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                       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 13, 2003             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
    (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                        NO
    ---------------             ------------

INDICATE  BY CHECK MARK  WHETHER  THE  REGISTRANT  IS AN  ACCELERATED  TITLE (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
22, 2003 WAS 7,064,328.

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                                     Page 1

<PAGE>

                                  SBARRO, INC.

                                 FORM 10-Q INDEX
                                 ---------------


PART I.  FINANCIAL INFORMATION                                            PAGES
         ---------------------                                            -----

Consolidated Financial Statements:

    Balance Sheets - July 13, 2003 (unaudited) and December 29, 2002.........3-4

    Statements of Operations (unaudited) - Twenty-eight Weeks and Twelve
        Weeks ended July 13, 2003 and July 14, 2002..........................5-6

    Statements of Cash Flows (unaudited) - Twenty-eight Weeks ended
        July 13, 2003 and July 14, 2002......................................7-8

    Notes to Unaudited Consolidated Financial Statements - July 13, 2003....9-26

Management's Discussion and Analysis of Financial Condition and Results
    of Operations..........................................................27-36

Qualitative and Quantitative Disclosures of Market Risk.......................36

Controls and Procedures ......................................................37

PART II. OTHER INFORMATION....................................................38
         -----------------


                                     Page 2
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.   CONSOLIDATED FINANCIAL STATEMENTS

                          SBARRO, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                     ASSETS
<TABLE>
<CAPTION>

                                                                                 (In thousands except share data)
                                                                                 --------------------------------
                                                                             July 13, 2003         December 29, 2002
                                                                             -------------         -----------------
                                                                              (unaudited)
<S>                                                                            <C>                    <C>
Current assets:

     Cash and cash equivalents                                                 $ 42,505               $ 55,150
     Restricted cash for untendered shares                                           21                     21
     Receivables, net of allowance for doubtful accounts of $250
        in 2003 and $491 in 2002:

         Franchisee                                                               1,857                  2,059
         Other                                                                    1,583                  1,244
                                                                               --------               --------
                                                                                  3,440                  3,303

     Inventories                                                                  2,280                  3,285
     Prepaid expenses                                                             8,331                  2,362
     Current portion of loans receivable from shareholders                           68                  3,232
                                                                               --------               --------
         Total current assets                                                    56,645                 67,353

Property and equipment, net                                                     107,079                115,081

Intangible assets:

   Trademarks, net                                                              195,916                195,916
   Goodwill, net                                                                  9,204                  9,204
   Deferred financing costs and other, net                                        6,055                  6,632

Loans receivable from shareholders, less current portion                          6,094                  2,800

Other assets                                                                      8,318                  7,787
                                                                               --------               --------
                                                                               $389,311               $404,773
                                                                               ========               ========


            See notes to unaudited consolidated financial statements


                                     Page 3
<PAGE>

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

                      LIABILITIES AND SHAREHOLDERS' EQUITY


                                                                            (In thousands except share data)
                                                                            --------------------------------
                                                                              July 13, 2003        December 29, 2002
                                                                              -------------        -----------------
                                                                               (unaudited)

Current liabilities:

     Amounts due for untendered shares                                         $     21               $     21
     Accounts payable                                                            14,503                 10,279
     Accrued expenses                                                            17,098                 21,623
     Accrued interest payable                                                     9,260                  8,181
     Current portion of mortgage payable                                            162                    154
                                                                               --------               --------
         Total current liabilities                                               41,044                 40,258

Deferred rent                                                                     8,920                  8,474

     Long-term debt, net of original issue

         discount, less current portion                                         268,049                267,941

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 at July 13,

         2003 and December 29, 2002                                                  71                     71
     Additional paid-in capital                                                      10                     10
     Retained earnings                                                           71,217                 88,019
                                                                               --------               --------
                                                                                 71,298                 88,100
                                                                               --------               --------
                                                                               $389,311               $404,773
                                                                               ========               ========
</TABLE>


            See notes to unaudited consolidated financial statements


                                     Page 4
<PAGE>

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

<TABLE>
<CAPTION>

                                                                                 (In thousands)
                                                                                 --------------
                                                                       For the twenty-eight weeks ended:
                                                                       ---------------------------------
                                                                     July 13, 2003           July 14, 2002
                                                                     -------------           -------------
<S>                                                                  <C>                      <C>
Revenues:

     Restaurant sales                                                $ 156,754                $ 176,448
     Franchise related income                                            5,330                    5,075
     Real estate and other                                               3,074                    3,015
                                                                     ---------                ---------
     Total revenues                                                    165,158                  184,538
                                                                     ---------                ---------

Costs and expenses:
     Restaurant operating expenses:
        Cost of food and paper products                                 33,547                   34,854
        Payroll and other employee benefits                             45,827                   50,056
        Other operating costs                                           59,529                   62,377
     Depreciation and amortization                                      10,409                   11,912
     General and administrative                                         14,066                   12,699
     Provision for restaurant closings                                   1,057                    2,229
                                                                     ---------                ---------
        Total costs and expenses                                       164,435                  174,127
                                                                     ---------                ---------
Operating income before minority interest                                  723                   10,411
Minority interest                                                          (10)                     (33)
                                                                     ---------                ---------
     Operating income                                                      713                   10,378
                                                                     ---------                ---------

Other income (expense):

     Interest expense                                                  (16,763)                 (16,740)
     Interest income                                                       411                      260
     Equity in net income of unconsolidated affiliates                     511                      545
                                                                     ---------                ---------
     Net other expense                                                 (15,841)                 (15,935)
                                                                     ---------                ---------

Loss before income taxes                                               (15,128)                  (5,557)
Income taxes                                                               574                      201
                                                                     ---------                ---------

Net loss                                                             $ (15,702)               $  (5,758)
                                                                     =========                =========

            See notes to unaudited consolidated financial statements


                                     Page 5
<PAGE>

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

<CAPTION>

                                                                                (In thousands)
                                                                                --------------
                                                                          For the twelve weeks ended:
                                                                          ---------------------------
                                                                     July 13, 2003          July 14, 2002
                                                                     -------------          -------------
<S>                                                                  <C>                     <C>
Revenues:

     Restaurant sales                                                $ 68,245                $ 75,679
     Franchise related income                                           2,391                   2,332
     Real estate and other                                              1,407                   1,321
                                                                     --------                --------
     Total revenues                                                    72,043                  79,332
                                                                     --------                --------

Costs and expenses:
     Restaurant operating expenses:
        Cost of food and paper products                                14,243                  14,846
        Payroll and other employee benefits                            19,816                  21,567
        Other operating costs                                          25,797                  26,660
     Depreciation and amortization                                      4,513                   5,088
     General and administrative                                         5,347                   5,544
     Provision for restaurant closings                                    528                   2,105
                                                                     --------                --------
        Total costs and expenses                                       70,244                  75,810
                                                                     --------                --------
Operating income before minority interest                               1,799                   3,522
Minority interest                                                          (5)                    (14)
                                                                     --------                --------
     Operating income                                                   1,794                   3,508
                                                                     --------                --------

Other income (expense):

     Interest expense                                                  (7,180)                 (7,166)
     Interest income                                                      197                     106
     Equity in net income of unconsolidated affiliates                    230                     284
                                                                     --------                --------
     Net other expense                                                 (6,753)                 (6,776)
                                                                     --------                --------

Loss before income taxes                                               (4,959)                 (3,268)
Income taxes                                                              253                      69
                                                                     --------                --------

Net loss                                                             $ (5,212)               $ (3,337)
                                                                     ========                ========
</TABLE>


            See notes to unaudited consolidated financial statements


                                     Page 6
<PAGE>


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

                                                                                  (In thousands)
                                                                                  --------------
                                                                        For the twenty-eight weeks ended:
                                                                        ---------------------------------
                                                                        July 13, 2003      July 14, 2002
                                                                        -------------      -------------
<S>                                                                       <C>                <C>
Operating activities:

Net loss                                                                  $(15,702)          $ (5,758)
Adjustments to reconcile net loss to net cash (used in) provided
      by operating activities:

      Depreciation and amortization                                         11,192             12,695
      Provision for restaurant closings                                         71              1,729
      Increase in deferred rent, net                                           212                354
      Gain on sale of other concept unit                                      (200)                --
      Loss on sale of other concept unit included in prior year
          asset impairment costs                                               250                 --
      Minority interest                                                         10                 33
      Equity in net income of unconsolidated affiliates                       (511)              (545)
      Dividends received from unconsolidated affiliate                         119                311
Changes in operating assets and liabilities:

      Decrease in receivables                                                  422                903
      Decrease in inventories                                                1,005                647
      Increase in prepaid expenses                                          (5,694)            (6,965)
      Increase in other assets                                                (130)              (150)
      Increase (decrease) in accounts payable and accrued
          expenses                                                           1,160             (3,345)
      Increase in accrued interest payable                                   1,079              1,079
                                                                          --------           --------

Net cash (used in) provided by operating activities                         (6,717)               988
                                                                          --------           --------


            See notes to unaudited consolidated financial statements



                                     Page 7
<PAGE>


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

<CAPTION>

                                                                    (In thousands)
                                                                    --------------
                                                           For the twenty-eight weeks ended:
                                                           ---------------------------------
                                                          July 13, 2003      July 14, 2002
                                                          -------------      -------------
Investing activities:

<S>                                                         <C>                <C>
Purchases of property and equipment                         $ (4,739)          $ (4,053)
                                                            --------           --------
     Net cash used in investing activities                    (4,739)            (4,053)
                                                            --------           --------

Financing activities:

Mortgage principal repayments                                    (88)               (81)
Tax distributions related to the prior fiscal year            (1,101)            (3,125)
                                                            --------           --------
     Net cash used in financing activities                    (1,189)            (3,206)
                                                            --------           --------

Decrease in cash and cash equivalents                        (12,645)            (6,271)

Cash and cash equivalents at beginning of period              55,150             36,952
                                                            --------           --------

Cash and cash equivalents at end of period                  $ 42,505           $ 30,681
                                                            ========           ========

Supplemental disclosure of cash flow information:

Cash paid during the period for income taxes                $    330           $    483
                                                            ========           ========

Cash paid during the period for interest                    $ 14,867           $ 14,892
                                                            ========           ========
</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 our  consolidated  financial  position  at  July  13,  2003  and our
         consolidated  results of operations and cash flows for the twenty-eight
         and twelve week periods ended July 13, 2003 and July 14, 2002 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 fiscal year ended December 29, 2002.

2.       NEW ACCOUNTING PRONOUNCEMENTS:

         In April  2002,  the FASB  issued  SFAS No.  145,  "Rescission  of FASB
         Statements  No. 4, 44 and 64,  Amendment of FASB  Statement  No. 13 and
         Technical Corrections." This statement eliminates the prior requirement
         that  gains and losses on debt  extinguishment  must be  classified  as
         extraordinary   items  in  the  income  statement  and  contains  other
         nonsubstantive  corrections to authoritative  accounting  literature in
         SFAS No. 4, 44 and 64.  The  changes  in SFAS No.  145  related to debt
         extinguishment  were  effective  for us at the  beginning  of our  2003
         fiscal year and the other changes were  effective for us beginning with
         transactions  after May 15,  2002.  Adoption of this  standard  has not
         impacted our financial position and results of operations.

         In June 2002,  the FASB  issued  SFAS No.  146,  "Accounting  for Costs
         Associated   with  Exit  or  Disposal   Activities,"   which  addresses
         accounting for restructuring and similar costs. SFAS No. 146 supersedes
         previous   accounting   guidance,   principally  EITF  Issue  No.  94-3
         "Liability  Recognition for Certain Employee  Termination  Benefits and
         Other Costs to Exit an Activity  (including Certain Costs Incurred in a
         Restructuring)."  SFAS No. 146 requires  that the  liability  for costs
         associated  with an exit or disposal  activity be  recognized  when the
         liability  is incurred.  Under EITF No.  94-3, a liability  for an exit
         cost was  recognized at the date of a company's  commitment for an exit
         plan. SFAS No. 146 also establishes that the liability should initially
         be measured and recorded at fair value.  SFAS 146 changes the timing of
         expense   recognition   for  certain   costs  we  incur  while  closing
         restaurants or undertaking other exit or disposal activities;  however,
         the timing difference is not typically significant in length.  Adoption
         of SFAS 146 did not have a material impact on our financial  statements
         for the quarter and year to date ended July 13, 2003.


                                     Page 9
<PAGE>

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

         In November 2002, the FASB issued FIN No. 45,  "Guarantor's  Accounting
         and  Disclosure   Requirements   for  Guarantees   including   Indirect
         Guarantees of  Indebtedness  of Others" which  addresses the accounting
         for and disclosure by guarantors regarding  obligations relating to the
         issuance  of certain  guarantees.  FIN No. 45  requires  that,  for all
         guarantees  issued or modified after December 31, 2002, a liability for
         the  fair  value  of  the  obligation  undertaken  be  recorded  at the
         inception of a guarantee.  No revision of or  restatement of accounting
         for  guarantees  issued  or  modified  prior to  December  31,  2002 is
         allowed.  The disclosure  requirements  of  Interpretation  No. 45 were
         effective with our 2002 financial statements. As described in the Notes
         to the Consolidated  Financial Statements included in our Annual Report
         on Form 10-K for the year ended  December  29, 2002,  we have  provided
         certain  guarantees  that would  require  recognition  upon issuance or
         modification  under the  provisions  of FIN 45. While the nature of our
         business  will likely  result in the issuance of certain  guarantees in
         the  future,  we do not  anticipate  that FIN 45 will  have a  material
         impact on our financial position or results of operations.

         FIN 46,  "Consolidation  of Variable  Interest  Entities," is effective
         immediately  for all  enterprises  with variable  interests in variable
         interest entities created after January 31, 2003. The provisions of FIN
         46 must be applied to variable  interests in variable interest entities
         created before February 1, 2003 from the beginning of the third quarter
         of 2003. If an entity is determined to be a variable  interest  entity,
         it must be  consolidated by the enterprise that absorbs the majority of
         the entity's expected losses if they occur,  receives a majority of the
         entity's  expected residual returns if they occur, or both. Where it is
         reasonably  possible that the enterprise  will  consolidate or disclose
         information  about a variable  interest  entity,  the  enterprise  must
         disclose  the  nature,  purpose,  size  and  activity  of the  variable
         interest  entity and the  enterprise's  maximum  exposure  to loss as a
         result of its  involvement  with the  variable  interest  entity in all
         financial  statements  issued after  January 31, 2003. We are currently
         reviewing the potential  impact of FIN 46 on our financial  statements.
         We expect any disclosure or consolidation requirements arising from the
         adoption will be immaterial.

         In May 2003,  the FASB  issued  SFAS No.  150,  Accounting  for Certain
         Financial  Instruments  with  Characteristics  of both  Liabilities and
         Equity. SFAS No. 150 establishes standards for how a company classifies
         and measures in its statement of financial  position certain  financial
         instruments with  characteristics  of both  liabilities and equity.  In
         accordance  with  the  standard,   financial  instruments  that  embody
         obligations   for  the  issuer  are  required  to  be   classified   as
         liabilities.  This  Statement is effective  for  financial  instruments
         entered into or modified after May 31, 2003, and otherwise is effective
         at the beginning of the first interim period  beginning  after June 15,
         2003.  We have not entered into any  financial  instruments  within the
         scope of SFAS No. 150 since May 31, 2003,  nor do we currently hold any
         financial instruments within its scope.



                                    Page 10
<PAGE>

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

3.       LONG-TERM DEBT:

         We have  received  a waiver of  compliance  for the  second  quarter of
         fiscal 2003 from certain  ratios  required to be  maintained  under our
         bank credit agreement,  as amended.  Our credit agreement requires that
         we  maintain a minimum  ratio of  consolidated  EBITDA to  consolidated
         interest  expense (in each case  together  with our  subsidiaries  that
         guarantee our obligations under the bank agreement,  which are the same
         entities as our Restricted Subsidiaries under the indenture under which
         our senior notes are issued) of at least 1.4 to 1.0 beginning  December
         30,  2002 and 1.5 to 1.0  beginning  December  28,  2003.  For the four
         quarters  ended  July 13,  2003,  this ratio was 1.27 to 1. We are also
         required to  maintain a maximum  ratio of  consolidated  senior debt to
         consolidated  EBITDA (in each case with the guaranteeing  subsidiaries)
         of 6.5 to 1.0  beginning  December  30,  2002 and 6.0 to 1.0  beginning
         December  28, 2003.  For the four  quarters  ended July 13, 2003,  this
         ratio was 7.1 to 1.

         We are subject to various covenants under the indenture under which our
         senior notes are issued and under our bank credit agreement. One of the
         covenants limits our ability to borrow funds (except under specifically
         permitted arrangements, such as up to $75.0 million of revolving credit
         loans) unless our  consolidated  interest  ratio coverage (as defined),
         after giving pro forma effect to the interest on the new borrowing, for
         the four most  recently  ended  fiscal  quarters  is at least 2.5 to 1.
         Another  covenant  limits our  ability to make  "restricted  payments,"
         including,  among  other  things,  dividend  payments  (other  than  as
         distributions   pursuant  to  our  tax  payment   agreement   with  our
         shareholders related to Subchapter S distributions) and investments in,
         among other things,  unrestricted  subsidiaries,  to specified  amounts
         determined under a formula contained in the indenture  provided (except
         with respect to certain  permitted  investments and tax  distributions)
         that our interest  coverage ratio is at least 2.0 to 1 after giving pro
         forma effect to the restricted  payment.  For the four fiscal  quarters
         ended July 13, 2003, our consolidated  interest  coverage ratio was 1.5
         to 1. As a result,  we are not  presently  able to borrow  funds (other
         than the specifically permitted indebtedness).  Additionally, under the
         formula contained in the indenture,  we cannot make restricted payments
         other than certain permitted investments and tax distributions until we
         increase the  restricted  payment  availability  by  approximately  $16
         million, and then only to the extent of any excess over that amount.

         We were in compliance  with the various  covenants in the indenture for
         our senior notes, and our mortgage as of July 13, 2003.

4.       INCOME TAXES:

         During the twenty-eight weeks ended July 13, 2003, we made a Subchapter
         S tax distribution to our  shareholders,  based on our tax basis income
         for fiscal 2002,  that totaled $1.1 million  compared to a $3.1 million
         Subchapter S tax distribution made during the twenty-eight  weeks ended
         July 14, 2002, based on our tax basis income for fiscal 2001.



                                    Page 11
<PAGE>

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

5.       RELATED PARTY TRANSACTIONS:

         On April 6, 2003, loans of $3.23 million to certain of our shareholders
         were  extended to April 6, 2005.  The notes bear  interest at 4.63% per
         annum.

         In March  2003,  we  extended a loan of  $40,000 to Gennaro A.  Sbarro,
         Corporate Vice President and President of our Franchising and Licensing
         Division,  to March 28,  2004.  The note  bears  interest  at 2.69% per
         annum.

         Anthony  Missano,  Corporate  Vice President and President of our Quick
         Service  Division,  entered  into a note in our favor in the  amount of
         $89,687,  plus  interest at 2.96%,  that is repayable  over five years,
         with respect to the payment of royalties  due us for 2001 and 2000 from
         a company,  that is a franchisee of ours, that is owned by the daughter
         of Joseph Sbarro who is Mr. Missano's wife.

         On March 3, 2003, a company in which Gennaro J. Sbarro,  Corporate Vice
         President and President of our Casual and Fine Dining  Division,  has a
         50% interest,  signed a franchise agreement with us for a new location.
         The terms of the franchise agreement are similar to those in agreements
         entered  into by us  with  unrelated  franchisees.  The  lease  for the
         location was entered into in September 2002 by one of our subsidiaries.
         Subsequent  to that  date,  we  determined  that the  economics  of the
         location would be better suited for a franchise  operator and, as such,
         it was subsequently  subleased to this  franchisee.  Payments under the
         sublease  will be made  directly  to the  landlord  by the  franchisee.
         Future minimum  rental  payments under the lease for this location over
         the term of the lease,  which expires in 2018, are  approximately  $2.6
         million.  The  location  is  expected  to open in the third  quarter of
         fiscal 2003.

6.       LITIGATION:

         On December 20, 1999,  fourteen  current and former general managers of
         Sbarro  restaurants in California  amended a complaint against us filed
         in the Superior Court of California  for Orange  County.  The complaint
         alleges  that the  plaintiffs  were  improperly  classified  as  exempt
         employees  under the  California  wage and hour law. The plaintiffs are
         seeking  actual  damages,  punitive  damages and costs of the  lawsuit,
         including  reasonable  attorney's  fees,  each in unspecified  amounts.
         Plaintiffs filed a motion to certify the lawsuit as a class action, but
         the Court denied the motion. The trial was concluded in April 2003, and
         the parties have  submitted  post-trial  briefs.  The Court has not yet
         issued a judgment.

         On September 6, 2000,  eight other current and former general  managers
         of Sbarro restaurants in California filed a complaint against us in the
         Superior  Court of  California  for  Orange  County  alleging  that the
         plaintiffs  were  improperly   classified  as  exempt  employees  under
         California  wage  and hour  law.  The  plaintiffs  are  seeking  actual
         damages,   punitive


                                    Page 12
<PAGE>

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

         damages and costs of the lawsuit, including reasonable attorney's fees,
         each in unspecified  amounts.  Plaintiffs  are  represented by the same
         counsel who is representing the plaintiffs in the case discussed in the
         preceding  paragraph.  We  have  separately  settled  with  four of the
         plaintiffs in this action for immaterial  amounts.  The parties to this
         case  have  agreed  that it will be  settled  upon the same  terms  and
         conditions that the court orders in connection with its decision in the
         case discussed in the preceding paragraph.

         On March 22, 2002, five former general  managers of Sbarro  restaurants
         in  California  filed a complaint  against us in the Superior  Court of
         California  for Los Angeles  County.  The  complaint  alleges  that the
         plaintiffs  were illegally  required to perform labor services  without
         proper  premium  overtime  compensation  from at least May of 1999. The
         plaintiffs are seeking actual damages,  punitive damages and attorney's
         fees and costs, each in unspecified  amounts.  In addition,  plaintiffs
         have  requested  class action status for all  managerial  employees who
         worked  overtime  and/or were not otherwise  paid regular wages due and
         owing from May 1999 to present. This case is currently in the discovery
         phase.

         We believe that we have substantial defenses in each of the actions and
         are vigorously defending these actions.

         In addition to the above complaints,  from time to time, we are a party
         to  certain  claims and legal  proceedings  in the  ordinary  course of
         business.  In our  opinion,  the  results of the  complaints  and other
         claims  and  legal  proceedings  are not  expected  to have a  material
         adverse  effect on our  consolidated  financial  position or results of
         operations.

7.       GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS:

         Certain  subsidiaries  have guaranteed  amounts  outstanding  under our
         senior  notes  and  bank  credit  agreement.  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
         credit agreement on a joint and several basis.

         The following condensed consolidating financial information presents:

         (1)   Condensed  consolidating  balance  sheets  as of  July  13,  2003
               (unaudited)  and December 29, 2002 and  statements  of operations
               for the  twenty-eight  and  twelve  weeks  ended  July  13,  2003
               (unaudited) and July 14, 2002  (unaudited) and cash flows for the
               twenty-eight  weeks ended July 13, 2003  (unaudited) and July 14,
               2002  (unaudited)  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.



                                    Page 13
<PAGE>

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


         (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 (CONTINUED)

                           CONSOLIDATING BALANCE SHEET
                               AS OF JULY 13, 2003
                        (IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)

                                     ASSETS

<TABLE>
<CAPTION>
                                                           Guarantor      Nonguarantor                    Consolidated
                                            Parent       Subsidiaries     Subsidiaries    Eliminations       Total
                                            ------       ------------     ------------    ------------       -----
<S>                                        <C>           <C>           <C>                           <C>
Current assets:
   Cash and cash equivalents               $  37,726     $   4,014     $     765                           $  42,505
   Restricted cash for untendered                 21             -             -                                  21
     shares

   Receivables less allowance for
     doubtful accounts of $250:

     Franchise                                 1,857             -             -                               1,857
     Other                                       142           733           708                               1,583
                                           ---------     ---------     ---------                           ---------

                                               1,999           733           708                               3,440

   Inventories                                   964         1,179           137                               2,280
   Prepaid expenses                            6,596         1,507           228                               8,331

   Current portion of loans receivable
     from shareholders                            68             -             -                    -             68
                                           ---------     ---------     ---------            ---------      ---------
     Total current assets                     47,374         7,433         1,838                              56,645

 Intercompany receivables                      6,734       312,642             -            $(319,376)             -

Investment in subsidiaries                    65,469             -             -              (65,469)             -

Property and equipment, net                   40,052        61,609         5,418                    -        107,079

Intangible assets, net:
   Trademarks, net                           195,916             -             -                    -        195,916
   Goodwill, net                               9,204             -             -                    -          9,204
   Deferred financing costs and other,
      net                                      5,804           251             -                    -          6,055

Loans receivable from shareholders             6,094             -             -                    -          6,094

Other assets                                   9,760         1,826          (791)              (2,477)         8,318
                                           ---------     ---------     ---------            ---------      ---------

                                           $ 386,407     $ 383,761     $   6,465            $(387,322)     $ 389,311
                                           =========     =========     =========            =========      =========
</TABLE>


                                    Page 15
<PAGE>

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

                           CONSOLIDATING BALANCE SHEET
                               AS OF JULY 13, 2003
                        (IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)

                      LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                           Guarantor     Nonguarantor                     Consolidated
                                             Parent      Subsidiaries    Subsidiaries     Eliminations       Total
                                             ------      ------------    ------------     ------------    ------------
<S>                                        <C>            <C>            <C>            <C>            <C>
Current liabilities:

   Amounts due for untendered shares       $      21                                                       $      21
   Accounts payable                           13,485      $     254      $     764                            14,503
   Accrued expenses                           13,955          1,224          1,919                            17,098
   Accrued interest payable                    9,260              -              -                             9,260
   Current portion of mortgage payable             -            162              -                               162
                                           ---------      ---------      ---------                         ---------
     Total current liabilities                36,721          1,640          2,683                            41,044

Intercompany payables                        312,642          2,958          3,776        $(319,376)               -

Deferred rent                                  8,216              -            704                -            8,920

Long-term debt, net of
   original issue discount                   252,653         15,396              -                -          268,049

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                     10         65,469          2,477          (67,946)              10
   Retained earnings (deficit)                (3,175)      (223,906)       298,298                -           71,217
                                           ---------      ---------      ---------        ---------        ---------

                                            (223,825)       363,767        (67,946)            (698)          71,298
                                           ---------      ---------      ---------        ---------        ---------

                                           $ 386,407      $ 383,761      $   6,465        $(387,322)       $ 389,311
                                           =========      =========      =========        =========        =========
</TABLE>


                                    Page 16
<PAGE>

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

                           CONSOLIDATING BALANCE SHEET
                             AS OF DECEMBER 29, 2002
                        (IN THOUSANDS EXCEPT SHARE DATA)

                                     ASSETS

<TABLE>
<CAPTION>

                                                           Guarantor     Nonguarantor                     Consolidated
                                             Parent      Subsidiaries    Subsidiaries     Eliminations       Total
                                             ------      ------------    ------------     ------------    ------------
<S>                                           <C>              <C>              <C>                           <C>
Current assets:
   Cash and cash equivalents                 $ 47,636        $  6,539         $  975                         $ 55,150
   Restricted cash for untendered
      shares                                       21               -              -                               21
   Receivables less allowance for
      doubtful accounts of $491:
      Franchise                                 2,059                              -                            2,059
      Other                                        69           1,088             87                            1,244
                                             --------        --------         ------                         --------
                                                2,128           1,088             87                            3,303

   Inventories                                  1,417           1,725            143                            3,285
   Prepaid expenses                             2,677            (342)            27                            2,362
   Current portion of loans receivable
      from shareholders                         3,232               -              -                            3,232
                                             --------        --------         ------                         --------
     Total current assets                      57,111           9,010          1,232                           67,353

Intercompany receivables                        8,505         313,877              -        $(322,382)              -

Investment in subsidiaries                     65,469               -              -          (65,469)              -

Property and equipment, net                    42,762          65,726          6,593                -         115,081

Intangible assets:

   Trademarks, net                            195,916               -              -                -         195,916
   Goodwill, net                                9,324               -              -             (120)          9,204
   Deferred financing costs, net                6,361             271              -                -           6,632

   Loans receivable from shareholders,
      less current portion                      2,800               -              -                -           2,800

   Other assets                                 8,742           1,705           (303)          (2,357)          7,787
                                             --------        --------         ------        ---------        --------
                                             $396,990        $390,589         $7,522        $(390,328)       $404,773
                                             ========        ========         ======        =========        ========
</TABLE>


                                    Page 17
<PAGE>

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

                           CONSOLIDATING BALANCE SHEET
                             AS OF DECEMBER 29, 2002
                        (IN THOUSANDS EXCEPT SHARE DATA)
                      LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                           Guarantor     Nonguarantor                     Consolidated
                                             Parent      Subsidiaries    Subsidiaries     Eliminations       Total
                                             ------      ------------    ------------     ------------    ------------
<S>                                          <C>             <C>              <C>           <C>              <C>
Current liabilities:


   Amounts due for untendered shares       $       21                                                       $      21
   Accounts payable                             9,503       $     212    $       564                           10,279
   Accrued expenses                            17,887           1,560          2,176                           21,623
   Accrued interest payable                     8,181               -              -                            8,181
   Current portion of
      mortgage payable                              -             154              -                              154
                                           ----------       ---------    -----------                         --------
     Total current liabilities                 35,592           1,926          2,740                           40,258
                                           ----------       ---------    -----------        ---------        --------

Intercompany payables                         313,877           3,308          5,197        $(322,382)              -
                                           ----------       ---------    -----------        ---------        --------

Deferred rent                                   7,793               -            681                -           8,474
                                           ----------       ---------    -----------        ---------        --------

Long-term debt, net of original issue
   discount                                   252,449          15,492              -                -         267,941
                                           ----------       ---------    -----------        ---------        --------

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                      10          65,469          2,477          (67,946)             10
   Retained earnings (deficit)               (212,802)        304,394         (3,573)               -          88,019
                                           ----------       ---------    -----------        ---------        --------

                                             (212,721)        369,863         (1,096)         (67,946)         88,100
                                           ----------       ---------    -----------        ---------        --------

                                           $  396,990       $ 390,589    $     7,522        $(390,328)       $404,773
                                           ==========       =========    ===========        =========        ========
</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 13, 2003
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                           Guarantor     Nonguarantor                     Consolidated
                                             Parent      Subsidiaries    Subsidiaries     Eliminations       Total
                                             ------      ------------    ------------     ------------    ------------
<S>                                            <C>             <C>             <C>             <C>            <C>
Revenues:
---------

   Restaurant sales                          $ 66,633         $82,261        $ 7,860                         $156,754
   Franchise related income                     5,330               -              -                            5,330
   Real estate and other                        1,489           1,551             34                            3,074
   Intercompany charges                         5,492               -              -        $  (5,492)              -
                                             --------         -------        -------        ---------        --------
         Total revenues                        78,944          83,812          7,894           (5,492)        165,158
                                             --------         -------        -------        ---------        --------

Cost and expenses:
   Restaurant operating expenses:
       Cost of food and paper products         13,578          17,914          2,055                -          33,547
       Payroll and other employee
         benefits                              18,866          24,245          2,716                -          45,827
       Other operating costs                   27,024          30,378          2,127                -          59,529
   Depreciation and amortization                4,697           5,173            539                -          10,409
   General and administrative                   8,454           5,706            (94)               -          14,066
   Provision for restaurant closings              900               -            157                -           1,057
   Intercompany charges                             -           5,492              -           (5,492)              -
                                             --------         -------        -------        ---------        --------

       Total costs and expenses                73,519          88,908          7,500           (5,492)        164,435
                                             --------         -------        -------        ---------        --------

Operating income (loss) before
    minority interest                           5,425          (5,096)           394                -             723
Minority interest                                   -               -            (10)               -             (10)
                                             --------         -------        -------        ---------        --------
Operating income (loss)                         5,425          (5,096)           384                -             713
                                             --------         -------        -------        ---------        --------

Other (expense) income:

   Interest expense                           (15,978)           (785)             -                -         (16,763)
   Interest income                                411               -              -                -             411
   Equity in net income  of
     unconsolidated affiliates                    511               -              -                -             511
                                             --------         -------        -------        ---------        --------

Net other expense                             (15,056)           (785)             -                -         (15,841)
                                             --------         -------        -------        ---------        --------

(Loss) income before income taxes              (9,631)         (5,881)           384                -         (15,128)
Income taxes                                      373             215            (14)               -             574
                                             --------         -------        -------        ---------        --------

Net (loss) income                            $(10,004)        $(6,096)       $   398                -        $(15,702)
                                             ========         =======        =======        =========        ========
</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 14, 2002
                                 (IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                           Guarantor     Nonguarantor                     Consolidated
                                             Parent      Subsidiaries    Subsidiaries     Eliminations       Total
                                             ------      ------------    ------------     ------------    ------------
<S>                                          <C>               <C>             <C>          <C>               <C>
Revenues:

   Restaurant sales                        $   72,797       $  90,905       $ 12,746                         $176,448
   Franchise related income                     5,075               -              -                            5,075
   Real estate and other                        1,464           2,035              -        $    (484)          3,015
   Intercompany charges                             -           7,440              -           (7,440)              -
                                           ----------       ---------       --------        ---------        --------
         Total revenues                        79,336         100,380         12,746           (7,924)        184,538
                                           ----------       ---------       --------        ---------        --------

Cost and expenses:
   Restaurant operating expenses:

       Cost of food and paper products         12,828          18,686          3,340                -          34,854
       Payroll and other employee
         benefits                              20,091          25,315          4,650                -          50,056
       Other operating costs                   24,996          33,232          4,149                -          62,377
   Depreciation and amortization                5,117           6,157            638                -          11,912
   General and administrative                   6,697           6,285            201             (484)         12,699
   Provision for restaurant closings            2,070               -            159                -           2,229
   Intercompany charges                         7,440               -              -           (7,440)               -
                                           ----------       ---------       --------        ---------        --------
       Total costs and expenses                79,239          89,675         13,137           (7,924)        174,127
                                           ----------       ---------       --------        ---------        --------

Operating income (loss) before minority
   interest                                        97          10,705           (391)               -          10,411
Minority interest                                   -               -            (33)               -             (33)
                                           ----------       ---------       --------        ---------        --------
Operating income (loss)                            97          10,705           (424)               -          10,378
                                           ----------       ---------       --------        ---------        --------

Other (expense) income:

   Interest expense                           (15,948)           (792)             -                -         (16,740)
   Interest income                                260               -              -                -             260
   Equity in net income  of
     unconsolidated affiliates                    545               -              -                -             545
                                           ----------       ---------       --------        ---------        --------

Net other expense                             (15,143)           (792)             -                -         (15,935)
                                           ----------       ---------       --------        ---------        --------

(Loss) income before income taxes             (15,046)          9,913           (424)               -          (5,557)
Income (benefit) taxes                           (143)            359            (15)               -             201
                                           ----------       ---------       --------        ---------        --------

Net  (loss) income                         $  (14,903)      $   9,554       $   (409)       $       -        $ (5,758)
                                           ==========       =========       ========        =========        ========
</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 13, 2003
                                 (IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                           Guarantor     Nonguarantor                     Consolidated
                                             Parent      Subsidiaries    Subsidiaries     Eliminations       Total
                                             ------      ------------    ------------     ------------    ------------
<S>                                            <C>             <C>             <C>             <C>             <C>
Revenues:
---------

   Restaurant sales                          $ 29,217       $  35,667        $ 3,361                          $68,245
   Franchise related income                     2,391               -              -                            2,391
   Real estate and other                          709             664             34                            1,407
   Intercompany charges                         2,333               -              -       $   (2,333)              -
                                             --------       ---------        -------       ----------         -------
         Total revenues                        34,650          36,331          3,395           (2,333)         72,043
                                             --------       ---------        -------       ----------         -------

Cost and expenses:
   Restaurant operating expenses:

       Cost of food and paper products          5,780           7,590            873                -          14,243
       Payroll and other employee
         benefits                               8,235          10,451          1,130                -          19,816
       Other operating costs                   11,886          13,041            870                -          25,797
   Depreciation and amortization                2,053           2,233            227                -           4,513
   General and administrative                   3,455           2,081           (189)               -           5,347
   Provision for restaurant closings              500               -             28                -             528
   Intercompany charges                             -           2,333              -           (2,333)              -
                                             --------       ---------        -------       ----------         -------
       Total costs and expenses                31,909          37,729          2,939           (2,333)         70,244
                                             --------       ---------        -------       ----------         -------

Operating income (loss) before
   minority interest                            2,741          (1,398)           456                -           1,799
Minority interest                                   -               -             (5)               -              (5)
                                             --------       ---------        -------       ----------         -------
Operating income (loss)                         2,741          (1,398)           451                -           1,794
                                             --------       ---------        -------       ----------         -------

Other (expense) income:

   Interest expense                            (6,847)           (333)             -                -          (7,180)
   Interest income                                197               -              -                -             197
   Equity in net income  of                                                                         -               -
     unconsolidated affiliates                    230               -              -                -             230
                                             --------       ---------        -------       ----------         -------

Net other expense                              (6,420)           (333)             -                -          (6,753)
                                             --------       ---------        -------       ----------         -------

Income (loss) before income taxes              (3,679)         (1,731)           451                -          (4,959)
Income taxes (benefit)                            186              83            (16)               -             253
                                             --------       ---------        -------       ----------         -------

Net income (loss)                            $ (3,865)      $  (1,814)       $   467       $        -         $(5,212)
                                             ========       =========        =======       ==========         =======
</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 14, 2002
                                 (IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                           Guarantor     Nonguarantor                     Consolidated
                                             Parent      Subsidiaries    Subsidiaries     Eliminations       Total
                                             ------      ------------    ------------     ------------    ------------
<S>                                           <C>              <C>              <C>        <C>                <C>
Revenues:

   Restaurant sales                        $   31,384      $   38,702       $  5,593                          $75,679
   Franchise related income                     2,332               -              -                            2,332
   Real estate and other                          655             874              -       $     (208)          1,321
   Intercompany charges                             -           3,390              -           (3,390)              -
                                           ----------      ----------       --------       ----------         -------
         Total revenues                        34,371          42,966          5,593           (3,598)         79,332
                                           ----------      ----------       --------       ----------         -------

Cost and expenses:
   Restaurant operating expenses:

       Cost of food and paper products          5,450           7,932          1,464                -          14,846
       Payroll and other employee
         benefits                               9,369          10,145          2,053                -          21,567
       Other operating costs                   10,215          14,815          1,630                -          26,660
   Depreciation and amortization                2,190           2,625            273                -           5,088
   General and administrative                   3,097           2,557             98             (208)          5,544
   Provision for restaurant closings            1,970               -            135                -           2,105
   Intercompany charges                         3,390               -              -           (3,390)              -
                                           ----------      ----------       --------       ----------         -------
       Total costs and expenses                35,681          38,074          5,653           (3,598)         75,810
                                           ----------      ----------       --------       ----------         -------

Operating (loss) income  before
   minority interest                           (1,310)          4,892            (60)               -           3,522
Minority interest                                   -               -            (14)               -             (14)
                                           ----------      ----------       --------       ----------         -------
Operating (loss) income                        (1,310)          4,892            (74)               -           3,508
                                           ----------      ----------       --------       ----------         -------

Other (expense) income:

   Interest expense                            (6,827)           (339)             -                -          (7,166)
   Interest income                                106               -              -                -             106
   Equity in net income  of
     unconsolidated affiliates                    284               -              -                -             284
                                           ----------      ----------       --------       ----------         -------

Net other expense                              (6,437)           (339)             -                -          (6,776)
                                           ----------      ----------       --------       ----------         -------

Income (loss) before income taxes              (7,747)          4,553            (74)               -          (3,268)
Income taxes (benefit)                             15              50              4                -              69
                                           ----------      ----------       --------       ----------         -------

Net (loss)  income                         $   (7,762)     $    4,503       $    (78)      $        -         $(3,337)
                                           ==========      ==========       ========       ==========         =======
</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 13, 2003
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                          Guarantor      Nonguarantor                          Consolidated
                                            Parent       Subsidiaries    Subsidiaries     Eliminations            Total
                                            ------       ------------    ------------     ------------         ------------
<S>                                         <C>           <C>           <C>                      <C>            <C>
Operating Activities:
---------------------

Net (loss) income                           $(10,004)     $ (6,096)     $    398                  -             $(15,702)
Adjustments to reconcile net (loss)
  income to net cash (used in)
  provided by operating activities:
  Depreciation and amortization                5,680         4,976           536                  -               11,192
  Provision for restaurant closing                71             -             -                  -                   71
  Increase (decrease) in deferred rent           215           (27)           24                  -                  212
  Gain on sale of other concept unit               -             -          (200)                 -                 (200)
  Loss on sale of other concept units
    included in prior year asset
    impairment costs                               -             -           250                  -                  250
  Minority interest                                -             -            10                  -                   10
  Equity in net income of
    unconsolidated affiliates                   (511)            -             -                  -                 (511)
  Dividends received from
    unconsolidated affiliates                    119             -             -                  -                  119
  Changes in operating assets and
    liabilities:                                   -
    Decrease (increase) in receivables            88           355           (21)                 -                  422
    Decrease in inventories                      452           547             6                  -                1,005
    Increase in prepaid expenses              (3,711)       (1,782)         (201)                 -               (5,694)
    (Increase) decrease in other assets         (592)          (27)          489                  -                 (130)
    Increase (decrease) in accounts
       payable and accrued expenses              852           375           (67)                 -                1,160
    Increase in accrued interest
    payable                                    1,079             -             -                  -                1,079
                                            --------      --------      --------            -------             --------

Net cash (used in) provided by
  operating activities                        (6,262)       (1,679)        1,224                  -               (6,717)
                                            --------      --------      --------            -------             --------

Investing activities:

Purchase of property and equipment            (3,080)       (1,508)         (151)                 -               (4,739)
                                            --------      --------      --------            -------             --------

Net cash used in investing activities         (3,080)       (1,508)         (151)                 -               (4,739)
                                            --------      --------      --------            -------             --------
</TABLE>


                                    Page 23
<PAGE>

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

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                 FOR THE TWENTY-EIGHT WEEKS ENDED JULY 13, 2003
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                         Guarantor      Nonguarantor                      Consolidated
                                           Parent       Subsidiaries    Subsidiaries      Eliminations        Total
                                           ------       ------------    ------------      ------------    ------------
<S>                                          <C>             <C>            <C>                 <C>         <C>
Financing Activities:
---------------------

Mortgage principal repayments                      -            (88)              -                             (88)
Tax distribution                              (1,101)             -               -                          (1,101)
Intercompany balances                            533            750          (1,283)                              -
                                             -------          -----         -------                         -------
Net cash (used in) provided by
   financing activities                         (568)           662          (1,283)                         (1,189)
                                             -------          -----         -------                         -------

Decrease in cash and
  cash equivalents                            (9,910)        (2,525)           (210)                        (12,645)
Cash and cash equivalents at
  beginning of period                         47,636          6,539             975                          55,150
                                             -------          -----         -------                         -------
Cash and cash equivalents at
  end of period                              $37,726         $4,014         $   765                         $42,505
                                             =======         ======         =======                         =======

Supplemental disclosure of cash
  flow Information:

Cash paid during the period for
  income taxes                               $   244         $   73         $    13             $  -           $330
                                             =======         ======         =======             ====        =======
Cash paid during the period for
  Interest                                   $14,102         $  765         $     -             $  -        $14,867
                                             =======         ======         =======             ====        =======
</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 14, 2002
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                           Guarantor     Nonguarantor                     Consolidated
Operating Activities:                        Parent      Subsidiaries    Subsidiaries     Eliminations       Total
---------------------                        ------      ------------    ------------     ------------    ------------
<S>                                          <C>              <C>            <C>                <C>          <C>
Net (loss) income                            $(14,903)        $ 9,554        $  (409)                         $(5,758)

Adjustments to reconcile net (loss)
   income to net cash (used in)
   provided by operating activities:
      Depreciation and amortization             5,879           6,178            638                           12,695
      Provision for restaurant closings         1,729               -              -                            1,729
      Increase (decrease) in deferred rent        372             (88)            70                              354
      Minority interest                             -               -             33                               33
      Equity in income of
     unconsolidated affiliates                   (545)              -              -                             (545)
    Dividends received from
     unconsolidated affiliates                    311               -              -                              311
    Changes in operating assets
     and liabilities:
     Decrease (increase) in receivables         1,298            (349)           (46)                             903
     Decrease (increase) in inventories           278             401            (32)                             647
     Increase in prepaid assets                (4,837)         (1,866)          (262)                          (6,965)
     (Increase) decrease in other
       assets                                    (327)            262             35            $(120)           (150)
     (Decrease) increase in accounts
       payable and accrued expenses              (148)         (1,722)        (1,595)             120          (3,345)
     Increase in accrued interest
       payable                                  1,079               -              -                -           1,079
                                             --------         -------         ------            -----         -------

Net cash (used in) provided by
    operating activities                       (9,814)         12,370         (1,568)               -             988

Investing activities:

Purchases of property and equipment            (3,939)            (33)           (81)               -          (4,053)
                                             --------         -------         ------            -----         -------

Net cash used in investing activities          (3,939)            (33)           (81)               -          (4,053)
</TABLE>


                                    Page 25
<PAGE>

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

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                 FOR THE TWENTY-EIGHT WEEKS ENDED JULY 14, 2002
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                           Guarantor      Nonguarantor                    Consolidated
                                             Parent       Subsidiaries    Subsidiaries    Eliminations        Total
                                             ------       ------------    ------------    ------------    ------------
<S>                                          <C>             <C>               <C>           <C>            <C>
Financing activities:
---------------------

Mortgage principal repayments                      -            (81)             -                -            (81)
Distributions to shareholders                 (3,125)             -               -                -         (3,125)
Intercompany balances                         12,477        (13,210)            733                -              -
                                             -------       --------        --------          -------        -------
Net cash provided by (used in)
   financing activities                        9,352        (13,291)            733                -         (3,206)
                                             -------       --------        --------          -------        -------

Decrease in cash and
  cash equivalents                            (4,401)          (954)           (916)               -         (6,271)
Cash and cash equivalents at
  beginning of period                         29,673          5,437           1,842                -         36,952
                                             -------       --------        --------          -------        -------
Cash and cash equivalents at
  end of period                              $25,272         $4,483            $926          $     -        $30,681
                                             =======       ========        ========          =======        =======

Supplemental disclosure of cash
  flow information:

Cash paid during the period for
  income taxes                                  $293           $190        $      -          $     -           $483
                                             =======       ========        ========          =======        =======
Cash paid during the period for
  interest                                   $14,120       $    772        $      -          $     -        $14,892
                                             =======       ========        ========          =======        =======
</TABLE>


                                    Page 26
<PAGE>


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS


RESULTS OF OPERATIONS
---------------------

The following table provides information  concerning the number of Company-owned
and franchised restaurants in operation during each indicated period:

<TABLE>
<CAPTION>

                                            28 Weeks       28 Weeks        12 Weeks         12 Weeks              Fiscal Year
                                             Ended          Ended            Ended           Ended            -------------------
                                            07/13/03       07/14/02        07/13/03         07/14/02          2002           2001
                                            --------       --------        --------         --------          ----           ----
<S>                                           <C>             <C>              <C>            <C>             <C>             <C>
Company-owned restaurants:

   Opened during period                         1               3               1               1              13               9
   Acquired from (sold to)
     franchisees during period-net             (6)             (1)             (2)             (1)             (6)              -
   Closed during period                       (16)            (19)             (7)             (8)            (51)            (43)
                                             ----            ----            ----            ----            ----            ----
   Open at end of period (1)                  537             585             537             585             558             602

Franchised restaurants:

   Opened during period                        22              15              12               8              42              42
   Purchased from (sold to)
     Company during period-net                  6               1               2               1               6               -
   Closed or terminated during
      period                                  (13)            (13)             (5)             (5)            (20)            (20)
                                             ----            ----            ----            ----            ----            ----
   Open at end of period                      368             328              68             328             353             325

All restaurants:

   Opened during period                        23              18              13               9              55              51
   Closed or terminated during
     period                                   (29)             31             (12)            (13)            (71)            (63)
                                             ----            ----            ----            ----            ----            ----
   Open at end of period (1)                  905             913             905             913             911             927

Kiosks (all franchised) open at
   end of period                                3               4               3               4               3               4
</TABLE>

----------
(1)  Excludes 31, 34, 32 and 37 other concept units as of July 13, 2003 and July
     14, 2002, the end of fiscal 2002 and the end of fiscal 2001, respectively.


                                    Page 27
<PAGE>

Our  business  is subject to  seasonal  fluctuations,  the effect of weather and
economic conditions. Earnings have been highest in our fourth fiscal quarter due
primarily to  increased  volume in shopping  malls  during the holiday  shopping
season but fluctuates 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 additional  factors,  including the adverse effect of the general
economic downturn, the continuing effect of the events of September 11, 2001 and
significant  year-end adjustments relating to asset impairment and store closing
costs. Due to the seasonality of our business, we perform the annual testing for
impairment  on our  trademarks  and  goodwill  as required by SFAS 142 after our
fourth quarter is completed and more  information  is available to us.  However,
the  evaluation of  impairment  of long-lived  assets as required by SFAS 144 is
made when  events or  circumstances  indicate  that the  carrying  amount of the
assets may not be  recoverable  and  considers  many  factors,  in  addition  to
seasonality.  If impairment factors are present earlier than year-end, we record
any adjustments as determined necessary through interim testing at that time.

Our consolidated EBITDA for the twenty-eight weeks ended July 13, 2003 was $11.6
million  compared  to $22.8  million for the  twenty-eight  weeks ended July 14,
2002. Our consolidated  EBITDA for the twelve weeks ended July 13, 2003 was $6.5
million  compared  to $8.9  million for the twelve  weeks  ended July 14,  2002.
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")  of the  United  States  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  calculation of our compliance  with
the ratios in the indenture under which our senior notes are issued and our bank
credit  agreement,  and to  determine  the  commitment  fee we pay on the unused
portion  of the  credit  facility  under  our  bank  credit  agreement.  We also
internally use EBITDA as one of the measures to determine whether to continue or
close restaurant units since it provides us with a measurement of whether we are
receiving an adequate cash return on our cash  investment.  Our  calculation  of
EBITDA may not be comparable  to a similarly  titled  measure  reported by other
companies,  since all  companies do not calculate  this non-GAAP  measure in the
same manner. Our EBITDA calculations are not intended to represent cash provided
by (used in) operating  activities  since they do not include interest and taxes
and  changes in  operating  assets and  liabilities,  nor are they  intended  to
represent  a net  increase in cash since they do not  include  cash  provided by
(used in) investing and financing  activities.  The following  table  reconciles
EBITDA to our net loss which we believe is the most direct comparable  financial
measure  to  EBITDA,  for  each of the  twenty-eight  and  twelve  week  periods
presented (in thousands):



                                    Page 28
<PAGE>

<TABLE>
<CAPTION>

                                                   Twenty-eight weeks ended:            Twelve weeks ended:
                                                  07/13/03         07/14/02           07/13/03          07/14/02
                                                  --------         --------           --------          --------
<S>                                               <C>              <C>                 <C>                <C>
   EBITDA                                         $11,633          $22,835             $6,537             $8,880
   Interest expense                               (16,763)         (16,740)            (7,180)            (7,166)
   Interest income                                    411              260                197                106
   Income taxes                                      (574)            (201)              (253)               (69)
   Depreciation and amortization                  (10,409)         (11,912)            (4,513)            (5,088)
                                                  --------         --------            -------            -------
      Net loss                                   $(15,702)         $(5,758)           $(5,212)           $(3,337)
                                                 =========         ========           ========           ========
</TABLE>

Restaurant  sales by  Sbarro-owned  quick service units and  consolidated  other
concept units decreased 11.2% to $156.8 million for the twenty-eight weeks ended
July 13, 2003 from $176.4 million in the twenty-eight  weeks ended July 14, 2002
and  decreased  9.8% to $68.2  million for the twelve  weeks ended July 13, 2003
from $75.7  million in the twelve  weeks ended July 14,  2002.  The  decrease in
sales for the  twenty-eight  weeks ended July 13, 2003 reflects $14.9 million of
lower sales of Sbarro  quick  service  units and $4.8  million of lower sales of
consolidated  other concept  units.  Of the decline in Sbarro quick service unit
restaurant  sales,  approximately  $8.6 million resulted from a 5.7% decrease in
comparable  unit sales to $145.5  million.  The decrease in sales for the twelve
weeks ended July 13, 2003  reflects  $5.2 million of lower sales of Sbarro quick
service  units and $2.2  million of lower sales of  consolidated  other  concept
units.  Of the decline in Sbarro  quick  service unit  restaurant  sales for the
twelve-week period,  approximately $2.5 million resulted from a 3.9% decrease in
comparable  unit sales to $63.9  million.  We believe that these  declines  were
attributable  to a reduction  in shopping  mall  traffic  related to the general
economic  downturn in the United States,  the continuing impact of the events of
September 11, 2001 and the effects of the  threatened  and then actual  military
action in Iraq during the first  quarter of fiscal 2003.  Comparable  restaurant
sales are made up of sales at locations that were open during the entire current
and prior fiscal  years.  Since the end of fiscal 2001,  we closed 60 more units
than we opened (including  twenty-two units closed during the first twenty-eight
weeks of fiscal 2003), causing the remaining $6.3 and $2.7 million net reduction
in Sbarro  quick  service  unit sales.  The units closed since the end of fiscal
2001 were generally low volume units that did not have a material  impact on our
results of operations.  Of the decline in consolidated other concept unit sales,
for the  twenty-eight  weeks ended July 13,  2003,  approximately  $0.4  million
resulted from a 6.2% decrease in comparable unit sales to $6.6 million.  For the
twelve-week  period  ended  July 13,  2003,  there  was a $0.2  million  or 5.4%
decrease in comparable consolidated other concept unit sales to $2.9 million. We
believe that these declines were  attributable to the same factors that affected
Sbarro quick service locations. In addition, since the end of fiscal 2001, eight
consolidated  other  concept  units have been  closed,  resulting in a net sales
reduction  of $4.4 million from sales at those  locations  for the  twenty-eight
weeks ended July 13, 2003 and $2.0  million for the twelve  weeks ended July 13,
2003.

Franchise  related income  increased  5.0% to $5.3 million for the  twenty-eight
weeks  ended July 13,  2003 from $5.1  million in the  twenty-eight  week period
ended July 14, 2002 and  increased  2.5% to $2.4  million  for the twelve  weeks
ended July 13, 2003 from $2.3 million in the twelve


                                    Page 29
<PAGE>


weeks ended July 14,  2002.  These  increases  were from  royalties  earned from
locations  opened during fiscal 2003 and 2002 offset,  in part, by 4.5% and 4.2%
reductions in comparable unit sales at both domestic and international locations
in the twenty-eight and twelve weeks periods ended July 13, 2003, respectively.

Real  estate  and  other  revenues  were  relatively   unchanged  for  both  the
twenty-eight  and twelve weeks periods  ended July 13, 2003 from the  respective
periods ended July 14, 2002 in fiscal 2002.

Cost of food and paper products as a percentage of restaurant sales increased to
21.4%  for the  twenty-eight  weeks  ended  July 13,  2003  from  19.8%  for the
comparable  2002 fiscal period and increased to 20.9% for the twelve weeks ended
July 13,  2003 from 19.6% for the same  twelve  weeks in fiscal  2002.  In early
fiscal 2003, we replaced our then national  independent  wholesale  distributor,
which  declared  bankruptcy,   with  another  national   independent   wholesale
distributor.  There has not been a material impact on the cost of food and paper
products from this new distribution  arrangement as the majority of the products
used in our restaurants are proprietary and we are involved in negotiating their
cost to the  wholesaler.  However,  the cost of sales  percentage  in the  first
quarter of 2003 (which was not a factor in the  increase in cost of sales in the
second  quarter of fiscal 2003) was impacted by the cost of purchases of product
from  third  parties  until the new  distribution  contract  was  effective.  In
addition,  the cost of sales percentage in both the twenty-eight and twelve week
periods of fiscal 2003 were  negatively  impacted by the decrease in  comparable
sales.  In  addition,  without  changing  the  effect on the final  product,  we
modified our pizza and pasta sauce  recipes to utilize  ready made sauce instead
of crushed  tomatoes as the base raw  material.  We estimate that this has added
approximately  .75% to our cost of food. The use of this product allows for more
effective use of our restaurant  staff in enhancing the overall guest experience
at our  quick-service  locations.  Changes  in  cheese  prices  did  not  have a
significant  effect on the change in cost of sales in the twenty-eight or twelve
weeks of fiscal 2003.  However,  cheese  prices to date in the third  quarter to
date of fiscal 2003 have been  approximately  30% higher than in the  comparable
period in fiscal 2002.

Payroll  and  other  employee  benefits  decreased  by  $4.2  million  but  as a
percentage of restaurant  sales,  increased to 29.2% in the  twenty-eight  weeks
ended July 13, 2003 from 28.4% of  restaurant  sales in the  twenty-eight  weeks
ended July 14, 2002. For the twelve week period ended July 13, 2003, these costs
decreased by $1.8 million but  increased to 29.0% from 28.5% as a percentage  of
restaurant  sales when compared to the  comparable  twelve week period in fiscal
2002. Both effects were primarily due to the reduced level of sales.

Other  operating  expenses  decreased by $2.8 million but  increased to 38.0% of
restaurant sales in the twenty-eight weeks ended July 13, 2003 from 35.4% in the
twenty-eight  weeks ended July 14, 2002.  These expenses  decreased $0.9 million
but increased to 37.8% from 35.2% of restaurant  sales in the twelve weeks ended
July 13, 2003 and July 14, 2002,  respectively.  The increased  percentages were
primarily  due to  increases  in  rent  and  other  occupancy  related  expenses
resulting  from the  renewal  of  existing  leases at the end of their  terms at
higher rental rates,  compounded by the reduced level of sales. In addition,  we
are continuing to experience  increases


                                    Page 30
<PAGE>

in our repair and maintenance costs due to the number of years that the majority
of  our  locations  have  been  operating  and  the  effects  of  the  long-term
utilization on their equipment.

Depreciation and amortization expense decreased by $1.5 million and $0.6 million
for the  twenty-eight  and twelve weeks,  respectively,  of fiscal 2003 from the
comparable  periods in fiscal 2002. The reductions  were due to fewer numbers of
units in operation in fiscal 2003 ($0.5 million and $0.2 million, respectively),
locations that had been included in the provision for asset impairment in fiscal
2002 for which no  depreciation  was taken in fiscal 2003 and for locations that
became fully depreciated during fiscal 2002.

General  and  administrative  expenses  were  $14.1  million,  or 8.5% of  total
revenues,  for the  twenty-eight  weeks ended July 13,  2003,  compared to $12.7
million,  or 6.9% of total revenues,  for the twenty-eight  weeks ended July 14,
2002. Those costs were $5.3 million,  or 7.4% of total revenues,  for the twelve
weeks  ended  July 13,  2003,  as  compared  to $5.5  million,  or 7.0% of total
revenues,  for the twelve weeks ended July 14, 2002. Factors contributing to the
increases  in the  twenty-eight  week  period  were $0.2  million  of legal fees
incurred in  connection  with a lawsuit  tried in fiscal  2003,  a $0.2  million
allowance  for  doubtful  accounts  receivable  recorded  with  respect  to  our
franchisee in Spain that declared  bankruptcy during the first quarter of fiscal
2003, bonuses of $0.7 million that were granted to certain executive officers in
the first  fiscal  quarter of 2003 and  higher  quick-service  field  management
travel and  related  costs  relating to a number of  regional  field  management
meetings that were held in the beginning of fiscal 2003.

During the  twenty-eight  weeks ended July 13, 2003, we recorded a provision for
restaurant closings of $1.1 million. For the same twenty-eight week period ended
July 14, 2002,  we recorded a provision of $2.2  million.  The provision for the
twelve-week  periods ended July 13, 2003 and July 14, 2002 were $0.5 million and
$2.1 million,  respectively. The provisions in fiscal 2002 related, for the most
part,  to the planned  closing of up to thirty low volume,  unprofitable  Sbarro
quick service  locations  during the third and fourth quarter of fiscal 2002 for
which the provision was recorded in the second quarter of fiscal 2002.

Minority interest represents the share of the minority holders' interests in the
earnings  or loss of a joint  venture in which we have a majority  interest.  In
early  fiscal  2002,  we closed  one of the two  locations  owned by this  joint
venture.  The closed unit had a nominal  operating  loss in the first quarter of
fiscal 2002.

Interest expense of $16.8 million and $16.7 million for the  twenty-eight  weeks
ended July 13, 2003 and July 14,  2002,  respectively,  and of $7.2  million for
each of second  fiscal  quarter of both fiscal 2003 and 2002 relates to the 11%,
$255.0 million  senior notes issued to finance our going private  transaction in
September  1999 ($15.1  million and $6.5  million in both the  twenty-eight  and
twelve weeks of fiscal 2003 and 2002),  the 8.4%, $16.0 million mortgage loan on
our  corporate  headquarters  in 2001  ($0.8  million  and $0.3  million  in the
respective  periods)  and fees for unused  borrowing  capacity  under our credit
agreement ($0.1 million in the respective  periods).  In addition,  $0.7 million
and $0.4  million in each of the  twenty-eight  weeks and twelve weeks of fiscal
2003 and 2002,  respectively,  represents  non-cash charges for the total of the
accretion  of


                                    Page 31
<PAGE>

the original issue discount on our senior notes and the amortization of deferred
financing costs on the senior notes, credit agreement and the mortgage loan.

Interest  income for the  twenty-eight  week period ended July 13, 2003 was $0.4
million  versus $0.3  million for the  twenty-eight  week period  ended July 14,
2002.  Interest income was  approximately  $0.2 million and $0.1 million for the
second  quarter  of fiscal  2003 and 2002,  respectively.  Higher  average  cash
available for investment in each period  presented in fiscal 2003 as compared to
the same  periods  in fiscal  2002 was offset by the lower  prevailing  interest
rates in effect.  The indenture  under which our senior notes are issued and our
credit agreement limit the types of investments  which we may make. In addition,
we earned approximately $0.05 million of interest income that was included in an
income tax refund  received in the second  quarter of fiscal  2003  related to a
year in which we were a Subchapter "C" corporation.

Equity  in  the  net  income  of   unconsolidated   affiliates   represents  our
proportionate  share of earnings and losses in those other  concepts in which we
have a 50% or less ownership  interest.  The increase in our share of the equity
in the net income of  unconsolidated  affiliates  was  primarily  as a result of
improved performance of our steakhouse joint venture. We have determined that we
will continue,  to the extent agreed with our joint venture partners, to develop
and expand the  steakhouse  joint venture  locations but do not intend to expand
our other joint venture operations.

We have elected to be taxed under the provisions of Subchapter S of the Internal
Revenue Code and, where applicable and permitted,  under similar state and local
income  tax  provisions  beginning  January  3, 2000.  Under the  provisions  of
Subchapter S, substantially all taxes on our income are paid by our shareholders
rather  than us. Our tax  expense  was $0.6  million  and $0.2  million  for the
twenty-eight  week periods and $0.3 million and $0.1 million for the twelve-week
periods  ended July 13, 2003 and July 14, 2002,,  respectively.  The expense was
for taxes owed by us (rather than our shareholders) to jurisdictions that do not
recognize S corporation  status or that tax entities based on factors other than
income.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

We have  historically  not  required  significant  working  capital  to fund our
existing  operations and have financed our capital  expenditures and investments
in our joint ventures through cash generated from operations.  At July 13, 2003,
we had  unrestricted  cash and cash  equivalents  of $42.5  million  and working
capital of $15.6 million  compared to unrestricted  cash and cash equivalents of
$30.7 million and working capital of $8.2 million at July 14, 2002.

Net cash used in  operating  activities  was $6.7  million for the  twenty-eight
weeks  ended  July 13,  2003  compared  to $1.0  million  generated  during  the
twenty-eight  weeks ended July 14, 2002.  The $7.7  million  change in cash used
resulted  primarily  from an increase of  approximately  $9.9 million in our net
loss in the fiscal 2003 period over the fiscal 2002 period.  This was compounded
by a reduction  in  non-cash  expenses in the fiscal 2003 period from the fiscal
2002 period,  primarily  due to a $1.5 million  reduction  in  depreciation  and
amortization  and a $1.7  million  reduction  in the  provision  for  restaurant
closings.  These increased uses of cash were offset, in


                                    Page 32
<PAGE>

part, by less cash being used during the fiscal 2003 period than the fiscal 2002
period to support changes in operating  assets and  liabilities,  primarily as a
result of an increase of $1.2 million in fiscal 2003, compared to a $3.3 million
decrease in fiscal 2002, in accounts  payable and a $1.3 million lower  increase
in fiscal 2003 than in fiscal 2002 in prepaid  expenses (the prepaid balances at
the end of the second fiscal quarters of both 2003 and 2002 being  similar).  Of
the increase in accounts  payable,  approximately  $2.6  million  relates to the
amount  accrued  for  our  bankrupt   former  national   independent   wholesale
distributor. We are in negotiations with its creditors' committee with regard to
the amount,  if any, owed as we believe that  significant  additional costs were
incurred after the bankruptcy  filing date due to the  bankruptcy.  In addition,
there  was a  decrease  of  $0.2  million  in the  dividend  received  from  our
unconsolidated affiliate.

Net cash used in  investing  activities  has  historically  been  primarily  for
capital  expenditures,  including  investments  made by our  consolidated  other
concepts.  Net cash used in investing activities increased from $4.1 million for
the twenty-eight  weeks ended July 14, 2002 to $4.7 million for the twenty-eight
weeks ended July 14, 2003  primarily due to an increase in  company-owned  quick
service restaurant renovation activity.

Net cash used in  financing  activities  was $1.2  million for the  twenty-eight
weeks  ended July 13,  2003  compared  to $3.2  million in the  comparable  2002
period, due to a $2.0 million reduction in tax distributions to shareholders.

We incur annual cash interest expense of  approximately  $29.7 million under our
senior notes and mortgage  loan and may incur  additional  interest  expense for
borrowings under our credit  agreement.  In addition to debt service,  we expect
that our other  liquidity  needs will  relate to capital  expenditures,  working
capital,  investments in other  ventures,  distributions  to shareholders to the
extent  permitted  under the  indenture  for the  senior  notes  and the  credit
agreement and general corporate purposes.  We believe that aggregate  restaurant
capital  expenditures  and our  investments  in joint  ventures  during the next
twelve months will approximate the fiscal 2002 levels.

We expect our primary sources of liquidity to meet these needs will be cash flow
from  operations.  Also at August  20,  2003,  we had $28.3  million  of undrawn
availability  under our bank credit  agreement,  net of  outstanding  letters of
credit and guarantees of  reimbursement  obligations  aggregating  approximately
$1.7 million.

We are subject to various  covenants  under the indenture under which our senior
notes are  issued  and under our bank  credit  agreement.  One of the  covenants
limits  our  ability  to  borrow  funds  (except  under  specifically  permitted
arrangements,  such as up to $75.0 million of revolving credit loans) unless our
consolidated interest ratio coverage (as defined), after giving pro forma effect
to the interest on the new  borrowing,  for the four most recently  ended fiscal
quarters  is at least 2.5 to 1.  Another  covenant  limits  our  ability to make
"restricted payments," including,  among other things,  dividend payments (other
than  as  distributions   pursuant  to  our  tax  payment   agreement  with  our
shareholders  related to Subchapter S  distributions)  and investments in, among
other things, unrestricted subsidiaries, to specified amounts determined under a
formula  contained  in the


                                    Page 33
<PAGE>

indenture provided (except with respect to certain permitted investments and tax
distributions)  that our  interest  coverage  ratio  is at least  2.0 to 1 after
giving pro forma effect to the restricted payment.  For the four fiscal quarters
ended July 13, 2003, our consolidated interest coverage ratio was 1.5 to 1. As a
result,  we are not presently able to borrow funds (other than the  specifically
permitted  indebtedness).  Additionally,  under  the  formula  contained  in the
indenture,  we cannot make  restricted  payments  other than  certain  permitted
investments  and tax  distributions  until we increase  the  restricted  payment
availability by  approximately  $16 million,  and then only to the extent of any
excess over that amount.

The tax payment  agreement  was entered  into as part of our  election  that our
shareholders,  rather  than us,  be  taxed on our  taxable  income  pursuant  to
Subchapter S of the Internal  Revenue Code and, where  applicable and permitted,
under similar state and local tax provisions.  The Tax Payment Agreement permits
us, regardless of whether we can make restricted payments,  to make periodic tax
distributions  to our shareholders in amounts intended to approximate the income
taxes,  including  estimated taxes,  that would be payable by them if their only
income were their pro rata share of our taxable income and that income was taxed
at the highest applicable Federal and New York state marginal income tax rates.

Our contractual  obligations and off balance sheet  arrangements with respect to
both our Sbarro  quick  service and our other  concepts  (both those in which we
have a  majority  or  minority  interest)  do not  differ  materially  from  the
information  disclosed in Part II, Item 7 of our Annual  Report on Form 10-K for
the fiscal year ended December 29, 2002.

We have  received a waiver of compliance  for the second  quarter of fiscal 2003
from certain ratios required to be maintained  under our bank credit  agreement,
as amended in March  2003.  Our credit  agreement  requires  that we  maintain a
minimum ratio of consolidated  EBITDA to consolidated  interest expense (in each
case with the  guaranteeing  subsidiaries,  the same entities as our  Restricted
Subsidiaries  under the indenture) of at least 1.4 to 1.0 beginning December 30,
2002 and 1.5 to 1.0 beginning  December 28, 2003 on the four quarters ended July
13, 2003,  this ratio was 1.27 to 1. We are also  required to maintain a maximum
ratio of consolidated  senior debt to consolidated EBITDA (in each case with the
guaranteeing  subsidiaries) of 6.5 to 1.0 beginning December 30, 2002 and 6.0 to
1.0 beginning December 28, 2003. For the four quarters ended July 13, 2003, this
ratio was 7.1 to 1.

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.  Certain critical accounting policies require us to make estimates and
assumptions  that  affect  the  amounts  of assets,  liabilities,  revenues  and
expenses reported in the 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


                                    Page 34
<PAGE>


weeks ended July 13, 2003, there have been no material changes in the accounting
policies whose application may have a significant effect on our reported results
of  operations  and  financial  position  and  that  can  require  judgments  by
management that can affect their  application  from the matters  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 December 29, 2002.

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 that
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, 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;
o    changes in  population  and  traffic  patterns,  including  the effect that
     military  action and terrorism or other events may have on the  willingness
     of consumers to frequent  shopping 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 the our present,  and any future,  joint  ventures and other
     expansion opportunities;
o    the  availability  of food  (particularly  cheese and  tomatoes)  and paper
     products at current prices;
o    our ability to pass along cost increases to our customers;
o    no material increase occurring 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 credit agreement;


                                    Page 35
<PAGE>

o    our ability to comply with covenants contained in the indenture under which
     the  senior  notes are  issued and in our bank  credit  agreement,  and the
     effects which the  restrictions  imposed by those covenants may have on our
     ability to operate our business; and
o    our ability to  repurchase  senior  notes to the extent  required  and make
     repayments  under our credit  agreement 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.

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 the  investments we may make.  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 credit  facility (none are currently  outstanding)
will be at rates that float with the market and,  therefore,  will be subject to
fluctuations  in interest  rates.  Our $255.0  million senior notes bear a fixed
interest  rate of 11.0%.  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, 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
attendant in 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.

                                    Page 36
<PAGE>

ITEM 4.   CONTROLS AND PROCEDURES

As of the end of the period  covered by this report,  our  management,  with the
participation  of our Chairman of the Board,  President and principal  executive
officer and our Vice President, Controller and principal accounting officer (the
person presently  performing the function of our principal  financial  officer),
evaluated the effectiveness of our "disclosure controls and


procedures," as defined in Rule 15d-15(e)  under the securities  Exchange Act of
1934. Based on that evaluation, these officers concluded that, as of the date of
their  evaluation,  our  disclosure  controls and  procedures  were effective to
provide  reasonable  assurance that information  required to be disclosed in our
periodic  filings under the Exchange Act is accumulated and  communicated to our
management,  including  those  officers,  to allow  timely  decisions  regarding
required disclosure.

During the period covered by this report,  there were no changes in our internal
control  over  financial  reporting  that  have  materially  affected,   or  are
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.


                                    Page 37
<PAGE>


                           PART II. OTHER INFORMATION
                           --------------------------

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.

a)        Exhibits:

4.02(e)   Letter  agreement  dated  August 18,  2003 with  respect to the Credit
          Agreement  dated as of  September  23, 1999 between  Sbarro,  Inc. and
          Citibank N.A. as successor to European American Bank, as agent.

31.01     Certification  of Principal  Executive  Officer  pursuant to 18 U.S.C.
          Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley
          Act of 2002.

31.02     Certification of Vice President,  Controller and Principal  Accounting
          Officer, the person performing the function of our principal financial
          officer,  pursuant to 18 U.S.C.  Section 1350, as adopted  pursuant to
          Section 302 of the Sarbanes-Oxley Act of 2002.

32.01     Certification  of Principal  Executive  Officer  pursuant to 18 U.S.C.
          Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
          Act of 2002.

32.02     Certification of Vice President,  Controller and Principal  Accounting
          Officer, the person performing the function of our principal financial
          officer,  pursuant to 18 U.S.C.  Section 1350, as adopted  pursuant to
          Section 906 of the Sarbanes-Oxley Act of 2002.

(b)       Reports on Form 8-K:

          No  reports on Form 8-K were filed by Sbarro  during the  quarter  for
          which this report is filed.



                                    Page 38
<PAGE>


                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  Report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

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


Date:     August 25, 2003             By: /s/ MARIO SBARRO
      ---------------------               -------------------------------------
                                          Mario Sbarro
                                          Chairman of the Board and President
                                          (Principal Executive Officer)


Date:     August 25, 2003             By:  /s/ STEVEN B. GRAHAM
      ---------------------               -------------------------------------
                                          Steven B. Graham
                                          Vice President and Controller
                                          (Principal Accounting Officer)



                                    Page 39
<PAGE>


                                  EXHIBIT INDEX
                                  -------------



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

4.02(e)   Letter  agreement  dated  August 18,  2003 with  respect to the Credit
          Agreement  dated as of  September  23, 1999 between  Sbarro,  Inc. and
          Citibank N.A. as successor to European American Bank, as agent.

31.01     Certification  of Principal  Executive  Officer  pursuant to 18 U.S.C.
          Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley
          Act of 2002.

31.02     Certification of Vice President,  Controller and Principal  Accounting
          Officer, the person performing the function of our principal financial
          officer,  pursuant to 18 U.S.C.  Section 1350, as adopted  pursuant to
          Section 302 of the Sarbanes-Oxley Act of 2002.

32.01     Certification  of Principal  Executive  Officer  pursuant to 18 U.S.C.
          Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
          Act of 2002.

32.02     Certification of Vice President,  Controller and Principal  Accounting
          Officer, the person performing the function of our principal financial
          officer,  pursuant to 18 U.S.C.  Section 1350, as adopted  pursuant to
          Section 906 of the Sarbanes-Oxley Act of 2002.



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