
                                                     Executive Officer


Date:          August 31, 1999                       By:  ROBERT G. ROONEY
                                                     Robert G. Rooney
                                                     Vice President-Finance
                                                     and Chief Financial Officer



<PAGE>


                                  EXHIBIT INDEX



Exhibit Number                              Description

         27                                 Financial Data Schedule



<PAGE>










                                                              EXHIBIT 27