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


                       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 October 7, 2001           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 BROADHOLLOW 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      X                 No
   ---------------           ---------------



THE NUMBER OF SHARES OF COMMON STOCK OF THE REGISTRANT OUTSTANDING AS OF
NOVEMBER 19, 2001 WAS 7,064,328.


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


<PAGE>




                                  SBARRO, INC.

                                 FORM 10-Q INDEX



<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION                                                                            PAGES
         ---------------------                                                                            -----

<S>      <C>                                                                                                <C>
Consolidated Financial Statements:

         Balance Sheets - October 7, 2001 (unaudited) and December 31, 2000. . . . . . . . . . . . . . . .  3-4

         Statements of Operations (unaudited) - Forty Weeks and Twelve Weeks ended
            October 7, 2001 and October 8, 2000. . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6

         Statements of Cash Flows (unaudited) - Forty Weeks ended October 7, 2001 and
             October 8, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 7-8

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

         Management's Discussion and Analysis of Financial Condition and
             Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-34


PART II.    OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
            -----------------
</TABLE>









                                      Pg. 2

<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                           (In thousands except share data)
                                                           --------------------------------
                                                    October 7, 2001             December 31, 2000
                                                    ---------------             -----------------
                                                     (unaudited)
<S>                                                     <C>                         <C>
Current assets:
  Cash and cash equivalents                             $ 11,485                    $ 42,319
  Restricted cash for untendered shares (Note 3)              57                         153
  Receivables, net of allowance for doubtful
   accounts of $147 at October 7, 2001 and
   $211 at December 31, 2000:
    Franchisees                                            1,767                       1,350
    Other (Note 4)                                         2,793                       1,554
                                                        --------                    --------
                                                           4,560                       2,904

  Inventories                                              3,027                       3,531
  Loan receivable from shareholder (Note 2)                2,000                          --
  Prepaid expenses                                         7,312                         999
                                                        --------                    --------
    Total current assets                                  28,441                      49,906

Property and equipment, net                              144,830                     152,468

Intangible assets:
    Franchise system and trademarks, net                 197,099                     201,044
    Deferred financing costs and other, net               15,984                      16,635

Loans receivable from shareholders (Note 2)                3,232                       2,000

Other assets                                               7,613                       6,502
                                                        --------                    --------

                                                        $397,199                    $428,555
                                                        ========                    ========
</TABLE>

                                   (continued)


                                      Pg. 3
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                      LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                           (In thousands except share data)
                                                           --------------------------------
                                                    October 7, 2001             December 31, 2000
                                                    ---------------             -----------------
                                                     (unaudited)
<S>                                                     <C>                         <C>
Current liabilities:
  Amounts due for untendered shares (Note 3)            $      57                   $    153
  Accounts payable                                         10,662                     10,284
  Accrued expenses                                         18,073                     21,066
  Accrued interest payable (Note 5)                         1,948                      8,181
  Current portion of mortgage payable                         140                        130
                                                        ---------                   --------
    Total current liabilities                              30,880                     39,814

Deferred rent                                               8,499                      7,666

Long-term debt, net of original issue
  discount (Note 5)                                       267,653                    267,478

Contingencies (Note 8)                                         --                         --

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 October 7, 2001 and
   December 31, 2000                                           71                         71
  Additional paid-in capital                                   10                         10
  Retained earnings                                        90,086                    113,516
                                                        ---------                   --------
                                                           90,167                    113,597
                                                        ---------                   --------

                                                        $ 397,199                  $ 428,555
                                                        =========                  =========
</TABLE>

            See notes to unaudited consolidated financial statements



                                      Pg. 4

<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                (In thousands)
                                                    -----------------------------------------
                                                           For the forty weeks ended:
                                                           --------------------------
                                                    October 7, 2001           October 8, 2000
                                                    -----------------------------------------
<S>                                                    <C>                      <C>
Revenues:
   Restaurant sales                                    $ 273,928                $ 278,121
   Franchise related income                                7,652                    8,803
   Real estate and other                                   4,407                    4,316
                                                       ---------                ---------
    Total revenues                                       285,987                  291,240
                                                       ---------                ---------

Costs and expenses:
   Restaurant operating expenses:
    Cost of food and paper products                       56,155                   54,731
    Payroll and other employee benefits                   75,868                   74,913
    Other operating costs                                 90,306                   86,362
   Depreciation and amortization                          24,094                   24,454
   General and administrative                             26,870                   24,212
                                                       ---------                ---------
    Total costs and expenses                             273,293                  264,672
                                                       ---------                ---------
Operating income before minority interest                 12,694                   26,568
Minority interest                                             26                       64
                                                       ---------                ---------
    Operating income                                      12,720                   26,632
                                                       ---------                ---------
Other income (expense):
    Interest expense (Note 5)                            (24,123)                 (23,777)
    Interest income                                          640                      728
    Equity in net income of
      unconsolidated affiliates                              185                      262
                                                       ---------                ---------
    Net other expense                                    (23,298)                 (22,787)
                                                       ---------                ---------

(Loss) income before income taxes (credit)               (10,578)                   3,845
Income taxes (credit) (Note 6)                               280                   (5,244)
                                                       ---------                ---------

Net (loss) income                                      $ (10,858)               $   9,089
                                                       =========                =========
</TABLE>

            See notes to unaudited consolidated financial statements





                                      Pg. 5

<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                 (In thousands)
                                                    -----------------------------------------
                                                            For the twelve weeks ended:
                                                    -----------------------------------------
                                                    October 7, 2001           October 8, 2000
                                                    -----------------------------------------
<S>                                                    <C>                      <C>
Revenues:
   Restaurant sales                                    $ 85,206                 $ 87,760
   Franchise related income                               2,430                    2,426
   Real estate and other                                  1,138                    1,374
                                                       --------                 --------
     Total revenues                                      88,774                   91,560
                                                       --------                 --------

   Restaurant operating expenses:
    Cost of food and paper products                      17,648                   17,436
    Payroll and other employee benefits                  23,237                   23,081
    Other operating costs                                26,754                   26,484
   Depreciation and amortization                          7,117                    7,723
   General and administrative                             9,086                    7,211
                                                       --------                 --------
    Total costs and expenses                             83,842                   81,935
                                                       --------                 --------
Operating income before minority interest                 4,932                    9,625
Minority interest                                            28                       (2)
                                                       --------                 --------
   Operating income                                       4,960                    9,623
                                                       --------                 --------

Other income (expense):
   Interest expense (Note 5)                             (7,238)                  (7,230)
   Interest income                                          147                      275
   Equity in net income (loss) of
     unconsolidated affiliates                               60                      (55)
                                                       --------                 --------
    Net other expense                                    (7,031)                  (7,010)
                                                       --------                 --------

(Loss) income before income taxes                        (2,071)                   2,613
Income taxes  (Note 6)                                       80                      165
                                                       --------                 --------

Net (loss) income                                      $ (2,151)                $  2,448
                                                       ========                 ========
</TABLE>

            See notes to unaudited consolidated financial statements



                                      Pg. 6
<PAGE>


                          SBARRO, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                  (In thousands)
                                                    -----------------------------------------
                                                            For the forty weeks ended:
                                                    -----------------------------------------
                                                    October 7, 2001           October 8, 2000
                                                    -----------------------------------------
<S>                                                    <C>                      <C>
Operating activities:
Net (loss) income                                      $(10,858)                $  9,089
Adjustments to reconcile net (loss) income to net
   Cash (used in) provided by operating activities:
    Depreciation and amortization                        25,211                   25,388
    Decrease in deferred taxes due to conversion
     to Subchapter S status                                  --                   (5,629)
    Provision for unit closings                           2,061                       --
    Deferred rent, net                                      607                      137
    Minority interest                                       (26)                     (64)
    Equity in net income of
     unconsolidated affiliates                             (185)                    (262)
    Dividends received from
     unconsolidated affiliate                               244                      156

Changes in operating assets and liabilities:
   Increase in receivables                               (1,657)                    (438)
   Decrease in inventories                                  504                      698
   Increase in prepaid expenses                          (6,313)                  (4,530)
   (Increase) decrease in other assets                   (1,140)                     543
   Decrease in accounts payable
    and accrued expenses                                 (2,703)                  (7,397)
   Decrease in accrued interest payable                  (6,223)                  (5,221)
   Decrease in income taxes payable                          --                     (734)
                                                       --------                 --------
 Net cash (used in) provided by operating
   activities                                              (478)                  11,736


                                   (continued)

</TABLE>



                                      Pg. 7

<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  (In thousands)
                                                    -----------------------------------------
                                                            For the forty weeks ended:
                                                    -----------------------------------------
                                                    October 7, 2001           October 8, 2000
                                                    -----------------------------------------
<S>                                                    <C>                      <C>
Investing activities:

Purchases of property and equipment                     (14,453)                 (19,265)
                                                       --------                 --------
    Net cash used in investing activities               (14,453)                 (19,265)
                                                       --------                 --------

Financing activities:

Mortgage principal repayments                              (107)                     (60)
Proceeds from mortgage                                      --                    16,000
Cost of mortgage                                            --                      (387)
Loans to shareholders                                    (3,932)                  (2,000)
Repayment of shareholder loans                              700                      --
Distributions to shareholders                           (12,564)                 (21,640)
                                                       --------                 --------
    Net cash used in financing activities               (15,903)                  (8,087)
                                                       --------                 --------

Decrease in cash and cash equivalents                   (30,834)                 (15,616)

Cash and cash equivalents at beginning of period         42,319                   33,754
                                                       --------                 --------

Cash and cash equivalents at end of period             $ 11,485                 $ 18,138
                                                       ========                 ========

Supplemental disclosure of cash flow
     information:

Cash paid during the period for income taxes           $    791                 $  3,713
                                                       ========                 ========

Cash paid during the period for interest               $ 29,241                 $ 27,885
                                                       ========                 ========
</TABLE>


            See notes to unaudited consolidated financial statements



                                      Pg. 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
         Sbarro's management, all adjustments (consisting of normal recurring
         adjustments and accruals) considered necessary for a fair presentation
         of the consolidated financial position of Sbarro and our subsidiaries
         at October 7, 2001 and our consolidated results of operations for each
         of the forty and twelve weeks ended October 7, 2001 and October 8, 2000
         and cash flows for the forty weeks in each of the respective periods
         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 31, 2000.

         Certain items in the financial statements presented have been
         reclassified to conform to the fiscal 2001 presentation.

2.       RELATED PARTY TRANSACTIONS:

         (a) On March 13, 2000, we loaned $2.0 million to Mario Sbarro, an
         officer, director and principal shareholder, under a note payable on
         April 4, 2002 that bears interest at the rate of 6.46% per annum,
         payable annually. The loan was repaid with interest in November, 2001.

         (b) On January 2 and 3, 2001, we loaned $0.2 million to Mario Sbarro,
         $0.3 million to Joseph Sbarro and $0.2 million to Anthony Sbarro,
         officers, directors and principal shareholders, which loans were repaid
         with interest, on January 15, 2001.

         (c) On April 5, 2001, we loaned $3.23 million to certain of our
         officers, directors and principal shareholders, including: Mario
         Sbarro, $1.08 million, Joseph Sbarro, $1.24 million and Anthony Sbarro,
         $0.87 million, under notes that are payable on April 5, 2003 that bears
         interest at the rate of 4.63% per annum, payable annually.




                                      Pg. 9


<PAGE>


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



3.       UNTENDERED SHARES:

         During the second quarter of fiscal 2001, the funds remaining for
         untendered shares that had been held by a third party paying agent were
         returned to us. We will hold such funds until the related shares are
         tendered or they are escheated to the appropriate jurisdiction. The
         remaining amount is shown as restricted cash and amounts due for
         untendered shares in the consolidated balance sheet.

4.       EFFECT OF EVENTS OF SEPTEMBER 11, 2001:

         As a result of the events of September 11, 2001, a Sbarro-owned
         location, as well as a franchise location, that had operated in the
         World Trade Center in New York City were destroyed. Although the
         Sbarro-owned location generated high sales revenues and operating
         income, the effect on the twelve and forty weeks ended October 7, 2001
         was not material to consolidated results as a whole. In addition, in
         August 2001, a franchise location in Israel was destroyed. Such unit
         was reopened in September 2001. The franchise locations did not
         generate significant royalty revenues. In addition, a number of
         airports were closed due to the events of September 11 causing airport
         Sbarro-owned and franchise units to close and a number of downtown
         locations experienced reduced sales.

         We are fully insured for the cost of the assets destroyed at the
         Company location. The estimated amount of the expected recovery is
         included in accounts receivable as of October 7, 2001. In addition, we
         expect to recover lost income from our business interruption insurance
         coverage but, under applicable accounting principles, have not
         reflected any estimated recoveries in our financial statements.

5.       LONG-TERM DEBT:

         On September 28, 1999, members of the Sbarro family (who prior thereto
         owned approximately 34.4% of the Sbarro's common stock) became the
         holders of 100% of our issued and outstanding common stock as a result
         of a "going private" merger. The cost of the merger, including fees and
         expenses, was funded
         through the use of substantially all of our then cash on hand and the
         placement of $255.0 million of 11.0% Senior Notes due September 15,
         2009 sold at a price of 98.514% of par to yield 11.25% per annum. In
         April 2000, we exchanged these Senior Notes for




                                     Pg. 10

<PAGE>

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


5.       LONG-TERM DEBT (CONTINUED):

         Senior Notes having the same terms, except that the new Senior Notes
         ("Senior Notes") were registered under the Securities Act of 1933. The
         old senior notes and the Senior Notes were issued under an Indenture
         dated September 28, 1999 (the "Indenture").

         We also entered into a five-year, $30.0 million unsecured senior
         revolving bank credit facility under a Credit Agreement dated as of
         September 23, 1999 (the "Credit Agreement"). The Credit Agreement
         provides an unsecured senior revolving credit facility which enables us
         to borrow, on a revolving basis from time to time during its five-year
         term, up to $30.0 million, including a $10.0 million sublimit for
         standby letters of credit. No borrowings were outstanding under this
         credit facility as of October 7, 2001.

         Our payment obligations under the Senior Notes and the Credit Agreement
         are jointly, severally, unconditionally and irrevocably guaranteed by
         all of our current Restricted Subsidiaries (as defined) and are to be
         similarly guaranteed by our future Restricted Subsidiaries.

         In March 2000, one of our Restricted Subsidiaries obtained a $16.0
         million, 8.4% loan secured by a mortgage on our corporate headquarters
         building. The loan is payable in monthly installments of principal and
         interest of $0.1 million, with a final principal payment of $14.1
         million due in March 2010.

         As of October 7, 2001, we were in compliance with the various covenants
         in the Indenture for the Senior Notes, the Credit Agreement and the
         Mortgage.

6.       INCOME TAXES:

         In March 2000, we elected to be taxed under the provisions of
         Subchapter S of the Internal Revenue Code of 1986, and, where
         applicable and permitted, under similar state and local income tax
         provisions, beginning January 3, 2000. With certain limited exceptions,
         we no longer pay federal, state and local income taxes.

         Rather, our shareholders include their pro-rata share of our taxable
         income on their individual income tax returns and thus are required to
         pay taxes on their respective shares of our taxable income, whether or
         not it is distributed to them.

         In connection with the going private transaction and the related
         financing, we have entered into a tax payment agreement with our
         shareholders. The tax payment agreement permits us to make periodic tax
         distributions to our shareholders in amounts that are intended to
         approximate the

                                     Pg. 11



<PAGE>

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


6.       INCOME TAXES (CONTINUED):

         income taxes, including estimated taxes, that would be payable by our
         shareholders if their only income were their pro-rata share of our
         taxable income and that income was taxed at the highest applicable
         federal and New York state marginal income tax rates. We may only make
         the tax distributions with respect to periods in which we are treated
         as an S corporation for income tax purposes.

         For the forty weeks ended October 7, 2001, we made tax distributions of
         $7.6 million in accordance with the tax payment agreement as compared
         to $3.7 million of tax distributions for the forty weeks ended October
         8, 2000. All distributions made in 2001 were for taxes payable on 2000
         taxable income. No tax distributions have been made with respect to
         fiscal 2001.

         In accordance with SFAS No. 109 "Accounting for Income Taxes", we
         reversed our deferred tax accruals upon our conversion to S corporation
         status, which resulted in a credit to income taxes of $5.6 million, in
         the first quarter of fiscal 2000.

7.       COMPREHENSIVE INCOME:

         The Company's operations did not give rise to any items includible in
         comprehensive income which were not already included in our results of
         operations for either of the forty or twelve week periods ended October
         7, 2001 and October 8, 2000.

8.       CONTINGENCIES:

         In February 1999, the Umberto of New Hyde Park joint venture companies,
         in which we had an 80% interest, began an action in the U.S. District
         Court for the Eastern District of New York against Umberto Corteo, who
         owned the remaining 20% interest in the joint venture companies, and
         against three other restaurants controlled by Mr. Corteo. We alleged,
         among other things, that Mr. Corteo engaged in unfair trade practices
         and in trademark infringement, thereby breaching the joint venture
         agreements. We were seeking an accounting, compensatory and punitive
         damages and injunctive relief. The answer filed by Mr. Corteo and his
         co-defendants denied our claims and further alleged that
         non-competition restrictions against Mr. Corteo in the joint venture
         agreements were unenforceable. Mr. Corteo and his co-defendants also
         counterclaimed against us alleging misappropriation of trademark rights
         and failure to perform administrative duties that amounted to a breach
         of the agreements. In March 2001, we acquired the 20% interest owned in
         this venture by Mr. Corteo in final settlement of this litigation. The
         terms of the settlement agreement did not have a material impact upon
         either our financial condition or results of operations.

                                     Pg. 12


<PAGE>

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

8.       CONTINGENCIES (CONTINUED):

         On November 17, 1999, an action entitled SHAN WANLI, BASEM TAWIL, ABDUL
         HAMID V. SBARRO, INC. was filed in the Superior Court of the State of
         Washington for King County. The plaintiffs alleged that they served as
         store managers, general managers, assistant managers or co-managers in
         our restaurants in the State of Washington at various times since
         November 17, 1996 and that, in connection with their employment, we
         violated the overtime pay provisions of the State of Washington's
         Minimum Wage Act by treating them as overtime exempt employees,
         breached alleged employment agreements and statutory provisions by
         failing to record and pay for hours worked at the contract rates and/or
         statutory minimum wage rates and failed to provide statutorily required
         meal breaks and rest periods. The plaintiffs represented substantially
         all of our restaurant managers employed for any period of time on or
         after November 9, 1996 in the State of Washington. The plaintiffs
         sought actual damages, exemplary damages and costs of the lawsuit,
         including reasonable attorney's fees, each in unspecified amounts, and
         injunctive relief. A settlement agreement approved by the Court in
         February 2001 did not have a material impact upon our financial
         condition or results of operations.

         On December 20, 1999, Antonio Garcia and thirteen other current and
         former general managers of Sbarro restaurants in California amended a
         complaint filed in the Superior Court of California for Orange County.
         The amended 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. Plaintiff's filed a motion to certify the lawsuit
         as a class action, but the motion was denied by the court. We believe
         that we have substantial defenses to the claims and are vigorously
         defending this action.

         On September 6, 2000, Manuel Jimenez and seven 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. Plaintiffs are
         represented by the same counsel who is representing the plaintiffs in
         the Garcia case. We believe that we have substantial defenses to the
         claims and are vigorously defending this action.

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

                                     Pg. 13


<PAGE>


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

9.       RECENT ACCOUNTING PRONOUNCEMENTS:

         In July 2001, the Financial Accounting Standards Board issued
         Statements of Financial Accounting Standards ("SFAS") No. 141,
         "Business Combinations", and SFAS No. 142, "Goodwill and Other
         Intangible Assets". SFAS No. 141 requires all business combinations
         initiated after June 30, 2001 to be accounted for using the purchase
         method. Under SFAS No. 142, goodwill and intangible assets with
         indefinite lives are no longer amortized but are reviewed annually for
         impairment (or more frequently if impairment indicators arise).
         Separable intangible assets that are not deemed to have indefinite
         lives will continue to be amortized over their useful lives (but with
         no maximum life). The amortization provisions of SFAS No. 142 apply to
         goodwill and intangible assets acquired after June 30, 2001. With
         respect to goodwill and intangible assets acquired prior to July 1,
         2001, we will adopt SFAS No. 142 effective December 31, 2001. The
         provisions of SFAS No. 142 that we will adopt effective January 1, 2002
         will result in a reduction of approximately $5.4 million in annual
         amortization of intangible assets.

         In June 2001, the Financial Accounting Standards Board issued SFAS No.
         143, "Accounting for Asset Retirement Obligations". This statement
         addresses financial and reporting obligations associated with the
         retirement of tangible long-lived assets and the associated asset
         retirement costs. It applies to legal obligations associated with the
         retirement of long-lived assets that result from acquisition,
         construction, development and/or the normal operation of a long-lived
         asset, except for certain obligations of lessees. This statement is
         effective for financial statements issued for fiscal years beginning
         after June 15, 2001. We are currently evaluating the effect of adoption
         of SFAS No. 143 on our financial position and results of operations but
         do not expect its impact to be material.

         In August 2001, the Financial Accounting Standards Board issued SFAS
         144, "Accounting for the Impairment or Disposal of Long-lived Assets".
         This statement supersedes SFAS 121, "Accounting for the Impairment of
         Long-lived Assets and for Long-lived Assets to be Disposed Of" and
         Accounting Principles Board Opinion No. 30, "Reporting Results of
         Operations - Reporting the Effects of Disposal of a Segment of a
         Business, and Extraordinary, Unusual and Infrequently Occurring Events
         and Transactions". This Statement retains the fundamental provisions of
         SFAS 121 for recognition and measurement of impairment, but amends the
         accounting and reporting standards for segments of a business to be
         disposed of. The provisions of this statement are required to be
         adopted no later than fiscal years beginning after December 31, 2001,
         with early adoption encouraged. We are currently evaluating the impact
         of the adoption of SFAS 144 but do not expect its impact to be
         material.

10.      GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS:

         Certain subsidiaries have guaranteed amounts outstanding under the
         Senior Notes and 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.

                                     Pg. 14

<PAGE>

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

10.      GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS (CONTINUED):

         The following condensed consolidating financial information presents:

         (1) Condensed consolidating balance sheets as of October 7, 2001
             (unaudited) and December 31, 2000 and condensed consolidating
             statements of operations for the forty and twelve weeks ended
             October 7, 2001 and October 8, 2000 and condensed consolidating
             cash flows for the forty weeks ended October 7, 2001 and October 8,
             2000 of (a) Sbarro, Inc., the parent, (b) the guarantor
             subsidiaries as a group, (c) the non-guarantor subsidiaries as a
             group and (d) the Company on a consolidated basis, and

         (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.

<TABLE>
<CAPTION>
                           CONSOLIDATING BALANCE SHEET
                              AS OF OCTOBER 7, 2001
                                   (UNAUDITED)

                                     ASSETS

                                                      Guarantor         Nonguarantor                            Consolidated
                                         Parent       Subsidiaries      Subsidiaries     Eliminations               Total
                                         ------       ------------      ------------     ------------               -----
                                                                  (In thousands)
<S>                                   <C>              <C>                 <C>             <C>                   <C>
Current assets:
   Cash and cash equivalents             $5,378          $4,624             $1,483                --              $11,485
   Restricted cash for untendered
       shares                                57              --                 --                --                   57
   Receivables                            3,927             546                 87                --                4,560
   Inventories                            1,193           1,455                379                --                3,027
   Loan receivable from shareholder       2,000              --                 --                --                2,000
   Prepaid expenses                       4,996           2,209                107                --                7,312
                                         ------         -------             ------           ---------         ----------
   Total current assets                  17,551           8,834              2,056                --               28,441

Intercompany receivables                 25,515         259,843                 --          (285,358)                  --

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

Property and equipment, net              41,841          81,953             21,036                --              144,830

Intercompany  receivables - long term     3,900              --                 --            (3,900)                  --


Intangible assets, net                  212,742             341                 --                --              213,083

Loans receivable from shareholders        3,232              --                 --                --                3,232

Other assets                              7,882           2,927               (719)           (2,477)               7,613
                                         ------           -----              -----            -------              ------

                                      $ 378,132        $353,898            $22,373         $(357,204)            $397,199
                                      =========        ========           ========        =============         ===========

                                                                        Pg. 15
</TABLE>

<PAGE>

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

10.      GUARANTOR AND NON GUARANTOR FINANCIAL STATEMENTS (CONTINUED):

                           CONSOLIDATING BALANCE SHEET
                              AS OF OCTOBER 7, 2001
                                   (UNAUDITED)

                       LIABILITIES AND SHAREHOLDERS EQUITY

<TABLE>
<CAPTION>
                                                      Guarantor         Nonguarantor                            Consolidated
                                         Parent       Subsidiaries      Subsidiaries     Eliminations               Total
                                         ------       ------------      ------------     ------------               -----
                                                                  (In thousands)
<S>                                   <C>              <C>                 <C>             <C>                   <C>
Current liabilities:

   Amounts due for untendered
       shares                            $   57              --                 --                                $    57
   Accounts payable and
       accrued expenses                  23,877          $2,315             $2,543                                 28,735
   Accrued interest payable               1,948              --                 --                                  1,948
   Current portion of
       mortgage payable                      --             140                 --                                    140
                                       ---------       --------            -------                                 ------

     Total current liabilities           25,882           2,455              2,543                                 30,880

Intercompany payables                   259,843              --             25,515         $(285,358)                  --

Deferred rent                             7,191              --              1,308                --                8,499

Long-term debt, net of original
   issue discount                       251,982          15,671                 --                --              267,653

Intercompany payables - long term            --           3,900                 --            (3,900)                  --

Shareholders' equity (deficit):
Common stock                                 71              --                 --                --                   71
Additional paid-in capital                   10          65,469              2,477           (67,946)                  10
Retained earnings (deficit)            (166,847)        266,403             (9,470)               --               90,086
                                       ---------       --------            -------       -----------               ------

                                       (166,766)        331,872             (6,993)          (67,946)              90,167
                                       ---------        -------             -------         --------               ------

                                       $378,132        $353,898            $22,373         $(357,204)            $397,199
                                       ========       ==========           =======        ===========            ========

</TABLE>


                                     Pg. 16
<PAGE>


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

10.      GUARANTOR AND NON GUARANTOR FINANCIAL STATEMENTS (CONTINUED):


                           CONSOLIDATING BALANCE SHEET
                             AS OF DECEMBER 31, 2000
                                     ASSETS

<TABLE>
<CAPTION>
                                                      Guarantor         Nonguarantor                            Consolidated
                                         Parent       Subsidiaries      Subsidiaries     Eliminations               Total
                                         ------       ------------      ------------     ------------               -----
                                                                  (In thousands)
<S>                                   <C>              <C>                 <C>             <C>                   <C>
Current assets:
   Cash and cash equivalents           $  36,963      $   4,232            $   1,124             --              $  42,319
   Restricted cash for untendered
     shares                                  153             --                   --             --                    153
   Receivables                             2,461            370                  103      ($   30)                   2,904

   Inventories                             1,459          1,763                  309             --                  3,531
   Prepaid expenses                          836            136                   27             --                    999
                                       ---------      ---------            ---------      ---------              ---------
     Total current assets                 41,872          6,501                1,563            (30)                49,906

Intercompany receivables                  20,318        195,470                   --       (215,788)                    --

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

Property and equipment, net               45,486         88,026               18,956             --                152,468

Intercompany  receivables - long term      3,558             --                   --         (3,558)                    --

Intangible assets, net                   217,306            373                   --             --                217,679

Loan receivable from officer               2,000             --                   --             --                  2,000

Other assets                              10,788             52                 (534)        (3,804)                 6,502
                                       ---------      ---------            ---------      ---------              ---------
                                       $ 406,797      $ 290,422            $  19,985      ($288,649)             $ 428,555
                                       =========      =========            =========      =========              =========

</TABLE>


                                     Pg. 17
<PAGE>

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


10.      GUARANTOR AND NON GUARANTOR FINANCIAL STATEMENTS (CONTINUED):


                           CONSOLIDATING BALANCE SHEET
                             AS OF DECEMBER 31, 2000
                       LIABILITIES AND SHAREHOLDERS EQUITY


<TABLE>
<CAPTION>
                                                      Guarantor         Nonguarantor                            Consolidated
                                         Parent       Subsidiaries      Subsidiaries     Eliminations               Total
                                         ------       ------------      ------------     ------------               -----
                                                                  (In thousands)
<S>                                   <C>              <C>                 <C>             <C>                   <C>
Current liabilities:

Amounts due for
   untendered shares                   $     153             --                   --             --              $     153
Accounts payable and
   accrued expenses                       30,042      ($    959)           $   2,267             --                 31,350
Accrued interest payable                   8,181             --                   --             --                  8,181
Current portion of
   mortgage payable                           --             130                  --             --                    130
                                       ---------      ---------            ---------      ---------              ---------
     Total current liabilities            38,376           (829)               2,267             --                 39,814

Intercompany payables                    195,470             --               20,318      ($215,788)                    --

Deferred rent                              6,367             --                1,299             --                  7,666

Long-term debt, net of original
   issue discount                        251,689         15,789                   --             --                267,478

Intercompany payables - long term             --          3,558                   --         (3,558)                    --

Shareholders' equity (deficit):               --             --                   --             --
   Common stock                               71             --                   --             --                     71
   Additional paid-in capital                 10         65,469                2,507        (67,976)                    10
   Retained earnings (deficit)           (85,186)       206,435               (6,406)        (1,327)               113,516
                                       ---------      ---------            ---------      ---------              ---------

                                         (85,105)       271,904               (3,899)       (69,303)               113,597
                                       ---------      ---------            ---------      ---------              ---------

                                       $ 406,797      $ 290,422            $  19,985      ($288,649)             $ 428,555
                                       =========      =========            =========      =========              =========

</TABLE>

                                     Pg. 18

<PAGE>


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


10.      GUARANTOR AND NON GUARANTOR FINANCIAL STATEMENTS (CONTINUED):

                        CONSOLIDATING STATEMENT OF INCOME
                    FOR THE FORTY WEEKS ENDED OCTOBER 7, 2001
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                      Guarantor         Nonguarantor                            Consolidated
                                         Parent       Subsidiaries      Subsidiaries     Eliminations               Total
                                         ------       ------------      ------------     ------------               -----
                                                                  (In thousands)
<S>                                    <C>            <C>                  <C>            <C>                    <C>
Revenues:

     Restaurant sales                  $ 114,395      $ 139,009            $  20,524                             $ 273,928
     Franchise related income              7,652             --                   --                                 7,652
     Real estate and other                 2,070          2,337                   --                                 4,407
     Intercompany charges                     --          8,538                   --      $  (8,538)                    --
                                       ---------      ---------            ---------      ---------              ---------
       Total revenues                    124,117        149,884               20,524         (8,538)               285,987
                                       ---------      ---------            ---------      ---------              ---------

Costs and expenses:
     Restaurant operating expenses:
       Cost of food and paper
         products                         21,233         29,263                5,659             --                 56,155
       Payroll and other
         employee benefits                29,151         39,778                6,939             --                 75,868
       Other operating costs              37,482         45,634                7,190             --                 90,306
     Depreciation and
        amortization                      12,447         10,509                1,138             --                 24,094
     General and administrative           14,005         11,670                1,195             --                 26,870
     Intercompany charges                  8,538             --                   --         (8,538)                    --
                                       ---------      ---------            ---------      ---------              ---------

       Total costs and expenses          122,856        136,854               22,121         (8,538)               273,293
                                       ---------      ---------            ---------      ---------              ---------

Operating income before
      minority interest                    1,261         13,030               (1,597)            --                 12,694
Minority interest                             --             --                   26             --                     26
                                       ---------      ---------            ---------      ---------              ---------
Operating income                           1,261         13,030               (1,571)            --                 12,720

Other (expense) income:
     Interest expense                    (23,012)        (1,111)              (1,437)         1,437                (24,123)
     Interest income                       2,077             --                   --         (1,437)                   640
       Equity in net income
       of unconsolidated affiliates          185             --                   --             --                    185
                                       ---------      ---------            ---------      ---------              ---------

Net other expense                        (20,750)        (1,111)              (1,437)            --                (23,298)
                                       ---------      ---------            ---------      ---------              ---------

(Loss) income before income taxes        (19,489)        11,919               (3,008)            --                (10,578)
Income taxes (benefit)                        67            315                 (102)            --                    280
                                       ---------      ---------            ---------      ---------              ---------

Net (loss) income                      $ (19,556)     $  11,604            $  (2,906)     $      --              $ (10,858)
                                       =========      =========            =========      =========              =========
</TABLE>

                                     Pg. 19

<PAGE>

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

10.      GUARANTOR AND NON GUARANTOR FINANCIAL STATEMENTS (CONTINUED):


                        CONSOLIDATING STATEMENT OF INCOME
                    FOR THE FORTY WEEKS ENDED OCTOBER 8, 2000
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                      Guarantor         Nonguarantor                            Consolidated
                                         Parent       Subsidiaries      Subsidiaries     Eliminations               Total
                                         ------       ------------      ------------     ------------               -----
                                                                  (In thousands)
<S>                                    <C>            <C>                  <C>            <C>                    <C>
Revenues:

     Restaurant sales                  $ 119,790      $ 141,036            $  17,295             --              $ 278,121
     Franchise related income              8,803             --                   --             --                  8,803
     Real estate and other                 2,092          2,805                   --      ($    581)                 4,316
     Intercompany charges                     --         11,924                   --        (11,924)                    --
                                       ---------      ---------            ---------      ---------              ---------
       Total revenues                    130,685        155,765               17,295        (12,505)               291,240

Costs and expenses:
     Restaurant operating expenses:
       Cost of food and paper
         products                         21,428         28,595                4,708             --                 54,731
       Payroll and other
         employee benefits                28,876         40,146                5,891             --                 74,913
     Other operating costs                37,233         44,541                4,588             --                 86,362
     Depreciation and
        amortization                      14,115          9,583                  756             --                 24,454
     General and administrative           12,647         10,832                1,314           (581)                24,212
     Intercompany charges                 11,924             --                   --        (11,924)                    --
                                       ---------      ---------            ---------      ---------              ---------
       Total costs and expenses          126,223        133,697               17,257        (12,505)               264,672

Operating income before
      minority interest                    4,462         22,068                   38             --                 26,568
Minority interest                             --             --                   64             --                     64
                                       ---------      ---------            ---------      ---------              ---------
Operating income                           4,462         22,068                  102             --                 26,632

Other (expense) income:
     Interest expense                    (23,002)          (775)              (1,260)         1,260                (23,777)
     Interest income                       1,988             --                   --         (1,260)                   728
     Equity in net income
         of unconsolidated affiliates        262             --                   --             --                    262
                                       ---------      ---------            ---------      ---------              ---------

Net other expense                        (20,752)          (775)              (1,260)            --                (22,787)

Income (loss) before income taxes        (16,290)        21,293               (1,158)            --                  3,845
Income taxes (benefit)                    (6,023)           824                  (45)            --                 (5,244)
                                       ---------      ---------            ---------      ---------              ---------

Net income (loss)                      ($ 10,267)     $  20,469            ($  1,113)     $      --              $   9,089
                                       =========      =========            =========      =========              =========

</TABLE>

                                     Pg. 20

<PAGE>


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

10.      GUARANTOR AND NON GUARANTOR FINANCIAL STATEMENTS (CONTINUED):


                        CONSOLIDATING STATEMENT OF INCOME
                   FOR THE TWELVE WEEKS ENDED OCTOBER 7, 2001
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                      Guarantor         Nonguarantor                            Consolidated
                                         Parent       Subsidiaries      Subsidiaries     Eliminations               Total
                                         ------       ------------      ------------     ------------               -----
                                                                  (In thousands)
<S>                                    <C>            <C>                  <C>            <C>                    <C>
Revenues:

     Restaurant sales                  $ 35,145       $ 43,600             $  6,461             --              $ 85,206
     Franchise related income             2,430             --                   --             --                 2,430
     Real estate and other                  479            659                   --             --                 1,138
     Intercompany charges                    --          2,193                   --         (2,193)                   --
                                       --------       --------             --------       --------              --------
       Total revenues                    38,054         46,452                6,461         (2,193)               88,774
                                                                                                                --------

Costs and expenses:
     Restaurant operating expenses:
       Cost of food and paper
         products                         6,621          9,209                1,818             --                17,648
       Payroll and other
         employee benefits                8,659         12,351                2,227             --                23,237
       Other operating costs             10,514         14,173                2,067                               26,754
     Depreciation and
        amortization                      3,566          3,172                  379             --                 7,117
     General and administrative           6,119          2,456                  511             --                 9,086
     Intercompany charges                 2,193             --                   --         (2,193)                   --
                                       ---------      ---------            ---------      ---------              ---------
Total costs and expenses                 37,672         41,361                7,002         (2,193)               83,842

Operating income before
      minority interest                     382          5,091                 (541)            --                 4,932
                                       ---------      ---------            ---------      ---------              ---------
Minority interest                            --             --                   28             --                    28
                                       ---------      ---------            ---------      ---------              ---------

Operating income                            382          5,091                 (513)            --                 4,960
                                       ---------      ---------            ---------      ---------              ---------

Other (expense) income:
     Interest expense                    (6,927)          (311)                (572)           572                (7,238)
     Interest income                        719             --                   --           (572)                  147
         Equity in net income
       of unconsolidated affiliates          60             --                   --             --                    60
                                       ---------      ---------            ---------      ---------              ---------

Net other expense                        (6,148)          (311)                (572)            --                (7,031)
                                       ---------      ---------            ---------      ---------              ---------

(Loss) income before income taxes        (5,766)         4,780               (1,085)            --                (2,071)
Income taxes (benefit)                       29            109                  (58)            --                    80
                                       ---------      ---------            ---------      ---------              ---------

Net (loss) income                      $ (5,795)      $  4,671             $ (1,027)            --              $ (2,151)
                                       =========      =========            =========      =========              =========
</TABLE>


                                     Pg. 21
<PAGE>

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


10.      GUARANTOR AND NON GUARANTOR FINANCIAL STATEMENTS (CONTINUED):


                        CONSOLIDATING STATEMENT OF INCOME
                   FOR THE TWELVE WEEKS ENDED OCTOBER 8, 2000
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                      Guarantor         Nonguarantor                            Consolidated
                                         Parent       Subsidiaries      Subsidiaries     Eliminations               Total
                                         ------       ------------      ------------     ------------               -----
                                                                  (In thousands)
<S>                                    <C>            <C>                  <C>            <C>                    <C>
Revenues:

     Restaurant sales                  $ 37,620       $ 44,407             $  5,733                             $ 87,760
     Franchise related income             2,426             --                   --                                2,426
     Real estate and other                  713            848                   --       ($   187)                1,374
     Intercompany charges                    --          3,881                   --         (3,881)                   --
                                       ---------      ---------            ---------      ---------              ---------
       Total revenues                    40,759         49,136                5,733         (4,068)               91,560
                                       ---------      ---------            ---------      ---------              ---------

Costs and expenses:
     Restaurant operating expenses:
       Cost of food and paper
         products                         6,724          9,112                1,600             --                17,436
       Payroll and other
         employee benefits                7,208         14,179                1,694             --                23,081
Other operating costs                    12,392         12,258                1,834             --                26,484
     Depreciation and
        amortization                      4,515          2,943                  265             --                 7,723
     General and administrative           4,049          2,920                  429           (187)                7,211
     Intercompany charges                 3,881             --                   --         (3,881)                   --
                                       ---------      ---------            ---------      ---------              ---------
       Total costs and expenses          38,769         41,412                5,822         (4,068)               81,935
                                       ---------      ---------            ---------      ---------              ---------

Operating income before
      minority interest                   1,990          7,724                  (89)            --                 9,625
Minority interest                            --             --                   (2)            --                    (2)
                                       ---------      ---------            ---------      ---------              ---------
Operating income                          1,990          7,724                  (91)            --                 9,623

Other (expense) income:
     Interest expense                    (6,895)          (335)                (361)           361                (7,230)
     Interest income                        636             --                   --           (361)                  275
         Equity in net loss
       of unconsolidated affiliates         (55)            --                   --             --                   (55)
                                       ---------      ---------            ---------      ---------              ---------

Net other expense                        (6,314)          (335)                (361)            --                (7,010)

Income (loss) before income taxes        (4,324)         7,389                 (452)            --                 2,613
Income taxes (benefit)                      (85)           269                  (19)            --                   165
                                       ---------      ---------            ---------      ---------              ---------


Net income (loss)                      ($ 4,239)      $  7,120             ($   433)      $     --              $  2,448
                                       =========      =========            =========      =========              =========
</TABLE>



                                     Pg. 22
<PAGE>

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


10.      GUARANTOR AND NON GUARANTOR FINANCIAL STATEMENTS (CONTINUED):


                        CONSOLIDATING STATEMENT OF INCOME
                    FOR THE FORTY WEEKS ENDED OCTOBER 7, 2001
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                      Guarantor         Nonguarantor                            Consolidated
                                         Parent       Subsidiaries      Subsidiaries     Eliminations               Total
                                         ------       ------------      ------------     ------------               -----
                                                                  (In thousands)
<S>                                    <C>            <C>                  <C>            <C>                    <C>

Net income (loss)                       $(19,556)     $ 11,604             $ (2,906)             --             $(10,858)
Adjustments to reconcile net income
 to net cash provided by
 operating activities:
  Depreciation and amortization           13,533        10,540                1,138              --               25,211
  Provision for unit closings              2,061            --                   --              --                2,061
  Increase (decrease) in deferred rent       833          (226)                  --              --                  607
  Minority interest                           --            --                  (26)             --                  (26)
  Equity in income of
   unconsolidated affiliates                (185)           --                   --              --                 (185)
  Dividends received from
   unconsolidated affiliates                 244            --                   --              --                  244
  Changes in operating assets
   and liabilities:
   (Increase) decrease in receivables     (1,495)         (176)                  14              --               (1,657)
Decrease (increase) in inventories           266           309                  (71)             --                  504
     Increase in prepaid expenses         (4,160)       (2,073)                 (80)             --               (6,313)
      Decrease (increase) in
        other assets                       2,830        (4,156)                 186              --               (1,140)
      (Decrease) increase in accounts
        payable and accrued expenses      (5,966)        3,263                   --              --               (2,703)
     Decrease in accrued interest
         payable                          (6,223)           --                   --              --               (6,223)
                                       ---------      ---------            ---------      ---------              ---------

Net cash (used in) provided by
    operating activities                 (17,818)       19,085               (1,745)             --                 (478)
                                       ---------      ---------            ---------      ---------              ---------

Investing activities:
Purchases of property and equipment       (2,099)       (9,036)              (3,318)             --              (14,453)
                                       ---------      ---------            ---------      ---------              ---------

Net cash used in investing activities     (2,099)       (9,036)              (3,318)             --              (14,453)
                                       =========      =========            =========      =========              =========

</TABLE>

                                     Pg. 23
<PAGE>

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


10.      GUARANTOR AND NON GUARANTOR FINANCIAL STATEMENTS (CONTINUED):


                        CONSOLIDATING STATEMENT OF INCOME
                    FOR THE FORTY WEEKS ENDED OCTOBER 7, 2001
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                      Guarantor         Nonguarantor                            Consolidated
                                         Parent       Subsidiaries      Subsidiaries     Eliminations               Total
                                         ------       ------------      ------------     ------------               -----
                                                                  (In thousands)
<S>                                    <C>            <C>                  <C>            <C>                    <C>

Financing activities:
Mortgage principal repayments                --           (107)                  --              --                  (107)
Loan to shareholders                     (3,232)            --                   --              --               (3,232)
Distributions to shareholders           (12,564)            --                   --              --               (12,564)
Intercompany balances                     4,128         (9,550)               5,422              --                    --
                                       ---------      ---------            ---------      ---------              ---------
Net cash (used in) provided
   by financing activities              (11,668)        (9,657)               5,422              --               (15,903)
                                       ---------      ---------            ---------      ---------              ---------

(Decrease) increase in cash and
   cash equivalents                     (31,585)           392                  359              --               (30,834)
Cash and cash equivalents
   at beginning of period                36,963          4,232                1,124              --                42,319
                                       ---------      ---------            ---------      ---------              ---------
Cash and cash equivalents
   at end of period                    $  5,378       $  4,624             $  1,483              --              $ 11,485
                                       ---------      ---------            ---------      ---------              ---------

Supplemental disclosure of cash
  flow information:
Cash paid during the period
   for income taxes                    $    321       $    463             $      7              --              $    791
                                       =========      =========            =========      =========              =========
Cash paid during the period
   for interest                        $ 28,111       $  1,130                   --              --              $ 29,241
                                       =========      =========            =========      =========              =========

</TABLE>

                                     Pg. 24

<PAGE>

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


10.      GUARANTOR AND NON GUARANTOR FINANCIAL STATEMENTS (CONTINUED):


                        CONSOLIDATING STATEMENT OF INCOME
                    FOR THE FORTY WEEKS ENDED OCTOBER 8, 2000
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                      Guarantor         Nonguarantor                            Consolidated
OPERATING ACTIVITIES:                    Parent       Subsidiaries      Subsidiaries     Eliminations               Total
                                         ------       ------------      ------------     ------------               -----
                                                                  (In thousands)
<S>                                    <C>            <C>                  <C>            <C>                    <C>

Net income (loss)                     ($ 9,707)       $ 19,909             ($ 1,112)             --              $  9,090
Adjustments to reconcile net income
 to net cash provided by
 operating activities:
   Depreciation and amortization        15,002           9,601                  785              --                25,388
Change in deferred taxes due to
   Subchapter S conversion              (5,629)             --                   --              --                (5,629)
  Change in deferred rent                  532            (395)                  --              --                   137
  Minority interest                         --              --                   64              --                    64
  Equity in income of
   unconsolidated affiliates              (262)             --                   --              --                  (262)
  Dividends received from
   unconsolidated affiliates               156              --                   --              --                   156
  Changes in operating assets
   and liabilities:
   Decrease (increase) in receivables      810          (1,225)                 (23)             --                  (438)
   Decrease (increase) in inventories      331             456                  (89)             --                   698
   Increase in prepaid
         expenses                       (1,771)         (2,594)                (165)             --                (4,530)
(Increase) decrease in
        other assets                    (3,062)             85                3,392              --                   415
      (Decrease) increase in accounts
        payable and accrued expenses    (8,116)            226                  492              --                (7,398)
      Decrease in accrued interest
        payable                         (5,221)             --                   --              --                (5,221)
      (Decrease) increase in
        income taxes payable              (986)            180                   72              --                  (734)
                                       ---------      ---------            ---------      ---------              ---------
   Net cash (used in) provided by
     operating activities              (17,923)         26,243                3,416              --                11,736
                                       ---------      ---------            ---------      ---------              ---------

INVESTING ACTIVITIES:
Purchases of property and equipment     (4,705)         (7,270)              (7,290)             --               (19,265)
                                       ---------      ---------            ---------      ---------              ---------

Net cash used in investing activities   (4,705)         (7,270)              (7,290)             --               (19,265)
                                       ---------      ---------            ---------      ---------              ---------

</TABLE>
                                     Pg. 25

<PAGE>

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


10.      GUARANTOR AND NON GUARANTOR FINANCIAL STATEMENTS (CONTINUED):


                        CONSOLIDATING STATEMENT OF INCOME
                    FOR THE FORTY WEEKS ENDED OCTOBER 8, 2000
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                      Guarantor         Nonguarantor                         Consolidated
OPERATING ACTIVITIES:                    Parent       Subsidiaries      Subsidiaries     Eliminations            Total
                                         ------       ------------      ------------     ------------            -----
                                                                  (In thousands)
<S>                                    <C>               <C>               <C>               <C>               <C>
Financing activities:
Mortgage principal repayments                --               (60)               --                 --              (60)
Proceeds from mortgage                       --            16,000                --                 --           16,000
Cost of mortgage                             --              (387)               --                 --             (387)
Loans to shareholders                    (2,000)               --                --                 --           (2,000)
Distributions to shareholders           (21,640)               --                --                 --          (21,640)
Intercompany balances                    32,482           (35,436)            2,954                 --               --
                                       --------          --------          --------          ---------         --------
Net cash provided by (used in)
   financing activities                   8,842           (19,883)            2,954                 --           (8,087)
                                       --------          --------          --------          ---------         --------

Decrease in cash and
   cash equivalents                     (13,786)             (910)             (920)                --          (15,616)
Cash and cash equivalents
   at beginning of year                  27,853             4,391             1,510                 --           33,754
                                       --------          --------          --------          ---------         --------
Cash and cash equivalents
   at end of year                      $ 14,067          $  3,481          $    590          $      --         $ 18,138
                                       ========          ========          ========          =========         ========

Supplemental disclosure of
  cash flow information:
Cash paid during the period
   for income taxes                    $  3,110          $    557          $     46          $      --         $  3,713
                                       ========          ========          ========          =========         ========
Cash paid during the period
   for interest                        $ 27,110          $    775          $     --          $      --         $ 27,885
                                       ========          ========          ========          =========         ========

</TABLE>

                                     Pg. 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>
                                                  40 Weeks     40 Weeks      12 Weeks       12 Weeks            Fiscal Year
                                                  Ended        Ended         Ended          Ended              ------------
                                                  10/07/01     10/08/00      10/07/01       10/08/00           2000    1999
                                                  --------     --------      --------       --------           ----    ----
<S>                                                <C>       <C>             <C>              <C>              <C>       <C>
Company-owned restaurants (1):
   Opened during period                               4        7              1                 2              13        24
   Acquired from (sold to)
     franchisees during period-net                  --        --               -                -               1        (1)
   Closed during period                            (36)      (11)             (7)              (3)            (16)       (9)
                                                   ----     -----            ----             ----           --------  -----
   Open at end of period                           604       634             604              634             636       638

Franchised restaurants:
   Opened during period                             22        28               9               11              36        49
   Purchased from (sold to)
     Company during period-net                      --         -              -                 -              (1)        1
   Closed or terminated during period              (12)      (15)             (7)              (2)            (18)      (32)
                                                 ------      ----          ------           ------           -----     -----
   Open at end of period                           313       299             313              299              303      286

All restaurants:
   Opened during period                             26        35              10               13               49        73
   Closed or terminated during period              (48)      (26)            (14)              (5)             (34)      (41)
                                                 ------     -----           -----           ------            ----      -----
   Open at end of period                           917       933             917              933              939       924

Kiosks (all franchised) open at
   end of period                                     5         5               5                5                5         4

</TABLE>

(1)      Excludes  36,  32, 33 and 26 new  concept  units  open as of October 7,
         2001, October 8, 2000, fiscal 2000 and fiscal 1999, respectively.








                                     Pg. 27


<PAGE>



Our business is subject to seasonal fluctuations, and 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. The fourth fiscal quarter historically has accounted for approximately
40% of annual operating net income before the effect of additional amortization
associated with our going private transaction in September 1999 ("adjusted
operating income") but has fluctuated 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.

However, with the loss experienced during the forty week period ended October 7,
2001 and because we are unable to predict the effects that the weakened US
economy and the events of September 11, 2001 will have on mall, airport and
downtown traffic, principal markets for Sbarro restaurants, during the fourth
quarter of fiscal 2001, this percentage will not be representative of the
percentage of earnings that the fourth quarter of fiscal 2001 will contribute to
full fiscal 2001 results.

One high volume Sbarro-owned quick service unit was destroyed in the September
11, 2001 attack on the World Trade Center in New York City. In addition, a
number of airports were closed due to the events of September 11 causing airport
Sbarro-owned and franchise units to close and a number of downtown locations
experienced reduced sales. We have made claims under our business interruption
insurance policies with respect thereto. However, under applicable accounting
principles, the accompanying statement of operations does not give effect to any
potential recoveries that may result therefrom.

Our consolidated EBITDA for the forty weeks ended October 7, 2001 was $36.8
million, with an EBITDA margin of 12.9%, compared to $51.0 million and 17.5%,
respectively, for the forty weeks ended October 8, 2000. Our consolidated EBITDA
for the twelve weeks ended October 7, 2001 was $12.0 million and our EBITDA
margin was 13.6%, compared to $17.3 million and 18.9%, respectively, for the
twelve weeks ended October 7, 2000. EBITDA represents earnings before cumulative
effect of change in accounting method, interest income, interest expense, equity
in net income of unconsolidated affiliates, taxes, depreciation and
amortization. EBITDA margin represents EBITDA divided by the total revenues.
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 or as a measure of a
company's profitability or liquidity. Rather, EBITDA is presented because it is
a widely accepted supplemental financial measure of operating performance, and
we believe that it provides relevant and useful information about our
operations. 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.



                                     Pg. 28



<PAGE>

Restaurant sales from Sbarro-owned quick service units and consolidated joint
venture units decreased $4.2 million or 1.5% to $273.9 million for the forty
weeks ended October 7, 2001 from $278.1 million for the forty weeks ended
October 8, 2000, while they decreased by $2.6 million or 2.9% to $85.2 million
for the twelve weeks ended October 7, 2001 from $87.8 million in the twelve
weeks ended October 8, 2000. Sales increases in consolidated joint venture units
of $3.3 million were offset by a $7.5 million decline in sales from quick
service units for the forty weeks ended October 7, 2001. For the twelve weeks
ended October 7, 2001, the increase in consolidated joint venture sales of $0.7
million was offset by a $3.3 million decline in quick service unit sales. Sales
at both Sbarro quick service and certain consolidated joint venture locations
for the forty and twelve weeks ended October 7, 2001, which have been adversely
impacted by the general economic downturn, were further affected by the events
of September 11, 2001. From the beginning of fiscal 2000 through the end of the
third quarter of 2001, we have closed 31 more units than we opened. Also, one
high volume unit closed in the second quarter of fiscal 2000 was not replaced
until the second quarter of 2001. The units closed and not replaced since the
beginning of fiscal 2000, with the exception of the World Trade Center and the
one high volume unit closed in fiscal 2000 and replaced in 2001, were generally
low volume units which did not have a material impact on our results of
operations. In addition, a number of airports were closed due to the events of
September 11 causing airport Sbarro-owned and franchise units to close and a
number of downtown locations experienced reduced sales. Revenues from new quick
service units did not offset the loss of revenues from quick service units
closed since the beginning of fiscal 2000.

Comparable Sbarro quick service unit sales decreased 1.3% and 2.7% during the
forty and twelve weeks ended in the third fiscal quarter of 2001. Comparable
Sbarro quick service unit sales levels for the third fiscal quarter and year to
date, which, as noted above, had already been affected by the decrease in mall
traffic related to the general economic downtown in the United States, were
negatively affected after the tragedy of September 11. In late March 2001 and
mid June 2001, we implemented price increases of 0.7% and 3.3%, respectively,
which partially offset the reduction in traffic. Comparable restaurant sales are
made up of sales at locations that were open during the entire current and prior
fiscal year.

Excluding approximately $1.5 million of fees related to the termination of our
development agreement and the closing of all Sbarro locations in Japan and $0.3
million related to the termination of an area development agreement in Egypt,
before any locations had opened, recognized during the first quarter of fiscal
2001, franchise related income remained at $7.3 million for each of the forty
week periods ended October 7, 2001 and October 8, 2000 and remained at $2.4
million for the third quarter of both fiscal 2001 and 2000. Greater royalties
due to a higher number of franchise units in operation in the current fiscal
year were offset by decreases in comparable location revenues, primarily from
domestic locations. Franchises, both domestically and internationally, have been
negatively affected by the events of September 11. The franchised locations that
were in Israel (that was destroyed in August 2001 and closed for approximately
one month) and the World Trade Center did not generate significant royalty
revenues.



                                     Pg. 29

<PAGE>

Real estate and other revenues increased 2.1% and decreased 17.2% for the forty
and twelve weeks ended October 7, 2001, respectively, from the same periods in
fiscal 2000 due to the full year effect of leasing the Company's headquarters
building (which has been fully occupied since the end of the second quarter of
fiscal 2000) to third parties offset in the twelve week period in fiscal 2001 by
decreases in certain vendor rebates.

Cost of food and paper products as a percentage of restaurant sales increased to
20.5% for the forty weeks ended October 7, 2001 from 19.7% for the comparable
2000 fiscal period and to 20.7% of restaurant sales for the twelve weeks ended
October 7, 2001 from 19.9% for the comparable period in fiscal 2000. The
increases during both 2001 periods reported were primarily due to higher average
cheese prices, increased distribution fees and the reduced level of sales.
Cheese prices to date in the fourth quarter of fiscal 2001 have decreased to
levels only slightly higher than those experienced at the comparable point in
time in the fourth quarter of fiscal 2000.

Payroll and other employee benefits increased to 27.7% in the forty weeks ended
October 7, 2001 from 26.9% of restaurant sales in the forty weeks ended October
8, 2000. For the third quarter of fiscal 2001, these expenses increased to 27.3%
from 26.3% of restaurant sales in the same quarter of fiscal 2000. These
increases were primarily due to the continuing tight labor market, resulting in
pressures on wages and salaries and associated increases in amounts paid for
payroll taxes and the reduced level of sales. During in the third quarter of
fiscal 2001, we began to see an abatement of these pressures. In addition, we
are taking steps to reduce payroll expenses in light of the economic slowdown.

Other operating expenses increased to 33.0% of restaurant sales in the forty
weeks ended October 7, 2001 from 31.1% in the forty weeks ended October 8, 2000
and to 31.4% from 30.2% of restaurant sales for the twelve week period ended
October 7, 2001 and October 8, 2000 primarily due to increases in rent,
utilities and other occupancy related expenses and the reduced level of sales.

Depreciation and amortization expense decreased by $0.4 million for the first
forty weeks and $0.6 million for the third quarter of fiscal 2001 over the
similar periods in fiscal 2000. Amortization expense includes $4.0 and $5.8
million for the forty weeks of fiscal 2001 and 2000, respectively, and $1.2 and
$1.7 million for the twelve weeks of the third quarter of fiscal 2001 and 2000,
respectively, for the amortization of the excess of the purchase price of the
cost of net assets acquired in connection with the completion of our going
private transaction on September 28, 1999. Fiscal 2001 depreciation and
amortization reflects the finalization of our allocation of the purchase price
from the going private transaction during fiscal 2000 based on an evaluation of
our net assets at September 28, 1999.

General and administrative expenses were $26.9 million, or 9.4% of total
revenues, for the forty weeks ended October 7, 2001, compared to $24.2 million,
or 8.3% of total revenues, for the forty weeks ended October 8, 2000 and $9.1
million, or 10.2% of total revenues for the twelve weeks ended October 7, 2001,
compared to $7.2 million, or 7.9% of total revenues for the same twelve week
period in fiscal 2000. General and administrative costs increased as a result of
a reduction

                                     Pg. 30

<PAGE>

in the amount of overhead capitalized in connection with capital projects due to
a reduced number of new unit openings, and general cost increases partially
offset by decreases in certain field management costs. Increases also resulted
from a $2.8 million charge for certain quick service store closings and for the
cost of converting our Umberto and Tony & Bruno locations to our Mama Sbarro
concept, of which $1.3 million was recorded in the second quarter of fiscal
2001.

Minority interest represents the share of the minority holders' interests in the
combined profits or losses in each period of the fiscal years being reported of
the joint ventures in which we have a majority interest. We are assessing the
various joint venture operations to which we are a party to determine whether we
are obtaining an adequate return on investment with respect to each and are
assessing various alternatives that we may have with respect to each.

Interest expense of $24.1 million and $23.8 million for the first forty weeks of
fiscal 2001 and 2000, respectively, and $7.2 million for each of the third
fiscal quarters of fiscal 2001 and 2000 relates to the 11%, $255.0 million
Senior Notes issued to finance our going private transaction, the 8.4%, $16.0
million mortgage loan on our corporate headquarters and fees for unused
borrowing capacity under our bank Credit Agreement. Of these amounts, $1.0
million in each first forty weeks and $0.3 million in each third fiscal quarters
of 2001 and 2000, represented non-cash charges for the accretion of the original
issue discount on our Senior Notes and the amortization of deferred financing
costs on the Senior Notes, mortgage loan and Credit Agreement. The increase in
interest expense in the forty week period of fiscal 2001 over the comparable
fiscal 2000 period was due to the full period impact in fiscal 2001 of the
mortgage loan, which was entered into in March 2000.

Interest income was approximately $0.6 million for the forty weeks of fiscal
2001 and $0.7 million for the same period in the 2000 fiscal year. For the
twelve weeks in the third quarter of the 2001 and 2000 fiscal years, interest
income was $0.1 million and $0.3 million, respectively. Interest income in
fiscal 2001 was affected by reduced availability of cash for investment and
lower interest rates.

Equity in the net income of unconsolidated affiliates represents our share of
earnings and losses in those new concepts in which the company has a 50% or less
ownership interest. As mentioned above, we are assessing the various joint
venture operations to which we are a party to determine whether we are obtaining
an adequate return on investment with respect to each, and are assessing various
alternatives that we may have with respect to each.

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 is paid by our shareholders
rather than us. Our tax expense of $0.3 million and $0.4 million for the forty
weeks and $0.1 million and $0.2 million for the twelve weeks ended October 7,
2001 and October 8, 2000, respectively, represents taxes owed to jurisdictions
that do not recognize S corporation status or that tax entities based on factors
other than income. As


                                     Pg. 31

<PAGE>

required by Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes", we recognized a $5.6 million credit associated
with the reversal of our deferred tax liabilities upon conversion to S
corporation status in the first quarter of fiscal 2000.

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 October 7,
2001, we had unrestricted cash and cash equivalents of $11.5 million and a
working capital deficit of $2.4 million compared to unrestricted cash and cash
equivalents of $18.1 million and working capital of $0.6 million at October 8,
2000. We have $26.6 million of undrawn availability under our Credit Agreement,
net of outstanding letters of credit and guarantees of reimbursement obligations
currently aggregating approximately $3.4 million.

Our operations used $0.5 million of cash for the forty weeks ended October 7,
2001. During the forty weeks ended October 8, 2000, our operations generated
$11.7 million of cash. The $12.2 million difference was primarily due to a $14.3
million reduction in EBITDA and a $1.4 million increase in cash interest offset,
in part, by a $2.9 million reduction in taxes paid as a result of our conversion
to Subchapter S status on January 3, 2000 (the cash tax payment of $2.5 million
in the first quarter of fiscal 2000 represented the payment of taxes accrued in
1999).

Net cash used in investing activities was for capital expenditures, including
investments made by our consolidated joint ventures. Net cash used in investing
activities declined from $19.3 million for the forty weeks ended October 8, 2000
to $14.5 million for the forty weeks ended October 7, 2001 primarily due to a
decline in new unit openings.

Net cash used in financing activities was $15.9 million for the forty weeks
ended October 7, 2001 compared to $8.1 million in the comparable 2000 period.
Cash used in financing activities during the first forty weeks of fiscal 2001
resulted primarily from cash dividends of $5.0 million paid on April 6, 2001
(which was rescinded after the end of the third quarter and returned to equity),
Subchapter S Corporation tax distributions of $7.6 million and $3.2 million, net
of repayments, of loans to our shareholders, all during the first fiscal quarter
of 2001. Cash used in financing activities for the first forty week period of
2000 resulted primarily from $18.0 million of cash dividends, $3.6 million of
tax distribution to our shareholders and a $2.0 million loan to our Chairman and
CEO offset, in part, by $15.6 million of net proceeds from a $16.0 million, 8.4%
ten year loan secured by a mortgage on our corporate headquarters building. Tax
distributions are made as a result of our election 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. We make periodic tax distributions,
as permitted under the Indenture under which our Senior Notes are issued and
under our Credit Agreement, in amounts that are


                                     Pg. 32

<PAGE>

intended to approximate the income taxes, including estimated taxes, that would
be payable by our shareholders if their only income was their pro-rated share of
our taxable income and that income was taxed at the highest applicable federal
and New York state marginal income tax rates.

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 joint ventures, distributions to shareholders as
permitted under the Indenture under which the Senior Notes are issued and the
Credit Agreement and general corporate purposes. We expect our primary sources
of liquidity to meet these needs will be cash flow from operations and
availability under our Credit Agreement. The Indenture under which our $255.0
million Senior Notes are issued and our bank Credit Agreement restrict our
ability to incur debt (other than under our bank Credit Agreement) unless we
meet a specified Consolidated Interest Coverage Ratio (as defined). In addition,
our ability to make, among other things, investments in unrestricted
subsidiaries (including the joint ventures in which we currently have an
interest), and loans to third parties (including our shareholders) and to pay
dividends (other than under a formula contained in a tax payment agreement which
permits us to make periodic Subchapter S tax distributions, including estimated
taxes, up to the formula determined amount) is limited to certain amounts and
cannot be made unless another specified Consolidated Interest Coverage Ratio is
met. Based upon our results of operations through the third quarter of fiscal
2001, we presently may not incur additional indebtedness (other than under our
bank Credit Agreement).

We believe that aggregate restaurant capital expenditures and our investments in
joint ventures during the next twelve months will be moderately lower than
levels in the previous twelve months.

We do not have any principal repayment obligations under the Senior Notes or our
Credit Agreement until September 2009 and September 2004, respectively. No
amounts are outstanding under our Credit Agreement. Our mortgage loan is payable
in monthly installments of principal and interest of $0.1 million, with a final
principal payment of $14.1 million due in 2010.

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 this 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", "expects", "intends", "plans", "estimates", "projects", "strategy"
and similar expressions or the negative of those words.



                                     Pg. 33

<PAGE>

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, in general, general economic, weather and business
conditions; the availability of suitable restaurant sites in appropriate
regional shopping malls and other locations on reasonable rental terms; changes
in consumer tastes; changes in population and traffic patterns, including the
effects that the events of September 11, 2001 may have on mall, airport and
downtown traffic, the principal markets for Sbarro restaurants; our ability to
continue to attract franchisees; the success of our present, and any future,
joint ventures and other expansion opportunities; the availability of food
(particularly cheese and tomatoes) and paper products at current prices; our
ability to pass along cost increases to our customers; no material increase
occurring in the Federal minimum wage; the continuity of services of members of
our senior management team; our ability to attract and retain competent
restaurant and executive managerial personnel; competition; the level of, and
our ability to comply with, government regulations; our ability to generate
sufficient cash flow to make interest payments and principal under our Senior
Notes and Credit Agreement; the effects which restrictions imposed on us under
the Indenture under which the Senior Notes are issued and the Credit Agreement
may have on our ability to operate our business; and 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 the forward-looking 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, other than as required by law. 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 us to similar investments. Although our existing investments are not
considered at risk with respect to changes in interest rates or markets for
these instruments, our rate of return on short-term investments could be
affected at the time of reinvestment as a result of intervening events.

Borrowings that we may make under our credit facility will be subject to
fluctuations in interest rates. However, we do not expect to enter into any
interest rate swaps or other instruments to hedge our borrowings under our
credit facility.

We have not purchased 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.

                                     Pg. 34

<PAGE>

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.


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


                                 Not Applicable



                                    SIGNATURE


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



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


Date:   November 19, 2001          By:  /s/ MARIO SBARRO
     ----------------------             ----------------------------------------
                                        Mario Sbarro
                                        Chairman of the Board and President
                                        (Principal Executive Officer)




Date:   November 19, 2001          By:  /s/ STEVEN B. GRAHAM
     ----------------------             ----------------------------------------
                                        Steven B. Graham
                                        Vice President and Controller (Principal
                                        Financial and Accounting Officer)





                                     Pg. 35