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

                       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 17, 2005             COMMISSION FILE NUMBER 333-90817


                                  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.)
     INCORPORATION OR ORGANIZATION)

   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,  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 AN  ACCELERATED  FILER (AS
DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT).

YES                        NO       X
    --------------           ---------------

INDICATE BY CHECK MARK WHETHER THE  REGISTRANT IS A SHELL COMPANY (AS DEFINED IN
RULE 12B-2 OF THE EXCHANGE ACT).

YES                         NO       X
   ---------------            --------------

THE NUMBER OF SHARES OF COMMON STOCK OF THE REGISTRANT  OUTSTANDING AS OF AUGUST
29, 2005 WAS 7,064,328.

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

*THIS FORM 10-Q IS VOLUNTARILY  SUBMITTED PURSUANT TO A REQUIREMENT CONTAINED IN
THE INDENTURE GOVERNING SBARRO, INC.'S SENIOR NOTES DUE 2009.


<PAGE>

                                  SBARRO, INC.

                                 FORM 10-Q INDEX
<TABLE>
<CAPTION>
PART I.      FINANCIAL INFORMATION                                                                      PAGES
<S>                                                                                                    <C>
Consolidated Financial Statements:

         Balance Sheets - July 17, 2005 (unaudited) and January 2, 2005.................................3-4

         Statements of Operations (unaudited) - Twenty Eight Weeks and Twelve Weeks
              ended July 17, 2005 and July 11, 2004.....................................................5-6

         Statements of Cash Flows (unaudited) - Twenty Eight Weeks ended July 17, 2005
              and July 11, 2004.........................................................................7-8

         Notes to Unaudited Consolidated Financial Statements..........................................9-26

Management's Discussion and Analysis of Financial Condition and Results
    of Operations.....................................................................................27-37

Qualitative and Quantitative Disclosures of Market Risk..................................................38

Controls and Procedures...............................................................................38-39

PART II.     OTHER INFORMATION...........................................................................40
</TABLE>


                                     Page 2
<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS

                          SBARRO, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                     ASSETS

<TABLE>
<CAPTION>
                                                                                  (IN THOUSANDS)
                                                                        JULY 17, 2005       JANUARY 2, 2005
                                                                        -------------       ---------------
                                                                         (UNAUDITED)

Current assets:
<S>                                                                        <C>                 <C>
     Cash and cash equivalents                                             $ 50,674            $ 63,000
     Receivables, net of allowance for doubtful
        accounts of $431 at July 17, 2005 and  January 2, 2005:
           Franchise                                                          1,949               1,846
           Other                                                              1,661               1,680
                                                                           --------            --------
                                                                              3,610               3,526

      Inventories                                                             2,303               2,809
      Prepaid expenses                                                        8,852               3,877
      Current portion of loans receivable from
          shareholders and officers                                               -                  46
                                                                           --------            --------
          Total current assets                                               65,439              73,258

Property and equipment, net                                                  82,162              88,465
Trademarks                                                                  195,916             195,916
Goodwill                                                                      9,204               9,204
Deferred financing costs, net                                                 4,007               4,521
Loans receivable from shareholders and officers,
      less

           current portion                                                    5,530               5,602
Other assets                                                                  7,504               7,647
                                                                           --------            --------
                                                                           $369,762            $384,613
                                                                           ========            ========
</TABLE>


           See notes to unaudited consolidated financial statements.

                                     Page 3
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (CONTINUED)

                       LIABILITIES & SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                               (IN THOUSANDS EXCEPT SHARE DATA)
                                                             JULY 17, 2005      JANUARY 2, 2005
                                                               --------            --------
                                                                         (UNAUDITED)

Current liabilities:
<S>                                                            <C>                 <C>
     Accounts payable                                          $  8,319            $ 11,593
     Accrued expenses                                            17,153              20,748
     Accrued interest payable                                     9,260               8,181
     Current portion of mortgage payable                            187                 182
                                                               --------            --------
             Total current liabilities                           34,919              40,704

Deferred rent                                                    10,117              10,226

Long-term debt, net of original issue
     discount                                                   268,444             268,349

Commitments and Contingencies

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
          7,064,328 shares                                           71                  71
     Additional paid-in capital                                      10                  10
     Retained earnings                                           56,201              65,253
                                                               --------            --------
     Total shareholders' equity                                  56,282              65,334
                                                               --------            --------
                                                               $369,762            $384,613
                                                               ========            ========
</TABLE>


           See notes to unaudited consolidated financial statements.


                                     Page 4
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                             FOR THE TWENTY EIGHT WEEKS ENDED
                                                                      (IN THOUSANDS)
                                                            JULY 17, 2005         JULY 11, 2004
                                                              ---------             ---------
Revenues:
<S>                                                           <C>                   <C>
     Restaurant sales                                         $ 161,785             $ 159,530
     Franchise related income                                     6,358                 5,991
     Real estate and other                                        3,018                 3,407
                                                              ---------             ---------
            Total revenues                                      171,161               168,928
                                                              ---------             ---------

Costs and expenses:

     Cost of food and paper products                             33,746                35,946
     Payroll and other employee benefits                         45,078                45,851
     Other operating costs                                       61,758                59,461
     Depreciation and amortization                                8,630                 8,674
    General and administrative costs                             14,254                13,458
    Asset impairment and restaurant closings                        200                   375
                                                              ---------             ---------
         Total costs and expenses                               163,666               163,765
                                                              ---------             ---------

Operating income                                                  7,495                 5,163
                                                              ---------             ---------

Other (expense) income:

      Interest expense                                          (16,577)              (16,583)
      Interest income                                               618                   324
     Equity in net income (loss) of unconsolidated
       affiliates                                                   (24)                  748
                                                              ---------             ---------
         Net other expense                                      (15,983)              (15,511)
                                                              ---------             ---------

Loss before income taxes                                         (8,488)              (10,348)

Income taxes                                                        564                   369
                                                              ---------             ---------

Net loss                                                      $  (9,052)            $ (10,717)
                                                              =========             =========
</TABLE>

           See notes to unaudited consolidated financial statements.


                                     Page 5
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                FOR THE TWELVE WEEKS ENDED
                                                                      (IN THOUSANDS)
                                                           JULY 17, 2005         JULY 11, 2004
                                                              --------             --------
Revenues:
<S>                                                           <C>                  <C>
     Restaurant sales                                         $ 70,530             $ 68,684
     Franchise related income                                    2,814                2,587
     Real estate and other                                       1,300                1,446
                                                              --------             --------
            Total revenues                                      74,644               72,717
                                                              --------             --------

Costs and expenses:

     Cost of food and paper products                            14,716               15,937
     Payroll and other employee benefits                        19,497               19,704
     Other operating costs                                      26,617               25,654
     Depreciation and amortization                               3,657                3,678
    General and administrative costs                             6,188                5,344
    Asset impairment and restaurant closings                        98                  200
                                                              --------             --------
         Total costs and expenses                               70,773               70,517
                                                              --------             --------

Operating income                                                 3,871                2,200
                                                              --------             --------

Other (expense) income:

      Interest expense                                          (7,104)              (7,106)
      Interest income                                              253                  128
     Equity in net income (loss) of unconsolidated
       affiliates                                                  (44)                 350
                                                              --------             --------
         Net other expense                                      (6,895)              (6,628)
                                                              --------             --------

Loss before income taxes                                        (3,024)              (4,428)

Income taxes                                                       287                  128
                                                              --------             --------

Net loss                                                      $ (3,311)            $ (4,556)
                                                              ========             ========
</TABLE>


           See notes to unaudited consolidated financial statements.

                                     Page 6
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                        FOR THE TWENTY EIGHT WEEKS ENDED
                                                                                  (IN THOUSANDS)
                                                                        JULY 17, 2005       JULY 11, 2004
                                                                          --------             --------
OPERATING ACTIVITIES:
<S>                                                                       <C>                  <C>
Net loss                                                                  $ (9,052)            $(10,717)
   Adjustments to reconcile net loss to net cash used in
    operating activities:
      Depreciation and amortization                                          8,630                8,674
      Amortization of senior notes discount                                    225                  204
      Amortization of deferred financing costs                                 497                  518
      Asset impairment and restaurant closings                                 200                  375
      Increase in deferred rent, net                                            14                  165
      Equity in net (income) loss of unconsolidated affiliates                  24                 (748)
                                                                          --------             --------
                                                                               538               (1,529)

Changes in operating assets and liabilities:

       Increase in receivables                                                 (84)                (289)
       (Increase) decrease in inventories                                      506                 (224)
       Increase in prepaid expenses                                         (4,975)              (6,147)
       Decrease in other assets                                                 84                   70
       Decrease in accounts payable and accrued expenses                    (6,691)              (5,925)
       Increase in accrued interest payable                                  1,079                1,079
                                                                          --------             --------

Net cash used in operating activities                                       (9,543)             (12,965)
                                                                          --------             --------
</TABLE>


                                   (Continued)



                                     Page 7
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                          FOR THE TWENTY EIGHT WEEKS ENDED
                                                                    (IN THOUSANDS)
                                                         JULY 17, 2005         JULY 11, 2004
                                                            --------             --------
<S>                                                         <C>                  <C>
INVESTING ACTIVITIES:

Purchases of property and equipment                         $ (3,582)            $ (4,211)
Proceeds from sale of joint venture property
and

       equipment                                                 300                    -
Dividends received from unconsolidated affiliate                 603                  305
                                                            --------             --------
Net cash used in investing activities                         (2,679)              (3,906)

FINANCING ACTIVITIES:

Mortgage principal repayments                                   (104)                 (96)
Tax distributions                                                  -                 (682)
Reduction in loans receivable from officers                        -                  505
                                                            --------             --------

         Net cash used in financing activities                  (104)                (273)
                                                            --------             --------

Decrease in cash and cash equivalents                        (12,326)             (17,144)

Cash and cash equivalents at beginning of period              63,000               56,409
                                                            --------             --------

Cash and cash equivalents at end of period                  $ 50,674             $ 39,265
                                                            ========             ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW

     INFORMATION:

Cash paid for:

     Income taxes                                           $    888             $    223
                                                            ========             ========
     Interest                                               $ 14,776             $ 14,796
                                                            ========             ========
</TABLE>



           See notes to unaudited consolidated financial statements.


                                     Page 8
<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
         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 July 17, 2005 and our  consolidated  results of operations  and cash
         flows for the twenty  eight weeks ended July 17, 2005 and July 11, 2004
         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  the  annual  financial
         statements,  including footnotes thereto, included in our Annual Report
         on Form 10-K for the year ended January 2, 2005.

         Certain  items  in  the  financial   statements   presented  have  been
         reclassified to conform to the 2005 presentation.

2.       RECENT ACCOUNTING PRONOUNCEMENTS:

         On July 19, 2005,  the Financial  Accounting  Standards  Board ("FASB")
         issued  proposed FASB Staff  Position (FSP) FAS 13-b,  "Accounting  for
         Rental Costs Incurred during a Construction  Period." This FSP proposes
         that rental costs  associated with ground or building  operating leases
         that are  incurred  during a  construction  period  be  expensed.  FASB
         Technical  Bulletin (FTB) No. 88-1,  Issues  Relating to Accounting for
         Leases,  requires that rental costs associated with operating leases be
         allocated on a  straight-line  basis in accordance  with FASB Statement
         No. 13, Accounting for Leases,  and FTB 85-3,  Accounting for Operating
         Leases with  Scheduled Rent  Increases,  starting with the beginning of
         the lease term. The FASB believes  there is no distinction  between the
         right to use a leased  asset  during  the  construction  period and the
         right to use that asset after the  construction  period.  As  proposed,
         companies would be required to apply the guidance for new leases to the
         first reporting period beginning after September 15, 2005. We currently
         have a policy of capitalizing  rent during the construction  period and
         will have to change that policy  going  forward.  We do not  anticipate
         that this  change  will  have a  material  effect  on our  consolidated
         financial statements.


                                     Page 9
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


3.       DEBT:

         SENIOR NOTES:

         The $255  million  of 11%  senior  notes that we issued in 1999 are due
         September 15, 2009.  Interest is payable  semi-annually on March 15 and
         September  15 of each year.  Our payment  obligations  under the senior
         notes  are  jointly,   severally,   unconditionally   and   irrevocably
         guaranteed  by all of  Sbarro's  current  Restricted  Subsidiaries  (as
         defined in the  indenture)  and is to be  similarly  guaranteed  by our
         future  Restricted  Subsidiaries.  The senior notes and the  subsidiary
         guarantees  are  senior   unsecured   obligations  of  Sbarro  and  the
         guaranteeing  subsidiaries,  respectively,  ranking equally in right of
         payment to all of our and their  respective  present and future  senior
         debt,  including  amounts  outstanding  under  the bank  line of credit
         agreement  discussed  below.  The indenture  permits  redemption of the
         senior notes at our option at varying redemption prices and requires us
         to offer to purchase  senior  notes in the event of a Change of Control
         and in connection with certain Asset Sales (each as defined).

         The  indenture  contains  various  covenants  that limit our ability to
         borrow  funds,  other  than  certain  permitted  indebtedness,  to make
         "restricted payments" including, among other things, dividend payments,
         and  to  make   investments   in,  among  other  things,   unrestricted
         subsidiaries.  The  indenture  for the senior notes  permits us to make
         distributions  to  shareholders  pursuant  to a tax  payment  agreement
         between  us and  our  shareholders  that  contains  a  formula  that is
         designed to approximate the income taxes,  including  estimated  taxes,
         that would be payable by our  shareholders  if their only  income  were
         their  pro-rata  share of our taxable income and such income were taxed
         at the highest  applicable  federal and New York State marginal  income
         tax rates.

         Among other covenants,  the indenture requires that, in order for us to
         borrow,  our  consolidated  interest  ratio coverage (as defined in the
         indenture),  after  giving pro forma  effect to the interest on the new
         borrowing,  for the four most recently ended fiscal quarters must be at
         least 2.5 to 1. As of July 17, 2005,  that ratio was 1.43 to 1.00. As a
         result,  we are not  presently  able to  borrow  funds  except  for the
         specifically  permitted  indebtedness,  including  up to $75 million of
         revolving credit loans.

         In order to make restricted  payments,  that ratio must be at least 2.0
         to 1, after giving pro forma effect to the  restricted  payment and, in
         any event, is limited in dollar amount pursuant to a formula  contained
         in the  indenture.  We refer to the amount that is available  for us to
         make dividends and other restricted payments as the "restricted payment
         availability."   We  cannot  make   restricted   payments  (other  than
         distributions  pursuant to the tax payment agreement) until we meet the
         2.0 to 1  consolidated  interest  ratio  coverage  and we increase  the
         restricted  payment

                                    Page 10
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         availability  by  approximately  $33.4  million,  and then  only to the
         extent of any excess over that amount.

         LINE OF CREDIT:

         In July 2005,  we  obtained a three year line of credit  from  Commerce
         Bank to replace our former uncommitted revolving credit facility. Under
         the  Commerce  Bank line of credit,  we  currently  have the ability to
         borrow up to $10 million,  with a sub-limit for letters of credit of $5
         million.  Interest  applicable to the loans under the line of credit is
         at the bank's  LIBOR rate plus 1.5% at the time of any  borrowings  for
         interest periods of 1, 2, 3 or 6 months. The line expires in July 2008.
         The credit facility  contains  various  covenants,  including a minimum
         coverage  ratio of at least 1.0 to 1.0 at the end of each  quarter on a
         rolling four quarter basis.  The coverage ratio is primarily a ratio of
         EBITDA (less  unfinanced  capital  expenditures) to current maturity of
         long term indebtedness and interest  expense.  There are currently $1.8
         million of letters of credit  outstanding  under the former facility as
         we transition the lines of credit to the new facility.

         MORTGAGE:

         In March 2000,  one of our  subsidiaries  obtained a $16 million,  8.4%
         loan due in 2010,  secured by a mortgage on our corporate  headquarters
         building.  The loan is payable in monthly installments of principal and
         interest of $0.1 million. The outstanding principal balance of the loan
         as of July 17, 2005 was $15.2 million.  The mortgage agreement contains
         various covenants, including a requirement that the subsidiary maintain
         a minimum  ratio of EBITDA to annual  debt  service  of at least 1.2 to
         1.0.

         We were in  compliance  with all  covenants  in the  indenture  for the
         senior notes, line of credit and mortgage as of July 17, 2005.

         GUARANTEE ARRANGEMENTS PERTAINING TO OTHER CONCEPTS:

         We are party to separate financial  guarantees to a bank for two of our
         other joint venture  concepts.  One of these joint venture concepts was
         not in  compliance  with its covenant to maintain a specified  ratio of
         EBITDA to funded debt with respect to the twelve  months ended July 17,
         2005. A waiver of this noncompliance has been obtained. There can be no
         assurance  that  this  joint  venture  concept  will not need to obtain
         amendments or additional waivers of covenants under its debt agreement.
         To varying degrees,  our guarantee involves elements of performance and
         credit risk.  The  possibility  of our having to honor our guarantee is
         largely dependent upon the future operation of the other concepts.


                                    Page 11
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4.       LITIGATION

         In May 2002,  the  landlord of a joint  venture to which we are a party
         filed a complaint  against  Sbarro in the Supreme Court of New York for
         Westchester County alleging that we were obligated to it, pursuant to a
         Guaranty Agreement we executed, for all rent during the remaining lease
         based on an alleged breach of the lease by the tenant,  a subsidiary of
         Sbarro.  We believed that our guarantee was limited in amount while the
         landlord  alleged  that the  guarantee covered all  amounts  that would
         become due during the remaining  lease term.  The court issued a ruling
         in November  2003 which  limited our  liability,  which we estimated at
         $500,000. The landlord appealed this decision. Given the uncertainty of
         the  results  of an appeal and  liability  we would have by reason of a
         reversal,  we settled the matter for  $800,000,  of which  $500,000 and
         $300,000 was recorded in 2003 and 2004, respectively.

         On or about June 6, 2005, two separate purported class actions alleging
         virtually identical claims were filed against Sbarro and over 100 other
         defendants.  One action was filed in the Circuit  Court of the State of
         Florida in  Hillsbury  County and the other  action was filed in United
         States  District Court for the Middle  District of Florida.  All of the
         other named  defendants are well recognized quick service and/or casual
         dining  entities.  The suits allege that  defendants  violated  various
         Florida State and Federal  Statutes by charging sales tax on the retail
         sales of natural  bottled  waters.  We have joined with a number of the
         other  defendants in defending these cases on a joint defense basis. As
         this case is in the  preliminary  stages,  it is difficult to ascertain
         what, if any, exposure we have in the matter.  Based upon conversations
         with  counsel  and  other  defendants  and the fact  that all sales tax
         received on the sale of bottled  water was remitted to the  appropriate
         state  authorities,  it appears  unlikely,  at this time, that the case
         will result in a material liability to us.

5.       SUBSEQUENT EVENTS

         EXECUTIVE EMPLOYMENT AGREEMENT:

         On July 26, 2005 we entered  into an  Employment  Agreement  with Peter
         Beaudrault.  Pursuant to the Employment Agreement, Mr. Beaudrault is to
         serve as the Company's President and Chief Executive Officer for a term
         commencing March 4, 2005 (the date Mr.  Beaudrault became President and
         Chief Executive  Officer of the Company) and is to continue until March
         4, 2008,  unless  earlier  terminated  or  extended  as provided in the
         Employment Agreement. Under the Employment Agreement, Mr. Beaudrault is
         to receive  base  salary at the  annual  rate of  $450,000,  subject to
         increase from time to time in the discretion of the Company's  Board of
         Directors.  In addition to his base salary,  Mr. Beaudrault is eligible
         to  participate  in such  annual  bonus  plans as may be adopted by the
         Company's  Board of Directors  for  executive  officers of the Company,
         which shall be based upon the Board's  determination  of the attainment
         of stated  objectives.  The annual bonus with respect to the  Company's
         current  fiscal year,  ending

                                    Page 12
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         January 1, 2006, is to be pursuant to the Company's  Corporate  Officer
         Employee Bonus Plan for 2005 adopted by the Board on April 7, 2005. Mr.
         Beaudrault  is also to  receive a  "Special  Incentive  Program  Bonus"
         designed  to reward  him for  improvements  in the  Company's  adjusted
         earnings before interest,  taxes,  depreciation and amortization,  cash
         and cash items  (including  marketable  securities)  and long term debt
         from the  beginning of fiscal 2005 through the time of the  termination
         of Mr.  Beaudrault's  employment  or the end of fiscal 2007,  whichever
         occurs  first.  The Special  Incentive  Program Bonus is reduced in the
         event of early  termination of employment and, when earned, is payable,
         with interest, in twelve equal quarterly  installments.  Alternatively,
         Mr.  Beaudrault  is to receive a Special  Event  Bonus based on the per
         share  proceeds  in the  event  of (i)  the  consummation  of a  public
         offering of the Company's Common Stock, (ii) the sale by the Company or
         its shareholders of voting  securities so that  immediately  after such
         sale less than 50% of the voting  securities are owned by those who are
         not shareholders immediately preceding such sale, (iii) the sale of all
         or substantially all of the assets of the Company, (iv) the liquidation
         or  dissolution  of  Company , and/or  (v) the  merger of  Company or a
         subsidiary of Company with another entity whereby the  shareholders  of
         Company as of the date immediately  preceding the effective date of the
         merger do not own 50% or more of the  outstanding  voting  power of the
         resulting  entity  as of the  effective  date of the  merger.  When the
         special events  referenced in the agreement  becomes  probable,  a fair
         value model will be used to determine the value of such award.

         SPECIAL EVENT BONUSES:

         We entered into Special  Event Bonus  agreements  on July 21, 2005 with
         certain Vice Presidents of Operations which provide for them to receive
         a bonus triggered by certain events as defined above. The special event
         bonus  will be based  on the per  share  proceeds  (as  defined  in the
         agreements)  received by our  shareholders if a special event occurs in
         excess  of  a  certain  threshold  amount.   When  the  special  events
         referenced in the agreements  become probable,  a fair value model will
         be used to determine the value of such award.

6.       GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS:

         Certain  subsidiaries  have guaranteed  amounts  outstanding  under our
         senior notes and line of credit. Each of the guaranteeing  subsidiaries
         is our direct or indirect  wholly owned  subsidiary  and each has fully
         and unconditionally  guaranteed the senior notes and the line of credit
         on a joint and several basis.

                                    Page 13
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

         The following condensed consolidating financial information presents:

         (1)      Condensed  unaudited  consolidating  balance sheets as of July
                  17,  2005 and  January  2, 2005 and  unaudited  statements  of
                  operations  for the twenty  eight weeks and twelve weeks ended
                  July 17, 2005 and July 11, 2004 and  unaudited  statements  of
                  cash flows for twenty eight weeks ended July 17, 2005 and July
                  11, 2004 of (a) Sbarro,  Inc.,  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 Sbarro, Inc., 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.


                                    Page 14
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

                           CONSOLIDATING BALANCE SHEET
                               AS OF JULY 17, 2005
                                 (IN THOUSANDS)
                                   (UNAUDITED)
                                     ASSETS

<TABLE>
<CAPTION>
                                                          GUARANTOR      NONGUARANTOR                    CONSOLIDATED
                                             PARENT      SUBSIDIARIES    SUBSIDIARIES   ELIMINATIONS        TOTAL
                                            ---------      ---------      ---------       ---------       ---------
<S>                                         <C>            <C>            <C>         <C>                 <C>
Current assets:

    Cash and cash equivalents               $  45,181      $   4,363      $   1,130   $           -       $  50,674
    Receivables net of allowance for
       doubtful accounts of $431
       Franchise                                1,949              -              -               -           1,949
       Other                                      330          1,044            287               -           1,661
                                            ---------      ---------      ---------       ---------       ---------
                                                2,279          1,044            287               -           3,610

    Inventories                                 1,015          1,222             66               -           2,303
    Prepaid expenses                            7,343          1,492             17               -           8,852
                                            ---------      ---------      ---------       ---------       ---------

        Total current assets                   55,818          8,121          1,500               -          65,439

Intercompany receivables                        2,018        442,976         (3,660)       (441,334)              -

Investment in subsidiaries                     67,570          1,945              -         (69,515)              -

Property and equipment, net                    31,517         47,682          2,963               -          82,162
Trademarks                                    195,916              -              -               -         195,916
Goodwill                                        9,204              -              -               -           9,204
Deferred financing costs, net                   3,833            174              -               -           4,007
Loans receivable from shareholders and
      officers                                  5,530              -              -               -           5,530
Other assets                                    5,884          1,598             22               -           7,504
                                            ---------      ---------      ---------       ---------       ---------
                                            $ 377,290      $ 502,496      $     825       $(510,849)      $ 369,762
                                            =========      =========      =========       =========       =========
</TABLE>



                                    Page 15
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           CONSOLIDATING BALANCE SHEET
                                   (CONTINUED)
                               AS OF JULY 17, 2005
                        (IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)
                        LIABILITIES & SHAREHOLDERS EQUITY

<TABLE>
<CAPTION>
                                                              GUARANTOR     NONGUARANTOR                      CONSOLIDATED
                                                PARENT      SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS        TOTAL
                                              ---------       ---------      ---------        ---------        --------
<S>                                             <C>           <C>            <C>             <C>                <C>
Current liabilities:
      Accounts payable                          $ 7,856            $106           $357                -          $8,319
      Accrued expenses                           13,616           2,387          1,150                -          17,153
      Accrued interest payable                    9,260               -              -                -           9,260
      Current portion of mortgage payable             -             187              -                -             187
                                              ---------       ---------      ---------        ---------        --------

            Total current liabilities            30,732           2,680          1,507                -          34,919

Intercompany payables                           441,334               -              -        $(441,334)              -

Deferred rent                                     9,802               -            315                -          10,117
                                              ---------       ---------      ---------        ---------        --------

Long-term debt, net of original issue
      discount                                  253,411          15,033              -                -         268,444

Shareholders' equity (deficit):
    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 7,064,328
      shares                                         71               -              -                -              71
Additional paid-in capital                      (65,479)        133,671          3,018          (71,200)             10
Retained earnings (deficit)                    (292,581)        351,112         (4,015)           1,685          56,201
                                              ---------       ---------      ---------        ---------        --------
                                               $377,290        $502,496           $825        $(510,849)       $369,762
                                              =========       =========      =========        ==========       ========
</TABLE>


                                    Page 16
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           CONSOLIDATING BALANCE SHEET
                              AS OF JANUARY 2, 2005
                                 (IN THOUSANDS)
                                     ASSETS

<TABLE>
<CAPTION>
                                                              GUARANTOR     NONGUARANTOR                     CONSOLIDATED
                                                 PARENT     SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS       TOTAL
                                               ---------      ---------       ---------       ---------       ---------
<S>                                            <C>            <C>             <C>              <C>            <C>
Current assets:
     Cash and cash equivalents                 $  57,150      $   4,680       $   1,170        $      -       $  63,000
     Receivables, net of allowance for
      doubtful accounts of $431
           Franchise                               1,846              -               -               -           1,846
              Other                                   53          1,053             574               -           1,680
                                               ---------      ---------       ---------       ---------       ---------
                                                   1,899          1,053             574               -           3,526

     Inventories                                   1,204          1,465             140               -           2,809
     Prepaid expenses                              4,020           (199)             56               -           3,877
     Current portion of loans receivable
      from shareholders and officers                  46              -               -               -              46
                                               ---------      ---------       ---------       ---------       ---------

           Total current assets                   64,319          6,999           1,940               -          73,258

Intercompany receivables                             406        439,364          (1,875)       (437,895)              -

Investment in subsidiaries                        67,570          1,944               -         (69,514)              -

Property and equipment, net                       33,307         50,799           4,359               -          88,465
Trademarks, net                                  195,916              -               -               -         195,916
Goodwill, net                                      9,204              -               -               -           9,204
Deferred financing costs, net                      4,326            195               -               -           4,521
Loans receivable from officers, less
    current portion                                5,602              -               -               -           5,602
Other assets                                       5,906          1,720              21               -           7,647
                                               ---------      ---------       ---------       ---------       ---------
                                               $ 386,556      $ 501,021       $   4,445       $(507,409)      $ 384,613
                                               =========      =========       =========       =========       =========
</TABLE>


                                    Page 17
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           CONSOLIDATING BALANCE SHEET
                                   (CONTINUED)
                              AS OF JANUARY 2, 2005
                        (IN THOUSANDS EXCEPT SHARE DATA)
                       LIABILITIES & SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                    GUARANTOR      NONGUARANTOR                   CONSOLIDATED
                                                      PARENT       SUBSIDIARIES    SUBSIDIARIES   ELIMINATIONS        TOTAL
                                                     ---------       ---------      ---------       ---------       ---------
<S>                                                  <C>             <C>            <C>                 <C>         <C>
Current liabilities:
     Accounts payable                                $  10,877       $     190      $     526           $   -       $  11,593
     Accrued expenses                                   16,802           2,474          1,472               -          20,748
     Accrued interest payable
     Current portion of mortgage payable                 8,181               -              -               -           8,181
                                                             -             182              -               -             182
                                                     ---------       ---------      ---------       ---------       ---------
         Total current liabilities                      35,860           2,846          1,998               -          40,704
                                                     ---------       ---------      ---------       ---------       ---------
Intercompany payables                                  437,895               -              -        (437,895)              -
                                                     ---------       ---------      ---------       ---------       ---------
Deferred rent                                            9,811               -            415               -          10,226
                                                     ---------       ---------      ---------       ---------       ---------
Long-term debt, net of original issue discount         253,207          15,142              -               -         268,349
                                                     ---------       ---------      ---------       ---------       ---------

Shareholders' equity (deficit):
     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
      7,064,328 shares                                      71               -              -               -              71
     Additional paid-in capital                        (65,479)        133,671          3,018         (71,200)             10
     Retained earnings (deficit)                      (284,809)        349,362           (986)          1,686          65,253
                                                     ---------       ---------      ---------       ---------       ---------
                                                      (350,217)        483,033          2,032         (69,514)         65,334
                                                     ---------       ---------      ---------       ---------       ---------
                                                     $ 386,556       $ 501,021      $   4,445       $(507,409)      $ 384,613
                                                     =========       =========      =========       =========       =========
</TABLE>


                                    Page 18
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      CONSOLIDATING STATEMENT OF OPERATIONS
                 FOR THE TWENTY EIGHT WEEKS ENDED JULY 17, 2005
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                            GUARANTOR      NONGUARANTOR                   CONSOLIDATED
                                              PARENT       SUBSIDIARIES    SUBSIDIARIES   ELIMINATIONS        TOTAL
                                            ---------       ---------       ---------       ---------       ---------
<S>                                         <C>             <C>             <C>           <C>               <C>
Revenues:
    Restaurant sales                        $  71,083       $  85,180       $   5,522     $         -       $ 161,785
    Franchise related income                    6,358               -               -               -           6,358
    Real estate and other                       1,475           1,527              16               -           3,018
    Intercompany charges                           35               -               -             (35)              -
                                            ---------       ---------       ---------       ---------       ---------

      Total revenues                           78,951          86,707           5,538             (35)        171,161
                                            ---------       ---------       ---------       ---------       ---------

Cost and expenses:

       Cost of food and paper products         13,404          18,734           1,608               -          33,746
       Payroll and other employee
           benefits                            19,408          23,584           2,086               -          45,078
       Other operating costs                   27,942          32,155           1,661               -          61,758
       Depreciation and amortization            3,945           4,337             348               -           8,630
       General and administrative               8,590           5,341             323               -          14,254
       Asset impairment and restaurant
           closings

                                                  200               -               -               -             200
       Intercompany charges                         -              35               -             (35)              -
                                            ---------       ---------       ---------       ---------       ---------

           Total costs and expenses            73,489          84,186           6,026             (35)        163,666
                                            ---------       ---------       ---------       ---------       ---------

Operating income (loss)                         5,462           2,521            (488)              -           7,495

Other (expense) income:

      Interest expense                        (15,808)           (769)              -               -         (16,577)
      Interest income                             615               -               3               -             618
      Equity in net loss of
         unconsolidated affiliates                (24)              -               -               -             (24)
                                            ---------       ---------       ---------       ---------       ---------

      Net other expense                       (15,217)           (769)              3               -         (15,983)

Income (loss) before income taxes              (9,755)          1,752            (485)              -          (8,488)

Income taxes                                      564               -               -               -             564
                                            ---------       ---------       ---------       ---------       ---------

Net income (loss)                           $ (10,319)      $   1,752       $    (485)      $       -       $  (9,052)
                                            =========       =========       =========       =========       =========
</TABLE>


                                    Page 19
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      CONSOLIDATING STATEMENT OF OPERATIONS
                 FOR THE TWENTY EIGHT WEEKS ENDED JULY 11, 2004
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                            GUARANTOR       NONGUARANTOR                   CONSOLIDATED
                                              PARENT       SUBSIDIARIES     SUBSIDIARIES    ELIMINATIONS       TOTAL
                                             ---------       ---------       ---------       ---------       ---------
Revenues:
<S>                                          <C>             <C>             <C>           <C>               <C>
    Restaurant sales                         $  68,652       $  83,148       $   7,730     $         -       $ 159,530
    Franchise related income                     5,991               -               -               -           5,991
    Real estate and other                        1,865           1,542               -               -           3,407
    Intercompany charges                         4,985               -               -       $  (4,985)              -
                                             ---------       ---------       ---------       ---------       ---------
       Total revenues                           81,493          84,690           7,730          (4,985)        168,928
                                             ---------       ---------       ---------       ---------       ---------

Cost and expenses:

    Cost of food and paper products             14,414          19,392           2,140               -          35,946
    Payroll and other employee benefits         18,335          24,890           2,626               -          45,851
    Other operating costs                       27,277          29,996           2,188               -          59,461
    Depreciation and amortization                3,773           4,415             486               -           8,674
    General and administrative                   7,290           6,017             151               -          13,458
    Asset impairment and restaurant
            closings                               375               -               -               -             375
     Intercompany charges                            -           4,985               -          (4,985)              -
                                             ---------       ---------       ---------       ---------       ---------
              Total costs and expenses          71,464          89,695           7,591          (4,985)        163,765
                                             ---------       ---------       ---------       ---------       ---------

Operating income (loss)                         10,029          (5,005)            139               -           5,163
                                             ---------       ---------       ---------       ---------       ---------

Other (expense) income:

      Interest expense                         (15,800)           (783)              -               -         (16,583)
      Interest income                              324               -               -               -             324
      Equity in net income of
            unconsolidated affiliates              748               -               -               -             748
                                             ---------       ---------       ---------       ---------       ---------

      Net other expense                        (14,728)           (783)              -               -         (15,511)
                                                             ---------       ---------       ---------       ---------

 Income (loss) before income taxes
(credit)                                        (4,699)         (5,788)            139               -         (10,348)

Income taxes (credit)                              168             207              (6)              -             369
                                             ---------       ---------       ---------       ---------       ---------

Net income (loss)                            $  (4,867)      $  (5,995)      $     145     $         -       $ (10,717)
                                             =========       =========       =========       ---------       =========
</TABLE>



                                    Page 20
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE TWELVE WEEKS ENDED JULY 17, 2005
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                           GUARANTOR     NONGUARANTOR                  CONSOLIDATED
                                              PARENT      SUBSIDIARIES   SUBSIDIARIES   ELIMINATONS       TOTAL
                                             --------       --------       --------       --------       --------
Revenues:
<S>                                          <C>            <C>            <C>         <C>               <C>
    Restaurant sales                         $ 31,388       $ 36,818       $  2,324    $         -       $ 70,530
    Franchise related income                    2,814              -              -              -          2,814
    Real estate and other                         961            339              -              -          1,300
    Intercompany charges                           15              -              -            (15)             -
                                             --------       --------       --------       --------       --------
       Total revenues                          35,178         37,157          2,324            (15)        74,644
                                             --------       --------       --------       --------       --------

Cost and expenses:

    Cost of food and paper products             5,956          8,091            669              -         14,716
    Payroll and other employee benefits         8,479         10,160            858              -         19,497
    Other operating costs                      11,860         14,072            685              -         26,617
    Depreciation and amortization               1,643          1,865            149              -          3,657
    General and administrative                  3,790          2,285            113              -          6,188
    Asset impairment and restaurant
            closings                               98              -              -              -             98
    Intercompany charges                            -             15              -            (15)             -
                                             --------       --------       --------       --------       --------
         Total costs and expenses              31,826         36,488          2,474            (15)        70,773
                                             --------       --------       --------       --------       --------

Operating (loss) income                         3,352            669           (150)             -          3,871
                                             --------       --------       --------       --------       --------

Other (expense) income:

      Interest expense                         (6,776)          (328)             -              -         (7,104)
      Interest income                             250              -              3              -            253
      Equity in net income (loss) of
            unconsolidated affiliates             (44)             -              -              -            (44)
                                             --------       --------       --------       --------       --------
      Net other expense                        (6,570)          (328)             3              -         (6,895)

 Income (loss) before income taxes
  (credit)                                     (3,218)           341           (147)             -         (3,024)
Income taxes (credit)                             371            (84)             -              -            287
                                             --------       --------       --------       --------       --------

Net income (loss)                            $ (3,589)      $    425       $   (147)     $       -       $ (3,311)
                                             ========       ========       ========       ========       ========
</TABLE>


                                    Page 21
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE TWELVE WEEKS ENDED JULY 11, 2004
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                           GUARANTOR     NONGUARANTOR                  CONSOLIDATED
                                              PARENT      SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS      TOTAL
                                             --------       --------       --------      --------       --------
Revenues:
<S>                                          <C>            <C>            <C>        <C>               <C>
    Restaurant sales                         $ 29,669       $ 35,636       $  3,379   $         -       $ 68,684
    Franchise related income                    2,587              -              -             -          2,587
    Real estate and other                         854            592              -             -          1,446
    Intercompany charges                        2,461              -              -      $ (2,461)             -
                                             --------       --------       --------      --------       --------
       Total revenues                          35,571         36,228          3,379        (2,461)        72,717
                                             --------       --------       --------      --------       --------

Cost and expenses:

    Cost of food and paper products             6,377          8,602            958             -         15,937
    Payroll and other employee benefits         7,888         10,687          1,129             -         19,704
    Other operating costs                      11,732         12,962            960             -         25,654
    Depreciation and amortization               1,617          1,853            208             -          3,678
    General and administrative                  3,004          2,241             99             -          5,344
    Asset impairment and restaurant
      closings                                    200              -              -             -            200
    Intercompany charges                            -          2,461              -        (2,461)             -
                                             --------       --------       --------      --------       --------
         Total costs and expenses              30,818         38,806          3,354        (2,461)        70,517
                                             --------       --------       --------      --------       --------

Operating (loss) income                         4,753         (2,578)            25             -          2,200
                                             --------       --------       --------      --------       --------



Other (expense) income:

      Interest expense                         (6,768)          (338)             -             -         (7,106)
                                                                                         --------       --------
      Interest income                             128              -              -             -            128
      Equity in net income of
            unconsolidated affiliates             350              -              -             -            350
                                             --------       --------       --------      --------       --------

      Net other expense                        (6,290)          (338)             -             -         (6,628)
                                             --------       --------       --------      --------       --------

 Income (loss) before income taxes
(credit)                                       (1,537)        (2,916)            25             -         (4,428)

Income taxes (credit)                              33             95              -             -            128
                                             --------       --------       --------      --------       --------

Net income (loss)                            $ (1,570)      $ (3,011)      $     25   $         -       $ (4,556)
                                             ========       ========       ========      ========       ========
</TABLE>


                                    Page 22
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                 FOR THE TWENTY EIGHT WEEKS ENDED JULY 17, 2005
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    GUARANTOR     NONGUARANTOR                 CONSOLIDATED
                                                       PARENT      SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS     TOTAL
                                                      --------       --------       --------       --------      --------
OPERATING ACTIVITIES:
<S>                                                   <C>            <C>            <C>                <C>       <C>
Net (loss) income                                     $(10,319)      $  1,752       $   (485)          $  -      $ (9,052)
Adjustments to reconcile net income (loss)
  to net cash, provided by (used in)
  operating activities:
      Depreciation and amortization                      3,945          4,337            348              -         8,630
      Amortization of deferred financing                   204             21              -              -           225
      Amortization of senior notes discount                497              -              -              -           497
      Asset impairment and restaurant closings             200              -              -              -           200
      Increase (decrease) in deferred rent, net             (9)           123           (100)             -            14
      Equity in loss of unconsolidated affiliates           24              -              -              -            24
                                                      --------       --------       --------       --------      --------
                                                        (5,458)         6,233           (237)             -           538
Changes in operating assets and liabilities:
     Decrease (increase) in receivables                   (380)            10            286              -           (84)
     Decrease in inventories                               207            243             56              -           506
     Decrease (increase) in prepaid expenses            (3,322)        (1,690)            37              -        (4,975)
     Decrease (increase) in other assets                    87             (3)             -              -            84
    (Decrease) increase in accounts payable
       and accrued expenses                             (6,355)            55           (391)             -        (6.691)
     Decrease in accrued interest payable                1,079              -              -              -         1,079
                                                      --------       --------       --------       --------      --------

Net cash provided by (used in)
      operating activities                             (14,142)         4,848           (249)             -        (9,543)
                                                      --------       --------       --------       --------      --------
</TABLE>


                                    Page 23
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                                   (CONTINUED)
                 FOR THE TWENTY EIGHT WEEKS ENDED JULY 17, 2005
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                          GUARANTOR     NONGUARANTOR                    CONSOLIDATED
                                             PARENT      SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS        TOTAL
                                            --------       --------       --------       -----------      --------
<S>                                           <C>            <C>          <C>            <C>             <C>

INVESTING ACTIVITIES:
Purchases of property and equipment           (2,029)        (1,446)          (107)                -        (3,582)
Proceeds from sale of joint venture
   property and equipment                        300              -              -                 -           300
Dividends received from
   unconsolidated affiliates                     603              -              -                 -           603
Net cash used in investing activities         (1,126)        (1,446)          (107)                -        (2,679)
                                            --------       --------       --------       -----------      --------

FINANCING ACTIVITIES:
Mortgage principal repayments                      -           (104)             -                 -          (104)
Intercompany balances                          3,299         (3,615)           316                 -             -
                                            --------       --------       --------       -----------      --------

Net cash (used in) provided by
     financing activities                      3,299         (3,719)           316                 -          (104)
                                            --------       --------       --------       -----------      --------

Decrease in cash and cash equivalents        (11,969)          (317)           (40)                -       (12,326)

Cash and cash equivalents at beginning
   of period                                  57,150          4,680          1,170                 -        63,000
                                            --------       --------       --------       -----------      --------
Cash and cash equivalents at end of
     period                                 $ 45,181       $  4,363       $  1,130        $        -      $ 50,674
                                            ========       ========       ========       ===========      ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
     INFORMATION:

Cash paid  for:
        Income taxes                        $    885       $      -       $      3        $        -      $    888
                                            ========       ========       ========       ===========      ========
        Interest                              14,027       $    749       $      0        $        -      $ 14,776
                                            ========       ========       ========       ===========      ========
</TABLE>


                                    Page 24
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                 FOR THE TWENTY EIGHT WEEKS ENDED JULY 11, 2004
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                      GUARANTOR     NONGUARANTOR                  CONSOLIDATED
                                                         PARENT      SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS       TOTAL
                                                        --------       --------       --------       --------       --------
OPERATING ACTIVITIES:
<S>                                                     <C>            <C>            <C>          <C>              <C>
Net (loss) income                                       $ (4,866)      $ (5,995)      $    144     $        -       $(10,717)
   Adjustments to reconcile net income (loss)
      to net cash provided by (used in)
      operating activities
          Depreciation and amortization
                                                           3,773          4,415            486              -          8,674
      Amortization of senior notes discount                  204              -              -              -            204
      Amortization of deferred financing                     498             20              -              -            518
      Asset impairment and restaurant closings               375              -              -              -            375
      Increase in deferred rent, net                         160             36            (31)             -            165
      Equity in net income of unconsolidated
        affiliates                                          (748)             -              -              -           (748)
                                                        --------       --------       --------       --------       --------
                                                            (604)        (1,524)           599              -         (1,529)

Changes in operating assets and liabilities:

       Decrease (increase) in receivables                   (155)          (161)            27              -           (289)
       Increase in inventories                               (52)          (170)            (2)             -           (224)
       Increase in prepaid expenses                       (3,956)        (1,857)          (334)             -         (6,147)
       Decrease (increase) in other assets                (1,176)            80            438       $    728             70
       Decrease in accounts payable and accrued
         expenses                                         (5,018)          (105)           (74)          (728)        (5,925)
       Increase in accrued interest payable                1,079              -              -              -          1,079
                                                        --------       --------       --------       --------       --------

 Net cash provided by (used in) operating
      activities                                          (9,882)        (3,737)           654              -        (12,965)
                                                        --------       --------       --------       --------       --------
</TABLE>


                                    Page 25
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                                   (CONTINUED)
                 FOR THE TWENTY EIGHT WEEKS ENDED JULY 11, 2004
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                          GUARANTOR    NONGUARANTOR                        CONSOLIDATED
                                            PARENT       SUBSIDIARIES  SUBSIDIARIES       ELIMINATIONS          TOTAL
                                           --------       --------       --------       ----------------      --------
<S>                                          <C>            <C>               <C>       <C>                   <C>
INVESTING ACTIVITIES:
Purchase of property and equipment           (2,453)        (1,720)           (38)                     -        (4,211)
Dividends received from
     unconsolidated affiliates                  305              -              -                      -           305
                                           --------       --------       --------       ----------------      --------
Net cash used in investing activities        (2,148)        (1,720)           (38)                     -        (3,906)
                                           --------       --------       --------       ----------------      --------

FINANCING ACTIVITIES:

Mortgage principal repayments                     -            (96)             -                      -           (96)
Tax distribution                               (682)             -              -                      -          (682)
Reduction in loans receivable
  from officers                                 505              -              -                      -           505
Intercompany balances                        (2,760)         3,552           (792)                     -             -
                                           --------       --------       --------       ----------------      --------
    Net cash (used in) provided by
    financing activities                     (2,937)         3,456           (792)                     -          (273)
                                           --------       --------       --------       ----------------      --------

Decrease in cash and
  cash equivalents                          (14,967)        (2,001)          (176)                     -       (17,144)

Cash and cash equivalents at
  beginning of period                        49,515          5,595          1,299                      -        56,409
                                           --------       --------       --------       ----------------      --------
Cash and cash equivalents at
  end of period                            $ 34,548       $  3,594       $  1,123         $            -      $ 39,265
                                           ========       ========       ========       ================      ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
Cash paid  for:
    Income taxes                           $    112       $     95       $     16         $            -      $    223
                                           ========       ========       ========       ================      ========
    Interest                               $ 14,025       $    771       $      -         $            -      $ 14,796
                                           ========       ========       ========       ================      ========
</TABLE>


                                    Page 26
<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.

RESULTS OF OPERATIONS

We are a leading  owner,  operator and  franchisor of Quick Service  Restaurants
("QSR"),  serving a wide variety of Italian specialty foods. We also operate, in
certain  cases  with  joint  venture  partners,  a number  of  other  restaurant
concepts.

The following table summarizes the number of Sbarro owned,  franchised and other
concept restaurants in operation during each indicated period:

<TABLE>
<CAPTION>
                                                       12 WEEKS          12 WEEKS          28 WEEKS        28 WEEKS
                                                         ENDED            ENDED              ENDED           ENDED
                                                        07/17/05        07/11/04 (1)       07/11/05        07/11/04 (1)
<S>                                                    <C>              <C>               <C>              <C>
        Company-owned Sbarro
           restaurants:
           Open at beginning of period                     497              511              571              533
           Opened during period                              2                -                3                2
           Sold to franchisees
               during period                                (1)               -               (1)              (2)
           Closed during period                             (2)              (3)             (17)             (25)
                                                           ---             ----             ----             ----
           Open at end of period                           496              508              496              508

        Franchised Sbarro restaurants:
            Open at beginning of period                    432              393              416              364
            Opened during period                             3               14               19               46
            Acquired from Sbarro during
               period                                        1                -                1                2
            Closed or terminated during period              (1)               -               (1)              (5)
                                                           ---             ----             ----             ----
            Open at end of period                          435              407              435              407

        Other concepts:
            Open at beginning of period                     25               24               22               27
            Opened during period                             1                -                4                -
            Closed during period                             -                -                -               (3)
                                                           ---             ----             ----             ----
            Open at end of period                           26               24               26               24

        All restaurants:
            Open at beginning of period                    954              928              949              924
            Opened during period                             6               14               26               48
            Closed or terminated during period              (3)              (3)             (18)             (33)
                                                           ---             ----             ----             ----
            Open at end of period                          957              939              957              939
</TABLE>

(1) The table above reflects a reclassification  of our Umberto mall restaurants
from other concepts to  company-owned  Sbarro  restaurants  for the twelve weeks
ended July 11, 2004.


                                    Page 27
<PAGE>

EXECUTIVE OVERVIEW

Sales  increased  in the first half of 2005  compared to the first half of 2004.
Mall  traffic  has  increased  as  retailers,  particularly  high end mall based
retailers,  are serving more customers. In addition, since 2004, we re-energized
our QSR operations  while  continuing to provide a quality  product coupled with
quality service. We believe our strategy resulted in the significant improvement
of our operating results,  including higher sales and earnings.  Selective price
increases,  higher check  averages,  improvements  in  operational  controls and
upgraded store  management at all levels  produced  increased sales and improved
earnings in both the second quarter and first half of 2005.

We have developed a new concept,  Carmela's of Brooklyn,  which opened its first
restaurant  in  February  2005.  Carmela's  of  Brooklyn  is expected to operate
outside of our traditional mall, hospitality and airport venues. We believe that
the continuing development of this and other concepts,  along with a combination
of our  re-energized QSR restaurants and continued growth in our franchise based
business, should lead to continued improvements in both revenues and profits.

SEASONALITY

Our  business is subject to seasonal  fluctuations,  and the effects of weather,
national security, economic and business conditions.  Earnings have been highest
in our fourth quarter due primarily to increased volume in shopping malls during
the holiday shopping season. Our annual earnings can fluctuate due to the length
of the holiday  shopping period between  Thanksgiving and New Year's Day and the
number of weeks in our fourth  quarter.  In recent  years,  our  fourth  quarter
income  has also  fluctuated  significantly  due to a number  of other  factors,
including the adverse effect of the general  economic  downturn and  significant
year end adjustments relating to asset impairment and store closing costs.

GOODWILL AND OTHER INTANGIBLE ASSETS

Due to the  seasonality  of our  business,  until we  determine  the  results of
operations  for our fourth  quarter,  we are not able to perform our annual test
for impairment on our goodwill and intangible  assets with  indefinite  lives as
required by SFAS No. 142,  "Goodwill  and Other  Intangible  Assets,"  and fully
evaluate  the  impairment  of  long-lived  assets as  required  by SFAS No. 144,
"Accounting for the Impairment and Disposal of Long-Lived  Assets." Any required
adjustments are recorded at that time unless  impairment  factors become evident
at an earlier time.

                                    Page 28
<PAGE>

RELEVANT FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                                TWELVE WEEKS ENDED        TWENTY EIGHT WEEKS ENDED
                                                                          ----------------------------  ----------------------------
                                                                          JULY 17, 2005  JULY 11, 2004  JULY 17, 2005  JULY 11, 2004
                                                                          ----------------------------  ----------------------------
                                                                             (DOLLARS IN MILLIONS)         (DOLLARS IN MILLIONS)
<S>                                       <C>                                <C>           <C>           <C>            <C>
        Comparable Sbarro-owned QSR sales (1)                                $  66.8       $  64.8       $  152.3       $  150.4
        Comparable Sbarro-owned QSR sales percentage change vs. prior
        compared period (1)                                                      6.2%          3.6%           4.0%           5.3%
        Franchise location sales                                             $  62.4       $  55.2       $  141.1       $  127.1
        Franchise revenues                                                   $   2.8       $   2.6       $    6.4       $    6.0
        Cost of food and paper products as a percentage                         20.9%         23.2%          20.9%          22.5%
               of restaurant sales
        Payroll and other benefits as a percentage of                           27.6%         28.7%          27.9%          28.7%
                restaurant sales
        Other operating expenses as a percentage of                             37.7%         37.4%          38.2%          37.3%
                restaurant sales
        General and administrative costs as a percentage                         8.3%          7.4%           8.3%           8.0%
                of revenues
        Asset impairment, and restaurant closings                            $   0.1       $   0.2       $    0.2       $    0.4
        EBITDA (2)                                                           $   7.5       $   6.2       $   16.1       $   14.6
</TABLE>

         (1)  Comparable  Sbarro-owned  QSR sales  dollar and annual  percentage
         changes are based on  locations  that were in operation on a continuing
         basis for all of each period  presented.  Comparable  Sbarro-owned  QSR
         sales for the 28 weeks of 2004 included the week between  Christmas and
         New Year's,  a traditionally  high traffic week,  while the 28 weeks of
         2005 did not include that high traffic week (negatively impacting sales
         for the first half of 2005 by $1.9 million).  The percentage change vs.
         prior comparable  period adjusted for this unusual week would have been
         5.3% for the first half of 2005.

         (2)  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 and
         investors  in our senior  notes in that EBITDA is one of the factors in
         the  calculations  used to determine our compliance  with the ratios in
         the  indenture  under  which  our  senior  notes  are  issued.  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 cash

                                    Page 29
<PAGE>

         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 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 used in
         investing and financing  activities.  The  following  table  reconciles
         EBITDA to our net loss for the periods  presented,  which we believe is
         the most  direct  comparable  GAAP  financial  measure  to  EBITDA  (in
         thousands):

                                              TWENTY EIGHT WEEKS ENDED
                                           JULY 17, 2005    JULY 11, 2004
                                              --------         --------
         EBITDA                               $ 16,101         $ 14,585
         Interest expense                      (16,577)         (16,583)
         Interest income                           618              324
         Income taxes                             (564)            (369)
         Depreciation and amortization          (8,630)          (8,674)
                                              --------         --------
         Net loss                             $ (9,052)        $(10,717)
                                              ========         ========

                                                 TWELVE WEEKS ENDED
                                           JULY 17, 2005    JULY 11, 2004
                                              -------         -------
         EBITDA                               $ 7,484         $ 6,228
         Interest expense                      (7,104)         (7,106)
         Interest income                          253             128
         Income taxes                            (287)           (128)
         Depreciation and amortization         (3,657)         (3,678)
                                              -------         -------
         Net loss                             $(3,311)        $(4,556)
                                              =======         =======



SECOND QUARTER 2005 VERSUS SECOND QUARTER 2004

Sales by QSR and consolidated other concept restaurants  increased 2.7% to $70.5
million  for the twelve  weeks  ended July 17,  2005 from $68.7  million for the
twelve weeks ended July 11, 2004.  The increase in sales for the second  quarter
of 2005  includes  $2.4 million or 3.7% of higher sales in our QSR  restaurants,
with  comparable  store  sales  increasing  by  6.3%.  Restaurant  sales  of our
consolidated other concepts were slightly up for the second quarter of 2005 as a
result of opening our first  location in Orlando,  FL of the new chain of casual
dining  restaurants,  after the absence of sales of concept  restaurant  sold in
January 2005. We believe that improved economic conditions in the United States,
improvement in our operational controls and upgraded field and store management,
combined with higher check averages and selective price increases implemented in
2004  accounted  for  the  improvements.  This  was  offset  somewhat  by  fewer
transactions during the period as,  notwithstanding the increased traffic in the
mall, the time customers spend in a mall appears to be less.

                                    Page 30
<PAGE>

Franchise  related revenues  increased to $2.8 million for the second quarter of
2005  from  $2.6  million  in the  second  quarter  of 2004.  The  increase  was
attributed to additional  locations opened during the last twelve months (net of
closed locations) and a slight increase in comparable sales.

Cost of food and paper products as a percentage of restaurant  sales improved by
2.3 to 20.9% for the twelve  weeks ended July 17, 2005 from 23.2% for the twelve
weeks  ended July 11,  2004.  The cost of cheese in the  second  quarter of 2005
averaged  approximately  $1.72 per pound compared to an average of approximately
$2.22 per pound for the second quarter of 2004. This $0.50 per pound improvement
in cheese cost  accounted for $0.9 million or 1.4 of the  improvement.  Improved
operational  controls,  combined with selective price  increases  implemented in
2004 primarily produced the remainder of the improvement in our cost of sales as
a percentage of restaurant sales.

Payroll and other employee benefits as a percentage of restaurant sales improved
to 27.6% in the second quarter of 2005 from 28.7% in the second quarter of 2004.
The  improvement  was  primarily a result of the improved  sales.  Payroll costs
decreased $.2 million as compared to the second  quarter of 2004  resulting from
better  management of staff levels and less restaurants in operation as compared
to the second quarter of 2004.

Other  operating costs increased by $1.0 million the for twelve weeks ended July
17, 2005 over the second quarter of 2004 and as a percentage of restaurant sales
increased to 37.7% from 37.3%. The increase was primarily related to an increase
in restaurant  management  bonuses of approximately  $0.7 million resulting from
our improved profits as well as an increase in occupancy and other costs.

General and administrative  expenses were $6.2 million for the second quarter of
2005 as compared to $5.3  million the second  quarter of 2004.  The increase was
primarily due to $0.8 million in bonuses over the amount for the second  quarter
of 2004 in the second quarter as a result of our improved operating performance.

Interest  expense of $7.1 million for the second  quarters of both 2005 and 2004
relates primarily to the 11%, $255 million senior notes we issued to finance our
going  private  transaction  and the  8.4%,  $16  million  mortgage  loan on our
corporate headquarters.

Equity in the net income  (loss) of  unconsolidated  affiliates  represents  our
proportionate share of earnings and losses in those other concept restaurants in
which  we have a 50% or less  ownership  interest.  Our  equity  in the  overall
profits of those  concepts  decreased by $0.8  million in the second  quarter of
2005 from the second  quarter of 2004 as a result of a decline in traffic in our
steakhouse  joint  venture.  We opened a new  steakhouse in the beginning of the
third  quarter  of 2005.  We do not have any  further  expansion  plans for this
venture.

                                    Page 31
<PAGE>

YEAR TO DATE 2005 VERSUS 2004

Sales by QSR and consolidated other concept restaurants increased 1.4% to $161.8
million for the twenty  eight weeks ended July 17, 2005 from $159.5  million for
the year to date period ended July 11, 2004. The increase in sales for the first
half  of  2005  includes  $3.3  million  or  2.2%  of  higher  sales  in our QSR
restaurants while comparable store sales increased by 4%. The twenty eight weeks
of 2004 included a week between  Christmas and New Year's, a traditionally  high
traffic  week,  while the twenty  eight weeks of 2005 did not include  that high
traffic week (negatively  impacting sales by $1.9 million).  The increase in QSR
sales after  adjustment for this unusual week would have been 5.3% for the first
half of 2005.  Restaurant sales of our consolidated other concepts were slightly
up for the first half as a result of opening the first  location in Orlando,  FL
of our new chain of casual dining restaurants, offset by a decrease in sales for
a concept  restaurant  sold in January 2005.  We believe that improved  economic
conditions in the United  States,  improvement in our  operational  controls and
upgraded field and store  management,  combined with selective  price  increases
implemented in 2004, and higher check averages  accounted for the  improvements.
This  was  offset  somewhat  by  fewer   transactions   during  the  period  as,
notwithstanding the increases in the mall traffic, the time customers spend in a
mall appears to be less.

Franchise related revenues  increased to $6.4 million for the first half of 2005
from $6.0  million in the first half of 2004.  The increase  was  attributed  to
additional  locations  opened  during  the last  twelve  months  (net of  closed
locations) and a slight increase in comparable sales.

Cost of food and paper products as a percentage of restaurant  sales improved by
1.6  percentage  points to 20.9% for the 2005 year to date period from 22.5% for
the year to date  period  ended July 11,  2004.  The cost of cheese in the first
half of 2005 averaged  approximately  $1.73 per pound  compared to an average of
approximately  $1.89 per pound for the first  half of 2004.  This $.16 per pound
improvement in cheese cost  accounted for $0.7 million or 0.4 percentage  points
of the improvement. Improved operational controls, combined with selective price
increases   implemented  in  2004  primarily   produced  the  remainder  of  the
improvement in our cost of sales as a percentage of restaurant sales.

Payroll  and other  employee  benefits  as a  percentage  of  restaurant  sales,
improved  to 27.9% in the  first  half of 2005 from  28.7% in the first  half of
2004.  The  improvement  was primarily a result of the improved  sales.  Payroll
costs for the first half of 2005 decreased by $.8 million  resulting from better
management of staff levels and less  restaurants in operation as compared to the
second half of 2004.

Other  operating  costs  increased  by $2.3  million for the year to date period
ended July 17,  2005 over the  second  quarter  of 2004 and as a  percentage  of
restaurant  sales  increased to 38.2% from 37.3%.  The  increase  was  primarily
related to an increase in restaurant  management  bonuses of approximately  $1.6
million resulting from our improved profits, as well as an increase in occupancy
and other costs.

                                    Page 32
<PAGE>

General and administrative expenses were $14.3 million for the second quarter of
2005 as compared to $13.5 million the second  quarter of 2004.  The increase was
primarily due to $1 million in bonuses  accrued over the amount  accrued for the
first  half of 2004 as a result of our  improved  operating  performance  in the
second quarter.

Interest  expense of $16.6  million for the first half of 2005 and 2004  relates
primarily to the 11%,  $255 million  senior notes we issued to finance our going
private  transaction  and the 8.4%,  $16 million  mortgage loan on our corporate
headquarters.

Equity in the net income  (loss) of  unconsolidated  affiliates  represents  our
proportionate share of earnings and losses in those other concept restaurants in
which  we have a 50% or less  ownership  interest.  Our  equity  in the  overall
profits of those  concepts  decreased  by $0.8 million in the first half of 2005
from  the  first  half  of 2004 as a  result  of a  decline  in  traffic  in our
steakhouse  joint  venture.  We opened a new  steakhouse in the beginning of the
third  quarter  of 2005.  We do not have any  further  expansion  plans for this
venture.

LIQUIDITY AND CAPITAL RESOURCES

CASH REQUIREMENTS

Our liquidity requirements relate to debt service, capital expenditures, working
capital,  investments in other  ventures,  distributions  to  shareholders  when
permitted  under the indenture for the senior notes and to repay any  borrowings
we may make under our line of credit agreement and general  corporate  purposes.
We incur annual cash  interest  expense of  approximately  $29 million under the
senior notes and mortgage  loan and may incur  additional  interest  expense for
borrowings  under our line of  credit.  We are not  required  to make  principal
payments,  absent the  occurrence of certain  events,  on our senior notes until
they mature in September  2009.  We believe that  aggregate  restaurant  capital
expenditures  and our  investments  in  joint  ventures  for  all of  2005  will
approximate $14 million.

We expect our primary sources of liquidity to meet current  requirements will be
cash flow from operations. In July 2005, we obtained a three year line of credit
from Commerce Bank to replace our former revolving  credit  facility.  Under our
new line of credit we  currently  have the  ability to borrow up to $10  million
with a sub-limit for letters of credit of $5 million. We do not presently expect
to borrow under our line of credit  except for required  letters of credit.  The
maximum  amount  available  under our line of  credit,  after  giving  effect to
outstanding letters of credit, was $8.2 million at August 17, 2005.

                                    Page 33
<PAGE>

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

Our contractual obligations and off-balance sheet arrangements do not materially
differ from the information disclosed in Part II, Item 7 of our Annual Report on
Form 10-K for the year ended January 2, 2005.

SOURCES AND USES OF CASH

The following table summarizes our cash and cash equivalents and working capital
as at the end of the first half of 2005 and 2004,  respectively  and the sources
and uses of our cash flows  during the twenty  eight  weeks ended in each of the
respective years:

                                              TWENTY EIGHT WEEKS ENDED
                                            JULY 17, 2005   JULY 11, 2004
                                            -------------   -------------
                                                   (IN MILLIONS)

         LIQUIDITY AT THE END OF PERIOD

         Cash and cash equivalents             $  50.7       $  39.3
         Working capital                          30.5          23.2

         NET CASH FLOWS FOR THE PERIOD

         Used in operating activities             (9.5)        (13.0)
         Used in investing activities             (2.7)         (3.9)
         Used in financing activities              (.1)         (0.3)

We have  not  historically  required  significant  working  capital  to fund our
existing  operations and have financed our capital  expenditures and investments
in joint ventures through cash generated from operations.

Net cash used in  operating  activities  was $9.5 million for the twenty - eight
weeks ended July 17, 2005 compared to $13.0 million used during the twenty eight
weeks ended July 11, 2004. The decrease in net cash used in operating activities
is primarily related to the change in prepaid expenses resulting from the timing
of our insurance payments.

Net cash used in  investing  activities  has  historically  been  primarily  for
capital  expenditures.  Net cash used in investing  activities decreased by $1.2
million to $2.7 million for the twenty eight weeks ended July 17, 2005 from $3.9
million for the twenty  eight weeks  ended July 11, 2004  primarily  due to less
property and equipment purchased in 2005 as compared to 2004.

                                    Page 34
<PAGE>

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 twenty eight weeks ended July 17,
2005, there were no material changes in our accounting  policies discussed under
the heading "Critical  Accounting  Policies and Judgments" in Part II, Item 7 of
our Annual  Report on Form 10-K for the fiscal year ended  January 2, 2005 whose
application  may have the most  significant  effect on our  reported  results of
operations  or  financial  position  and that require  judgments  estimates  and
assumptions by management  that can affect their  application  from the matters.
However,  beginning with our next quarter, we may be required,  under a new FASB
Staff Position, to expense,  rather than capitalize rental costs incurred during
construction periods.


CERTAIN RELATIONSHIPS AND TRANSACTIONS

During  the  first  half  of  2005,  there  were no  changes  in  related  party
transactions  discussed  under the heading  "Certain  Relationships  and Related
Transactions" in Part II, Item 13 of our Annual Report on Form 10-K for the year
ended January 2, 2005.

FORWARD LOOKING STATEMENTS

This report  contains  certain  forward-looking  statements  about our financial
condition,   results  of  operations,   future  prospects  and  business.  These
statements  appear in a number of places in the  report and  include  statements
regarding our intent,  belief,  expectation,  strategies or  projections at this
time. These statements generally contain words such as "may," "should," "seeks,"
"believes,"  "in  our  opinion,"  "expects,"  "intends,"  "plans,"  "estimates,"
"projects," "strategy" and similar expressions or the negative of those words.

Forward-looking  statements  are subject to a number of known and unknown  risks
and  uncertainties  that could cause actual  results to differ  materially  from
those projected,  expressed or implied in the forward-looking statements.  These
risks and uncertainties,  many of which are not within our control,  include but
are not limited to:

         o        general economic,  inflation,  national security,  weather and
                  business conditions;
         o        the  availability of suitable  restaurant sites in appropriate
                  regional  shopping  malls and other  locations  on  reasonable
                  rental terms;
         o        changes in consumer tastes;

                                    Page 35
<PAGE>

         o        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;
         o        our ability to continue to attract franchisees;
         o        the success of our present, and any future, joint ventures and
                  other expansion opportunities;
         o        the availability of food  (particularly  cheese and tomatoes),
                  beverage and paper products at current prices;
         o        our ability to pass along cost increases to our customers;
         o        increases in the Federal minimum wage;
         o        the continuity of services of members of our senior management
                  team;
         o        our ability to attract  and retain  competent  restaurant  and
                  executive managerial personnel;
         o        competition;
         o        the level of,  and our  ability  to  comply  with,  government
                  regulations;
         o        our ability to generate  sufficient cash flow to make interest
                  payments  and  principal  under our  senior  notes and line of
                  credit;
         o        our  ability  to  comply  with  covenants   contained  in  the
                  indenture under which the senior notes are issued,  as well as
                  the  covenants  contained  in our line of credit  facility and
                  mortgage,  and the  ability of the joint  ventures in which we
                  participate  to comply with the  covenants  contained in their
                  loan  agreements   (obligations  under  which  agreements  are
                  guaranteed  in whole or in part by us), and the effects  which
                  the  restrictions  imposed by those  covenants may have on our
                  ability and the  ability of the joint  ventures to operate our
                  respective businesses; and
         o        our  ability  to  repurchase  our  senior  notes to the extent
                  required  in  the  event  we  make  certain   asset  sales  or
                  experience a change of control.

You are cautioned not to place undue reliance on these  statements,  which speak
only as of the date of the 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.


                                    Page 36
<PAGE>

ITEM 1.           LEGAL PROCEEDINGS

         In May 2002,  the  landlord of a joint  venture to which we are a party
         filed a complaint  against  Sbarro in the Supreme Court of New York for
         Westchester County alleging that we were obligated to it, pursuant to a
         Guaranty Agreement we executed, for all rent during the remaining lease
         based on an alleged breach of the lease by the tenant,  a subsidiary of
         Sbarro.  We believed that our guarantee was limited in amount while the
         landlord  alleged  that the  guarantee  covers all  amounts  that would
         become due during the remaining  lease term.  The court issued a ruling
         in November  2003 which  limited our  liability,  which we estimated at
         $500,000. The landlord appealed this decision. Given the uncertainty of
         the  results  of an appeal and  liability  we would have by reason of a
         reversal,  we settled the matter for  $800,000,  of which  $500,000 and
         $300,000 was recorded in 2003 and 2004, respectively.

         On or about June 6, 2005, two separate purported class actions alleging
         virtually identical claims were filed against Sbarro and over 100 other
         defendants.  One action was filed in the Circuit  Court of the State of
         Florida in  Hillsbury  County and the other  action was filed in United
         States  District Court for the Middle  District of Florida.  All of the
         other named  defendants are well recognized quick service and/or casual
         dining  entities.  The suits allege that  defendants  violated  various
         Florida State and Federal  Statutes by charging sales tax on the retail
         sales of natural  bottled  waters.  We have joined with a number of the
         other  defendants in defending these cases on a joint defense basis. As
         this case is in the  preliminary  stages,  it is difficult to ascertain
         what, if any, exposure we have in the matter.  Based upon conversations
         with  counsel  and  other  defendants  and the fact  that all sales tax
         received on the sale of bottled  water was remitted to the  appropriate
         state  authorities,  it appears  unlikely,  at this time, that the case
         will result in a material liability to us.

                                    Page 37
<PAGE>

ITEM 3.           QUALITATIVE AND QUANTITATIVE DISCLOSURES OF MARKET RISK

We have historically invested our cash on hand in short term, fixed rate, highly
rated and  highly  liquid  instruments  which are  reinvested  when they  mature
throughout  the year.  The  indenture  under  which our senior  notes are issued
limits us to similar  investments.  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.

Future borrowings under our line of credit (none are currently outstanding) will
be at rates  that  float  with the  market  and,  therefore,  will be subject to
fluctuations  in interest  rates.  Our $255  million  senior  notes bear a fixed
interest rate of 11%. We are not a party to, and do not expect to enter into any
interest rate swaps or other instruments to hedge interest rates.

We have not purchased, and do not expect to purchase, future, forward, option or
other instruments to hedge against fluctuations in the prices of the commodities
we  purchase.  As a result,  our future  commodities  purchases  are  subject to
changes in the prices of such commodities.

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

ITEM 4.       CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES:

Our management,  with the participation of our 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,  our Chief
Executive Officer and Chief Financial Officer have concluded that the disclosure
controls and procedures are not effective for the reasons specified below.

In  connection  with our 2004 year ended  closing  process  and the delay in the
filing of our Form 10-K for that year, we identified  two issues which we are in
the process of (but have not as yet completed) rectifying:

         o        We had  insufficient  staffing in the accounting and reporting
                  function  and certain  changes in  management  and  accounting
                  personnel  during the  course of the audit of our fiscal  2004
                  financial statements which strained our existing resources. We
                  are close to completing  the process of upgrading our finance,
                  accounting and internal control  functions to add personnel of
                  skills and training that will not only enable us to


                                    Page 38
<PAGE>

                  accelerate the audit closing function but also will expand the
                  numbers of members of our staff with  knowledge  of  technical
                  accounting literature.

         o        Our existing accounting resources were further strained by our
                  need to  analyze  the  impact of the views of the Staff of the
                  Securities and Exchange Commission set forth in a letter dated
                  February 7, 2005 from the Chief  Accountant of the  Securities
                  and  Exchange  Commission  to the  Chairman  of the Center for
                  Public Company Audit Firms of the American Institute of Public
                  Accountants  concerning the  accounting for operating  leases,
                  which has effected many companies with significant  leases. We
                  have evaluated computer software programs that can provide the
                  requisite  lease analysis in the future and are in the process
                  of updating  that  database and  providing  training to senior
                  accountants  to ensure,  on a  prospective  basis,  the proper
                  accounting,  reporting,  documentation and application of SFAS
                  No. 13,  "Accounting  for Leases" and FASB Technical  Bulletin
                  No. 85-3, "Accounting for Operating Leases with Scheduled Rent
                  Increases."

                                    Page 39
<PAGE>

PART II.   OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS

         In May 2002,  the  landlord of a joint  venture to which we are a party
         filed a complaint  against  Sbarro in the Supreme Court of New York for
         Westchester County alleging that we were obligated to it, pursuant to a
         Guaranty Agreement we executed, for all rent during the remaining lease
         based on an alleged breach of the lease by the tenant,  a subsidiary of
         Sbarro.  We believed that our guarantee was limited in amount while the
         landlord  alleged  that the  guarantee  covers all  amounts  that would
         become due during the remaining  lease term.  The court issued a ruling
         in November  2003 which  limited our  liability,  which we estimated at
         $500,000. The landlord appealed this decision. Given the uncertainty of
         the  results  of an appeal and  liability  we would have by reason of a
         reversal,  we settled the matter for  $800,000,  of which  $500,000 and
         $300,000 was recorded in 2003 and 2004, respectively.

         On or about June 6, 2005, two separate purported class actions alleging
         virtually identical claims were filed against Sbarro and over 100 other
         defendants.  One action was filed in the Circuit  Court of the State of
         Florida in  Hillsbury  County and the other  action was filed in United
         States  District Court for the Middle  District of Florida.  All of the
         other named  defendants are well recognized quick service and/or casual
         dining  entities.  The suits allege that  defendants  violated  various
         Florida State and Federal  Statutes by charging sales tax on the retail
         sales of natural  bottled  waters.  We have joined with a number of the
         other  defendants in defending these cases on a joint defense basis. As
         this case is in the  preliminary  stages,  it is difficult to ascertain
         what, if any, exposure we have in the matter.  Based upon conversations
         with  counsel  and  other  defendants  and the fact  that all sales tax
         received on the sale of bottled  water was remitted to the  appropriate
         state  authorities,  it appears  unlikely,  at this time, that the case
         will result in a material liability to us.

                                    Page 40
<PAGE>

ITEM 6.       EXHIBITS

         EXHIBIT
         NUMBER                             DESCRIPTION
         ------                             -----------

       *+10.01    Employment  agreement dated July 26, 2005 between Sbarro, Inc.
                  and Peter J.  Beaudrault  (Exhibit  99.1 to our Form 8-K filed
                  July 29, 2005, File No. 002-96807).

         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.
+ Management contract or compensatory plan


                                    Page 41
<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                             SBARRO, INC.
                                             -----------------------------------
                                             Registrant

Date:    August 30, 2005                     By: /s/ Peter Beaudrault
         ---------------                         -------------------------------
                                             Peter Beaudrault
                                             President and
                                             Chief Executive Officer
                                             (Principal Executive Officer)

Date:    August 30, 2005                     By: /s/ Anthony J. Puglisi
         ---------------                         -------------------------------
                                             Anthony J. Puglisi
                                             Vice President and
                                             Chief Financial Officer
                                             (Principal Accounting Officer)



                                    Page 42
<PAGE>

                                  EXHIBIT INDEX

         EXHIBIT
         NUMBER                             DESCRIPTION
         ------                             -----------

       *+10.01    Employment  agreement dated July 26, 2005 between Sbarro, Inc.
                  and Peter J.  Beaudrault  (Exhibit  99.1 to our Form 8-K filed
                  July 29, 2005, File No. 002-96807)

         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.
+ Management contract or compensatory plan