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                          SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C. 20549

                                       FORM 10-Q


  X  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

     For the quarter ended October 10, 1999     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 incorporation           (I.R.S. Employer
                  or organization)                      Identification No.)

 401 Broad Hollow Road, Melville, New York                         11747
    (Address of principal executive offices)                    (Zip Code)

Registrant's telephone number, including area code:            (516) 715-4100



         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the  preceding  12 months,  and (2) has been  subject to such filing
requirements for the past 90 days.

Yes      X                 No

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock as of the latest practicable date.

Class                                         Outstanding at November 22, 1999

Common Stock, $.01 par value                             7,064,328

--------------------------------------------------------------------------------


<PAGE>






                                                             SBARRO, INC.

                                                            FORM 10-Q INDEX

<TABLE>
<CAPTION>

<S>  <C>                                                                                       <C>
PART I.     FINANCIAL INFORMATION                                                            PAGES


Item 1.  Consolidated Financial Statements:

         Balance Sheets - October 10, 1999 (unaudited) and January 3, 1999 . . . . . . . . . .3-4

         Statements of Income  (unaudited)  - Forty Weeks ended October 10, 1999
             And October 4, 1998 and Twelve Weeks ended October 10, 1999 and
             October 4, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 5-6

         Statements of Cash Flows (unaudited) - Forty Weeks ended
              October 10, 1999 and October 4, 1998 . . . . . . . . . . . . . . . . . . . . . .7-8

         Notes to Unaudited Consolidated Financial Statements - October 10, 1999. .  . . . . .9-14

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
            of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15-25


Item 3.  Quantitative and Qualitative Disclosure about Market Risk . . . . . . . . . . . . . . .25


PART II.    OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
            -----------------

</TABLE>











                                                                 Pg. 2

<PAGE>

Item 1.  Consolidated Financial Statements:

                                                 SBARRO, INC. AND SUBSIDIARIES

                                                  CONSOLIDATED BALANCE SHEETS

                                                                ASSETS
<TABLE>
<CAPTION>

                                                                             (In thousands)
                                                               October 10, 1999          January 3, 1999
                                                                  (unaudited)
Current assets:
<S>                                                             <C>                                 <C>
     Cash and cash equivalents                                       $  8,518                      $150,472
     Restricted cash for untendered
        shares (See Note 2)                                             4,782                             -
     Receivables:
       Franchisees                                                      1,671                         1,342
       Other                                                            3,099                         2,185
                                                                -------------                 -------------
                                                                        4,770                         3,527

     Inventories                                                        2,855                         3,122

     Prepaid expenses                                                   6,352                         1,291
                                                               --------------                --------------

       Total current assets                                            27,277                       158,412


Property and equipment, net                                           138,978                       138,126

Other assets:

     Excess of purchase price over the cost
       of net assets acquired, net of
       accumulated amortization of
       $250 (See Note 2)                                              224,940                             -
     Deferred financing costs, net of accumulated
       amortization of $32 (See Note 3)                                 9,190                             -
     Other assets                                                       6,782                         6,630
                                                              ---------------             ----------------

                                                                     $407,167                      $303,168
                                                                =============                 =============

</TABLE>

                                                              (continued)

                                                                 Pg. 3

<PAGE>

                                                 SBARRO, INC. AND SUBSIDIARIES

                                        CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                         LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                             (In thousands)
                                                               October 10, 1999              January 3, 1999
                                                                 (unaudited)
Current liabilities:
<S>                                                                  <C>                             <C>
     Accounts payable                                            $   8,948                         $  7,122
     Amounts due for untendered shares
       (See Note 2)                                                  4,782                                -
     Accrued expenses                                               31,801                           25,764
     Income taxes                                                      267                            4,146
                                                            --------------                    -------------
       Total current liabilities                                    45,798                           37,032


Deferred income taxes                                                8,681                            9,219



Long-term debt (See Note 3)                                        251,223                                -

Shareholders' equity (See Note 2):
     Preferred stock, $1 par value;
       authorized 1,000,000 shares; none issued                          -                                -
     Common stock, $.01 par value; authorized
       40,000,000 shares; issued and outstanding
       7,064,328 shares at October 10, 1999 and
       20,531,643 shares at January 3, 1999                            71                               205
     Additional paid-in capital                                        10                            34,587
     Retained earnings                                            101,384                           222,125
                                                             ----------------               ---------------
                                                                  101,465                           256,917
                                                             ----------------               ---------------

                                                                 $407,167                          $303,168
                                                              ===============                ==============


</TABLE>



                       See notes to unaudited consolidated financial statements



                                                                 Pg. 4

<PAGE>

                                                SBARRO, INC. AND SUBSIDIARIES

                                             CONSOLIDATED STATEMENTS OF INCOME
                                                            (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                  (In thousands)
                                                                             For the forty weeks ended:
                                                              October 10, 1999                  October 4, 1998
                                                              ----------------                  ---------------
Revenues:
<S>                                                             <C>                                <C>
     Restaurant sales                                             $265,022                           $256,708
     Franchise related income                                        6,750                              6,192
     Interest income                                                 3,679                              3,734
                                                            -----------------                  --------------
       Total revenues                                              275,451                            266,634
                                                              ---------------                  --------------

Costs and expenses:
     Cost of food and paper products                                 54,926                          54,068
     Restaurant operating expenses:
       Payroll and other employee benefits                           72,405                          68,161
       Occupancy and other                                           81,436                          76,301

     Depreciation and amortization                                   18,043                          16,986
     General and administrative                                      17,720                          14,808
     Provision for unit closings                                          -                           1,525
     Terminated transaction costs                                         -                             986
     Litigation settlement and related costs                              -                           3,544
     Interest expense                                                   980                               -
     Other income                                                    (3,614)                         (2,242)
                                                               ---------------                --------------
       Total costs and expenses                                     241,896                         234,137
                                                               --------------                  ------------

Income before income taxes and cumulative
     effect of change in method of accounting
     for start-up costs                                               33,555                         32,497
Income taxes                                                          12,846                         12,349
                                                              ---------------                --------------
Income before cumulative effect
     of accounting change                                             20,709                         20,148

Cumulative effect of change in method
     of accounting for start-up costs, net of
     income taxes of $504                                                  -                          (822)
                                                             -------------------           -----------------

Net income                                                           $20,709                       $19,326
                                                               ==============                ==============
</TABLE>

                       See notes to unaudited consolidated financial statements

                                                                 Pg. 5


<PAGE>

                                               SBARRO, INC. AND SUBSIDIARIES

                                             CONSOLIDATED STATEMENTS OF INCOME

                                                           (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                  (In thousands)
                                                                          For the twelve weeks ended:
                                                              October 10, 1999                October 4, 1998
                                                              ----------------                ---------------
Revenues:
<S>                                                              <C>                                <C>
     Restaurant sales                                               $85,971                        $82,680
     Franchise related income                                         2,418                          2,038
     Interest income                                                  1,055                          1,189
                                                               --------------                 -------------
       Total revenues                                                89,444                         85,907
                                                               --------------                  ------------

Costs and expenses:
     Cost of food and paper products                                 17,945                          17,645
     Restaurant operating expenses:
       Payroll and other employee benefits                           22,830                          21,262
       Occupancy and other                                           25,231                          23,316
     Depreciation and amortization                                    5,765                           5,261
     General and administrative                                       5,381                           4,441
     Litigation settlement and related costs                             -                            3,544
     Interest expense                                                   980                               -
     Other income                                                    (1,040)                           (983)
                                                              ----------------                --------------
       Total costs and expenses                                      77,092                          74,486
                                                              ---------------                 -------------

Income before income taxes                                           12,352                          11,421
Income taxes                                                          4,789                           4,340
                                                             ----------------                --------------
Net income                                                         $  7,563                        $  7,081
                                                              ===============                 =============


</TABLE>








                       See notes to unaudited consolidated financial statements
                                                           Pg. 6


<PAGE>


                                                 SBARRO, INC. AND SUBSIDIARIES

                                          CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                         (UNAUDITED)
<TABLE>
<CAPTION>

                                                                             (In thousands)
                                                                       For the forty weeks ended:
                                                              October 10, 1999                October 4, 1998
                                                              ----------------                ---------------
Operating activities:

<S>                                                              <C>                               <C>
Net income                                                           $ 20,709                      $ 19,326
Adjustments to reconcile net income to net
     cash provided by operating activities:
       Cumulative effect of change in method
         of accounting for start-up costs                                   -                           822
       Depreciation and amortization                                   18,087                        17,056
       Deferred income taxes                                             (538)                         (616)
       Provision for unit closings                                          -                         1,525
       Changes in operating assets and liabilities:
         Increase in receivables                                       (1,243)                       (1,512)
         Decrease in inventories                                          267                           390
         Increase in prepaid expenses                                  (5,060)                       (4,257)
         Increase in other assets                                        (930)                         (253)
         Increase (decrease) in accounts payable
            and accrued expenses                                        6,034                        (4,704)
         Decrease in income taxes payable                              (3,880)                       (4,745)
                                                                 -------------                  ------------

Net cash provided by operating activities                              33,446                        23,032
                                                               --------------                  ------------

Investing activities:

Proceeds from maturity of marketable security                               -                         2,500
Purchases of property and equipment                                   (18,865)                      (21,089)
                                                                --------------                 -------------

Net cash used in investing activities                                 (18,865)                      (18,589)
                                                                --------------                  ------------

</TABLE>




                                                              (continued)


                                                                 Pg. 7

<PAGE>

                                           SBARRO, INC. AND SUBSIDIARIES

                               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                                                              (UNAUDITED)

<TABLE>
<CAPTION>

                                                                             (In thousands)
                                                                       For the forty weeks ended:
                                                              October 10, 1999                October 4, 1998
                                                              ----------------                ---------------
Financing activities:
<S>                                                                  <C>                           <C>
Proceeds from exercise of stock options                                   426                         2,073
Proceeds from long-term debt                                          251,211                             -
Cost of  Merger and related financing                                (411,000)                            -
Accrued or previously paid Merger costs                                 2,828                             -
Cash dividends paid                                                         -                        (5,521)
                                                           ------------------                  -------------

Net cash used in financing activities                                (156,535)                       (3,448)
                                                                --------------                 -------------

(Decrease) increase in cash and cash equivalents                     (141,954)                          995


Cash and cash equivalents at beginning of period                      150,472                       119,810
                                                               --------------                --------------

Cash and cash equivalents at end of period                        $     8,518                      $120,805
                                                              ===============                 =============


Supplemental disclosure of cash flow information:

Cash paid during the period for income taxes                          $16,743                       $20,157
                                                               ==============                ==============

Cash paid during the period for interest                                    -                             -
                                                          ===================           ===================


</TABLE>





                       See notes to unaudited consolidated financial statements




                                                                 Pg. 8


<PAGE>


                                SBARRO, INC. AND SUBSIDIARIES
                    Notes to Unaudited Consolidated Financial Statements

1.       Basis of presentation:

         The accompanying  unaudited consolidated financial statements have been
         prepared  in  accordance  with  the  instructions  for  Form  10-Q  and
         Regulation  S-X related to interim  period  financial  statements  and,
         therefore,  do not include all  information  and footnotes  required by
         generally accepted  accounting  principles.  However, in the opinion of
         management, all adjustments (consisting of normal recurring adjustments
         and  accruals)  considered  necessary  for a fair  presentation  of the
         consolidated  financial position of the Company and its subsidiaries at
         October 10, 1999 and their  consolidated  results of operations for the
         forty and twelve  week  periods  ended  October 10, 1999 and October 4,
         1998 have been  included.  The  results of  operations  for the 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 the
         Company's  Annual Report on Form 10-K for the fiscal year ended January
         3, 1999.

2.       Going private transaction:

         On September 28, 1999,  members of the Sbarro family (who prior thereto
         owned  approximately  34.4% of the  Company's  common stock) became the
         holders  of 100% of the  issued  and  outstanding  common  stock of the
         Company  pursuant  to an Amended  and  Restated  Agreement  and Plan of
         Merger dated as of January 19, 1999 (the "Merger Agreement").  Pursuant
         to the terms of the Merger Agreement (i) a company owned by the members
         of the Sbarro family  merged with and into the Company (the  "Merger"),
         (ii) the Company's  shareholders  (other than the members of the Sbarro
         family and the  company  owned by them)  received  the right to receive
         $28.85 per share in cash in exchange for the approximately 13.5 million
         shares of the  Company's  common  stock not owned by the members of the
         Sbarro family, and (iii) all outstanding stock options, including stock
         options held by the members of the Sbarro  family,  were  terminated in
         exchange  for a cash  payment  equal to the  number of  shares  subject
         thereto multiplied by the excess, if any, of $28.85 over the applicable
         option exercise price. The cost of the Merger, including amounts to pay
         related  fees  and  expenses  of  the  transactions,  is  estimated  at
         approximately  $411.0 million and was funded using substantially all of
         the  Company's  cash on hand and the sale of $255 million of 11% Senior
         Notes (See Note 3).

         As of October 10,  1999,  there was $4.8  million  ($0.5  million as of
         November 17, 1999) remaining on deposit with a third party paying agent
         for   untendered   shares  to  be   redeemed  as  part  of  the  Merger
         consideration.  Such amounts are shown as  restricted  cash and amounts
         due for  untendered  shares in the  balance  sheet.  Should  any shares
         remain  untendered  after one year from September 28, 1999, the related
         funds are returned to the Company to be held until claimed or escheated
         to the appropriate juristrictions.

                                         Pg. 9

<PAGE>

                                 SBARRO, INC. AND SUBSIDIARIES
               Notes to Unaudited Consolidated Financial Statements (continued)


         In accordance  with Emerging  Issues Task Force Issue 88-16,  "Basis in
         Leveraged Buyout Transactions",  the acquisition of all the outstanding
         shares  of  common  stock  not  owned  by the  Sbarro  family  and  all
         outstanding  stock  options have been  accounted for under the purchase
         method of accounting. As a result, the remaining shares of common stock
         owned by the Sbarro  family are  presented in  shareholders'  equity at
         their original basis in the  accompanying  consolidated  balance sheet.
         The final  purchase price  allocations  have not been completed and are
         subject to adjustment  based on fair market  appraisals  and other fair
         market  value  estimates  as of the date of the  Merger.  The excess of
         purchase price over the cost of assets acquired is being amortized on a
         straight line basis over an estimated useful life of 30 years.

         Summarized  below are the unaudited pro forma results of operations for
         the forty  weeks  ended  October  10,  1999 and  October 4, 1998 of the
         Company  as if the Merger had taken  place as of the  beginning  of the
         periods  presented.  Adjustments have been made for the amortization of
         the  excess of the  purchase  price  over the cost  basis of net assets
         acquired, interest expense and related changes in income tax expense.

                                                  Forty weeks ended
                                             October 10, 1999   October 4, 1998
         Pro Forma:
           Revenues                               $275,451         $266,634
                                                  =========        ==========
           Income before cumulative effect
              of accounting change               $   1,551       $      132
                                               ============      ============
           Net income (loss)                     $   1,551       $     (690)
                                               ============     =============

         These pro forma results of operations are not necessarily indicative of
         the actual  results of  operations  that  would have  occurred  had the
         Merger  taken place at the  beginning  of the periods  presented  or of
         results which may occur in the future.

3.       Long-term debt:

         The cost of the Merger  including  fees and expenses was funded through
         the use of  substantially  all of the  Company's  cash on hand  and the
         placement of $255.0  million of 11.0% Senior  Notes due  September  15,
         2009 (the  "Senior  Notes")  sold at a price of 98.514% of par to yield
         11.25% per annum. The Senior Notes were issued under an Indenture dated
         September 28, 1999 (the  "Indenture").  The Company also entered into a
         five year, $30 million  unsecured senior revolving bank credit facility
         under a Credit  Agreement  dated as of September  23, 1999 (the "Credit
         Agreement").

                                    Pg. 10

<PAGE>

                                SBARRO, INC. AND SUBSIDIARIES
              Notes to Unaudited Consolidated Financial Statements (continued)


         Interest on the Senior Notes is payable  semi-annually  on March 15 and
         September 15 of each year  commencing on March 15, 2000.  The Company's
         payment  obligations  under the Senior  Notes are  jointly,  severally,
         unconditionally  and  irrevocably  guaranteed  by all of the  Company's
         current Restricted Subsidiaries (as defined in the Indenture) and is to
         be similarly guaranteed by the Company's future Restricted Subsidiaries
         (the  "Guarantor  Subsidiaries").  The Senior Notes and the  subsidiary
         guarantees  are senior  unsecured  obligations  of the  Company and the
         Guarantor  Subsidiaries,  respectively,  ranking pari passu in right of
         payment  to  all of  the  Company's  and  the  Guarantor  Subsidiaries'
         respective   present  and  future   senior  debt,   including   amounts
         outstanding   under  the  Credit   Agreement.   The  Indenture  permits
         redemption  of the  Senior  Notes at the  Company's  option at  varying
         redemption  prices and requires the Company to offer to purchase Senior
         Notes in the  event of a  Change  of  Control  and in  connection  with
         certain Asset Sales (each as defined).  The Indenture  contains various
         convenants on the part of the Company and the  Guarantor  Subsidiaries,
         including,   but  not  limited  to,  restrictions  on  the  payment  of
         dividends, stock repurchases,  certain investments and other restricted
         payments,  the  incurrence  of  indebtedness  and liens on its  assets,
         affiliate transactions, asset sales and mergers.

         In connection  with the issuance of the Senior  Notes,  the Company and
         its  Guarantor  Subsidiaries  have  agreed to offer the  holders of the
         Senior  Notes the right to exchange  those  Senior Notes for 11% Senior
         Notes due 2009 with the same  terms as the  existing  Senior  Notes but
         which  are to be  registered  under  the  Securities  Act of  1933,  as
         amended.  If the Company does not timely comply with its obligations to
         effectuate  such  registration,  the  Company  will be  required to pay
         liquidated damages to each holder of the Senior Notes.

         The Credit  Agreement  provides an unsecured  senior  revolving  credit
         facility to the Company enabling the Company to borrow,  on a revolving
         basis from time to time during its five-year term, up to $30.0 million,
         including a $10.0 million sublimit for standby letters of credit.  Each
         of the Company's current  Guarantor  Subsidiaries (the same entities as
         the Restricted  Subsidiaries  under the Indenture)  have agreed to, and
         the  future  Guarantor   Subsidiaries  are  to,   unconditionally   and
         irrevocably  guarantee  the  Company's  obligations  under  the  Credit
         Agreement on a joint and several basis. The Company's  borrowings under
         the Credit  Agreement are repayable on September 28, 2004. In addition,
         the Company  will be required to repay the  Company's  loans and reduce
         the lenders'  commitments under the Credit Agreement using the proceeds
         of certain  asset sales and issuances of certain  equity  interests of,
         and  sales  of  equity  interests  in, Guarantor Subsidiaries.  At  the
         Company's  option,  the interest  rates  applicable  to loans under the
         Credit  Agreement  will be at either (a) the bank's prime rate (8.5% at
         November 22, 1999)

                                            Pg. 11

<PAGE>

                               SBARRO, INC. AND SUBSIDIARIES
               Notes to Unaudited Consolidated Financial Statements (continued)


         plus a margin  ranging from zero to 0.75% (the initial margin is 0.50%)
         or (b)  reserve  adjusted  LIBOR  (5.59% at November  22,  1999) plus a
         margin ranging from 1.5% to 2.5% (the initial margin is 2.25%). In each
         case,  the margin  depends upon the ratio of the Company's  senior debt
         (as defined) to its earnings before  interest,  taxes and  depreciation
         and amortization ("EBITDA"). The Company has agreed to pay certain fees
         in connection with the Credit Agreement, including an unused commitment
         fee at a rate per year that will vary from 0.25% of the undrawn  amount
         of the  facility to 0.45% of the  undrawn  amount of the  facility  per
         year,  depending upon the ratio of the Company's senior debt to EBITDA.
         Initially,  the unused  commitment  fee was 0.40% per year.  No amounts
         were outstanding under the credit facility as of October 10, 1999.

         The Credit  Agreement  contains  various  covenants  on the part of the
         Company and the Guarantor Subsidiaries,  including, but not limited to,
         restrictions on the payment of dividends and making stock  repurchases,
         certain  investments and other restricted  payments,  the incurrence of
         indebtedness,  guarantees,  other contingent obligations,  and liens on
         assets, affiliate transactions, asset sales and mergers, consolidations
         and  acquisitions  of stock or assets by the Company and the  Guarantor
         Subsidiaries.  The Credit  Agreement  also contains  provisions  which,
         under certain circumstances, prohibit redemptions or repurchases of the
         Senior Notes,  including  repurchases  that might otherwise be required
         pursuant to the terms of the Indenture,  and imposes certain conditions
         on the Company's amending or supplementing the Indenture.  In addition,
         the Company is required  to  maintain a minimum  ratio of  consolidated
         EBITDA  to  consolidated  interest  expense  (in  each  case  with  the
         Guarantor  Subsidiaries)  of  at  least  2.0  to  1.0  and a  ratio  of
         consolidated  senior debt to consolidated EBITDA (in each case with the
         Guarantor  Subsidiaries)  ranging from 4.5 to 1.0 in 1999 to 3.9 to 1.0
         beginning December 29, 2002.

         The  discount at which the Senior  Notes were  issued,  an aggregate of
         $3.8 million,  is being  accreted to the Senior Notes over the original
         ten year life of the  Senior  Notes.  The costs of  issuing  the Senior
         Notes and  establishing  the Credit  Agreement,  an  aggregate  of $8.7
         million and $0.5 million,  respectively,  were  capitalized as deferred
         financing  costs  and are  being  amortized  over the ten and five year
         lives,  respectively,  of the Senior  Notes and the  Credit  Agreement,
         respectively. The accretion and amortization will result in an increase
         in reported interest expense.

4.       Cumulative effect of accounting change:

         In  accordance  with its  early  application  provisions,  the  Company
         implemented  Statement  of  Position  ("SOP")  98-5  of the  Accounting
         Standards Executive Committee of the

                                        Pg. 12

<PAGE>

                                SBARRO, INC. AND SUBSIDIARIES
               Notes to Unaudited Consolidated Financial Statements (continued)


         American  Institute of Certified Public Accountants as of the beginning
         of its 1998 fiscal year.  This SOP required  companies that  capitalize
         pre-opening and similar costs to write off all existing such costs, net
         of tax benefit,  as a "cumulative  effect of accounting  change" and to
         expense all such costs as incurred in the future.

5.       Comprehensive income:

         The Company's  operations did not give rise to any items  includible in
         comprehensive  income which were not already included in net income for
         either of the twelve or forty week periods  ended  October 10, 1999 and
         October 4, 1998.

6.       Summarized condensed financial information:

         The following present  condensed summary financial  information for the
         subsidiaries  of the Company  guaranteeing  the  Company's  obligations
         under the  Senior  Notes and  Credit  Agreement.  The  non-guaranteeing
         subsidiaries  are immaterial on an individual and combined basis.  Each
         of the  Guarantor  Subsidiaries  is a direct or indirect  wholly  owned
         subsidiary  of the  Company  and each  has  fully  and  unconditionally
         guaranteed  the Senior  Notes and the Credit  Agreement  on a joint and
         several basis.  The Company has  determined  that  presenting  separate
         financial  statements and other  disclosures  concerning each Guarantor
         Subsidiary is not material to investors.  As described in Note 2, the
         Company has not completed the final purchase price allocations.
         Accordingly,  the guarantor financial information presented below does
         not give effect to any final purchase price allocations.

                Condensed Summary Guarantor Subsidiaries Financial Information
                                      Balance Sheet Data

                                          October 10, 1999     October 4, 1998
                                          ----------------     ---------------
                                                   (In thousands)

         Current assets                      $    7,526          $   6,448
         Intercompany receivables               163,550            140,071
                                             ------------       ------------
                  Total current assets          171,076            146,519
         Property and equipment, net             78,708             80,150
         Other assets, net                          600                 51
                                         ---------------   ------------------
                                            $   250,384        $   226,720
                                            =============      ===============

         Current liabilities                        $83               $651
         Intercompany payables-long-term         18,800             20,210
         Shareholders' equity                   231,501            205,859
                                            -------------      ---------------
                                            $   250,384        $   226,720
                                            ===========        ===============

                                       Pg. 13


<PAGE>


                 SBARRO, INC. AND SUBSIDIARIES
    Notes to Unaudited Consolidated Financial Statements (continued)


                 Condensed Summary Guarantor Subsidiaries Financial Information
                                      Income Statement Data

                                                         Forty Weeks Ended
                                             October 10, 1999 October 4, 1998
                                                          (In thousands)

         Revenues                                    $  137,147     $  133,640
                                                   ============   ============
         Gross profit (a)                            $  107,333     $  104,434
                                                     ============ ============
         Income before cumulative effect of change
           in accounting principle (b)                 $ 15,186      $  17,053
                                                       ========== ============
         Net income (b)                                $ 15,186      $  17,053
                                                       ========== ============
----------------
(a)      Gross profit represents the difference between restaurant sales and the
         cost of food and  paper  products.
(b)      No  portion  of the  cumulative effect of change in  accounting
         principles  pertained to the Guarantor Subsidiaries (see Note 4).


7.       Contingencies:

         On November 17, 1999,  certain former  managers of restaurant  units in
         the State of  Washington  instituted  a  lawsuit  against  the  Company
         alleging  that  they  served  as  store  managers,   general  managers,
         assistant  managers or co-managers in Company  restaurants in the State
         of  Washington  at various  times since  November 17, 1996 and that, in
         connection therewith,  the Company violated the overtime pay provisions
         of the  State of  Washington's  Minimum  Wage Act by  treating  them as
         overtime exempt employees,  breached alleged employment  agreements and
         statutory  provisions  by failing to record and pay for hours worked at
         the contract  rates and/or  statutory  minimum wage rates and failed to
         provide  statutorily   required  meal  breaks  and  rest  periods.  The
         plaintiffs  also  seek to  represent  all of the  Company's  restaurant
         managers  employed for any period of time on or after  November 9, 1996
         in the State of  Washington.  The Company  currently  owns and operates
         approximately 18 restaurants in the State of Washington. The plaintiffs
         seek  actual  damages,  exemplary  damages  and  costs of the  lawsuit,
         including reasonable  attorney's fees, each in unspecified amounts, and
         injunctive relief. The Company believes it has substantial  defenses to
         the claims and intends to vigorously defend this action.

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

                                    Pg. 14



<PAGE>

                                SBARRO, INC. AND SUBSIDIARIES


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
     of Operations

                  The  following   discussion  and  analysis  of  the  Company's
financial condition and results of operations should be read in conjunction with
the  consolidated  financial  statements,  the notes  thereto and other data and
information appearing elsewhere in this Report.

Going Private Transaction

                  On September 28, 1999, members of the Sbarro family (who prior
thereto  owned  approximately  34.4% of the  Company's  common stock) became the
holders  of 100% of the  issued  and  outstanding  common  stock of the  Company
pursuant to an Amended and  Restated  Agreement  and Plan of Merger  dated as of
January 19, 1999 (the "Merger  Agreement").  Pursuant to the terms of the Merger
Agreement  (i) a company  owned by the members of the Sbarro  family merged with
and into the Company (the "Merger"), (ii) the Company's shareholders (other than
the members of the Sbarro  family and the company  owned by them)  received  the
right to receive $28.85 per share in cash in exchange for the approximately 13.5
million  shares of the  Company's  common  stock not owned by the members of the
Sbarro family, and (iii) all outstanding stock options,  including stock options
held by the members of the Sbarro family, were terminated in exchange for a cash
payment equal to the number of shares subject thereto  multiplied by the excess,
if any, of $28.85 over the applicable  option  exercise  price.  The cost of the
Merger,  including amounts to pay related fees and expenses of the transactions,
is estimated at approximately $411.0 million.

               The cost of the Merger including fees and expenses was funded
through  the use of  substantially  all of the  Company's  cash on hand  and the
placement of $255.0 million of 11.0% Senior Notes due 2009 (the "Senior Notes"),
sold at a price of 98.514% of par to yield  11.25% per annum.  The Senior  Notes
were issued under an Indenture dated September 28, 1999 (the  "Indenture").  The
Company also entered into a five year, $30 million  unsecured  senior  revolving
bank credit  facility  under a Credit  Agreement  dated as of September 23, 1999
(the "Credit Agreement") to provide working capital.












                                  Pg. 15


<PAGE>


Results of Operations

                  The  Company's  fiscal  year  ends on the  Sunday  nearest  to
December 31. The fourth fiscal quarter normally  accounts for  approximately 40%
of net income for the year.  Fiscal  1999 has 52 weeks with a twelve week fourth
quarter.  The 1998 fiscal year,  which  contained 53 weeks,  had a thirteen week
fourth  quarter.  The Company's  1999 fiscal year began on January 4, 1999,  six
days later than its 1998 fiscal year which began on December 29, 1997.


                  The following table indicates the number of Company-owned  and
franchised   restaurants  (excluding  non-mall  joint  venture  restaurants)  in
operation during each indicated period:
<TABLE>
<CAPTION>

                                                40 Weeks         40 Weeks      12 Weeks       12 Weeks
                                                  Ended            Ended          Ended           Ended                Fiscal Year
                                               10/10/99         10/04/98       10/10/99        10/04/98              1998      1997
Company-owned restaurants:
<S>                                               <C>               <C>           <C>             <C>                 <C>       <C>
   Opened during period (1)                        18               19              9              4                   26        30
   Acquired from (sold to)
     franchisees during period-net                  -                1              -              -                    1         4
   Closed during period                            (9)             (18)            (4)            (5)                 (20)       (8)
                                                 -----             ----          -----          -----                -----    -----
   Open at end of period (2)                      639              625            639            625                  630       623
                                                  ====             ====           ====           ====                 ====     ====

Franchised restaurants:
   Opened during period                            34               26             15             11                   43        47
   Purchased from (sold to)
     Company during period-net                      -               (1)            -               -                   (1)       (4)

   Closed or terminated during period             (24)              (8)           (11)            (2)                 (13)      (23)
                                                  ----            -----           ----          -----                -----    -----
   Open at end of period                          278               256           278            256                  268       239
                                                 ====              ====           ====           ====                ====      ====

All restaurants:
   Opened during period (1)                        52                45            24             15                   69        77
   Closed or terminated during period             (33)              (26)          (15)            (7)                 (33)      (31)
                                                  ----             ----          ----           -----                 ----     ----
   Open at end of period (2)                      917               881           917            881                  898       862
                                                 ====              ====          ====           ====                 ====      ====

Kiosks (all franchised) open at
   end of period                                   6                 9             6               9                    8         7
</TABLE>
------------------------
(1)    Includes,   in  fiscal  1998  and  1997,  one  and  two  mall  locations,
       respectively,  of a joint venture  which  operates as Umberto of New Hyde
       Park.  For  purposes  of this  Report,  the Company  has  included  those
       restaurants with Sbarro restaurants. One mall location was opened by this
       joint venture in the forty weeks ended October 4, 1998. No mall locations
       of this joint  venture  were opened in the forty weeks ended  October 10,
       1999.
(2)    Includes,  as of  October  10,  1999 and  October  4, 1998 and the end of
       fiscal 1998 and fiscal 1997,  six,  five, six and five joint venture mall
       locations, respectively, which operate as Umberto of New Hyde Park.



                                     Pg. 16


<PAGE>



                  Restaurant sales from  Company-owned  and  consolidated  joint
venture units increased 3.2% to $265.0 million for the forty weeks ended October
10,  1999 from $256.7  million  for the forty  weeks  ended  October 4, 1998 and
increased 4.0% to $86.0 million for the twelve weeks ended October 10, 1999 from
$82.7  million for the twelve week period ended  October 4, 1998.  The increases
resulted  from a higher  number  of units in  operation  in the  current  fiscal
periods than the comparable  periods in 1998 and selective menu price  increases
of  approximately  2.8%,  1.4%  and 0.7% at  Company-owned  units  which  became
effective in September  1999,  September 1998 and February  1998,  respectively.
Comparable  unit sales increased 0.8% for the forty weeks ended October 10, 1999
and 0.6% for the twelve weeks ended October 10, 1999, from the comparable  forty
and twelve week periods  ended  October 11,  1998,  primarily as a result of the
menu  price  increases.  Comparable  restaurant  sales  are  made up of sales at
locations  that were open  during the  entire  current  period and entire  prior
fiscal year.

     Franchise  related revenue increased 9.0% to $6.8 million and 18.6% to $2.4
million for the forty and twelve  weeks ended  October 10,  1999,  respectively.
These increases resulted  primarily from greater  continuing  royalties due to a
higher number of franchise units in operation in the current year period than in
the comparable period in 1998, offset in the forty week period, by a decrease in
initial  franchise fees due to the timing of unit openings in 1999. The increase
in  franchise  fees in the third  quarter  reflected  the  opening of more units
during the 1999 period as compared to the corresponding prior year period.

                  Interest  income was  approximately  $3.7 million for both the
forty  weeks ended  October  10,  1999 and forty  weeks  ended  October 4, 1998.
Interest  income  decreased  $0.1  million to $1.1  million for the twelve weeks
ended  October 10,  1999 as compared to $1.2  million for the twelve week period
ended  October 4, 1998.  As  discussed  elsewhere  in this  Report,  the Company
utilized  substantially  all of its available  cash in order to fund the Merger.
Therefore,  the Company  generated  minimal  amounts of interest  income for the
period from September 28, 1999 (the date of the Merger) to October 10, 1999. The
Company  will not  realize  the level of  interest  income as it has in the past
unless and until it rebuilds its cash position.

                  Cost of food and paper  products as a percentage of restaurant
sales  improved to 20.7% for the forty weeks ended  October 10, 1999 compared to
21.1% for the forty weeks ended October 4, 1998 and improved to 20.9% from 21.3%
for the twelve week  periods  then ended.  Cost of food and paper  products as a
percentage  of  restaurant  sales  were  positively  affected  by the menu price
increases described above. Cheese prices,  which fluctuate  throughout the year,
were slightly  lower during the first 28 weeks of fiscal 1999 and  significantly
higher  during the twelve  weeks  ended  October  10, 1999 than they were in the
comparable  periods of fiscal 1998.  After the end of the third quarter,  cheese
prices  decreased to levels that are lower than cheese prices for the comparable
period in fiscal 1998.

                  Restaurant  operating  expenses - payroll  and other  benefits
increased  to 27.3% of  restaurant  sales for the forty weeks ended  October 10,
1999 from 26.6% for the forty weeks  ended  October 4, 1998 and to 26.6% for the
twelve  weeks  ended  October  10,  1999 from 25.7% for the twelve  weeks  ended
October 4, 1998.  The  increases  were  primarily due to the tight labor market,
resulting in pressures on wages and salaries and associated increases in amounts
paid for payroll taxes.
                                      Pg. 17

<PAGE>

                  Restaurant  operating  expenses - occupancy and other expenses
increased  to 30.7% of  restaurant  sales for the forty weeks ended  October 10,
1999 from 29.7% of  restaurant  sales for the forty weeks ended  October 4, 1998
and to 29.3% for the twelve  weeks  ended  October  10,  1999 from 28.2% for the
twelve week period  ended  October 4, 1998.  These  increases  are  attributable
principally to increases in rent and other occupancy related costs.

                  Depreciation  and  amortization   expense  increased  by  $1.1
million and $0.5 million for the forty and twelve week periods ended October 10,
1999, respectively, over the corresponding periods in 1998 primarily as a result
of  an  increase  in  depreciation   and   amortization  of  the  Company's  new
headquarters building (which was completed in the fourth quarter of fiscal 1998)
and amortization of the excess of the purchase price over the cost of net assets
acquired in connection with the Merger.

                  General and  administrative  expenses were $17.7  million,  or
6.4% of total  revenues,  for the first forty weeks of fiscal 1999,  compared to
$14.8 million,  or 5.6% of total revenues,  for the comparable  period in fiscal
1998 and $5.4  million,  or 6.0% of total  revenues,  for the twelve weeks ended
October 10, 1999, compared to $4.4 million,  or 5.2% of total revenues,  for the
comparable  period in fiscal 1998.  The increases  were  primarily due to higher
payroll  costs  and  costs  associated  with the  administration  of  additional
Company-owned restaurants, expanding joint venture operations, higher litigation
costs,  increases in various  field  training and human  resource  functions and
costs associated with the Company's recently completed corporate headquarters.

                  Interest  expense of $1.0  million in the twelve  weeks  ended
October 10, 1999 relates to the accrual of interest, accretion of original issue
discount and the amortization of deferred  financing charges with respect to the
Senior Notes for the period subsequent to their issuance on September 28, 1999.

                  A provision of $3.5 million  ($2.2  million  after tax) in the
forty and twelve weeks ended  October 4, 1998 was recorded for costs  associated
with the settlement in November 1998 of a lawsuit under the Fair Labor Standards
Act.

                  The  provision for unit closings of $1.5 million ($0.9 million
after  tax) in the  forty  weeks  ended  October  4, 1998  related  to a reserve
established for the closing of certain Company-owned units.

                  Terminated  transaction  costs of $1.0 million  ($0.6  million
after tax) in the forty weeks ended October 4, 1998 related to costs  associated
with the  termination of a prior proposal by the Sbarro family for the Company's
acquisition of all shares of the Company not owned by them.

                  Other income  increased by $1.4 million to $3.7 million in the
forty weeks ended  October 10, 1999 compared to the forty weeks ended October 4,
1998 and by $0.1 million to $1.1 million for the twelve weeks ended  October 10,
1999 from the twelve  weeks  ended  October 4,  1998,  primarily  as a result of
increased incentives from suppliers and income, net of expenses,

                                        Pg. 18

<PAGE>

generated  from the  leasing of  substantially  all of the  Company's  corporate
headquarters building not occupied by the Company to third parties.

                  The  effective  income  tax rate was  38.3%  and 38.8% for the
forty and twelve week periods ended October 10, 1999, respectively,  and 38% for
both the forty and twelve  weeks  ended  October 4, 1998.  The  increase  in the
effective  income  tax rate is as a result  of the  non-deductible  amortization
expenses in connection with the Merger.

                  The cumulative effect of the change in method of accounting in
fiscal 1998 resulted from the Company's  implementation of Statement of Position
("SOP") 98-5 of the  Accounting  Standards  Executive  Committee of the American
Institute of Certified  Public  Accountants  which  required  companies that had
capitalized  pre-opening  and similar costs to write off all such existing costs
as a "cumulative  effect of accounting  change" and to expense all such costs as
incurred in the future. In accordance with its early application provisions, the
Company  implemented  SOP 98-5 as of the  beginning  of our 1998 fiscal year and
incurred a one-time charge of $0.8 million, net of an income tax benefit of $0.5
million,  to write off all start-up  costs  existing as of the beginning of that
year.  The Company had no such one-time  charge in the forty weeks ended October
10, 1999.

Impact of Inflation and Other Factors

                  Food,  labor,  rent,  construction and equipment costs are the
items most affected by inflation in the  restaurant  business.  Although for the
past several years inflation has not been a significant  factor in the Company's
results of operations,  there can be no assurance that this trend will continue.
In addition,  food and paper product  costs may be  temporarily  or  permanently
affected by weather,  economic and other factors  beyond the  Company's  control
that  may  reduce  the  availability  and  increase  the  cost  of  such  items.
Historically,  the price of cheese has fluctuated  more than the Company's other
food ingredients and related restaurant supplies.

Seasonality

                  The  Company's  business is subject to seasonal  fluctuations,
the effects of weather and economic  conditions.  Earnings  have been highest in
the  Company's  fourth  fiscal  quarter due  primarily  to  increased  volume in
shopping  malls during the holiday  shopping  season.  The length of the holiday
shopping  period between  Thanksgiving  and Christmas and the number of weeks in
the fourth quarter result in  fluctuations in fourth quarter  financial  results
from year to year. The fourth fiscal quarter normally accounts for approximately
40% of net income  for the year.  Fiscal  1999 has 52 weeks  with a twelve  week
fourth quarter.  The 1998 fiscal year,  which contained 53 weeks, had a thirteen
week fourth quarter.  The fourth quarter of 1998 (excluding non recurring items)
accounted  for 41% of net  income  for the  year.  Excluding  the  impact of the
thirteenth week, the fourth quarter of 1998 would have accounted for 38% of such
net income, which is consistent with the comparable prior year period.



                                         Pg. 19

<PAGE>

Liquidity and Capital Resources

                  The Company has historically not required  significant working
capital  to  fund  its  existing   operations   and  has  financed  its  capital
expenditures  and investments in its joint ventures  through cash generated from
operations.  Substantially  all of the  Company's  cash was used to complete the
Going Private Transaction described above. Accordingly, at October 10, 1999, the
Company had  unrestricted  cash of $8.5 million and a working capital deficit of
$18.5 million.

                  Net cash  provided by operating  activities  was $33.4 million
and $23.0  million for the forty week periods ended October 10, 1999 and October
4, 1998,  respectively.  The increase in cash flow from operations for the forty
weeks ended  October  10,  1999 from the forty  weeks ended  October 4, 1998 was
principally  attributable to a $10.3 million net change in operating  assets and
liabilities primarily as a result of an increase in accounts payable and accrued
expenses arising from timing  differences  combined with increases in net income
and depreciation and amortization expense.

                  Net cash used in  investing  activities  primarily  relates to
capital expenditures  (including investments made by joint ventures).  Purchases
of property and  equipment  were $18.9  million and $21.1  million for the forty
week periods ended October 10, 1999 and October 4, 1998, respectively, excluding
$2.5 million of proceeds from the maturity of a marketable  security  during the
1998 period.  Capital expenditures include $0.4 million and $4.4 million for the
forty week periods ended October 10, 1999 and October 4, 1998, respectively, for
the construction of the Company's corporate headquarters completed in late 1998.

                  Net cash used in financing  activities  was $156.5 million for
the forty week period  ended  October 10, 1999  compared to $3.4  million in the
comparable  fiscal 1998 period.  This  increase  primarily  resulted from $408.1
million of cash used (net of accrued or previously paid Merger costs) to pay the
Merger   consideration   and  related  Merger  and  financing  costs  offset  by
approximately  $251.2  million  of  net  proceeds  raised  through  the  private
placement of the Senior  Notes.  Net cash used in financing  activities  for the
forty week period ended  October 4, 1998 of $3.4  million was  comprised of $5.5
million of cash  dividends paid in fiscal 1998 that were declared in fiscal 1997
partially offset by $2.1 million of proceeds from the exercise of stock options.

                  Since the Company used  substantially  all of its cash on hand
to consummate  the Merger,  it will not realize the level of interest  income it
has in the past unless and until it rebuilds  its cash  position.  Further,  the
Company will incur annual cash interest expense of  approximately  $28.1 million
in connection with the Senior Notes and may incur  additional  interest  expense
for borrowings under its new Credit Agreement.

                  The  Company's  effective  tax rate after the Merger is higher
than  its   historical   effective   tax  rate  of  38%  primarily  due  to  the
non-deductible  amortization  of the excess of the purchase  price over the fair
value of net assets  acquired  arising as a result of the  Merger.  The  Company
intends  to  elect to be taxed  under  the  provisions  of  Subchapter  S of the
Internal Revenue Code of 1986, as amended,  and, where applicable and permitted,
under similar state and

                                        Pg. 20

<PAGE>

local  income  tax  provisions  beginning  as early as  fiscal  2000.  Under the
provisions of Subchapter S, substantially all taxes on the Company's income will
be paid by its shareholders.  As contemplated in the Indenture,  the Company has
entered into a tax payment  agreement  with its  shareholders  which permits the
Company to make periodic  distributions  to its shareholders in amounts that are
intended to approximate the income taxes,  including estimated taxes, that would
be payable by its  shareholders  if their only income were their pro rata shares
of the  Company's  taxable  income  and such  income  was  taxed at the  highest
applicable  federal and New York State  marginal  income tax rates.  Tax payment
distributions  may be made only with  respect to periods in which the Company is
treated as an S corporation.

                  During the forty weeks ended October 4, 1998, the Company used
$5.5 million to pay, in early 1998, the quarterly cash dividend declared in late
1997 to the Company's then  shareholders.  The Board of Directors  suspended the
payment of dividends  commencing in the first quarter of 1998 in connection with
a prior  merger  proposal by the Sbarro  family and the  consideration  of other
strategic  alternatives.  The Company  expects that its Board of Directors  will
from time to time elect to pay dividends to the current  shareholders in amounts
that will be based upon a number of factors,  including  the  Company's  working
capital  needs,  operating  performance,  debt service  obligations  and capital
expenditure requirements.  Such amounts will be subject to the provisions of the
Indenture and its Credit Agreement.

                  The  Company's  liquidity  needs prior to the  maturity of its
debt are expected to include  interest  payments on the new debt  (approximately
$28.1 million annually),  capital expenditures,  working capital, investments in
joint ventures,  distributions  to shareholders as permitted under the Indenture
and Credit  Agreement and general  corporate  purposes.  The  Company's  primary
sources of  liquidity  to meet  these  needs are cash flow from  operations  and
availability under the Company's $30.0 million Credit Agreement.
In  addition,  the Company may  mortgage  its  recently  completed  headquarters
building.

                  The  Company  believes  that  aggregate   restaurant   capital
expenditures and its investments in joint ventures during the next twelve months
will be moderately higher than levels in recent fiscal years.

                  The   Company   presently   has  $28.2   million   of  undrawn
availability  under its Credit  Agreement (net of outstanding  letters of credit
and certain  guarantees of reimbursement  obligations  that currently  aggregate
approximately  $1.8  million).  The Company  expects to generate  cash flow from
operations  through  the end of its  current  fiscal  year  and to make  minimal
borrowings under its Credit Agreement during that time.


                  The Company  believes that cash flow from operations and funds
available  under its Credit  Agreement  will be sufficient to meet its liquidity
needs.




                                       Pg. 21

<PAGE>

Recent Accounting Pronouncements

     Pursuant to Statement of Financial  Accounting  Standards ("SFAS") No. 137,
"Accounting for Derivative  Instruments and Hedging Activities - Deferral of the
Effective  Date of FASB  Statement No. 133 - an Amendment of FASB  Statement No.
133," issued in June 1999,  SFAS No. 133 is effective for fiscal years beginning
after June 15, 2000. Presently,  the Company does not use derivative instruments
and therefore SFAS No. 133 is not currently applicable.


Year 2000

"Year  2000"  issues  could  arise in  situations  where  computer  software  or
databases  recognize  the two digit year "00" as the year 1900  rather  than the
Year 2000.  This could result in system failures or  miscalculations  that could
cause  disruptions in business  operations and increased costs in processing and
analyzing data. Since the Company's Information  Technology ("IT") systems (used
primarily  for  financial,  accounting,  human  resources,  payroll,  operations
support  and  point-of-sales   processing  and  reporting)  and  non-information
technology  ("non-IT") systems (used principally in communications  systems) use
computer hardware,  software and related technology, the Company has conducted a
comprehensive review of its computer systems.

State of Readiness.  The Company has  determined  that,  while certain  computer
programs  required changes to assure that they were Year 2000 compliant,  all of
its  databases  are Year 2000  compliant  in that they  contain  four digit year
fields, thereby allowing positive identification of the century and year.

The  Company's  internal  IT systems  use a  combination  of  in-house  software
developed by the Company's IT department  and packaged  software  purchased from
third  parties.  During  the  past  five  years,  as  part  of  its  ongoing  IT
enhancements,  the Company has either significantly updated software or designed
new software for its  point-of-sales  system  (which  performs cash register and
restaurant management functions) and for its restaurant accounting system (which
handles  centralized  bookkeeping,  sales  analysis and cash  control  functions
relating  to  its  Company-owned  restaurants).  The  point-of-sales  system  is
currently  installed in approximately 325 restaurants  units. The balance of the
Company's  existing  restaurants use electronic cash registers.  The Company has
been orally advised by the  manufacturers  of its electronic cash registers that
they expect no Year 2000 issues with respect to these registers. The Company has
completed the process of replacing and/or upgrading personal computers that were
part of approximately  115  point-of-sales  systems installed in fiscal 1995 and
early  fiscal  1996.  These  personal  computers  are now  certified  Year  2000
compliant.  The modification and testing of the point-of-sales software programs
for all 325  restaurants  has  been  completed  and all of these  locations  are
operating under Year 2000 compliant software versions. The Company is continuing
to  install  a  point-of-sales  system  in each new  unit  and in each  existing
restaurant as remodeled and to replace existing registers as needed.

The Company  uses  software  developed  by a  recognized  third  party  software
provider  for  various  corporate  office  functions,  including  financial  and
accounting reporting and analysis, human

                                       Pg. 22

<PAGE>

resource and payroll  processing,  inventory  purchasing  and  accounts  payable
functions.  Those systems have been reviewed and the Company has  determined the
remediation  needed to the third party  software,  made the  changes  needed and
recompiled all programs within the packaged  software.  All internal  testing of
these systems has been  substantially  completed by IT personnel and the various
user departments. Any additional corrections or changes that may be required are
not anticipated to be significant.

Non-IT systems are used by the Company primarily for voice  communications.  The
Company has received written assurances from its communications systems provider
that its  communications  systems and  equipment  are Year 2000  compliant.  The
Company has also received written  confirmation that its voice messaging system,
which utilizes a recognized provider,  is Year 2000 compliant.  The Company does
not believe that  interruption  of these services would have a material  adverse
affect on its operations.

The  Company  has  received  written   confirmation   from  its  principal  food
distributor  that,  while the distributor  could operate under its former manual
systems,  it expects that its computer  systems will be Year 2000 compliant on a
timely  basis.  The  Company's  principal  soft drink mix  supplier has publicly
reported that  remediation  and testing of its key IT systems has been completed
for 99% of  such  systems  and  that  completion  for  substantially  all of the
remaining systems were expected by the end of October 1999.

Costs. To date, all software  modification and testing has been performed by the
Company's internal IT department without the need to employ additional staff and
without  significant  interruption  of  the  other  functions  performed  by the
department.  Total expenditures for testing,  purchasing  hardware and for other
modification  costs for the entire Year 2000  project  will be less than $50,000
(in addition to hardware purchased in the ordinary course,  which purchases were
not accelerated as a result of the Year 2000 issue).  Internal costs incurred as
part of the Year 2000 project (which are  principally  payroll and related costs
of its IT systems department) are not tracked separately.

Risks.  Although the Company  believes that its systems will be timely compliant
with Year 2000 issues,  the most reasonably  likely worst case scenarios  facing
the Company in the event Year 2000 problems arise involve: (1) the timeliness of
internal  reporting and  analyzing  corporate  information  and the potential of
temporarily  supplementing Company staff if it is required to rely, for a period
of time, on manual information reporting and processing while remediation to one
or more of internal IT systems is  effectuated;  (2) the  processing  of Company
payroll;  and (3) ability to maintain its traditional  levels of revenues should
the Company experience  temporary supply shortages of food, soft drink mixes and
paper products if its distributors experience IT or non-IT Year 2000 problems or
should  its  restaurant's  landlords  experience  non-IT  issues  (such  as with
microprocessors  that control door operators,  elevator  service and heating and
cooling equipment that the landlords are required to maintain under their leases
with the  Company).  Like most other  companies,  the Company is also subject to
certain  risks that are not within its control,  such as a failure of IT systems
of banks, financial institutions, telephone companies and public utilities.



                                          Pg. 23

<PAGE>

Contingency Plans. In the event its IT systems should  malfunction,  the Company
believes  that it will  nevertheless  be able to  generate  revenues at existing
restaurants  and  process  data,  although  delays may result in  reporting  and
processing  information.  The electronic cash registers operate manually and the
point-of-sales  cash  registers can also operate  independent  of the IT system.
Manual  systems  both  for  reporting  to  the  Company's  corporate  office  by
restaurants  that are not yet on the Company's  point-of-sales  system are still
being used and are  available as a backup for units that use the  point-of-sales
system.  Depending  upon the results of testing of the efforts to remediate  its
software,  the Company intends to develop  contingency plans with respect to the
internal  reporting  of  corporate  information  in the event of a failure of IT
systems.

With respect to payroll functions,  the Company has comprehensively analyzed and
worked with an outside payroll processing service before determining to continue
to perform all payroll functions through its internal  systems.  Therefore,  the
Company  believes  that it  could  either  outsource  this  function  or have an
outsourcer of payroll services install its system at the Company's  offices with
the Company operating the system internally without material delay.

The Company may  maintain a higher  inventory  level of food  products  and soft
drink mixes and paper products  toward the end of 1999 as a contingency  against
shortages in the event that its  suppliers  experience  unanticipated  Year 2000
problems.  The levels to be maintained will be based upon consultations with the
suppliers  to  obtain  updates  on the  status  of their  Year  2000  compliance
programs.  The  Company  believes  that  there  are other  distributors  of food
products,  beverages and paper  products that would be able to service its needs
in the event that its  primary  suppliers  experience  Year 2000  problems  that
adversely  affect  their  ability to provide  the  Company  with the  quality of
supplies needed.

The Company intends to develop additional contingency plans if and to the extent
additional significant risks become evident.

Forward-Looking Statements

Certain statements contained in this Report are forward-looking statements which
are subject to a number of known and unknown risks and uncertainties  that could
cause the Company's  actual results and  performance to differ  materially  from
those described or implied in the  forward-looking  statements.  These risks and
uncertainties,  many of which are not within the Company's control, include, but
are not limited to, the level of the Company's  debt and its ability to meet its
debt  service  obligations;  the  restrictions  imposed  on the  Company  by the
indenture and the Credit  Agreement;  the Company's ability to repurchase Senior
Notes  following  a "change  in  control"  of the  Company  (as  defined  in the
Indenture);  that the  Company  operates  in a highly  competitive  environment;
changes in consumer tastes;  national and local economic conditions;  changes in
population, traffic patterns,  discretionary spending priorities and demographic
trends;   weather   conditions;   the  Company's  reliance  on  one  independent
distributor;  the Company's  vulnerability  to increases in food and  restaurant
operating  costs which could be caused by  inflation  and  shortages  of supply,
including food, labor and restaurant locations;  rapid variations in the cost of
food products  (particularly  tomatoes and cheese);  increases in the federal or
state minimum wage;


                                       Pg. 24

<PAGE>

the ability to obtain and retain  attractive high customer traffic  locations on
favorable terms; the Company's ability to continue to attract  franchisees;  the
success of its  present,  and any future,  joint  ventures  and other  expansion
opportunities;  and the  failure of its systems (or those of a current or future
key supplier or landlord) to be Year 2000 compliant in a timely manner.


Item 3.  Quantitative and Qualitative Disclosure About Market Risk

                  The  Company  has  historically  invested  its cash on hand in
short term, fixed rate, highly rated and highly liquid instruments which matured
and were  reinvested  throughout  the year. In connection  with the Merger,  the
Company used  substantially  all of its available funds. In addition,  there are
restrictions  as to the types of investments the Company may make under both the
Indenture and Credit Agreement. As of October 10, 1999, the Company did not have
any  investments.  Subsequent to that date,  the Company has invested its excess
funds in  permitted  investments.  Although  its  existing  investments  are not
considered  at risk with  respect to changes in  interest  rates or markets  for
these  instruments,  the  rate of  return  on  short-term  investments  could be
affected at the time of reinvestment as a result of intervening events.

                  Borrowings  under  the  Company's  Credit  Agreement  will  be
subject to fluctuations in interest rates.  The Company does not expect to enter
into any interest rate swaps or other  instruments to hedge interest rates under
its  borrowings  under its  Credit  Agreement.  Currently  there are no  amounts
outstanding under the Credit Agreement.

                  The Company has not purchased future, forward, option or other
instruments to hedge against  fluctuations  in the prices of the  commodities it
purchases.  As a result, its future commodities purchases are subject to changes
in the prices of such commodities.

                  All of the  Company's  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. Accordingly, the Company has not purchased future contracts, options
or other instruments to hedge against changes in values of foreign currencies.















                                     Pg. 25


<PAGE>

                             PART II. OTHER INFORMATION


Item 1.  Legal Proceedings

                  On November 17, 1999,  an action  entitled  Shan Wanli,  Basem
Tawill, Abdul Hamid v. Sbarro, Inc. was filed in the Superior Court of the State
of Washington for King County.  The plaintiffs  allege that they served as store
managers,  general  managers,  assistant  managers  or  co-managers  in  Company
restaurants  in the State of Washington at various times since November 17, 1996
and that,  in  connection  therewith,  the Company  violated  the  overtime  pay
provisions  of the State of  Washington's  Minimum Wage Act by treating  them as
overtime exempt employees,  breached alleged employment agreements and statutory
provisions  by failing to record and pay for hours worked at the contract  rates
and/or statutory minimum wage rates and failed to provide  statutorily  required
meal breaks and rest periods.  The plaintiffs  also seek to represent all of the
Company's  restaurant  managers  employed  for any  period  of time on or  after
November  9, 1996 in the State of  Washington.  The Company  currently  owns and
operates  18  restaurants  in the State of  Washington.  Plaintiffs  seek actual
damages,  exemplary  damages  and  costs of the  lawsuit,  including  reasonable
attorney's fees, each in unspecified amounts, and injunctive relief. The Company
believes it has  substantial  defenses  to the claims and intends to  vigorously
defend this action.


Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits:
         No.               Description
         27                Financial Data Schedule

(b)      Reports on Form 8-K.

         The only Report on Form 8-K filed by the Company during the quarter for
which this Report is filed was dated  September 23, 1999 reporting under Item 1,
Changes in Control of Registrant;  Item 2, Acquisition or Disposition of Assets;
and Item 7, Financial Statements,  Pro Forma Financial Information and Exhibits.
The only  financial  statements  filed with that Report were the  following  pro
forma financial statements:

(a)      Unaudited consolidated pro forma balance sheet at July 18, 1999.
(b)      Unaudited consolidated pro forma income statements for the
         year ended January 3, 1999, twenty-eight weeks ended July 18,
         1999 and twelve months ended July 18, 1999.
(c)      Notes to unaudited consolidated pro forma financial data.




                                          Pg. 26
<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:       November 24, 1999     By:  /s/ MARIO SBARRO
         --------------------              --------------------------
                                           Mario Sbarro
                                           Chairman of the Board and President



Date:       November 24, 1999     By:  /s/ ROBERT G. ROONEY
         --------------------              --------------------------
                                           Robert G. Rooney
                                           Chief Financial Officer




















                                  Pg. 27


<PAGE>






                                EXHIBIT INDEX



Exhibit Number                      Description

     27                       Financial Data Schedule
<PAGE>