UNITED STATES

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 March 30, 2008 Commission file number 333-142081

SBARRO, INC.

(Exact name of registrant as specified in its charter)

NEW YORK	11-2501939
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
401 Broad Hollow Road, Melville, New York	11747-4714
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (631) 715-4100

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

Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x    Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The number of shares of Common Stock of the registrant outstanding as of May 12, 2008 was 100.

SBARRO, INC.

FORM 10-Q INDEX

PART I. FINANCIAL INFORMATION	PAGES
Consolidated Financial Statements (unaudited):
Balance Sheets (unaudited)—March 30, 2008 (Successor) and December 30, 2007 (Successor)	3-4
Statements of Operations (unaudited)—Three months ended March 30, 2008 (Successor), the period January 31 through April 1, 2007 (Successor) and the period January 1 through January  30, 2007 (Predecessor)	5
Statements of Cash Flows (unaudited)—Three months ended March 30, 2008 (Successor), the period January 31 through April 1, 2007 (Successor) and the period January 1 through January  30, 2007 (Predecessor)	6-7
Notes to Unaudited Consolidated Financial Statements	8
Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Quantitative and Qualitative Disclosures About Market Risk	29
Controls and Procedures	30
PART II. OTHER INFORMATION	31

2

Part I – Financial Information

Item 1. Consolidated Financial Statements

SBARRO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

(Unaudited)

(In thousands)

	March 30, 2008		December 30, 2007
	SUCCESSOR		SUCCESSOR
Current assets:
Cash and cash equivalents	$	13,444	$	28,867
Receivables, net of allowance for doubtful accounts of $55 at March 30, 2008:
Franchise		3,653		2,938
Other		4,023		4,552
		7,676		7,490
Inventories		2,909		3,056
Prepaid expenses		2,419		3,480
Deferred tax asset		4,315		2,331
Total current assets		30,763		45,224
Property and equipment, net		65,598		65,343
Intangible assets:
Goodwill		211,236		211,236
Trademarks		248,000		248,000
Other intangible assets		31,632		31,996
Deferred financing costs, net		9,794		10,069
Deferred tax asset		23,903		23,850
Other assets		1,186		1,053
Total assets	$	622,112	$	636,771

See notes to unaudited consolidated financial statements.

3

SBARRO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

LIABILITIES & SHAREHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In thousands except shareholders)

(CONTINUED)

	March 30, 2008			December 30, 2007
	SUCCESSOR			SUCCESSOR
Current liabilities:
Accounts payable	$	6,391		$	8,586
Accrued expenses		19,527			23,685
Accrued interest payable		3,851			7,745
Due to former shareholders		6,200			6,200
Taxes payable on behalf of former shareholders		572			2,072
Current portion of debt		1,830			1,830
Total current liabilities		38,371			50,118
Deferred rent		3,842			3,587
Deferred tax liability		107,250			107,130
Due to former shareholders & other liabilities		9,973			10,052
Long-term debt		329,798			330,255
Commitments and contingencies
Shareholders’ equity:
Common stock
Authorized 1,000 shares; $.01 par value issued and outstanding 100 shares at March 30, 2008 and December 30, 2007		—			—
Additional paid-in capital		133,000			133,000
(Accumulated deficit) retained earnings		(122	)		2,629
Total shareholders’ equity		132,878			135,629
Total liabilities and shareholders’ equity	$	622,112		$	636,771

See notes to unaudited consolidated financial statements.

4

SBARRO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands)

	For the three months ended March 30, 2008			For the period January 31 through April 1, 2007			For the period January 1 through January 30, 2007
	SUCCESSOR			SUCCESSOR			PREDECESSOR
Revenues:
Restaurant sales	$	79,753		$	53,092		$	23,594
Franchise related income		3,485			2,477			993
Real estate		—			—			323
Total revenues		83,238			55,569			24,910
Costs and expenses:
Cost of food and paper products		17,382			10,697			4,308
Payroll and other employee benefits		22,313			14,973			6,762
Other operating costs		30,009			18,999			8,839
Other income, net		(1,219	)		(425	)		(497	)
Depreciation and amortization		4,118			2,916			1,272
General and administrative		7,235			4,423			2,843
Special event bonuses		—			—			31,395
Asset impairment, restaurant closings/remodels		167			83			74
Total costs and expenses, net		80,005			51,666			54,996
Operating income (loss)		3,233			3,903			(30,086	)
Other (expense) income:
Interest expense		(7,736	)		(5,304	)		(2,570	)
Interest income		73			332			108
Equity in net (loss) income of unconsolidated affiliates		(150	)		—			12
Net other expense		(7,813	)		(4,972	)		(2,450	)
Loss before income taxes		(4,580	)		(1,069	)		(32,536	)
Income tax (benefit) expense		(1,829	)		(440	)		44
Net loss	$	(2,751	)	$	(629	)	$	(32,580	)

See notes to unaudited consolidated financial statements.

5

SBARRO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	For the three months ended March 30, 2008			For the period January 31 through April 1, 2007			For the period January 1 through January 30, 2007
	SUCCESSOR			SUCCESSOR			PREDECESSOR
Operating Activities:
Net loss	$	(2,751	)	$	(629	)	$	(32,580	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		4,118			2,916			1,272
Amortization of deferred financing costs		275			143			80
Amortization of senior note		—			98			32
Increase (decrease) in deferred rent, net of tenant allowance		252			220			(117	)
Asset impairment and restaurant closings/remodels		167			83			74
Change in deferred tax benefit		(1,917	)		(578	)		—
Equity in net loss (income) of unconsolidated affiliates		150			—			(12	)
Changes in operating assets and liabilities, net of effects of merger:
(Increase) decrease in receivables		(151	)		1,389			394
Decrease in inventories		148			134			319
Decrease (increase) in prepaid expenses		1,061			1,199			(1,434	)
(Increase) decrease in other assets		(25	)		(138	)		871
(Decrease) increase in accounts payable, accrued expenses & other liabilities		(8,090	)		5,600			23,474
(Decrease) increase in accrued interest payable		(3,894	)		3,930			2,337
Net cash (used in) provided by operating activities		(10,657	)		14,367			(5,290	)

(Continued)

6

SBARRO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

(CONTINUED)

	For the three months ended March 30, 2008			For the period January 31 through April 1, 2007			For the period January 1 through January 30, 2007
	SUCCESSOR			SUCCESSOR			PREDECESSOR
Investing Activities:
Purchases of property and equipment		(3,623	)		(3,040	)		(1,691	)
Purchase of other locations		(425	)		—			—
Investment in joint ventures		(260	)		—			—
Cash paid for merger, net of cash acquired		—			(177,000	)		—
Net cash used in investing activities		(4,308	)		(180,040	)		(1,691	)
Financing Activities:
Proceeds from shareholders for issuance of common stock		—			133,000			—
Proceeds from secured term loan		—			183,000			—
Proceeds from senior notes		—			150,000			—
Paydown of Predecessor’s notes		—			(267,000	)		—
Debt issue costs		—			(11,000	)		—
Repayment of secured term loan		(458	)		—			—
Mortgage principal repayments		—			—			(17	)
Dividends to sellers		—			—			(76,159	)
Repayment of loans by officers		—			—			5,530
Net cash (used in) provided by financing activities		(458	)		188,000			(70,646	)
(Decrease) increase in cash and cash equivalents		(15,423	)		22,327			(77,627	)
Cash and cash equivalents at beginning of period		28,867			—			88,627
Cash and cash equivalents at end of period	$	13,444		$	22,327		$	11,000

Supplemental non-cash investing activities:

On January 30, 2007, the Company transferred its interest of $5.6 million of certain non-core assets to a newly-formed company owned by certain of our former shareholders as a dividend.

7

SBARRO INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

1. Basis of financial statement presentation:

On January 31, 2007, entities controlled by MidOcean Partners III, LP, a private equity firm, and certain of its affiliates (“MidOcean”) acquired the Company, pursuant to an agreement and plan of merger (“Merger Agreement”). MidOcean SBR Acquisition Corp., a wholly-owned subsidiary of Sbarro Holdings, LLC, merged with and into the Company (the “Merger”), with the Company surviving the Merger. Sbarro Holdings, LLC is a wholly-owned subsidiary of MidOcean SBR Holdings, LLC (“Holdings”). Sbarro Holdings, LLC owns 100% of our outstanding common stock and Holdings owns 100% of the limited liability company interests of Sbarro Holdings, LLC.

MidOcean owns approximately 74% of Holdings and thus acquired control of the Company in the Merger. Certain of our senior managers acquired approximately 5% of the outstanding equity of Holdings in connection with the Merger, with the balance of the equity of Holdings being owned by other investors.

As a result of the Merger, we are required to present our results for the first quarter of 2007 as two separate periods. Our Predecessor financial period refers to the period from January 1 through January 30, 2007 prior to consummation of the Merger. Our Successor financial period refers to the period from January 31 through April 1, 2007 following consummation of the Merger.

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 March 30, 2008 (Successor) and our consolidated results of operations and cash flows for the three months ended March 30, 2008 (Successor) and the period January 31, 2007 through April 1, 2007 (Successor) and the period January 1, 2007 through January 30, 2007 (Predecessor) 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 our annual financial statements, including footnotes thereto, included in our Annual Report on Form 10-K for the year ended December 30, 2007.

Certain reclassifications have been made to the prior year’s financial statements to conform to the current presentation.

2. Recent Accounting Pronouncements:

SFAS 157:

In September 2006, FASB issued Statement SFAS No. 157, “Fair Value Measurements”. This statement defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. The statement applies whenever other statements require or permit assets or liabilities to be measured at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. This statement does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. In February 2008, the FASB issued a final Staff Position to allow a one-year deferral of adoption of SFAS No. 157 for non-financial assets and non-financial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The FASB amended SFAS No. 157 to exclude FASB Statement No. 13 and its related interpretive accounting pronouncements that address leasing transactions. We elected to defer adoption of SFAS No. 157 for non-financial assets and non-financial liabilities and we do not currently anticipate that full adoption in 2009 will materially impact our consolidated financial statements. We evaluated SFAS No. 157 and determined that the adoption of the provisions effective December 31, 2007 did not have a material effect on our consolidated financial statements.

SFAS 159:

On December 31, 2007, we adopted FASB Statement SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”), which is effective for fiscal years beginning after November 15, 2007. Under SFAS No. 159, a company may elect to measure eligible financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. We evaluated SFAS No. 159 and do not have any items eligible for the fair value accounting option of; therefore, the adoption of SFAS No. 159 had no impact on our consolidated financial statements.

8

SBARRO INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Continued)

SFAS 141 (R):

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“FAS 141(R)”), which is effective for annual periods beginning on or after December 15, 2008. In FAS 141(R), the FASB retained the fundamental requirements of Statement No. 141 to account for all business combinations using the acquisition method (formerly the purchase method) and for an acquiring entity to be identified in all business combinations. However, the new standard requires the acquiring entity in a business combination to recognize the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date for value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. The Company will apply the provisions of this statement prospectively to business combinations for which the acquisition date is on or after December 29, 2008 and is currently assessing the impact of adoption of SFAS No. 141(R) on its consolidated financial statements.

SFAS 160:

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment to ARB No. 51,” which is effective for fiscal years beginning on or after December 15, 2008. SFAS No. 160 requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements, but separate from the equity of the parent company. The statement further requires that consolidated net income be reported at amounts attributable to the parent and the noncontrolling interest, rather than expensing the income attributable to the minority interest holder. This statement also requires that companies provide sufficient disclosures to clearly identify and distinguish between the interest of the parent company and the interest of the noncontrolling interest holder. We have not yet determined the impact, if any, that SFAS No. 160 will have on our consolidated financial statements.

SFAS 161:

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 with the intent to provide users of financial statements with an enhanced understanding of: (i) How and why an entity uses derivative instruments; (ii) How derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (iii) How derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not currently use derivative instruments and therefore SFAS No. 161 will not have an effect on our consolidated financial statements.

3. Long Term Debt:

Indenture:

In connection with the Merger, we issued $150.0 million of senior notes at 10.375% due 2015 (“Senior Notes”). The interest is payable on February 1 and August 1 of each year.

The Senior Notes are senior unsecured obligations of ours and are guaranteed by all of our current and future domestic subsidiaries and rank equally in right of payment with all existing and future senior indebtedness of ours. The Senior Notes are effectively subordinated to all secured indebtedness of ours to the extent of the collateral securing such indebtedness, including the Senior Credit Facilities. In the event of any distribution or payment of our assets in any foreclosure, dissolution, winding-up, liquidation, reorganization, or other bankruptcy proceeding, holders of secured indebtedness will have prior claim to those of our assets that constitute their collateral. The Senior Notes are structurally subordinated to all existing and future indebtedness, claims of holders of preferred stock and other liabilities of our subsidiaries that do not guarantee the Senior Notes. In the event of a bankruptcy, liquidation or reorganization of any of our non-guarantor subsidiaries, holders of their indebtedness and their trade creditors will generally be entitled to payment of their claims in full from the assets of those subsidiaries before any assets are made available for distribution to us. The Senior Notes are senior in right of payment to any future subordinated obligations of ours.

The indenture governing the notes contains certain events of default and restrictive covenants which are customary with respect to non-investment grade debt securities, including limitations on the incurrence of additional indebtedness, dividends, repurchases of capital stock, sales of assets, liens, mergers and transactions with affiliates.

9

SBARRO INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Continued)

Senior Credit Facilities:

In connection with the Merger, we entered into new senior secured credit facilities. The senior secured credit facilities provided for loans of $208.0 million under a $183.0 million senior secured term loan facility and a $25.0 million senior secured revolving facility (the “Senior Credit Facilities”) The revolving facility also provides for the issuance of letters of credit not to exceed $10.0 million at any one time outstanding and swing line loans not to exceed $5.0 million at any one time outstanding. In addition, the Senior Credit Facilities provide for an uncommitted incremental facility of up to $50.0 million. In connection with the Merger, we borrowed the entire $183.0 million available under the term loan facility. The term loan facility (the “Term Loan”) will mature in 2014 and the revolving credit facility is scheduled to terminate and come due in 2013.

In general, borrowings under the Senior Credit Facilities bear interest based, at our option, at either the Eurodollar rate or an alternate base rate (“ABR”), in each case plus a margin. The applicable margin will be based on our total leverage ratio (as defined in the credit agreement governing the Senior Credit Facilities) at the time of determination. Our rate of interest for borrowings under the Senior Credit Facilities is LIBOR plus 2.50% or ABR plus 1.50%. In addition to paying interest on outstanding principal under the Senior Credit Facilities, we are required to pay an unused line fee to the lenders with respect to the unutilized revolving commitments at a rate that shall not exceed 50 basis points per annum.

Our obligations under the Senior Credit Facilities are unconditionally and irrevocably guaranteed by our domestic subsidiaries. In addition, the Senior Credit Facilities are secured by first priority perfected security interests in substantially all of our and our domestic subsidiaries’ capital stock, and up to 65% of the outstanding capital stock of our foreign subsidiaries.

The credit agreement governing the Senior Credit Facilities contains certain events of default and restrictive covenants which are customary with respect to facilities of this type, including limitations on the incurrence of additional indebtedness, dividends, investments, repayment of certain indebtedness, sales of assets, liens, mergers and transactions with affiliates. In addition, the credit agreement requires compliance with certain financial and operating covenants, including a minimum cash interest coverage ratio and a maximum net leverage ratio.

Long-Term Debt matures as follows (In millions):

Year ending 2008	$	1.3
2009		1.8
2010		1.8
2011		1.8
2012		1.8
2013 and thereafter	$	323.1

Line and Letters of Credit:

In connection with the Merger, we obtained a line of credit facility of $25.0 million, with a sub-limit for letters of credit of $10.0 million. This replaced our prior line of credit. There were $3.7 million of letters of credit outstanding as of March 30, 2008. The letters of credit have been issued instead of cash security deposits under our operating leases or to guarantee construction costs of our locations, and for run-out claims under our medical plan.

4. Income Taxes:

Effective January 31, 2007, the Company has been organized as a C Corporation. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

10

SBARRO INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Continued)

5. Business Segment Information:

We operate our business through two segments. Our company-owned restaurant segment is comprised of the operating activities of our company-owned QSR’s and other concept restaurants. Our franchise restaurant segment is comprised of our franchised restaurants which offer opportunities worldwide for qualified operators to conduct business under the Sbarro name and other trade names owned by Sbarro. Revenue from our franchised restaurant segment is generated from initial franchise fees, ongoing royalties and other franchising revenue. We do not allocate indirect corporate charges to our operating segments. Such costs are managed on an entity-wide basis, and the information to reasonably allocate such costs is not readily available. We do not allocate assets by segment because our chief operating decision makers do not review the assets by segment to assess performance, as the assets are managed on an entity-wide basis. Our operating segments are discussed in Note 3—Summary of Significant Accounting Policies and Note 15—Business Segment Information to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 30, 2007.

The following table sets forth the information concerning the revenue and operating income before unallocated costs of each of our company-owned and franchised restaurant segments:

	Company- Owned Restaurants(1)		Franchised Restaurants		Totals
	(In thousands)
1st Quarter 2008 (Successor)
Total revenue	$	79,753	$	3,485	$	83,238
Operating income before unallocated costs		6,984		2,181		9,165
Unallocated costs and expenses (2)						5,932
Operating income					$	3,233
1st Quarter 2007 (Combined) (4)
Total revenue	$	77,009	$	3,470	$	80,479
Operating income before unallocated costs		9,011		2,100		11,111
Unallocated costs and expenses (2)						37,294
Operating loss (3)					$	(26,183	)
1/31/07—4/1/07 (Successor)
Total revenue	$	53,092	$	2,477	$	55,569
Operating income before unallocated costs		5,851		1,506		7,357
Unallocated costs and expenses (2)						3,454
Operating income					$	3,903
1/1/07—1/30/07 (Predecessor)
Total revenue	$	23,917	$	993	$	24,910
Operating income before unallocated costs		3,160		594		3,754
Unallocated costs and expenses (2)						33,840
Operating loss (3)					$	(30,086	)

(1) Total revenue includes restaurant sales in the Successor period and restaurant sales and real estate revenues in the Predecessor period.

(2) Represents those general and administrative expenses that are not allocated to a segment.

(3) 2007 includes $31.4 million related to a special event bonus.

(4) The combined results of the Successor and Predecessor for the periods in 2007 do not comply with generally accepted accounting principles; however, we believe these results provide useful information to assess the relative performance of the businesses in all periods presented in the financial statements on an ongoing basis.

11

SBARRO INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Continued)

6. Guarantor and non-guarantor financial statements:

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

The following condensed consolidating financial information presents:

(1) Condensed unaudited consolidating balance sheets as of March 30, 2008 and December 30, 2007 and unaudited statements of operations and cash flows for the three months ended March 30, 2008 and the period January 31 through April 1, 2007 (Successor): (a) Sbarro, (“the Parent”), (b) the guarantor subsidiaries as a group, (c) the nonguarantor subsidiaries as a group, and (d) Sbarro on a consolidated basis.

(2) Elimination entries necessary to consolidate 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.

12

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Balance Sheet—Successor

As of March 30, 2008

ASSETS

(In thousands)

(Continued)

	Parent			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Current assets:
Cash and cash equivalents	$	11,054		$	2,141	$	249		$	—		$	13,444
Receivables
Franchise		3,653			—		—			—			3,653
Other		3,126			833		64			—			4,023
		6,779			833		64			—			7,676
Inventories		1,221			1,676		12			—			2,909
Prepaid expenses		1,975			445		(1	)		—			2,419
Deferred tax asset		4,315			—		—			—			4,315
Total current assets		25,344			5,095		324			—			30,763
Intercompany receivables		(32,800	)		33,393		(593	)		—			—
Investment in subsidiaries		70,875			—		—			(70,875	)		—
Property and equipment, net		26,054			39,529		15			—			65,598
Goodwill		211,236			—		—			—			211,236
Trademarks		248,000			—		—			—			248,000
Other intangible assets		31,632			—		—			—			31,632
Deferred financing costs, net		9,794			—		—			—			9,794
Deferred tax asset		23,903			—		—			—			23,903
Other assets		1,091			95		—			—			1,186
Total assets	$	615,129		$	78,112	$	(254	)	$	(70,875	)	$	622,112

13

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Balance Sheet—Successor

As of March 30, 2008

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

(In thousands)

(Continued)

	Parent			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Current liabilities:
Accounts payable	$	6,195		$	175	$	21		$	—		$	6,391
Accrued expenses		17,685			1,874		(32	)		—			19,527
Accrued interest payable		3,851			—		—			—			3,851
Due to former shareholders		6,200			—		—			—			6,200
Taxes payable on behalf of former shareholders		572			—		—			—			572
Current portion of debt		1,830			—		—			—			1,830
Total current liabilities		36,333			2,049		(11	)		—			38,371
Deferred rent		781			3,061		—			—			3,842
Deferred tax liability		107,250			—		—			—			107,250
Due to former shareholders & other liabilities		8,089			1,884		—			—			9,973
Long-term debt		329,798			—		—			—			329,798
Shareholders’ equity:
Common stock, $.01 par value, 1000 shares authorized, 100 issued & outstanding		—			—		—			—			—
Additional paid-in capital		133,000			68,302		—			(68,302	)		133,000
(Accumulated deficit) retained earnings		(122	)		2,816		(243	)		(2,573	)		(122	)
		132,878			71,118		(243	)		(70,875	)		132,878
Total liabilities and shareholders’ equity	$	615,129		$	78,112	$	(254	)	$	(70,875	)	$	622,112

14

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Balance Sheet—Successor

As of December 30, 2007

ASSETS

(In thousands)

(Continued)

	Parent			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Current assets:
Cash and cash equivalents	$	25,693		$	2,893	$	281		$	—		$	28,867
Receivables
Franchise		2,938			—		—			—			2,938
Other		3,484			1,001		67			—			4,552
		6,422			1,001		67			—			7,490
Inventories		1,310			1,731		15			—			3,056
Prepaid expenses		3,070			410		—			—			3,480
Deferred tax asset		2,331			—		—			—			2,331
Total current assets		38,826			6,035		363			—			45,224
Intercompany receivables		(34,460	)		35,043		(583	)		—			—
Investment in subsidiaries		71,588			—		—			(71,588	)		—
Property and equipment, net		28,420			36,908		15			—			65,343
Goodwill		211,236			—		—			—			211,236
Trademarks		248,000			—		—			—			248,000
Other intangible assets		31,996			—		—			—			31,996
Deferred financing costs, net		10,069			—		—			—			10,069
Deferred tax asset		23,850			—		—			—			23,850
Other assets		959			94		—			—			1,053
Total assets	$	630,484		$	78,080	$	(205	)	$	(71,588	)	$	636,771

15

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Balance Sheet—Successor

As of December 30, 2007

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

(In thousands)

(Continued)

	Parent		Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Current liabilities:
Accounts payable	$	8,345	$	191	$	50		$	—		$	8,586
Accrued expenses		22,258		1,466		(39	)		—			23,685
Accrued interest payable		7,745		—		—			—			7,745
Due to former shareholders		6,200		—		—			—			6,200
Taxes payable on behalf of former shareholders		2,072		—		—			—			2,072
Current portion of debt		1,830		—		—			—			1,830
Total current liabilities		48,450		1,657		11			—			50,118
Deferred rent		919		2,668		—			—			3,587
Deferred tax liability		107,130		—		—			—			107,130
Due to former shareholders & other liabilities		8,101		1,951		—			—			10,052
Long-term debt		330,255		—		—			—			330,255
Shareholders’ equity:
Common stock, $.01 par value, 1000 shares authorized, 100 issued & outstanding		—		—		—			—			—
Additional paid-in capital		133,000		68,302		—			(68,302	)		133,000
Retained earnings (accumulated deficit)		2,629		3,502		(216	)		(3,286	)		2,629
		135,629		71,804		(216	)		(71,588	)		135,629
Total liabilities and shareholders’ equity	$	630,484	$	78,080	$	(205	)	$	(71,588	)	$	636,771

16

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Statement of Operations—Successor

For the three months ended March 30, 2008

(In thousands)

(Continued)

	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations		Consolidated Total
Revenues:
Restaurant sales	$	33,844		$	45,569		$	340		$	—	$	79,753
Franchise related income		3,485			—			—			—		3,485
Intercompany charges		5,934			(5,891	)		(43	)		—		—
Total revenues		43,263			39,678			297			—		83,238
Costs and expenses:
Cost of food and paper products		8,271			9,025			86			—		17,382
Payroll and other employee benefits		9,152			13,075			86			—		22,313
Other operating costs		13,063			16,795			151			—		30,009
Other income, net		(543	)		(676	)		—			—		(1,219	)
Depreciation and amortization		2,138			1,979			1			—		4,118
General and administrative		7,235			—			—			—		7,235
Asset impairment, restaurant closings		—			167			—			—		167
Total costs and expenses, net		39,316			40,365			324			—		80,005
Operating income (loss)		3,947			(687	)		(27	)		—		3,233
Other (expense) income:
Interest expense		(7,735	)		(1	)		—			—		(7,736	)
Interest income		71			2			—			—		73
Equity in net loss of unconsolidated affiliates		(150	)		—			—			—		(150	)
Net other (expense) income		(7,814	)		1			—			—		(7,813	)
Equity in loss of subsidiaries		(713	)		—			—			713		—
Loss before income taxes		(4,580	)		(686	)		(27	)		713		(4,580	)
Income tax benefit		(1,829	)		—			—			—		(1,829	)
Net loss	$	(2,751	)	$	(686	)	$	(27	)	$	713	$	(2,751	)

17

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Statement of Operations—Successor

For the period January 31—April 1, 2007

(In thousands)

(Continued)

	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Revenues:
Restaurant sales	$	23,410		$	29,487		$	195		$	—		$	53,092
Franchise related income		2,477			—			—			—			2,477
Intercompany charges		1,770			—			(10	)		(1,760	)		—
Total revenues		27,657			29,487			185			(1,760	)		55,569
Costs and expenses:
Cost of food and paper products		5,061			5,584			52			—			10,697
Payroll and other employee benefits		6,227			8,693			53			—			14,973
Other operating costs		8,571			10,356			72			—			18,999
Depreciation and amortization		1,407			1,508			1			—			2,916
Other income, net		(385	)		(23	)		(17	)		—			(425	)
General and administrative		4,310			12			101			—			4,423
Asset impairment, restaurant closings		—			83			—			—			83
Intercompany charges		—			1,760			—			(1,760	)		—
Total costs and expenses, net		25,191			27,973			262			(1,760	)		51,666
Operating income (loss)		2,466			1,514			(77	)		—			3,903
Other (expense) income:
Interest expense		(5,304	)		—			—			—			(5,304	)
Interest income		322			10			—			—			332
Net other (expense) income		(4,982	)		10			—			—			(4,972	)
Equity in income of subsidiaries		1,447			—			—			(1,447	)		—
Income (loss) before income taxes		(1,069	)		1,524			(77	)		(1,447	)		(1,069	)
Income tax benefit		(440	)		—			—			—			(440	)
Net income (loss)	$	(629	)	$	1,524		$	(77	)	$	(1,447	)	$	(629	)

18

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Statement of Cash Flows—Successor

For the three months ended March 30, 2008

(In thousands)

(Continued)

	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Operating Activities:
Net (loss) income	$	(2,751	)	$	(686	)	$	(27	)	$	713		$	(2,751	)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization		2,138			1,979			1			—			4,118
Amortization of deferred financing costs		275			—			—			—			275
Increase in deferred rent, net		230			22			—			—			252
Asset impairment, restaurant closings/remodels		—			167			—			—			167
Change in deferred tax benefit		(1,917	)		—			—			—			(1,917	)
Equity in net loss of unconsolidated affiliates		150			—			—			—			150
Equity in loss of subsidiaries		713			—			—			(713	)		—
Changes in operating assets and liabilities:
(Increase) decrease in receivables		(357	)		203			3			—			(151	)
Decrease in inventories		91			55			2			—			148
Decrease (increase) in prepaid expenses		1,095			(35	)		1			—			1,061
Increase in other assets		(23	)		(2	)		—			—			(25	)
(Decrease) increase in accounts payable and accrued expenses		(8,338	)		270			(22	)		—			(8,090	)
Decrease in accrued interest payable		(3,894	)		—			—			—			(3,894	)
Net cash (used in) provided by operating activities		(12,588	)		1,973			(42	)		—			(10,657	)
Investing Activities:
Purchases of property and equipment		(1,092	)		(2,531	)		—			—			(3,623	)
Purchases of other locations		—			(425	)		—			—			(425	)
Investment in joint ventures		(260	)		—			—			—			(260	)
Net cash used in investing activities		(1,352	)		(2,956	)		—			—			(4,308	)
Financing Activities:
Repayment of secured term loan		(458	)		—			—			—			(458	)
Intercompany balances		(241	)		231			10			—			—
Net cash (used in) provided by financing activities		(699	)		231			10			—			(458	)
Decrease in cash and cash equivalents		(14,639	)		(752	)		(32	)		—			(15,423	)
Cash and cash equivalents at beginning of period		25,693			2,893			281			—			28,867
Cash and cash equivalents at end of period	$	11,054		$	2,141		$	249		$	—		$	13,444

19

SBARRO, INC. AND SUBSIDIARIES

Notes To Unaudited Consolidated Financial Statements

Consolidating Statement of Cash Flows—Successor

For the period January 31—April 1, 2007

(In thousands)

(Continued)

	Parent			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Operating Activities:
Net (loss) income	$	(629	)	$	1,524		$	(77	)	$	(1,447	)	$	(629	)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization		1,407			1,508			1			—			2,916
Amortization of deferred financing costs		143			—			—			—			143
Amortization of senior note		98			—			—			—			98
(Decrease)increase in deferred rent, net		(100	)		320			—			—			220
Asset impairment, restaurant closings/remodels		83			—			—			—			83
Change in deferred tax benefit		(578	)		—			—			—			(578	)
Equity in earnings of subsidiaries		(1,447	)		—			—			1,447			—
Changes in operating assets and liabilities, net of effects of merger:
(Increase) decrease in receivables		1,012			377			—			—			1,389
(Increase) decrease in inventories		70			55			9			—			134
(Increase) decrease in prepaid expenses		936			262			1			—			1,199
(Increase) decrease in other assets		(137	)		(1	)		—			—			(138	)
Increase (decrease) in accounts payable and accrued expenses		6,462			(875	)		13			—			5,600
Increase in accrued interest payable		3,930			—			—			—			3,930
Net cash provided by (used in) operating activities		11,250			3,170			(53	)		—			14,367
Investing Activities:
Purchases of property and equipment		(2,096	)		(930	)		(14	)		—			(3,040	)
Net cash paid for merger, net of cash acquired		(177,000	)		—			—			—			(177,000	)
Net cash used in investing activities		(179,096	)		(930	)		(14	)		—			(180,040	)
Financing Activities:
Proceeds from shareholders for issuance of common stock		133,000			—			—			—			133,000
Proceeds from secured term loan		183,000			—			—			—			183,000
Proceeds from senior notes		150,000			—			—			—			150,000
Paydown of Predecessor’s notes		(267,000	)		—			—			—			(267,000	)
Debt issue costs		(11,000	)		—			—			—			(11,000	)
Intercompany balances		(528	)		131			397			—			—
Net cash (used in) provided by financing activities		187,472			131			397			—			188,000
Increase in cash and cash equivalents		19,626			2,371			330			—			22,327
Cash and cash equivalents at beginning of period		—			—			—			—			—
Cash and cash equivalents at end of period	$	19,626		$	2,371		$	330		$	—		$	22,327

Supplemental non cash investing activities:

On January 30, 2007, the Company transferred its interest of $5.6 million of certain non-core assets to a newly-formed company owned by certain of our former shareholders.

20

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

Forward-Looking Statements

We make statements in this Quarterly Report that are considered forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. The words “anticipate,” “believe,” “estimate,” “intend,” “may,” “will,” “expect” and similar words often indicate that a statement is a “forward-looking statement.” Statements about non-historic results also are considered to be forward-looking statements. None of these forward-looking statements are guarantees of future performance or events, and they are subject to numerous risks, uncertainties and other factors. These risks, uncertainties and other factors include, but are not limited to:

• general economic, inflation, national security, weather and business conditions;

• the availability of suitable restaurant sites in appropriate regional shopping malls and other locations on reasonable rental terms;

• changes in consumer tastes;

• changes in population and traffic patterns, including the effects that military action and terrorism 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;

• our ability to continue to attract franchisees;

• the success of our present, and any future, joint ventures and other expansion opportunities;

• the availability of food (particularly cheese and tomatoes), beverage and paper products;

• our ability to pass along cost increases to our customers;

• increases in the Federal minimum wage;

• the continuity of services of members of our senior management team;

• our ability to attract and retain competent restaurant and executive managerial personnel;

• competition;

• the level of, and our ability to comply with, government regulations;

• our ability to generate sufficient cash flow to make interest payments and principal under our borrowing agreements;

• our ability to comply with financial covenants and ratios and the effects the restrictions imposed by those financial covenants and ratios may have on our ability to operate our business; and

• our ability to repurchase and/or repay amounts under our borrowing agreements to the extent required in the event of certain circumstances as defined in our borrowing agreements.

You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this 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.

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

Executive Overview

For the purposes of management’s discussion and analysis, the first quarter of 2008 is the three months ended March 30, 2008 and the first quarter 2007 is the combined Predecessor and Successor period of January 1, 2007 through April 1, 2007.

We believe we are the world’s leading Italian Quick Service Restaurant (“QSR”) concept and the largest shopping mall-focused restaurant concept in the world. We have a global base of 1,040 units in 43 countries, with 504 company-owned units, 528 franchised units and 8 joint venture units. Sbarro restaurants feature a menu of popular Italian food, including pizza, a selection of pasta dishes and other hot and cold Italian entrees, salads, sandwiches, drinks and desserts.

We operate our business through two segments. Our company-owned restaurant segment is comprised of the operating activities of our company-owned QSR’s and other concept restaurants. Our franchised restaurant segment is comprised of our franchised restaurants which offer opportunities worldwide for qualified operators to conduct business under the Sbarro name

21

and other trade names owned by Sbarro. Revenue from our franchised restaurant segment is generated from initial franchise fees, ongoing royalties and other franchising revenue. We do not allocate indirect corporate charges to our operating segments. Such costs are managed on an entity-wide basis, and the information to reasonably allocate such costs is not readily available. We do not allocate assets by segment because our chief operating decision makers do not review the assets by segment to assess performance, as the assets are managed on an entity-wide basis. Our operating segments are discussed in Note 3—Summary of Significant Accounting Policies and Note 15—Business Segment Information to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 30, 2007.

Our Restaurant Expansion

The following table summarizes the number of company-owned, franchised, and joint venture restaurants in operation during each indicated period:

	3 months ended 3/30/08		Period 1/31/07- 4/01/07		Period 1/1/07- 1/30/07
	(Successor)		(Successor)		(Predecessor)
Company-owned Sbarro restaurants:
Open at beginning of period	506		484		485
Opened during period	4		1		1
Acquired from franchisees during period	—		1		—
Closed during period	(6	)	(2	)	(2	)
Open at end of period	504		484		484
Franchised Sbarro restaurants:
Open at beginning of period	524		480		478
Opened during period	19		12		3
Transferred to Sbarro during period	—		(1	)	—
Closed during period	(15	)	(2	)	(1	)
Open at end of period	528		489		480
Joint venture Sbarro restaurants:
Open at beginning of period	7		—		—
Opened during period	1		—		—
Closed during period	—		—		—
Open at end of period	8		—		—
All restaurants:
Open at beginning of period	1,037		964		963
Opened during period	24		13		4
Closed during period	(21	)	(4	)	(3	)
Open at end of period	1,040		973		964

Seasonality

Revenues are highest in our fourth quarter due primarily to increased traffic in shopping malls during the holiday shopping season. Our annual revenues and earnings can fluctuate due to the length of the holiday shopping period between Thanksgiving and New Year’s Day.

Goodwill and Other Intangible Assets

Due to the seasonality of our business, until we determine the results of operations for our fourth quarter, we are not able to perform our annual test for impairment on our goodwill and intangible assets with indefinite lives as required by SFAS No. 142, “Goodwill and Other Intangible Assets,” and fully evaluate the impairment of long-lived assets as required by SFAS No. 144, “Accounting for the Impairment and Disposal of Long-Lived Assets.” Any required adjustments are recorded at that time unless impairment factors become evident earlier.

22

Financial Information (Dollars in millions)

	Three months ended March 30, 2008			Three months ended April 1, 2007
		(Successor)			(Combined) (2)
Comparable sales-percentage change vs. prior comparable period (1):
QSR-owned locations		0.3	%		2.7	%
Franchise locations:
Domestic Franchise		0.1	%		3.4	%
International Franchise		8.3	%		7.0	%
Cost of food and paper products as a percentage of restaurant sales		21.8	%		19.6	%
Payroll and other benefits as a percentage of restaurant sales		28.0	%		28.3	%
Other operating expense as a percentage of restaurant sales		37.6	%		36.3	%
General and administrative costs as a percentage of revenues		8.7	%		9.0	%
EBITDA (3)	$	7.2		$	(22.0	)

(1) Comparable and annual percentage changes are based on locations that were open during the entire period within the periods presented.

(2) The combined results of the Successor and Predecessor for the three months ended April 1, 2007 does not comply with generally accepted accounting principles; however, we believe this provides useful information to discuss the relative performance of the business in all periods presented in the financial statements on an ongoing basis.

(3) EBITDA represents earnings before interest income, interest expense, taxes, depreciation and amortization. EBITDA should not be considered in isolation from, or as a substitute for, net income, cash flow from operations or other cash flow statement data prepared in accordance with generally accepted accounting principles (“GAAP”) or as a measure of a company’s profitability or liquidity. Rather, we believe that EBITDA provides relevant and useful information for analysts of, and investors in, our Senior Notes in that EBITDA is one of the factors in the calculation of our compliance with the ratios in the Senior Credit Facilities. We also internally use EBITDA to determine whether to continue operating restaurant units since it provides us with a measurement of whether we are receiving an adequate cash return on our investment. Our calculation of EBITDA may not be comparable to a similarly titled measure reported by other companies, since all companies do not calculate this non-GAAP measure in the same manner. Our EBITDA calculations are not intended to represent cash provided by (used in) operating activities since they do not include interest and taxes and changes in operating assets and liabilities, nor are they intended to represent a net increase in cash since they do not include cash provided by (used in) investing and financing activities. Included in the calculation of EBITDA for Predecessor and Combined 2007 is $31.4 million related to a special event bonus.

23

The following table reconciles EBITDA to our net loss for each of the periods presented, which we believe is the most direct comparable GAAP financial measure to EBITDA (In thousands):

	Three months ended March 30, 2008			Three months ended April 1, 2007			January 31-April 1, 2007			January 1- January 30, 2007
	(Successor)			(Combined)(*)			(Successor)			(Predecessor)
EBITDA	$	7,201		$	(21,983	)	$	6,819		$	(28,802	)
Interest Expense		(7,736	)		(7,874	)		(5,304	)		(2,570	)
Interest Income		73			440			332			108
Income Tax Benefit (Expense)		1,829			396			440			(44	)
Depreciation and Amortization		(4,118	)		(4,188	)		(2,916	)		(1,272	)
Net loss	$	(2,751	)	$	(33,209	)	$	(629	)	$	(32,580	)

(*) The combined results of the Successor and Predecessor for the period in 2007 does not comply with generally accepted accounting principles; however, we believe that this provides useful information to assess the relative performance of the businesses in all periods presented in the financial statements on an ongoing basis.

The following table sets forth the information concerning the revenue and operating income before unallocated costs of each of our company-owned and franchised restaurant segments:

	Company- Owned Restaurants(1)		Franchised Restaurants		Totals
	(In thousands)
1st Quarter 2008 (Successor)
Total revenue	$	79,753	$	3,485	$	83,238
Operating income before unallocated costs		6,984		2,181		9,165
Unallocated costs and expenses (2)						5,932
Operating income					$	3,233
1st Quarter 2007 (Combined) (4)
Total revenue	$	77,009	$	3,470	$	80,479
Operating income before unallocated costs		9,011		2,100		11,111
Unallocated costs and expenses (2)						37,294
Operating loss (3)					$	(26,183	)
1/31/07—4/1/07 (Successor)
Total revenue	$	53,092	$	2,477	$	55,569
Operating income before unallocated costs		5,851		1,506		7,357
Unallocated costs and expenses (2)						3,454
Operating income					$	3,903
1/1/07—1/30/07 (Predecessor)
Total revenue	$	23,917	$	993	$	24,910
Operating income before unallocated costs		3,160		594		3,754
Unallocated costs and expenses (2)						33,840
Operating loss (3)					$	(30,086	)

(1) Total revenue includes restaurant sales in the Successor period and restaurant sales and real estate revenues in the Predecessor period.

(2) Represents those general and administrative expenses that are not allocated to a segment.

(3) 2007 includes $31.4 million related to a special event bonus.

(4) The combined results of the Successor and Predecessor for the periods in 2007 do not comply with generally accepted accounting principles; however, we believe these results provide useful information to assess the relative performance of the businesses in all periods presented in the financial statements on an ongoing basis.

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SBARRO, INC. AND SUBSIDIARIES

COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	GAAP			GAAP						“Combined”
	Three months ended March 30, 2008			For the period January 31 through April 1, 2007			For the period January 1 through January 30, 2007			Three months ended April 1, 2007 *
		SUCCESSOR			SUCCESSOR			PREDECESSOR
Revenues:
Restaurant sales	$	79,753		$	53,092		$	23,594		$	76,686
Franchise related income		3,485			2,477			993			3,470
Real estate		—			—			323			323
Total revenues		83,238			55,569			24,910			80,479
Costs and expenses:
Cost of food and paper products		17,382			10,697			4,308			15,005
Payroll and other employee benefits		22,313			14,973			6,762			21,735
Other operating costs		30,009			18,999			8,839			27,838
Other income, net		(1,219	)		(425	)		(497	)		(922	)
Depreciation and amortization		4,118			2,916			1,272			4,188
General and administrative		7,235			4,423			2,843			7,266
Special event bonuses		—			—			31,395			31,395
Asset impairment and restaurant closings/remodels		167			83			74			157
Total costs and expenses, net		80,005			51,666			54,996			106,662
Operating income (loss)		3,233			3,903			(30,086	)		(26,183	)
Other (expense) income:
Interest expense		(7,736	)		(5,304	)		(2,570	)		(7,874	)
Interest income		73			332			108			440
Equity in net income (loss) of unconsolidated affiliates		(150	)		—			12			12
Net other expense		(7,813	)		(4,972	)		(2,450	)		(7,422	)
Loss before income taxes		(4,580	)		(1,069	)		(32,536	)		(33,605	)
Income tax (benefit) expense		(1,829	)		(440	)		44			(396	)
Net (loss) income	$	(2,751	)	$	(629	)	$	(32,580	)	$	(33,209	)

* The combined results of the successor and predecessor for the periods in 2007 do not comply with generally accepted accounting principles; however, we believe these results provide useful information to assess the relative performance of the businesses in all periods presented in the financial statements on an ongoing basis.

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Sales by QSR and consolidated other concept restaurants increased by 4.0% to $79.8 million for the three months ended March 30, 2008 compared to $76.7 for the combined three months ended April 1, 2007. The increase in sales is due to sales generated by new stores opened in 2007 and 2008 of $3.5 million and comparable unit sales increase of .3% in our QSR restaurants slightly offset by stores closed.

Franchise related revenues remained flat at $3.5 million for the first quarter of 2008 compared to the combined first quarter of 2007.

Cost of food and paper products as a percentage of restaurant sales increased to 21.8% for first quarter of 2008 compared to 19.6% for the combined first quarter of 2007. The cost of cheese in the first quarter of 2008 averaged approximately $2.17 per pound compared to an average of approximately $1.55 per pound in the combined first quarter of 2007. This $.62 per pound increase in cheese costs accounted for $1.2 million or 1.5% of restaurant sales. The remaining increase as a percentage of restaurant sales relates to other commodity cost increases.

Payroll and other employee benefits as a percentage of restaurant sales decreased to 28.0% in the first quarter of 2008 from 28.3% in the combined first quarter of 2007.

Other operating costs as a percentage of restaurant sales increased to 37.6% in the first quarter 2008 as compared to 36.3% in the combined first quarter of 2007. The increase is primarily due to occupancy related charges.

Other income, net was $1.2 million for the first quarter of 2008 compared to $.9 million in the combined first quarter of 2007.

Depreciation and amortization remained relatively flat at $4.1 million in first quarter 2008 and the combined first quarter of 2007.

General and administrative expenses were $7.2 million in the first quarter 2008 as compared to $7.3 million in the combined first quarter of 2007. Expenses of $.3 million in 2007 related to our former shareholders and were eliminated in connection with the Merger. Comparable general and administrative expenses remained flat.

In Predecessor 2007, in connection with the Merger, special event bonuses paid were $31.4 million

Interest expense of $7.7 million for the first quarter of 2008 and $7.9 million for the combined first quarter of 2007 relates primarily to the Senior Notes and the Term Loan under our Senior Credit Facility in Successor 2007. Included in interest expense in first quarter 2008 was the amortization of deferred financing costs for the Senior Notes and Term Loan of $.3 million. In Predecessor 2007, interest expense related to the 11%, $255 million senior notes and the 8.4%, $16 million mortgage loan on our corporate headquarters. In connection with the Merger, the 11% Notes were redeemed and mortgage loan and interests in our corporate headquarters were transferred to a company owned by certain of our former shareholders.

In our Successor period after January 31, 2007, we are taxed as a C Corporation. The income tax benefit was $1.8 million for the first quarter of 2008 and our effective tax rate was 39.9%. The income tax benefit was $.4 million for the period January 31 through April 1, 2007 (Successor) and our effective tax rate was 41% for that period. Prior to January 31, 2007, we were 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 were paid by our former shareholders rather than by the Company.

Liquidity and Capital Resources

Principal Cash Requirements and Sources

Our liquidity requirements relate to debt service, capital expenditures, working capital, investments in other ventures, and acquisitions. We estimate that our annual cash interest expense under the Senior Notes and Senior Credit Facilities that we put into place in connection with the Merger will be approximately $29 million. We also may incur additional interest expense for borrowings under our line of credit. The Senior Credit Facilities require us to prepay outstanding borrowings, subject to certain exceptions, with (a) 50% of our annual excess cash flow (subject to step-downs based upon our total leverage ratio); (b) 100% of the net cash proceeds of certain asset sales or other dispositions of property (including casualty insurance and condemnations) if we do not commit to reinvest such proceeds in accordance with the terms of the Senior Credit Facilities within 365 days of the event giving rise thereto (or, to the extent we have entered into a commitment to reinvest such proceeds within such time period to the extent such amounts are actually reinvested, within six months of the expiration of such 365 days); and (c) 100% of the net cash proceeds of any incurrence of debt, other than debt permitted under the Senior Credit Facilities. We are not required to make principal payments, absent the occurrence of certain events, on our Senior Notes until they mature in 2015. We purchased a QSR location for approximately $.4 million and invested approximately $.3 million in joint ventures in the first quarter of 2008. We repaid $.5 million in principal per the terms of

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our Term Loan. We believe that aggregate capital expenditures for all of 2008 will approximate $18 million which we expect will be funded with operating cash.

Based on our current level of operations, we believe our cash flow from operations, available cash and available borrowings under our Senior Credit Facilities will be adequate to meet our liquidity needs for at least the next twelve months.

Contractual Obligations

Our contractual obligations do not materially differ from the information disclosed in Part II, Item 7 of our Annual Report Form 10-K for the year ended December 30, 2007.

Sources and Uses of Cash

The following table summarizes our cash and cash equivalents and working capital as at the end of the first quarters of 2008 and 2007 and the sources and uses of our cash flows during the first quarters of each of those years (in millions):

	Quarter Ended March 30, 2008			Period Jan. 31 - April 1, 2007			Period Jan. 1 - Jan. 30, 2007
	(Successor)			(Successor)			(Predecessor)
Liquidity at the end of period
Cash and cash equivalents	$	13.4		$	22.3
Working capital		(7.6	)		2.0
Net cash flows
(Used in) provided by operating activities	$	(10.7	)	$	14.3		$	(5.3	)
Used in investing activities		(4.3	)		(180.0	)		(1.7	)
(Used in) provided by financing activities		(.4	)		188.0			(70.6	)
Net (decrease) increase in cash	$	(15.4	)	$	22.3		$	(77.6	)

We have not historically required significant working capital to fund our existing operations and have financed our capital expenditures and investments in joint ventures through cash generated from operations. Since restaurant businesses do not have large amounts of inventory and accounts receivable, there is generally no need to finance such items. As a result, we like many other restaurant businesses, may operate with negative working capital. During the quarter ended March 30, 2008, working capital has decreased by $2.7 million. This trend is reflective of our ongoing new store opening and remodel programs, which have resulted in decreased cash and cash equivalents as well as increased liabilities associated with capital expenditures. Cash flow from current operations and our line of credit supports our working capital needs.

Net cash used in operating activities was $10.7 million during the quarter ended March 30, 2008 as compared to $14.3 million provided by the Successor period January 31 through April 1, 2007 and $5.3 million used in the Predecessor period January 1 through January 30, 2007. The increase in net cash used in the period ended March 30, 2008 is primarily due to a decrease in accounts payable, accrued expenses and accrued interest payable resulting from the timing of payments. We historically have our peak annual cash position and highest level of accounts payable and accrued expenses at the end of the holiday season, which coincides with our year end. These payables and accrued expenses are paid during the first quarter of the ensuing year, predominantly using our year-end cash. Net cash used by operating activities of $5.3 million in our Predecessor period January 1 through January 31, 2007 was primarily due to a decrease in accounts payable and accrued expenses after considering the effects of the Merger.

Net cash used in investing activities was $4.3 million for the quarter ended March 30, 2008. Net cash used in the quarter ended March 30, 2008 was mostly capital expenditures utilized primarily for restaurant openings and renovation activity. Net cash used was $180.0 million for the Successor period January 31 through April 1, 2007 of which $177 million was net cash paid for the Merger. Net cash used was $1.7 million for the Predecessor period January 1 through January 30, 2007.

The cash used in financing activities was $.4 million in the quarter ended March 30, 2008 and was for principal payments on our Term Loan. The net cash provided by financing activities for the Successor period January 31 through April 1, 2007 was $188.0 million and represents proceeds from injected capital, the proceeds from the new debt, debt issue costs and the

27

paydown of the old debt. Net cash used in financing activities for the Predecessor period of January 1 through January 30, 2007 of $70.6 million represents dividends to our former shareholders net of repayments of officer loans.

Critical Accounting Policies and Judgments

Accounting policies are an integral part of the preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America. Understanding these policies, therefore, is a key factor in understanding our reported results of operations and financial position. Accounting policies often require us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in our financial statements. Due to their nature, estimates involve judgments based upon available information. Therefore, actual results or amounts could differ from estimates and the difference could have a material impact on our consolidated financial statements.

During the quarter ended March 30, 2008, there were no changes in the accounting policies whose application may have the most significant effect on our reported results of financial position and that require judgments, estimates and assumptions by management that can affect their application and our results of operations and financial position from those discussed under the heading “Critical Accounting Policies and Judgments” in Part II Item 7 of our Annual Report on Form 10-K for the year ended December 30, 2007.

Recent Accounting Pronouncements

SFAS 157:

In September 2006, FASB issued Statement SFAS No. 157, “Fair Value Measurements”. This statement defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. The statement applies whenever other statements require or permit assets or liabilities to be measured at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. This statement does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. In February 2008, the FASB issued a final Staff Position to allow a one-year deferral of adoption of SFAS No. 157 for non-financial assets and non-financial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The FASB amended SFAS No. 157 to exclude FASB Statement No. 13 and its related interpretive accounting pronouncements that address leasing transactions. We elected to defer adoption of SFAS No. 157 for non-financial assets and non-financial liabilities and we do not currently anticipate that full adoption in 2009 will materially impact our consolidated financial statements. We evaluated SFAS No. 157 and determined that the adoption of the provisions effective December 31, 2007 did not have a material effect on our consolidated financial statements.

SFAS 159:

On December 31, 2007, we adopted FASB Statement SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”), which is effective for fiscal years beginning after November 15, 2007. Under SFAS No. 159, a company may elect to measure eligible financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. We evaluated SFAS No. 159 and do not have any items eligible for the fair value accounting option of; therefore, the adoption of SFAS No. 159 had no impact on our consolidated financial statements.

SFAS 141 (R):

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“FAS 141(R)”), which is effective for annual periods beginning on or after December 15, 2008. In FAS 141(R), the FASB retained the fundamental requirements of Statement No. 141 to account for all business combinations using the acquisition method (formerly the purchase method) and for an acquiring entity to be identified in all business combinations. However, the new standard requires the acquiring entity in a business combination to recognize the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date for value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. The Company will apply the provisions of this statement prospectively to business combinations for which the acquisition date is on or after December 29, 2008 and is currently assessing the impact of adoption of SFAS No. 141(R) on its consolidated financial statements.

SFAS 160:

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment to ARB No. 51,” which is effective for fiscal years beginning on or after December 15, 2008. SFAS No. 160 requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements, but separate from the equity of the parent company. The statement further requires that consolidated net income be reported at amounts attributable to the parent and the noncontrolling interest, rather than expensing the income attributable to the minority interest holder. This statement also requires that companies provide sufficient disclosures to clearly identify and distinguish between the interest of the parent company and the interest of the noncontrolling interest holder. We have not yet determined the impact, if any, that SFAS No. 160 will have on our consolidated financial statements.

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SFAS 161:

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” SFAS No. 161. (“SFAS No. 161”) amends and expands the disclosure requirements of SFAS No. 133 with the intent to provide users of financial statements with an enhanced understanding of: (i) How and why an entity uses derivative instruments; (ii) How derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (iii) How derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not currently use derivative instruments and therefore SFAS No. 161 will not have an effect on our consolidated financial statements.

Certain Relationships and Related Transactions

During the first quarter of 2008, there were no related party transactions in addition to those discussed under the heading “Certain Relationships and Related Transactions” in Part II, Item 13 of our Annual Report on Form 10-K for the year ended December 30, 2007.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to certain risks which exist as part of our ongoing business operation.

Interest Rate Risk

We currently invest our cash on hand in FDIC insured overnight cash management savings accounts earning interest based on the 91-day Treasury bill rates. The indenture governing the Senior Notes limits the nature of our investments to those of lower risk. 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.

The interest rate on borrowings under our Senior Credit Facilities is floating and, therefore, is subject to fluctuations. In general, borrowings under the Senior Credit Facilities bear interest based, at our option, at either the Eurodollar rate or an alternative base rate (“ABR”), in each case plus a margin. The applicable margin will be based on our total leverage ratio (as defined in the credit agreement governing the Senior Credit Facilities) at the time of determination. Currently, our rate of interest for borrowings under the Senior Credit Facilities is LIBOR plus 2.50% or ABR plus 1.50%. A 1% change in our current rate would have an annual effect of approximately $1.8 million. Subsequent to the Merger, we entered into an Interest Rate Cap Letter Agreement with a bank for a portion of our Senior Credit Facility. This agreement caps our LIBOR rate at 6.00% through February 2009 and 6.50% through February 2010.

We have not purchased future, forward, option or other instruments to hedge against fluctuations in the prices of the commodities we purchase. As a result, our future commodities purchases are subject to changes in the prices of such commodities. We have entered and sometimes will enter into short-term, fixed rate contracts for some products we purchase.

Foreign Exchange Rate Risk

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

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Item 4T. Controls and Procedures

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. As there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within our Company have been detected. Inherent limitations include human errors or misjudgments. Controls also can be circumvented by the intentional acts of individuals or groups.

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of l934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in our periodic filings under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including those officers, to allow timely decisions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 30, 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Legal proceedings included in our Annual Report on Form 10-K for the year ended December 30, 2007 in Note 10 to the Notes to Consolidated Financial Statements have not materially changed.

Item 1A. Risk Factors

The risk factors included in our Annual Report on Form 10-K for the year ended December 30, 2007 have not materially changed. You should consider carefully the risks described under Item 1A Risk Factors in our Annual Report on Form 10-K for the year ended December 30, 2007. The risks and uncertainties described in our Annual Report on Form 10-K for the period ended December 30, 2007 are not the only ones that may affect us. If any of the events described actually occur, our business and financial results could be materially adversely affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Default upon senior securities

None.

Item 4. Submission of matters to a vote of security holders

None.

Item 5. Other information

None.

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Item 6. Exhibits

Exhibit Number	Description
*3.1	Restated Certificate of Incorporation of Sbarro, Inc. (Exhibit 3.1 to our Registration Statement on Form S-4, File No. 333-142081)
*3.2	Amended and Restated Bylaws of Sbarro, Inc. (Exhibit 3.2 to our Registration Statement on Form S-4, File No. 333-142081)
*4.1	Indenture dated as of January 31, 2007 among MidOcean SBR Acquisition Corp., Sbarro, Inc., the subsidiary guarantors party thereto from time to time and the Bank of New York, as trustee. (Exhibit 4.1 to our Registration Statement on Form S-4, File No. 333-142081)
*4.2	Registration Rights Agreement dated January 31, 2007 among Sbarro, Inc., Credit Suisse Securities (USA) LLC and Banc of America Securities LLC, as Initial Purchasers. (Exhibit 4.2 to our Registration Statement on Form S-4, File No. 333-142081)
+10.1	Corporate Office Employee Bonus Plan for 2008.
31.01	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02	Certification of Vice President, Chief Financial Officer and Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
**32.01	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**32.02	Certification of Vice President, Chief Financial Officer and Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Incorporated by reference to the document indicated.

** These certifications are being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are not being filed as part this Quarterly Report on Form 10-Q or as a separate disclosure document.

+ Management contract or compensatory plan.

32

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: May 12, 2008	By:	/s/ Peter Beaudrault
		Peter Beaudrault,
		Chairman of the Board of Directors, President and Chief Executive Officer
Date: May 12, 2008	By:	/s/ Anthony J. Puglisi
		Anthony J. Puglisi
		Vice President,
		Chief Financial Officer and Principal Accounting Officer

33

EXHIBIT INDEX

Item 6. Exhibits

Exhibit Number	Description
*3.1	Restated Certificate of Incorporation of Sbarro, Inc. (Exhibit 3.1 to our Registration Statement on Form S-4, File No. 333-142081)
*3.2	Amended and Restated Bylaws of Sbarro, Inc. (Exhibit 3.2 to our Registration Statement on Form S-4, File No. 333-142081)
*4.1	Indenture dated as of January 31, 2007 among MidOcean SBR Acquisition Corp., Sbarro, Inc., the subsidiary guarantors party thereto from time to time and the Bank of New York, as trustee. (Exhibit 4.1 to our Registration Statement on Form S-4, File No. 333-142081)
*4.2	Registration Rights Agreement dated January 31, 2007 among Sbarro, Inc., Credit Suisse Securities (USA) LLC and Banc of America Securities LLC, as Initial Purchasers. (Exhibit 4.2 to our Registration Statement on Form S-4, File No. 333-142081)
+10.1	Corporate Office Employee Bonus Plan for 2008.
31.01	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02	Certification of Vice President, Chief Financial Officer and Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
**32.01	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**32.02	Certification of Vice President, Chief Financial Officer and Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Incorporated by reference to the document indicated.

** These certifications are being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are not being filed as part this Quarterly Report on Form 10-Q or as a separate disclosure document.

+ Management contract or compensatory plan.

34