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


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


[ ]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         FOR THE QUARTER ENDED JULY 11, 2004    COMMISSION FILE NUMBER 333-90817


                                  SBARRO, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

       NEW YORK                                              11-2501939
(STATE OR OTHER JURISDICTION OF                      (I.R.S. EMPLOYER I.D. NO.)
INCORPORATION OR ORGANIZATION)

401 BROAD HOLLOW ROAD, MELVILLE, NEW YORK                    11747-4714
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                 (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:        (631) 715-4100

         INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE  SECURITIES  EXCHANGE  ACT OF
1934 DURING THE  PRECEDING  12 MONTHS,  AND (2) HAS BEEN  SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.

YES                        NO
    -----------------         --------------

INDICATE  BY CHECK MARK  WHETHER  THE  REGISTRANT  IS AN  ACCELERATED  FILER (AS
DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT).

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

THE NUMBER OF SHARES OF COMMON STOCK OF THE REGISTRANT  OUTSTANDING AS OF AUGUST
13, 2004 WAS 7,064,328.

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


<PAGE>


                                  SBARRO, INC.

                                 FORM 10-Q INDEX



PART I.      FINANCIAL INFORMATION                                         PAGES


Consolidated Financial Statements:

         Balance Sheets - July 11, 2004 (unaudited) and December 28, 2003....3-4

         Statements of Operations (unaudited) - Twenty Eight and Twelve
             Weeks ended July 11, 2004 and July 13, 2003.....................5-6

         Statements of Cash Flows (unaudited) - Twenty Eight Weeks ended

             July 11, 2004 and July 13, 2003.................................7-8

         Notes to Unaudited Consolidated Financial Statements...............9-24

Management's Discussion and Analysis of Financial Condition and Results of

    Operations.............................................................25-35

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

Controls and Procedures.......................................................36

PART II.     OTHER INFORMATION................................................37
















                                     Page 2
<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS

                          SBARRO, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                  (In thousands)
                                                                                  --------------
ASSETS                                                               July 11, 2004        December 28, 2003
                                                                     -------------        -----------------
                                                                      (unaudited)

Current assets:
<S>                                                                      <C>                     <C>
    Cash and cash equivalents                                            $39,265                 $56,409
    Receivables, net of allowance for doubtful
          accounts of $455 in 2004 and $488 in 2003:
              Franchisees                                                  2,192                   1,700
              Other                                                        1,268                   1,171

    Inventories                                                            2,931                   2,707
    Prepaid expenses                                                      10,126                   3,865
    Current portion of loans receivable from officers                      2,589                   2,810
                                                                      ----------             -----------
               Total current assets                                       58,371                  68,662
                                                                      ----------             -----------

Property and equipment, net                                               91,571                  96,604

Intangible assets:
    Trademarks, net                                                      195,916                 195,916
    Goodwill, net                                                          9,204                   9,204
    Deferred financing costs and other, net                                4,964                   5,482

Loans receivable from officers, less current portion                       3,062                   3,347

Other assets                                                               7,654                   7,614
                                                                      ----------             -----------
                                                                        $370,742                $386,829
                                                                      ==========             ===========
</TABLE>

            SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.



                                     Page 3
<PAGE>



                          SBARRO, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                   (CONTINUED)


<TABLE>
<CAPTION>
                                                                         (In thousands except share data)
                                                                         --------------------------------
LIABILITIES & SHAREHOLDERS' EQUITY                                     July 11, 2004        December 28, 2003
                                                                       -------------        -----------------
                                                                        (unaudited)

<S>                                                                     <C>                         <C>
Current liabilities:
      Accounts payable                                                  $11,600                     $13,734
      Accrued expenses                                                   14,128                      18,795
      Accrued interest payable                                            9,260                       8,181
      Current portion of mortgage payable                                   176                         168
                                                                      ---------                  ----------
             Total current liabilities                                   35,164                      40,878
                                                                      ---------                  ----------

Deferred rent                                                             8,955                       8,711
                                                                      ---------                  ----------

Long-term debt, net                                                     268,252                     268,152
                                                                      ---------                  ----------

Contingencies:

Shareholders' equity:
      Preferred stock, $1 par value; authorized
               1,000,000 shares; none issued                                  -                           -
      Common stock, $.01 par value; authorized
               40,000,000 shares; issued and outstanding
               7,064,328 shares                                              71                          71
      Additional paid-in capital                                             10                          10
      Retained earnings                                                  58,290                      69,007
                                                                      ---------                  ----------
               Total shareholders' equity                                58,371                      69,088
                                                                      ---------                  ----------
                                                                       $370,742                    $386,829
                                                                      =========                  ==========


</TABLE>


            SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.



                                     Page 4
<PAGE>


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

<TABLE>
<CAPTION>
                                                                               (In thousands)
                                                                               --------------
                                                                       For the twenty eight weeks ended
                                                                     July 11, 2004          July 13, 2003
                                                                     -------------          -------------
<S>                                                                      <C>                    <C>
Revenues:
     Restaurant sales                                                    $159,530               $156,754
     Franchise related income                                               5,991                  5,330
     Real estate and other                                                  3,407                  3,074
                                                                       -----------            ----------
           Total revenues                                                 168,928                165,158
                                                                       -----------            ----------

Costs and expenses:
     Cost of food and paper products                                       35,946                 33,547
     Payroll and other employee benefits                                   45,851                 45,827
     Other operating costs                                                 59,444                 59,529
     Depreciation and amortization                                          8,674                 10,409
     General and administrative costs                                      13,458                 14,066
     Provision for restaurant closings                                        375                  1,057
                                                                       -----------            ----------
            Total costs and expenses                                      163,748                164,435
                                                                       -----------            ----------

Operating income                                                            5,180                    723
                                                                       -----------            ----------

Other (expense) income:
     Interest expense                                                     (16,583)               (16,763)
     Interest income                                                          324                    411
     Equity in net income of unconsolidated affiliates                        748                    511
                                                                       -----------            ----------
            Net other (expense)                                           (15,511)               (15,841)
                                                                       -----------            ----------

(Loss) before minority interest                                           (10,331)               (15,118)
Minority interest                                                             (17)                   (10)
                                                                       -----------            ----------

(Loss) before income taxes                                                (10,348)               (15,128)

Income taxes                                                                  369                    574
                                                                       -----------            ----------

Net (loss)                                                               ($10,717)              ($15,702)
                                                                       ===========            ===========

</TABLE>
            SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.




                                     Page 5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                (In thousands)
                                                                                --------------
                                                                          For the twelve weeks ended
                                                                     July 11, 2004          July 13, 2003
                                                                     -------------          -------------
<S>                                                                     <C>                    <C>
Revenues:
     Restaurant sales                                                   $68,684                $68,245
     Franchise related income                                             2,587                  2,391
     Real estate and other                                                1,446                  1,407
                                                                     -----------             ----------
           Total revenues                                                72,717                 72,043
                                                                     -----------             ----------

Costs and expenses:
     Cost of food and paper products                                     15,937                 14,243
     Payroll and other employee benefits                                 19,704                 19,816
     Other operating costs                                               25,637                 25,797
     Depreciation and amortization                                        3,678                  4,513
     General and administrative costs                                     5,344                  5,347
     Provision for restaurant closings                                      200                    528
                                                                     -----------             ----------
            Total costs and expenses                                     70,500                 70,244
                                                                     -----------             ----------

Operating income                                                          2,217                  1,799
                                                                     -----------             ----------

Other (expense) income:
     Interest expense                                                    (7,106)                (7,180)
     Interest income                                                        128                    197
     Equity in net income of unconsolidated affiliates                      350                    230
                                                                     -----------             ----------
             Net other (expense)                                         (6,628)                (6,753)
                                                                     -----------             ----------

(Loss) before minority interest                                          (4,411)                (4,954)

Minority interest                                                           (17)                    (5)
                                                                     -----------             ----------

(Loss) before income taxes                                               (4,428)                (4,959)

Income taxes                                                                128                    253
                                                                     -----------             ----------

Net (loss)                                                              ($4,556)               ($5,212)
                                                                     ===========             ===========
</TABLE>

            SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



                                     Page 6
<PAGE>

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


<TABLE>
<CAPTION>
                                                                                 (In thousands)
                                                                                 --------------
                                                                        For the twenty eight weeks ended
                                                                      July 11, 2004          July 13, 2003
                                                                      -------------          -------------

<S>                                                                    <C>                     <C>
Operating activities:

Net (loss)                                                             ($10,717)               ($15,702)
Adjustments to reconcile net (loss) to net cash used
       in operating activities:
       Depreciation and amortization                                      8,674                  10,409
       Accretion of original issue discount                                 204                     204
       Amortization of deferred financing costs                             518                     579
       Increase in deferred rent, net                                       165                     212
       Loss on sale of other concept units                                    -                      50
       Restaurant closing costs                                             375                      71
       Minority interest                                                     17                      10
       Equity in net income of unconsolidated affiliates                   (748)                   (511)
       Dividends received from unconsolidated affiliate                     305                     119
                                                                     -----------             -----------
                                                                         (1,207)                 (4,559)

Changes in operating assets and liabilities:
       Receivables                                                         (289)                    422
       Inventories                                                         (224)                  1,005
       Prepaid expenses                                                  (6,147)                 (5,694)
       Other assets                                                          70                    (130)
       Accounts payable and accrued expenses                             (5,942)                  1,160
       Accrued interest payable                                           1,079                   1,079
                                                                     -----------             -----------

Net cash used in operating activities                                   (12,660)                 (6,717)
                                                                     -----------             -----------

</TABLE>



            SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.



                                     Page 7
<PAGE>


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

                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                     (In thousands)
                                                                                     --------------
                                                                            For the twenty eight weeks ended
                                                                          July 11, 2004          July 13, 2003
                                                                          -------------          -------------

<S>                                                                          <C>                    <C>
Investing activities:
      Purchases of property and equipment                                    ($4,211)               ($4,739)
                                                                          -----------             ----------
      Net cash used in investing activities                                   (4,211)                (4,739)
                                                                          -----------             ----------

Financing activities:
      Mortgage principal repayments                                              (96)                   (88)
      Tax distributions                                                         (682)                (1,10l)
      Reduction in loans receivable from officers                                505                      -
                                                                          -----------             ----------
      Net cash used in financing activities                                     (273)                (1,189)
                                                                          -----------             ----------

Decrease in cash and cash equivalents                                        (17,144)               (12,645)

Cash and cash equivalents at beginning of period                              56,409                 55,150
                                                                          -----------             ----------

Cash and cash equivalents at end of period                                   $39,265                $42,505
                                                                           ==========             ==========

Supplemental disclosure of cash flow information:

Cash paid during the period for income taxes                                    $223                   $330
                                                                           ==========             ==========
Cash paid during the period for interest                                     $14,796                $14,867
                                                                           ==========             ==========

</TABLE>



            SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.






                                     Page 8
<PAGE>

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


1.       BASIS OF PRESENTATION:

         The accompanying  unaudited consolidated financial statements have been
         prepared  in  accordance  with  the  instructions  for  Form  10-Q  and
         Regulation  S-X related to interim  period  financial  statements  and,
         therefore,  do not include all  information  and footnotes  required by
         generally accepted  accounting  principles.  However, in the opinion of
         our  management,   all  adjustments  (consisting  of  normal  recurring
         adjustments and accruals)  considered necessary for a fair presentation
         of the consolidated  financial  position of Sbarro and our subsidiaries
         at July 11, 2004 and our  consolidated  results of operations  and cash
         flows for the  twenty-eight and twelve week periods ended July 11, 2004
         and July 13, 2003 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 28, 2003.

         Certain  items  in  the  financial   statement   presented   have  been
         reclassified to conform to the fiscal 2004 presentation.

2.       RECENT ACCOUNTING PRONOUNCEMENTS:

         Financial Accounting Standards Board (FASB) Interpretation  ("FIN") No.
         46,  "Consolidation  of  Variable  Interest  Entities,"  was  effective
         immediately  upon its issuance  during fiscal 2003 for all  enterprises
         with variable  interests in entities created after January 31, 2003. In
         December  2003,  the FASB staff issued FIN No. 46(R) which  changes the
         effective  date for  interests in variable  interest  entities  created
         before  February 1, 2003  beginning  with the first  interim  reporting
         period  after  March  15,  2004.  If an entity  is  determined  to be a
         variable  interest  entity,  it must be  consolidated by the enterprise
         that  absorbs the  majority  of the  entity's  expected  losses if they
         occur, receives a majority of the entity's expected residual returns if
         they  occur,  or  both.  Where  it  is  reasonably  possible  that  the
         enterprise will  consolidate or disclose  information  about a variable
         interest entity, the enterprise must disclose the nature, purpose, size
         and  activity  of the  variable  interest  entity and the  enterprise's
         maximum  exposure  to loss as a  result  of its  involvement  with  the
         variable  interest  entity in all  financial  statements  issued  after
         January  31,  2003.  The FASB  has  specifically  exempted  traditional
         franchise  arrangements  from the  evaluations  required  under FIN No.
         46(R). We have also reviewed our corporate  relationships  for possible
         coverage under FIN No. 46(R).  The application of FIN No. 46(R) did not
         have a material effect on our disclosures and our financial position or
         results of operations.  We have several variable interest entities, for
         which  we  provide  disclosures.   However,  we  are  not  the  primary
         beneficiary and therefore do not need to consolidate these entities.






                                     Page 9
<PAGE>

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


3.       DEBT:

         In March 2004, we obtained an uncommitted line of credit to replace our
         former revolving credit facility. Under the new line, we currently have
         the  ability,  subject to bank  approval,  to borrow up to $3  million,
         including outstanding letters of credit.

         The new line of credit  contains no financial  covenants or unused line
         fees.  Interest applicable to the loans under the new line of credit is
         at the  bank's  prime  rate at the  time of any  borrowings.  The  line
         expires in May 2005.  There  currently  are $1.7  million of letters of
         credit outstanding and we have $1.3 million of undrawn availability.

         Under our senior  notes  indenture,  there are various  covenants  that
         limit our ability to borrow funds, in addition to lending  arrangements
         that  existed  at  the  date  the   indenture   was  entered  into  and
         replacements  of  those  arrangements,  to make  "restricted  payments"
         including,  among  other  things,  dividend  payments  (other  than  as
         distributions  pursuant  to the  tax  payment  agreement),  and to make
         investments in, among other things, unrestricted subsidiaries.

         Among other covenants,  the indenture requires that, in order for us to
         borrow,  our  consolidated  interest  ratio coverage (as defined in the
         indenture),  after  giving pro forma  effect to the interest on the new
         borrowing,  for the four most recently ended fiscal quarters must be at
         least  2.5 to 1. As of July 11,  2004,  that  ratio  was 1.3 to 1. As a
         result,  we are not  presently  able to  borrow  funds  except  for the
         specifically  permitted  indebtedness,  including  up to $75 million of
         revolving credit loans.

         In order to make restricted  payments,  that ratio must be at least 2.0
         to 1, after giving pro forma effect to the  restricted  payment and, in
         any event, is limited in dollar amount pursuant to a formula  contained
         in the  indenture.  We refer to the amount that is available  for us to
         make dividends and other restricted payments as the "restricted payment
         availability".   We  cannot  make   restricted   payments  (other  than
         distributions  pursuant to the tax payment agreement) until we increase
         the restricted payment availability by approximately $20.5 million, and
         then only to the extent of any excess over that amount.

         In March 2000,  one of our  subsidiaries  obtained a $16 million,  8.4%
         loan due in 2010,  secured by a mortgage on our corporate  headquarters
         building.  The loan is payable in monthly installments of principal and
         interest of $0.1 million. The outstanding principal balance of the loan
         as of July 11, 2004 was $15.4 million.  The mortgage agreement contains
         various covenants, including a requirement that the subsidiary maintain
         a minimum  ratio of EBITDA to annual  debt  service  of at least 1.2 to
         1.0.

         We were in  compliance  with all  covenants  in the  indenture  for the
         senior notes and our mortgage as of July 11, 2004.




                                    Page 10
<PAGE>
                          SBARRO, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


4.       INCOME TAXES:

         We made Subchapter S tax distributions in the amount of $1.8 million to
         our shareholders  related to our fiscal 2002 tax basis income.  Of such
         amount,  $1.1  million  was paid in the first  quarter of 2003 and $0.7
         million was paid in the first quarter of 2004.

5.       LITIGATION:

         On December 20, 1999,  Antonio  Garcia and thirteen  current and former
         general managers of Sbarro  restaurants in California filed a complaint
         in the Superior Court of California  for Orange  County.  The complaint
         alleges  that the  plaintiffs  were  improperly  classified  as  exempt
         employees  under the  California  wage and hour law. The plaintiffs are
         seeking  actual  damages,  punitive  damages and costs of the  lawsuit,
         including  reasonable  attorney's  fees,  each in unspecified  amounts.
         Plaintiffs filed a motion to certify the lawsuit as a class action, but
         the Court denied the motion. The court issued a ruling in December 2003
         which was unfavorable  but failed to specify the amount of damages.  We
         are appealing the ruling due to errors that we believe were made by the
         trial judge.

         On September 6, 2000, Manuel Jimenez and seven other current and former
         general managers of Sbarro  restaurants in California filed a complaint
         against  Sbarro in the Superior  Court of California  for Orange County
         alleging  that the  plaintiffs  were  improperly  classified  as exempt
         employees  under  California  wage and hour law. The plaintiffs  sought
         actual damages,  punitive  damages and costs of the lawsuit,  including
         reasonable attorney's fees, each in unspecified amounts. Plaintiffs are
         represented by the same counsel who is  representing  the plaintiffs in
         the case  discussed  in the  preceding  paragraph.  We have  separately
         settled with two of the managers for immaterial amounts.  The remaining
         parties to this case have agreed that it will be settled  upon the same
         terms and  conditions  that the court  orders  in  connection  with its
         decision in the case discussed in the preceding paragraph.

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

         In August 2002, a subcontractor and the general contractor, pursuant to
         a  construction  contract  to build a joint  venture  location  that we
         closed in fiscal 2002 and is also the subject of the lawsuit  discussed
         below,  filed a complaint  against the limited  liability joint venture
         company  alleging  that  they are  owed  approximately  $800,000,  plus
         interest.  We are a defendant in the suit by reason of the fact that we
         guaranteed  the bonds under which  mechanics  liens for the  plaintiffs
         were bonded. The parties have agreed to binding



                                    Page 11
<PAGE>
                          SBARRO, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


         arbitration.  We believe that our maximum  liability  that would result
         from the binding arbitration could be approximately $400,000.

         In May 2002, the landlord of the joint venture  described above filed a
         complaint  against Sbarro in the Supreme Court of the State of New York
         for Westchester  County alleging that we were obligated to it, pursuant
         to a Guaranty Agreement we executed,  for all rent during the remaining
         lease  based  on an  alleged  breach  of the  lease  by the  tenant,  a
         subsidiary  of the joint  venture.  We believe  that our  guarantee  is
         limited  in  amount,  while the  landlord  alleges  that the  guarantee
         covered all amounts  that would become due during the  remaining  lease
         term. The court issued a ruling in November 2003 which  established our
         liability at $500,000 and we have accrued for this amount. The landlord
         has appealed this decision.

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

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

6.       GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS:

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

         The following condensed consolidating financial information presents:

         (1)   Condensed  consolidating  balance  sheets  as of  July  11,  2004
               (unaudited)  and December 28, 2003 and  statements  of operations
               and cash flows for the  twenty-eight  and twelve weeks ended July
               11, 2004 (unaudited) and July 13, 2003 (unaudited) of (a) Sbarro,
               Inc., the parent, (b) the guarantor  subsidiaries as a group, (c)
               the  non-guarantor  subsidiaries  as a group and (d)  Sbarro on a
               consolidated basis.

         (2)   Elimination  entries necessary to consolidate  Sbarro,  Inc., the
               parent, with the guarantor and non guarantor subsidiaries.

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





                                    Page 12
<PAGE>
                          SBARRO, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


                           CONSOLIDATING BALANCE SHEET
                               AS OF JULY 11, 2004
                        (IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                GUARANTOR      NONGUARANTOR
ASSETS                                            PARENT       SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS    CONSOLIDATED
------                                            ------       ------------    ------------     ------------    ------------

<S>                                               <C>             <C>               <C>           <C>              <C>
Current assets:
    Cash and cash equivalents                      $34,548          $3,594          $1,123                          $39,265
    Receivables less allowance for doubtful
            accounts of  $455
    Franchisees                                      2,192               -               -                            2,192
    Other                                             (228)          1,127             369                            1,268

    Inventories                                      1,229           1,557             145                            2,931
    Prepaid expenses                                 8,110           1,629             387                           10,126
    Current portion of loans receivable from
       officers                                      2,589                               -                            2,589
                                                ----------     -----------        ---------                     -----------

        Total current assets                        48,440           7,907           2,024                           58,371

Intercompany receivables                             2,948         311,057               -        ($314,005)              -

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

Property and equipment, net                         34,703          52,606           4,262                           91,571

Intangible assets:
    Trademarks, net                                195,916               -               -                          195,916
    Goodwill, net                                    9,101                               -              103           9,204
    Deferred financing costs and other, net          4,752             212               -                            4,964

Loans receivable from officers less current
      portion                                        3,062               -               -                            3,062

Other assets                                         8,504           1,781            (649)          (1,982)          7,654
                                                ----------     -----------        ---------    -------------    -----------

                                                  $372,895        $373,563          $5,637        ($381,353)       $370,742
                                                ==========     ===========        =========    =============    ===========
</TABLE>



                                    Page 13
<PAGE>

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


                           CONSOLIDATING BALANCE SHEET
                               AS OF JULY 11, 2004
                        (IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                             GUARANTOR     NONGUARANTOR
   LIABILITIES & SHAREHOLDERS' EQUITY          PARENT      SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS    CONSOLIDATED
   ----------------------------------          ------      ------------    ------------     ------------    ------------

<S>                                             <C>                <C>            <C>              <C>          <C>
Current liabilities:
    Accounts payable                            $10,485            $177           $340             $598         $11,600
    Accrued expenses                             11,023           1,293          1,812                           14,128
    Accrued interest payable                      9,260               -              -                            9,260
    Current portion of mortgage payable               -             176              -                -             176
                                              ----------     -----------      ---------     ------------      ---------

          Total current liabilities              30,768           1,646          2,152              598          35,164
                                              ----------     -----------      ---------     ------------      ---------

Intercompany payables                           311,057               -          2,948         (314,005)              -
                                              ----------     -----------      ---------     ------------      ---------

Deferred rent                                     8,284               -            671                            8,955
                                              ---------      ----------         ------                        ---------

Long-term debt, net                             253,032          15,220              -                          268,252
                                              ----------     -----------      ---------                       ---------

Shareholders' equity (deficit):
    Preferred stock, $1 par value;
      authorized 1,000,000 shares; None
      issued                                          -               -              -                                -
    Common stock, $.01 per value:
      authorized 40,000,000 shares;
      issued and outstanding 7,064,328
      shares                                         71               -              -                               71
    Additional paid-in capital                       10          65,469          2,477          (67,946)             10
    Retained earnings (deficit)                (230,327)        291,228         (2,611)               -          58,290
                                              ----------     -----------      ---------     ------------      ---------
                                               (230,246)        356,697           (134)         (67,946)         58,371
                                              ----------     -----------      ---------     ------------      ---------
    Total shareholders' equity (deficit)       $372,895        $373,563         $5,637        ($381,353)       $370,742
                                              ==========     ===========      =========     ============      =========

</TABLE>







                                    Page 14
<PAGE>

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


                           CONSOLIDATING BALANCE SHEET
                             AS OF DECEMBER 28, 2003
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                             GUARANTOR     NONGUARANTOR
ASSETS                                         PARENT      SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS    CONSOLIDATED
                                               ------      ------------    ------------     ------------    ------------
<S>                                             <C>              <C>            <C>                             <C>
Current assets:
    Cash and cash equivalents                   $49,515          $5,595         $1,299                          $56,409
    Receivables less allowance for
      doubtful accounts of $488
      Franchisees                                 1,700               -              -                            1,700
      Other                                        (191)            966            396                            1,171

    Inventories                                   1,177           1,387            143                            2,707
    Prepaid expenses                              4,039            (227)            53                            3,865
    Current portion of loans receivable
       from officers                              2,810                                                           2,810
                                              ----------     -----------      ---------                       ---------
          Total current assets                   59,050           7,721          1,891                           68,662

Intercompany receivables                          6,697         317,237              -        ($323,934)              -

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

Property and equipment, net                      36,189          55,706          4,709                           96,604

Intangible assets:
    Trademarks, net                             195,916               -              -                          195,916
    Goodwill, net                                 9,204               -              -                            9,204
    Deferred financing costs and other, net       5,369             233              -             (120)          5,482

Loans receivable from officers less
    current portion                               3,347               -              -                            3,347

Other assets                                      7,034           1,822           (212)          (1,030)          7,614
                                              ----------     -----------      ---------     ------------      ---------

                                               $388,275        $382,719         $6,388        $(390,553)       $386,829
                                              ==========     ===========      =========     ============      =========

</TABLE>




                                    Page 15
<PAGE>

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


                           CONSOLIDATING BALANCE SHEET
                             AS OF DECEMBER 28, 2003
                        (IN THOUSANDS EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                    GUARANTOR       NONGUARANTOR
    LIABILITIES & SHAREHOLDERS'EQUITY                 PARENT       SUBSIDIARIES     SUBSIDIARIES      ELIMINATIONS     CONSOLIDATED
                                                      ------       ------------     ------------      ------------     ------------

<S>                                                     <C>               <C>             <C>              <C>            <C>
    Current liabilities:
        Accounts payable                                $11,859           $129            $419             $1,327         $13,734
        Accrued expenses                                 15,542          1,447           1,806                             18,795
        Accrued interest payable                          8,181              -               -                              8,181
        Current portion of mortgage payable                   -            168               -                  -             168
                                                      ----------     -----------      ---------       ------------      ---------
          Total current liabilities                      35,582          1,744           2,225              1,327          40,878
                                                      ----------     -----------      ---------       ------------      ---------

    Intercompany payables                               317,236          2,958           3,740           (323,934)              -
                                                      ----------     -----------      ---------       ------------      ---------

    Deferred rent                                         8,009              -             702                              8,711
                                                      ----------    -----------       ---------                         ---------

    Long-term debt, net                                 252,827         15,325               -                            268,152
                                                      ----------    -----------       ---------                         ---------


    Shareholders' equity (deficit):
        Preferred stock, $1 par value; authorized
           1,000,000 shares; None issued
        Common stock, $.01 par value: authorized
           40,000,000 shares; issued and
           outstanding 7,064,328 shares                      71              -               -                                 71
        Additional paid-in capital                           10         65,469           2,477           (67,946)              10
        Retained earnings (deficit)                    (225,460)       297,223          (2,756)                -           69,007
                                                      ----------    -----------       ---------       ------------      ---------

        Total shareholders' equity (deficit)           (225,379)       362,692            (279)          (67,946)          69,088
                                                      ----------    -----------       ---------       ------------      ---------

                                                       $388,275       $382,719          $6,388         ($390,553)        $386,829
                                                      ==========    ===========       =========       ============        ========
</TABLE>







                                    Page 16
<PAGE>

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


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


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

Cost and expenses:
    Cost of food and paper products            14,414          19,392          2,140                           35,946
    Payroll and other employee benefits        18,335          24,890          2,626                           45,851
    Other operating costs                      27,277          29,996          2,171                           59,444
    Depreciation and amortization               3,773           4,415            486                            8,674
    General and administrative                  7,290           6,017            151                           13,458
    Provision for restaurant closings             375               -              -                              375
    Intercompany charges                            -           4,985              -           (4,985)              -
                                             ---------    ------------   ------------     ------------   -------------
       Total costs and expenses                71,464          89,695          7,574           (4,985)        163,748
                                             ---------    ------------   ------------     ------------   -------------

Operating income (loss)                        10,029          (5,005)           156                            5,180
                                             ---------    ------------   ------------                    -------------

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

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

(Loss) income before minority interest         (4,699)         (5,788)           156                          (10,331)

Minority interest                                   -              -             (17)                             (17)
                                             ---------    ------------   ------------                    -------------

(Loss) income before income taxes              (4,699)         (5,788)           139                          (10,348)
Income taxes (benefit)                            168             207             (6)                             369
                                             ---------    ------------   ------------                    -------------

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



                                    Page 17
<PAGE>

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


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

<TABLE>
<CAPTION>
                                                           GUARANTOR     NONGUARANTOR
                                             PARENT      SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS    CONSOLIDATED
                                             ------      ------------    ------------     ------------    ------------
<S>                                            <C>             <C>             <C>             <C>            <C>
Revenues:
    Restaurant sales                          $66,633         $82,261         $7,860                         $156,754
    Franchise related income                    5,330               -              -                            5,330
    Real estate and other                       1,489           1,551             34                            3,074
    Intercompany charges                        5,492               -              -          $(5,492)              -
                                         -------------    ------------     ----------      -----------    ------------
       Total revenues                          78,944          83,812          7,894           (5,492)        165,158
                                         -------------    ------------     ----------      -----------    ------------

Cost and expenses:
    Restaurant operating expenses:
    Cost of food and paper products            13,578          17,914          2,055                           33,547
    Payroll and other employee benefits        18,866          24,245          2,716                           45,827
    Other operating costs                      27,024          30,378          2,127                           59,529
    Depreciation and amortization               4,697           5,173            539                           10,409
    General and administrative                  8,454           5,706            (94)                          14,066
    Provision for restaurant closings             900               -            157                            1,057
    Intercompany charges                            -           5,492              -           (5,492)              -
                                         -------------    ------------     ----------      -----------    ------------
       Total costs and expenses                73,519          88,908          7,500           (5,492)        164,435
                                         -------------    ------------     ----------      -----------    ------------


Operating income (loss)                         5,425          (5,096)           394                              723
                                         -------------    ------------     ----------                     ------------

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

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

(Loss) income before minority interest         (9,631)         (5,881)           394                          (15,118)

Minority interest                                   -               -            (10)                             (10)
                                         -------------    ------------     ----------                     ------------

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

Net (loss) income                            $(10,004)        $(6,096)          $398                         $(15,702)
                                         =============    ============     ==========                     ============

</TABLE>



                                    Page 18
<PAGE>

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


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

<TABLE>
<CAPTION>
                                                           GUARANTOR     NONGUARANTOR
                                             PARENT      SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS    CONSOLIDATED
                                             ------      ------------    ------------     ------------    ------------

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

Cost and expenses:
    Cost of food and paper products             6,377           8,602            958                           15,937
    Payroll and other employee benefits         7,888          10,687          1,129                           19,704
    Other operating costs                      11,732          12,962            943                           25,637
    Depreciation and amortization               1,617           1,853            208                            3,678
    General and administrative                  3,004           2,241             99                            5,344
    Provision for restaurant closings             200               -              -                              200
    Intercompany charges                            -           2,461              -           (2,461)              -
                                         -------------    ------------     ----------        ---------    ------------
       Total costs and expenses                30,818          38,806          3,337           (2,461)         70,500
                                         -------------    ------------     ----------        ---------    ------------

Operating (loss) income                         4,753          (2,578)            42                            2,217
                                         -------------    ------------     ----------                     ------------

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

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

(Loss) income before minority interest         (1,537)         (2,916)            42                           (4,411)

Minority interest                                   -               -            (17)                             (17)
                                         -------------    ------------     ----------                     ------------

(Loss) income before income taxes              (1,537)         (2,916)            25                           (4,428)
Income taxes                                       33              95              -                              128
                                         -------------    ------------     ----------                     ------------

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




                                    Page 19
<PAGE>

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


                      CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE TWELVE WEEKS ENDED JULY 11, 2003
                                 (IN THOUSANDS)
                                   (UNAUDITED)

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

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

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

Operating income (loss)                         2,741          (1,398)           456                            1,799
                                             --------         --------       -------                         --------

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

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

(Loss) income before minority interest         (3,679)         (1,731)           456                           (4,954)

Minority interest                                   -               -             (5)                              (5)
                                           -----------       ---------    -----------                    -------------

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

Net (loss) income                             $(3,865)        $(1,814)          $467                          $(5,212)
                                           ===========       =========    ===========                    =============

</TABLE>





                                    Page 20
<PAGE>

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


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


<TABLE>
<CAPTION>
                                                               GUARANTOR     NONGUARANTOR
                                                 PARENT      SUBSIDIARIES    SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                                 ------      ------------    ------------    ------------   ------------
<S>                                               <C>                <C>             <C>            <C>          <C>
OPERATING ACTIVITIES:
---------------------

Net (loss) income                                ($4,866)         ($5,995)          $144                       ($10,717)
Adjustments to reconcile net (loss)
       income to net cash (used in)
       provided by operating activities:
    Depreciation and amortization                  3,773            4,415            486                          8,674
    Accretion of original issue discount             204                -              -                            204
    Amortization of deferred financial costs         498               20                                           518
    Increase in deferred rent, net                   160               36            (31)                           165
    Provision for restaurant closing                 375                -              -                            375
    Minority interest                                 -                 -             17                             17
    Equity in net income of
      unconsolidated affiliates                     (748)               -              -                           (748)
    Dividends received from
       unconsolidated affiliates                     305                -              -                            305
                                                 --------    -------------       --------                     ----------
                                                    (299)          (1,524)           616                         (1,207)

Changes in operating assets and liabilities:
    Receivables                                     (155)            (161)            27                           (289)
    Inventories                                      (52)            (170)            (2)                          (224)
    Prepaid expenses                              (3,956)          (1,857)          (334)                        (6,147)
    Other assets                                  (1,176)              80            438            $728             70
    Accounts payable and accrued expenses         (5,018)            (105)           (91)           (728)        (5,942)
    Accrued interest payable                       1,079                -              -                          1,079
                                                 --------    -------------       --------                     ----------

Net cash (used in) provided by operating
     activities                                   (9,577)          (3,737)           654                        (12,660)
                                                 --------    -------------       --------                     ----------
</TABLE>




                                    Page 21
<PAGE>

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


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



<TABLE>
<CAPTION>
                                                            GUARANTOR     NONGUARANTOR
                                              PARENT      SUBSIDIARIES    SUBSIDIARIES    ELIMINATIONS    CONSOLIDATED
                                              ------      ------------    ------------    ------------    ------------

<S>                                            <C>              <C>               <C>                          <C>
INVESTING ACTIVITIES:
---------------------
Purchases of property and equipment            (2,453)          (1,720)           (38)                         (4,211)
                                            ----------        ---------    -----------                       ---------

Net cash used in investing activities          (2,453)          (1,720)           (38)                         (4,211)
                                            ----------        ---------    -----------                       ---------

FINANCING ACTIVITIES:
---------------------
Mortgage principal repayments                       -              (96)             -                             (96)
Tax distribution                                 (682)               -              -                            (682)
Loans receivable from officers                    505                -              -                             505
Intercompany balances                          (2,760)           3,552           (792)                              -
                                            ----------        ---------    -----------                       ---------

Net cash provided by (used in)
     financing activities                      (2,937)           3,456           (792)                           (273)
                                            ----------        ---------    -----------                       ---------

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

Cash and cash equivalents at beginning
   of period                                   49,515            5,595          1,299                          56,409
                                            ----------        ---------    -----------                       ---------

Cash and cash equivalents at end of
     period                                   $34,548           $3,594         $1,123                         $39,265
                                            ==========        =========    ===========                       =========

SS Supplemental disclosure of cash flow
     information:
Cash paid during the period for income
     taxes                                       $112              $95            $16                            $223
                                            ==========        =========    ===========                       =========

Cash paid during the period for interest      $14,025             $771              -                         $14,796
                                            ==========        =========    ===========                       ==========
</TABLE>






                                    Page 22
<PAGE>


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


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


<TABLE>
<CAPTION>
                                                                   GUARANTOR      NONGUARANTOR
                                                     PARENT      SUBSIDIARIES     SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                     ------      ------------     ------------     ------------     ------------
OPERATING ACTIVITIES:
---------------------
<S>                                                    <C>            <C>             <C>                               <C>
Net (loss) income                                     ($10,004)      ($6,096)          $398                             ($15,702)
Adjustments to reconcile net (loss) income to
  net cash (used in) provided by operating
  activities:
  Depreciation and amortization                          4,697         5,173            539                               10,409
  Amortization of deferred financing costs                 579             -              -                                  579
  Accretion of original issue discount                     204             -              -                                  204
  Provision for restaurant closing                          71             -              -                                   71
  Increase (decrease) in deferred rent                     215           (27)            24                                  212
  Loss on sale of other concept units                        -             -             50                                   50
  Minority interest                                          -             -             10                                   10
  Equity in net income of unconsolidated
    affiliates                                            (511)            -              -                                 (511)
  Dividends received from unconsolidated
    affiliates                                             119             -              -                                  119
                                                    -----------    ----------      ---------                         ------------

                                                        (4,630)         (950)         1,021                               (4,559)
  Changes in operating assets and liabilities:
    Receivables                                             88           355            (21)                                 422
    Inventories                                            452           547              6                                1,005
    Prepaid expenses                                    (3,711)       (1,782)          (201)                              (5,694)
    Other assets                                          (592)          (27)           489                                 (130)
    Accounts payable and accrued expenses                  852           375            (67)                               1,160
    Accrued interest payable                             1,079             -              -                                1,079
                                                    -----------    ----------      ---------                         ------------

Net cash (used in) provided by operating
  activities                                           (6,462)        (1,482)         1,227                               (6,717)
                                                    -----------    ----------      ---------                         ------------

</TABLE>









                                    Page 23
<PAGE>

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


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

<TABLE>
<CAPTION>
                                                         GUARANTOR      NONGUARANTOR
                                           PARENT       SUBSIDIARIES    SUBSIDIARIES    ELIMINATIONS    CONSOLIDATED
                                           ------       ------------    ------------    ------------    ------------

INVESTING ACTIVITIES:
---------------------
<S>                                           <C>         <C>              <C>                             <C>
Purchase of property and equipment            (3,080)     (1,508)          (151)                           (4,739)
                                          -----------    --------        -------                         ---------

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

FINANCING ACTIVITIES:
---------------------

Mortgage principal repayments                      -         (88)             -                               (88)
Tax distribution                              (1,101)          -              -                            (1,101)
Intercompany balances                            733         553         (1,286)                                -
                                          -----------    --------        -------                         ---------

Net cash (used in) provided by
   financing activities                         (368)        465         (1,286)                           (1,189)
                                          -----------    --------        -------                         ---------

Decrease in cash and
  cash equivalents                            (9,910)     (2,525)          (210)                          (12,645)

Cash and cash equivalents at
  beginning of period                         47,636       6,539            975                            55,150
                                          -----------    --------        -------                         ---------

Cash and cash equivalents at
  end of period                              $37,726      $4,014           $765                           $42,505
                                          ===========    ========        =======                         =========

Supplemental disclosure of cash flow
  information:

Cash paid during the period for
  income taxes                                  $244         $73            $13                              $330
                                          ===========    ========        =======                         =========

Cash paid during the period for
  Interest                                   $14,102        $765              -                           $14,867
                                          ===========    ========        =======                         =========

</TABLE>




                                    Page 24
<PAGE>


                          SBARRO, INC. AND SUBSIDIARIES


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

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

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

<TABLE>
<CAPTION>
                                               28 WEEKS      28 WEEKS     12 WEEKS     12 WEEKS
                                               ---------     ---------    ---------    ---------
                                                 ENDED         ENDED       ENDED        ENDED          FISCAL YEAR
                                                 -----         -----       -----        -----       -----------------
                                               7/11/2004      7/13/03      7/11/04      7/13/03      2003       2002

<S>                                                <C>           <C>                        <C>        <C>       <C>
Company-owned restaurants:
     Opened during period                          2             1            -             1          4         13
     Acquired from (sold to)
       franchisees during  period, net            (2)           (6)           -            (2)       (12)        (6)
     Closed during period                        (15)          (16)          (3)           (7)       (22)       (51)
     Open at end of period (1)                   513           537          513           537        528        558

Franchised restaurants:
     Opened during period                         23            22           14            12         39         42
     Purchased from (sold to)
        Company during
        period, net                                2             6            -             2         12          6
     Closed or terminated during   period         (5)          (13)           -            (5)       (17)       (20)
     Open at end of period                       407           368          407           368        387        353

All restaurants:
     Opened during period                         25            23           14            13         43         55
     Closed or terminated during period          (20)          (29)          (3)          (12)       (39)       (71)
     Opened at end of period (1)                 920           905          920           905        915        911

    Kiosks (all franchised) open at
        end of period                              3             3            3            3           3          3

</TABLE>


(1)  Excludes 29, 31, 29 and 32 other concept units as of July 11, 2004 and July
     13, 2003, the end of fiscal 2003 and the end of fiscal 2002, respectively.





                                    Page 25
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

Our business is subject to seasonal fluctuations, and the effects 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. As a result,  our annual earnings can fluctuate due to the length of the
holiday  shopping period between  Thanksgiving and New Year's Day and the number
of weeks in our fourth quarter.  In recent years,  our fourth quarter income has
fluctuated significantly due to a number of other factors, including the adverse
effect of the general  economic  downturn and  significant  year end adjustments
relating to asset  impairment and store closing costs. Due to the seasonality of
our  business,  we are not able to perform  the testing  for  impairment  on our
goodwill and intangible  assets with indefinite  lives acquired prior to July 1,
2001 as required by SFAS No. 142,  "Goodwill and Other Intangible  Assets" until
after our fourth quarter is completed.  Our annual  impairment test is performed
at that time unless impairment factors are present earlier.

RELEVANT FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                          Twenty eight weeks ended            Twelve weeks ended
                                                       July 11, 2004    July 13, 2003    July 11, 2004    July 13, 2003
                                                       -------------    -------------    -------------    -------------
                                                                    in millions except number of locations

<S>                                                        <C>              <C>                <C>             <C>
Comparable Sbarro - owned quick service sales(1)           $150.4           $142.8             $64.8           $62.6
Comparable Sbarro - owned quick service sales -
percentage change (1)                                         5.3%             4.5%              3.6%            2.6%
Franchise location sales                                   $127.1           $120.4             $55.2           $54.5
Franchise revenues                                           $6.0             $5.3              $2.6            $2.4
Cost of food and paper products as a percentage
of restaurant sales                                          22.5%            21.4%             23.2%           20.9%
Payroll and other benefits as a percentage of
restaurant sales                                             28.7%            29.2%             28.7%           29.0%
Other operating expenses as a percentage of
restaurant sales                                             37.3%            38.0%             37.3%           37.8%
General and administrative costs as a
percentage of revenues                                        8.0%             8.5%              7.4%            7.4%
Provision for asset impairment and restaurant
closings                                                     $0.4             $1.1              $0.2            $0.5

EBITDA                                                      $14.6            $11.6              $6.2            $6.5

</TABLE>


(1)  Comparable  Sbarro-owned  quick service sales dollar and annual  percentage
changes are based on locations that were  comparable as of July 11, 2004 in each
of the periods presented based on locations opened prior to December 29, 2002.




                                    Page 26
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

Our consolidated EBITDA for the first half of 2004 was $14.6 million compared to
$11.6 million for the first half of 2003. Our consolidated EBITDA for the second
quarter of 2004 was $6.2 million compared to $6.5 million for the second quarter
of 2003.  EBITDA represents  earnings (losses) before interest income,  interest
expense, taxes,  depreciation and amortization.  EBITDA should not be considered
in isolation from, or as a substitute for, net income, cash flow from operations
or other cash flow statement data prepared in accordance with generally accepted
accounting  principles  of the United  States  ("GAAP")  measure of a  company's
profitability or liquidity. Rather, we believe that EBITDA provides relevant and
useful information for analysts and investors in our senior notes in that EBITDA
is one of the factors in the  calculation of our  compliance  with the ratios in
the indenture  under which our senior notes are issued.  We also  internally use
EBITDA as one of the  measures to  determine  whether to continue  operating  or
close restaurant units since it provides us with a measurement of whether we are
receiving an adequate cash return on our cash  investment.  Our  calculation  of
EBITDA may not be comparable  to a similarly  titled  measure  reported by other
companies,  since all  companies do not calculate  this non-GAAP  measure in the
same manner. Our EBITDA calculations are not intended to represent cash provided
by (used in) operating  activities  since they do not include interest and taxes
and  changes in  operating  assets and  liabilities,  nor are they  intended  to
represent  a net  increase in cash since they do not  include  cash  provided by
(used in) investing and financing  activities.  The following  table  reconciles
EBITDA to our net loss for each of the periods presented which we believe is the
most direct comparable GAAP financial measure to EBITDA (in thousands):


<TABLE>
<CAPTION>
                                           Twenty eight weeks ended:             Twelve weeks ended:
                                           7/11/2004       7/13/2003          7/11/2004       7/13/2003
                                           ---------       ---------          ---------       ---------

<S>                                          <C>             <C>                 <C>             <C>
EBITDA                                      $14,573          $11,633             $6,228          $6,537
Interest expense                            (16,583)         (16,763)            (7,106)         (7,180)
Interest income                                 324              411                128             197
Income taxes                                   (369)            (574)              (128)           (253)
Depreciation and amortization                (8,662)         (10,409)            (3,678)         (4,513)
                                          ==========       ==========        ===========        ========
Net loss                                   ($10,717)        ($15,702)           ($4,556)        ($5,212)
                                          ==========       ==========        ===========        ========
</TABLE>








                                    Page 27
<PAGE>


                          SBARRO, INC. AND SUBSIDIARIES

Restaurant  sales  increased  $2.7 million,  or 1.8%, to $159.5  million for the
first half of fiscal 2004 from $156.8 million for the first half of fiscal 2003.
The increase in sales included $2.9 million of higher sales of the quick service
business offset by $0.2 million of lower sales of  consolidated  other concepts.
The increase in quick  service  business  included an  approximate  $7.6 million
(5.3%)  increase in comparable  sales offset by the loss of  approximately  $6.6
million of sales from the closure,  since the end of the first  quarter of 2003,
of generally  low volume  locations  that did not have a material  impact on our
operating  results.  Sales for  locations  that opened during fiscal 2004 and an
increase in sales of the  locations  that were  opened  during the first half of
fiscal 2003  comprised  the  remaining  $1.9 million  increase in quick  service
sales.

Restaurant  sales  increased  $0.5  million,  or 0.6%,  to $68.7 million for the
second  quarter of fiscal 2004 from $68.2 million in the second quarter of 2003.
This  increase in sales is primarily a result of $0.5 million of higher sales of
the quick service business.  The increase in the quick service business included
an approximate  $2.2 million (3.6%)  increase in comparable  sales offset by the
loss of approximately  $2.8 million of sales from the closure,  since the end of
the first quarter of 2003, of generally low volume locations that did not have a
material  impact  on our  operating  results.  Second  quarter  sales  for  both
locations  that  opened  during  fiscal  2004 and the  increase  in sales of the
locations  that were opened  during the first half of fiscal 2003  comprised the
remaining $1.1 million increase in quick service sales.

We believe that the increases in comparable  sales are primarily due to economic
trends, the strengthening of operational  management and training programs which
generated  operational  efficiencies,  as well as a series  of  selective  price
increases  that became  effective  during the second  quarter of fiscal 2004 and
during  the last half of the first  quarter of 2004.  We believe  that the price
increases will have an approximate 2% effect on sales on an annual basis.

Franchise  related income  increased 12.4% to $6.0 million for the first half of
2004 from  $5.3  million  in the first  half of fiscal  2003.  The  increase  in
franchise  related income is comprised of increases in royalties from comparable
locations  that  resulted  from  sales  increases  of  12.5%  for  international
locations and 3.1% for domestic locations as well as royalty income derived from
locations opened during the first and second quarters of 2004 and 2003.

Franchise  related income  increased 8.2% to $2.6 million for the second quarter
of 2004 from $2.4  million  for the second  quarter  of 2003.  The  increase  in
franchise  related income is comprised of increases in royalties from comparable
locations that resulted from sales increases of 3.6% for international locations
and 3.7% for domestic  locations as well as royalty  income  derived  during the
second  quarter from  locations  opened during the first and second  quarters of
2004 and 2003.

Real estate and other  revenues  increased  10.8% and 2.8% in the first half and
second   quarter  of  fiscal  2004  from  the  same   periods  in  fiscal  2003,
respectively,  primarily due to variations in certain vendor rebates relating to
franchises and marketing allowances.

Cost of food and paper products as a percentage of restaurant sales increased to
22.5% for the first  half of fiscal  2004  from  21.4% for the  comparable  2003
fiscal  period.  These costs  increased to 23.2% for the second  quarter of 2004
from  20.9%  for the  comparable  period  in  2003.  While



                                    Page 28
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

the cost of sales  percentages  in 2004 were  positively  impacted by  operating
efficiencies  resulting from the increase in comparable unit sales and the price
increases implemented during 2004, cheese prices increased to record high levels
during the second fiscal quarter of 2004 but moderated  significantly during the
latter part of that quarter.  These  fluctuations  in cheese prices  resulted in
1.7% and 2.7%  increases  in the cost of  sales  in the  first  half and  second
quarter of fiscal  2004,  respectively,  when  compared  to the same  periods in
fiscal 2003.

Payroll and other employee  benefits  decreased to 28.7% of restaurant sales for
the first half of 2004 from 29.2% of restaurant sales in the first half of 2003.
Payroll and other employee  benefits  decreased to 28.7% of restaurant sales for
the second quarter of fiscal 2004 from 29.0% of restaurant  sales for the second
quarter  of fiscal  2003.  These  percentage  decreases  were  primarily  due to
increased revenues as a result of both unit sales and price increases as well as
the  elimination  of locations  with higher  payroll  costs as a  percentage  of
restaurant sales.

Other  operating  expenses  decreased to 37.3% of restaurant  sales in the first
half of fiscal  2004 from 38.0% of  restaurant  sales in the first half of 2003.
Other operating  expenses  decreased to 37.3% of restaurant sales for the second
quarter of 2004 from 37.8% of restaurant  sales for the second  quarter of 2003.
As a percentage of restaurant sales,  these costs improved primarily as a result
of the higher level of sales.

Depreciation and amortization  expense was $1.7 million lower for the first half
and $0.8 million lower for the second quarter of fiscal 2004, as compared to the
same  periods in 2003.  Of the  reduction  in the first  half of the year,  $0.4
million  was due to the  reduction  in the  number of units in  operation,  $0.6
million was for  locations  that had been  included in the  provision  for asset
impairment  in fiscal 2003 for which no  depreciation  was taken in fiscal 2004,
$0.4 million  related to locations that became fully  depreciated  during fiscal
2003 and $0.3 million related to depreciable assets at our former administrative
office  building on which the lease was terminated May 2004. Of the reduction in
the second  quarter of this year,  $0.1 million was due to the  reduction in the
number of units in  operation,  $0.2  million  was for  locations  that had been
included in the  provision  for asset  impairment  in fiscal 2003,  $0.2 million
related to locations that became fully  depreciated  during fiscal 2003 and $0.2
million  related to  depreciable  assests at our  former  administrative  office
building on which the lease was terminated May 2004.

General  and  administrative  expenses  were  $13.5  million,  or 8.0% of  total
revenues,  for the first half of fiscal 2004 compared to $14.1 million,  or 8.5%
of total  revenues,  for the first  half of 2003.  Factors  contributing  to the
changes for the first half of 2004 included  approximately $1.4 million of lower
costs due to the  reduction in work force,  a $0.2 million  decrease in bad debt
expense recorded in the first quarter of fiscal 2003 and bonuses of $0.7 million
granted to certain  executive  officers in the first  quarter of 2003 which were
not  granted  in the first  quarter of 2004  offset,  in part,  by $0.7  million
recorded  in the first  quarter  of fiscal  2004 of  severance  and other  costs
related to the  reduction in work force and $0.7 million of costs related to new
executives. In addition,  general and administrative costs in the second quarter
of 2003 included a $0.3 million gain on the sale of an other  concept  location.
The  annual  effect of our  reduction  in work force on our  administrative  and
general costs is estimated at $3.1 million.



                                    Page 29
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

General  administrative  expenses were $5.3 million in each second  quarter,  or
7.3% and 7.4% of total revenues, for the second quarter of fiscal 2004 and 2003,
respectively.  For the second quarter of 2004, there were lower costs due to the
reduction  in work  force  of  approximately  $0.7  million  offset  by costs of
approximately $0.3 million for new executives.  General and administrative costs
in the second  quarter of 2003  included a $0.3  million  gain on the sale of an
other concept location.

Interest  expense for the first half of fiscal  2004 and 2003 was $16.6  million
and $16.8  million,  respectively,  and $7.1  million  and $7.2  million for the
second quarter of 2004 and 2003, respectively.  Interest costs were incurred for
the 11%,  $255  million  senior  notes  issued  to  finance  our  going  private
transaction  in 1999 and the 8.4%,  $16 million  mortgage  loan on our corporate
headquarters in 2001. In addition,  interest expense  includes  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 and the mortgage
loan and,  for 2003,  the credit  agreement  that was  terminated  in the fourth
quarter of fiscal 2003.

Equity  in  the  net  income  of   unconsolidated   affiliates   represents  our
proportionate  share of earnings and losses in those other  concepts in which we
have a 50% or less  ownership  interest.  The  $0.2  million  and  $0.1  million
increase  in the first half and second  quarter  of 2004,  respectively,  in our
share of the equity in the net income of unconsolidated affiliates was primarily
as a  result  of an  improvement  in the  performance  of our  steakhouse  joint
venture.  There  currently  are two  steakhouses  under  construction  which are
expected to be completed  by the end of fiscal 2004 or early in fiscal 2005.  We
do not have any further expansion plans for our unconsolidated joint ventures.

We have elected to be taxed under the provisions of Subchapter S of the Internal
Revenue Code and, where applicable and permitted,  under similar state and local
income  tax  provisions  beginning  January  3, 2000.  Under the  provisions  of
Subchapter S, substantially all taxes on our income are paid by our shareholders
rather than us. Our tax expense was $0.4 million and approximately  $0.6 million
for the first halves and $0.1  million and $0.3 million for the second  quarters
of 2004 and 2003,  respectively.  The  expense  was for taxes owed by us (rather
than our  shareholders)  to  jurisdictions  that do not  recognize S corporation
status or that tax  entities  based on factors  other than  income and for taxes
withheld at the source of payment on foreign franchise income related payments.

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

CASH REQUIREMENTS

Our liquidity requirements relate to debt service, capital expenditures, working
capital,  investments in other  ventures,  distributions  to  shareholders  when
permitted  under the indenture for the senior notes,  to repay any borrowings we
may make under our line of credit agreement and general corporate  purposes.  We
incur annual cash  interest  expense of  approximately  $29.5  million under the
senior notes and mortgage  loan and may incur  additional  interest  expense for
borrowings  under our line of  credit.  We are not  required  to make  principal
payments, absent the



                                    Page 30
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

occurrence of certain events, on our senior notes until they mature in September
2009.  We  believe  that  aggregate  restaurant  capital  expenditures  and  our
investments in joint  ventures  during fiscal 2004 will  approximate  the fiscal
2003 level of $8.5 million. Our $3.0 million line of credit which expires in May
2005 is  uncommitted.  Therefore,  our lender  could refuse to lend to us at any
time. There were no unpaid capital expenditure commitments at July 11, 2004.

We expect our primary  source of liquidity to meet these needs will be cash flow
from  operations.  We do not presently expect to borrow under our line of credit
in fiscal 2004 except for required letters of credit.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

Our contractual  obligations and off balance sheets arrangements with respect to
Sbarro owned and  franchised  restaurants as well as those for our other concept
arrangements  (both those in which we have a majority or minority  interest)  do
not materially  differ from the information  disclosed in Part II, Item 7 of our
Annual Report on Form 10-K for the 2003 fiscal year.

SOURCES AND USES OF CASH

The following table summarizes our cash and cash equivalents and working capital
as at the end of the  second  quarter  of 2004 and 2003 and the uses of our cash
flows during the first half of each of the respective fiscal years:

<TABLE>
<CAPTION>
                                                       As at and for the Six Months Ended
                                                       ----------------------------------
                                                    July 11, 2004              July 13, 2003
                                                    -------------              -------------
                                                                  (in millions)
                                                                  -------------
<S>                                                     <C>                         <C>
Liquidity at the end of periods
-------------------------------
Cash and cash equivalents                               $ 39.3                      $42.5
Working capital                                           23.2                       15.6
Net cash flows for the period
-----------------------------
Used in operating activities                             (12.7)                      (6.7)
Used in investing activities                              (4.2)                      (4.7)
Used in financing activities                              (0.3)                      (1.2)
Net decrease in cash                                     (17.2)                      (12.6)
</TABLE>


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

Net cash used in operating  activities  was $12.7  million for the first half of
2004  compared  to $6.7  million  used  during the first half of 2003.  The $5.9
million  increase  was  primarily  due to the effect of the decrease in the loss
from  operations,  as adjusted  for  non-cash  items,  in the first half of 2004
compared  to the same  calculation  for the first half of 2003 of  approximately
$3.3  million,  income tax  refunds  received  of  approximately  $0.3  million,
contractual payments of $0.2



                                    Page 31
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

million  related  to prior  year  sales of other  concept  locations  and a $2.4
million  increase  in the use of cash as a result of the timing of  payments  in
fiscal 2004 for our insurance  policy  renewal as the 2003 policy  renewals were
financed, offset by an increase of approximately $1.2 million in inventory value
due to increases in product costs,  primarily  cheese,  a reduction in franchise
related  collections  during  fiscal 2004 of  approximately  $1.2  million and a
decrease of approximately  $4.7 million in accounts payable and accrued expenses
between the  comparable  2004 and 2003 periods due to the change in the level of
sales just prior to the beginning of each of those fiscal years.

Net cash used in  investing  activities  has  historically  been  primarily  for
capital expenditures.  Net cash used in investing activities decreased from $4.7
million  for the first half of 2003 to $4.2  million  for the first half of 2004
primarily due to $0.6 million that was expended in the first half of fiscal 2003
relating to an upgrade of our computer system.

Net cash used in  financing  activities  was $0.3  million  in the first half of
fiscal 2004  compared to $1.2  million for the first half of fiscal  2003.  Cash
used  in  financing  activities  in  both  years  resulted  primarily  from  tax
distributions to our  shareholders.  In March 2000, we elected to be taxed under
the  provisions  of  Subchapter  S of  the  Internal  Revenue  Code  and,  where
applicable  and  permitted,  under similar state and local income tax provisions
beginning  January 3, 2000. Under the provisions of Subchapter S,  substantially
all taxes on our  income are paid by our  shareholders.  The  indenture  for the
senior notes permits us to make  distributions  to shareholders  under a formula
that is designed to approximate  the income taxes,  including  estimated  taxes,
that would be  payable  by our  shareholders  if their  only  income  were their
pro-rata  share of our taxable  income and such income were taxed at the highest
applicable  federal  and New York State  marginal  income  tax rates.  There are
differences  in  the  book  and  tax  treatments  of  the  provision  for  asset
impairment, tax credits and in book and tax depreciation.  The tax distributions
in the first  quarter of both fiscal years were made with respect to our taxable
income for fiscal 2002. The $0.7 million  distribution made in the first quarter
of  2004  was  declared  in  November  2003.  We  do  not  expect  to  make  tax
distributions in 2004 related to the 2003 results of operation.

FINANCING

As part of the transaction in which we became a privately-held  company in 1999,
we sold $255  million of 11% senior notes (at a price of 98.514% of par to yield
11.25% per annum), the net proceeds of which, together with substantially all of
our then existing  cash, was used to finance the  transaction.  At that time, we
also entered  into a $30 million  credit  agreement  that we  terminated  in the
fourth quarter of 2003.

In March 2004, we obtained an uncommitted  line of credit,  which expires in May
2005, to replace our former  revolving  credit  facility.  We currently have the
ability,  subject  to bank  approval,  to  borrow  up to $3  million,  including
outstanding  letters of credit.  We have $1.7 million of outstanding  letters of
credit and $1.3 million of undrawn availability. The new line of credit contains
no financial  covenants or unused line fees.  Interest  applicable  to the loans
under  the new line of  credit is at the  bank's  prime  rate at the time of any
borrowings.

Under our senior notes  indenture,  there are various  covenants  that limit our
ability to borrow funds to make  "restricted  payments"  including,  among other
things,  dividend  payments  (other



                                    Page 32
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

than as  distributions  pursuant  to the  tax  payment  agreement),  and to make
investments in, among other things, unrestricted subsidiaries.

Among other covenants,  the indenture  requires that, in order for us to borrow,
our  consolidated  interest ratio coverage (as defined in the Indenture),  after
giving pro forma effect to the interest on the new borrowing,  for the four most
recently  ended fiscal  quarters must be at least 2.5 to 1. As of July 11, 2004,
that ratio was 1.3 to 1. As a result,  we are not presently able to borrow funds
except for specifically permitted indebtedness, including up to $75.0 million of
revolving credit loans. In order to make restricted payments, that ratio must be
at least 2.0 to 1, after giving pro forma effect to the restricted  payment and,
in any event, is limited in dollar amount pursuant to a formula contained in the
indenture. We refer to the amount that is available for us to make dividends and
other restricted  payments as the "restricted  payment  availability." We cannot
make restricted  payments (other than distributions  pursuant to the tax payment
agreement)   until  we  increase  the   restricted   payment   availability   by
approximately $20.5 million, and then only to the extent of any excess over that
amount.

In March 2000, one of our subsidiaries  obtained a $16 million, 8.4% loan due in
2010, secured by a mortgage on our corporate  headquarters building. The loan is
payable in monthly  installments of principal and interest of $0.1 million.  The
outstanding principal balance of the loan as of July 11, 2004 was $15.4 million.
The mortgage agreement contains various covenants,  including a requirement that
the  subsidiary  maintain a minimum ratio of EBITDA to annual debt service of at
least 1.2 to 1.0.

We were in  compliance  with all covenants in the indenture for the senior notes
and our mortgage as of July 11, 2004.

CRITICAL ACCOUNTING POLICIES AND JUDGMENTS
------------------------------------------

Accounting  policies are an integral  part of the  preparation  of our financial
statements in accordance with accounting  principles  generally  accepted in the
United States of America.  Understanding  these  policies,  therefore,  is a key
factor in  understanding  our  reported  results  of  operations  and  financial
position. Accounting policies often require us to make estimates and assumptions
that affect the amounts of assets,  liabilities,  revenues and expenses reported
in the financial  statements.  Due to their nature,  estimates involve judgments
based upon  available  information.  Therefore,  actual results or amounts could
differ from  estimates and the  difference  could have a material  impact on our
consolidated  financial statements.  During the first half of fiscal 2004, there
were no material  changes in the accounting  policies,  the application of which
may have the most  significant  effect on our reported results of operations and
financial  position and that require  judgments  estimates  and  assumptions  by
management that can affect their  application  from the matters  discussed under
the heading "Critical  Accounting  Policies and Judgments" in Part II, Item 7 of
our Annual Report on Form 10-K for the fiscal year ended December 28, 2003.







                                    Page 33
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------

During  the first half of fiscal  2004  there  were no  changes  in the  matters
discussed under the heading "Certain  Relationships and Related Transactions" in
Part II,  Item 13 of our Annual  Report on Form 10-K for the  fiscal  year ended
December 28, 2003.

FORWARD LOOKING STATEMENTS
--------------------------

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

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

     o    general economic, weather and business conditions;
     o    the availability of suitable restaurant sites in appropriate  regional
          shopping malls and other locations on reasonable rental terms;
     o    changes in consumer tastes;
     o    changes in population,  energy prices and traffic patterns,  including
          the effect that military action and terrorism or other events may have
          on the willingness of consumers to frequent  shopping malls,  airports
          or  downtown  areas  which  are the  predominant  areas in  which  our
          restaurants are located;
     o    our ability to continue to attract franchisees;
     o    the success of our present,  and any future,  joint ventures and other
          expansion opportunities;
     o    the availability of food (particularly cheese and tomatoes),  beverage
          and paper products at current prices;
     o    our ability to pass along cost increases to our customers;
     o    no material increase occurring in the Federal minimum wage;
     o    the continuity of services of members of our senior management team;
     o    our ability to attract and retain  competent  restaurant and executive
          managerial personnel;
     o    competition;
     o    the level of, and our ability to comply with, government regulations;
     o    our ability to generate sufficient cash flow to make interest payments
          and principal under our senior notes and mortgage loan;
     o    our ability to comply with covenants  contained in the indenture under
          which  the  senior  notes  are  issued,  and  the  effects  which  the
          restrictions  imposed by those  covenants  may have on our  ability to
          operate our business; and
     o    our ability to repurchase  senior notes to the extent  required in the
          event we make certain asset sales or experience a change of control.



                                    Page 34
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

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



















                                    Page 35
<PAGE>


                          SBARRO, INC. AND SUBSIDIARIES

ITEM 3.           QUALITATIVE AND QUANTITATIVE DISCLOSURES OF MARKET RISK

We have historically invested our cash on hand in short term, fixed rate, highly
rated and  highly  liquid  instruments  which are  reinvested  when they  mature
throughout  the year.  The  indenture  under  which our senior  notes are issued
limits us to similar  investments.  Although  our existing  investments  are not
considered  at risk with  respect to changes in  interest  rates or markets  for
these  instruments,  our  rate of  return  on  short-term  investments  could be
affected at the time of reinvestment as a result of intervening events.

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

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

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

ITEM 4.       CONTROLS AND PROCEDURES

Disclosure Controls and Procedures:

Our management,  with the participation of our Chief Executive Officer and Chief
Financial  Officer,  has evaluated the effectiveness of our disclosure  controls
and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) under
the Securities  Exchange Act of l934, as amended (the "Exchange Act"), as of the
end of the period covered by this report.  Based on that  evaluation,  our Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end
of  the  period,   our   disclosure   controls  and  procedures  are  effective.
Notwithstanding the foregoing, a control system, no matter how well designed and
operated,  can provide only  reasonable,  not absolute,  assurance  that it will
detect or  uncover  failures  within  Sbarro to  disclose  material  information
otherwise required to be set forth in our periodic reports.

Internal Control Over Financial Reporting:

There have not been any changes in our internal control over financial reporting
(as such term is defined in Rules  13a-15(f)  and  15d-15(f)  under the Exchange
Act) during the twenty  eight  weeks  ended July 11,  2004 that have  materially
affected,  or are reasonably likely to materially  affect,  our internal control
over financial reporting.




                                    Page 36
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

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


Item 1.       Legal proceedings

              None of the  proceedings  discussed in Item 3 of our Annual Report
              on Form 10-K for our 2003  fiscal  year have been  terminated  and
              there have not been any material developments in those proceedings
              during the second fiscal quarter of fiscal 2004.

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

a)       Exhibits:

         31.01    Certification  of  Principal  Executive  Officer  pursuant  to
                  Section 302 of the Sarbanes-Oxley Act of 2002.

         31.02    Certification of Vice President,  Chief Financial  Officer and
                  Principal  Accounting  Officer  pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.

         32.01    Certification  of  Principal  Executive  Officer  pursuant  to
                  Section 906 of the Sarbanes-Oxley Act of 2002.

         32.02    Certification of Vice President,  Chief Financial  Officer and
                  Principal  Accounting  Officer  pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.

(b)      Reports on Form 8-K:

                We  filed  no reports on Form 8-K during the quarter  covered by
this report.












                                    Page 37
<PAGE>


                          SBARRO, INC. AND SUBSIDIARIES


                                   SIGNATURES
                                   ----------


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



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


Date:     August 17, 2004          By: /s/ MICHAEL O'DONNELL
       ---------------------           ----------------------------------------
                                   Michael O'Donnell
                                   President and Chief Executive Officer


Date:     August 17, 2004          By: /s/ ANTHONY J. PUGLISI
       ---------------------           ----------------------------------------
                                   Anthony J. Puglisi
                                   Vice President; Chief Financial Officer and
                                   Principal Accounting Officer

















                                    Page 38
<PAGE>


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


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


       31.01            Certification of Principal Executive Officer pursuant to
                        Section 302 of the Sarbanes-Oxley Act of 2002.

       31.02            Certification of Vice President, Chief Financial Officer
                        and Principal Accounting Officer pursuant to Section 302
                        of the Sarbanes-Oxley Act of 2002.

       32.01            Certification of Principal Executive Officer pursuant to
                        Section 906 of the Sarbanes-Oxley Act of 2002.

       32.02            Certification of Vice President, Chief Financial Officer
                        and Principal Accounting Officer pursuant to Section 906
                        of the Sarbanes-Oxley Act of 2002.