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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


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

FOR THE QUARTER ENDED JULY 14, 2002             COMMISSION FILE NUMBER 333-90817


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


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

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

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

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

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


THE NUMBER OF SHARES OF COMMON STOCK OF THE REGISTRANT OUTSTANDING AS OF AUGUST
15, 2002 WAS 7,064,328.

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<PAGE>

                                  SBARRO, INC.

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


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

Consolidated Financial Statements:

     Balance Sheets - July 14, 2002 (unaudited) and December 30, 2001........3-4

     Statements of Operations (unaudited) - Twenty-Eight Weeks and Twelve
     Weeks ended July 14, 2002 and July 15, 2001.............................5-6

     Statements of Cash Flows (unaudited) - Twenty-Eight Weeks ended
     July 14, 2002 and July 15, 2001.........................................7-8

     Notes to Unaudited Consolidated Financial Statements - July 14, 2002...9-26

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

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

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


                                     Pg. 2

<PAGE>

Part 1 - Financial Information


                          SBARRO, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                               (IN THOUSANDS EXCEPT SHARE DATA)
                                              ----------------------------------
                                              JULY 14, 2002    DECEMBER 30, 2001
                                              -------------    -----------------
                                               (UNAUDITED)
CURRENT ASSETS:

   CASH AND CASH EQUIVALENTS                      $ 30,681          $ 36,952
   RESTRICTED CASH FOR UNTENDERED SHARES                21                45
   RECEIVABLES, NET OF ALLOWANCE FOR DOUBTFUL
      ACCOUNTS OF $175 (NOTE 7):
      FRANCHISEE                                     2,259             2,162
      OTHER                                          1,797             2,797
                                                  --------          --------
                                                     4,056             4,959

   INVENTORIES                                       2,890             3,537
   LOANS RECEIVABLE FROM SHAREHOLDERS                3,232                --
   PREPAID EXPENSES                                  8,207             1,242
                                                  --------          --------
      TOTAL CURRENT ASSETS                          49,087            46,735

PROPERTY AND EQUIPMENT, NET                        123,543           132,303

INTANGIBLE ASSETS:
   TRADEMARKS AND TRADENAMES, NET (NOTE 2)         195,916           195,916
   GOODWILL, NET (NOTE 2)                            9,204             9,204
   DEFERRED FINANCING COSTS, NET                     7,129             7,707

LOANS RECEIVABLE FROM SHAREHOLDERS                   2,800             6,032

OTHER ASSETS                                         7,342             6,865
                                                  --------          --------
                                                  $395,021          $404,762
                                                  ========          ========

                                   (CONTINUED)


                                      Pg. 3
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                      LIABILITIES AND SHAREHOLDERS' EQUITY


                                               (IN THOUSANDS EXCEPT SHARE DATA)
                                              ----------------------------------
                                              JULY 14, 2002    DECEMBER 30, 2001
                                              -------------    -----------------
                                               (UNAUDITED)
CURRENT LIABILITIES:
   AMOUNTS DUE FOR UNTENDERED SHARES              $     21          $     45
   ACCOUNTS PAYABLE                                 11,722             9,107
   ACCRUED EXPENSES                                 19,726            24,648
   ACCRUED INTEREST PAYABLE                          9,260             8,181
   CURRENT PORTION OF MORTGAGE PAYABLE                 149               140
                                                  --------          --------
      TOTAL CURRENT LIABILITIES                     40,878            42,121

DEFERRED RENT                                        8,750             8,479

LONG-TERM DEBT, NET OF ORIGINAL ISSUE
     DISCOUNT (NOTE 5)                             267,832           267,718

CONTINGENCIES (NOTE 8)

SHAREHOLDERS' EQUITY:
   PREFERRED STOCK, $1 PAR VALUE; AUTHORIZED
     1,000,000 SHARES; NONE ISSUED                      --                --
   COMMON STOCK, $.01 PAR VALUE; AUTHORIZED
     40,000,000 SHARES; ISSUED AND OUTSTANDING
     7,064,328 SHARES AT JULY 14, 2002 AND
     DECEMBER 30, 2001                                  71                71
   ADDITIONAL PAID-IN CAPITAL                           10                10
   RETAINED EARNINGS                                77,480            86,363
                                                  --------          --------
                                                    77,561            86,444
                                                  --------          --------
                                                  $395,021          $404,762
                                                  ========          ========


            SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


                                      Pg. 4
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)


                                                       (IN THOUSANDS)
                                              ---------------------------------
                                              FOR THE TWENTY-EIGHT WEEKS ENDED:
                                              ---------------------------------
                                              JULY 14, 2002     JULY 15, 2001
                                              -------------     -------------

REVENUES:
   RESTAURANT SALES                             $ 176,448          $ 188,722
   FRANCHISE RELATED INCOME                         5,075              5,222
   REAL ESTATE AND OTHER                            3,015              3,269
                                                ----------         ----------
    TOTAL REVENUES                                184,538            197,213
                                                ----------         ----------
COSTS AND EXPENSES:
   RESTAURANT OPERATING EXPENSES:
    COST OF FOOD AND PAPER PRODUCTS                34,854             38,507
    PAYROLL AND OTHER EMPLOYEE BENEFITS            50,056             52,631
    OTHER OPERATING COSTS                          62,377             63,552
   DEPRECIATION AND AMORTIZATION (NOTE 2)          11,912             16,977
   GENERAL AND ADMINISTRATIVE                      12,699             16,319
   PROVISION FOR RESTAURANT CLOSINGS (NOTE 4)       2,229              1,465
                                                ----------         ----------
    TOTAL COSTS AND EXPENSES                      174,127            189,451
                                                ----------         ----------
OPERATING INCOME BEFORE MINORITY INTEREST          10,411              7,762
MINORITY INTEREST                                     (33)                (2)
                                                ----------         ----------
    OPERATING INCOME                               10,378              7,760
                                                ----------         ----------
OTHER INCOME (EXPENSE):
    INTEREST EXPENSE                              (16,740)           (16,885)
    INTEREST INCOME                                   260                493
    EQUITY IN NET INCOME OF
       UNCONSOLIDATED AFFILIATES                      545                125
                                                ----------         ----------
    NET OTHER EXPENSE                             (15,935)           (16,267)
                                                ---------          ----------

LOSS BEFORE INCOME TAXES                           (5,557)            (8,507)
INCOME TAXES (NOTE 6)                                 201                200
                                                ----------         ----------
NET LOSS                                        $  (5,758)         $  (8,707)
                                                ==========         ==========


            SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


                                      Pg. 5

<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)

                                                           (IN THOUSANDS)
                                                  ------------------------------
                                                    FOR THE TWELVE WEEKS ENDED:
                                                  ------------------------------
                                                  JULY 14, 2002    JULY 15, 2001
REVENUES:
   RESTAURANT SALES                                  $ 75,679        $ 81,016
   FRANCHISE RELATED INCOME                             2,332           2,030
   REAL ESTATE AND OTHER                                1,321           1,421
                                                     --------        --------
    TOTAL REVENUES                                     79,332          84,467
                                                     --------        --------

COSTS AND EXPENSES:
   RESTAURANT OPERATING EXPENSES:
    COST OF FOOD AND PAPER PRODUCTS                    14,846          16,579
    PAYROLL AND OTHER EMPLOYEE BENEFITS                21,567          22,320
    OTHER OPERATING COSTS                              26,660          27,432
   DEPRECIATION AND AMORTIZATION (NOTE 2)               5,088           7,377
   GENERAL AND ADMINISTRATIVE                           5,544           6,735
   PROVISION FOR RESTAURANT CLOSINGS (NOTE 4)           2,105           1,390
                                                     ---------       ---------
    TOTAL COSTS AND EXPENSES                           75,810          81,833
                                                     ---------       ---------
OPERATING INCOME BEFORE MINORITY INTEREST               3,522           2,634
MINORITY INTEREST                                         (14)            (10)
                                                     ---------       ---------
    OPERATING INCOME                                    3,508           2,624
                                                     ---------       ---------
OTHER INCOME (EXPENSE):
   INTEREST EXPENSE                                    (7,166)         (7,237)
   INTEREST INCOME                                        106             101
   EQUITY IN NET INCOME OF
      UNCONSOLIDATED AFFILIATES                           284              39
                                                     ---------       ---------
    NET OTHER EXPENSE                                  (6,776)         (7,097)
                                                     ---------       ---------

LOSS BEFORE INCOME TAXES                               (3,268)         (4,473)
INCOME TAXES  (NOTE 6)                                     69             125
                                                     ---------       ---------

NET LOSS                                             $ (3,337)       $ (4,598)
                                                     =========       =========


            SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


                                      Pg. 6
<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)

                                                         (IN THOUSANDS)
                                               ---------------------------------
                                               FOR THE TWENTY-EIGHT WEEKS ENDED:
                                               ---------------------------------
                                                JULY 14, 2002      JULY 15, 2001

OPERATING ACTIVITIES:

NET LOSS                                          $ (5,758)          $ (8,707)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
   CASH PROVIDED BY OPERATING ACTIVITIES:
    DEPRECIATION AND AMORTIZATION                   12,695             17,762
    PROVISION FOR RESTAURANT CLOSINGS                1,729              1,310
    INCREASE IN DEFERRED RENT, NET                     354                221
    MINORITY INTEREST                                   33                  2
    EQUITY IN NET INCOME OF
      UNCONSOLIDATED AFFILIATE                        (545)              (125)
    DIVIDENDS RECEIVED FROM
      UNCONSOLIDATED AFFILIATE                         311                244

CHANGES IN OPERATING ASSETS AND LIABILITIES:
    DECREASE (INCREASE) IN RECEIVABLES                 903               (771)
    DECREASE IN INVENTORIES                            647                434
    INCREASE IN PREPAID EXPENSES                    (6,965)            (5,327)
    DECREASE IN OTHER ASSETS                          (150)              (892)
    DECREASE IN ACCOUNTS PAYABLE
      AND ACCRUED EXPENSES                          (3,345)            (4,365)
    INCREASE IN ACCRUED INTEREST PAYABLE             1,079              1,247
                                                  ---------          ---------

NET CASH PROVIDED BY OPERATING ACTIVITIES              988              1,033


                                   (CONTINUED)


                                      Pg. 7

<PAGE>

                          SBARRO, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                                   (UNAUDITED)

                                                          (IN THOUSANDS)
                                               ---------------------------------
                                               FOR THE TWENTY-EIGHT WEEKS ENDED:
                                               ---------------------------------
                                                 JULY 14, 2002     JULY 15, 2001
                                                 -------------     -------------
INVESTING ACTIVITIES:

PURCHASES OF PROPERTY AND EQUIPMENT                 $ (4,053)        $(11,529)
                                                    ---------        ---------
  NET CASH USED IN INVESTING ACTIVITIES               (4,053)         (11,529)
                                                    ---------        ---------

FINANCING ACTIVITIES:

MORTGAGE PRINCIPAL REPAYMENTS                            (81)             (74)
PURCHASE OF MINORITY INTEREST IN JOINT VENTURE            --           (1,000)
LOANS TO SHAREHOLDERS                                     --           (3,932)
REPAYMENT OF SHAREHOLDER LOANS                            --              700
TAX DISTRIBUTIONS RELATED TO THE PRIOR FISCAL YEAR    (3,125)          (7,564)
DIVIDENDS                                                 --           (5,000)
                                                    ---------        ---------
  NET CASH USED IN FINANCING ACTIVITIES               (3,206)         (16,870)
                                                    ---------        ---------

DECREASE IN CASH AND CASH EQUIVALENTS                 (6,271)         (27,366)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD      36,952           42,319
                                                    ---------        ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD          $ 30,681         $ 14,953
                                                    =========        =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:

CASH PAID DURING THE PERIOD FOR INCOME TAXES        $    483         $    677
                                                    =========        =========
CASH PAID DURING THE PERIOD FOR INTEREST            $ 14,892         $ 14,850
                                                    =========        =========


            SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


                                      Pg. 8

<PAGE>

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

1.   BASIS OF PRESENTATION:

     The  accompanying  unaudited  consolidated  financial  statements have been
     prepared in accordance with the  instructions  for Form 10-Q and Regulation
     S-X related to interim period financial  statements and, therefore,  do not
     include  all  information  and  footnotes  required by  generally  accepted
     accounting  principles.  However,  in the  opinion of 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  14,  2002  and  our
     consolidated  results of operations for each of the twenty-eight and twelve
     week  periods  ended July 14, 2002 and July 15, 2001 and cash flows for the
     twenty-eight weeks in each of the respective years 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 30, 2001.

     Certain items in the financial  statements presented have been reclassified
     to conform to the fiscal 2002 presentation.

2.   RECENT ACCOUNTING PRONOUNCEMENTS:

     In July 2001, the Financial Accounting Standards Board issued Statements of
     Financial Accounting  Standards ("SFAS") No. 141, "Business  Combinations,"
     and No. 142, "Goodwill and Other Intangible  Assets." SFAS No. 141 requires
     all business combinations initiated after June 30, 2001 to be accounted for
     using the purchase  method.  SFAS No. 142 became  effective with respect to
     our Company with the  beginning of fiscal 2002.  SFAS No. 142 requires that
     the  amortization  of goodwill  (which was $2.9 million and $1.3 million in
     the twenty-eight and twelve weeks ended July 15, 2001,  respectively) cease
     on December 31, 2001.  Under SFAS No. 142,  goodwill and intangible  assets
     with indefinite lives are no longer amortized but are reviewed annually for
     impairment (or more frequently if impairment  indicators arise).  Separable
     intangible  assets that are not deemed to have indefinite lives continue to
     be  amortized  over their  useful  lives.  We have  completed  our  initial
     impairment  test  on  goodwill  and  intangible   assets   (trademarks  and
     tradenames)  with  indefinite  lives acquired prior to July 1, 2001 ($205.2
     million,  net of accumulated  amortization  of $19.3  million,  at July 14,
     2002) and concluded that there had been no impairment at January 1, 2002.


                                      Pg. 9

<PAGE>

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

2.   RECENT ACCOUNTING PRONOUNCEMENTS:

     The effect of the adoption of SFAS No. 142 on the reported net loss for the
     prior period is as follows:

<TABLE>
<CAPTION>

                                       Twenty-Eight Weeks Ended           Twelve Weeks Ended
                                    -----------------------------   -----------------------------
                                    July 14, 2002   July 15, 2001   July 14, 2002   July 15, 2001
                                    -------------   -------------   -------------   -------------
                                            (in thousands)                   (in thousands)
  <S>                                  <C>             <C>            <C>              <C>
  Reported net loss                    $(5,758)        $(8,707)       $(3,337)         $(4,598)
  Add back:  Amortization of
  goodwill and intangible assets
  with indefinite lives                     --           2,926             --            1,255
                                       --------        --------       --------         --------

  Adjusted net loss                    $(5,758)        $(5,781)       $(3,337)         $(3,343)
                                       ========        ========       ========         ========

</TABLE>

     In August 2001, the Financial  Accounting  Standards  Board issued SFAS No.
     143,   "Accounting  for  Asset  Retirement   Obligations."  This  statement
     addresses   financial  and  reporting   obligations   associated  with  the
     retirement  of  tangible   long-lived   assets  and  the  associated  asset
     retirement  costs.  It applies  to legal  obligations  associated  with the
     retirement of long-lived assets that result from acquisition, construction,
     development  and/or the normal operation of long-lived  assets,  except for
     certain obligations of lessees.  SFAS No. 143 became effective with respect
     to us with the  beginning of fiscal 2002 and has not had a material  effect
     on our operations.

     In August 2001, the Financial  Accounting  Standards  Board issued SFAS No.
     144, "Accounting for the Impairment or Disposal of Long-lived Assets." This
     statement  supersedes  SFAS No.  121,  "Accounting  for the  Impairment  of
     Long-lived  Assets  and for  Long-lived  Assets  to be  Disposed  Of,"  and
     Accounting   Principles  Board  Opinion  No.  30,  "Reporting   Results  of
     Operations-Reporting the Effects of Disposal of a Segment of a Business and
     Extraordinary, Unusual and Infrequently Occurring Events and Transactions."
     This  Statement  retains  the  fundamental  provisions  of SFAS No. 121 for
     recognition  and  measurement of impairment,  but amends the accounting and
     reporting  standards for segments of a business to be disposed of. SFAS No.
     144 became  effective with respect to us with the beginning of fiscal 2002.
     The adoption of SFAS No. 144 has not had a material impact on our financial
     position and operating  results.  We will continue to assess  impairment of
     the assets of our restaurants on a restaurant-by-restaurant basis.

     In April 2002,  the Financial  Accounting  Standards  Board issued SFAS No.
     145,  "Rescission of FASB  Statements No. 4, 44, and 64,  Amendment of FASB
     Statement No. 13, and Technical Corrections." This statement eliminates the
     current  requirement that gains and losses on debt  extinguishment  must be
     classified  as  extraordinary  items in the income  statement  and contains
     other nonsubstantive  corrections to authoritative accounting literature in
     SFAS  No.  4,  44  and  64.  The  changes  in  SFAS  145  related  to  debt
     extinguishment will be effective for us beginning with our 2003 fiscal year
     and the other  changes were  effective for us beginning  with  transactions
     after


                                     Pg. 10

<PAGE>

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

2.   RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED):

     May 15, 2002.  Adoption of this  standard has not had, and we do not expect
     that it will have, a material effect on our results of operations.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
     Associated with Exit or Disposal  Activities,"  which addresses  accounting
     for  restructuring  and similar  costs.  SFAS No. 146  supersedes  previous
     accounting  guidance,  principally  Emerging Issues Task Force (EITF) Issue
     No. 94-3.  SFAS No. 146 requires that the  liability  for costs  associated
     with an exit or  disposal  activity be  recognized  when the  liability  is
     incurred.  Under EITF No. 94-3, a liability for an exit cost was recognized
     at the date of a company's  commitment  to an exit plan.  SFAS No. 146 also
     establishes that the liability should initially be measured and recorded at
     fair value. Accordingly,  SFAS No. 146 may affect the timing of recognizing
     future  restructuring costs (including our future accounting for restaurant
     closing  costs)  as well  as the  amount  recognized.  We  will  adopt  the
     provisions of SFAS No. 146 for  restructuring  activities  initiated  after
     December 31, 2002.

3.   EFFECT OF EVENTS OF SEPTEMBER 11, 2001:

     As a result of the events of September 11, 2001, a  Sbarro-owned  location,
     as well as a  franchise  location,  that had  operated  in the World  Trade
     Center in New York City were destroyed.  Although the Sbarro-owned location
     generated  high sales  revenues  and  operating  income,  the effect on the
     results  for the  second  quarter  and year to date of fiscal  2002 was not
     material to consolidated results as a whole. The franchise location did not
     generate  significant royalty revenues.  In addition,  a number of airports
     were closed due to the events of September 11 causing airport  Sbarro-owned
     and  franchise  units to  close  for  periods  of time  and  those  airport
     locations and a number of downtown locations have continued to experience a
     period of reduced sales through the second quarter of fiscal 2002.

     We reached an agreement in principal to settle our claim with our insurance
     company in late July 2002 for the  reimbursement  of the cost of the assets
     destroyed at the  Sbarro-owned  location,  as well as for lost income under
     our business interruption insurance coverage, in the aggregate total amount
     of $9.65  million.  The proceeds of the  settlement,  less the $1.5 million
     advance  received  in May 2002,  is  expected  to be  received in the third
     quarter of fiscal 2002. The estimated amount of the balance of the expected
     recovery  for the cost of the assets  destroyed  is  included  in  accounts
     receivable   as  of  July  14,  2002.   We  will  include  the   remainder,
     approximately $7.0 million, net of related expenses,  of such settlement in
     our  statement of  operations  upon its receipt which is expected to be the
     third quarter of fiscal 2002. Our understanding is subject to entering into
     a definitive  settlement  agreement.  There can be no  assurance  that such
     agreement will be finalized.


                                     Pg. 11

<PAGE>

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

4.   PROVISION FOR RESTAURANT CLOSINGS:

     During the twenty-eight and twelve weeks ended July 14, 2002, we recorded a
     provision  for  restaurant  closings  of $2.2  million  and  $2.1  million,
     respectively. Of the provision,  approximately $1.6 million was recorded in
     the twelve weeks ended July 14, 2002 for the net book value of the property
     and equipment and  anticipated  closing costs of  approximately  thirty low
     volume, unprofitable Sbarro quick service locations that we are planning to
     close in the third and fourth  quarter of fiscal 2002  (seventeen  of those
     units have been closed to date in the third quarter). The net book value of
     approximately  one-half  of the  units to be  closed  was  included  in the
     provision for asset impairment  recorded in fiscal 2001. The balance of the
     provision  in both  periods of fiscal 2002 relate to costs that either were
     not included in the provision for asset  impairment  recorded in the fourth
     quarter of fiscal 2001 or which were not absorbed by amounts  received from
     landlords in connection with such closings.

5.   LONG-TERM DEBT:

     We were in compliance  with the various  covenants in the Indenture for our
     Senior  Notes,  our Bank Credit  Agreement  and our Mortgage as of July 14,
     2002.

     Under the  Indenture  under which our Senior  Notes are issued and our Bank
     Credit  Agreement,  there are various  covenants  that limit our ability to
     borrow funds in addition to lending  arrangements that existed  immediately
     after the date of the  going  private  transaction  in  September  1999 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 (except
     under specifically permitted  arrangements,  such as up to $75.0 million of
     revolving  credit  loans),  our  consolidated  interest  ratio coverage (as
     defined),  after  giving  pro  forma  effect  to the  interest  on the  new
     borrowing,  for the four most  recently  ended fiscal  quarters  must be at
     least 2.5 to 1. In order to make restricted payments,  our ratio must be at
     least 2.0 to 1, after giving pro forma effect to the restricted payment. As
     of July  14,  2002,  that  ratio  was  1.94 to 1. As a  result,  we are not
     presently  able  to  borrow  funds  (other  than   specifically   permitted
     indebtedness,  including up to $75.0 million of revolving  credit loans) or
     make restricted payments.

6.   INCOME TAXES:

     During  the   twenty-eight   weeks  ended  July  14,  2002,   we  made  tax
     distributions,  based on our tax basis  income  for  fiscal  2001,  of $3.1
     million  compared to $7.6  million of tax  distributions,  based on our tax
     basis income for fiscal 2000, during the twenty-eight  weeks ended July 15,
     2001. There were no tax distributions  during the second quarters of fiscal
     2002 or fiscal 2001.


                                     Pg. 12

<PAGE>

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

7.   RELATED PARTY AND OTHER TRANSACTIONS:

     As of July 14, 2002, we sold the assets of a Sbarro-owned  location that we
     intended to close to a corporation whose shareholder is the  brother-in-law
     of  Mario  Sbarro  for  $88,900.  The  sales  price  resulted  in a loss of
     approximately  $64,000  that is included in the  provision  for  restaurant
     closings in the statement of operations. At the same time, that corporation
     entered into a franchise agreement with us with an initial franchise fee, a
     continuing  royalty  percentage  and other  terms and  conditions  that are
     similar to most of our other franchisees.  We received promissory notes for
     each of the purchase price and initial  franchise fee that are payable over
     seven  years and bears  interest  on the  unpaid  principal  balance  at 7%
     interest per annum.

     As of March 28, 2002, we sold, for nominal  consideration,  the assets of a
     Mama Sbarro  location to an  unrelated  third  party.  The  purchaser  also
     entered into a joint  venture  agreement  with Sbarro that provides for the
     quarterly  distribution of a 50% profit participation,  as defined, if any.
     Losses incurred in any year only offset income of the year of the loss. The
     location was closed for  renovation  for the majority of the second quarter
     and, as such,  did not generate  significant  distributable  net income.  A
     second unit was sold to the same unrelated  third party under similar terms
     and conditions,  including the profit participation  agreement,  as of July
     31, 2002.  In addition,  we are to lend up to $50,000 to the  purchaser for
     the  remodeling  of the  second  location  sold.  Any loan is to be  repaid
     monthly from the cash flow of the restaurant, together with interest at the
     Citibank  prime rate  (4.75% at July 14,  2002) plus 2%. In no event is the
     loan due later than August 2007.  No amounts have been loaned to date.  The
     net  book  value  of both of  these  locations  had  been  included  in the
     provision for restaurant impairment recorded in fiscal 2001.

8.   CONTINGENCIES:

     On December 20, 1999,  twelve current and former general managers of Sbarro
     restaurants  in  California  amended a  complaint  against  us filed in the
     Superior Court of California for Orange County.  The complaint alleges that
     the plaintiffs  were  improperly  classified as exempt  employees under the
     California  wage and hour law. The plaintiffs  are seeking actual  damages,
     punitive damages and costs of the lawsuit,  including reasonable attorney's
     fees, each in unspecified amounts. Plaintiffs filed a motion to certify the
     lawsuit as a class action, but the court denied the motion. We believe that
     we have  substantial  defenses to the claims and are  vigorously  defending
     this action.

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


                                     Pg. 13

<PAGE>

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

8.   CONTINGENCIES (CONTINUED):

     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 are represented by the same counsel who is
     representing  the  plaintiffs  in  the  case  discussed  in  the  preceding
     paragraph.  We believe that we have substantial  defenses to the claims and
     are vigorously defending this action.

     On March 22, 2002,  five former general  managers of Sbarro  restaurants in
     California filed a complaint against us in the Superior Court of California
     for Los Angeles  County.  The complaint  alleges that the  plaintiffs  were
     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.  We
     believe that we have substantial  defenses to the claims and are vigorously
     defending this action.

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

9.   GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS:

     Certain  subsidiaries have guaranteed amounts  outstanding under the Senior
     Notes and Credit  Agreement.  Each of the guaranteeing  subsidiaries is our
     direct  or  indirect  wholly  owned  subsidiary  and  each  has  fully  and
     unconditionally  guaranteed the Senior Notes and the Credit  Agreement on a
     joint and several basis.

     The following condensed consolidating financial information presents:

     (1)  Condensed consolidating balance sheets as of July 14, 2002 (unaudited)
          and December 30, 2001 and  statements  of income for the  twenty-eight
          and twelve  weeks  ended July 14, 2002  (unaudited)  and July 15, 2001
          (unaudited) and cash flows for the  twenty-eight  weeks ended July 14,
          2002  (unaudited) and July 15, 2001  (unaudited) of (a) Sbarro,  Inc.,
          the  parent,  (b)  the  guarantor  subsidiaries  as a  group,  (c) the
          nonguarantor  subsidiaries  as  a  group  and  (d)  the  Company  on a
          consolidated basis, and

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

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


                                     Pg. 14

<PAGE>

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

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

                           CONSOLIDATING BALANCE SHEET
                               AS OF JULY 14, 2002
                        (IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)

                                     ASSETS

<TABLE>
<CAPTION>

                                                             GUARANTOR      NONGUARANTOR                   CONSOLIDATED
                                              PARENT       SUBSIDIARIES     SUBSIDIARIES    ELIMINATIONS       TOTAL
                                              ------       ------------     ------------    ------------   ------------
<S>                                         <C>             <C>             <C>              <C>            <C>
Current assets:
  Cash and cash equivalents                 $  25,272       $   4,483       $     926                       $  30,681
  Restricted cash for untendered shares            21              --              --                              21
  Receivables less allowance for
    doubtful accounts of $175:
    Franchise                                   2,259              --              --                           2,259
    Other                                         675             962             160                           1,797
                                            ---------       ---------       ----------                      ---------
                                                2,934             962             160                           4,056

  Inventories                                   1,135           1,370             385                           2,890
  Loans receivable from shareholders            3,232              --              --                           3,232
  Prepaid expenses                              6,753           1,336             118                           8,207
                                            ---------       ---------       ----------                      ---------
    Total current assets                       39,347           8,151           1,589                          49,087

Intercompany receivables                       12,850         294,361              --        $(307,211)            --

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

Property and equipment, net                    45,290          66,720          11,533               --        123,543

Intercompany receivables - long term            3,608              --              --           (3,608)            --

Intangible assets:
    Trademarks and tradenames, net            195,916              --              --               --        195,916
    Goodwill, net                               9,324              --              --             (120)         9,204
    Deferred financing costs, net               6,841             288              --               --          7,129

Loans receivable from shareholders              2,800              --              --               --          2,800

Other assets                                    8,634           1,677            (612)          (2,357)         7,342
                                            ---------       ---------       ----------       ----------     ---------

                                            $ 390,079       $ 371,197       $  12,510        $(378,765)     $ 395,021
                                            =========       =========       ==========       ==========     =========

</TABLE>


                                     Pg. 15

<PAGE>

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

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

                           CONSOLIDATING BALANCE SHEET
                               AS OF JULY 14, 2002
                        (IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)

                       LIABILITIES AND SHAREHOLDERS EQUITY

<TABLE>
<CAPTION>

                                                             GUARANTOR      NONGUARANTOR                   CONSOLIDATED
                                              PARENT       SUBSIDIARIES     SUBSIDIARIES    ELIMINATIONS       TOTAL
                                              ------       ------------     ------------    ------------   ------------
<S>                                         <C>             <C>             <C>              <C>            <C>
Current liabilities:
   Amounts due for untendered shares        $      21                                                       $      21
   Accounts payable                            10,672        $     209        $     841                        11,722
   Accrued expenses                            18,223             (754)           2,257                        19,726
   Accrued interest payable                     9,260               --               --                         9,260
   Current portion of mortgage payable             --              149               --                           149
                                            ----------       ----------       ----------                    ---------
     Total current liabilities                 38,176             (396)           3,098                        40,878

Intercompany payables                         294,361               --           12,850        $(307,211)          --

Deferred rent                                   8,053               --              697               --        8,750

Long-term debt, net of
   original issue discount                    252,274           15,558               --               --      267,832

Intercompany payables - long term                  --            3,608               --           (3,608)          --

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)               (202,866)         286,958           (6,612)              --       77,480
                                            ----------       ----------       ----------       ----------   ---------

                                             (202,785)         352,427           (4,135)         (67,946)      77,561
                                            ----------       ----------       ----------       ----------   ---------

                                            $ 390,079        $ 371,197        $  12,510        $(378,765)   $ 395,021
                                            ==========       ==========       ==========       ==========   =========

</TABLE>


                                     Pg. 16

<PAGE>

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

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

                           CONSOLIDATING BALANCE SHEET
                             AS OF DECEMBER 30, 2001
                        (IN THOUSANDS EXCEPT SHARE DATA)
                                     ASSETS

<TABLE>
<CAPTION>

                                                             GUARANTOR      NONGUARANTOR                   CONSOLIDATED
                                              PARENT       SUBSIDIARIES     SUBSIDIARIES    ELIMINATIONS       TOTAL
                                              ------       ------------     ------------    ------------   ------------
<S>                                         <C>             <C>             <C>              <C>            <C>
Current assets:
   Cash and cash equivalents                $  29,673       $   5,437        $   1,842                      $  36,952
   Restricted cash for untendered                  45              --               --                             45
     shares
   Receivables less allowance for
     doubtful accounts of $175:
     Franchise                                  2,162              --               --                          2,162
     Other                                      2,069             613              115                          2,797
                                            ---------        ---------        ---------                      --------
                                                4,231             613              115                          4,959

   Inventories                                  1,413           1,771              353                          3,537
   Prepaid expenses                             1,916            (530)            (144)                         1,242
                                            ---------        ---------        ---------                      --------
     Total current assets                      37,278           7,291            2,166                         46,735

Intercompany receivables                       12,079         281,438               --        $(293,517)           --

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

Property and equipment, net                    46,554          73,659           12,090               --       132,303

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

Intangible assets:
   Trademarks and tradenames, net             195,916              --               --               --       195,916
   Goodwill, net                                9,204              --               --               --         9,204
   Deferred financing costs, net                7,398             309               --               --         7,707

Loans receivable from shareholders              6,032              --               --               --         6,032

Other assets                                    8,065           1,852             (576)          (2,476)        6,865
                                            ---------       ----------       ----------       ----------    ---------
                                            $ 391,895       $ 364,549        $  13,680        $(365,362)    $ 404,762
                                            =========       ==========       ==========       ==========    =========

</TABLE>


                                     Pg. 17
<PAGE>

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

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


                           CONSOLIDATING BALANCE SHEET
                             AS OF DECEMBER 30, 2001
                        (IN THOUSANDS EXCEPT SHARE DATA)
                       LIABILITIES AND SHAREHOLDERS EQUITY

<TABLE>
<CAPTION>

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

Current liabilities:
   Amounts due for untendered shares        $      45                                                       $      45
   Accounts payable                             8,014        $     164        $     929                         9,107
   Accrued expenses                            19,392            1,824            3,432                        24,648
   Accrued interest payable                     8,181               --               --                         8,181
   Current portion of mortgage payable             --              140               --                           140
                                             ---------        --------         ---------                    ---------
     Total current liabilities                 35,632            2,128            4,361                        42,121

Intercompany payables                         281,438               --           12,078        $(293,516)          --

Deferred rent                                   7,512               --              967               --        8,479

Long-term debt, net of
   original issue discount                    252,070           15,648               --               --      267,718

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

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)               (184,838)         277,404           (6,203)              --       86,363
                                            ----------       ---------        ----------       ----------   ---------

                                             (184,757)         342,873           (3,726)         (67,946)      86,444
                                            ----------       ---------        ----------       ----------   ---------

                                            $ 391,895        $ 364,549        $  13,680        $(365,362)   $ 404,762
                                            ==========       =========        ==========       ==========   =========

</TABLE>


                                     Pg. 18
<PAGE>

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

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


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

<TABLE>
<CAPTION>

                                                             GUARANTOR      NONGUARANTOR                   CONSOLIDATED
                                              PARENT       SUBSIDIARIES     SUBSIDIARIES    ELIMINATIONS       TOTAL
                                              ------       ------------     ------------    ------------   ------------
<S>                                         <C>             <C>             <C>              <C>            <C>
Revenues:
   Restaurant sales                         $  72,797       $  90,905       $  12,746                       $ 176,448
   Franchise related income                     5,075              --              --                           5,075
   Real estate and other                        1,464           2,035              --       $    (484)          3,015
   Intercompany charges                            --           7,440              --          (7,440)             --
                                            ----------      ----------      ---------       ----------      ----------
         Total revenues                        79,336         100,380          12,746          (7,924)        184,538
                                            ----------      ----------      ---------       ----------      ----------

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

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

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

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

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

Net income (loss)                           $ (14,903)      $   9,554       $    (409)      $      --       $  (5,758)
                                            ==========      ==========      ==========      ==========      ==========

</TABLE>


                                     Pg. 19
<PAGE>


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

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

                      CONSOLIDATING STATEMENT OF OPERATIONS
                 FOR THE TWENTY-EIGHT WEEKS ENDED JULY 15, 2001
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                             GUARANTOR      NONGUARANTOR                   CONSOLIDATED
                                              PARENT       SUBSIDIARIES     SUBSIDIARIES    ELIMINATIONS       TOTAL
                                              ------       ------------     ------------    ------------   ------------
<S>                                         <C>             <C>             <C>              <C>            <C>
Revenues:
   Restaurant sales                         $  79,250       $  95,409          14,063                       $ 188,722
   Franchise related income                     5,222              --              --                           5,222
   Real estate and other                        1,591           1,678              --                           3,269
   Intercompany charges
                                                   --           6,345              --       $  (6,345)              --
                                            ----------      ----------      ----------      ----------       ----------
         Total revenues                        86,063         103,432          14,063          (6,345)         197,213
                                            ----------      ----------      ----------      ----------       ----------

Cost and expenses:
   Restaurant operating expenses:
       Cost of food and paper products         14,612          20,054           3,841              --           38,507
       Payroll and other employee
         benefits                              20,492          27,427           4,712              --           52,631
       Other operating costs                   26,968          31,461           5,123              --           63,552
   Depreciation and amortization                8,881           7,337             759              --           16,977
   General and administrative                   6,671           9,214             434              --           16,319
   Provision for restaurant closings            1,215              --             250              --            1,465
   Intercompany charges                         6,345              --              --          (6,345)              --
                                            ----------      ----------      ----------      ----------       ----------
       Total costs and expenses                85,184          95,493          15,119          (6,345)         189,451
                                            ----------      ----------      ----------      ----------       ----------

Operating income (loss) before minority
   interest                                       879           7,939          (1,056)             --            7,762
Minority interest                                  --              --              (2)             --               (2)
                                            ----------      ----------      ----------      ----------       ----------
Operating income (loss)                           879           7,939          (1,058)             --            7,760
                                            ----------      ----------      ----------      ----------       ----------

Other (expense) income:
   Interest expense                           (16,085)           (800)           (865)            865          (16,885)
   Interest income                              1,358              --              --            (865)             493
   Equity in net income  of
     unconsolidated affiliates                    125              --              --              --              125
                                            ----------      ----------      ----------      ----------       ----------

Net other expense                             (14,602)           (800)           (865)             --          (16,267)
                                            ----------      ----------      ----------      ----------       ----------

Income (loss) before income taxes             (13,723)          7,139          (1,923)             --           (8,507)
Income taxes (benefit)                             38             206             (44)             --              200
                                            ----------      ----------      ----------      ----------       ----------

Net income (loss)                           $ (13,761)      $   6,933       $  (1,879)      $      --       $   (8,707)
                                            ==========      ==========      ==========      ==========       ==========

</TABLE>


                                     Pg. 20
<PAGE>

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

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


                      CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE TWELVE WEEKS ENDED JULY 14, 2002
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                             GUARANTOR      NONGUARANTOR                   CONSOLIDATED
                                              PARENT       SUBSIDIARIES     SUBSIDIARIES    ELIMINATIONS       TOTAL
                                              ------       ------------     ------------    ------------   ------------
<S>                                         <C>             <C>             <C>              <C>            <C>
Revenues:
   Restaurant sales                         $ 31,384        $ 38,702        $  5,593                        $ 75,679
   Franchise related income                    2,332              --              --                           2,332
   Real estate and other                         655             874              --        $   (208)          1,321
   Intercompany charges                           --           3,390              --          (3,390)             --
                                            ---------       ---------       ---------       ---------       ---------
         Total revenues                       34,371          42,966           5,593          (3,598)         79,332
                                            ---------       ---------       ---------       ---------       ---------

Cost and expenses:
   Restaurant operating expenses:
       Cost of food and paper products         5,450           7,932           1,464              --          14,846
       Payroll and other employee
         benefits                              9,369          10,145           2,053              --          21,567
       Other operating costs                  10,215          14,815           1,630              --          26,660
   Depreciation and amortization               2,190           2,625             273              --           5,088
   General and administrative                  3,097           2,557              98            (208)          5,544
   Provision for restaurant closings           1,970              --             135              --           2,105
   Intercompany charges                        3,390              --              --          (3,390)             --
                                            ---------       ---------       ---------       ---------       ---------
         Total costs and expenses             35,681          38,074           5,653          (3,578)         75,810
                                            ---------       ---------       ---------       ---------       ---------

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

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

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

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

Net income (loss)                           $ (7,762)       $  4,503        $    (78)       $     --        $ (3,337)
                                            =========       =========       =========       =========       =========

</TABLE>


                                     Pg. 21
<PAGE>

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

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

                      CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE TWELVE WEEKS ENDED JULY 15, 2001
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                             GUARANTOR      NONGUARANTOR                   CONSOLIDATED
                                              PARENT       SUBSIDIARIES     SUBSIDIARIES    ELIMINATIONS       TOTAL
                                              ------       ------------     ------------    ------------   ------------
<S>                                         <C>             <C>             <C>              <C>            <C>
Revenues:
   Restaurant sales                         $ 34,388        $ 40,822        $  5,806                        $ 81,016
   Franchise related income                    2,030              --              --                           2,030
   Real estate and other                         790             631              --                           1,421
   Intercompany charges                           --           2,538              --        $ (2,538)             --
                                            ---------       ---------       ---------       ---------       ---------
         Total revenues                       37,208          43,991           5,806          (2,538)         84,467
                                            ---------       ---------       ---------       ---------       ---------

Cost and expenses:
   Restaurant operating expenses:
       Cost of food and paper products         6,375           8,615           1,589              --          16,579
       Payroll and other employee
         benefits                              8,607          11,811           1,902              --          22,320
       Other operating costs                  11,921          13,321           2,190              --          27,432
   Depreciation and amortization               3,900           3,166             311              --           7,377
   General and administrative                  2,169           4,436             130              --           6,735
   Provision for restaurant closings           1,140              --             250              --           1,390
   Intercompany charges                        2,538              --              --          (2,538)             --
                                            ---------       ---------       ---------       ---------       ---------
         Total costs and expenses             36,650          41,349           6,372          (2,538)         81,833
                                            ---------       ---------       ---------       ---------       ---------

Operating income (loss) before minority
   Interest                                      558           2,642            (566)             --           2,634
Minority interest                                 --              --             (10)             --             (10)
                                            ---------       ---------       ---------       ---------       ---------
Operating income (loss)                          558           2,642            (576)             --           2,624
                                            ---------       ---------       ---------       ---------       ---------

Other (expense) income:
   Interest expense                           (6,894)           (343)           (394)            394          (7,237)
   Interest income                               495              --              --            (394)            101
   Equity in net income  of
     unconsolidated affiliates                    39              --              --              --              39
                                            ---------       ---------       ---------       ---------       ---------

Net other expense                             (6,360)           (343)           (394)             --          (7,097)
                                            ---------       ---------       ---------       ---------       ---------

Income (loss) before income taxes             (5,802)          2,299            (970)             --          (4,473)
Income taxes (benefit)                            87              52             (14)             --             125
                                            ---------       ---------       ---------       ---------       ---------

Net income (loss)                           $ (5,889)       $  2,247        $   (956)       $     --        $ (4,598)
                                            =========       =========       =========       =========       =========

</TABLE>


                                     Pg. 22
<PAGE>

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

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

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

<TABLE>
<CAPTION>

                                                             GUARANTOR      NONGUARANTOR                   CONSOLIDATED
OPERATING ACTIVITIES                          PARENT       SUBSIDIARIES     SUBSIDIARIES    ELIMINATIONS       TOTAL
--------------------                          ------       ------------     ------------    ------------   ------------
<S>                                         <C>             <C>             <C>              <C>            <C>
Net (loss) income                           $(14,903)       $  9,554        $   (409)                       $ (5,758)
Adjustments to reconcile net (loss)
   income to net cash (used in)
   provided by operating activities:
      Depreciation and amortization            5,879           6,178             638                          12,695
      Provision for restaurant closings        1,729              --              --                           1,729
      Increase in deferred rent, net             372             (88)             70                             354
      Minority interest                           --              --              33                              33
      Equity in income of
       unconsolidated affiliates                (545)             --              --                            (545)
    Dividends received from
     unconsolidated affiliates                   311              --              --                             311
    Changes in operating assets
     and liabilities:
     Decrease (increase) in receivables        1,298            (349)            (46)                            903
     Decrease (increase) in inventories          278             401             (32)                            647
     Increase in prepaid assets               (4,837)         (1,866)           (262)                         (6,965)
     (Increase) decrease in other
      assets                                    (327)            262              35        $   (120)           (150)
     (Decrease) increase in accounts
       payable and accrued expenses             (148)         (1,722)         (1,595)            120          (3,345)
     Increase in accrued interest
       payable
                                                                                                            --------
                                               1,079              --              --              --           1,079
                                            ---------       ---------       ---------       ---------       ---------

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

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

Net cash (used in) provided by
     investing activities                     (3,939)            (33)            (81)             --          (4,053)

</TABLE>


                                     Pg. 23
<PAGE>

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

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

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

<TABLE>
<CAPTION>

                                                             GUARANTOR      NONGUARANTOR                   CONSOLIDATED
                                              PARENT       SUBSIDIARIES     SUBSIDIARIES    ELIMINATIONS       TOTAL
                                              ------       ------------     ------------    ------------   ------------
<S>                                         <C>             <C>             <C>              <C>            <C>
Financing activities:
---------------------
Mortgage principal repayments                     --             (81)             --                 --            (81)
Distributions to shareholders                 (3,125)             --              --                 --         (3,125)
Intercompany balances                         12,477         (13,210)            733                 --             --
                                            ---------       ---------       ---------       -----------       ---------
Net cash (used in) provided
   by financing activities                     9,352         (13,291)            733                 --         (3,206)
                                            ---------       ---------       ---------       -----------       ---------

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

Supplemental disclosure of cash flow
  information:
Cash paid during the period for
  income taxes                              $    293        $    190        $     --        $        --       $    483
                                            =========       =========       =========       ===========       =========
Cash paid during the period for
  interest                                  $ 14,120        $    772        $     --        $        --       $ 14,892
                                            =========       =========       =========       ===========       =========

</TABLE>


                                     Pg. 24
<PAGE>

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

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

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                 FOR THE TWENTY-EIGHT WEEKS ENDED JULY 15, 2001
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                             GUARANTOR      NONGUARANTOR                   CONSOLIDATED
OPERATING ACTIVITIES:                         PARENT       SUBSIDIARIES     SUBSIDIARIES    ELIMINATIONS       TOTAL
---------------------                         ------       ------------     ------------    ------------   ------------
<S>                                         <C>             <C>             <C>              <C>            <C>
Net (loss) income                           $(13,761)          $  6,933           $ (1,879)                 $ (8,707)
Adjustments to reconcile net (loss)
  income to net cash (used in)
  provided  by operating activities:
  Depreciation and amortization                9,647              7,359                756                    17,762
  Provision for unit closing                   1,061                249              1,310
  Increase in deferred rent, net                 390               (169)                --                       221
  Minority interest                               --                 --                  2                         2
  Equity in income of unconsolidated
    affiliates                                  (125)                --                 --                      (125)
  Dividends received from
    unconsolidated affiliates                    244                 --                 --                       244
  Changes in operating assets and
    liabilities:
    (Increase) decrease in receivables          (690)               (94)                13                      (771)
    Decrease in inventories                      188                245                  1                       434
    (Increase) decrease in prepaid
    expenses                                  (4,113)            (1,309)                95                    (5,327)
    Decrease (increase) in other assets        3,060             (4,076)               124                      (892)
    (Decrease) increase in accounts
    payable and accrued expenses              (8,032)             3,479                188                    (4,365)
    Increase in accrued interest
    payable                                    1,247                 --                 --                     1,247
                                            ---------          ---------          ---------                 ---------

Net cash (used in) provided by
  operating activities                       (10,884)            12,368               (451)                    1,033

Investing activities:
Purchase of property and equipment            (3,787)            (4,807)            (2,935)                  (11,529)
                                            ---------          ---------          ---------                 ---------

Net cash used in investing activities         (3,787)            (4,807)            (2,935)                  (11,529)

</TABLE>


                                     Pg. 25
<PAGE>

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

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

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                 FOR THE TWENTY-EIGHT WEEKS ENDED JULY 15, 2001
                                 (IN THOUSANDS)
                                   (UNAUDITED)

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

Mortgage principal repayments                               $    (74)                                       $    (74)
Purchase of minority interest in
  joint venture                             $ (1,000)             --                                          (1,000)
Loan to shareholders                          (3,932)             --                                          (3,932)
Repayment to shareholder loans                   700              --                                             700
Distributions to shareholders                (12,564)             --                                         (12,564)
Intercompany balances                          4,475          (7,898)          $  3,423                           --
                                            ---------       ---------          --------                     ---------
Net cash (used in) provided
   by financing activities                   (12,321)         (7,972)             3,423                      (16,870)
                                            ---------       ---------          --------                     ---------

(Decrease) increase in cash and
  cash equivalents                           (26,990)           (411)                37                      (27,366)
Cash and cash equivalents at
  Beginning of period                         36,963           4,232              1,124                       42,319
                                            ---------       ---------          --------                     ---------
Cash and cash equivalents at
  end of period                             $  9,973        $  3,819           $  1,161                     $ 14,953
                                            =========       =========          =========                    =========

Supplemental disclosure of cash flow
  information:
Cash paid during the period for
  income taxes                              $    223        $    447           $      7                     $    677
                                            =========       =========          =========                    =========
Cash paid during the period for
  Interest                                  $ 14,050        $    800           $     --                     $ 14,850
                                            =========       =========          =========                    =========

</TABLE>


                                     Pg. 26
<PAGE>

ITEM2.    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 ENDED          12 WEEKS ENDED              FISCAL YEAR
                                                       7/14/02     7/15/01      7/14/02       7/15/01       2001       2000
                                                       -------     -------      -------       -------       ----       ----
     <S>                                                  <C>        <C>        <C>            <C>         <C>         <C>
     Company-owned restaurants:
       Opened during period                                 3          3          1              2           9          13
       Acquired from (sold to) franchisees during
       period-net                                          (1)        --         (1)            --          --           1
       Closed during period (1)                           (19)       (29)        (8)           (15)        (43)        (16)
                                                         -----      -----      -----          -----       -----       -----
       Open at end of period (2)                          585        610        585            610         602         636

     Franchised restaurants:
       Opened during period                                15         13          8              5          42          36
       Purchased from (sold to) Company during
       period-net                                           1         --          1             --          --          (1)
       Closed or terminated during period                 (13)        (5)        (5)            (3)        (20)        (18)
                                                         -----      -----      -----          -----       -----       -----
       Open at end of period                              328        311        328            311         325         303

     All restaurants:
       Opened during period                                18         16          9              7          51          49
       Closed or terminated during period (1)             (31)       (34)       (13)           (18)        (63)        (34)
                                                         -----      -----      -----          -----       -----       -----
       Open at end of period (2)                          913        921        913            921         927         939

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

</TABLE>

----------

(1)  In  addition,  we are  planning  to  close  approximately  30  low  volume,
     unprofitable  Sbarro  locations in the third and fourth  quarters of fiscal
     2002  (seventeen  of those  units  have  been  closed  to date in the third
     quarter).  See Note 4 of the "Notes to the Unaudited Consolidated Financial
     Statements"  for  information on the effect of the planned  closings on our
     consolidated financial statements.
(2)  Excludes 34, 35, 37 and 33 other  concept  units as of July 14, 2002,  July
     15, 2001, the end of fiscal 2001 and the end of fiscal 2000,  respectively,
     one of which was  closed in late July 2002 (see Note 7 of the "Notes to the
     Unaudited Consolidated Financial Statements").


                                     Pg. 27
<PAGE>

Our  business  is subject to  seasonal  fluctuations,  the effect of weather and
economic  conditions and consumer  confidence in shopping safety.  Earnings have
been highest in our fourth fiscal  quarter due primarily to increased  volume in
shopping  malls during the holiday  shopping  season.  Historically,  the fourth
fiscal  quarter has  accounted  for  approximately  40% of annual  operating net
income before amortization of intangible assets and any provision for restaurant
closings or asset  impairment.  This percentage  fluctuates due to the length of
the holiday shopping period between  Thanksgiving and New Year's Day, the number
of weeks in our fourth quarter,  weather and economic conditions and our results
of operations in earlier quarters.

Our consolidated EBITDA for the twenty-eight weeks ended July 14, 2002 was $22.8
million and our EBITDA  margin was 12.4%,  compared to $24.9  million and 12.6%,
respectively  for the  twenty-eight  weeks ended July 15, 2001. Our consolidated
EBITDA for the twelve  weeks ended July 14, 2002 was $8.9 million and our EBITDA
margin was 11.2%,  compared to $10.0  million and 11.9%,  respectively,  for the
twelve weeks ended July 15, 2001.  EBITDA  represents  earnings  before interest
income,  interest expense, taxes,  depreciation and amortization.  EBITDA margin
represents EBITDA divided by total revenues.  EBITDA should not be considered in
isolation from, or as a substitute for, net income, cash flow from operations or
other cash flow  statement data prepared in accordance  with generally  accepted
accounting  principles ("GAAP") or as a measure of a company's  profitability or
liquidity.  Rather,  EBITDA  is  presented  because  it  is  a  widely  accepted
supplemental  financial  measure,  and we believe that it provides  relevant and
useful  information.  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.

Restaurant sales from  Sbarro-owned  quick service units and consolidated  other
concept units decreased 6.5% to $176.4 million for the twenty-eight  weeks ended
July 14, 2002 from $188.7 million for the twenty-eight weeks ended July 15, 2001
and  decreased  6.6% to $75.7  million for the twelve  weeks ended July 14, 2002
from $81.0  million in the twelve  weeks ended July 15,  2001.  The  decrease in
sales for the twenty-eight weeks ended July 14, 2002 resulted from $11.1 million
lower  sales of Sbarro  quick  service  units and $1.2  million  lower  sales of
consolidated  other concept  units.  Of the decline in Sbarro quick service unit
restaurant sales for the twenty-eight weeks, approximately $7.3 million resulted
from a 4.5% decrease in comparable unit sales to $156.0 million. The decrease in
sales for the twelve weeks ended July 14, 2002 reflects $5.2 million lower sales
of Sbarro quick service units and $0.1 million lower sales of consolidated other
concept units. Of the decline in Sbarro quick service unit restaurant  sales for
the twelve weeks,  approximately  $3.5 million  resulted from a 4.9% decrease in
comparable unit sales to $67.0 million. We believe this decline was attributable
to a reduction in shopping mall traffic related to the general economic downturn
in the United States and the further  impact of the events of September 11, 2001
offset,  in part, by price increases of 0.7% and 3.3%  implemented in late March
2001 and mid-June 2001, respectively. Comparable restaurant sales are made up of
sales at  locations  that were open during the entire  current and prior  fiscal
years.  Since the end of the first  quarter  of fiscal  2001,  we closed 38 more
units than we opened,  causing the  remaining  $3.8 million and $1.7 million net
reduction in Sbarro quick service


                                     Pg. 28
<PAGE>

unit sales for the twenty-eight weeks and twelve weeks, respectively, ended July
14,  2002.  The units  closed  since the  beginning  of  fiscal  2001,  with the
exception of our high volume  owned unit  destroyed in the collapse of the World
Trade Center on September 11, 2001,  were  generally  low volume,  unprofitable,
units  that did not have a material  impact on our  results  of  operations.  In
addition,  during the first quarter of fiscal 2002, we closed three consolidated
other concept units, which resulted in a net sales reduction of $1.8 million and
$0.8  million  from sales at those  locations  for the  twenty-eight  and twelve
weeks, respectively, of fiscal 2002.

Excluding  approximately  $0.3  million  related to the  termination  of an area
development  agreement  for Egypt  during  the  first  quarter  of fiscal  2001,
franchise  related  income  increased 3.5% to $5.1 million from $4.9 million for
the twenty eight weeks ended July 14, 2002 and  increased  14.9% to $2.3 million
for the twelve  weeks ended July 14,  2002 from $2.0  million in the twelve week
period ended July 15, 2001. The increases for both the  twenty-eight  and twelve
weeks periods ended July 14, 2002 as compared to the same periods in fiscal 2001
were due to increases in both royalty and non-royalty revenues.  The increase in
non-royalty revenues was due to a slight increase in the number of unit openings
in fiscal 2002, an increase in the average fee per unit and  franchise  transfer
fees  recorded  in the  second  fiscal  quarter of 2002,  partially  offset by a
reduction in income recognized from existing area development agreements in both
the twenty-eight and twelve week periods of fiscal 2002 than in both of the same
periods of fiscal 2001.  Royalty  revenues from locations  opened in fiscal 2002
and fiscal 2001 offset the reduction in royalty revenues from pre-existing units
caused  by to a  reduction  in  comparable  unit  sales  at  both  domestic  and
international locations.

Real estate and other revenues  decreased 7.8% and 7.0% in the  twenty-eight and
twelve weeks of 2002, respectively,  from the same periods in fiscal 2001 due to
decreases in certain vendor rebates.

Cost of food and paper products as a percentage of restaurant  sales improved to
19.8%  for the  twenty  eight  weeks  ended  July 14,  2002  from  20.4% for the
comparable 2001 period and improved to 19.6% for the twelve weeks ended July 14,
2002 from 20.5% for the comparable  2001 fiscal period.  The  improvements  were
primarily due to the benefit  derived from closing  locations in fiscal 2002 and
2001 that were not able to function as  efficiently  as our other quick  service
locations  due to their  low sales  volume  and to the  effect of lower  average
cheese prices in fiscal 2002.  Cheese prices,  which were, on average,  slightly
higher in first quarter of 2002, were significantly  lower in the second quarter
of 2002 than in the same period in 2001. The benefit from the decrease in cheese
prices was $0.5 million and $0.6 million for the  twenty-eight  and twelve weeks
of fiscal 2002 from the same  periods in fiscal 2001.  Cheese  prices to date in
the third quarter of fiscal 2002 continue to be significantly  lower than in the
comparable period in fiscal 2001.

Payroll and other employee  benefits  decreased by $2.6 million but increased to
28.4% from 27.9% as a percentage of restaurant sales for the twenty-eight  weeks
ended July 14, 2002  compared to the same period in fiscal 2001.  For the twelve
week period ended July 14, 2002,


                                     Pg. 29
<PAGE>

these costs  decreased  by $0.8  million but  increased to 28.5% from 27.6% as a
percentage of restaurant sales as compared to the comparable  twelve week period
in fiscal 2001.  The dollar  decreases were primarily due to the effect of steps
taken to reduce payroll costs  beginning in late fiscal 2001 and the closing the
locations  in fiscal 2002 and 2001.  The  percentage  increases  were due to the
reduced level of sales in each of the 2002 periods reported.

Other operating  expenses  decreased by $1.2 million,  but increased to 35.4% of
restaurant  sales, in the  twenty-eight  weeks ended July 14, 2002 from 33.7% in
the  twenty-eight  weeks ended July 15, 2001.  These expenses  decreased by $0.8
million,  but increased to 35.2% of restaurant  sales, in the twelve weeks ended
July 14,  2002 from 33.9% in the twelve  weeks ended July 15,  2001.  The dollar
decreases  resulted from the fewer  Sbarro-owned  units operating in our system.
The  percentage  increases in both periods of fiscal 2002 compared to the fiscal
2001  periods  were due to higher  rent and  other  occupancy  related  expenses
resulting  from the  renewal  of  existing  leases at the end of their  terms at
higher rental rates  compounded by the reduced level of sales.  In addition,  we
are  experiencing  increases in repair and maintenance  costs compared to fiscal
2001,  a  portion  of  which  relates  to the  cost of a  number  of  nationwide
maintenance  contracts entered into in late fiscal 2001 or early fiscal 2002 for
the repair of our  property  and  equipment.  Also,  as the  average  age of our
locations increase, overall repair and maintenance costs have been increasing.

Depreciation and amortization expense decreased by $5.1 million and $2.3 million
for the  twenty-eight  and twelve weeks,  respectively,  of fiscal 2002 from the
same periods in fiscal 2001. For the twenty-eight weeks of this fiscal year, the
reduction was due primarily to a $2.9 million reduction in amortization  expense
resulting from SFAS No. 142,  "Goodwill and Other  Intangible  Assets"  becoming
applicable  to us as of the  beginning of fiscal 2002, as well as a $1.2 million
reduction in  depreciation  and  amortization  related to locations  that closed
since the end of the first  quarter of fiscal  2001.  For the twelve week period
ended July 14, 2002, the reduction of amortization  due to the  applicability to
us of  SFAS  142  was  $1.3  million  and  the  reduction  in  depreciation  and
amortization  related to closed  locations was $0.4 million.  The balance of the
change in  depreciation  and  amortization  expense in each of the  fiscal  2002
reported  periods  relates to locations  that had been included in the provision
for asset  impairment  in fiscal  2001 for  which no  depreciation  was taken in
fiscal 2002 and to decreases in depreciation and amortization for locations that
became fully depreciated during either fiscal 2002 and 2001. Under SFAS No. 142,
we no longer amortize  goodwill and intangible assets with indefinite lives, but
rather  review  those assets  annually for  impairment  (or more  frequently  if
impairment indicators arise).  Separate intangible assets that are not deemed to
have indefinite  lives continue to be amortized over their useful lives. We have
completed  our  evaluation of goodwill and  intangible  assets  (trademarks  and
tradenames)  with  indefinite  lives  acquired  prior  to July 1,  2001  ($205.2
million,  net of accumulated  amortization at July 14, 2002). The evaluation did
not have an impact on our financial position and results of operations.

General  and  administrative  expenses  were  $12.7  million,  or 6.9% of  total
revenues,  for the twenty  eight  weeks ended July 14,  2002,  compared to $16.3
million,  or 8.3% of total revenues,  for the twenty-eight  weeks ended July 15,
2001. Those costs were $5.5 million, or 7.0% of total revenues,


                                     Pg. 30
<PAGE>

for the twelve weeks ended July 14, 2002,  compared to $6.7 million,  or 8.0% of
total  revenues,  for  the  twelve  weeks  ended  July  15,  2001.  General  and
administrative  costs for both periods of fiscal 2002 reflect decreases in field
management  costs  and a  reduction  in  corporate  staff  costs  due  to a cost
containment  program  which we  implemented  beginning in the fourth  quarter of
fiscal 2001.

During the  twenty-eight  weeks ended July 14, 2002, we recorded a provision for
restaurant closings of $2.2 million.  For the same twenty-eight weeks that ended
on July 15 in  fiscal  2001,  we  recorded  a  provision  of $1.5  million.  The
provisions  for the twelve weeks ended July 14, 2002 and July 15, 2001 were $2.1
million and $1.4 million,  respectively.  Of the  provisions  recorded in fiscal
2002, approximately $1.6 million was recorded in the twelve weeks ended July 14,
2002 for the net book  value  of the  property  and  equipment  and  anticipated
closing  costs of  approximately  thirty low volume,  unprofitable  Sbarro quick
service  locations that we are planning to close in the third and fourth quarter
of fiscal 2002  (seventeen  of those units have been closed to date in the third
quarter). The net book value of approximately one-half of the units to be closed
was included in the provision for asset impairment  recorded in fiscal 2001. The
balance of the provisions  recorded in both periods of 2002 relate to costs that
either were not included in the provision for asset  impairment  recorded in the
fourth  quarter of fiscal 2001 or which were not  absorbed  by amounts  received
from  landlords in connection  with such  closings.  The $1.4 million  provision
recorded in the second  quarter of fiscal 2001 related to certain  quick service
store  closings  and for the cost of  converting  our  Umberto  and Tony & Bruno
locations to our Mama Sbarro  concept.  Due to the seasonal nature of the Sbarro
quick service  locations,  we generally  measure  asset  impairment of our store
locations  after our full fiscal year  results,  unless  impairment  indications
arise earlier.

Minority interest represents the share of the minority holders' interests in the
combined  operations  or loss in the first  fiscal  quarter of each  fiscal year
reported  of the joint  venture in which we have a majority  interest.  In early
fiscal 2002, we closed one of the two locations owned by this joint venture. The
closed unit had a nominal  operating  loss in the first  quarter of fiscal 2002.
The provision for the closing of this unit, which was not material,  was made in
the fourth quarter of fiscal 2001.

Interest expense of $16.7 million and $16.9 million for the  twenty-eight  weeks
ended July 14, 2002 and July 15,  2001,  respectively,  and of $7.2  million for
each of the second fiscal  quarters of 2002 and 2001,  relate to the 11%, $255.0
million  Senior  Notes  issued to  finance  our  going  private  transaction  in
September  1999,  the  8.4%,  $16.0  million  mortgage  loan  on  our  corporate
headquarters in 2001 (the principal of which is being repaid at the rate of $0.1
million per quarter),  and fees for unused  borrowing  capacity under our Credit
Agreement.  Of these  amounts,  $0.7  million  and $0.4  million  in each of the
twenty-eight  weeks and  twelve  weeks  ended July 14,  2002 and July 15,  2001,
respectively,  represented  non-cash  charges for the  accretion of the original
issue discount on our Senior Notes and the  amortization  of deferred  financing
costs on the Senior Notes, Credit Agreement and the Mortgage loan.

Interest  income for the  twenty-eight  week period ended July 14, 2002 and July
15, 2001 was approximately $0.3 million and $0.5 million, respectively. Interest
income was  approximately  $0.1 million for the second  quarter of both the 2002
and 2001 fiscal years. The reduction in


                                     Pg. 31
<PAGE>

interest  income  reflects the reduced  availability  of cash for investment and
lower interest rates in effect during the first fiscal quarter of 2002 over 2001

Equity in the net income of  unconsolidated  affiliates  represents our share of
earnings  and  losses  in  those  new  concepts  in  which we have a 50% or less
ownership  interest.  The increase of $0.4  million and $0.2 million  during the
twenty-eight  and twelve  weeks  ended  July 14,  2002 as  compared  to the same
periods in fiscal 2001,  was primarily a result of improved  performance  of our
steakhouse  joint venture.  We have  determined that we will continue to develop
and expand  the  steakhouse  joint  venture  locations  but are  evaluating  the
disposition  of the  other  concepts  in which  we have a 50% or less  ownership
interest.

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.  Under the provisions of Subchapter S,  substantially all
taxes on our income is paid by our shareholders  rather than us. Our tax expense
$0.2 million for both the twenty-eight week periods ended July 14, 2002 and July
15, 2001 and $0.1  million for both twelve week periods then ended was for taxes
owed to  jurisdictions  that do not recognize S  corporation  status or that tax
entities based on factors other than income.

We reached an  agreement  in  principal  to settle our claim with our  insurance
company  in late  July  2002 for the  reimbursement  of the  cost of the  assets
destroyed at the Sbarro-owned  World Trade Center  location,  arising out of the
events of  September  11,  2001,  as well as for lost income  under our business
interruption  insurance  coverage.  During the third  quarter of fiscal 2002, we
anticipate  receiving the  remaining  tentative  settlement  of these  insurance
claims. As a result,  upon receipt,  we anticipate  recognizing  income,  net of
expenses,  of  approximately  $7.0  million.  Our  understanding  is  subject to
entering into a definitive settlement agreement.  There can be no assurance that
such agreement will be finalized.


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

We have  historically  not  required  significant  working  capital  to fund our
existing  operations and have financed our capital  expenditures and investments
in our joint ventures through cash generated from operations.  At July 14, 2002,
we had  unrestricted  cash and cash  equivalents  of $30.7  million  and working
capital of $8.2 million  compared to unrestricted  cash and cash  equivalents of
$15.0 and a working capital deficit of $7.7 million at July 15, 2001.

Net  cash  provided  by  operating  activities  was  $1.0  million  for both the
twenty-eight weeks ended July 14, 2002 and the twenty-eight weeks ended July 15,
2001. The $2.1 million decrease in EBITDA and an increase in prepaid expenses of
$1.6  million  was  offset by the $1.7  difference  in the  change  in  accounts
receivable  (primarily  due to the  receipt  of  $1.5  million  advance  for our
insurance  claim,  that had been recognized as a receivable at the end of fiscal
2001,  arising  out of the events at the World  Trade  Center on  September  11,
2001),  a lower decrease in other assets of $0.7 million and a lower decrease of
$1.0 million in the amount of accounts  payable and accrued  expenses.  Accounts
payable and accrued expenses are traditionally highest at the end of each of the
Company's  fiscal years which occurs at the end of the peak holiday season.


                                     Pg. 32
<PAGE>

Net cash used in  investing  activities  has  historically  been  primarily  for
capital  expenditures,  including  investments  made by our  consolidated  other
concepts.  Net cash used in investing activities declined from $11.5 million for
the twenty-eight  weeks ended July 15, 2001 to $4.1 million for the twenty-eight
weeks ended July 14, 2002  primarily  due to a decline in quick service new unit
openings  and  renovation   activity  and  a  reduction  in   expenditures   for
consolidated other concept locations.  Investing  activities in the twenty-eight
and twelve  weeks  ended July 14,  2002  include  $0.8  million  paid as part of
previously  committed  costs  of $2.3  million  relating  to an  upgrade  of our
computer systems.

Net cash used in  financing  activities  was $3.2  million for the  twenty-eight
weeks  ended July 14,  2002  compared  to net cash used of $16.9  million in the
comparable 2001 period. The reduced amount of cash used in financing  activities
in the twenty-eight  weeks of fiscal 2002 compared to the twenty-eight  weeks of
fiscal 2001 was due to a $4.4 million reduction in tax distributions  made under
a tax payment  agreement,  the  absence in fiscal 2002 of $3.2  million of loans
(net of $0.7 million of loan  repayments)  and $5.0  million of dividends  (made
outside of the Tax Payment  Agreement)  made to our  shareholders  in the fiscal
2001 period and the  absence of the $1.0  million  purchase  price paid by us as
part of the  settlement  of  litigation  in the fiscal  2001  period for the 20%
interest in the Umberto of New Hyde Park concept that we did not own.

We incur annual cash interest expense of  approximately  $29.7 million under our
Senior Notes and mortgage  loan and may incur  additional  interest  expense for
borrowings under our Credit  Agreement.  In addition to debt service,  we expect
that our other  liquidity  needs will  relate to capital  expenditures,  working
capital,  investments in other  ventures,  distributions  to shareholders to the
extent  permitted  under the  Indenture for the Senior Notes and the Bank Credit
Agreement and general corporate purposes.  We believe that aggregate  restaurant
capital  expenditures  and our  investments  in joint  ventures  during the next
twelve months will be significantly lower than levels in fiscal 2001.

We expect our primary sources of liquidity to meet these needs will be cash flow
from operations.  The planned closing of approximately 30 Sbarro quick - service
locations  in the third and fourth  quarter of fiscal  2002 is  expected,  after
termination payments to landlords, to increase liquidity as these units were low
volume,  under performing  units that had negative  EBITDA.  Also, at August 15,
2002, we had $28.1 million of undrawn  availability  under our Credit Agreement,
net of outstanding letters of credit and guarantees of reimbursement obligations
aggregating approximately $1.9 million.

Under the Indenture  under which our Senior Notes are issued and the Bank Credit
Agreement, there are various covenants that limit our ability to borrow funds in
addition to lending  arrangements  that existed at the date of the going private
transaction in September 1999 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 (except under
specifically  permitted  arrangements,  such as up to $75.0 million of revolving
credit loans),  our  consolidated  interest  ratio coverage (as defined),  after
giving pro forma effect to the interest on the new


                                     Pg. 33
<PAGE>

borrowing, for the four most recently ended fiscal quarters must be at least 2.5
to 1. In order to make restricted payments, our ratio must be at least 2.0 to 1,
after giving pro forma effect to the  restricted  payment.  As of July 14, 2002,
that ratio was 1.94 to 1. As a result, we are not presently able to borrow funds
(other than specifically permitted  indebtedness,  including up to $75.0 million
of revolving credit loans) or make restricted payments.

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

Our contractual  obligations and other  commercial  commitments  with respect to
both our Sbarro  quick  service and the other  concepts  (both those in which we
have a  majority  or  minority  interest)  do not  differ  materially  from  the
information disclosed in the Form 10-K for the 2001 fiscal year. Our Bank Credit
Agreement  had been amended in March 2002 to (a)  increase the required  maximum
ratio of Consolidated Senior Debt (as defined) at the end of a fiscal quarter to
Consolidated EBITDA (as defined) for the four fiscal quarters then ended that we
may have, such ratios ranging from 7.25 to 1 through the third quarter of fiscal
2002 to 4.50 to 1 after the third  quarter of fiscal  2003,  and (b) to decrease
the  required  minimum  ratio of  Consolidated  EBITDA (as defined) for the four
quarters ended on the  measurement  date to  Consolidated  Interest  Expense (as
defined) for the four quarters ended on the  measurement  date that we may have,
such ratios  ranging from 1.25 to 1 through the third  quarter of fiscal 2002 to
2.00 to 1 after the third quarter of fiscal 2003.


CRITICAL ACCOUNTING POLICIES
----------------------------

Accounting  policies are an integral  part of the  preparation  of our financial
statements in accordance with accounting  principles  generally  accepted in the
United States of America.  Understanding  these  policies,  therefore,  is a key
factor in  understanding  our  reported  results  of  operations  and  financial
position.  Certain critical accounting policies require us to make estimates and
assumptions  that  affect  the  amounts  of assets,  liabilities,  revenues  and
expenses reported in the financial  statements.  Due to their nature,  estimates
involve judgment based upon available information.  Therefore, actual results or
amounts  could differ from  estimates and the  difference  could have a material
impact on our consolidated  financial statements.  During the twenty-eight weeks
ended July 14,  2002,  there were no material  changes to the matters  discussed
under the  heading  "Critical  Accounting  Policies"  in Part II,  Item 7 of our
Annual Report on Form 10-K for the fiscal year ended December 30, 2001.


                                     Pg. 34
<PAGE>

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

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

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

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


                                     Pg. 35
<PAGE>

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


ITEM 3.   QUALITATIVE AND QUANTITATIVE DISCLOSURES OF MARKET RISK

We have historically invested our cash on hand in short term, fixed rate, highly
rated and  highly  liquid  instruments  which are  reinvested  when they  mature
throughout  the year.  The  Indenture  under  which our Senior  Notes are issued
limits 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 credit  facility (none are currently  outstanding)
will be at rates that float with the market and,  therefore,  will be subject to
fluctuations  in interest  rates.  Our $255.0 Senior Notes bear a fixed interest
rate of 11.0%.  We are not a party to,  and do not  expect  to enter  into,  any
interest rate swaps or other instruments to hedge interest rates.

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

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


                                     Pg. 36
<PAGE>

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

                                 Not applicable


                                     Pg. 37
<PAGE>

                                    SIGNATURE

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


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


Date:  August 23, 2002            By:     /s/ MARIO SBARRO
       ---------------                    --------------------------------------
                                          Mario Sbarro
                                          Chairman of the Board and President
                                          (Principal Executive Officer)


Date:  August 23, 2002            By:     /s/ STEVEN B. GRAHAM
       ---------------                    --------------------------------------
                                          Steven B. Graham
                                          Vice President and Controller
                                          (Principal Accounting Officer)


                                     Pg. 38