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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

               (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended February 3, 2007
                                       OR
             ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

          For the Transition Period from____________ to _____________

                         Commission file number: 0-8858

                            THE PENN TRAFFIC COMPANY
             (Exact name of registrant as specified in its charter)

          DELAWARE                                    25-0716800
  (State of incorporation)                   (IRS Employer Identification No.)

1200 STATE FAIR BLVD., SYRACUSE, NEW YORK 13221-4737          (315) 453-7284
     (Address of principal executive offices)               (Telephone Number)

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock,
                                                             $.01 par value

Indicate by check mark if the registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act.   YES [_]   NO [X]

Indicate  by check  mark if the  registrant  is not  required  to file  reports
pursuant to, Section 13 or 15(d) of the Act. YES [_]   NO [X]

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 [_]   NO [X]

Indicate by check mark if disclosure of delinquent  filers pursuant to Item 405
of Regulation  S-K (Section  229.405 of this chapter) is not contained  herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information  statements  incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated  filer, an
accelerated  filer, or a non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act:

Large accelerated filer [_]   Accelerated filer [X]   Non-accelerated filer [_]

Indicated by check mark whether the  registrant  is a shell company (as defined
in Rule 12b-2 of the Exchange Act).   YES [_]   NO [X]

The  aggregate  market  value  of  the   registrant's   voting  stock  held  by
nonaffiliates  of the registrant was  approximately  $89,806,019 as of July 29,
2006, the last business day of the registrant's most recently  completed second
fiscal quarter.

Indicate  by check mark  whether the  registrant  has filed all  documents  and
reports  required  to be filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities under a plan
confirmed by a court.   YES [_]   NO [X]

COMMON STOCK,  PAR VALUE $.01 PER SHARE:  8,297,697  SHARES  OUTSTANDING  AS OF
OCTOBER 22, 2007

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<PAGE>

                                FORM 10-K INDEX

                                                                           PAGE
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PART I.
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Item        1.    Business                                                    4

Item       1A.    Risk Factors                                               14

Item       1B.    Unresolved Staff Comment's                                 23

Item        2.    Properties                                                 24

Item        3.    Legal Proceedings                                          24

Item        4.    Submission of Matters to a Vote of Security Holders        25

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PART II.
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Item        5.    Market for Registrant's Common Equity, Related
                  Stockholder Matters and Issuer Purchases of
                  Equity Securities                                          26

Item        6.    Selected Financial Data                                    27

Item        7.    Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                        32

Item       7A.    Quantitative and Qualitative Disclosures About
                  Market Risk                                                48

Item        8.    Financial Statements and Supplementary Data                48

Item        9.    Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure                        82

Item       9A.    Controls and Procedures                                    83

Item       9B.    Other Information                                          87

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PART III.
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Item       10.    Directors, Executive Officers of Registrant and
                  Corporate Governance                                       88

Item       11.    Executive Compensation                                     94

Item       12.    Security Ownership of Certain Beneficial Owners and
                  Management and Related Stockholder Matters                119

Item       13.    Certain Relationships and Related Transactions and
                  Director Independence                                     119

Item       14.    Principal Accounting Fees and Services                    121

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PART IV.
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Item       15.    Exhibits and Financial Statement Schedules                122

                                      -2-
<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements  included in this Form 10-K,  including without  limitation,
statements  included  in Item 7 -  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of  Operations,"  which are not  statements of
historical   fact,   are  intended  to  be,  and  are  hereby   identified  as,
"forward-looking  statements"  within  the  meaning of the  Private  Securities
Litigation  Reform Act of 1995,  as amended,  reflecting  management's  current
analysis and expectations,  based on what management  believes to be reasonable
assumptions.  These  forward-looking  statements include statements relating to
our  anticipated  financial  performance  and  business  prospects.  Statements
proceeded   by,   followed  by  or  that  include   words  such  as  "believe,"
"anticipate,"  "estimate," "expect," "could," and other similar expressions are
to be considered such forward-looking  statements.  Forward-looking  statements
may involve known and unknown risks, uncertainties and other factors, which may
cause the actual results to differ  materially from those projected,  stated or
implied,  depending  on such  factors  as: our  ability  to  improve  operating
performance and effectuate  business plans;  our ability to operate pursuant to
the terms of our credit  facilities and to comply with the terms of our lending
agreements or to amend or modify the terms of such  agreements as may be needed
from time to time;  our  ability to generate  cash;  our ability to attract and
maintain adequate capital; our ability to refinance our indebtedness; increases
in prevailing interest rates; our ability to obtain trade credit, and shipments
and terms with vendors and service providers for current orders; our ability to
maintain  contracts  that are  critical to our  operations;  potential  adverse
developments  with respect to our liquidity or results of  operations;  general
economic and business  conditions;  competition,  including  increased  capital
investment and promotional activity by our competitors;  availability, location
and terms of sites for store development;  the successful implementation of our
capital expenditure program; labor relations;  labor and employee benefit costs
including  increases  in  health  care  and  pension  costs  and the  level  of
contributions  to our  sponsored  pension  plans;  the result of our pursuit of
strategic alternatives;  economic and competitive uncertainties; our ability to
pursue strategic alternatives; economic and competitive uncertainties;  changes
in strategies;  changes in generally accepted  accounting  principles;  adverse
changes  in  economic  and  political  climates  around  the  world,  including
terrorist activities and international hostilities; and the outcome of pending,
or the  commencement  of any new, legal  proceedings  against,  or governmental
investigations  of  us,  including  the  previously   announced  SEC  and  U.S.
Attorney's  Office  investigations.  We  caution  that  the  foregoing  list of
important  factors is not  exhaustive.  Accordingly,  there can be no assurance
that we will meet future  results,  performance  or  achievements  expressed or
implied by such forward-looking statements,  which are generally required to be
publicly revised as circumstances change, and which we do not intend to update.


EXPLANATORY NOTE

This Annual  Report on Form 10-K is for the fiscal year ended  February 3, 2007
and, except as expressly indicated otherwise, information in this report speaks
as of such date.  This report  does not  include  all of the audited  financial
information  required to be included in a Form 10-K under applicable SEC rules.
This report includes audited financial information for the 53-week period ended
February 3, 2007 and the 41-week  period ended  January 28, 2006 and  unaudited
financial  information  for the  11-week  period  ended  April 16, 2005 and the
fiscal years ended January 29, 2005,  January 31, 2004 and February 1, 2003, as
well as management's  discussion of our results of operations  since 2006. This
report does not include,  and we have not  otherwise  filed or furnished to the
SEC, audited financial  information for the fiscal year ended January 29, 2005,
the 11-week period ended April 16, 2005, the fiscal year ended January 31, 2004
or the fiscal year ended February 1, 2003. As discussed further in this report,
we emerged from Chapter 11 bankruptcy reorganization effective April 13, 2005.

                                      -3-
<PAGE>

PART I

ITEM 1.   BUSINESS

GENERAL

We are one of the leading food retailers in the northeastern  United States. We
operate 106  supermarkets in  Pennsylvania,  upstate New York,  Vermont and New
Hampshire  under the "Bi-Lo" (20 stores),  "P&C" (58 stores) and  "Quality" (28
stores) trade names.  We also operate a wholesale  food  distribution  business
serving 73 independent  supermarket and 46 other independent wholesale accounts
and Penny Curtiss Bakery, a Syracuse-based  commercial  bakery. We classify our
businesses in two primary segments: (i) Retail Food Business and (ii) Wholesale
Food  Distribution  Business.  Our consolidated  revenues for the fiscal period
ended February 3, 2007 were approximately $1.3 billion.

Our Retail  Food  Business  currently  operates  in  communities  with  diverse
economies  and  demographics.  The  average  revenue  per store for the 53-week
period ended February 3, 2007 was  approximately  $9.6 million.  Our stores are
generally  clustered  geographically  within  our  marketing  area  to  provide
economies of scale in advertising, distribution and operations management.

Our supermarkets offer a wide variety of fresh foods within our meat,  seafood,
produce, deli, and bakery departments.  Complementing our grocery,  frozen food
and dairy  offerings  is a full  line of health  and  beauty  care and  general
merchandise  items. Many of our locations  feature  pharmacies and full-service
floral  departments which add convenience and value to our customers'  shopping
experience. Our stores' strong ties to their communities and their full service
offering position them to meet their customers' needs.

Our  supermarkets,   which  average   approximately  36,000  square  feet,  are
conveniently  located  and  generally  modern.  We tailor the size and  product
assortment of each store to local demographics.

Our  Wholesale  Food  Distribution  Business  supplies  independently  operated
supermarkets  with a wide  variety  of  food  and  nonfood  products  from  our
distribution  centers in New York and Pennsylvania.  Customers of the Wholesale
Food  Distribution  Business  are  primarily  located in  upstate  New York and
western Pennsylvania.

Revenues for our Wholesale  Food  Distribution  Business for the 53-week period
ended February 3, 2007 were  approximately  $217.3 million,  which  represented
16.6% of our revenues for the period.

                                      -4-
<PAGE>

On May 30, 2003, The Penn Traffic Company and certain of its subsidiaries filed
petitions  for relief (the  "Bankruptcy  Cases") under Chapter 11 of the United
States  Bankruptcy Code in the United States  Bankruptcy Court for the Southern
District of New York (the  "Bankruptcy  Court").  On February 2, 2005, we filed
the First Amended Joint Plan of  Reorganization  with the Bankruptcy Court. The
Plan was  confirmed  on March 17, 2005 and became  effective  on April 13, 2005
(the "2005 Effective Date").  See  "Reorganization"  and Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

The Penn Traffic Company was incorporated in the State of Delaware on April 22,
1992.  Our  principal  executive  offices  are at 1200  State  Fair  Boulevard,
Syracuse, New York, 13221, telephone (315) 453-7284.

Our  fiscal  year ends each year on the  Saturday  closest  to  January  31. In
addition,   in  connection  with  our  emergence  from  Chapter  11  bankruptcy
protection,  on April 16, 2005 we commenced fresh-start financial reporting. As
a result, fiscal year 2007 consists of the 53-week period from January 29, 2006
to February 3, 2007  ("fiscal  year  2007");  fiscal year 2006  consists of two
fiscal  periods,  the  41-week  period  from April 17, 2005 to January 28, 2006
("period  ended January 28, 2006") and the 11-week period from January 30, 2005
to April 16, 2005 ("period ended April 16, 2005").


BUSINESS STRATEGY

Through  October 2006, we were focused on executing our strategic plan outlined
in our Form 10-K for fiscal year 2006. That strategic plan was developed during
the fall of calendar  year 2005.  We believe that the  initiatives  in our plan
interrelate  with each other,  such that  improvement  in one area would have a
benefit on the other areas. To summarize,  the initiatives  previously outlined
included:

     o    increasing same store sales and customer counts
     o    providing superior and differentiable customer service
     o    attracting, developing and retaining the best people
     o    utilizing effective communication to enhance morale and motivation

Fiscal  year 2007 was a year of  significant  and  fundamental  change  for us.
Between August 2006 and December 2006, a new leadership  team was put in place,
including  a  new   President  and  Chief   Executive   Officer  and  Executive
Vice-President and Chief Operating Officer. In addition,  between November 2006
and May 2007, we appointed a new Chief  Financial  Officer,  Chief  Information
Officer  and  General  Counsel  and  recruited  new  executives  in  our  human
resources,  merchandising and operations  departments.  As a result,  while our
prior  strategic  direction  consisted  of numerous  appropriate  goals for the
business, our new senior management team identified a compelling need to modify
our direction. Our new team engaged in a thorough reassessment of our human and
capital  resources,  our  operating  practices,  our culture,  our  competitive
landscape and our  customers'  perceptions  of our  brand/banner  images.  This
reassessment led to the development and implementation of numerous key tactical
initiatives  aimed at significantly  increasing our focus on basic  operational
discipline and improved  business  practices  resulting in an enhanced shopping
experience  for our  customers  and total  shareholder  returns.  Each tactical
initiative  has an  Executive  Committee  member  who is the  sponsor  for  the
initiative, which helps increase the monitoring,  emphasis and, ultimately, the
results of the various initiatives.

                                      -5-
<PAGE>

The key initiatives that management developed and implemented include:

     o    reduce center store and fresh shrink
     o    optimize product pricing and promotions
     o    aggressive use of e-Auction efforts for not-for-resale items
     o    administrative staffing changes
     o    signature product sales initiative
     o    reclamation process management
     o    supply initiative
     o    private label plan


REDUCE CENTER STORE AND FRESH SHRINK

Implement best practices and  improvements in technology to reduce shrinkage in
our center store (grocery,  general merchandise,  health and beauty care, dairy
and frozen departments) and fresh (produce,  floral, meat, seafood,  bakery and
deli  departments)  areas to improve  total  margin.  Identify key  performance
metrics and controls to reduce the frequency of loss to improve profitability.


OPTIMIZE PRODUCT PRICING AND PROMOTIONS

Monitor  competitor  pricing of  products  we sell to  optimize  our prices and
enhance our revenues and margins and to set appropriate  sales goals. This will
be done in a phased approach across center store product categories.

Further  develop  and refine  software  that  allows us to select  the  optimum
promotional  method and retail price for various  goods we sell.  This software
allows the merchant to identify the optimal point for sales, number of units to
sell and projected margin in order to optimize our return.


AGGRESSIVE USE OF E-AUCTION EFFORTS FOR NOT-FOR-RESALE ITEMS

With our TOPCO  Associates,  Inc.  membership,  we have access to the Topsource
network of  E-sourcing.  Participating  as a TOPCO member  creates a formal bid
process to acquire lower cost of not-for-resale  goods and services  (including
equipment, supplies and third party services) through E-Auctions.

                                      -6-
<PAGE>

ADMINISTRATIVE STAFFING CHANGES

As  part  of  our  ongoing   cost   reduction   initiative,   we  completed  an
administrative  staffing  review during fiscal year 2007.  The primary focus of
this initiative was to eliminate  redundant functions or activities and improve
operational  efficiency and communication.  As a result, several administrative
functions were  consolidated  in conjunction  with a reduction in work force to
achieve our cost  reduction  objective.  A restructured  operational  reporting
alignment,  with the  addition of regional  store  support  teams,  streamlined
management,  and  the  reallocation  of  several  functions  to  support  store
operations, will allow us to achieve a greater overall operational efficiency.


SIGNATURE PRODUCT SALES INITIATIVE

Development of fresh  category  products that are store produced or exclusively
produced for us so that each stores'  fresh  department  becomes a  destination
point for the customer.  Signature  products  enhance the total store freshness
and quality image,  thereby increasing  incremental sales and customer loyalty.
Examples of these items are store prepared and packaged cut fruit, gourmet beef
patties,  vegetable kabobs,  deli store baked turkey breast,  old fashioned ham
and artisan store baked bread.


RECLAMATION PROCESS MANAGEMENT

Through  process  improvement,  reduce  expenses  associated with excess center
store  category  product  reclamation.  Product  reclamation  is the process of
returning  out  dated  or  damaged  product  to the  vendor  for  credit.  With
improvements   in  product   handling   and  product   integrity,   we  believe
profitability  and margin  contribution for center store category products will
increase.


SUPPLY INITIATIVE

We have been  working to reduce costs  throughout  our  operations.  The supply
initiative  focuses on the containment of supply cost by  standardizing  items,
which reduces repetitious inventory. In addition, our co-managers have taken on
the role of "supply  captain",  verifying  store orders and  inspecting  supply
areas.


PRIVATE LABEL PLAN

In recent years we have shown a declining  trend in Private  Label  penetration
throughout the center store category  departments.  This initiative is designed
to leverage our existing  Private Label items, as well as target the rollout of
an expanded line of our Value Time line of products and our Full Circle line of
natural/organic items.


                                      -7-
<PAGE>

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

Our  businesses  are  classified by our  management  into two primary  industry
segments:  Retail Food Business and Wholesale Food Distribution  Business (both
described  below).  Financial  information  about our industry segments for the
53-week period ended  February 3, 2007 is found in Note 14 to the  Consolidated
Financial Statements.


RETAIL FOOD BUSINESS

We are one of the leading supermarket retailers serving the northeastern United
States. We operate 106 supermarkets in Pennsylvania,  upstate New York, Vermont
and New Hampshire under the P&C (58 stores),  BiLo (20 stores), and Quality (28
stores)  tradenames.  We have identified and commenced the  implementation of a
two tier  strategy  across all three  tradenames in order to segment our stores
into two distinct formats  (Conventional  and Fresh).  Our Conventional  format
offers many of the conveniences  that our customers have grown to expect within
a traditional  supermarket.  Our Fresh format offers all of the features of our
Conventional format with an enhanced offering to meet the needs of today's more
time-pressed  consumer  with an  emphasis  on  value-added  services  and  meal
solutions.

Our Fresh stores have unique features,  including  distinctively branded floral
shops, expanded service departments, cafes offering gourmet sandwiches and high
quality meal solutions and expanded  in-store bakeries offering a wide array of
gourmet breads and pastries.  In several stores, we have also added an in-store
chef and a  professionally  staffed  child-care  center which provides safe and
friendly care for shoppers' children.

Our supermarkets average  approximately 36,000 square feet in size. Many of our
locations  have  provided  decades  of  service  in their  respective  markets.
Additionally,   our  retail   tradenames  have  established   strong  corporate
citizenship ties to their communities.

We offer a wide variety of fresh foods within our meat, seafood, produce, deli,
and bakery  departments.  Complementing  our grocery,  frozen  food,  and dairy
offer, is a full line of health and beauty care and general  merchandise items.
Many of our locations feature  pharmacies and full-service  floral  departments
which add convenience and value to our customers' shopping experience.

Our  stores'  strong  ties to their local  communities  and their full  service
offering, which are tailored to the local demographics of each store also helps
position them to meet customers' needs for high quality, fresh food products in
a pleasant and clean retail environment.


                                      -8-
<PAGE>

WHOLESALE FOOD DISTRIBUTION BUSINESS

We  supply  119  independently  operated  supermarkets  and  other  independent
accounts with a wide variety of food and nonfood products from our distribution
centers in New York and  Pennsylvania.  These  customers of our Wholesale  Food
Distribution  Business  are  primarily  located in upstate New York and western
Pennsylvania.

As  part  of  our  Wholesale  Food  Distribution  Business,  we  license  on  a
royalty-free basis, the use of our "Riverside," "Bi-Lo" and "Big M" names to 73
of these independently owned supermarkets that in turn are required to maintain
certain quality and other standards.  These licensed  independent stores use us
as  their  primary  wholesaler  and  also  receive   advertising,   accounting,
merchandising  and retail  counseling  services  from us. We also act as a food
distributor to 46 other  independent  accounts.  We receive rent from 27 of the
licensed  independent  operators that sublease their  supermarkets  from us. In
addition  to  contributing  to  our  operating   income,   our  Wholesale  Food
Distribution  Business enables us to leverage fixed and semi-fixed  procurement
and distribution costs over additional revenues.


OTHER

We own and operate Penny Curtiss,  a bakery  processing plant in Syracuse,  New
York.  Penny  Curtiss  manufactures  and  distributes  fresh and frozen  bakery
products to our stores and third parties,  including customers of our Wholesale
Food Distribution Business.

                                      -9-
<PAGE>

PURCHASING AND DISTRIBUTION

We are a  large-volume  purchaser of products.  Our  purchases are generally of
sufficient  volume to qualify for minimum  price  brackets  for most items.  We
purchase brand name grocery merchandise  directly from national  manufacturers.
We also purchase private label products,  other food products and certain goods
not for resale through TOPCO  Associates,  Inc., a national product  purchasing
cooperative   comprising  63  regional   supermarket   chains  and  other  food
distributors.  For the fiscal year ended  February 3, 2007,  the 11-week period
ended April 16, 2005,  the 41-week period ended January 28, 2006 and the fiscal
year  ended  January  29,  2005,  purchases  of goods  for  resale  from  TOPCO
Associates,  Inc.  accounted for approximately  15.5%,  19.4%, 19.5% and 20.9%,
respectively, of our total purchases of goods during those periods.

Our primary New York distribution  facility is a leased 514,000 square foot dry
grocery  facility in Syracuse,  New York.  We also lease a 241,000  square foot
distribution center for perishable  products in Syracuse,  and a 274,000 square
foot  distribution  center for general  merchandise  and health and beauty care
items in Jamestown, New York.

Our primary Pennsylvania  distribution facility is a leased 390,000 square foot
dry grocery  facility in DuBois,  Pennsylvania.  We also lease a 195,000 square
foot distribution center for perishable products in DuBois.

In January 2007, we announced the closing of a leased  distribution center used
for the distribution of general merchandise and health and beauty products.  At
the same time, we entered into a five-year  supply agreement with a third party
to provide the merchandise previously distributed from the distribution center.
We ceased  use of the  facility  in March  2007,  at which  time we  recorded a
liability of $1.9 million representing the present value of the remaining lease
rentals reduced by estimated sublease rentals that could be reasonably obtained
for the distribution center. In addition,  in March 2007, we sold our remaining
inventory  located  in the  distribution  center to the third  party at current
cost.   The  carrying   value  of  such  inventory  at  February  3,  2007  was
approximately $4.8 million.

Approximately  three-fourths of the merchandise offered in our retail stores is
distributed from our warehouses by our fleet of tractors, refrigerated trailers
and dry trailers.  Merchandise  not delivered  from our warehouses is delivered
directly to the stores by manufacturers, distributors, vendor drivers and sales
representatives for such products as beverages, snack foods and bakery items.


                                     -10-
<PAGE>

COMPETITION

The food  retailing  business  is highly  competitive  and may be  affected  by
general  economic  conditions.  The  number of  competitors  and the  degree of
competition  encountered by our supermarkets vary by location.  We compete with
several  multi-regional,  regional and local  supermarket  chains,  convenience
stores,  stores  owned and operated and  otherwise  affiliated  with large food
wholesalers,  unaffiliated  independent food stores,  warehouse clubs, discount
drug  store  chains,   discount  general  merchandise  chains,   "supercenters"
(combination supermarket and general merchandise stores) and other retailers.


EMPLOYEES

Labor  costs and their  impact on  product  prices  are  important  competitive
factors  in  the  supermarket   industry.  As  of  February  3,  2007,  we  had
approximately 7,600 hourly employees and 700 salaried employees.

Approximately  85.8% of our  hourly  employees  belong to the  United  Food and
Commercial   Workers  Union.  An  additional  7.9%  of  our  hourly   employees
(principally  employed in our  distribution  function and in our bakery  plant)
belong to a total of four other unions.  All salaried employees and 6.3% of the
hourly employees do not belong to a union.


GOVERNMENT REGULATION

Our food and drug business requires us to hold various licenses and to register
certain of our  facilities  with state and federal  health,  drug and alcoholic
beverage  regulatory  agencies.  By virtue of these  licenses and  registration
requirements,  we are  obligated to observe  certain rules and  regulations.  A
violation  of such  rules  and  regulations  could  result in a  suspension  or
revocation of these licenses or registrations,  which could require us to close
the  affected  stores until the  violation  is  remedied.  Most of our licenses
require periodic  renewals.  We have experienced no material  difficulties with
respect to obtaining, retaining or renewing our licenses and registrations.


SEASONALITY, CUSTOMERS AND SUPPLIERS

Our supermarket  business is generally not seasonal in nature.  During the past
three  fiscal  years,  no single  customer or group of  customers  under common
control  accounted  for 10% or more of our  consolidated  revenues.  Groceries,
general  merchandise  and raw  materials  are  available  from  many  different
sources.  During the past three fiscal years, no single supplier  accounted for
10% or more of our cost of sales except TOPCO Associates, Inc., which accounted
for  approximately  15.5%,  19.4%,  19.5% and 20.9% of  purchases  of goods for
resale for the fiscal year ended  February 3, 2007,  the 11-week  period  ended
April 16, 2005,  the 41-week  period ended January 28, 2006 and the fiscal year
ended January 29, 2005, respectively.


                                     -11-
<PAGE>

REORGANIZATION - 2005 EFFECTIVE DATE

On May 30, 2003 we and all of our subsidiaries filed petitions for relief under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the Southern  District of New York.  On April 13, 2005 our Chapter 11
Plan of Reorganization became effective.

While  operating  under  Chapter 11, we  reorganized  our business  operations,
including  the  cessation of business in Ohio and West  Virginia  under the Big
Bear  name,  the   implementation   of  cost  reduction  and  cost  containment
initiatives,  which  included  consolidation  and  closing of  warehouses,  the
closing of unprofitable stores and the rejection of certain executory contracts
and unexpired  leases.  Additionally,  we disposed of a number of non-core real
estate properties.

Pursuant to the terms of our plan of reorganization the following  transactions
occurred:

     1.   Administrative    claims,     priority    tax    claims    and    our
          debtor-in-possession loan were paid in full, in cash.

     2.   The Penn Traffic  Company Cash Balance Pension Plan was terminated in
          accordance  with the terms and  conditions of a settlement  agreement
          between The Pension Benefit Guaranty Corporation,  or the "PBGC," and
          us. The PBGC settlement agreement provided for, among other things,

          o    an  initial  partial  cash  settlement  payment  to the  PBGC of
               $155,378;

          o    funding of PBGC allowed administrative claims of $3.5 million to
               be paid in four equal  installments  bi-annually over a two-year
               period commencing six months after the 2005 Effective Date; and

          o    an allowed PBGC unsecured claim in the amount of $60.0 million.

          The PBGC  settlement  agreement  also  required  us to  maintain  all
          remaining  retirement  plans in  accordance  with their terms and all
          requirements of ERISA and the Internal Revenue Code.

     3.   We issued  8,279,800 new shares of our common stock to satisfy senior
          note claims, trade claims and other unsecured claims.

     4.   Unsecured  claim holders with claims of $5,000 or less who elected to
          be classified  as  convenience  claims  received 15% of their allowed
          claim in cash.

     5.   Our existing  common stock and other equity  interests  were canceled
          and received no distributions under our plan of reorganization.


                                     -12-
<PAGE>

On  April  13,  2005,  in  connection  with  the  consummation  of our  plan of
reorganization,  we  entered  into a  $136.0  million  senior  credit  facility
comprised  of a $130.0  million  revolving  loan and a $6.0  million term loan.
Concurrent  with the senior  credit  facility,  we entered into a $28.0 million
supplemental  real estate  facility  consisting  of a term loan on a multi-draw
basis. The credit facility and the supplemental real estate facility provide us
with aggregate credit facilities of $164.0 million.  Additionally,  pursuant to
our  plan of  reorganization,  we  entered  into a  sale-leaseback  transaction
pursuant to which we sold our five owned  distribution  centers  located in New
York and  Pennsylvania  for $37.0 million and leased the  distribution  centers
back for a period of 15 years  from  emergence.  The  lenders  under the credit
facility have a first priority perfected security interest in substantially all
of our assets,  with a second  lien on a  substantial  number of our  leasehold
assets.  The  supplemental  real estate  facility is secured by a first lien on
such  leasehold  interests  and a  second  lien  on  substantially  all  of our
remaining  properties.   Proceeds  from  the  two  credit  facilities  and  the
sale-leaseback  transaction were used to satisfy our obligations under our plan
of  reorganization,  including payment of our  debtor-in-possession  financing.
Additionally,  the credit  facilities  continue to provide funds to satisfy our
ongoing working capital and capital expenditure requirements.


AVAILABLE INFORMATION

We are required to file annual, quarterly and current reports, proxy statements
and other information with the SEC under the Exchange Act.

You may read and copy our filings at the Public Reference Room of the SEC, Room
1024, 100 F Street NE, Washington, D.C. 20549. You may obtain information about
the Public  Reference Room by calling the SEC at  1-800-SEC-0330.  In addition,
the SEC  maintains  an  Internet  website  that  contains  reports,  proxy  and
information  statements  and  other  information  regarding  issuers  that file
electronically  through the EDGAR  (Electronic  Data  Gathering,  Analysis  and
Retrieval) System, available on the SEC's website (WWW.SEC.GOV).


                                      -13-
<PAGE>

ITEM 1A.   RISK FACTORS

THE SUPERMARKET INDUSTRY IS HIGHLY COMPETITIVE. IF WE ARE UNABLE TO COMPETE
EFFECTIVELY, OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE
MATERIALLY AFFECTED.

The supermarket industry is highly competitive and characterized by high
inventory turnover, high capital intensity and narrow profit margins. The
number and type of competitors vary by location and include:

     o    multi-regional and regional supermarket chains;
     o    independent and specialty grocers;
     o    drug and convenience stores; and
     o    "alternative  format"  food stores,  such as  specialty  food stores,
          retail drug  stores,  national  general  merchandisers  and  discount
          retailers, membership clubs, warehouse stores and supercenters.

We also face increasing  competition  from restaurants and fast food chains due
to the increasing  proportion of household food  expenditures for food prepared
outside  the home.  In  addition,  certain  of our  stores  also  compete  with
florists, pharmacies and convenience stores.

Our principal  competitors  include national and regional  supermarket  chains,
which compete with us on the basis of location,  quality of products,  service,
price,  product  variety and store  condition.  An overall lack of inflation in
food  prices  and  increasingly  competitive  markets  has  made  it  difficult
generally for grocery store operators to achieve  comparable store sales gains.
Because  sales  growth has been  difficult  to  attain,  our  competitors  have
attempted to maintain  market share  through  increased  levels of  promotional
activities and discount pricing, creating a more difficult environment in which
to consistently increase year-over-year sales gains.

In addition, most of our "traditional" and "nontraditional" competitors are not
unionized  and have lower labor costs,  which allows them to take measures that
could adversely affect our competitive position.

We face increased competitive pressure in a number of our markets from existing
competitors and from the threatened entry by one or more major new competitors.
Some  of our  competitors  have  greater  financial  resources  and  have  less
indebtedness  than us, and could use these  resources  to take  measures  which
could adversely affect our competitive position.

Our business,  financial  condition or results of operations could be adversely
affected by competitive factors, including product mix and pricing changes that
may be made in response to competition from existing or new  competitors.  From
time to time, the relative  strength of our  competitors  changes  depending on
prevailing market conditions.


                                     -14-
<PAGE>

OUR BUSINESS AND RESULTS OF OPERATIONS MAY BE SENSITIVE TO ECONOMIC CONDITIONS
THAT IMPACT CONSUMER SPENDING.

Our business and results of  operations  may be sensitive to changes in overall
economic  conditions that impact  consumer  spending,  including  discretionary
spending.  Future economic conditions affecting disposable consumer income such
as employment levels,  energy prices,  business conditions,  interest rates and
tax rates could  reduce  consumer  spending or cause  consumers  to shift their
spending away from our product quality and service offering,  to a more focused
price-based  offering.  A  general  reduction  in the  level  of  discretionary
spending or shifts in consumer  discretionary spending to our competitors could
adversely affect our growth and profitability.


WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR COMPARABLE STORE SALES.

Our comparable  store sales in the future could  fluctuate or be lower than our
historical average for many reasons,  including  increased  competition,  price
changes in response to competitive factors,  shifts in demographic patterns and
local  economic  conditions,  changes in traffic  patterns and possible  supply
shortages. Our results of operations may be materially impacted by fluctuations
in our comparable store sales as it becomes more difficult to leverage expenses
at a lower level of sales.


OUR  STORES ARE  CONCENTRATED  IN THE  NORTHEASTERN  UNITED  STATES,  MAKING US
SUSCEPTIBLE  TO  ECONOMIC  DOWNTURNS,   NATURAL  DISASTERS  AND  OTHER  ADVERSE
CONDITIONS OR CATASTROPHIC EVENTS IN THAT REGION.

Our stores are  located in  Pennsylvania,  upstate  New York,  Vermont  and New
Hampshire. As a result, we are vulnerable to economic downturns in those areas,
in addition to those that may affect the country as a whole, as well as natural
and other  catastrophic and terrorist events that may impact these regions.  In
addition, we may be adversely affected by these events to a greater extent than
our competitors whose operations extend outside of these regions.  These events
may  adversely  affect our  sales,  which may lead to lower  earnings,  or even
losses, and may also adversely affect our future growth and expansion.


                                     -15-
<PAGE>

OUR DISTRIBUTION AND BAKERY BUSINESS COULD BE NEGATIVELY AFFECTED IF WE FAIL TO
RETAIN EXISTING CUSTOMERS OR ATTRACT SIGNIFICANT NUMBERS OF NEW CUSTOMERS.

Increasing the growth and profitability of our distribution and bakery business
is dependent in large measure upon our ability to retain existing customers and
capture  additional  customers  through our  existing  network of  distribution
centers,  enabling us to more effectively leverage and utilize the fixed assets
in our distribution and bakery  businesses.  Our ability to achieve these goals
is dependent,  in part, upon our ability to continue to provide a high level of
customer  service,  offer  competitive  products at low prices,  maintain  high
levels  of  productivity  and  efficiency,   particularly  in  the  process  of
integrating  new  customers  into our  distribution  system  and  manufacturing
process, and offer marketing, merchandising and ancillary services that provide
value to our independent  distribution  customers.  If we are unable to execute
these  tasks  effectively  and at a  competitive  price,  we may not be able to
attract  significant  numbers of new customers and attrition among our existing
customer  base could  increase,  either or both of which  could have an adverse
impact on our revenue and profitability.


CHANGES IN VENDOR  PROMOTIONS OR  ALLOWANCES,  INCLUDING THE WAY VENDORS TARGET
THEIR  PROMOTIONAL  SPENDING,  AND OUR  ABILITY  TO  EFFECTIVELY  MANAGE  THESE
PROGRAMS COULD SIGNIFICANTLY IMPACT OUR MARGINS AND PROFITABILITY.

We engage in a wide  variety of  promotional  programs  cooperatively  with our
vendors.  The nature of these  programs and the  allocation of funds among them
evolve over time as the parties  assess the results of specific  promotions and
plan for future promotions.  These programs require careful management in order
for us to maintain or improve margins while at the same time  increasing  sales
for us and for our participating  vendors.  A reduction in overall  promotional
spending  or a shift  in  promotional  spending  away  from  certain  types  of
promotions that we have historically  utilized could have a significant  impact
on our gross profit margin and  profitability.  Our ability to  anticipate  and
react to changes in promotional  spending by, among other things,  planning and
implementing  alternative  programs that are expected to be mutually beneficial
to our vendors and us, will be an important  factor in maintaining or improving
margins  and  profitability.  If we are  unable  to  effectively  manage  these
programs,  it could have a material adverse effect on our results of operations
and financial condition.


                                     -16-
<PAGE>

OUR DEBT INSTRUMENTS  INCLUDE  FINANCIAL AND OTHER COVENANTS THAT MAY LIMIT OUR
OPERATING  FLEXIBILITY  AND MAY  AFFECT  OUR  FUTURE  BUSINESS  STRATEGIES  AND
OPERATING RESULTS.

Covenants in the documents governing our outstanding or future debt,  including
our credit facilities, or our future debt levels, could limit our operating and
financial  flexibility.  Our  ability  to  respond  to  market  conditions  and
opportunities  as well as capital needs could be  constrained  by the degree to
which we are leveraged,  by changes in our availability or cost of capital, and
by contractual  limitations on the degree to which we may,  without the consent
of our  lenders,  take  actions  such as engaging in mergers,  acquisitions  or
divestitures,   incurring   additional  debt,   making  capital   expenditures,
rationalizing underperforming assets and making investments, loans or advances.
If needs  or  opportunities  were  identified  that  would  require  additional
financial  resources,  obtaining those additional  resources could increase our
borrowing costs, further reduce financial  flexibility,  require alterations in
our strategies and affect future operating results.


SUBSTANTIAL  OPERATING  LOSSES  MAY  OCCUR IF THE  CUSTOMERS  TO WHOM WE EXTEND
CREDIT OR FOR WHOM WE SUBLEASE PROPERTIES FAIL TO REPAY US OR HONOR THEIR LEASE
OBLIGATIONS.

In the ordinary course of business,  we extend credit,  including loans, to our
food  distribution  customers.  We also  sublease  store  sites to  independent
retailers.  Generally,  our loans and other  subleases  are  extended  to small
businesses  that  are  unrated  and may have  limited  access  to  conventional
financing.  As of  February  3, 2007 we had lease  obligations  for  properties
sublet to food  distribution  customers  totaling $6.7  million.  In the normal
course of business, we also sublease retail properties to third parties.  While
we seek to obtain  security  interests  and other credit  support in connection
with  the  financial  accommodations  we  extend,  such  collateral  may not be
sufficient to cover our exposure.

If a  significant  number of these  customers or lease  counterparties  fail to
repay us or honor their lease  obligations to us, our operating  results may be
adversely affected.


                                      17
<PAGE>

A SIGNIFICANT PORTION OF OUR EMPLOYEES ARE COVERED UNDER COLLECTIVE  BARGAINING
AGREEMENTS AND OUR RELATIONSHIPS WITH OUR EMPLOYEES,  INCLUDING THE POSSIBILITY
OF LABOR  DISPUTES OR WORK  STOPPAGES IN CONNECTION  WITH FUTURE  NEGOTIATIONS,
COULD HAVE AN ADVERSE IMPACT ON OUR FINANCIAL RESULTS.

Labor  costs,  which are  largely an  extension  of the  results of  collective
bargaining  negotiations with our unions,  traditionally have had a significant
impact upon the pricing of our products in the highly  competitive  supermarket
industry.  Of our hourly workforce,  93.7% participate in unions.  All salaried
employees  and 6.3% of the hourly  workforce,  are not members of a  collective
bargaining unit.

Because we are party to approximately 18 collective  bargaining  agreements,  a
number of which will expire in 2008,  it is  anticipated  that the unions which
are parties to these  agreements will seek  improvements for their members with
respect to, among other things, healthcare benefits, pension benefits, and wage
rates.  As a result,  operating  costs  concerning our unionized  employees may
increase over the next several years.  Further,  our ability to control pension
costs will be  impacted  by the  Pension  Protection  Act of 2006,  which might
require  additional  funding costs into the  multi-employer  pension plans into
which we contribute.


WE MAY  EXPERIENCE  TECHNOLOGY  FAILURES  WHICH  COULD HAVE A MATERIAL  ADVERSE
EFFECT ON OUR BUSINESS.

We use large, complex information  technology systems that are important to our
business  operations.  Although  we  have a  disaster-recovery  plan  and  have
installed  security  programs and  procedures,  the security of our  technology
systems could be  compromised  and technology  failures and system  disruptions
could occur.  Any of these events could result in a loss of sales or profits or
cause us to incur significant  costs,  including  payments to third parties for
damages.


                                     -18-
<PAGE>

LOSSES AS A RESULT OF OUR OWNING, LEASING AND DEVELOPING REAL ESTATE MAY IMPAIR
OUR ABILITY TO FOCUS ON AND EXPAND OUR CORE BUSINESS AS DESIRED.

As a result of our real estate  holdings and leases,  we are subject to varying
degrees of risk and  liability  generally  incident to the  ownership,  use and
development of real estate.  These risks and liabilities  include,  among other
things:

     o    fluctuations in value caused by adverse changes in national, regional
          and local economic  condition and local real estate market conditions
          (such as an  oversupply  of or a reduction in demand for retail space
          in the area);

     o    costs of compliance  with zoning,  environmental,  tax and other laws
          and regulations;

     o    real estate  development  risks, such as incorrect cost and occupancy
          estimates,  non-availability  of financing  and the need for mortgage
          lender  or  property   partner   approvals   for  certain   expansion
          activities;

     o    the perceptions of customers and tenants and  prospective  tenants of
          the safety, convenience and attractiveness of our properties;

     o    the lack of liquidity of real estate  investments  and our ability to
          sell,  lease or sublease any of our  properties  for cash in a timely
          fashion;

     o    failure to promptly renew leases;

     o    competition from comparable properties;

     o    the occupancy rate of our properties;

     o    tenant and subtenant defaults and the costs of enforcing our rights;

     o    the effects of any  bankruptcies  or  solvencies  of major tenants or
          subtenants;

     o    increasing  operating costs  (including  increased real estate taxes)
          which may not be passed through fully to tenants or subtenants; and

     o    fluctuations in mortgage interest and lease rates.


A failure to  adequately  manage these risks and  liabilities  could  adversely
affect  our  revenues,  profits  and  available  cash and could have a material
adverse effect on our business, financial condition or results of operations.

Several  portions  of  our  properties  are  mortgaged  to  secure  payment  of
indebtedness outstanding under our credit facilities.  If we are unable to meet
our debt  obligations,  we could sustain losses as a result of  foreclosures on
the  properties  by our  lenders.  In  addition,  if it  becomes  necessary  or
desirable  for us to dispose  of one or more of the  mortgaged  properties,  we
might not be able to obtain a release of the lien on such mortgaged  properties
without  payment of the  associated  debt.  The  foreclosure  of a mortgage  or
default  of a loan on a property  or the  inability  to sell a  property  could
adversely  affect our business,  financial  condition or results of operations.
These considerations could make it difficult for us to sell properties, even if
a sale were in our best interests.

                                     -19-
<PAGE>

We maintain property insurance,  difference in conditions  insurance,  national
flood insurance (where applicable), general liability insurance, directors' and
officers'  insurance  and excess  insurance  coverage.  At leased and mortgaged
locations we maintain any of these lines of coverage that we are  contractually
obligated  to  maintain.  At owned  locations we maintain all of these lines of
coverage.  We maintain large deductibles  and/or large layers of self-insurance
on several of these lines of coverage.

We are subject to  federal,  state and local laws and  regulations  relating to
zoning, land use, environmental  protection,  work place safety, public health,
beer and wine  sales and  pharmaceutical  sales.  A number of states  and local
jurisdictions  regulate the licensing of  supermarkets,  including beer license
grants. In addition,  under certain local  regulations,  we are prohibited from
selling beer in certain of our stores.


WE ARE AFFECTED BY FLUCTUATING UTILITY AND FUEL COSTS.

Fluctuating  fuel costs  adversely  affect our operating costs for our fleet of
tractors  and  trailers  that   distribute   goods  from  our   warehouses  and
distribution  facilities  to all of our stores and our  monthly  store  utility
expenses.  We may not be able to recover  these  rising  utility and fuel costs
through increased prices charged to our customers.


WE MAY BE HELD LIABLE FOR ENVIRONMENTAL  DAMAGES WITH REGARD TO OUR CURRENT AND
FORMER  PROPERTIES,  REGARDLESS  OF THE  LAWFULNESS  OF OUR  ACTIVITIES ON SUCH
PROPERTIES.

Our  operations  subject us to various  laws and  regulations  relating  to the
protection of the  environment,  including  those  governing the management and
disposal of hazardous  materials and the cleanup of contaminated  sites.  Under
some  environmental  laws, such as the  Comprehensive  Environmental  Response,
Compensation,  and Liability Act of 1980, also known as CERCLA or the Superfund
law, and similar state statutes,  responsibility for the entire cost of cleanup
of a contaminated site can be imposed upon any current or former site owners or
operators,  or upon any party who sent  waste to the  site,  regardless  of the
lawfulness of the original activities that led to the contamination.  From time
to time we have been named as one of many  potentially  responsible  parties at
Superfund  sites,  although to date our share of liability has  typically  been
small.  We believe we are currently in substantial  compliance  with applicable
environmental requirements.

However,  future developments such as more aggressive enforcement policies, new
laws or discovery of unknown conditions may require  expenditures that may have
a material adverse effect on our business and financial condition.


                                     -20-
<PAGE>

CUSTOMER CONCERNS REGARDING FOOD SAFETY MAY ADVERSELY AFFECT OUR BUSINESS.

We could be adversely  affected if our customers lose confidence in the quality
and safety of certain  products in our  stores.  Negative  publicity  regarding
these concerns,  whether valid or not, may discourage customers from buying our
products.  Any  loss of  confidence  on the  part  of our  customers  would  be
difficult and costly to reestablish. As such, any issue regarding the safety of
our products could have a substantial and adverse effect on our operations.


OUR  OPERATING  RESULTS  MAY  BE  IMPACTED  BY  VARIABILITY  IN  SELF-INSURANCE
LIABILITY ESTIMATES.

We are self-insured for workers'  compensation and general  liability claims up
to set retention  amounts,  after which we maintain excess insurance  coverage.
Liabilities  are  maintained  based  on  independent   actuarial  estimates  of
aggregate  liability  claims  incurred  and an estimate  for  incurred  but not
reported claims. Our insurance  accruals reflect certain actuarial  assumptions
and  management  judgments  that are made based on factors  that are subject to
change.  Any  significant  variation  in these  factors  could cause a material
change in our self-insurance liabilities and our operating results.


WE HAVE NOT RECENTLY  FILED  PERIODIC  REPORTS WITH THE SECURITIES AND EXCHANGE
COMMISSION.

We did not complete an audit for the periods  between  February 1, 2003 through
April 16, 2005.  Additionally,  we have not made any required  periodic filings
with the SEC for any period since our Annual Report on Form 10-K for the fiscal
year ended  February 2, 2002,  except our Annual Report on Form 10-K for period
ended  January  28,  2006 (see our  explanatory  note on page 3 of that  report
regarding the financial  information  contained  therein),  and our most recent
quarterly reports on Form 10-Q for the quarter ended November 2, 2002.  Because
of our  failure  to make  timely  periodic  filings  with the SEC,  we could be
subject to civil penalties and other administrative  proceedings by the SEC. In
addition, until we have completed such updated filings, it is unlikely that our
common shares will be approved for listing on any national securities exchange.
The failure of our common  shares to be so listed may  adversely  affect  their
liquidity and trading price.


WE HAVE NOT RECENTLY FILED LOCAL,  STATE OR FEDERAL INCOME TAX RETURNS WITH THE
APPROPRIATE GOVERNMENTAL AUTHORITIES.

As a result of our inability to definitively  determine our taxable income, and
as a result of our  operating  losses over the years,  we have not filed any of
our federal,  state or local income tax returns  following fiscal year 2003. In
addition,  we have not made any  estimated  tax  payments  during that  period.
Because of our  failure to file  timely  annual  income  tax  returns  with the
appropriate  local  authorities,  we  could  be  subject  to  failure  to  file
penalties, as well as other penalties.


                                     -21-
<PAGE>

THERE IS NO EXISTING TRADING MARKET FOR OUR COMMON STOCK.

Our  common  shares  are  currently  quoted on the Pink  Sheets and there is no
assurance that an active trading market for our common shares will develop.  We
are not currently applying for a listing on any national  securities  exchange.
Accordingly,  no assurance  can be given that a holder of common shares will be
able to sell such securities in the future or as to the price at which any such
sale would occur.  If a trading  market were to develop,  the  liquidity of the
market for such securities and the prices at which such securities  would trade
will  depend  upon many  factors,  including  the number of  holders,  investor
expectations  and other  factors  beyond our control.  In addition,  our common
shares have been issued to certain  pre-petition  creditors as part of our plan
of  reorganization.  Some of  these  holders  may  prefer  to  liquidate  their
investment  rather  than to hold it on a long-term  basis,  which may create an
initial imbalance in the market if and when one were to develop.


THE  RESULTS  OF  THE  ONGOING   GOVERNMENTAL   INVESTIGATIONS   REGARDING  OUR
PROMOTIONAL ALLOWANCE PRACTICES AND POLICIES MAY HAVE AN ADVERSE EFFECT ON US.

We are  currently  the subject of ongoing  investigations  by the United States
Attorney's  Office  for  the  Northern  District  of New  York  and by the  SEC
regarding   our   promotional   allowance   practices   and   policies.   These
investigations  began  prior  to  our  emergence  from  Chapter  11  bankruptcy
protection in April 2005. We are cooperating with these investigations and have
produced  documents  and  made  our  employees   available  for  interviews  as
requested.  At present, we are unable to predict the outcome of either of these
investigations.  However,  an  unfavorable  resolution of these  investigations
could  ultimately  result in damage claims,  fines or penalties to us. Any such
claims,  fines or penalties could  adversely  affect our business or results of
operations.

On September  17, 2007,  the SEC filed civil fraud  charges  against our former
Chief Marketing Officer and former Vice-President,  Non-Perishables  Marketing,
alleging that such individuals  orchestrated a scheme to inflate our income and
other  financial  results by  prematurely  recognizing  promotional  allowances
received from vendors from approximately the second quarter of fiscal year 2001
through at least the fourth quarter of fiscal year 2003. The complaint  further
alleges that the  individuals  deceived our  accounting  personnel to carry out
their  fraudulent  scheme and aided and abetted  violations  of the  Securities
Exchange Act of 1934 and the rules thereunder.  In addition,  on the same date,
the United States Attorney for the Northern District of New York announced that
a federal  grand jury had  returned an  indictment  against the  abovementioned
individuals  on related  criminal  charges.  Both the SEC and the United States
Attorney indicated that their investigations are continuing.


                                     -22-
<PAGE>

OUR DISCLOSURE CONTROLS AND PROCEDURES WERE INEFFECTIVE AS OF FEBRUARY 3, 2007,
AND THESE WEAKNESSES COULD HAVE A MATERIALLY ADVERSE EFFECT ON US.

As  discussed  in more  detail in Item 9A below,  as a result of changes in our
financial condition and operations immediately preceding,  during and after our
reorganization   under   Chapter  11  bankruptcy   protection,   including  the
appointment  of our  current  President  and Chief  Executive  Officer  to such
position  on  October  1,  2007,  and the  appointment  of our  current  Senior
Vice-President  and Chief  Financial  Officer to such  position on May 9, 2007,
other changes in our senior  management and our external  auditors,  as well as
our failure to make  periodic  reports on a timely basis to the SEC during such
periods,  our present management has concluded that our disclosure controls and
procedures  were not  effective as of February 3, 2007 in providing  reasonable
assurance  that  material  information  requiring  disclosure  was  brought  to
management's  attention on a timely basis and that our financial  reporting was
reliable.

As discussed in more detail in Item 9A below, our current  management has taken
steps to correct  deficiencies  and weaknesses in our  disclosure  controls and
procedures.  However,  it is probable  that we may not be able to remediate all
deficiencies and weaknesses before the conclusion of fiscal year 2008.


ITEM 1B.   UNRESOLVED STAFF COMMENTS

None


                                     -23-
<PAGE>

ITEM 2.   PROPERTIES

We follow the general  industry  practice of leasing the majority of our retail
supermarket  locations.  We own 19 and  lease  87 of the  supermarkets  that we
operate.  The leased  supermarkets  are held under leases expiring from 2007 to
2020, excluding option periods. We lease 27 supermarkets which are subleased to
independent operators.

We  own  two  shopping   centers  that   contain   company-owned   or  licensed
supermarkets. We also lease distribution centers in Syracuse and Jamestown, New
York; and DuBois, Pennsylvania; and a bakery plant in Syracuse, New York.

Also see Item 1 - "Business - Retail Food  Business" and "Business - Purchasing
and Distribution" for additional information concerning our properties.


ITEM 3.   LEGAL PROCEEDINGS

The United  States  Attorney for the Northern  District of New York and the SEC
have been  conducting  investigations  relating  to our  promotional  allowance
practices and policies.  Such investigations  began prior to our emergence from
bankruptcy in April 2005. We have been  cooperating  with these  investigations
and have produced documents and made our employees  available for interviews as
requested.

On June 1,  2006,  we  announced  that  the  Audit  Committee  of the  Board of
Directors had completed its internal investigation of our promotional allowance
practices.  The Audit  Committee  hired  independent  counsel  to  perform  the
investigation.  The  Audit  Committee  found  that we had  engaged  in  certain
improper  practices  principally  relating  to  the  premature  recognition  of
promotional  allowances and that these practices had largely ceased by the time
of our Chapter 11 filing in May 2003. On February 3, 2006, we announced that we
had  terminated  the  employment  of  our  Chief  Marketing   Officer  and  our
Vice-President,  Non-Perishables  Marketing  following an interim report to the
Audit Committee on the findings of the investigation.

On September  17, 2007,  the SEC filed civil fraud  charges  against our former
Chief Marketing Officer and former  Vice-President,  Non-Perishables  Marketing
alleging that such individuals  orchestrated a scheme to inflate our income and
other  financial  results by  prematurely  recognizing  promotional  allowances
received from vendors from approximately the second quarter of fiscal year 2001
through at least the fourth quarter of fiscal year 2003. The complaint  further
alleges that the  individuals  deceived our  accounting  personnel to carry out
their  fraudulent  scheme and aided and abetted  violations  of the  Securities
Exchange Act of 1934 and the rules thereunder.  In addition,  on the same date,
the United States Attorney for the Northern District of New York announced that
a federal  grand jury has  returned an  indictment  against the  abovementioned
individuals  on related  criminal  charges.  Both the SEC and the United States
Attorney indicated that their investigations are continuing.

                                     -24-
<PAGE>

In connection with these matters,  we could be subject to damage claims,  fines
or  penalties.  At present,  we are unable to  estimate  the  likelihood  of an
unfavorable  outcome or the amount of any damage claims,  fines or penalties in
the event of an  unfavorable  outcome and,  accordingly,  no liability has been
recorded for this contingency.

Also see Item 1 -  "Business  -  Reorganization  - 2005  Effective  Date" for a
description of the consummation of our plan of  reorganization  and see Note 12
to our consolidated  financial statements,  included in this report,  regarding
legal proceedings relating to the consummation of our plan of reorganization.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was  submitted to a vote of security  holders  during the fiscal year
ended February 3, 2007.

                                     -25-
<PAGE>

PART II

ITEM 5.   MARKET  FOR  REGISTRANT'S  COMMON  EQUITY,   RELATED  STOCKHOLDER
          MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES

Since August 23,  2005,  our common  shares have been quoted on an  unsolicited
basis on the Pink Sheets under the symbol  "PTFC.PK."  All of our common shares
that were  outstanding  prior to April 13, 2005, the effective date of our plan
of  reorganization,  were  cancelled as part of our  emergence  from Chapter 11
bankruptcy protection.

The following  table sets forth the quarterly high and low bid  information for
our  common  shares  since  August  23,  2005.  Such  over-the-counter   market
quotations reflect  inter-dealer  prices,  without retail markup,  mark-down or
commission and may not necessarily represent actual transactions.

                                                            High          Low
                                                       ---------     ---------
            Quarter Ended February 3, 2007             $   15.50     $   11.50
            Quarter Ended October 28, 2006                 17.20         13.00
            Quarter Ended July 29, 2006                    17.00         15.00
            Quarter Ended April 29, 2006                   17.50         14.90
            Quarter Ended January 28, 2006                 17.00         12.00
            Quarter Ended October 29, 2005                 22.25         15.00


Our common shares were held by 689 stockholders of record on October 22, 2007.

There have been no  repurchases  of our common  shares  during the fiscal  year
ended February 3, 2007.

We have not paid a cash dividend to common  stockholders  since we emerged from
bankruptcy and we do not anticipate  paying a cash dividend in the  foreseeable
future.

                                     -26-
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA

CONSOLIDATED FIVE-YEAR FINANCIAL SUMMARY

Set forth below is our selected historical  consolidated financial data for the
five fiscal years ended  February 3, 2007. As a result of the  consummation  of
our plan of  reorganization  we adopted  fresh-start  reporting as of April 16,
2005.  The  accounting  periods  ended on or prior to April 16,  2005 have been
designated  "Predecessor  Company" and the periods subsequent to April 16, 2005
have been designated "Successor Company."

In accordance with the  implementation  of fresh-start  reporting,  our assets,
liabilities and  stockholders'  equity have been revalued as of April 16, 2005.
In addition, as a result of the consummation of our plan of reorganization, the
amount  of  our  indebtedness  was  substantially  reduced.   Accordingly,  our
financial statements for periods after April 16, 2005 are not comparable to our
financial statements for periods ended on or prior to such date.

The selected  historical  consolidated  financial  data for the 53-week  period
ended  February 3, 2007 and the 41-week  period  ended  January 28,  2006,  are
derived from our consolidated financial statements,  which have been audited by
Eisner  LLP,  independent  accountants.   The  Predecessor  Company's  selected
historical  consolidated  financial data for the 11-week period ended April 16,
2005,  and the 52-week  periods  ended  January 29, 2005,  January 31, 2004 and
February  1,  2003  are  derived  from  our  unaudited  consolidated  financial
statements.  In addition,  the selected historical  consolidated financial data
for the Successor  Company should be read in conjunction  with our consolidated
financial statements and related notes included elsewhere herein.

                                     -27-
<PAGE>

<TABLE>
                                            -----------------------------------------------------------------------------------
(In thousands of dollars,                           (Audited)
   except per share data)                       Successor Company                   (Unaudited) Predecessor Company
                                            -------------------------  ------------------------------------------------------
                                             53 Weeks      41 Weeks      11 Weeks      52 Weeks      52 Weeks      52 Weeks
                                               Ended        Ended          Ended        Ended         Ended         Ended
                                            February 3,  January 28,     April 16,   January 29,   January 31,   February 1,
                                                2007         2006          2005         2005          2004          2003
                                            -----------  -----------   -----------   -----------   -----------   -----------
<S>                                         <C>          <C>           <C>           <C>           <C>           <C>
REVENUES COSTS AND OPERATING EXPENSES:      $ 1,310,905  $ 1,015,893   $   265,260   $ 1,285,148   $ 1,307,977   $ 1,348,437

   Cost of sales (1)                            981,419      754,995       195,533       955,609       973,393       999,880
   Selling and administrative expenses (2)      345,874      255,780        71,414       312,826       325,388       319,118
   Loss on store closings                         1,308          520             -             -             -             -
   Amortization of goodwill (4)                       -            -             -             -             -             -
   Asset impairment charge (3)                        -            -             -             -         1,002        17,858
   Goodwill impairment charge (4)                     -            -             -             -        22,832        28,397
                                            -----------  -----------   -----------   -----------   -----------   -----------
OPERATING (LOSS) INCOME
   Interest expense (5)                         (17,696)       4,598        (1,687)       16,713       (14,638)      (16,816)
   Gain on extinguishment of debt (6)             9,357        8,289         1,755        12,365        32,018        35,479
   Reorganization expenses (7)                        -            -      (182,831)            -             -             -
                                                  1,020        1,023        71,117        19,060        30,818             -
                                            -----------  -----------   -----------   -----------   -----------   -----------
(LOSS) INCOME FROM CONTINUING OPERATIONS
   BEFORE INCOME TAXES AND DISCONTINUED
   OPERATIONS                                   (28,073)      (4,714)      108,272       (14,712)      (77,474)      (52,295)

   (Benefit) provision for income taxes (8)      (6,848)        (903)      (23,945)          251           755        (8,565)
                                            -----------  -----------   -----------   -----------   -----------   -----------
(LOSS) INCOME FROM CONTINUING OPERATIONS
   BEFORE DISCONTINUED OPERATIONS               (21,225)      (3,811)      132,217       (14,963)      (78,229)      (43,730)
   Loss from discontinued operations,
   net of tax (9)                                     -            -         3,133         8,994        84,163         4,337
                                            -----------  -----------   -----------   -----------   -----------   -----------

NET (LOSS) INCOME                           $   (21,225) $    (3,811)  $   129,084   $   (23,957)  $  (162,392)  $   (48,067)
                                            ===========  ===========   ===========   ===========   ===========   ===========

NET LOSS PER SHARE (BASIC AND DILUTED)      $     (2.50) $     (0.45)
                                            ===========  ===========

No dividends on common stock have been paid during the past five fiscal  years. Per share  data is not
presented  for the  periods  ended on or prior to April 16,2005 because of a general lack of comparability
as a result of our revised capital structure.

BALANCE SHEET DATA:
Total assets                                    311,985      329,207       418,086       394,225       454,417       739,974
Total debt (including capital leases)            65,154       51,252        67,473       156,201       164,555       356,925
Stockholders' equity (deficit)                  100,337      119,686             -      (133,606)      (99,021)       61,739

OTHER DATA:
EBITDA (10)                                      11,317       25,130         3,100        39,511        31,596        53,506
Depreciation and amortization                    27,485       19,075         4,712        21,985        21,697        26,173
LIFO (benefit) provision                          1,528        1,457            75           813           703        (2,106)
Capital expenditures                             22,926       20,533         4,148        21,244         6,377        56,439
Cash interest expense                             8,398        7,222         1,753        10,520        27,542        32,858
</TABLE>


                                     -28-
<PAGE>

NOTES

1)   During the fourth quarter of fiscal year 2003 we adopted  Emerging  Issues
     Task  Force  Issue  No.   02-16   "Accounting   by  a  Reseller  for  Cash
     Consideration  Received from a Vendor", or EITF 02-16. EITF 02-16 requires
     that vendor allowances, including slotting allowances, be categorized as a
     reduction  of cost of  sales  unless  they  are a  reimbursement  of costs
     incurred  to  sell  the  vendor's  products,   in  which  case,  the  cash
     consideration  should be  characterized  as a reduction of that cost. EITF
     02-16 also  requires  that rebates or refunds  payable be  recognized as a
     reduction of cost of sales based on a systematic  and rational  allocation
     over the purchase period if the customer completes a specified  cumulative
     level of  purchases  from the vendor.  Adoption of this  standard  did not
     materially affect our net loss for fiscal year 2003.

2)   During the fourth  quarter of fiscal year 2003, we recorded a $3.6 million
     reduction  of  selling  and  administrative  expenses  associated  with an
     adjustment to reserves for group health and general  liability  insurance.
     The reserve balance for our sponsored  group health  insurance was reduced
     due to improved  claims  processing that decreased the claims incurred but
     not reported.  The increase in costs associated with the fiscal year ended
     February 3, 2007 and the fiscal  periods  ended January 28, 2006 and April
     16, 2005 are primarily due to increases in professional fees. In addition,
     fiscal  year 2007  includes  severance  payments to prior  management  and
     employees of the closed Jamestown faciilty.

3)   We adopted Statement of Financial  Accounting Standard No. 144 "Accounting
     for the Impairment or Disposal of Long-Lived  Assets", or SFAS 144, during
     fiscal year 2003. SFAS 144 requires us to perform a review of the recorded
     value of our long-lived assets whenever changes in circumstances  indicate
     the carrying value of the asset may not be recoverable.  During the fourth
     quarter of fiscal  year  2003,  we  recorded  a  non-cash  charge of $17.9
     million related to the write-down of 16 of our operating retail stores and
     three closed stores to estimated  fair market value.  In fiscal year 2004,
     we recorded a non-cash charge of $1.0 million for four retail stores.  The
     impairment  charges  under SFAS 144 resulted from lower  estimated  future
     cash  flows  that were due to a  combination  of  factors,  including  the
     changes in the economic  environment  and a more  challenging  competitive
     environment  during  fiscal year 2003 and fiscal year 2004.  These factors
     reduced the profitability of our stores and caused us to conclude that the
     profitability  of certain of our stores would not increase to a level that
     would enable the carrying value to be recovered.

4)   We adopted  Statement of Financial  Accounting  Standard No. 142 "Goodwill
     and  Other  Intangible  Assets,"  or SFAS  142,  in  fiscal  year 2003 and
     performed  a  transitional  goodwill  assessment,  which  resulted  in  no
     impairment.  SFAS 142 provides that  intangible  assets with finite useful
     lives be amortized and that goodwill and intangible assets with indefinite
     useful lives not be amortized but tested at least annually for impairment.
     Since the  adoption  of SFAS  142,  we no longer  record  amortization  of
     goodwill in our  Consolidated  Statement of Operations.  During the fourth
     quarter of fiscal years 2003 and 2004,  we completed an annual  impairment
     review,  which was further  necessitated by the change in the economic and
     competitive  environment,   and  we  recorded  non-cash  charges  for  the
     impairment of goodwill of $28.4 million and $22.8 million, respectively.

                                     -29-
<PAGE>

5)   As a result of our  Chapter 11 filing on May 30,  2003,  no  principal  or
     interest  payments  were  made  on or  after  such  date  on our  formerly
     outstanding senior and senior subordinated notes. Accordingly, no interest
     expense for these  obligations has been accrued on or after such date. Had
     such interest been accrued,  interest expense would have increased by $7.4
     million,  $11.0  million and $2.3 million for fiscal years 2004,  2005 and
     the 11-week period ended April 16, 2005, respectively.

6)   The gain on  extinguishment of debt for the 11-week period ended April 16,
     2005  consists  of our  extinguishment  of the (i)  allowed  claims of our
     unsecured creditors, including trade claims, and (ii) Cash Balance Pension
     Plan assumed by Pension Benefit Guaranty Corporation and the former senior
     notes, which were exchanged primarily for shares of our common stock.

7)   During the 53-week  period ended  February 3, 2007 and the 41-week  period
     ended January 28, 2006,  reorganization  expense consisted of $1.0 million
     for  professional  fees.  During the 11-week  period ended April 16, 2005,
     reorganization   expense   primarily   consisted   of  $10.4   million  of
     professional  fees and $60.0  million of losses  included  in  accumulated
     other  comprehensive  loss related to the Cash Balance Pension Plan, which
     was  recognized  in income  on  termination  of the plan  upon  assumption
     thereof  by the  PBGC.  For  fiscal  year  ended  January  29,  2005,  the
     reorganization  expenses  consisted of $17.9 million for professional fees
     related to the bankruptcy filing, $0.2 million loss on asset disposals and
     $0.9  million   related  to  severances   paid  in  connection   with  the
     reorganization.  For fiscal year 2004,  the  reorganization  expenses were
     primarily for professional fees related to our plan of reorganization.

8)   At February 3, 2007, we had a net operating loss  carryforward for federal
     and state income tax purposes of approximately  $13.2 million available to
     offset future taxable income through 2027.  Prior net operating loss carry
     forwards were entirely  eliminated  effective January 29, 2006 principally
     as a  result  of  cancellation  of debt  in the  Chapter  11  proceedings.
     Further,  we lost a  portion  of the tax basis of its  long-lived  assets,
     reducing the amount of tax depreciation  and amortization  that we will be
     able to utilize on its tax returns. A valuation  allowance of $5.1 million
     was  established  at  February  3, 2007 to offset the net  operating  loss
     carryforward and other deferred tax assets to the extent it is more likely
     than not, based upon available evidence,  that the recorded value will not
     be  realized.  Realization  is dependent  on the  existence of  sufficient
     taxable income within the carryforward period,  including future reversals
     of certain  taxable  temporary  differences.  In providing  the  valuation
     allowance,  no reversal of the taxable temporary difference arising from a
     portion of LIFO  inventory  was  considered to occur during such period as
     the period in which such reversal may occur is not presently determinable.

                                     -30-
<PAGE>

     The tax benefit from  continuing  operations  for the 11-week period ended
     April 16, 2005 is not recorded at statutory  rates  principally due to the
     gain on the  extinguishment  of debt not being  included in taxable income
     and a $24.0  million tax benefit  related to losses from the Cash  Balance
     Pension Plan,  which benefit had  previously  been credited to accumulated
     other comprehensive loss. The tax provision for fiscal years 2004 and 2005
     was not  recorded at statutory  rates due to the  recording of a valuation
     allowance  for all of the  income  tax  benefits  generated.  A  valuation
     allowance  is required  when it is more likely than not that the  recorded
     value of a deferred tax asset will not be realized.  The tax (benefit) for
     fiscal year 2003 is not  recorded at  statutory  rates due to  differences
     between  income  calculations  for  financial  reporting and tax reporting
     purposes  that  result  primarily  from   nondeductible   amortization  of
     goodwill.

9)   The loss from  discontinued  operations  reflects  operating  results  and
     (gains)  losses on  disposals of Big Bear Stores and other  stores,  which
     were  closed or sold in  connection  with our  reorganization  during  the
     fiscal years of 2004 and 2005 and the 11-week period ended April 16, 2005.
     The losses (gains) for these periods are $33.6 million, ($1.9) million and
     ($0.3) million, respectively.

10)  EBITDA is earnings from  continuing  operations  before  interest,  taxes,
     depreciation,  amortization,  amortization of goodwill,  asset  impairment
     charge, goodwill impairment charge, and LIFO provision.  EBITDA should not
     be  interpreted as a measure of operating  results,  cash flow provided by
     operating  activities or liquidity,  or as an alternative to any generally
     accepted accounting principle measure of performance.  We report EBITDA as
     it is an important measure utilized by management to monitor the operating
     performance of our business. We also believe that EBITDA assists investors
     and other  interested  parties in  evaluating  our capacity to service our
     debt.  Our  reported  EBITDA may not be  comparable  to  similarly  titled
     measures  used by other  companies.  Below is a table  that sets forth the
     reconciliation of operating (loss) income to EBITDA.


<TABLE>
                                            -----------------------------------------------------------------------------------
(In thousands of dollars,                           (Audited)
   except per share data)                       Successor Company                   (Unaudited) Predecessor Company
                                            -------------------------  ------------------------------------------------------
                                             53 Weeks      41 Weeks      11 Weeks      52 Weeks      52 Weeks      52 Weeks
                                               Ended        Ended          Ended        Ended         Ended         Ended
                                            February 3,  January 28,     April 16,   January 29,   January 31,   February 1,
                                                2007         2006          2005         2005          2004          2003
                                            -----------  -----------   -----------   -----------   -----------   -----------
<S>                                         <C>          <C>           <C>           <C>           <C>           <C>
Operating (Loss) Income                     $   (17,696) $     4,598   $    (1,687)  $    16,713   $   (14,638)  $   (16.816)

   Depreciation and amortization                 27,485       19,075         4,712        21,985        21,697        26,713
   Amortization of goodwill                           -            -             -             -             -             -
   Asset impairment charge                            -            -             -             -         1,002        17,858
   Goodwill impairment charge                         -            -             -             -        22,832        28,397
   LIFO provision (benefit)                       1,528        1,457            75           813           703        (2,106)
                                            -----------  -----------   -----------   -----------   -----------   -----------
EBITDA                                      $    11,317  $    25,130   $     3,100   $    39,511   $    31,596   $    53,506
                                            ===========  ===========   ===========   ===========   ===========   ===========
</TABLE>


                                     -31-
<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

As discussed in Note 2 to the accompanying  Consolidated  Financial Statements,
we emerged from our Chapter 11  proceedings  on April 13, 2005.  For  financial
reporting  purposes,   we  accounted  for  the  consummation  of  our  plan  of
reorganization  as of the close of business on April 16,  2005.  In  accordance
with the  American  Institute  of Certified  Public  Accountant's  Statement of
Position 90-7,  "Financial  Reporting by Entities in  Reorganization  under the
Bankruptcy  Code" we have  applied  fresh-start  reporting  as of the  close of
business on April 16, 2005,  which has resulted in  significant  changes to the
valuation of certain of our assets and  liabilities,  and to our  stockholders'
equity. In connection with the adoption of fresh-start  reporting, a new entity
has been deemed to be created for  financial  reporting  purposes.  The periods
ended on or prior to April 16, 2005 have been designated  "Predecessor Company"
and the periods  subsequent to April 16, 2005 have been  designated  "Successor
Company."  For  purposes  of  the  discussion  of  the  unaudited   Results  of
Operations,  the 11-week  period  ended April 16, 2005 and the audited  41-week
period ended  January 28, 2006 have been deemed  noncomparible  to prior fiscal
years.


                                     -32-
<PAGE>

RESULTS OF OPERATIONS

The  following  table sets forth certain  Consolidated  Statement of Operations
components  expressed as  percentages  of revenues for the 53-week period ended
February 3, 2007 and the 41-week period ended January 28, 2006.


                                                  (AUDITED)         (AUDITED)
                                               -----------------  --------------
                                                   53-WEEKS         41-WEEKS
                                                     ENDED             ENDED
                                                  FEBRUARY 3,       JANUARY 28,
                                                      2007             2006
                                               -----------------  --------------

Revenues                                             100.0%             100.0%

Gross profit (1)                                      25.1               25.7

Selling and administrative expenses                   26.4               25.2

Loss on store closings                                 0.1                0.1

Operating (loss) income                               (1.3)               0.5

Interest expense                                       0.7                0.8

Reorganization expenses                                0.1                0.1

Income tax benefit                                    (0.5)              (0.1)

Net loss                                              (1.6)              (0.4)

-------------------------------
(1) Revenues less cost of sales.


                                      -33-
<PAGE>

FISCAL YEAR 2007 (THE AUDITED  53-WEEK  PERIOD ENDED  FEBRUARY 3, 2007) AND THE
FISCAL PERIOD 2006 (THE AUDITED 41-WEEK PERIOD ENDED JANUARY 28, 2006)

REVENUES

Revenues for the 53-week period ended February 3, 2007 increased  29.0% to $1.3
billion  from $1.0  billion in the 41-week  period  ended  January 28, 2006 The
increase in revenues was mainly  attributed to the  difference in the number of
weeks in each period.  For the unaudited 52-week period ended January 28, 2006,
revenues were approximately $1.3 billion.

Same store sales for the 52-week  period ended January 27, 2007  decreased 1.7%
compared to the unaudited 52-week period ended January 28, 2006.

Wholesale food  distribution  revenues for the 53-week period ended February 3,
2007  increased  26.4% to $217.3 million or 16.6% of total revenues from $171.9
million or 16.9% of total  revenues for the 41-week  period  ended  January 28,
2006. The fiscal year 2007 increase in the wholesale food distribution revenues
was  attributable  to the  difference  in the  number of weeks in each  period.
During the unaudited  52-week period ended January 28, 2006, our wholesale food
distribution revenues would have been approximately $216.8 million, or 16.9% of
revenues.


GROSS PROFIT

Gross  profit was 25.1% of revenues for the 53-week  period  ended  February 3,
2007,  compared to 25.7% of revenues,  for the 41-week period ended January 28,
2006.  The  decrease  in gross  profit as a percent of  revenues in the 53-week
period was primarily due to higher product costing.


SELLING AND ADMINISTRATIVE EXPENSES


Selling and  administrative  expenses for the 53-week  period ended February 3,
2007,  were 26.4% of revenues,  compared to 25.2% of revenues,  for the 41-week
period  ended  January 28,  2006.  The  increase in selling and  administrative
expenses as a  percentage  of revenues  was  principally  due to  non-recurring
expenses,  totaling $11.4 million,  which consisted principally of $4.1 million
of SEC investigation  related legal fees, $2.8 million in severance payments to
prior management and employees of the closed Jamestown  facility,  $1.5 million
in professional  fees, and $0.8 million of costs  associated with obtaining new
management.


                                      -34-
<PAGE>

DEPRECIATION AND AMORTIZATION

Depreciation  and  amortization  expense was 2.1% of revenues,  for the 53-week
period ended  February 3, 2007  compared to 1.9% of  revenues,  for the 41-week
period ended January 28, 2006. The increase in depreciation and amortization as
a percent of revenues in the 53-week  period was primarily due to  depreciation
of additions in fiscal year 2007 of approximately $22.9 million.


OPERATING (LOSS) INCOME

Operating  loss for the  53-week  period  ended  February  3,  2007 was 1.3% of
revenues, compared to the operating income of 0.5% of revenues, for the 41-week
period ended  January 28, 2006.  The change in operating  (loss) income for the
53-week period included $11.4 million of  non-recurring  expense,  explained in
Selling and Administrative Expenses above.


INTEREST EXPENSE

Interest  expense for the  53-week  period  ended  February 3, 2007 was 0.7% of
revenues,  compared to 0.8% of revenues,  for the 41-week  period ended January
28, 2006. The decrease in interest  expense as a percentage of revenues for the
53-week period was due to a decrease in our average borrowings.


INCOME TAX BENEFIT

Income tax benefit for the 53-week  period  ended  February 3, 2007 was 0.5% of
revenues.  Income tax benefit for the 41-week period ended January 28, 2006 was
0.1% of revenues.

During  fiscal  year  2006  we  provided  for  only  minimal  state  taxes  and
capital/franchise tax and reset our deferred tax liability due to our emergence
from bankruptcy.

At February 3, 2007, we had a net operating loss  carryforward  for federal and
state income tax purposes of  approximately  $13.2 million  available to offset
future taxable income through 2027. Prior net operating loss carryforwards were
entirely  eliminated  effective  January  29, 2006  principally  as a result of
cancellation of debt in our Chapter 11 proceedings.  Further, we lost a portion
of  the  tax  basis  of our  long-lived  assets,  reducing  the  amount  of tax
depreciation  and  amortization  that we will  be  able to  utilize  on our tax
returns.  A valuation  allowance of $5.1 million was established at February 3,
2007 to offset the net  operating  loss  carryforward  and other  deferred  tax
assets to the extent it is more likely than not, based upon available evidence,
that the recorded  value will not be realized.  Realization is dependent on the
existence  of  sufficient  taxable  income  within  the  carryforward   period,
including  future  reversals  of  certain  taxable  temporary  differences.  In
providing  the  valuation  allowance,  no  reversal  of the  taxable  temporary
difference  arising from a portion of LIFO  inventory  was  considered to occur
during  such  period as the  period  in which  such  reversal  may occur is not
presently determinable.

                                     -35-
<PAGE>

REORGANIZATION EXPENSE

During the 53-week  period ended  February 3, 2007 and the 41-week period ended
January 28, 2006, we recorded reorganization expense totaling 0.1% of revenues,
in each period. These expenses were primarily professional fees.


NET LOSS

Net loss for the 53-week  period  ended  February 3, 2007 was 1.6% of revenues,
compared  to a net loss of 0.4% of revenue  during  the  41-week  period  ended
January 28, 2006.  The increase in net loss as a percentage  of revenues in the
53-week period is primarily due to an $8.4 million increase in depreciation and
amortization  and the  recording  of $11.4  million in  non-recurring  expenses
during fiscal year 2007.


                                     -36-
<PAGE>

RESULTS OF OPERATIONS (CONTINUED)

The  following  table sets forth certain  Consolidated  Statement of Operations
components  expressed as  percentages  of revenues for the 41-week period ended
January 28, 2006 and the 11-week period ended April 16, 2005.


                                                  (AUDITED)        (UNAUDITED)
                                                  SUCCESSOR       PREDECESSOR
                                                   COMPANY          COMPANY
                                              -----------------  --------------
                                                  41-WEEKS         11-WEEKS
                                                    ENDED            ENDED
                                                 JANUARY 28,       APRIL 16,
                                                     2006            2005
                                              -----------------  --------------

Revenues                                            100.0%           100.0%

Gross profit (1)                                     25.7             26.3

Selling and administrative expenses                  25.2             26.9

Loss on store closings                                0.1              0.0

Operating income                                      0.5             (0.6)

Interest expense                                      0.8              0.7

Extinguishment of debt                                0.0            (68.9)

Reorganization item                                   0.1             26.8

Income tax benefit                                   (0.1)            (9.0)

Discontinued operations                               0.0              1.2

Net (loss) income                                    (0.4)            48.7

-----------------------------
(1) Revenues less cost of sales.


                                     -37-
<PAGE>

FISCAL YEAR 2006 (THE AUDITED  41-WEEK  PERIOD  ENDED  JANUARY 28, 2006 AND THE
UNAUDITED 11-WEEK PERIOD ENDED APRIL 16, 2005)

REVENUES

Revenues for the 41-week  period ended January 28, 2006 and the 11-week  period
ended April 16, 2005 were $1.0 billion and $265.3 million, respectively.

Same store sales for the 41-week  period ended January 28, 2006  decreased 1.6%
compared to the 41-week  period ended January 29, 2005 and the same store sales
for the 11-week  period ended April 16, 2005  decreased by 0.5% compared to the
11-week period ended April 17, 2004.

Wholesale food distribution revenues were $171.9 million, or 16.9% of revenues,
for the 41-week  period ended January 28, 2006 and $28.7  million,  or 10.8% of
revenues, for the 11-week period ended April 16, 2005.


GROSS PROFIT

Gross profit was $260.9 million,  or 25.7% of revenues,  for the 41-week period
ended January 28, 2006 and $69.7 million, or 26.3% of revenues, for the 11-week
period ended April 16, 2005.


SELLING AND ADMINISTRATIVE EXPENSES

Selling and  administrative  expenses for the 41-week  period ended January 28,
2006 were $256.3  million,  or 25.2% of  revenues,  and for the 11-week  period
ended April 16, 2005 were $71.4 million, or 26.9% of revenues.


DEPRECIATION AND AMORTIZATION

Depreciation and amortization  expense was $19.1 million,  or 1.9% of revenues,
for the 41-week  period  ended  January 28, 2006 and $4.7  million,  or 1.8% of
revenues,  for the  11-week  period  ended  April 16,  2005.  Depreciation  and
amortization  expense  increased  in  fiscal  year  2006  primarily  due to the
shortening of the asset life for our  property,  equipment  and  machinery,  an
increase  in carrying  value of  favorable  leases and the  addition of two new
intangible  assets (Pharmacy  Scripts and Software) with the  implementation of
fresh-start  reporting in connection with our  reorganization.  The increase in
depreciation and amortization  expense was partially offset by the recording of
unfavorable leases associated with the implementation of fresh-start  reporting
in connection with our reorganization.


                                     -38-
<PAGE>

OPERATING INCOME (LOSS)

Operating  income  for the  41-week  period  ended  January  28,  2006 was $4.6
million,  or 0.5% of revenues,  and for the 11-week period ended April 16, 2005
operating loss was $1.7 million, or 0.6% of revenues.


INTEREST EXPENSE

Interest  expense  for the  41-week  period  ended  January  28,  2006 was $8.3
million, or 0.8% of revenues,  and was $1.8 million,  or 0.7% of revenues,  for
the 11-week  period ended April 16, 2005. We eliminated  our existing  interest
rate swap in connection with our  reorganization.  We obtained a more favorable
interest   rate   under  our   credit   facility   and   cancellation   of  our
debtor-in-possession facility.


INCOME TAX BENEFIT

Income tax  benefit  for the  41-week  period  ended  January 28, 2006 was $0.9
million, or 0.1% of revenues,  and $23.9 million, or 9.0% of revenues,  for the
11-week period ended April 16, 2005.

During  fiscal  year  2006  we  provided  for  only  minimal  state  taxes  and
capital/franchise tax and reset our deferred tax liability due to our emergence
from bankruptcy.

At January  29,  2005,  we had  approximately  $59.8  million  of  federal  net
operating  loss  carryforwards,  as well as certain  state net  operating  loss
carryforwards.  On January 29, 2006 $85.0 million of net operating loss and tax
credit  carryforwards  were eliminated due to the implementation of our plan of
reorganization. In addition, as the result of the implementation of our plan of
reorganization  we lost  55.6%  of the  tax  basis  of our  long  lived  assets
(approximately $38.4 million as of January 29, 2006).


REORGANIZATION ITEM

During the 41-week  period  ended  January 28, 2006 we recorded  reorganization
item expense of $1.0 million,  or 0.1% of revenues,  and for the 11-week period
ended April 16, 2005 we recorded  reorganization item expense of $71.1 million,
or 26.8% of revenues.  These expenses were primarily due to PBGC  assumption of
our  Cash  Balance  Plan  and  consulting  fees  paid  to  various   bankruptcy
professionals.


                                     -39-
<PAGE>

DISCONTINUED OPERATIONS

Loss from  discontinued  operations for the 11-week period ended April 16, 2005
was $3.1  million.  This loss was  primarily  attributable  to our  closure  of
unprofitable stores during this period.


NET (LOSS) INCOME

Net loss for the 41-week  period ended  January 28, 2006 was $3.8  million,  or
0.4% of  revenues,  and net income for the 11-week  period ended April 16, 2005
was $129.1 million,  or 48.7% of revenues.  The change in the net income (loss)
was primarily  attributable to recognition of a gain from the extinguishment of
debt of $182.8 million in the 11-week period ended April 16, 2005.



                                     -40-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

On April 16, 2005, upon emergence from Chapter 11 proceedings,  we entered into
a  revolving   credit  and  term  loan  facility  with  a  group  of  financial
institutions  providing for a $130.0 million  revolving  credit  facility and a
$6.0 million term loan.  Also on April 16, 2005, we entered into a supplemental
real estate credit  facility with another group of lenders,  providing for term
loan  borrowings  of  up to  $28.0  million.  Availability  under  both  credit
facilities is dependent on levels of accounts receivable, inventory and certain
other assets.  Interest rates on borrowings under the revolving credit facility
vary  depending  upon  the  amount  of  availability.   At  February  3,  2007,
outstanding  borrowings under both facilities aggregated $48.5 million. At such
date,  availability  in excess of outstanding  borrowings and letters of credit
was approximately $42.0 million. Borrowings under the revolving credit and term
loan facility are secured by substantially all of our assets,  subject to first
liens on certain properties by other lenders.  Borrowings under the real estate
facility  are  secured by a first lien on  substantially  all of our  leasehold
interests  and a second  lien on  substantially  all of our  remaining  assets.
During  fiscal year 2007,  we had stand-by  letters of credit of  approximately
$48.4  million.  Many of these  stand-by  letters of credit were  required upon
emergence  from  bankruptcy  and as a result of our inability to file financial
statements.

Provisions  of  both  credit  facilities,   among  other  things,  require  the
maintenance of certain financial  covenants (when availability under the credit
facilities  is less than $35.0 million for four  consecutive  days or less than
$30.0 million for any one day),  and limit the amount of capital  expenditures,
our  assumption  of additional  debt and our payment of  dividends.  At no time
through February 3, 2007 had we been subject to compliance with these financial
covenants  because the annual  available for borrowing had not dropped to these
levels.  However,  had  such an event  occurred,  we  would  not  have  been in
compliance  with the  financial  covenants and would have been in default under
the terms of the loan  agreement  at February 3, 2007.  Pursuant to our plan of
reorganization,   we  entered  into  a  collateral  trust  agreement  with  the
collateral  trustee in  connection  with the secured  trade lien  program.  The
secured  trade lien  program is with  certain of our  vendors  and allows us to
maintain trade terms. This program has been extended until April 13, 2008.

On December 26, 2006 and on August 1, 2007, both the revolving  credit and term
loan facility and the supplemental  real estate credit facility were amended to
provide us with  additional  liquidity  by  lowering  the  excess  availability
thresholds  for  purposes of  determining  compliance  with  certain  financial
covenants  in the credit  facilities  and to permit the  disposal  of assets in
connection with the closing of certain stores.

We also have borrowings under mortgages secured by the related properties.


OFF-BALANCE SHEET ARRANGEMENTS

We do not have any material off-balance sheet arrangements.


                                     -41-
<PAGE>

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The table below presents our significant contractual obligations at February 3,
2007 (in thousands of dollars):

<TABLE>
                                                                                        TOTAL
COMMITMENT EXPIRES                                                      OTHER        CONTRACTUAL
    DURING THE        LONG-TERM     CAPITAL LEASE      OPERATING      LONG-TERM         CASH
FISCAL YEAR ENDING     DEBT (1)   OBLIGATIONS (2)(3)   LEASES (3)   LIABILITIES (4)  OBLIGATIONS
------------------- -----------  ------------------  ------------  ----------------  -----------
<S>                 <C>                 <C>            <C>             <C>           <C>
February 2, 2008    $       314         $      2,855   $   20,092      $      8,633  $    31,894
January 31, 2009         48,778                2,855       20,020             5,062       76,715
January 30, 2010            296                2,781       16,158             3,068       22,303
January 29, 2011            321                1,944       14,459             2,043       18,767
January 28, 2012            259                1,496       12,299             1,680       15,734
Thereafter                2,758               11,269       59,116               672       73,815
</TABLE>
----------------------
(1)  The balance for the fiscal year ending January 31, 2009 includes repayment
     of $48.5  million  under  the  revolving  credit  facility,  term loan and
     supplemental real estate loan.

(2)  Includes amounts classified as imputed interest.

(3)  See Note 7 to the Consolidated Financial Statements.

(4)  Other  long-term   liabilities  include  workers   compensation,   general
     liability, asset retirement obligations,  store closing costs and the PBGC
     settlement.


We have also made certain  contractual  commitments that extend beyond February
3, 2007 as shown below (in thousands of dollars):


                                                     STAND-BY
                                                    LETTERS OF         SURETY
                                                    CREDIT (1)        BONDS (2)
                     -------------------------- ---------------- ---------------
                     Total amounts committed     $      48,349    $       7,495

----------------------
(1)  Letters  of credit  are  primarily  associated  with  supporting  workers'
     compensation obligations and are renewable annually.

(2)  We are  required to  maintain  surety  bonds for varying  periods of up to
     three years from the date of issuance.


                                     -42-
<PAGE>

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

In  June  2006,  the  FASB  issued   Interpretation  No.  48,  "Accounting  for
Uncertainty in Income Taxes - an  interpretation of FASB Statement No. 109," or
FIN 48,  effective for fiscal years  beginning  after December 15, 2006. FIN 48
clarifies the  accounting for  uncertainty  in tax  positions.  FIN 48 requires
financial statement recognition of the impact of a tax position when it is more
likely than not,  based on its  technical  merits,  that the  position  will be
sustained upon examination.  We are currently evaluating the effect of adopting
FIN 48.

In June 2006, the FASB ratified Emerging Issues Task Force Issue No. 06-3, "How
Sales Taxes Collected From Customers and Remitted to  Governmental  Authorities
Should Be  Presented  in the  Income  Statement  (that  is,  Gross  Versus  Net
Presentation)",  or EITF 06-3,  effective for periods  beginning after December
15, 2006. EITF 06-3 allows taxes assessed by various  governmental  authorities
that are directly imposed on  revenue-producing  transactions  between a seller
and a customer,  such as sales and some excise taxes, to be presented on either
a gross or net basis. We record sales net of applicable  sales taxes and intend
to continue  such  policy.  Therefore,  the  adoption of EITF 06-3 will have no
effect on the presentation of our revenues and expenses.

In September 2006, the FASB issued Statement of Financial  Accounting Standards
No. 157,  "Fair Value  Measurement,"  or SFAS 157,  effective  for fiscal years
beginning after November 15, 2007.  SFAS 157 defines fair value,  establishes a
framework for measuring fair value in generally accepted accounting  principles
and  expands  disclosures  about  fair  value  measurements.  SFAS 157 does not
require any new fair value measurements. We are currently evaluating the effect
of adopting SFAS 157.

In February 2007, the FASB issued Statement of Financial  Accounting  Standards
No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities"
- Including an amendment of FASB Statement No. 115, or SFAS 159,  effective for
fiscal  years ending  after  November  15, 2007.  SFAS 159 permits an entity to
elect fair value as the initial and subsequent  measurement  attribute for many
financial assets and liabilities. Entities electing the fair value option would
be required to recognize  changes in fair value in earnings and to  distinguish
on the face of the statement of financial position the fair value of assets and
liabilities for which the fair value option has been elected and similar assets
and liabilities measured using another measurement attribute. The adjustment to
reflect the difference  between the fair value and the carrying amount would be
accounted for as a cumulative-effect  adjustment to retained earnings as of the
date of initial  adoption.  We are currently  evaluating the effect of adopting
SFAS 159.

                                     -43-
<PAGE>

CRITICAL ACCOUNTING POLICIES

Critical  accounting  policies  are  those  accounting  policies  that are very
important  to the  portrayal  of our  financial  condition  and  which  require
management's most difficult, subjective or complex judgments, often as a result
of the need to make  estimates  about the effect of matters that are inherently
uncertain.  Our significant accounting policies are summarized in Note 3 to the
consolidated financial statements.

We believe the following accounting policies to be critical and could result in
materially different amounts being reported under different conditions or using
different assumptions:


RESERVE FOR STORE CLOSURES

Reserves  for closed  stores are  recorded  in  accordance  with  Statement  of
Financial  Accounting  Standard No. 146,  "Accounting for Costs Associated with
Exit and  Disposal  Activities,"  or SFAS 146.  We record a  liability  for the
estimated  future  cash  flows  (including  future  lease  commitments,  net of
estimated cost recoveries) and miscellaneous  closing costs.  Future cash flows
are  estimated  based on our knowledge of the market in which the closed stores
are  located.  The  estimates of future cash flows are then  discounted  to the
present,  based on the  interest  rate of our real estate  facility  term loan.
These estimates of discounted future cash flows could be affected by changes in
real estate  markets,  other economic  conditions and the interest rate used in
such calculations.


IMPAIRMENT OF LONG-LIVED ASSETS

Annually or whenever  changes in circumstance  indicate that the carrying value
of an asset  may not be  recoverable,  we  review  our  long-lived  assets  for
impairment at the individual store level based on estimated future undiscounted
cash flows  attributable  to such  assets.  This review is in  accordance  with
Statement  of  Financial  Accounting  Standards  No. 144,  "Accounting  for the
Impairment or Disposal of Long-Lived Assets", or SFAS 144.

In the event such cash flows are not expected to be  sufficient  to recover the
recorded value of the assets, such assets are written down to their fair value.
In estimating future cash flows,  management considers  historical  performance
and assesses the effect of projected changes in competition,  maturation of new
stores and store remodels,  merchandising and marketing  strategies and general
market conditions.  Fair values were determined either by management,  based on
management's  knowledge of local real estate markets and the value of equipment
utilized  in  the  supermarket  industry,  or by  an  independent  third  party
valuation  firm.  No assurance  can be given that the actual  future cash flows
will be sufficient  to recover the carrying  value of  long-lived  assets.  Any
reductions in the carrying value  resulting from the application of this policy
are reflected in the Consolidated  Statement of Operations as "Asset impairment
charge."

                                     -44-
<PAGE>

INVENTORIES

Our  inventories  are  stated at the  lower of cost or  market.  We follow  the
link-chain,  dollar-value  LIFO  method  when  calculating  our LIFO  charge or
credit. Vendor allowances,  including early payment discounts,  volume rebates,
and funds for product  placement and advertising,  are generally  recorded as a
reduction  of  inventory  cost based on  average  inventory  turnover  rates by
product category.

We take physical counts of inventories throughout the year and record inventory
shortages based on our physical counts. Where physical counts are not available
we record an allowance for inventory  shortages  based on historical  shrinkage
percentages.


INTANGIBLE ASSETS

We have recorded intangible assets for favorable leases,  pharmacy prescription
files  and  computer  software.  We  amortize  our  favorable  leases  over the
remaining life of the lease  including all favorable  options.  We amortize the
pharmacy  prescription  files  over five  years and we  amortize  the  computer
software  over five  years.  We  consider  these  assets  annually  during  our
impairment testing.


ALLOWANCE FOR DOUBTFUL ACCOUNTS

We evaluate the  collectability  of our accounts and notes  receivable based on
our  analysis of past due  accounts and  historical  loss trends.  We record an
allowance for doubtful accounts against the receivable based on the amount that
we  believe is  reasonably  collectable.  It is  possible  that our  estimation
process could differ materially from the actual amounts collected.


INCOME TAXES

We are required to estimate our income  taxes in each of the  jurisdictions  in
which we operate.  In addition,  various tax  authorities  audit our income tax
returns. Although management believes these estimates are reasonable the actual
results  could  differ  resulting  in a  material  effect  on our  consolidated
financial statements.

                                     -45-
<PAGE>

SELF-INSURANCE LIABILITY

We are primarily  self-insured for workers  compensation and general liability.
Self-insurance  liabilities are primarily  calculated based on claims filed and
an estimate of claims incurred but not yet reported.  Workers  compensation and
general  liability  reserves are determined  based on historical  loss history,
industry  development  factors and trends related to actual  payments.  We have
limited our total exposure related to self-insured liability claims incurred by
maintaining  stop-loss  coverage with third party  insurers,  as defined in the
applicable  insurance  policies,  for claims  incurred in excess of established
stop-loss levels and policy deductibles.  Projection of losses concerning these
liabilities is subject to a high degree of  variability  due to factors such as
claim settlement patterns,  litigation trends, legal interpretations and future
levels of health care. Should a greater amount of claims occur compared to what
was  estimated or costs of health care  increase  beyond what was  anticipated,
reserves recorded may not be adequate and additional  expense could be required
in the consolidated financial statements.


PENSION ACCOUNTING

We currently are sole sponsors of four  tax-qualified  defined  benefit pension
plans.  In accordance  with the  provisions of SOP 90-1,  upon  emergence  from
bankruptcy,  we recorded the underfunded  status of each of the defined benefit
plans as a liability on our balance  sheet.  As of January 28, 2006, we adopted
the provisions of Financial Accounting Standard No. 158, "Employers' Accounting
for Defined Benefit Pension and Other  Postretirement  Plans," or SFAS 158, and
in accordance  therewith  reflected the underfunded  status of the plans in our
balance  sheet at such date.  Prospectively,  we have adjusted the liability to
reflect the current  funded status of the plan.  Any gains or losses that arise
during the period but are not recognized as components of net periodic  benefit
cost will be  recognized  as a component  of other  comprehensive  income.  The
adoption  of  SFAS  158  resulted  in  the   recognition  of  $8.3  million  of
unrecognized  actuarial  gains which arose during the period ended  January 28,
2006  and a  corresponding  reduction  in  the  defined  benefit  pension  plan
liability at January 28, 2006. Such  unrecognized  gains, net of deferred taxes
of $3.4 million were credited to accumulated other comprehensive  income in the
amount  of $4.9  million.  The  adoption  of  SFAS  158  had no  effect  on our
consolidated statement of operations for the period ended January 28, 2006.

During the year  ended  February  3,  2007,  we  recorded  $3.2  million of net
unrecognized  actuarial gains which arose during the period and a corresponding
reduction  in  the  defined  benefit  pension  plan  liability  at  such  date.
Unrecognized  gains, net of deferred taxes of $1.3 million,  were recognized as
an  element  of   comprehensive   loss  and  credited  to   accumulated   other
comprehensive  income  in the  amount  of  $1.9  million.  See  Note  11 to the
Consolidated Financial Statements for further discussion on pensions.


                                     -46-
<PAGE>

Pension  expense is  calculated  based upon a number of actuarial  assumptions,
including an expected  long-term rate of return on our pension plans' assets, a
discount rate, and an assumed rate of compensation increase. After consultation
with our actuaries,  we determined  these  actuarial  assumptions at our fiscal
year end to calculate liability information as of that date and pension expense
for the following year. The discount rate assumption is determined based on the
internal rate of return for Citigroup  Pension  Liability Index with maturities
that are consistent with projected future plan cash flows. The assumed discount
rate used to determine  pension  expense for the period ended  January 28, 2006
was 5.48%.  The assumed  discount rate at January 28, 2006 of 5.68% was used to
determine pension expense for Fiscal 2007.

The assets of the plans consist of approximately 57% and 54% equity securities,
33% and 44% fixed income securities and 10% and 2% cash at February 3, 2007 and
January 28, 2006, respectively.  The expected long-term rates of return on plan
assets is based on historical and projected average rates of return for current
and planned asset classes in the plan investment portfolio. At February 3, 2007
and January 28, 2006 the expected long-term rate of return on plan assets to be
used in the determination of pension expense was 7.5%.

Significant differences between our actual experience or significant changes in
our  assumptions,  may  materially  affect the pension  obligations  and future
expense. Additionally, changes in the fair value of plan assets at year end may
materially affect our future pension expense. The fair value of plan assets can
vary significantly from year to year.


                                     -47-
<PAGE>


ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
           RISK

Our  financial  results are subject to risk from  interest rate changes on debt
that has variable  interest rates.  Total variable rate debt outstanding  under
our loan  agreements  at  February  3, 2007 was $48.5  million  with a weighted
average  interest  rate of 11.61%.  A 1% change in interest  rates would impact
pre-tax  income by $0.5 million  based on the debt  outstanding  at February 3,
2007.  In addition to the variable  rate debt we had $4.2 million of fixed rate
debt  outstanding at February 3, 2007 with a weighted  average interest rate of
6.59%.  We view the fixed rate debt as a partial  hedge  against  interest rate
fluctuations  which  should  minimize  the  potential  impact on earnings  from
interest rate changes.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                 PAGE

Consolidated Financial Statements as of February 3, 2007 and
     January  28,  2006 and for the year ended  February  3, 2007
     and the period from April 17, 2005 to January 28, 2006:

     Report of Independent Registered Public Accounting Firm

     Consolidated Financial Statements:

        Balance Sheets                                                       50

        Statements of Operations                                             52

        Statements of Cash Flows                                             53

        Statements of Stockholders' Equity                                   54

        Notes to Financial Statements                                        55


                                      -48-
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
The Penn Traffic Company
Syracuse, New York


We have  audited  the  accompanying  consolidated  balance  sheets  of The Penn
Traffic  Company (the  "Company")  as of February 3, 2007 and January 28, 2006,
and  the  related  consolidated  statements  of  operations,   cash  flows  and
stockholders'  equity for the year ended  February  3, 2007 and the period from
April  17,  2005  (effective  date  of plan of  reorganization  for  accounting
purposes)   to  January  28,  2006.   These   financial   statements   are  the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted  our audits in accordance  with  auditing  standards of the Public
Company  Accounting  Oversight Board (United States).  Those standards  require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material  misstatement.  An audit includes
examining,  on a test basis, evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also includes  assessing  the  accounting
principles  used  and  significant  estimates  made by  management,  as well as
evaluating the overall financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements referred to above present fairly, in
all material respects,  the consolidated financial position of The Penn Traffic
Company as of  February  3, 2007 and January  28,  2006,  and the  consolidated
results of its  operations  and its cash flows for the year ended  February  3,
2007 and the period from April 17, 2005 to January 28, 2006, in conformity with
accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the  consolidated  financial  statements,  on May 30,
2003, the Company filed for voluntary bankruptcy  protection and reorganization
under Chapter 11 of the United States  Bankruptcy  Code. On April 13, 2005, the
Company's  amended  plan of  reorganization  became  effective  and the Company
emerged  from  bankruptcy  and  effective  April 16, 2005  adopted  fresh-start
reporting  which  results  in a  new  reporting  entity  and  a  new  basis  of
accounting.

The Company has not presented the selected  quarterly  financial data specified
in item 302(a) of Regulation S-K that the  Securities  and Exchange  Commission
requires as supplementary information to the basic financial statements.

We also were  engaged to audit,  in  accordance  with the  standards  of Public
Company  Accounting  Oversight Board (United States),  the effectiveness of the
Company's  internal  control over  financial  reporting as of February 3, 2007,
based on criteria established in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated September 6, 2007, disclaimed an opinion thereon.


/s/ Eisner LLP


New York, New York
September 6, 2007, except for the third paragraph of Note 12,
as to which the date is September 17, 2007


                                      -49-
<PAGE>

<TABLE>
<CAPTION>
The Penn Traffic Company
Consolidated Balance Sheets
(In thousands, except share and per share data)


                                                           February 3,        January 28,
                                                               2007               2006
                                                           -----------        -----------
<S>                                                        <C>                <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents                                  $   24,661         $   12,432
Accounts and notes receivable (less allowance for
  doubtful accounts of $3,736 and $3,174, respectively)        35,112             36,970
Inventories (Note 3)                                          100,035            113,467
Prepaid expenses and other current assets                       8,469              6,157
                                                           ----------         ----------
                                                              168,277            169,026
                                                           ----------         ----------
CAPITAL LEASES:
Capital leases                                                 12,023             12,023
Less: Accumulated amortization                                 (2,168)            (1,026)
                                                           ----------         ----------
                                                                9,855             10,997
                                                           ----------         ----------
FIXED ASSETS:
Land                                                            9,313             11,588
Buildings                                                      13,214             13,621
Equipment and furniture                                        98,249             86,885
Vehicles                                                        7,766              6,749
Leasehold improvements                                          9,050              5,062
                                                           ----------         ----------
                                                              137,592            123,905
Less: Accumulated depreciation                                (38,228)           (16,276)
                                                           ----------         ----------
                                                               99,364            107,629
                                                           ----------         ----------
OTHER ASSETS:
Intangible assets (Note 5)                                     30,451             36,220
Other assets                                                    4,038              5,335
                                                           ----------         ----------
                                                               34,489             41,555
                                                           ----------         ----------
TOTAL ASSETS                                               $  311,985         $  329,207
                                                           ==========         ==========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                     -50-
<PAGE>

<TABLE>
<CAPTION>
The Penn Traffic Company
Consolidated Balance Sheets
(In thousands, except share and per share data)

                                                                February 3,     January 28,
                                                                   2007            2006
                                                                -----------     -----------
<S>                                                             <C>             <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current portion of obligations under capital leases (Note 4)    $    1,472      $    1,310
Current maturities of long-term debt (Note 6)                          314             278
Accounts payable                                                    34,704          36,695
Other current liabilities (Note 7)                                  49,653          46,294
Accrued interest expense                                                30             557
Deferred income taxes (Note 9)                                       7,816           7,900
Liabilities subject to compromise (Note 8)                           2,696           2,871
                                                                ----------      ----------
                                                                    96,685          95,905
                                                                ----------      ----------

NON-CURRENT LIABILITIES:
Obligations under capital leases (Note 4)                           10,956          12,429
Long-term debt (Note 6)                                             52,412          37,235
Deferred income taxes (Note 9)                                       2,632           8,331
Defined benefit pension plan liability (Note 11)                    22,150          27,600
Other non-current liabilities (Note 7)                              26,813          28,021
                                                                ----------      ----------
                                                                   114,963         113,616
                                                                ----------      ----------

TOTAL LIABILITIES                                                  211,648         209,521
                                                                ----------      ----------

COMMITMENTS AND CONTINGENCIES (NOTES 4,6,11 AND 12)

STOCKHOLDERS' EQUITY:
Preferred stock - authorized 1,000,000 shares,
 $.01 par value; none issued at both dates                               -               -
Common stock - authorized 15,000,000 shares, $.01 par value;
 issued and to be issued 8,498,752 shares at both dates                 85              85
Capital in excess of par value                                     118,493         118,493
Deficit                                                            (25,036)         (3,811)
Accumulated other comprehensive income                               6,795           4,919
                                                                ----------      ----------
TOTAL STOCKHOLDERS' EQUITY                                         100,337         119,686
                                                                ----------      ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $  311,985      $  329,207
                                                                ==========      ==========
</TABLE>

         The accompanying notes are an integral part of these statements.


                                     -51-
<PAGE>

<TABLE>
<CAPTION>
The Penn Traffic Company
Consolidated Statements of Operations
(In thousands, except share and per share data)

                                                                                  Period From
                                                             Year Ended        April 17, 2005 to
                                                          February 3, 2007      January 28, 2006
                                                          ----------------     -----------------
<S>                                                       <C>                  <C>
REVENUES                                                  $      1,310,905     $       1,015,893
                                                          ----------------     -----------------

COST AND OPERATING EXPENSES
 Cost of sales                                                     981,419               754,995
 Selling and administrative expenses                               345,874               255,780
 Loss on store closings                                              1,308                   520
                                                          ----------------     -----------------
                                                                 1,328,601             1,011,295
                                                          ----------------     -----------------

OPERATING (LOSS) INCOME                                            (17,696)                4,598
 Interest expense                                                    9,357                 8,289
 Reorganization expenses                                             1,020                 1,023
                                                          ----------------     -----------------

LOSS BEFORE INCOME TAXES                                           (28,073)               (4,714)
 Income tax benefit                                                 (6,848)                 (903)
                                                          ----------------     -----------------

NET LOSS                                                  $        (21,225)    $          (3,811)
                                                          ================     =================

 Shares outstanding and to be issued                             8,498,752             8,498,752

NET LOSS PER SHARE (BASIC AND DILUTED) (NOTE 3)           $          (2.50)    $           (0.45)
                                                          ================     =================
</TABLE>


                                     -52-
<PAGE>

<TABLE>
<CAPTION>
The Penn Traffic Company
Consolidated Statements of Cash Flows
(In thousands)

                                                                                    Period From
                                                                 Year Ended      April 17, 2005 to
                                                              February 3, 2007    January 28, 2006
                                                             -----------------   -----------------
<S>                                                           <C>                <C>
OPERATING ACTIVITIES:
   Net loss                                                   $       (21,225)   $         (3,811)
   Adjustments to reconcile net loss to net cash
   provided by operating activities:
      Depreciation and amortization                                    27,485              19,075
      Amortization of deferred financing cost                           1,201               1,066
      Deferred income tax benefit                                      (7,079)             (1,164)
      Loss (gain) on sale of fixed assets                                 542                (605)

NET CHANGE IN OPERATING ASSETS AND LIABILITIES:
   Accounts and notes receivable, net                                   1,858               3,446
   Prepaid expenses and other current assets                           (2,312)              5,276
   Inventories                                                         12,996               3,051
   Liabilities subject to compromise                                     (175)             (5,626)
   Accounts payable and other current liabilities                         841             (10,659)
   Other assets                                                            96                 444
   Defined benefit pension plan                                        (2,278)             (4,044)
   Other non-current liabilities                                          636              (1,799)
                                                              ---------------    ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                              12,586               4,650
                                                              ---------------    ----------------
INVESTING ACTIVITIES:
   Acquisitions                                                        (1,531)                  -
   Capital expenditures                                               (22,926)            (20,533)
   Proceeds from sale of fixed assets                                  10,271                 605
                                                              ---------------    ----------------
NET CASH USED IN INVESTING ACTIVITIES                                 (14,186)            (19,928)
                                                              ---------------    ----------------
FINANCING ACTIVITIES:
   Payments of mortgages                                                 (287)               (208)
   Net borrowings (repayments) under credit facility                   15,500                (500)
   Reduction in capital lease obligations                              (1,384)               (886)
                                                              ---------------    ----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                    13,829              (1,594)
                                                              ---------------    ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                   12,229             (16,872)
                                                              ---------------    ----------------
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD                   12,432              29,304
                                                              ---------------    ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                    $        24,661    $         12,432
                                                              ===============    ================
</TABLE>

                                     -53-
<PAGE>

<TABLE>
<CAPTION>
The Penn Traffic Company
Consolidated Statement of Stockholders' Equity
For the year ended February 3, 2007 and the period from April 17, 2005 to
January 28, 2006 (In thousands)

                                                Capital in                   Accumulated Other       Total
                                    Common      Excess of                      Comprehensive     Stockholders'
                                     Stock      Par Value       Deficit           Income             Equity
                                  ------------ -------------  -------------  ------------------  --------------
<S>                                 <C>        <C>              <C>             <C>                <C>
Common stock issued and to
be issued in connection with
plan of reorganization              $    85    $ 118,493        $     -         $         -        $  118,578


   Net loss for the 41-week
    period ended
    January 28, 2006                      -            -         (3,811)                  -            (3,811)
   Unrecognized actuarial
    gain of pension plans,
    net of deferred taxes
    of $3,396                             -            -              -               4,919             4,919
---------------------------------------------------------------------------------------------------------------
Balance at January 28, 2006              85      118,493         (3,811)              4,919           119,686

   Net loss for the year
    ended February 3, 2007                -            -        (21,225)                  -           (21,225)
   Unrecognized actuarial
    gain of pension plans,
    net of deferred taxes
    of $1,296                             -            -               -              1,876             1,876
   Comprehensive loss                     -            -               -                  -           (19,349)

---------------------------------------------------------------------------------------------------------------
Balance at February 3, 2007         $    85    $ 118,493        $(25,036)         $   6,795        $  100,337
===============================================================================================================
</TABLE>

                                     -54-
<PAGE>

The Penn Traffic Company
Notes to Consolidated Financial Statements

NOTE 1 - DESCRIPTION OF BUSINESS

The Penn Traffic  Company and its  subsidiaries  (the "Company") are engaged in
the retail food business and the wholesale food  distribution  business.  As of
February  3, 2007,  the  Company  operated  106  supermarkets  under the "P&C",
"Quality" and "Bi-Lo"  banners in upstate New York,  Pennsylvania,  Vermont and
New Hampshire,  and supplied 119 independent supermarkets and other independent
wholesale   accounts.   The  Company   services  these  owned  and  independent
supermarkets  and  independent  wholesale  accounts  through five  distribution
centers and a bakery.


NOTE 2 - VOLUNTARY BANKRUPTCY FILING AND REORGANIZATION

On May 30, 2003,  The Penn Traffic  Company and all of its  subsidiaries  filed
voluntary  petitions  under Chapter 11 of the United States  Bankruptcy Code in
the United States  Bankruptcy Court for the Southern  District of New York. The
filing  was  made  in  response  to  pending   defaults   under  the  Company's
then-existing  loan agreements and a lack of liquidity to continue  operations.
Under  Chapter  11,  the  Company   continued  to  operate  its  businesses  as
debtor-in-possession  under court  protection from its creditors and claimants,
while using the Chapter 11 process to substantially reduce its debt obligations
and implement a plan of reorganization.

On  February  2,  2005,  the  Company  filed the First  Amended  Joint  Plan of
Reorganization  (the "Plan") with the bankruptcy  court. The Plan was confirmed
on March  17,  2005 and  became  effective  on April 13,  2005 (the  "Effective
Date").

Pursuant to the terms of the Plan,  the following  transactions  occurred on or
around the Effective Date:

1.   The Company entered into new credit agreements providing for borrowings of
     up to $164 million (see Note 6). Proceeds from these new credit agreements
     provided funds sufficient to repay a debtor-in-possession  credit facility
     and all  administrative  and priority claims to the extent provided for in
     the Plan.

2.   The Company  sold and leased back its five owned  distribution  facilities
     for a sales price of approximately $37 million.

3.   All shares of common stock and all stock options and warrants  outstanding
     prior to the  confirmation  of the Plan were  cancelled and the holders of
     such equity securities received no distributions under the Plan.

4.   The reorganized Company was authorized to issue new shares of common stock
     to unsecured  creditors,  which included holders of $100 million of senior
     notes, a claim by the Pension Benefit  Guaranty  Corporation or the "PBGC"
     of $60 million (see Note 10) and trade  claims,  all of whom were eligible
     to receive pro rata  distributions  of new shares of common  stock and the
     right to share in potential proceeds from certain causes of action.

                                     -55-
<PAGE>

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying  financial statements include the accounts of The Penn Traffic
Company  and  its  wholly-owned  subsidiaries.   All  significant  intercompany
balances and transactions have been eliminated in consolidation.


FISCAL YEAR

The  Company's  fiscal year ends on the Saturday  closest to January 31. Fiscal
year 2007 is the 53-week period ended February 3, 2007. Fiscal year 2006 is the
41-week period from April 17, 2005, the  commencement of fresh-start  reporting
(see below), to January 28, 2006.


BASIS OF PRESENTATION

The  accompanying  consolidated  financial  statements  have been  prepared  in
accordance  with the  provisions  of  Statement  of  Position  90-7  "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7")
issued by the American Institute of Certified Public  Accountants.  Pursuant to
the provisions of SOP 90-7,  upon emergence  from Chapter 11  proceedings,  the
Company adopted fresh-start  reporting which resulted in a new reporting entity
and a new basis of accounting.

Although  April 13, 2005 was the effective  date of the Plan, the Company chose
the close of business on April 16, 2005 as the  effective  date for  accounting
purposes to adopt  fresh-start  reporting because of the proximity of that date
to the end of an accounting period.  Applying fresh-start reporting as of April
16, 2005 rather than the actual effective date of April 13, 2005 did not have a
material  effect on the  financial  condition or results of  operations  of the
Company.

The  reorganization  value of the Company  upon  emergence  from the Chapter 11
proceedings was approximately $195 million. The reorganization value represents
the debt and equity value of the Company as of the effective  date. Such value,
which was determined with the assistance of the Company's  financial  advisors,
was based  upon  various  valuation  methods,  including  discounted  cash flow
methodologies  and analysis of  comparable  companies.  The equity value of the
Company  upon  reorganization  amounting to  approximately  $118  million,  was
determined  after  taking  into  account  approximately  $77  million  of debt,
consisting of long-term  debt,  obligations  under  capital  leases and defined
benefit pension plan liabilities,  net of related deferred taxes. In accordance
with fresh-start  reporting,  all assets and liabilities were recorded at their
respective fair values. The fair values of the Company's long-lived assets were
determined, in part, using information provided by third-party appraisers.  The
excess of  approximately  $31.7  million  of the  aggregate  fair  value of the
Company's tangible and identifiable intangible assets less non-interest bearing
liabilities over the total reorganization value has been recorded as a pro rata
reduction of non-current assets.

                                     -56-
<PAGE>

USE OF ESTIMATES

The  preparation  of the financial  statements in  conformity  with  accounting
principles  generally accepted in the United States requires management to make
estimates  and  assumptions  that  affect  the  reported  amounts of assets and
liabilities and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues and expenses
during the reporting period. Actual amounts could differ from those estimates.


REVENUE RECOGNITION

Revenue from the sale of products to retail customers is recognized at the time
of sale.  Discounts  provided to customers  through company  sponsored  loyalty
programs are recognized as a reduction in sales as products are sold. Discounts
provided  through  vendor coupons are not recognized as a reduction in sales to
the extent the Company is reimbursed by the vendor. Pharmacy sales are recorded
when prescriptions are picked up by the customer.  Sales taxes are not recorded
as a component of sales.  Revenue from gift  certificates  is  recognized  upon
redemption of the gift certificates for products.

Revenue from the sale of products to wholesale  customers is  recognized at the
time of shipment.


COST OF SALES

Cost of sales includes the cost of product and related  warehousing and freight
costs.  Vendor allowances are recorded as a reduction of cost of sales when the
related  product is sold in accordance  with the provisions of Emerging  Issues
Task Force Issue 02-16  "Accounting  by a Customer  (Including a Reseller)  for
Certain  Consideration  Received from a Vendor." Vendor  allowances,  including
early payment  discounts,  volume rebates,  and funds for product placement and
advertising,  are generally  recorded as a reduction of inventory cost based on
average inventory turnover rates by product category.

Vendor allowances recognized as a reduction of cost of sales for the year ended
February 3, 2007 aggregated  $56.0 million and for the period ended January 28,
2006 aggregated $43.8 million.


ADVERTISING

Advertising  costs are  expensed  as  incurred  and  included  in  selling  and
administrative  expenses.  Advertising  expense for the year ended  February 3,
2007  aggregated  $12.6  million  and for the period  ended  January  28,  2006
aggregated $11.1 million.


CASH AND CASH EQUIVALENTS

The Company  considers all highly liquid debt  instruments  with  maturities of
three months or less at the date of purchase to be cash equivalents.

                                     -57-
<PAGE>

ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable  consist  primarily of amounts due from wholesale
customers,  debit and credit card sales,  third party insurance  pharmacy sales
and vendor  allowances.  The Company  establishes  an  allowance  for  doubtful
accounts based on an analysis of past due accounts and historical loss trends.


FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash,  accounts  receivable,  trade accounts  payable and
accrued  expenses  approximate  their fair values due to the  relatively  short
maturities of the instruments. For other debt, carrying value approximates fair
value because their interest rates approximate market rates.


INVENTORIES

Inventories,  consisting primarily of grocery and pharmacy products, are stated
at the lower of cost or market. Cost is determined using the last-in, first-out
method  ("LIFO")  using the estimated fair value of inventory on April 16, 2005
upon  adoption of  fresh-start  reporting to determine  LIFO cost for financial
reporting purposes.  If cost had been determined using the first-in,  first-out
method  ("FIFO"),  inventories  would have been $3.0  million and $1.5  million
higher than reported at February 3, 2007 and January 28, 2006, respectively.

During the year ended  February 3, 2007,  inventory  quantities  were  reduced,
which  resulted in a liquidation  of certain LIFO  inventory  layers carried at
lower costs  prevailing in an earlier period.  The effect was to reduce cost of
sales by approximately $0.5 million.

The  Company  takes  physical  counts of  inventories  throughout  the year and
records inventory shortage adjustments based on the physical counts. Throughout
the year the Company is accruing for  inventory  shortages  based on historical
trends.  Where  physical  counts  are not  taken at the year end,  the  Company
establishes an allowance for inventory shortages based on historical  shrinkage
percentages.


                                     -58-
<PAGE>

FIXED ASSETS AND CAPITAL LEASES

Major renewals and betterments are capitalized,  while  maintenance and repairs
are charged to expense as incurred.  Depreciation and amortization are provided
on a straight-line  basis over the estimated useful lives of the assets or, for
leasehold improvements, the shorter of the estimated useful lives of the assets
or the lease term (which includes renewal periods that are reasonably assured).

Estimated useful lives are as follows:

             Buildings                         39 years
             Capitalized leases                5 to 32 years
             Equipment and furniture           3 to 10 years
             Leasehold improvements            10 to 32 years
             Vehicles                          3 to 8 years


Fixed  assets  are  reviewed   for   impairment   when  events  or  changes  in
circumstances  indicate  that the carrying  amount may not be  recoverable.  An
impairment  loss  would be  recognized  when  future  undiscounted  cash  flows
expected to result from the use of the asset and its eventual disposal are less
than the carrying amount.


INTANGIBLE ASSETS

Identifiable  intangible  assets  consist  primarily  of  favorable  leases and
pharmacy  prescription  files (both  established  upon adoption of  fresh-start
reporting).  Favorable  operating  leases  represent  the present  value of the
difference  by which market value rent exceeds  contract rent and are amortized
on a  straight-line  basis over the  remaining  lease term,  including  renewal
options ranging from 2 to 32 years.  Pharmacy  prescription files are amortized
on a straight-line  basis over 5 years.  Computer  software is amortized over 5
years.

Identifiable  intangibles are reviewed for impairment when events or changes in
circumstances  indicate  that the carrying  amount may not be  recoverable.  An
impairment  loss  would be  recognized  when  future  undiscounted  cash  flows
expected to result from the use of the asset and its eventual disposal are less
than the carrying amount.


UNFAVORABLE LEASES

Unfavorable   operating  leases   (established  upon  adoption  of  fresh-start
reporting)  are reported in other  non-current  liabilities  and  represent the
present  value of the  difference by which  contract rent exceeds  market value
rent and are amortized on a straight-line  basis over the remaining lease term,
excluding renewal options, ranging from 2 to 13 years.


                                      -59-
<PAGE>

INCOME TAXES

Income taxes are provided based on the liability method of accounting. Deferred
income  taxes are recorded to reflect the tax  consequences  in future years of
net operating loss carryovers and temporary  differences  between the tax basis
of assets and liabilities and their  corresponding  financial reporting amounts
at each year-end.


SELF-INSURANCE LIABILITY

The  Company   self-insures   certain   insurable  risks  related  to  workers'
compensation  and  general  product  liability  claims.   The  Company  accrues
estimated losses for unpaid claims, including incurred but not reported losses,
with the  assistance of an external  actuary and by factoring in pending claims
and historical loss experience.  The Company also maintains self-insured health
benefits plans, which provide medical and dental benefits to employees electing
coverage  under the plans.  The  Company  accrues  estimated  losses for unpaid
claims,  including  incurred  but not  reported  claims,  based  on  historical
experience and other assumptions.  Commercial  policies are obtained to provide
for coverage of certain risk exposure above the self-insured  retention limits.
The estimated  liability  associated with settling unpaid claims is included in
other  current  liabilities  if  expected  to be settled  within  one year,  or
otherwise is included in other non-current liabilities.


STORE PRE-OPENING COSTS

Store pre-opening costs are expensed as incurred.


STORE CLOSING COSTS

For operating  leases  related to closed stores,  the Company  records the fair
value  of  the  liability  at  the  cease-use  date,  determined  based  on the
discounted value of the remaining lease rentals,  reduced by estimated sublease
rentals  that could be  reasonably  obtained  for the  property.  Any  one-time
termination  benefits are recognized at the time the benefits are  communicated
to the  employees.  Other related  costs are  recognized in the period when the
liability is incurred.


                                     -60-
<PAGE>

SHARED-BASED PAYMENTS

In December  2004, the Financial  Accounting  Standards  Board ("FASB")  issued
Statement  of  Financial   Accounting   Standards   No.  123  (revised   2004),
"Share-Based Payment" ("SFAS 123(R)") which is a revision of FASB Statement No.
123  "Accounting  for  Stock-Based  Compensation."  SFAS 123(R)  supersedes APB
Opinion No. 25  "Accounting  for Stock  Issued to  Employees"  and requires all
share-based payments to employees,  including grants of employee stock options,
to be recognized in the income statement based on their fair values.  Pro forma
disclosure is no longer an  alternative.  SFAS 123(R) is required to be adopted
in  the  first  annual   reporting   period  beginning  after  June  15,  2005.
Accordingly,  the Company adopted SFAS 123(R)  effective  January 29, 2006. The
adoption  of SFAS  123(R)  did not  have a  material  effect  on the  financial
statements for year ended February 3, 2007 (see Note 13).


PER SHARE DATA

Basic and  diluted  net loss per share is based on the number of common  shares
issued and  estimated to be issued  pursuant to the Plan.  Common shares issued
and  estimated  to be issued in  settlement  of claims  filed in the  Company's
Chapter 11 proceeding  are treated as  outstanding  as of the effective date of
the Plan. At both February 3, 2007 and January 28, 2006,  201,055 common shares
are  estimated  to be issued in  connection  with the  settlement  of remaining
claims (see Note 8).


DEFINED BENEFIT PENSION PLANS

In September 2006, the FASB issued Statement of Financial  Accounting Standards
No.  158,  "Employers'   Accounting  for  Defined  Benefit  Pension  and  Other
Postretirement  Plans - an  amendment  of FASB  Statements  No. 87, 88, 106 and
132R" ("SFAS 158")  effective  for fiscal years ending after  December 15, 2006
with  early  application  encouraged.  SFAS 158  requires  financial  statement
recognition  of the  overfunded  or  underfunded  status of a  defined  benefit
postretirement  plan or other  postretirement plan as an asset or liability and
recognition  of changes in the funded status in  comprehensive  earnings in the
year in which the changes  occur.  The Company  elected early  application  and
adopted  SFAS 158  effective  as of  January  28,  2006.  The  adoption  of the
recognition  provisions  of SFAS  158  increased  stockholders  equity  by $4.9
million, reduced the defined benefit pension plan liability by $8.3 million and
increased  the deferred tax  liability by $3.4 million at January 28, 2006 (see
Note 11).


                                     -61-
<PAGE>

RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED

In  June  2006,  the  FASB  issued   Interpretation  No.  48,  "Accounting  for
Uncertainty  in Income Taxes - an  interpretation  of FASB  Statement  No. 109"
("FIN 48") effective for fiscal years beginning after December 15, 2006. FIN 48
clarifies the  accounting for  uncertainty  in tax  positions.  FIN 48 requires
financial statement recognition of the impact of a tax position when it is more
likely than not,  based on its  technical  merits,  that the  position  will be
sustained upon examination.  The Company is currently  evaluating the effect of
adopting FIN 48.

In June 2006, the FASB ratified Emerging Issues Task Force Issue No. 06-3, "How
Sales Taxes Collected From Customers and Remitted to  Governmental  Authorities
Should Be  Presented  in the  Income  Statement  (that  is,  Gross  Versus  Net
Presentation)" ("EITF 06-3") effective for periods beginning after December 15,
2006. EITF 06-3 allows taxes assessed by various governmental  authorities that
are directly imposed on  revenue-producing  transactions between a seller and a
customer,  such as sales and some excise  taxes,  to be  presented  on either a
gross or net basis. The Company records sales net of applicable sales taxes and
intends to continue such policy. Therefore, the adoption of EITF 06-3 will have
no effect on the presentation of the Company's revenues and expenses.

In September 2006, the FASB issued Statement of Financial  Accounting Standards
No. 157,  "Fair Value  Measurement"  ("SFAS  157")  effective  for fiscal years
beginning after November 15, 2007.  SFAS 157 defines fair value,  establishes a
framework for measuring fair value in generally accepted accounting  principles
and  expands  disclosures  about  fair  value  measurements.  SFAS 157 does not
require any new fair value  measurements.  The Company is currently  evaluating
the effect of adopting SFAS 157.

In February 2007, the FASB issued Statement of Financial  Accounting  Standards
No. 159, "The Fair Value Option for Financial Assets and Financial  Liabilities
- Including an amendment of FASB Statement No. 115" ("SFAS 159")  effective for
fiscal  years ending  after  November  15, 2007.  SFAS 159 permits an entity to
elect fair value as the initial and subsequent  measurement  attribute for many
financial assets and liabilities. Entities electing the fair value option would
be required to recognize  changes in fair value in earnings.  Entities electing
the fair value option are required to  distinguish on the face of the statement
of financial  position,  the fair value of assets and liabilities for which the
fair value option has been elected and similar assets and liabilities  measured
using another measurement  attribute.  The adjustment to reflect the difference
between the fair value and the  carrying  amount  would be  accounted  for as a
cumulative-effect  adjustment  to  retained  earnings as of the date of initial
adoption. The Company is currently evaluating the effect of adopting SFAS 159.

                                      -62-
<PAGE>

NOTE 4 - LEASES

The  Company  leases  store  facilities  for the  operation  of its retail food
business  and  distribution  facilities  for its  wholesale  food  distribution
business.  In  accordance  with  the  provisions  of  FASB  Statement  No.  13,
"Accounting for Leases," certain of the leases meet the criteria to be recorded
as capital leases. The remaining leases are recorded as operating leases.  Most
of the lease  agreements  provide  for renewal  options  and  require  that the
Company pay real estate taxes and other related expenses.  Certain of the lease
agreements  also provide for contingent  rent payments based on a percentage of
sales.

The following is a summary of future minimum rent payments for operating leases
and for capital leases as of February 3, 2007 (in thousands):

Fiscal Year Ending                             Operating Leases   Capital Leases
------------------                             ----------------   --------------
February 2, 2008                                $        21,092   $        2,855
January 31, 2009                                         20,020            2,855
January 30, 2010                                         16,158            2,781
January 29, 2011                                         14,459            1,944
January 28, 2012                                         12,299            1,496
Thereafter                                               59,116           11,269
                                                ---------------   --------------
Total minimum lease payments                    $       143,144           23,200
                                                ===============

Less: Amount representing interest                                        10,772
                                                                  --------------
Present value of net minimum lease payments                               12,428
Less: Current portion                                                      1,472
                                                                  --------------
Long-term obligations under capital leases                        $       10,956
                                                                  ==============

Future  minimum rent  payments  have not been reduced by minimum  sublease rent
income of $8.6 million due in the future under non-cancelable subleases.

Rent expense  under  operating  leases for the year ended  February 3, 2007 was
$18.7  million and for the period ended  January 28, 2006 was $10.7  million as
follows (in thousands):

                                                Year Ended       Period Ended
                                             February 3, 2007  January 28, 2006
                                             ----------------  ----------------
        Minimum rent                          $        21,791   $        13,115
        Contingent rent                                   238               201
        Less: sublease rent                            (3,281)           (2,625)
                                              ---------------   ---------------
        Net rent expense                      $        18,748   $        10,691
                                              ===============   ===============


                                     -63-
<PAGE>

NOTE 5 - INTANGIBLE ASSETS

Intangible  assets as of February  3, 2007 and January 28, 2006  consist of the
following (in thousands):

<TABLE>
                                             February 3, 2007                           January 28, 2006
                               ----------------------------------------  --------------------------------------
                                  Gross                                    Gross
                                 Carrying     Accumulated                 Carrying     Accumulated
                                  Amount     Amortization       Net        Amount     Amortization      Net
                               ------------  -------------  -----------  ----------   -------------  ----------
<S>                             <C>            <C>           <C>          <C>          <C>            <C>
Amortized intangible assets:
Favorable leases                $  26,156      $  (2,918)    $ 23,238     $ 26,739     $   (1,365)    $ 25,374
Pharmacy prescription files         8,724         (3,172)       5,552       10,362         (1,657)       8,705
Computer software                   2,574           (913)       1,661        2,542           (401)       2,141
                                ---------      ---------     --------     --------     ----------     --------
Total                           $  37,454      $  (7,003)    $ 30,451     $ 39,643     $   (3,423)    $ 36,220
                                =========      =========     ========     ========     ==========     ========
</TABLE>

Aggregate amortization expense:

For the year ended February 3, 2007              $   4,236

For the period ended January 28, 2006            $   3,423


Future Amortization:

Fiscal Year Ending:
February 2, 2008                                 $   3,777
January 31, 2009                                     3,777
January 30, 2010                                     3,777
January 29, 2011                                     1,937
January 28, 2012                                     1,463
Thereafter                                          15,720
                                                 ---------
                                                 $  30,451
                                                 =========


                                     -64-
<PAGE>

NOTE 6 - DEBT

Debt  consists of the following as of February 3, 2007 and January 28, 2006 (in
thousands):

<TABLE>
                                                                                FEBRUARY 3,    JANUARY 28,
                                                                                   2007            2006
                                                                                ------------   -----------
<S>                                                                             <C>            <C>
Revolving credit facility, interest (7.82% at February 3, 2007 and 6.60% at
January 28, 2006) at prime plus .50% to 1.25% or LIBOR plus
2.00% to 2.75%, maturing April 13, 2008                                         $    17,000    $    17,000

Term loan facility, interest (13.25% at February 3, 2007 and 12.25% at
January 28, 2006) at prime plus 5.00%, maturing April 13, 2008                        6,000          6,000

Supplemental real estate credit facility, interest (13.75% at February 3, 2007
and 12.75% at January 28, 2006) at prime plus 5.50%,
maturing April 13, 2008                                                              25,500         10,000

Mortgages payable, interest at 6.125% to 12%, maturing at
various dates through May 1, 2021                                                     4,226          4,513
                                                                                -----------    -----------
Total debt                                                                           52,726         37,513

Less: Current portion of long-term debt                                                 314            278
                                                                                -----------    -----------
Total long-term debt                                                            $    52,412    $    37,235
                                                                                ===========    ===========
</TABLE>

Maturities of debt over the next five years are as follows (in thousands):

                     Fiscal Year Ending:
                     February 2, 2008                                   314
                     January 31, 2009                                48,778
                     January 30, 2010                                   296
                     January 29, 2011                                   321
                     January 28, 2012                                   259
                     Thereafter                                       2,758
                                                                -----------
                                                                $    52,726
                                                                ===========

                                     -65-
<PAGE>

On April 16, 2005,  upon  emergence  from Chapter 11  proceedings,  the Company
entered  into a  revolving  credit  and  term  loan  facility  with a group  of
financial  institutions  providing for a $130 million revolving credit facility
and a $6 million term loan.  Also on April 16, 2005, the Company entered into a
supplemental  real  estate  credit  facility  with  another  group of  lenders,
providing for borrowings of up to $28 million.  Availability  under both credit
facilities is dependent on levels of accounts receivable, inventory and certain
other assets.  Interest rates on borrowings under the revolving credit facility
vary  depending  upon  the  amount  of  availability.   At  February  3,  2007,
outstanding  borrowings  under both  facilities  aggregated  $48.5  million and
outstanding  letters of credit under the revolving credit  facility,  which are
primarily  associated  with  supporting  workers'   compensation   obligations,
amounted to approximately $48 million. At such date,  availability in excess of
outstanding  borrowings  and letters of credit was  approximately  $42 million.
Borrowings  under the  revolving  credit and term loan  facility are secured by
substantially all the assets of the Company,  subject to first liens on certain
property  by other  lenders.  Borrowings  under the real  estate  facility  are
secured  by a first  lien  on  substantially  all  leasehold  interests  of the
Company, and a second lien on realty owned by the Company.

Provisions  of  both  credit  facilities,   among  other  things,  require  the
maintenance of certain financial  covenants (when availability under the credit
facilities is less than $35 million for four  consecutive days or less than $30
million  for any one day),  and limit the amount of capital  expenditures,  the
assumption of additional debt and the payment of dividends.  At no time through
February  3,  2007 had the  Company  been  subject  to  compliance  with  these
financial  covenants because the amount available for borrowing had not dropped
to those levels.  However,  had such an event  occurred,  the Company would not
have been in  compliance  with the  financial  covenants and would have been in
default under the terms of the loan agreement at February 3, 2007.

On December 26, 2006, both the revolving  credit and term loan facility and the
supplemental real estate credit facility were amended to permit the disposal of
assets in connection with the closing of five stores.

On August 1, 2007,  both  facilities  were  amended to permit the  disposal  of
assets in connection with the closing of two additional  stores.  Further,  the
availability  amount,  which the Company is required to maintain  under certain
financial  covenants,   was  reduced  to  less  than  $27.5  million  for  four
consecutive days or less than $25 million for any one day.

The Company also has borrowings  under mortgages  secured by first liens on the
related properties.

                                     -66-
<PAGE>

NOTE 7 - OTHER CURRENT AND OTHER NON-CURRENT LIABILITIES

Other current and non-current liabilities as of February 3, 2007 and January
28, 2006 consist of the following (in thousands):

                                                     February 3,    January 28,
                                                        2007           2006
                                                  --------------  -------------
OTHER CURRENT LIABILITIES:

   Payroll and related payroll taxes              $      5,622    $      2,938
   Other taxes payable                                   2,837           2,627
   Workers compensation                                  7,270           9,980
   Vacation and other compensated absences              12,322          12,329
   Reorganization costs                                    134             250
   Employee benefits                                     4,364           5,310
   Employee severance                                    2,546               -
   State lottery                                         2,404           2,345
   Utilities                                             2,196           2,195
   Professional fees                                       373           1,680
   Other accrued liabilities                             9,585           6,640
                                                  ------------    ------------
Total                                             $     49,653    $     46,294
                                                  ============    ============



OTHER NON-CURRENT LIABILITIES:

   Workers compensation                           $     16,106    $     16,172
   Unfavorable leases                                    3,475           5,767
   General liability insurance                           1,374           1,294
   Asset retirement obligations                            959             928
   Step rent liability                                   2,180             705
   PBGC settlement                                         869           2,500
   Store closing costs                                   1,850             655
                                                  ------------    ------------
Total                                             $     26,813    $     28,021
                                                  ============    ============


                                      -67-
<PAGE>

NOTE 8 - LIABILITIES SUBJECT TO COMPROMISE

In connection  with the Chapter 11  proceeding,  there are two pending  matters
involving  claims for the payment of money or the transfer of property.  In one
matter,  the Ohio Bureau of Workers'  Compensation  ("OBWC") has filed priority
and  administrative  claims  aggregating $13.4 million for pre-petition  unpaid
workers'  compensation  premiums and for reserves to pay future claims  arising
from existing injuries. The OBWC has also filed claims aggregating $1.8 million
for alleged  non-payment  of  post-petition  premiums  and for  reserves to pay
future claims arising from existing injuries.  The Company disputes the amounts
of the claims, and is attempting to negotiate a settlement.

In another  matter,  a claimant has filed a priority  claim  allegedly  arising
under an agreement for a sale-leaseback  transaction  seeking either damages of
$2.2 million or specific performance of the agreement. The Company disputes the
merits of the claim and is defending against it.

During the year ended  February 3, 2007 and the period ended  January 28, 2006,
the Company paid $0.2 million and $5.6 million,  respectively, in settlement of
disputed claims. The Company has established liabilities for the estimated cash
payments required to settle the remaining claims  outstanding in the Chapter 11
proceedings.  Estimated  shares of common stock to be issued in  settlement  of
claims have been accounted for as stockholders' equity.


NOTE 9 - INCOME TAXES

The Company files a consolidated  federal income tax return.  The components of
income tax benefit for the year ended February 3, 2007 and for the period ended
January 28, 2006 are as follows (in thousands):

                                                Year Ended        Period Ended
                                             February 3, 2007   January 28, 2006
                                             ----------------   ----------------

       Current tax provision
           Federal                            $          -       $         -
           State                                       228               261

       Deferred tax (benefit)
           Federal                                  (5,522)             (908)
           State                                    (1,554)             (256)
                                              ------------       -----------
       Total income tax (benefit)             $     (6,848)      $      (903)
                                              ============       ===========


                                     -68-
<PAGE>

The  following  is a  reconciliation  between  the  federal  income tax benefit
computed at the statutory federal income tax rate and actual income tax benefit
(in thousands):


                                                Year Ended       Period Ended
                                             February 3, 2007  January 28, 2006
                                             ----------------  -----------------

       Federal income tax benefit at
        statutory rate                        $      (9,825)    $      (1,677)
       State income taxes, net of
        federal income tax effect                      (862)              172
       Non-deductible expenses                           14               602
       Valuation allowance                            3,825                 -
                                              -------------     -------------
       Total income tax benefit               $      (6,848)    $        (903)
                                              =============     =============


The significant  components of deferred income tax assets and liabilities as of
February 3, 2007 and January 28, 2006 are as follows (in thousands):

<TABLE>
                                                                      February 3,     January 28,
                                                                         2007            2006
                                                                     ------------    ------------
       <S>                                                           <C>             <C>
       Current deferred income tax assets / (liabilities)

           Reserves and accruals                                     $     11,409    $     11,295
           Valuation allowance                                             (1,343)              -
                                                                     ------------    ------------
             Current deferred tax assets                                   10,066          11,295

           Inventories                                                    (17,882)        (19,195)
                                                                     ------------    ------------
             Net current deferred tax liabilities                          (7,816)         (7,900)(2)
                                                                     ------------    ------------
       Non-current deferred income tax assets / (liabilities)

           Reserves and accruals                                            8,288           7,781
           Pensions                                                         9,048          11,274
           Goodwill (1)                                                     4,218           5,695
           Capital lease obligations                                        5,077           5,612
           Net operating loss carryforward                                  5,409               -
           Valuation allowance                                             (3,772)              -
                                                                     ------------    ------------
             Non-current deferred tax assets                               28,268          30,362
                                                                     ------------    ------------
           Beneficial leases and other intangible assets                  (10,994)        (12,427)
           Fixed assets                                                   (15,881)        (21,774)
           Capital leases                                                  (4,025)         (4,492)
                                                                     ------------    ------------
             Non-current deferred tax liabilities                         (30,900)        (38,693)
                                                                     ------------    ------------
             Net non-current deferred tax liabilities                      (2,632)         (8,331)(2)
                                                                     ------------    ------------
       Net deferred income tax (liabilities)                         $    (10,448)   $    (16,231)
                                                                     ============    ============
</TABLE>


<PAGE>

(1)  Represents  tax basis of  deductible  goodwill  arising from  acquisitions
     consummated in prior years.

(2)  Reflects an increase of $7,781 in current  liabilities and a correspondent
     decrease in non-current  liabilities from amounts  previously  reported to
     reflect correction in classification of reserves and accruals.


At February 3, 2007,  the Company had a net  operating  loss  carryforward  for
federal and state income tax purposes of approximately  $13.2 million available
to offset future taxable income through 2027.

Prior net operating  loss carry  forwards were  entirely  eliminated  effective
January 29, 2006 principally as a result of cancellation of debt in the Chapter
11  proceedings.  Further,  the Company  lost a portion of the tax basis of its
long-lived  assets,  reducing the amount of tax  depreciation  and amortization
that the Company will be able to utilize on its tax returns.

A valuation  allowance of $5.1 million was  established  at February 3, 2007 to
offset the net operating loss carryforward and other deferred tax assets to the
extent it is more  likely than not,  based upon  available  evidence,  that the
recorded value will not be realized.  Realization is dependent on the existence
of sufficient taxable income within the carryforward  period,  including future
reversals of certain taxable temporary differences.  In providing the valuation
allowance,  no reversal  of the taxable  temporary  difference  arising  from a
portion of LIFO  inventory  was  considered  to occur during such period as the
period in which such reversal may occur is not presently determinable.


                                     -70-
<PAGE>

NOTE 10 - ACQUISITIONS AND DISPOSITIONS

In March  and April  2006,  the  Company  acquired  two  retail  stores  for an
aggregate  purchase  price of $1.5 million.  The cost of the  acquisitions  was
allocated $0.5 million to inventories and $1.0 million to equipment.

During the year ended February 3, 2007, the Company  disposed of five stores of
which four were closed and one was sold. It is  anticipated  that revenues will
continue to be  generated  from  customers  of three  closed  stores in Company
stores located in the same vicinity.  In addition,  it is anticipated  that the
sold store will continue to be serviced from the Company's distribution centers
thereby  continuing  to generate  revenue for the  Company.  The  revenues  and
operating  results of the remaining closed store were not  significant.  During
the period ended January 28, 2006,  the Company  closed one store for which the
revenues  and  operating  results  were  not  significant.   Accordingly,   the
operations of the stores have not been reported as  discontinued  operations in
the accompanying financial statements.  The Company incurred approximately $1.3
million  and  $0.5  million  of store  closing  costs  related  to  leases  and
terminated employees during 2007 and 2006, respectively.

In January 2007, the Company announced the closing of a leased distribution
center used for the distribution of general merchandise and health and beauty
products. At the same time, the Company entered into a five-year supply
agreement with a third party to provide the merchandise previously distributed
from the distribution center. In connection with the announced closing, in
January 2007, the Company recorded a liability of $1.4 million for termination
benefits (included in selling and administrative expenses) which were
communicated to the distribution center's employees at such time. The Company
ceased use of the facility in March 2007, at which time the Company recorded a
liability of $1.9 million representing the present value of the remaining lease
rentals reduced by estimated sublease rentals that could be reasonably obtained
for the distribution center. In addition, in March 2007, the Company sold its
remaining inventory located in the distribution center to the third party at
current cost. The carrying value of such inventory at February 3, 2007 was
approximately $4.8 million.


                                     -71-
<PAGE>

NOTE 11 - RETIREMENT PLANS

The Company has four  noncontributory  defined  benefit  pension plans covering
certain union  personnel.  The Company's  policy is to fund pension benefits to
the extent contributions are deductible for tax purposes and in compliance with
federal laws and regulations. For the Company's plans, normal retirement age is
either 62 or 65, but provisions are made for earlier  retirement.  Benefits are
determined either on average annual  compensation and years of service, or as a
pre-determined  amount  for each year of  service.  Full  vesting  occurs  upon
completion  of five years of service.  Assets of the  Company's  pension  plans
primarily consist of investments in publicly traded equity and debt securities.

In accordance with the provisions of SOP 90-1, upon emergence from  bankruptcy,
the Company  recorded  the  underfunded  status of each of the defined  benefit
plans as a liability on the balance sheet.  As of January 28, 2006, the Company
adopted the provisions of Financial  Accounting  Standard No. 158,  "Employers'
Accounting for Defined Benefit Pension and Other  Postretirement  Plans" ("SFAS
158") and in accordance therewith reflected the underfunded status of the plans
in its balance sheet at such date.  Prospectively,  the Company will adjust the
liability to reflect the current funded status of the plan. Any gains or losses
that  arise  during  the period but are not  recognized  as  components  of net
periodic benefit cost will be recognized as a component of other  comprehensive
income  (loss).  The adoption of SFAS 158 resulted in the  recognition  of $8.3
million of  unrecognized  actuarial  gains which arose  during the period ended
January 28, 2006 and a  corresponding  reduction in the defined benefit pension
plan liability at January 28, 2006. Such  unrecognized  gains,  net of deferred
taxes of $3.4 million were credited to accumulated other  comprehensive  income
in the amount of $4.9  million.  The  adoption of SFAS 158 had no effect on the
Company's consolidated statement of operations for the period ended January 28,
2006 and it will not effect the Company's operating results in future periods.


                                     -72-
<PAGE>

During the year ended  February 3, 2007,  the Company  recorded $3.2 million of
net  unrecognized   actuarial  gains  which  arose  during  the  period  and  a
corresponding  reduction in the defined  benefit pension plan liability at such
date.  Unrecognized  gains,  net  of  deferred  taxes  of  $1.3  million,  were
recognized  as an element of  comprehensive  loss and  credited to  accumulated
other comprehensive income in the amount of $1.9 million.

Information  as to the  Company's  four  defined  benefit  pension  plans as of
February 3, 2007 and January 28, 2006,  which are the measurement  dates of the
plans, and for the year/period then ended is as follows (in thousands):

<TABLE>
                                                           February 3,     January 28,
                                                              2007             2006
                                                         --------------  --------------
<S>                                                      <C>             <C>
Change in benefit obligation
 Benefit obligation at beginning of period               $    (107,600)  $    (108,766)
 Service cost                                                   (1,982)         (1,468)
 Interest cost                                                  (5,975)         (4,356)
 Actuarial gain                                                  3,757           2,836
 Benefits paid                                                   5,002           4,154
                                                         -------------   -------------
Benefit obligation at end of period                           (106,798)       (107,600)

Change in plan assets
 Fair value of plan assets at beginning of period               80,000          68,824
 Actual return on plan assets                                    5,391           9,459
 Employer contributions                                          4,259           5,872
 Benefits paid                                                  (5,002)         (4,155)
                                                         -------------   -------------
 Fair value of plan assets at end of period                     84,648          80,000

Underfunded status                                       $     (22,150)  $     (27,600)
                                                         =============   =============
</TABLE>

                                     -73-
<PAGE>

<TABLE>
                                                          Year Ended   Period Ended
                                                          February 3,   January 28,
                                                             2007          2006
                                                         ------------  ------------
<S>                                                      <C>           <C>
Components of net periodic pension cost for the
year ended February 3, 2007 and for the period
ended January 28, 2006 are as follows:

 Service cost                                            $     1,982   $      1,468
 Interest cost                                                 5,975          4,356
 Expected return on plan assets                               (5,975)        (3,979)
 Amount of recognized gains and losses                             -              -
                                                         -----------   ------------
 Net periodic pension cost                               $     1,982   $      1,845
                                                         ===========   ============

The weighted-average assumptions used to determine
the net benefit obligations as of February 3, 2007
and January 28, 2006 are as follows:

                                                          Year Ended   Period Ended
                                                          February 3,   January 28,
                                                             2007          2006
                                                         ------------  ------------

Discount rate                                                5.97%         5.68%
Rate of compensation increase                                3.00%         3.00%

The weighted-average assumptions used to determine
the net benefit cost for the year ended February 3,
2007 and for the period ended January 28, 2006 are
as follows:

                                                          Year Ended   Period Ended
                                                          February 3,   January 28,
                                                             2007          2006
                                                         ------------  ------------

Discount rate                                                5.68%         5.48%
Expected return on plan assets                               7.50%         7.50%
Rate of compensation increase                                3.00%         3.00%
</TABLE>


Amounts  in  accumulated  other  comprehensive   income  will  be  subsequently
recognized  as a  component  of  net  periodic  pension  cost  pursuant  to the
Company's   accounting   policy  for  amortizing  such  amounts.   Included  in
accumulated  other  comprehensive  income at February 3, 2007 are  unrecognized
actuarial  gains of $11.5 million  ($6.8  million net of taxes),  of which $0.1
million is expected to be  recognized  as a component of net  periodic  pension
cost for the year ending February 2, 2008.

                                     -74-
<PAGE>

Plan  assets by major  category as of February 3, 2007 and January 28, 2006 are
as follows:

<TABLE>
                                    February 3, 2007                        January 28, 2006
                            -----------------------------------   -------------------------------------
                            Target Range      Actual Allocation   Target Range        Actual Allocation
<S>                         <C>               <C>                 <C>                 <C>
Equity securities           50% to 60%               57%           50% to 60%                54%
Debt securities             40% to 50%               33%           40% to 50%                44%
Cash                         0% to 10%               10%            0% to 10%                 2%
</TABLE>

The Company  considers the actual asset  categories of the invested  assets and
the  historical   rates  of  return  of  those  categories  as  the  basis  for
establishing  the expected  long-term  rate of return (7.5% at both February 3,
2007 and January 28, 2006) on plan assets.

For the period ended January 28, 2006, the Company  contributed $5.9 million to
the four defined benefit pension plans and for the year ended February 3, 2007,
contributed  $4.3 million to these plans. For the year ending February 2, 2008,
the Company expects to contribute $3.7 million to these plans.

The amount of benefits expected to be paid over each of the next five years and
in the  aggregate  for  the  following  five-year  period  are as  follows  (in
thousands):

             Year                            Amount
           ---------                       ----------
           2008                            $    5,092
           2009                                 5,080
           2010                                 5,205
           2011                                 5,434
           2012                                 5,735
           2013-2017                           31,124

On May 20, 2004, a distress termination  application was filed with the PBGC to
terminate a cash balance pension plan sponsored by the Company.  The PBGC filed
various claims in bankruptcy court for payment of unfunded benefit liabilities.
On February 4, 2005, the parties entered into a global  settlement  whereby the
Company  settled the PBGC claims by agreeing to pay the PBGC $0.2  million upon
emergence from  bankruptcy  and $3.5 million over a two year period  commencing
six months after the emergence from bankruptcy. Further, the PBGC was permitted
to retain a $60 million unsecured claim in the bankruptcy  proceeding which was
settled through the issuance of common shares pursuant to the Plan.

                                     -75-
<PAGE>

The Company  maintains a 401(k) savings plan for eligible  employees.  The plan
provides  for  matching  contributions  by the  Company for all  employees  not
covered by other union pension plans.  The Company's  contributions  aggregated
$1.4  million  for the year ended  February  3, 2007 and $1.4  million  for the
period ended January 28, 2006.

The Company also participates in seventeen multiemployer  collective bargaining
agreements  that provide for  employer  contributions  to fund  union-sponsored
pension and other benefits. The Company's contributions aggregated $5.2 million
for the year ended  February  3, 2007 and $3.9  million  for the  period  ended
January 28, 2006.  While the Company has not indicated an intention to withdraw
from any  multiemployer  plan, such withdrawal could result in an obligation to
the plans for a portion  of  unfunded  benefit  obligations  of the  particular
plans.  The  Company's  aggregate  withdrawal  liability at February 3, 2007 is
approximately $70 million.


NOTE 12 - COMMITMENTS AND CONTINGENCIES

The  United  States  Attorney  for the  Northern  District  of New York and the
Securities and Exchange Commission ("SEC") have been conducting  investigations
relating to the Company's  promotional  allowance practices and policies.  Such
investigations  began prior to the Company's emergence from bankruptcy in April
2005.  The  Company  has been  cooperating  with these  investigations  and has
produced  documents  and made Company  employees  available  for  interviews as
requested.

On June 1, 2006, the Company announced that the Audit Committee of the Board of
Directors had completed its internal investigation of the Company's promotional
allowance  practices.  The Audit Committee hired independent counsel to perform
the  investigation.  The Audit  Committee found that the Company had engaged in
certain improper practices principally relating to the premature recognition of
promotional  allowances and that these practices had largely ceased by the time
of the  Company's  Chapter 11 filing in May 2003.  On  February  3,  2006,  the
Company  announced that the employment of the Company's Chief Marketing Officer
and the Company's Vice-President, Non-Perishables Marketing had been terminated
following  an interim  report to the Audit  Committee  on the  findings  of the
investigation.

On September 17, 2007, the SEC filed civil fraud charges  against the Company's
former  Chief  Marketing  Officer  and former  Vice-President,  Non-Perishables
Marketing  alleging that such individuals  orchestrated a scheme to inflate the
Company's  income  and  other  financial  results  by  prematurely  recognizing
promotional  allowances  received  from vendors from  approximately  the second
quarter of fiscal year 2001 through at least the fourth  quarter of fiscal year
2003. The complaint further alleges that the individuals deceived the Company's
accounting personnel to carry out their fraudulent scheme and aided and abetted
violations of the Exchange Act of 1934 and rules  thereunder.  In addition,  on
the same date, the United States Attorney for the Northern District of New York
announced  that a federal  grand jury has  returned an  indictment  against the
abovementioned  individuals on related criminal  charges.  Both the SEC and the
United States Attorney indicated that their investigations are continuing.

                                     -76-
<PAGE>

In  connection  with  these  matters,  the  Company  could be subject to damage
claims,  fines or penalties.  At present, the Company is unable to estimate the
likelihood of an unfavorable outcome or the amount of any damage claims,  fines
or  penalties  in the event of an  unfavorable  outcome  and,  accordingly,  no
liability has been recorded for this contingency.

The Company enters into various purchase  commitments in the ordinary course of
business.  In the opinion of management,  no losses are expected to result from
these purchase  commitments.  In connection with the five-year supply agreement
for  general  merchandise  and health and beauty  products  (see Note 10),  the
Company is obligated  to pay a fee of 1.5% of the amount by which  purchases by
the Company are less than $20 million in each six month period  during the term
of the agreement.

See Note 6 with respect to commitments  under  outstanding  stand-by letters of
credit.  At February 3, 2007, the Company is also committed  under an aggregate
of $7.4 million of surety bonds which are required to be  maintained  for up to
three years from the date of issuance.


NOTE 13 - STOCK AWARD PLAN

On December 15, 2006, the Company  established the 2006 Omnibus Award Plan (the
"Award  Plan").  Pursuant to the  provisions of the Award Plan, the Company can
grant stock options,  restricted  stock,  phantom stock and stock  appreciation
rights. The amount of shares of common stock that can be granted are limited to
902,268 in the aggregate.

On December 15,  2006,  the Company  granted an aggregate of 150,000  shares of
phantom stock to two officers of the Company.  The awards provide for a payment
in  cash  on the  settlement  date  of May  1,  2009,  or  earlier  in  certain
circumstances,  of the  difference  between the value of the  Company's  common
stock on the grant date and the settlement date. In accordance with SFAS 123(R)
the awards are being accounted for as compensation  expense and a corresponding
liability  over the period to settlement  date based on changes in the value of
the Company's common stock.  Compensation expense and a corresponding liability
amounting to $0.06  million was  recognized  during the year ended  February 3,
2007 in connection with such grant.

On May 14, 2007,  the Company  granted an aggregate of 22,685 shares of phantom
stock to five non-officer  directors.  The awards provide for a payment in cash
on the settlement date,  which is the earlier of when the individual  ceases to
be a member of the  Company's  Board of Directors or upon the  occurrence  of a
change in control,  as defined,  of the value of an equivalent number of shares
of  common  stock.  The award was fully  vested  upon the grant  date,  and the
Company will record a compensation  charge with a  corresponding  liability for
the fair value of the awards at date of grant.  The liability  will be adjusted
based on changes in value of the Company's  common stock,  with a corresponding
adjustment to compensation expense, at each period to settlement date.


                                     -77-
<PAGE>

NOTE 14 - SEGMENT INFORMATION

The  Company  operates  in two  segments - the  retail  food  business  and the
wholesale food distribution  business. The retail food business consists of 106
supermarkets  which the  Company  operates.  The  wholesale  food  distribution
business supplies 119 independent  operators with food and related products. In
fiscal  period 2006,  the Company had allocated  warehouse  and  transportation
costs based on each  segment's  percentage of total  shipments.  In fiscal year
2007, the allocation method was changed to include order size and distance from
the warehouse.  The effect of this change was to increase the operating  income
of the retail food segment and decrease the  operating  income of the wholesale
food distribution segment by $4.9 million for the year ended February 3, 2007.

The Company's senior management  utilizes more than one measurement to evaluate
segment  performance and allocate  resources.  However,  the dominant  measures
utilized are revenues and operating income before depreciation and amortization
and unallocated overhead expenses.

The  accounting  policies  of the  reportable  segments  are the  same as those
described in Note 3 except that the Company  accounts  for  inventory on a FIFO
basis at the segment level  compared to LIFO basis at the  consolidated  level.
The tables below present  information  for the year ended  February 3, 2007 and
the period ended January 28, 2006 with respect to operating segments as well as
reconciliations to consolidated information (in thousands).

<TABLE>
<CAPTION>
Year Ended February 3, 2007

                                                            Wholesale Food       Reconciling
                                            Retail Food      Distribution           Items             Total
                                            -----------     --------------       -----------       -----------
<S>                                          <C>              <C>                <C>               <C>
Revenues                                     $1,068,188       $    217,320       $   25,397  (1)   $ 1,310,905

Cost of sales                                  (755,524)          (206,017)         (15,596) (2)      (977,137) (4)
Selling and administrative expense             (257,910)            (5,429)         (59,332) (3)      (322,671) (4)
Loss on store closings                                -                  -           (1,308)            (1,308)
                                             ----------       ------------       ----------        -----------
Operating income (loss) before
 depreciation and amortization                   54,754              5,874          (50,839)             9,789

Depreciation and amortization                   (25,153)            (1,060)          (1,272) (5)       (27,485)
                                             ----------       ------------       ----------        -----------
Operating income (loss)                          29,601              4,814          (52,111)           (17,696)
Interest expense                                      -                  -                -             (9,357)
Reorganization costs                                  -                  -                -             (1,020)
                                                                                                   -----------
Consolidated loss before income taxes                                                              $   (28,073)
                                                                                                   ===========
Total assets as of February 3, 2007          $  240,875 (6)   $     25,703 (6)   $   45,407  (7)   $   311,985

Capital expenditures for the year
 ended February 3, 2007                      $   20,408       $          -       $    2,518        $    22,926
</TABLE>

                                     -78-
<PAGE>

(1)  Consists  principally  of  approximately  $17.0  million for bakery  sales
     primarily  to  customers  other than  those of the  retail  and  wholesale
     segments and approximately $6.3 million for trucking revenues.

(2)  Consists  principally of approximately  $10.6 million for bakery sales and
     approximately  $1.5 million increase in cost of sales to reconcile segment
     inventories on FIFO to consolidated inventories on LIFO.

(3)  Consists principally of approximately $32.0 million of payroll,  benefits,
     and payroll taxes associated with the administrative staff,  approximately
     $6.1  million  associated  with  selling and  administrative  costs of the
     bakery,  approximately  $5.6 million of contract  hauling costs associated
     with trucking  revenue,  approximately  $11.4 million of professional fees
     (including  approximately  $4.1 million of legal costs associated with the
     internal  and  SEC  investigation  relating  to  the  Company's  practices
     regarding  promotional  discounts  and  allowances),   approximately  $2.1
     million for data  processing  maintenance  and $1.1 million for  corporate
     insurance costs.

(4)  Excludes  depreciation  and amortization of $4.3 million for cost of sales
     and $23.2 million for selling and administrative expenses.

(5)  Consists of depreciation on bakery and corporate fixed assets.

(6)  The warehouse and transportation assets have been allocated using the same
     methodology  as that which was used for the warehouse  and  transportation
     costs described  above.  The effect of the change in allocation  method in
     fiscal  year  2007  was to  increase  the  assets  of the  wholesale  food
     distribution  segment and  decrease  assets of the retail food  segment by
     $4.3 million.

(7)  Consists principally of fixed assets and inventory of the bakery operation
     and general corporate assets (including cash and cash equivalents).


                                     -79-
<PAGE>

<TABLE>
<CAPTION>
Period Ended January 28, 2006

                                                              Wholesale Food         Reconciling
                                            Retail Food        Distribution             Items             Total
                                            -----------       --------------         -----------       -----------
<S>                                          <C>                <C>                  <C>               <C>
Revenues                                     $  824,340         $    171,907         $   19,646  (1)   $ 1,015,893

Cost of sales                                  (579,288)            (158,656)           (13,715) (2)      (751,659) (4)
Selling and administrative expense             (207,260)              (6,438)           (26,343) (3)      (240,041) (4)
Loss on store closings                                -                    -               (520)              (520)
                                             ----------         ------------         ----------        -----------
Operating income (loss) before
   depreciation and amortization                 37,792                6,813            (20,932)            23,673

Depreciation and amortization                   (16,568)              (1,337)            (1,170) (5)       (19,075)
                                             ----------         ------------         ----------        -----------
Operating income (loss)                          21,224                5,476            (22,102)             4,598
Interest expense                                                                                            (8,289)
Reorganization costs                                                                                        (1,023)
                                                                                                       -----------
Consolidated loss before income taxes                                                                  $    (4,714)
                                                                                                       ===========

Total assets as of January 28, 2006          $  290,230 (6)     $     23,744 (6)     $   15,233  (7)   $   329,207

Capital expenditures for the period
   ended January 28, 2006                    $   16,649         $          -         $    3,884        $    20,533
</TABLE>

(1)  Consists  principally  of  approximately  $12.2  million for bakery  sales
     primarily  to  customers  other than  those of the  retail  and  wholesale
     segments and approximately $5.1 million for trucking revenues.

(2)  Consists  principally of approximately  $10.8 million for bakery sales and
     approximately  $1.5 million increase in cost of sales to reconcile segment
     inventories on FIFO to consolidated inventories on LIFO.

(3)  Consists principally of approximately $22.3 million of payroll,  benefits,
     and payroll taxes associated with the administrative staff,  approximately
     $2.5 million of contract hauling costs  associated with trucking  revenue,
     and approximately $2.2 million of legal costs associated with the internal
     and  SEC  investigation  relating  to the  Company's  practices  regarding
     promotional discounts and allowances.

(4)  Excludes  depreciation  and amortization of $3.3 million for cost of sales
     and $15.7 million for selling and administrative expenses.

(5)  Consists of depreciation on bakery and corporate fixed assets.

(6)  The warehouse and transportation assets have been allocated using the same
     methodology  as that which was used for the warehouse  and  transportation
     costs.

(7)  Consists principally of fixed assets and inventory of the bakery operation
     and general corporate assets (including cash and cash equivalents).

                                     -80-
<PAGE>

NOTE 15 - ALLOWANCE FOR DOUBTFUL ACCOUNTS

An analysis of the changes to the allowance for doubtful  accounts for the year
ended  February 3, 2007 and the period ended January 28, 2006 is as follows (in
thousands):

        Balance at April 16, 2005                          $      3,243
        Additions charged to costs and expenses                   2,540
        Accounts written off, net of recoveries                  (2,609)
                                                           ------------
        Balance at January 28, 2006                               3,174

        Additions charged to costs and expenses                   1,324
        Accounts written off, net of recoveries                    (762)
                                                           ------------
        Balance at February 3, 2007                        $      3,736
                                                           ============


NOTE 16 - SUPPLEMENTAL CASH FLOW INFORMATION

                                                Year Ended    Period Ended
                                                February 3,    January 28,
                                                   2007           2006
                                              ------------   -------------


 Cash paid for interest                       $      7,183   $      4,309

 Cash paid for income taxes                   $          -   $          -


                                     -81-
<PAGE>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE

On  September  6, 2006,  Deloitte & Touche,  LLP  resigned  as our  independent
registered public accounting firm.

Deloitte  never  rendered  an  audit  report  with  respect  to  our  financial
statements  for any period.  During the fiscal years ended January 29, 2005 and
January 28, 2006 and through Deloitte's resignation on September 6, 2006, there
had been no  disagreement  between us and Deloitte on any matter of  accounting
principles or practices,  financial statement disclosure,  or auditing scope or
procedure, which disagreement, if not resolved to the satisfaction of Deloitte,
would  have  caused  it to  make a  reference  to  the  subject  matter  of the
disagreement in connection with its reports.

Except as described  below,  during the fiscal years ended January 29, 2005 and
January 28, 2006 and through Deloitte's resignation on September 6, 2006, there
have been no reportable  events (as defined in Item  304(a)(1)(v) of Regulation
S-K).  In connection  with its  resignation,  Deloitte  informed us that it was
unwilling to rely on representations  from our former internal General Counsel.
Further,  as a  result  of  the  interim  findings  of  the  Audit  Committee's
investigation  that we had engaged in certain  improper  practices  principally
relating to the premature recognition of promotional allowances, which has been
previously  disclosed,  Deloitte  had  advised  us that it would need to expand
significantly the scope of its audit. However, due to its resignation, Deloitte
did not expand the scope of its audit.

We  furnished a copy of the above  disclosure  to Deloitte and  requested  that
Deloitte  furnish us with a letter  addressed  to the  Securities  and Exchange
Commission  stating  whether or not it agreed  with such  disclosure.  Deloitte
subsequently  furnished  us  with a  letter  addressed  to the  Securities  and
Exchange  Commission in which Deloitte  agreed with the  disclosure  statements
made by us.

On September 22, 2006, we announced  that we had hired the  accounting  firm of
Eisner LLP to serve as our independent auditor.

                                     -82-
<PAGE>

ITEM 9A.   CONTROLS AND PROCEDURES

(a)  DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures under Rule 13a-15(e) of the Exchange Act are
those  controls and other  procedures  of a company that are designed to ensure
that information required to be disclosed by the company in the reports that it
files or submits under the Exchange Act is recorded, processed,  summarized and
reported,  within  the time  periods  specified  in the SEC's  rule and  forms.
Disclosure  controls and procedures include,  without limitation,  controls and
procedures  designed to ensure that information  required to be disclosed by an
issuer in the reports it files or submits under the Exchange Act is accumulated
and communicated to the issuer's management,  including its principal executive
and principal financial officers,  or persons performing similar functions,  as
appropriate to allow timely decisions regarding required disclosure.

Pursuant to Rule 13a-15(e) under the Exchange Act, our management evaluated the
effectiveness  of the design  and  operation  of our  disclosure  controls  and
procedures  with the  participation  of our  principal  executive and principal
financial  officers.  Mr.  Panasuk,  who was our President and Chief  Executive
Officer as of February 3, 2007,  accepted that position in December  2006.  Mr.
Young, our current President and Chief Executive Officer,  has been employed by
us since July 2006 but did not become our President and Chief Executive Officer
until October 2007. Our Senior  Vice-President  and Chief Financial Officer was
not with us during fiscal year 2007. Based on their observations, combined with
observations  by members of  management,  members  of the audit  committee  and
external  counsel,  management  concluded  that  our  disclosure  controls  and
procedures  were  ineffective  as of February 3, 2007 in  providing  reasonable
assurance  that  material  information  requiring  disclosure  was  brought  to
management's  attention on a timely basis and that our financial  reporting was
reliable.


(b)  MANAGEMENT'S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING

Internal  control over  financial  reporting  is a process  designed to provide
reasonable  assurance  regarding the reliability of financial reporting and the
preparation of financial  statements for external  purposes in accordance  with
generally  accepted  accounting  principals.  Internal  control over  financial
reporting  includes  those  policies  and  procedures  that (1)  pertain to the
maintenance  of records  that,  in  reasonable  detail,  accurately  and fairly
reflect the transactions and dispositions of our assets; (2) provide reasonable
assurance that transactions are recorded as necessary to permit  preparation of
financial  statements in  accordance  with the  generally  accepted  accounting
principles,  and that our  receipts  and  expenditures  are being  made only in
accordance with  authorizations  of management and the board of directors;  and
(3) provide reasonable  assurance  regarding  prevention or timely detection of
unauthorized  acquisition,  use, or disposition of our assets that could have a
material  effect  on  the  financial   statements.   It  is  the   management's
responsibility  to  establish  and  maintain  adequate  internal  control  over
financial reporting.


                                     -83-
<PAGE>

Because of inherent limitations,  internal control over financial reporting may
not prevent or detect  misstatements.  Also,  projections  of any evaluation of
effectiveness  to future  periods  are  subject to the risk that  controls  may
become  inadequate  because  of changes  in  conditions,  or that the degree of
compliance with the policies or procedures may deteriorate.

Our current President and Chief Executive Officer and Senior Vice President and
Chief Financial Officer were not in these positions during fiscal year 2007 and
our  management  during  fiscal year 2007 did not conduct an  assessment of our
internal control over financial  reporting.  Based on our current  management's
current  observations  combined with observations by the disclosure  committee,
our current  management  has assessed that our internal  control over financial
reporting as of February 3, 2007 was not effective.

Eisner LLP, our registered  independent  public  accounting  firm, has issued a
report in which they  stated that they were unable to express an opinion on the
effectiveness of our internal  control over financial  reporting as of February
3,  2007.  As stated in  Eisner  LLP's  report  below,  we lacked a  sufficient
complement of personnel  possessing the appropriate  knowledge,  experience and
training to timely prepare and file reliable year-end financial  statements and
an Annual Report on Form 10-K. This control  deficiency  affects  substantially
all financial statement accounts and could result in a material misstatement in
our  interim  or annual  consolidated  financial  statements  that would not be
prevented or detected.

We have taken several actions to remediate the material weakness. We are in the
process of restructuring  our finance  functions to ensure that we optimize our
personnel  structure.  We are also evaluating our current finance  personnel to
ensure  competency for each position.  Based upon that  evaluation we will take
the required actions necessary to remediate the deficiency. Furthermore, we are
re-engineering  our monthly closing process to not only increase the timeliness
and  efficiency  of our  closing  process, but also to improve  our  supporting
analytics and documentation.


(c)  CHANGE IN OUR INTERNAL CONTROL OVER FINANCIAL REPORTING

Management did not conduct an evaluation of the  effectiveness  of our internal
control over financial  reporting as of February 3, 2007. In May 2007, we hired
an  outside  consulting  firm to assist  management  in its  evaluation  of the
effectiveness  of our internal  controls over  financial  reporting,  including
disclosure  controls and procedures.  They have since  determined they will use
the framework established in "Internal Control-Integrated Framework," issued by
the Committee of Sponsoring Organizations of the Treadway Commission.

                                     -84-
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
The Penn Traffic Company
Syracuse, New York


We were engaged to audit management's assessment as to whether The Penn Traffic
Company ("the Company")  maintained  effective  internal control over financial
reporting  as of February 3, 2007,  based on criteria  established  in Internal
Control  -  Integrated   Framework   issued  by  the  Committee  of  Sponsoring
Organizations  of  the  Treadway   Commission.   The  Company's  management  is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the  effectiveness of internal control over financial
reporting.

We were unable to  complete an audit of the  Company's  internal  control  over
financial reporting as of February 3, 2007, because, as described in Item 9A of
this Form 10-K,  management did not conduct an evaluation of the  effectiveness
of the Company's  internal  control over  financial  reporting as of such date.
Further,  management did not provide us with adequate  documentation to support
an  evaluation of the  effectiveness  of the  Company's  internal  control over
financial  reporting,  including  documentation  with  respect to the design of
controls over all relevant  assertions related to all significant  accounts and
disclosures  in the  financial  statements.  A material  weakness  is a control
deficiency, or combination of control deficiencies, that results in more than a
remote  likelihood  that a  material  misstatement  of the  annual  or  interim
financial statements will not be prevented or detected. Although we were unable
to complete an audit of the Company's internal control,  we have identified the
following  material  weakness.  The Company  lacked a sufficient  complement of
personnel  possessing  the  appropriate  knowledge,  experience and training in
order to timely  prepare and file reliable  year-end  financial  statements and
Annual Report on Form 10-K. This control deficiency  affects  substantially all
financial  statement  accounts that could result in a material  misstatement to
the Company's interim or annual  consolidated  financial  statements that would
not be prevented or detected.  The existence of one or more material weaknesses
as of February 3, 2007 would preclude a conclusion that the Company's  internal
control over financial  reporting was effective as of that date.  This material
weakness was considered in determining the nature,  timing, and extent of audit
tests applied in our audit of the 2007 consolidated  financial statements,  and
this  report  does not  affect  our  report  dated  September  6, 2007 on those
financial statements.

A company's internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally  accepted  accounting  principles.  A company's internal control
over  financial  reporting  includes  those  policies and  procedures  that (1)
pertain to the  maintenance of records that, in reasonable  detail,  accurately
and fairly  reflect  the  transactions  and  dispositions  of the assets of the
company;  (2) provide  reasonable  assurance that  transactions are recorded as
necessary to permit  preparation  of financial  statements in  accordance  with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company;  and (3) provide reasonable  assurance  regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the  company's  assets  that could have a material  effect on the  financial
statements.

Because of its inherent limitations,  internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness  to future  periods  are  subject to the risk that  controls  may
become  inadequate  because  of changes  in  conditions,  or that the degree of
compliance with the policies or procedures may deteriorate.

Since  management  did not conduct an  evaluation of the  effectiveness  of the
Company's internal control over financial reporting as of February 3, 2007, and
we were  unable  to apply  other  procedures  to  satisfy  ourselves  as to the
effectiveness of the Company's internal control over financial  reporting,  the
scope of our work was not  sufficient  to enable us to  express,  and we do not
express, an opinion on the effectiveness of the Company's internal control over
financial reporting as of February 3, 2007.

                                     -85-
<PAGE>

We have also audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States), the consolidated balance sheets of
the  Company as of  February  3, 2007 and  January  28,  2006,  and the related
consolidated statements of operations,  stockholders' equity and cash flows for
the year ended  February  3, 2007 and the period from April 17, 2005 to January
28, 2006,  and our report  dated  September  6, 2007  expressed an  unqualified
opinion thereon.


/s/ Eisner LLP

New York, New York
September 6, 2007



                                     -86-
<PAGE>

ITEM 9B.   OTHER INFORMATION

None




                                     -87-
<PAGE>

PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

As  described in Part I, Item 1 of the Form 10-K,  on May 30, 2003,  we filed a
petition  for relief under  Chapter 11 of the United  States  Bankruptcy  Code.
Members of the Board of Directors  following our emergence from Chapter 11 were
included in our plan of  reorganization  and are listed  below along with their
age as of February  3, 2007 and  biographical  information.  We have not held a
meeting of  stockholders to elect directors since we emerged from bankruptcy on
April 13, 2005.

We held 21 board  meetings  during the 53-week  period ended  February 3, 2007.
Each  director  attended at least 90% of the meeting of the Board of Directors,
plus meetings of committees on which the particular director served.

DIRECTORS DURING FISCAL 2007

NAME AND AGE                                BIOGRAPHICAL INFORMATION

Robert J. Kelly                   Mr.  Kelly has been our Chairman of the Board
Age: 62                           since April 2005.  Mr.  Kelly was Chairman of
Director since April 2005         the Board of  Reorganized  Eagle Food  Center
                                  Inc.  from  2003 to  present.  Prior to that,
                                  between  2000 and  2003,  Mr.  Kelly  was the
                                  Chairman of the Board of Eagle Food  Centers,
                                  Inc.,  during which time he led Eagle through
                                  a successful  reorganization  of their senior
                                  debt  and  an  orderly   liquidation  of  the
                                  company.  Prior to that,  from  1995 to 2000,
                                  Mr. Kelly was the Chairman, President and CEO
                                  of Eagle Food Centers,  Inc. Prior to joining
                                  Eagle Food Centers, Mr. Kelly was employed by
                                  The  Vons  Companies,  from  1963  to 1995 in
                                  various   management   positions,   including
                                  Executive Vice-President of Retailing.


John E. Burke                     Mr. Burke  served as a consultant  for Nestle
Age: 66                           USA  through  2006,  and has worked at Nestle
Director since April 2005         since 1971. From 1991 through  August,  2004,
                                  Mr.  Burke was the  Vice-President  of Credit
                                  and  Collections for Nestle USA in the United
                                  States. Prior to that, in 1979, Mr. Burke was
                                  appointed   Assistant   Treasurer  of  Nestle
                                  Corporation.  Mr. Burke has chaired or served
                                  on a number of Official Unsecured  Creditors'
                                  Committees,   including   that   of   Fleming
                                  Companies,  Inc. Mr. Burke has also served as
                                  a Director of Cumberland  Farms, the National
                                  Food Manufacturers Credit Group, the Delaware
                                  Valley Credit Management Association, and the
                                  New York Credit and Financial Management.



                                     -88-
<PAGE>

Kevin P. Collins                  Mr. Collins has been a member and a Principal
Age: 57                           of  The  Old  Hill  Company,  LLC  (financial
Director since 1999               advisory  services  company)  since 1997. Mr.
                                  Collins was a Principal  of JHP  Enterprises,
                                  Ltd.  (financial advisory services) from 1991
                                  to 1997.  Mr. Collins serves as a Director of
                                  Key  Energy  Services,   Inc.   (provider  of
                                  oilfield   services   to  the   oil  and  gas
                                  industry), and Powersecure International Inc.
                                  (formally  Metretek  Technologies,   Inc.  as
                                  provider  of  information   services  to  the
                                  energy  industry).  Mr. Collins is a director
                                  of   Contractors   Holding  Inc.  and  a  CFA
                                  charterholder.

Ben Evans                         Mr. Evans has served or is currently  serving
Age: 77                           as a Director  of Revco D.S.,  Inc.,  Kash n'
Director since April 2005         Karry    Food    Stores,    Inc.,    Jamesway
                                  Corporation,     Megafood    Stores,    Inc.,
                                  Furrs/Bishop,    Inc.,    Gibson's   Discount
                                  Centers,  Inc.,  Salant  Corporation,  Accord
                                  Financial Corp.,  Hampton  Industries,  Inc.,
                                  Levitz  Furniture,  and Factory  Card & Party
                                  Outlet.  Mr.  Evans  is a CPA and is a member
                                  and chairman of various audit committees. Mr.
                                  Evans  is  our  audit   committee   financial
                                  expert.  Mr. Evans  joined S.D.  Leidesdorf &
                                  Company, predecessor firm to Ernst & Young in
                                  1954,  became a partner at that firm in 1968,
                                  and retired from Ernst & Whinney as a partner
                                  in 1989.  From 1978 through  1989,  Mr. Evans
                                  was a  member  of Ernst &  Whinney  corporate
                                  financial  service  group.  From  1989  until
                                  1999, Mr. Evans was a consultant for the firm
                                  of Ernst & Young in their corporate financial
                                  services group.

Alan C. Levitan                   Mr. Levitan  currently serves on the Board of
Age: 64                           the  New  Jersey  Community  Food  Bank,  the
Director since April 2005         Academy  of Food  Marketing  at St.  Joseph's
                                  University,  and  the  Arts  Council  of  the
                                  Morris area in New Jersey.  Mr.  Levitan is a
                                  former   Director   of  the  Food   Marketing
                                  Institute and former Vice Chairman of the New
                                  Jersey  Food  Council.  Mr.  Levitan was also
                                  employed by Kings Super Markets in New Jersey
                                  in various  management  positions,  including
                                  President and CEO. Prior to that, Mr. Levitan
                                  was employed by Purity Supreme, Inc. for many
                                  years,   progressing  through  a  variety  of
                                  positions, including Senior Vice-President of
                                  Marketing  and   Merchandising  and  Division
                                  General Manager.

                                     -89-
<PAGE>

Robert R. Panasuk                 Mr.  Panasuk was President & Chief  Executive
Age: 51                           Officer,  serving in this role from  December
Director from December 2006       2006 through October 2007. Mr. Panasuk joined
                                  Penn   Traffic  in  October  2006  as  Senior
                                  Vice-President,  Co-Chief  Operating Officer.
                                  Mr. Panasuk was Executive  Vice-President  of
                                  A&P   from   2004  to  2005   where   he  was
                                  responsible for Merchandising,  Marketing and
                                  Distribution for U.S.  Operations.  From 2002
                                  to 2004 he served as President of  Waldbaum's
                                  Inc.,  and from 2001 to 2002 he was Executive
                                  Vice-President   A&P  Canada.   Mr.   Panasuk
                                  resigned  from the Board in  October  2007 in
                                  connection  with his resignation as President
                                  and Chief Executive Office.

Gregory J. Young                  Mr.  Young is President  and Chief  Executive
Age: 51                           Officer,  serving in this role since  October
Director since December 2006      2007. Mr. Young was Senior  Vice-President  -
                                  Chief Marketing & Distribution Officer of the
                                  Company  between July and  December  2006 and
                                  Executive  Vice-President and Chief Operating
                                  Officer  between  December  2006 and  October
                                  2007.  From 2003  until he became  associated
                                  with Penn  Traffic,  Mr.  Young  served as an
                                  executive with C&S Wholesale  Grocers,  first
                                  as  Vice-President of Perishables and then as
                                  Vice-President/General Manager of C&S Retail.
                                  From  2001  to  2003  Mr.   Young  was  Group
                                  Vice-President/General  Manager for A&P Super
                                  Foodmart.  From  2000 to 2001  he  served  as
                                  Vice-President  of Store  Operations and from
                                  1999 to 2000 he served as  Vice-President  of
                                  Sales & Merchandising for A&P Super Foodmart.
                                  Prior to 1999, Mr. Young served for more than
                                  25 years in a number of management  and other
                                  positions at the Company and its  subsidiary,
                                  P&C Foods.

Kurt M. Cellar                    Mr. Cellar  joined Bay Harbour  Management in
Age: 37                           1998.  Mr.  Cellar is a  Chartered  Financial
Director since June 2007          Analyst.   He  is  currently  a  director  of
                                  Hardwood  Lumber  Manufacturing  and a former
                                  director of Telcove.

Scott Sozio                       Mr.  Sozio  joined Bay  Harbour  in  November
Age: 27                           2004. Prior to joining Bay Harbour, Mr. Sozio
Director since June 2007          worked at CIBC World Markets in the Financial
                                  Restructuring Group.


                                     -90-
<PAGE>

There are no family relationships among our directors and executive officers.

The members of the  Compensation  Committee  as of February 3, 2007 are Messrs.
Burke and Kelly.  Mr. Burke is Chairman of the Compensation  Committee.  During
fiscal  year  2007 Mr.  Panasuk  served as an  advisor  to the  committee.  The
Compensation   Committee  reviews  the  annual  recommendations  of  the  Chief
Executive  Officer  concerning  the  compensation  of certain of our employees,
including the compensation plans,  retirement plans and fringe benefit plans in
which such persons  participate,  and makes  reports and  recommendations  with
respect to such matters to our Board of Directors.  The Compensation Committee,
which held 9  meetings  during  fiscal  year 2007,  also  administers  our 2006
Omnibus  Award  Plan,  see  "Item 11.  Executive  Compensation  -  Compensation
Discussion and Analysis" below.

The members of the Audit  Committee  as of February 3, 2007 are Messrs.  Evans,
Collins and Levitan. Mr. Evans is Chairman of the Audit Committee and our audit
committee  financial expert. The Audit Committee held 24 meetings during fiscal
year 2007.


                                     -91-
<PAGE>

EXECUTIVE OFFICERS FOR FISCAL YEAR 2007

NAME                            AGE     POSITION HELD

Robert R. Panasuk               51      Chief Executive Officer and President
Charles C. Bostwick             57      Vice-President of Information Technology
                                        and Chief Information Officer
Gregory J. Young                51      Executive Vice-President - Chief
                                        Operating Officer
Randy P. Martin                 51      Senior Vice-President-Finance
Daniel J. Mahoney               40      Vice-President, General Counsel and
                                        Secretary


Executive  officers are  appointed  by the Board of  Directors  and hold office
until their  successors have been appointed or until their earlier  resignation
or  removal  from  office.  A brief  biography  of each  executive  officer  is
presented below.

Mr. Panasuk served as our President and Chief  Executive  Officer during fiscal
year 2007 until his  resignation  in October  2007.  Mr.  Panasuk  joined us in
October 2006 as Senior Vice-President,  Co-Chief Operating Officer. Mr. Panasuk
was Senior Vice-President of A&P from 2004 to 2005 where he was responsible for
Merchandising,  Marketing and  Distribution for U.S.  Operations.  From 2002 to
2004 he served as  President of  Walbaums'  Inc.,  and from 2001 to 2002 he was
Executive Vice-President A&P Canada.

Mr. Bostwick held the position of Vice-President of Information  Technology and
Chief Information  Officer with us between 1998 and 2007. From 1993 to 1998 Mr.
Bostwick  held top IT  positions  for various  divisions  of  Whirlpool,  Asian
Division.  Mr. Bostwick was  Vice-President,  MIS & Chief Information  Officer,
Long  Drugstore,  1989 to  1993.  Between  1986  and  1989 he was  Director  of
Computing and Communication Services, Bekins.

Mr. Young was our Executive  Vice-President & Chief Operating  Officer,  during
fiscal year 2007. Upon Mr. Panasuk's resignation in October 2007, Mr. Young was
promoted  to  President  and Chief  Executive  Officer.  Mr.  Young was  Senior
Vice-President  - Chief  Marketing  &  Distribution  Officer  between  July and
December 2006.  From 2003 until he became  associated with us, Mr. Young served
as an  executive  with  C&S  Wholesale  Grocers,  first  as  Vice-President  of
Perishables and then as Vice-President/General Manager of C&S Retail. From 2001
to 2003 Mr.  Young  was  Group  Vice-President/General  Manager  for A&P  Super
Foodmart. From 2000 to 2001 he served as Vice-President of Store Operations and
from 1999 to 2000 he served as  Vice-President of Sales & Merchandising for A&P
Super  Foodmart.  Prior to 1999,  Mr.  Young served for more than 25 years in a
number of management and other positions at P&C Foods and its subsidiaries.


                                     -92-
<PAGE>

Mr.  Martin served as our Senior  Vice-President-Finance  from March 2005 until
January  2007.  From January 1999 until March 2005 Mr. Martin held the position
of Vice-President-Finance and Chief Accounting Officer. From 1997 until January
1999, he served as our Vice-President of Strategic Planning and Treasurer. From
1993 to 1997,  Mr. Martin  served as our Director of Taxes.  From 1984 to 1993,
Mr.  Martin was employed by Price  Waterhouse in various  positions,  including
Senior Tax Manager from 1991 to 1993.

Mr. Mahoney joined us in January 2007 as  Vice-President  and General  Counsel.
Previously Mr.  Mahoney had been an attorney at the Boston,  MA firm of Nutter,
McClennen  & Fish  LLP  (1994  -  2004),  where  his  clients  included  Shaw's
Supermarkets,  Inc. and Shop Rite.  He then moved to in house counsel roles for
Shaw's  Supermarkets  (2004  - 2005)  and C&S  Wholesale  Grocers  (2006).  Mr.
Mahoney's  legal practice has focused in the area of labor and employment  law.
He is a cum laude  graduate of Harvard  College and a magna cum laude  graduate
from Boston University School of Law.


                                     -93-
<PAGE>

ITEM 11.   EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

EXECUTIVE COMPENSATION OBJECTIVES

We structure our executive compensation programs in a manner that links them to
our overall financial and strategic  objectives and aligns the interests of our
executives with the interests of our shareholders.

In support of these principal objectives, we designed our compensation strategy
to:

     o    provide  a  competitive  compensation  package  that  enables  us  to
          attract,  retain, and motivate highly talented  executives  necessary
          for our current and long-term success
     o    provide annual incentive compensation that is based on the attainment
          of  pre-established  financial and operational  results and short and
          long-term strategic objectives
     o    reward   individual   performance  as  measured  against   individual
          functional area performance objectives
     o    create a culture of accountability  and commitment to our core values
          of integrity, respect, responsibility, learning and ethics


EXECUTIVE COMPENSATION PROCESS

To  meet  the  objectives  of our  compensation  strategy  and to  ensure  that
executive  officer  compensation  does not exceed  reasonable  and  competitive
levels, our Compensation  Committee approves annually the financial  objectives
and  personal  goals for each  named  executive  officer.  The  achievement  of
financial  objectives and personal goals determine the potential  payout amount
under our Management  Performance  Incentive Plan, as described in detail under
"Management  Performance Incentive Plan" as described below in the "Elements of
Compensation" section.

I.     President and Chief Executive Officer Compensation Process

Our Compensation Committee meets with our President and Chief Executive Officer
at the beginning of each fiscal year to establish his financial and  individual
strategic  performance  objectives,  as detailed  under the  "Fiscal  Year 2007
Management  Performance  Incentive Plan Description by Position" section below.
Our  Compensation  Committee  conducts  an  annual  performance  review  of our
President  and  Chief  Executive  Officer  assessing  his  achievement  of  the
financial and individual business results against those set at the beginning of
the fiscal year.  Using the performance  review and the  competitive  benchmark
guidelines as discussed in the  "Competitive  Benchmarking"  section below, our
Compensation  Committee  makes  a  salary  recommendation  to our  non-employee
members  of the Board of  Directors  for the  salary  and  bonus  levels of our
President  and Chief  Executive  Officer.  After  discussing  the  Compensation
Committee's  recommendation  and  making  any  changes  deemed  necessary,  our
non-employee members of the Board of Directors then vote on the compensation.


                                     -94-
<PAGE>

II.      Senior Executive Compensation Process

For each of our other  executive  officers,  our President and Chief  Executive
Officer  provides a  recommendation  for their  salary and bonus  levels to our
Compensation   Committee.   Our   President  and  Chief   Executive   Officer's
recommendation  assesses  the  achievement  of  the  financial  and  individual
functional  area  business  results  against  the  goals   established  by  the
Compensation  Committee at the beginning of the fiscal year.  Our  Compensation
Committee uses this  recommendation in conjunction with their own assessment of
the executive's  performance to determine salary levels.  No specific weight is
assigned to any one factor;  rather the Compensation  Committee  determines the
executive's compensation at their discretion, based on overall performance. The
Compensation  Committee then presents their  recommendation to the non-employee
members  of  the  Board  of  Directors.   After   discussing  the  Compensation
Committee's  recommendation  and  making  any  changes  deemed  necessary,  our
non-employee members of the Board of Directors then vote on the recommendation.

Our  Compensation  Committee  relies on a report  from the Stanton  Group,  our
Compensation Committee's independent compensation consultant,  to benchmark the
compensation  of our named  executive  officer's  and other senior  executives'
compensation  against our competitors  and other relevant peer companies.  This
benchmarking  process  helps our  Compensation  Committee to make sure that the
compensation  packages  they  approve are  competitive  within the market.  See
"Competitive   Benchmarking"   and  "Base   Salary"   under  the  "Elements  of
Compensation"  sections below for the specific proxy peer group, salary surveys
group and base salary targets information.


COMPETITIVE BENCHMARKING

Our Compensation  Committee  annually  evaluates our named executive  officers'
specific   compensation   levels  against   competitive   benchmark  data.  The
Compensation  Committee  has  retained  the  Stanton  Group  as an  independent
compensation   consultant  to  provide  competitive  market  data  and  outside
knowledge  in  the   development  of  executive   compensation   and  retention
strategies.

The  Stanton  Group uses two sources to  establish  the  competitive  benchmark
salary levels: proxy data from a Peer Group and Salary Survey Groups.

We target the base salary compensation levels for our executives at twenty-five
percent of the average executive  compensation  levels paid by the companies in
our peer group and survey group, as identified below. We feel this is necessary
to meet  the  objective  of  attracting  and  retaining  the  executive  talent
necessary for our success.


                                     -95-
<PAGE>

The salary level used to compare our executive compensation salaries is
calculated as follows:

     o    calculate the twenty-fifth percentile for the proxy peer group
     o    calculate the twenty-fifth percentile for the salary survey groups
     o    average these two numbers resulting in one combined salary total


FISCAL YEAR 2007 PROXY PEER GROUP

We gathered proxy data for companies  that we feel represent a key  competitive
group for executive talent,  as determined by our Compensation  Committee along
with  recommendations  from the Stanton Group.  The fiscal year 2007 proxy peer
group consisted of:


Ingles Markets , Inc                Spartan Stores, Inc.
Weis Markets, Inc.                  Marsh Supermarkets, Inc.
Wild Oats Markets, Inc.             Foodarama Supermarkets, Inc.

The proxy peer group reflects  retail  industry  organizations  with comparable
sales, number of employees, and organizational structure.


FISCAL YEAR 2007 SALARY SURVEY GROUPS

The published  market  surveys and their  component  companies  used by Stanton
Group for competitive benchmarking were as follows:

<TABLE>
<CAPTION>
Watson Wyatt Executive Database
-------------------------------
<S>                                 <C>
Alex Lee, Inc.                      Price Chopper Supermarkets/ The Golub Corporation
Associated Food Stores, Inc.        Publix Super Markets, Inc
Big Y Foods, Inc.                   Safeway, Inc.
Brookshire Grocery Company          Sears Holdings Corporation
C&S Wholesale Grocer, Inc.          Sprouts Farmers Market, LLC.
Fresh Market, Inc. (The)            Stop & Shop Supermarket Company
Giant Food Stores, LLC.             Supervalu, Inc.
Hannaford Brothers Company          Wegmans Food Markets, Inc.
Harris Teeter Supermarkets, Inc     Whole Foods Market, Inc.
Kroger Company (The)                Winn-Dixie Stores, Inc.
Minyard Food Stores, Inc.
</TABLE>

                                     -96-
<PAGE>

Stanton Group Wholesale-Retail Survey
-------------------------------------
Alex Lee, Inc                       Marsh Supermarkets, LLC
Associated Grocers, Inc.            Nash Finch Company
Associated Wholesale Grocers, Inc.  Pathmark Stores, Inc.
BI-LO, LLC                          Price Chopper/The Golub Corporation
Big Y Foods, Inc.                   Safeway, Inc.
Brookshire Grocery Company          Spartan Stores, Inc.
Hy-Vee, Inc.                        Stop and Shop Supermarket Company
Kroger Company (The)                Winco Foods, LLC


Custom Survey Conducted by Stanton Group for Harris Teeter
(another retail grocer)
----------------------------------------------------------

Golub Corporation                   Pathmark Stores, Inc.
Harris Teeter, Inc.                 Publix Super Markets
Ingles Markets, Inc.                Ukrop's Super Markets, Inc.
Nash Finch Company


The Economic Research Institute Salary Assessor Database
--------------------------------------------------------

The component companies are not available for this survey.


These  sources  cover a range of  different  size  organizations  in the retail
industry.  The selected  companies were based on  organizations of a reasonably
similar size and operation with revenues  between $1.0 billion and $2.1 billion
and reflect the market in which we compete for executive talent.

The data from the salary  surveys  are then  subjectively  weighted to create a
survey composite for each position. The weightings were determined based on the
strength of the match  between our job position and the salary  survey job, the
number of companies  behind this data,  the  geographic  similarities,  and how
strongly the data reflected our labor market.


ELEMENTS OF COMPENSATION

The elements of compensation for our executive officers are:

     o    base salary
     o    Management Performance Incentive Plan (short-term annual,  non-equity
          performance based cash incentive pay)
     o    2006 Omnibus Award Plan (long term equity based incentive program)
     o    perquisites (relocation)
     o    retirement and other employee benefits
     o    post employment benefits

                                     -97-
<PAGE>

COMPENSATION MIX

Subject  to  final  approval  by  the  non-employee  members  of the  Board  of
Directors,  our  Compensation  Committee  determines the value of our executive
officer pay packages.  We allocate each executive  officer's total compensation
among the various elements listed above, with a heavier weighting on short-term
and long-term performance based elements.

Base  Salary:  As  discussed  in the "Base  Salary"  section  below,  we target
executive pay at the  twenty-fifth  percentile of comparable  positions at peer
group and salary survey companies.

Short-Term  (Annual) Non-Equity  Performance Based Cash Incentive  Compensation
(Management  Performance Incentive Plan): The cash incentive was targeted to be
at the median  (fiftieth  percentile)  of the market  competitive  benchmark as
discussed in the "Competitive Benchmark" section below.

Long-Term Equity Based Compensation:  The non-employee  members of the Board of
Directors  determine this element of pay, using the fiftieth  percentile  proxy
peer and survey groups competitive  benchmark.  We believe the long term equity
award provides an incentive for our executives to increase our market value, as
represented by our common stock price,  since our long term equity incentive is
directly tied to our fair value of the common stock.


BASE SALARY

Base salary is fixed compensation  provided to our named executive officers and
other  executives.  Base  salaries  provide  our  executives  with a degree  of
financial certainty that is not based on financial performance and supports our
Compensation  Committee's  objective of providing  competitive  compensation to
attract  and retain the  highest  quality  talent  necessary  for our long term
success.

The  competitive  benchmarking,  as  described  above,  provided by the Stanton
Group,  is the primary factor used by our  Compensation  Committee to determine
the base salary level.

In general,  we benchmarked the pay of all executive  officers,  as well as any
new executive officer hired in fiscal year 2007, at the twenty-fifth percentile
of  companies  with  revenues  between  $1.0 and  $2.1  billion.  We feel  this
benchmark  level is necessary to meet our objective of attracting and retaining
executive talent necessary for our success.

Our Compensation  Committee  reviewed each of the salaries for fiscal year 2007
for our named  executive  officers.  Based on their  review of the  competitive
benchmarking  data  provided  by the  Stanton  Group  for our  named  executive
officers,  the Compensation  Committee determined that the current compensation
levels  for  several  of  the  executive   officer  positions  were  below  the
twenty-fifth percentile benchmark. We put our executive officers who were below
twenty percent or more of the twenty-fifth  percentile benchmark on a six month
salary increase schedule,  each February and July, to incrementally bring their
salaries up to the twenty-fifth  percentile benchmark level. We have summarized
the base salaries paid to our named executive  officers for fiscal year 2007 in
the following table:

                                     -98-
<PAGE>

<TABLE>
<CAPTION>
          Summary of the Annual Base Compensation for Fiscal Year 2007
          ------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------------
           NAME            DATE OF     ANNUAL SALARY                       COMMENTS
                        SALARY CHANGE
-------------------------------------------------------------------------------------------------------------------
<S>                     <C>            <C>            <C>
Robert R. Panasuk          10/03/2006       $375,000  Hired as Senior Vice-President and Co-Chief Operating Officer
-------------------------------------------------------------------------------------------------------------------
Robert R. Panasuk          12/12/2006        500,000  Promoted to President and Chief Executive Officer
-------------------------------------------------------------------------------------------------------------------
Robert C. Chapman           1/29/2006        463,600  Benchmark increase
-------------------------------------------------------------------------------------------------------------------
Robert C. Chapman           7/30/2006        477,611  Benchmark increase
-------------------------------------------------------------------------------------------------------------------
Gregory J. Young (1)        7/17/2006        300,000  Hired as Senior Vice-President of Distribution and Chief
                                                      Marketing Officer
-------------------------------------------------------------------------------------------------------------------
Gregory J. Young           10/03/2006        375,000  Promoted  to Senior  Vice-President  and  Co-Chief  Operating
                                                      Officer
-------------------------------------------------------------------------------------------------------------------
Gregory J. Young           12/12/2006        400,000  Promoted  to  Executive  Vice-President  and Chief  Operating
                                                      Officer
-------------------------------------------------------------------------------------------------------------------
Randy P. Martin             1/29/2006        236,242  Benchmark increase
-------------------------------------------------------------------------------------------------------------------
Francis D. Price            1/29/2006        176,667  Benchmark increase
-------------------------------------------------------------------------------------------------------------------
Francis D. Price            7/30/2006        184,573  Benchmark increase
-------------------------------------------------------------------------------------------------------------------
David A. Adamsen            1/29/2006        172,840  Benchmark increase
-------------------------------------------------------------------------------------------------------------------
Charles C. Bostwick          1/1/2005       $208,000  No increase given in fiscal year 2007, already at or above
                                                      benchmark
-------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  On  July  17,  2006 we  hired  Mr.  Young  at a  salary  higher  than  the
     twenty-fifth  percentile  benchmark.  We  believe  it was  appropriate  to
     compensate Mr. Young above the  twenty-fifth  percentile  benchmark due to
     the  immediate  business  need to  fill  the  vacant  position  of  Senior
     Vice-President  and Chief  Marketing  Officer,  his  previous  25 years of
     experience with us, and to provide  succession  planning for the positions
     of Executive  Vice-President and Chief Operating Officer and President and
     Chief Executive Officer.

The fiscal year 2007 base salary paid to each of the named  executive  officers
is listed in the "Summary Compensation Table for Fiscal Year 2007" below.


MANAGEMENT   PERFORMANCE   INCENTIVE  PLAN   (SHORT-TERM   ANNUAL,   NON-EQUITY
PERFORMANCE BASED CASH INCENTIVE PAY)

We are committed to a compensation  philosophy  that rewards  performance.  The
Management  Performance  Incentive  Plan is an annual  performance  based  plan
designed to support  our pay for  performance  philosophy  by  rewarding  those
employees who are instrumental in exceeding the established  performance  goals
tied to our profitability.

Our named executive  officers,  other  executive  officers and other members of
management  participate  in the  Management  Performance  Incentive  Plan.  The
President and Chief  Executive  Officer,  along with our other named  executive
officers'  presents the upcoming  fiscal year budget to the Board of Directors.
The non-employee  members of the Board of Directors reviews the budget,  making
any changes  deemed  necessary,  which  establishes  the  upcoming  fiscal year
targets for financial  objectives  under the Management  Performance  Incentive
Plan.

We determined  the  potential  incentive  bonus  amounts by position  using the
fiftieth percentile bonus compensation  benchmark, as provided by Stanton, from
our competitive  proxy peer groups.  We used this benchmark  because we believe
that executive  compensation  should correlate with financial  performance.  We
give more  weight  to  performance-based  incentives  when we  establish  total
compensation  levels for each  executive  officer.  As a result,  the executive
officer has an element of risk  attached to their  total  compensation  that is
dependent on our financial performance.


                                     -99-
<PAGE>

The personal goals for executive  management are set after discussions  between
our Compensation  Committee and our President and Chief Executive Officer.  Our
President  and  Chief  Executive  Officer  then  meets and  communicates  their
personal goals to the named executive officers.

For  fiscal  year  2007,  we  based  the  Management  Incentive  Plan  upon the
achievement of net operating profit before taxes.

Net operating  profit before taxes is defined as sales less the cost of product
and operating expenses, such as payroll, benefits, supplies, utilities, repairs
and maintenance,  outside  services,  insurance,  rent, and bad debt (see "Loss
Before Income Taxes" on the  "Consolidated  Statement of Operations" in Item 8.
"Financial Statements and Supplemental Data.")

We must  achieve  100% of  budgeted  net  operating  profit  before  taxes,  as
established  by our Board of  Directors,  for there to be an incentive  payment
under any portion of the Management  Performance  Incentive  Plan;  there is no
guarantee of a payment under any part of the Management  Performance  Incentive
Plan.

We  calculate  the  amount  of  the  annual  performance  cash  incentive  as a
percentage of the  executive's  base salary.  We believe  correlating  the base
salary  with  the  amount  of  the  potential  annual  incentive   compensation
appropriately  takes into account the varying levels of responsibility for each
position.  Thus, as a position  takes on added  responsibility  the base salary
increases, and the annual performance cash incentive component will increase as
well.

Incentive Payout Formula Weighting

o    70% of the total potential  incentive  payment based on achievement of net
     operating profit before taxes
o    30% based on personal goals

The personal goals focused on implementation of strategic  initiatives for each
executive's  functional  area,  or in the  case  of  the  President  and  Chief
Executive  Officer,  overall strategic  initiatives.  To determine the personal
goal  payout,  the  Compensation   Committee  would  have  analyzed  each  goal
separately and determined through discussions with each named executive officer
if the goal was achieved.

In fiscal year 2007 we did not achieve our targeted net operating profit before
taxes,  therefore no named executive  officer received  compensation  under the
Management  Performance Incentive Plan. This is reflected under the "Non-Equity
Incentive  Plan  Compensation"  column in the "Summary  Compensation  Table for
Fiscal Year 2007" below.


                                     -100-
<PAGE>

FISCAL YEAR 2007 MANAGEMENT PERFORMANCE INCENTIVE PLAN DESCRIPTION BY POSITION

Robert R.  Panasuk and Gregory J. Young,  Senior  Vice-Presidents  and Co-Chief
Operating Officers: Effective 10/3/2006

Potential  Incentive Bonus Payment:  45% of base salary,  with an additional 5%
bonus for every  additional $1.0 million of net operating  profit before taxes,
up to a maximum bonus rate of 90%.

<TABLE>
--------------------------------------------------------------------------------------------------------------------
  ACTUAL NET OPERATING PROFIT BEFORE     TOTAL NET OPERATING      PERSONAL GOALS INCENTIVE       TOTAL PERCENT
    TAXES VS. TARGET NET OPERATING       PROFIT BEFORE TAXES       PAYMENT WEIGHTED (30%)      INCENTIVE PAYMENT
         PROFIT BEFORE TAXES              INCENTIVE PAYMENT                                          (100%)
                                           WEIGHTED (70%)
--------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                      <C>                          <C>
Under 100% Achievement Net Operating                      0%                            0%                    0%
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
100% Achievement of  Net Operating         31.5% Base Salary             13.5% Base Salary       45% Base Salary
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
150% Achievement of  Net Operating           63% Base Salary               27% Base Salary       90% Base Salary
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------
<S>                                  <C>
Mr. Panasuk                          - Reduce number of non-performing stores
Individual Personal Goals            - Conduct distribution center studies to identify and achieve financial targets
                                     - Complete rollout of "Fresh store" concept which is a combination of upgraded
                                       fresh departments in capital project stores and expanded fresh product
                                       offerings in all stores
--------------------------------------------------------------------------------------------------------------------
Mr. Young                            - Achieve budgeted inventory goals
Individual Personal Goals            - Reduce general administration costs
                                     - Complete rollout of "Fresh store" concept which is a combination of upgraded
                                       fresh departments in capital project stores and expanded fresh product
                                       offerings in all stores
--------------------------------------------------------------------------------------------------------------------
</TABLE>

Robert R. Panasuk, President and Chief Executive Officer: Effective 12/12/2006

Potential  Incentive Bonus Payment:  75% of base salary,  with an additional 5%
bonus for every  additional $1.0 million of net operating  profit before taxes,
up to a maximum bonus rate of 150%.

<TABLE>
--------------------------------------------------------------------------------------------------------------------
  ACTUAL NET OPERATING PROFIT BEFORE     TOTAL NET OPERATING     PERSONAL GOALS INCENTIVE PAYMENT     TOTAL PERCENT
    TAXES VS. TARGET NET OPERATING       PROFIT BEFORE TAXES              WEIGHTED (30%)                INCENTIVE
         PROFIT BEFORE TAXES              INCENTIVE PAYMENT                                          PAYMENT (100%)
                                           WEIGHTED (70%)
--------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                     <C>                                 <C>
Under 100% Achievement Net Operating                      0%                                   0%                0%
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
100% Achievement of  Net Operating         52.5% Base Salary                    22.5% Base Salary   75% Base Salary
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
150% Achievement of  Net Operating          105% Base Salary                      45% Base Salary         150% Base
Profit Before Taxes                                                                                          Salary
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------
<S>                                  <C>
Individual Personal Goals            - Reduce number of non-performing stores
                                     - Conduct distribution center studies to identify and achieve financial targets
                                     - Complete rollout of "Fresh store" concept which is a combination of upgraded
                                       fresh departments in capital project stores and expanded fresh product
                                       offerings in all stores
--------------------------------------------------------------------------------------------------------------------
</TABLE>

                                     -101-
<PAGE>

Gregory  J.  Young,  Executive  Vice-President  and  Chief  Operating  Officer:
Effective 12/12/2006

Potential  Incentive Bonus Payment:  60% of base salary,  with an additional 5%
bonus for every  additional $1.0 million of net operating  profit before taxes,
up to a maximum bonus rate of 120%.

<TABLE>
--------------------------------------------------------------------------------------------------------------------
  ACTUAL NET OPERATING PROFIT BEFORE     TOTAL NET OPERATING      PERSONAL GOALS INCENTIVE       TOTAL PERCENT
    TAXES VS. TARGET NET OPERATING       PROFIT BEFORE TAXES       PAYMENT WEIGHTED (30%)      INCENTIVE PAYMENT
         PROFIT BEFORE TAXES              INCENTIVE PAYMENT                                          (100%)
                                           WEIGHTED (70%)
--------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                      <C>                          <C>
Under 100% Achievement Net Operating                      0%                            0%                    0%
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
100% Achievement of  Net Operating           42% Base Salary               18% Base Salary       60% Base Salary
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
150% Achievement of  Net Operating           84% Base Salary               36% Base Salary      120% Base Salary
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------
<S>                                  <C>
Individual Personal Goals            - Achieve budgeted inventory goals
                                     - Reduce general administration costs
                                     - Complete rollout of "Fresh store" concept which is a combination of upgraded
                                       fresh departments in capital project stores and expanded fresh product
                                       offerings in all stores
--------------------------------------------------------------------------------------------------------------------
</TABLE>

Robert J. Chapman, Former President and Chief Executive Officer

Potential  Incentive Bonus Payment:  50% of base salary,  with an additional 5%
bonus for every  additional $1.0 million of net operating  profit before taxes,
up to a maximum bonus rate of 100%.

<TABLE>
--------------------------------------------------------------------------------------------------------------------
  ACTUAL NET OPERATING PROFIT BEFORE     TOTAL NET OPERATING      PERSONAL GOALS INCENTIVE       TOTAL PERCENT
    TAXES VS. TARGET NET OPERATING       PROFIT BEFORE TAXES       PAYMENT WEIGHTED (30%)      INCENTIVE PAYMENT
         PROFIT BEFORE TAXES              INCENTIVE PAYMENT                                          (100%)
                                           WEIGHTED (70%)
--------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                      <C>                          <C>
Under 100% Achievement Net Operating                      0%                            0%                    0%
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
100% Achievement of  Net Operating           35% Base Salary               15% Base Salary       50% Base Salary
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
150% Achievement of  Net Operating           70% Base Salary               30% Base Salary      100% Base Salary
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------
<S>                                  <C>
Individual Personal Goals            - Reduce number of non-performing stores
                                     - Conduct distribution center studies to identify and achieve financial targets
                                     - Complete rollout of "Fresh store" concept which is a combination of upgraded
                                       fresh departments in capital project stores and expanded fresh product
                                       offerings in all stores
--------------------------------------------------------------------------------------------------------------------
</TABLE>

                                     -102-
<PAGE>

Randy P. Martin, Former Senior Vice-President-Finance

Potential  Incentive Bonus Payment:  45% of base salary,  with an additional 5%
bonus for every  additional $1.0 million of net operating  profit before taxes,
up to a maximum bonus rate of 90%.

<TABLE>
--------------------------------------------------------------------------------------------------------------------
  ACTUAL NET OPERATING PROFIT BEFORE     TOTAL NET OPERATING      PERSONAL GOALS INCENTIVE        TOTAL PERCENT
    TAXES VS. TARGET NET OPERATING       PROFIT BEFORE TAXES       PAYMENT WEIGHTED (30%)       INCENTIVE PAYMENT
         PROFIT BEFORE TAXES              INCENTIVE PAYMENT                                          (100%)
                                           WEIGHTED (70%)
--------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                      <C>                           <C>
Under 100% Achievement Net Operating                      0%                            0%                     0%
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
100% Achievement of  Net Operating         31.5% Base Salary             13.5% Base Salary        45% Base Salary
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
150% Achievement of  Net Operating           63% Base Salary               27% Base Salary        90% Base Salary
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------
<S>                                  <C>
Individual Personal Goals            - Reduce buiness cost through improved technology
                                     - Reduce general administration costs
                                     - Develop program to reduce energy costs
--------------------------------------------------------------------------------------------------------------------
</TABLE>

Dave A. Adamsen,  Vice-President  of Manufacturing and Wholesale and Charles C.
Bostwick, Former Vice-President of Information Technology and Chief Information
Officer

Potential  Incentive Bonus Payment:  40% of base salary,  with an additional 5%
bonus for every  additional $1.0 million of net operating  profit before taxes,
up to a maximum bonus rate of 80%.

<TABLE>
--------------------------------------------------------------------------------------------------------------------
  ACTUAL NET OPERATING PROFIT BEFORE     TOTAL NET OPERATING      PERSONAL GOALS INCENTIVE        TOTAL PERCENT
    TAXES VS. TARGET NET OPERATING       PROFIT BEFORE TAXES       PAYMENT WEIGHTED (30%)       INCENTIVE PAYMENT
         PROFIT BEFORE TAXES              INCENTIVE PAYMENT                                          (100%)
                                           WEIGHTED (70%)
--------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                      <C>                           <C>
Under 100% Achievement Net Operating                      0%                            0%                     0%
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
100% Achievement of  Net Operating           28% Base Salary               12% Base Salary        40% Base Salary
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
150% Achievement of  Net Operating           56% Base Salary               24% Base Salary        80% Base Salary
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------
<S>                                  <C>
Mr. Adamsen                          - Grow Penny Curtiss sales volume
Individual Persona Goals             - Grow wholesale food distribution sales volume
                                     - Reduce bad debt reserve for Penny Curtiss and Wholesale
--------------------------------------------------------------------------------------------------------------------
Mr. Bostwick                         - Complete computer based training in all stores
Individual Personal Goals            - Complete IBM Point of Sale Systems in remaining stores
                                     - Implement electronic check processing
--------------------------------------------------------------------------------------------------------------------
</TABLE>

                                     -103-
<PAGE>

Francis D. Price, Former Vice-President, General Counsel, Secretary

Potential  Incentive Bonus Payment:  40% of base salary,  with an additional 5%
bonus for every  additional $1.0 million of net operating  profit before taxes,
up to a maximum bonus rate of 90%.

<TABLE>
--------------------------------------------------------------------------------------------------------------------
  ACTUAL NET OPERATING PROFIT BEFORE     TOTAL NET OPERATING      PERSONAL GOALS INCENTIVE        TOTAL PERCENT
    TAXES VS. TARGET NET OPERATING       PROFIT BEFORE TAXES       PAYMENT WEIGHTED (30%)       INCENTIVE PAYMENT
         PROFIT BEFORE TAXES              INCENTIVE PAYMENT                                          (100%)
                                           WEIGHTED (70%)
--------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                      <C>                           <C>
Under 100% Achievement Net Operating                      0%                            0%                     0%
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
100% Achievement of  Net Operating           28% Base Salary               12% Base Salary        40% Base Salary
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
150% Achievement of  Net Operating           63% Base Salary               27% Base Salary        90% Base Salary
Profit Before Taxes
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
--------------------------------------------------------------------------------------------------------------------
<S>                                  <C>
Individual Personal Goals            - Contain and reduce legal fees
                                     - Sell excess assets
                                     - Upgrade contract schedules for more detailed information for company-wide
                                       access
----------------------------------------------------------------------------------------------------------------------
</TABLE>


2006 OMNIBUS AWARD PLAN (LONG TERM EQUITY BASED INCENTIVE PROGRAM)

Our Board adopted the 2006 Omnibus Award Plan on December 15, 2006.

The purpose of the 2006 Omnibus Award Plan is to provide a means to attract and
retain talented  individuals and to provide a means for employees and directors
to acquire and maintain common stock or be paid incentive compensation measured
by the value of our common stock. This is intended to strengthen the commitment
of our  employees  and our Board of  Directors  to our  welfare  and promote an
identity of interest between these individuals and our shareholders.

We have granted  phantom  stock  awards  under the 2006  Omnibus  Award Plan in
fiscal  year 2007 to Messrs.  Panasuk and Young,  as  detailed in the  "Summary
Compensation  Table for Fiscal  Year  2007,"  "Grants of Plan Based  Awards for
Fiscal  Year  2007"  tables  and the  accompanying  narrative  disclosure.  The
decision  to grant  these  awards  to  Messrs.  Panasuk  and  Young was made in
conjunction with their respective  promotions to the positions of President and
Chief  Executive  Officer  and  Executive  Vice-President  and Chief  Operating
Officer.  Additionally,  we used phantom stock awards because they are directly
tied to the  value  of our  common  stock  and  provide  an  incentive  for our
executives  to  increase  our market  value,  as well as serving as a long-term
retention tool.

Since the phantom stock is directly tied to the fair value of our common stock,
we believe the phantom stock award  provides an incentive for our executives to
increase  our  market  value  through  increases  in our  common  stock  price.
Additionally, the phantom stock awards serve as a long term retention incentive
and reward demonstrated and sustained superior performance.

Because we lack sufficient  audited historical  financial  statements under SEC
rules,  we do not make awards that  entitle our  employees  to receive  shares.
Instead,  we make phantom awards that entitle the award  recipient to receive a
cash payment.


                                     -104-
<PAGE>

PERQUISITES (RELOCATION)

We do not offer our named executive  officers  substantial  compensation in the
form of perquisites.  We offer an Enhanced  Executive  Relocation Plan covering
the  costs  of  purchasing  and  selling  a  primary  residence.  We feel it is
important that our executives live in the geographical area in which we conduct
business in. The amounts paid under our Enhanced  Executive  Relocation Plan in
fiscal year 2007 are  detailed in the "All Other  Compensation  for Fiscal Year
2007" table, below.


RETIREMENT AND OTHER EMPLOYEE BENEFITS

We offer a defined  contribution  plan to assist our  employees,  including our
named  executive  officers,  in  planning  for  retirement.  The plan  includes
individual and company contributions.

1.  401(k) plan

We offer retirement  benefits to our employees through a tax-qualified  defined
contribution 401(k) savings plan. This plan offers employees the opportunity to
save towards  retirement in a pretax account.  The retirement  benefits for our
executive  officers  under  the  401(k)  savings  plan  are the  same as  those
available to other eligible employees.  If an employee  contributes at least 3%
of their weekly pay, we will match 50% of the first 3% of their pay,  after one
year of service.  Individuals may contribute up to the maximum limit imposed by
Section 402(g) of the Internal Revenue Service Code, currently $15,500 a year.

2.  Non-elective 401(k) contributions

Each year we make a non-elective contribution of 3% of total annual salary into
the 401(k)  savings plan for each  eligible  employee,  including our executive
officers.  The 3% is based on gross salary paid in the  calendar  year and made
the following  year for  employees  with over 6 months of service at the end of
the calendar year. This annual  contribution  allows our 401(k) savings plan to
be qualified as a safe harbor plan, as defined by the Internal  Revenue Service
401(k) regulations.

3.  Health and other employee benefits

We  also  provide  other  customary  employee  benefits  so  that  our  overall
compensation package is competitive.  Medical,  dental,  vision, and disability
insurance plans are offered,  for which our executive  officers are charged the
same  rates  as all  other  employees.  We do not  offer  separate  medical  or
disability  plans for our executive  officers.  The only  additional  executive
employee benefit is travel life insurance,  which is an enhanced life insurance
and accidental  death and  dismemberment  business travel  coverage  offered to
executive  officers with a maximum payable under the policy of $1,000,000.  Our
costs of the premiums for this travel life  insurance  are included  under "All
Other Compensation for Fiscal Year 2007," table below.

                                     -105-
<PAGE>

EMPLOYMENT AGREEMENTS

There are no  employment  agreements  with any named  executive  officer or any
other individual which  constitute an employment  contract  offering a position
for a guaranteed  period of time. We do not have  employment  agreements  since
they would limit the right of our Board of Directors to terminate executives at
their  discretion,  as  determined  by the  current  and  future  needs  of the
business. Terms of employment such as base salary, benefits,  sign-on bonus (if
applicable),  eligibility  for  incentive  plans,  vacation,  and severance are
outlined in the employment offer letter sent to an individual when he or she is
offered the position.


POST EMPLOYMENT BENEFITS

We have entered into Executive Change in Control Agreements, as approved by the
Board of Directors on April 18, 2006,  with our  executives  in order to assure
the continuity of management  during a change in control,  and to make sure our
executives can evaluate and respond to potential changes in control in the best
interests of our  shareholders,  even if it means they work  themselves  out of
their  jobs.  We also  wish to  provide  certain  financial  assurances  to our
executive  officers and other key employees who have had access to confidential
information  and have been  instrumental  in  developing  employee and customer
relationships,  all of which are  valuable  assets that we wish to protect in a
change in control situation.  The specifics of this plan,  including  potential
payments on a change in control are  discussed in the  "Potential  Payment Upon
Termination or Change in Control" section below.


TAX CONSIDERATIONS

The Compensation  Committee monitors changes in the regulatory environment when
assessing  the financial  efficiency  of the various  elements of the executive
compensation program.

Section  162(m) of the  Internal  Revenue Code  generally  limits the amount of
compensation  paid to the named  executives which we can deduct on our taxes to
$1 million a year. However, performance-based compensation, as determined under
tax regulations, in excess of $1 million would still be tax deductible.

We consider the tax deductibility of any element of executive compensation when
we structure our overall compensation program. Although we intend that all
compensation paid to our named executive officers be deductible under Section
162(m) of the Internal Revenue Code, the Compensation Committee may, at its
discretion, choose to pay compensation that does not qualify for deductibility
if they determine that is in our best interest.


                                     -106-
<PAGE>

COMPENSATION COMMITTEE REPORT

Following the fiscal year 2007 review,  with  guidance from the Stanton  Group,
our Compensation Committee believes that the elements of executive compensation
were appropriate and reasonable.

The  Compensation   Committee  has  reviewed  and  discussed  the  Compensation
Discussion  and Analysis as required by Item 402(b) of the  Regulation S-K with
management, and based on the review and discussions, the Compensation Committee
has recommended to the Board of Directors that the Compensation  Discussion and
Analysis be included in our annual report on Form 10-K.

John  E.  Burke,  Chairman  of the  Compensation  Committee  Robert  J.  Kelly,
Non-Executive  Chairman of the Board of Directors  and  Compensation  Committee
Member


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During  fiscal  year  2007,  Messrs.  Burke and Kelly  served as members of our
compensation  committee.  None of the  members  of our  compensation  committee
during  such year had any  relationships  required to be  disclosed  under Item
407(e)(4) of Regulation S-K.


                                     -107-
<PAGE>

TABULAR DISCLOSURE OF EXECUTIVE AND DIRECTOR COMPENSATION

<TABLE>
<CAPTION>
                Summary Compensation Table for Fiscal Year 2007
                -----------------------------------------------

--------------------------------------------------------------------------------------------------------
        NAME AND POSITION            SALARY        BONUS    STOCK AWARDS       ALL OTHER         TOTAL
                                      $ (1)        $ (2)        $ (3)     COMPENSATION $ (4)       $
--------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>          <C>             <C>              <C>
ROBERT R. PANASUK                  $ 149,038     $ 75,000     $ 32,643        $ 92,628         $ 349,309
    President and Chief
    Executive Officer
--------------------------------------------------------------------------------------------------------
ROBERT J. CHAPMAN
    Former President and Chief
    Executive Officer                369,572            -            -         139,327           508,899
--------------------------------------------------------------------------------------------------------
RANDY P. MARTIN
    Former Senior
    Vice-President-Finance           240,785            -            -          21,514           262,299
--------------------------------------------------------------------------------------------------------
GREGORY J. YOUNG
    President and Chief
    Executive Officer                197,115       75,000       16,322         162,256           450,693
--------------------------------------------------------------------------------------------------------
FRANCIS D. PRICE JR.
    Former Vice-President,
    General Counsel, Secretary       152,224            -            -          50,756           202,980
--------------------------------------------------------------------------------------------------------
DAVID ADAMSEN
    Vice-President of
    Manufacturing and Wholesale      176,164            -            -          18,955           195,119
--------------------------------------------------------------------------------------------------------
CHARLES C. BOSTWICK
    Vice-President of
    Information Technology and
    Chief Information Officer      $ 212,000     $      -     $      -        $ 18,362         $ 230,362
--------------------------------------------------------------------------------------------------------
</TABLE>
(1)  Reflects base salary the named  executive  earned during fiscal year 2007.
     Messrs.  Panasuk and Young's salaries represent the applicable portion for
     time worked, of their salaries  documented in the "Offer Letters for Names
     Executive Officers Hired or With a Change of Position in Fiscal year 2007"
     table below.

(2)  Reflects  Messrs.  Panasuk and Young's  sign-on  bonus paid in  increments
     based on the terms of the individual executive's offer letter.

(3)  Amounts set forth  represent  the dollar amount  recognized  for financial
     statement   reporting  purposes  for  fiscal  year  2007  as  computed  in
     accordance  with SFAS 123(R) which is a revision of FASB Statement No. 123
     "Accounting  for  Stock-Based  Compensation,"  disregarding  estimates  of
     forfeitures  related to service-based  vesting  conditions.  In accordance
     with SFAS  123(R)  the  awards  are being  accounted  for as  compensation
     expense and a  corresponding  liability over the period to settlement date
     based on changes in the value of our common stock using the  Black-Scholes
     method.  As of February 3, 2007 the  following  was used to calculate  the
     fair market value of this compensation:

                       Valuation Date                12/15/2006
                       Expiration Date                 5/1/2009
                       Stock Price                       $15.00
                       Grant Price                       $12.33
                       Term                                 2.4
                       Risk-free rate                     4.96%
                       Volatility                           40%
                       Dividend yield                        0%


                                     -108-
<PAGE>

4)   The amounts shown in this column are detailed in the additional table "All
     Other Compensation for Fiscal Year 2007," below.


<TABLE>
<CAPTION>
                               All Other Compensation for Fiscal Year 2007
                               -------------------------------------------

----------------------------------------------------------------------------------------------------------------------
        NAME            401(K)       401(K) 3%     RELOCATION  INCOME/EXCISE    COMPANY PAID    SEVERANCE $     TOTAL
                       EMPLOYER     NON-ELECTIVE     $ (1)     TAX GROSS UP $ HEALTH AND OTHER      (3)           $
                        MATCH $    CONTRIBUTION $                   (2)          BENEFITS $
----------------------------------------------------------------------------------------------------------------------
<S>                     <C>             <C>          <C>             <C>            <C>            <C>         <C>
Robert R. Panasuk       $       -       $       -    $ 32,376        $ 59,095       $   1,157      $      -    $92,628
----------------------------------------------------------------------------------------------------------------------
Robert J. Chapman           3,315          14,131           -               -          11,663       110,218    139,327
----------------------------------------------------------------------------------------------------------------------
Randy P. Martin             3,339           7,079           -               -          11,096             -     21,514
----------------------------------------------------------------------------------------------------------------------
Gregory J. Young                -          10,421      68,789          77,106           5,940             -    162,256
----------------------------------------------------------------------------------------------------------------------
Francis D. Price            2,337           5,407           -               -          11,067        31,945     50,756
----------------------------------------------------------------------------------------------------------------------
David A. Adamsen            2,974           5,209           -               -          10,772             -     18,955
----------------------------------------------------------------------------------------------------------------------
Charles C. Bostwick     $   3,180       $   6,281    $      -        $      -       $   8,901      $      -    $18,362
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  In fiscal year 2007, Messrs.  Panasuk and Young each received a relocation
     bonus of $15,000 in lieu of a company car, in accordance  with their offer
     letters.  In addition,  Mr. Panasuk  received $17,376 for temporary living
     expenses.  Mr. Young received $22,389 for expenses incurred in the selling
     of his previous residence,  $25,140 for moving expenses and $6,260 for the
     closing costs related to the purchase of his new residence.

(2)  Amounts  shown  include  tax  gross-ups  provided in  connection  with the
     sign-on bonus and relocation expenses paid pursuant to the named executive
     officer's offer letter.

(3)  Severance was paid to Messrs.  Chapman and Price in fiscal year 2007 based
     on the terms of their severance agreements,  as disclosed in the narrative
     to the "Summary Compensation for Fiscal Year 2007" table.


PAYMENTS FOR FORMER NAMED EXECUTIVE OFFICERS FISCAL YEAR 2007

In connection  with the  resignation  of Mr. Chapman as our President and Chief
Executive  Officer,  effective as of October 2, 2006, he is entitled to receive
severance payments pursuant to his severance  agreement,  which entitles him to
78  weeks  of  severance  pay  based  on  an  annualized  salary  of  $477,611.
Additionally,  Mr. Chapman will continue to receive health care, life insurance
and 401(k) contributions through the severance payout period.

In connection with the resignation of Mr. Price as our Vice-President,  General
Counsel and  Secretary,  effective as of November  10, 2006,  he is entitled to
receive severance payments pursuant to his severance agreement,  which entitles
him to 52 weeks of  severance  pay based on an  annualized  salary of $184,573.
Additionally,  Mr. Price will continue to receive  health care,  life insurance
and 401(k) contributions through the severance payout period.

In   connection   with  the   resignation   of  Mr.   Martin   as  our   Senior
Vice-President-Finance,  effective  as of January 26,  2007,  he is entitled to
receive severance payments pursuant to his severance agreement,  which entitles
him to 52 weeks of  severance  pay based on an  annualized  salary of $236,242.
Additionally,  Mr. Martin will continue to receive health care,  life insurance
and 401(k) contributions through the severance payout period.

In connection  with the resignation of Mr.  Bostwick as our  Vice-President  of
Information  Technology and Chief Information Officer,  effective as of June 1,
2007, he is entitled to receive  severance  payments  pursuant to his severance
agreement,  which  entitles  him to 52  weeks  of  severance  pay  based  on an
annualized  salary of $208,000.  Additionally,  Mr.  Bostwick  will continue to
receive  health  care,  life  insurance  and 401(k)  contributions  through the
severance payout period.


                                     -109-
<PAGE>

<TABLE>
<CAPTION>
                Grants of Plan Based Awards for Fiscal Year 2007
                ------------------------------------------------

                                   -----------------------------------
                                    ESTIMATED POSSIBLE PAYOUTS UNDER
                                   NON-EQUITY INCENTIVE PLAN AWARDS(b)
----------------------------------------------------------------------------------------------
                                                                       ALL OTHER
                                                                         STOCK
                                                                         AWARDS,    GRANT DATE
                                                                       NUMBER OF    FAIR VALUE
          NAME            GRANT      THRESHOLD    TARGET $  MAXIMUM $  SHARES OF     OF STOCK
                          DATE (1)                   (2)        (2)     STOCK OR    AND OPTION
                                                                         UNITS #     AWARDS $
----------------------------------------------------------------------------------------------
<S>                      <C>        <C>           <C>      <C>         <C>         <C>
ROBERT R. PANASUK
----------------------------------------------------------------------------------------------
Management Incentive             -           -  $   95,192  $ 190,384          -      $      -
 Plan
----------------------------------------------------------------------------------------------
2006 Omnibus Award Plan   12/15/07           -           -          -    100,000       556,214
----------------------------------------------------------------------------------------------
ROBERT J. CHAPMAN
----------------------------------------------------------------------------------------------
Management Incentive             -           -     235,302    470,605          -             -
 Plan
----------------------------------------------------------------------------------------------
RANDY P. MARTIN
----------------------------------------------------------------------------------------------
Management Incentive             -           -     106,308    212,616          -             -
 Plan
----------------------------------------------------------------------------------------------
GREGORY J. YOUNG
----------------------------------------------------------------------------------------------
Management Incentive             -           -      87,032    174,064          -             -
 Plan
----------------------------------------------------------------------------------------------
2006 Omnibus Award Plan   12/15/07           -         -         -        50,000       278,107
----------------------------------------------------------------------------------------------
FRANCIS D. PRICE, JR.
----------------------------------------------------------------------------------------------
Management Incentive             -           -      72,248    144,496          -             -
 Plan
----------------------------------------------------------------------------------------------
DAVID A. ADAMSEN
----------------------------------------------------------------------------------------------
Management Incentive             -           -      69,136    138,272          -             -
 Plan
----------------------------------------------------------------------------------------------
CHARLES C. BOSTWICK
----------------------------------------------------------------------------------------------
Management Incentive             -           -  $   83,200  $ 166,400          -      $      -
 Plan
----------------------------------------------------------------------------------------------
</TABLE>

(1)  The grant date used for the phantom  stock  awarded in fiscal year 2007 is
     the date that our Board of Directors adopted and approved the 2006 Omnibus
     Award Plan.

(2)  The target amount shown  potentially could have been paid if net operating
     profit before taxes had been achieved at 100% and personal  goals had been
     achieved at 100%.  The  potential  maximum  amount  would be payable  upon
     achieving 200% of the targeted net operating  profit before taxes and 100%
     of the personal goals. As reflected in the "Summary Compensation Table for
     Fiscal Year 2007," no named executive officer received a payout under this
     plan in fiscal year 2007.


                                     -110-
<PAGE>

NARRATIVE  DISCUSSION  TO THE  SUMMARY  COMPENSATION  TABLES AND GRANTS OF PLAN
BASED AWARDS

FISCAL YEAR 2007  MANAGEMENT  PERFORMANCE  INCENTIVE  PLAN (SHORT TERM  ANNUAL,
NON-EQUITY PERFORMANCE BASED CASH INCENTIVE PAY)

In fiscal year 2007 we did not achieve our targeted net operating profit before
taxes,  and  no  named  executive  officer  received   compensation  under  our
Management  Performance Incentive Plan. This is reflected under the "Non-Equity
Incentive  Plan  Compensation"  column in the "Summary  Compensation  Table for
Fiscal Year 2007" above.


2006 OMNIBUS AWARD PLAN (LONG TERM EQUITY BASED INCENTIVE PROGRAM)

Our Board of  Directors  adopted the 2006  Omnibus  Award Plan on December  15,
2006.

So that the  appropriate  incentive  can be  provided,  the plan  provides  for
granting   incentive   stock  options,   nonqualified   stock  options,   stock
appreciation rights,  restricted stock,  restricted stock units, deferred stock
units,  phantom stock  awards,  stock  bonuses,  and  performance  compensation
awards, or any combination of the above.

1.   Phantom Stock Awards

On December 15, 2006, our Board of Directors  approved a phantom stock award of
100,000 shares to Mr.  Panasuk and 50,000 shares to Mr. Young.  The decision to
grant these awards to Messrs.  Panasuk and Young was made in  conjunction  with
their  respective  promotions to the positions of President and Chief Executive
Officer and Executive Vice-President and Chief Operating Officer.

The phantom  stock award  granted to Messrs.  Panasuk and Young is a cash award
whose value is  determined  based on the positive  excess,  if any, of the fair
market value of one share of common stock on the settlement  date over the fair
market value of such share on the effective date.

The phantom  awards will settle on the earlier of (a) May 1, 2009, (b) a change
in control,  as such term is defined in the 2006 Omnibus Award Plan, or (c) the
death or  disability,  as defined  under  section 409A of the Internal  Revenue
Code, of the reporting person.

The  detailed  amounts and values of the phantom  stock  incentive  awarded for
fiscal year 2007 are shown in the "Grants of Plan-Based  Awards for Fiscal Year
2007" table.

2.   Phantom Stock Award Grant Date and Price

Our Board of Directors is responsible for setting the grant dates and approving
the amount and  exercise  price of any stock or option  awards.  Our  executive
officers  are not  involved  in the  process of  granting  equity  awards or in
setting the grant price.

Under the 2006 Omnibus Award Plan, the fair market value of our common stock on
any given date is equal to the average of the high bid and low ask price of our
common  stock  on the  Pink  Sheets,  LLC as of the  most  recent  trading  day
proceeding such date on which a sale of our common stock occurred.


                                     -111-
<PAGE>

We do not have a plan,  program, or practice to time the grants of equity based
awards  granted to the named  executive  officers  with the release of material
nonpublic  information.  The grant date used for the equity  awards is the date
the award is extended.


NAMED EXECUTIVE OFFICER PERSONNEL CHANGES FISCAL YEAR 2007

In fiscal year 2007 a number of changes in personnel were made at the executive
level. We made these changes in response to our financial performance.

The following are the named executive  officer  personnel changes during fiscal
year 2007 to present:

     o    Robert J. Chapman  resigned as President and Chief Executive  Officer
          October 2, 2006.

     o    Robert R. Panasuk and Gregory Young were named Senior Vice-Presidents
          and Co-Chief Operating Officers on October 3, 2006.

     o    Robert R. Panasuk was named President and Chief Executive  Officer on
          December 12, 2006.

     o    Gregory  J.  Young  was  named  Executive  Vice-President  and  Chief
          Operating Officer on December 12, 2006.

     o    Francis D. Price, Jr. resigned as Vice-President, General Counsel and
          Secretary on November 10, 2006.

     o    Daniel J. Mahoney was named Vice-President, General Counsel effective
          January 16, 2007.

     o    Randy P.  Martin  resigned  as Senior  Vice-President  Finance  as of
          January 26, 2007.

     o    Tod A. Nestor was named  Senior  Vice-President  and Chief  Financial
          Officer on May 14, 2007.

     o    Charles  C.  Bostwick   resigned  as  Vice-President  of  Information
          Technology and Chief Information Officer as of June 1, 2007.

     o    Lynn A.  Leitzel  was  named  Vice-President  and  Chief  Information
          Officer on June 4, 2007.

     o    On September  30, 2007 Mr.  Panasuk  resigned as President  and Chief
          Executive  Officer  for  personal  reasons.  Mr.  Young  was named as
          President  and Chief  Executive  Officer in a  unanimous  vote by the
          Board of Directors.

                                     -112-
<PAGE>

<TABLE>
<CAPTION>
OFFER LETTER SUMMARIES

WE ARE USING THIS ADDITIONAL TABLE TO SUMMARIZE THE TERMS OF OFFER LETTERS WITH
NAMED EXECUTIVE OFFICES WHO WERE HIRED OR CHANGED POSITION IN FISCAL YEAR 2007

-------------------------------------------------------------------------------------------------------------------------
                        Robert R. Panasuk   Robert R. Panasuk   Gregory J. Young   Gregory J. Young    Gregory J. Young
-------------------------------------------------------------------------------------------------------------------------
<S>                     <C>                 <C>                 <C>                <C>                 <C>
Effective Date of          10/02/2006          12/12/2006           7/5/2006          10/02/2006          12/12/2006
Position
-------------------------------------------------------------------------------------------------------------------------
Position Title               Senior           President and          Senior             Senior             Executive
                       Vice-President and                        Vice-President   Vice-President and  Vice-President and
                       Co-Chief Operating    Chief Executive       and Chief      Co-Chief Operating    Chief Operating
                             Officer             Officer       Marketing Officer        Officer             Officer
-------------------------------------------------------------------------------------------------------------------------
Salary                    $  375,000            $500,000          $  300,000          $  375,000          $  400,000
-------------------------------------------------------------------------------------------------------------------------
Sign On Bonus                100,000 (1)               -             100,000 (2)               -
-------------------------------------------------------------------------------------------------------------------------
Management
Performance Incentive  45% to 90% of Base    75% to 150% of      45% to 90% of    45% to 90% of Base    60% to 120% of
Plan                         Salary            Base Salary        Base Salary           Salary            Base Salary
-------------------------------------------------------------------------------------------------------------------------
Relocation                  Enhanced                                Enhanced
                         Relocation Plan                        Relocation Plan
                           Grossed Up               -              Grossed Up              -                   -
                       $15,000 in lieu of                       $15,000 in lieu
                           company car                           of company car
-------------------------------------------------------------------------------------------------------------------------
Vacation                     4 weeks                -               4 weeks                -                   -
-------------------------------------------------------------------------------------------------------------------------
Severance                   52 weeks                -               52 weeks               -                   -
-------------------------------------------------------------------------------------------------------------------------
Executive Change in            yes                  -                 yes                  -                   -
Control Agreement
-------------------------------------------------------------------------------------------------------------------------
Equity (Phantom                                  100,000                                   -                50,000
Shares)                         -                                      -
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  A sign on bonus was paid to Mr. Panasuk for recruitment reasons. We paid a
     sign on bonus to  attract  and  recruit  Mr.  Panasuk to us,  taking  into
     account the difficulty of recruiting high level talent to our geographical
     area and our financial history.

(2)  A sign on bonus was paid to Mr. Young for recruitment  reasons.  We paid a
     sign on bonus to attract and recruit Mr. Young to us,  taking into account
     the difficulty of recruiting high level talent to our  geographical  area,
     our financial  history,  and to compensate him for the bonus  compensation
     from his prior employer he gave up when he joined us.


                                     -113-
<PAGE>

<TABLE>
<CAPTION>
WE ARE USING THIS  ADDITIONAL  TABLE TO SUMMARIZE  THE MATERIAL  TERMS OF OFFER
LETTERS WITH OUR NAMED  EXECUTIVE  OFFICERS  WHO WERE HIRED BEFORE  FISCAL YEAR
2007, OR WHO DEPARTED BEFORE THE END OF FISCAL YEAR 2007

--------------------------------------------------------------------------------------------------------------------------------
                        Robert J. Chapman    Randy P. Martin  Francis D. Price, Jr.     David A. Adamsen    Charles C. Bostwick
--------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>                  <C>              <C>                       <C>                 <C>
Effective Date of           03/29/2004         03/15/2005         2/22/1993             09/12/2005            03/16/1998
Position
--------------------------------------------------------------------------------------------------------------------------------
Position Title         President and Chief       Senior         Vice-President      Vice-President of     Vice-President of
                        Executive Officer    Vice-President    General Counsel,     Manufacturing and        Information
                                                 Finance          Secretary             Wholesale        Technology and Chief
                                                                                                          Information Officer
--------------------------------------------------------------------------------------------------------------------------------
Management                                  As determined by                         As determined by      As determined by
Performance Incentive  50% to 100% of Base    the Board of            -                the Board of          the Board of
Plan                          Salary            Directors                               Directors             Directors
--------------------------------------------------------------------------------------------------------------------------------
Vacation                  Company policy     Company policy     Company policy           5 weeks            Company policy
--------------------------------------------------------------------------------------------------------------------------------
Severance                 Company policy     Company policy     Company policy           9 months           Company policy
--------------------------------------------------------------------------------------------------------------------------------
Executive Change in         04/26/2006         04/26/2006         04/26/2006            04/26/2006            04/26/2006
Control Agreement
Date Signed
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                     OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END 2007

          ---------------------------------------------------------------------
                                                   STOCK AWARDS
          ---------------------------------------------------------------------
          NAME                     NUMBER OF SHARES OR    MARKET VALUE OF SHARES
                                   UNITS OF STOCK THAT    OR UNITS OF STOCK THAT
                                   HAVE NOT VESTED # (1)    HAVE NOT VESTED $
          ---------------------------------------------------------------------
          Robert R. Panasuk                 94,131              251,801
           Omnibus Award Plan
          ---------------------------------------------------------------------
          Gregory J. Young
          Omnibus Award Plan                47,066              125,900
          ---------------------------------------------------------------------

(1)  The phantom  awards will become  vested on the earlier of (a) May 1, 2009,
     (b) a change in control, as such term is defined in the 2006 Omnibus Award
     Plan, or (c) the death or disability, as defined under section 409A of the
     Internal Revenue Code.


                                     -114-
<PAGE>

DIRECTOR COMPENSATION

The table below discloses  non-employee  director  compensation  for the fiscal
year 2007. Our employee  directors do not receive  additional  compensation for
their service on the Board of Directors.

Each  director  receives  an annual  retainer  of  $25,000.  The  non-executive
Chairman of the Board receives an additional  annual retainer of $25,000.  Each
Chair of the Audit and Compensation  Committees  receives an additional  $5,000
per year. The fee received for personal attendance at Board meetings is $1,500,
committee meeting  attendance is $1,000,  and for telephonic  meetings is $750.
Additionally, we reimburse directors for travel and lodging expenses associated
with attendance at our Board of Director meetings.

Our Board of  Directors  granted  phantom  stock  awards under our 2006 Omnibus
Award Plan or May 14,  2007 to Messrs.  Burke,  Collins,  Evans,  Levitan,  and
Kelly. Each recipient  received a grant award of 4,537 shares of phantom stock.
In addition,  beginning in fiscal year 2009,  non-employee members of the Board
of Directors  will receive an annual grant of phantom stock on the first Monday
of our fiscal year.  Each share of phantom  stock  entitles the  individual  to
receive  an amount in cash equal to the fair  market  value of one share of our
common  stock of the  company on the  settlement  date of such share of phantom
stock.

The  settlement  date is the earlier of (a) the business day following the date
on which the reporting  person ceases to be a member of our Board of Directors,
(b) a change in control as defined in the 2006 Omnibus  Award Plan,  or (c) the
death or  disability  (as defined  under  section 409A of the Internal  Revenue
Code) of the reporting person.

On June 29, 2006, we entered into a consulting  agreement with Mr. Kelly, under
which Mr.  Kelly  provided us  consulting  and  advisory  services.  Mr.  Kelly
received  $3,000  for each day of  service  and  reimbursement  for  reasonable
expenses  incurred in connection with the performance of duties.  The amount of
the  consulting  fees is shown in the  "Director  Compensation  for Fiscal Year
2007"  table  below as "All  Other  Compensation."  Mr.  Kelly  terminated  his
consulting agreement, and such payments ended, as of December 12, 2006.

                   Director Compensation for Fiscal Year 2007
                   ------------------------------------------

     ---------------------------------------------------------------------------
                                                   All Other
     Name                      Fees Earned $   Compensation $(1)        Total $
     ---------------------------------------------------------------------------
     John E. Burke                  $ 57,344         $       -         $ 57,344
     ---------------------------------------------------------------------------
     Kevin P. Collins                 60,578                 -           60,578
     ---------------------------------------------------------------------------
     Ben Evans                        71,078                 -           71,078
     ---------------------------------------------------------------------------
     Robert J. Kelly                  38,594           207,000          245,594
     ---------------------------------------------------------------------------
     Alan C. Levitan                $ 62,336         $       -         $ 62,336
     ---------------------------------------------------------------------------

(1)  Consulting  fees paid to Mr. Kelly  pursuant to the  consulting  agreement
     dated June 29, 2006


                                     -115-
<PAGE>

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

The potential  amounts payable to each named executive  officer for the various
termination scenarios are detailed.

1.   Termination with no Change in Control

Pursuant to our written  severance  policy,  in consideration  for a release of
claims, eligible  Vice-Presidents and Senior Vice-Presidents are to be provided
between 12 to 52 weeks  salary and health care  continuation  after  employment
termination,  and an eligible  President and Chief  Executive  Officer is to be
provided  between 26 to 78 weeks of continued  salary and health care  coverage
after  employment  termination.  The severance  policy defines  eligibility and
ineligibility  criteria. An executive may be deemed ineligible for severance if
the  employment  termination  is a  result  of  factors  including  one  of the
following:   voluntary   resignation,   failure  to  meet  performance   goals,
absenteeism, any violations of policy, or death.


3.   Termination with Change in Control

We have  entered  into  Executive  Change in Control  Agreements  with  Messrs.
Panasuk,  Young,  Adamsen and Bostwick and the other  members of the  executive
committee.  Our  Executive  Change in  Control  Agreement  is a double  trigger
agreement.  A  double  trigger  agreement  means  that two  events,  such as an
involuntary termination (or voluntary termination for good reason) and a change
in control,  must occur for there to be any payment  made under the  agreement.
Involuntary  termination  can occur without cause or voluntary  resignation for
good  reason  within  two years  following  the  effective  date of a change in
control. Good reason is defined as a material reduction in responsibilities,  a
reduction  in  salary,  or a more  than 50 mile  change in  location.  Payments
pursuant to a change in control take the place of, and are not supplemented by,
amounts tied to the written severance policy described above.

Definition of change in control:

     o    an acquisition by any person of 50% or more of either the outstanding
          shares or combined voting power of our securities, excluding:

          (a)  acquisitions by us or any entity that is controlled by, controls
               or is under common control with us,

          (b)  acquisitions  by an  employee  benefit  plan we or an  affiliate
               sponsors, or

          (c)  acquisitions  by the  individual  executive  who has  signed the
               agreement,

     o    there is a change  in the  majority  of the  members  of our board of
          directors which is not approved by our pre-change board of directors,

     o    our liquidation or dissolution

     o    a sale,  transfer or other disposition of all or substantially all of
          our business or assets, or

                                     -116-
<PAGE>

     o    the  consummation  of  a  reorganization,  recapitalization,  merger,
          consolidation,   statutory  share  exchange  or  similar  transaction
          requiring shareholder approval, unless:

          (a)  the beneficial owners of more than 50% of the total voting power
               of our stock are the  indirect  beneficial  owners of the voting
               stock of the resulting  corporation  in  substantially  the same
               proportions as their ownership before the transaction, and

          (b)  at least a majority of the members of the board of the resulting
               corporation were member of our board before the transaction.


The potential payments to our named executive officers under an involuntary
termination or termination by key employee for good reason are:

     o    two times the higher of the annual rate of current base salary or the
          average annualized base salary of the prior 24 months;

     o    two times the average of the annual cash  bonuses  payable  under the
          annual incentive plan for each of the three fiscal years prior to the
          effective date of the termination; and

     o    continuation of health and welfare benefits for one year

If any  payments or benefits  provided  under our  Executive  Change in Control
Agreement  together with any other payments or benefits from us would cause the
executive  to be subject to the  so-called  "golden  parachute  excise  tax" by
operation of Internal  Revenue Code Section 4999 (a tax levied on payments paid
in  connection  with a change in control to certain  officers,  executives  and
other highly  compensated  employees which are unusually large in comparison to
historic pay),  the payments will be reduced if and to the extent  necessary to
avoid the  imposition  of the golden  parachute  excise tax. If we  underwent a
change in control on the last day of our 2007 fiscal year and Mr.  Panasuk were
terminated  at that time,  the  payments  to which he would have been  entitled
would have  subjected  him to the golden  parachute  excise tax.  Although  the
severance formula would have delivered a $1,000,000 payment to Mr. Panasuk, his
payment  would have been  reduced  by  $317,280  to avoid the golden  parachute
excise tax,  and he would have only  received  $682,720 in cash  severance,  as
reflected in the table below.

The following  table  summarizes  the  potential  payout amount for each listed
scenario,  assuming  the change in control or  termination  event  occurred  on
February  3,  2007,  the last day of fiscal  year 2007.  Details  of  severance
payments  made to former  named  executive  officers  are  shown in "All  Other
Compensation for Fiscal Year 2007."

                                     -117-
<PAGE>

<TABLE>
<CAPTION>
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL FOR FISCAL YEAR 2007

------------------------------------------------------------------------------------------------------
                                          UNPAID PRIOR     ACCELERATED VESTING    HEALTH
NAME                          SALARY $   YEAR BONUS $(1)  OF EQUITY AWARDS $(2)  BENEFITS      TOTAL $
------------------------------------------------------------------------------------------------------
<S>                           <C>        <C>              <C>                    <C>           <C>
ROBERT R. PANASUK
------------------------------------------------------------------------------------------------------
  Involuntary termination     $500,000        $      -              $      -      $ 5,917     $505,917
------------------------------------------------------------------------------------------------------
  Change in control            682,720               -               267,500        5,917      956,137
------------------------------------------------------------------------------------------------------
  Death                              -               -               267,500            -      267,500
------------------------------------------------------------------------------------------------------
ROBERT J. CHAPMAN
------------------------------------------------------------------------------------------------------
  Actual severance             716,430               -                     -        8,875      725,305
------------------------------------------------------------------------------------------------------
RANDY P. MARTIN
------------------------------------------------------------------------------------------------------
  Actual severance             236,242               -                     -        8,902      245,144
------------------------------------------------------------------------------------------------------
GREGORY J. YOUNG
------------------------------------------------------------------------------------------------------
  Involuntary termination      400,000               -                     -        8,902      408,902
------------------------------------------------------------------------------------------------------
  Change in control            800,000               -               133,750        8,902      942,652
------------------------------------------------------------------------------------------------------
  Death                              -               -               133,750            -      133,750
------------------------------------------------------------------------------------------------------
FRANCIS D. PRICE
------------------------------------------------------------------------------------------------------
  Actual severance             184,573               -                     -        8,902      193,475
------------------------------------------------------------------------------------------------------
DAVID A. ADAMSEN
------------------------------------------------------------------------------------------------------
  Involuntary termination      172,840               -                     -        8,902      181,742
------------------------------------------------------------------------------------------------------
  Change in control            345,680               -                     -        8,902      354,582
------------------------------------------------------------------------------------------------------
CHARLES C. BOSTWICK
------------------------------------------------------------------------------------------------------
  Involuntary termination      208,000               -                     -        4,855      212,855
------------------------------------------------------------------------------------------------------
  Change in control           $416,000        $ 41,600              $      -      $ 4,855     $462,455
------------------------------------------------------------------------------------------------------
</TABLE>
(1)  The bonus  calculation upon a change in control is based on the average of
     the cash bonus paid in the prior three  years.  Mr.  Bostwick had received
     incentive  bonuses  pursuant to the key employee  retention plan in fiscal
     years 2005 and 2006. The key employee  retention plan was  discontinued in
     fiscal year 2006 and replaced in the fiscal year 2007 with the  Management
     Performance Incentive Plan.

(2)  Upon a change in control or death of the employee, the phantom stock would
     vest  immediately.  For the  calculation  of the potential  payment of the
     phantom stock award,  we used the fair market value of our common stock of
     $15.00 per share.

(3)  Messrs. Chapman,  Martin, and Price have an amount listed under severance;
     each individual terminated employment during the fiscal year, and begin to
     receive his severance.


                                     -118-
<PAGE>

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain  information known to us with respect to
beneficial  ownership  of our common  shares as of  October  22,  2007  (unless
otherwise  indicated) by: (i) each person who  beneficially  owns 5% or more of
our common shares; (ii) each of our directors;  (iii) each of the persons named
in the Summary  Compensation Table set forth herein; and (iv) all directors and
executive  officers  as a  group.  The  information  set  forth  below  for  5%
stockholders  was derived from publicly  available  reports made by the persons
listed below on Forms 13G and 13D. We have not  attempted to verify any of this
information.  All shares of our common stock issued prior to the effective date
of our plan of reorganization  were deemed cancelled as provided in our plan of
reorganization.  Except as otherwise  indicated,  the holders listed below have
sole voting and investment power with respect to all shares  beneficially owned
by them.  For purposes of this table, a person or group of persons is deemed to
have "beneficial ownership" of any shares which such person or group of persons
has the  right to  acquire  within  60 days.  For  purposes  of  computing  the
percentage of outstanding  shares held by each person or group of persons named
below,  any  security  which such  person or  persons  has the right to acquire
within  60 days  (including  shares  which may be  acquired  upon  exercise  of
warrants or upon exercise of vested  portions of stock options) is deemed to be
outstanding,  but is not deemed to be outstanding  for the purpose of computing
the percentage  ownership of any other person.  On October 22, 2007, there were
8,297,697 shares of Common Stock outstanding.


                                     -119-
<PAGE>

<TABLE>

                                                              AMOUNT & NATURE OF
NAME AND ADDRESS OF                                               BENEFICIAL       PERCENT OF
BENEFICIAL OWNER                                                   OWNERSHIP          CLASS
----------------------------------------------------------------------------------------------
<S>                                                           <C>                  <C>
Bay Harbour Management, L.C.(1)                                    1,912,992             23.1%
885 Third Avenue
New York, NY 10022

Pension Benefit Guaranty Corporation (2)                           1,874,134             22.6%
Agent: JP Morgan Investment Management, Inc
522 Fifth Avenue
New York, NY 10036

King Street Capital Management, L.L.C.(3)                          1,174,908             14.2%
65 East 55th Street
30th  Floor
New York, NY 10022

CR Intrinsic Investors LLC (4)                                       805,500              9.7%
72 Cummings Point Road
Stamford, CT  06901

Southpoint Capital Advisors, LP (5)                                  607,236              7.3%
623 Fifth Avenue Suite 2503
New York, NY 10022

All directors and executive officers as a Group (14 persons)               0              0%

   John E. Burke, Kevin P. Collins, Ben Evans, Robert J. Kelly, Alan C. Levitan, Kurt M. Cellar,
   Scott Sozio, Robert J. Chapman, Charles G Bostwick, Randy P. Martin, Robert R. Panasuk,
   Gregory J. Young, Tod A. Nestor and Daniel J. Mahoney
</TABLE>

(1)  As reported in the  Schedule 13D  (Amendment  No. 5) filed with the SEC on
     February 16, 2007.

(2)  On September 28, 2005, JP Morgan Investment Management, Inc., or JPMIM, as
     agent for the PBGC and  pursuant  to an  investment  management  agreement
     between JPMIM and PBGC,  received  1,874,134 of our common  shares,  which
     shares  were  distributed  to  the  PBGC  in  accordance  to our  plan  of
     reorganization.

(3)  As reported in the Schedule 13D filed with the SEC on June 15, 2007.

(4)  As reported in the Schedule 13D filed with the SEC on October 22, 2007.

(5)  As reported in the Schedule 13G/A  (Amendment No. 1) filed with the SEC on
     February 9, 2006.


                                    -120-
<PAGE>

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Under the federal securities laws, the directors and executive officers and any
persons holding more than 10% of our common shares are required to report their
initial  ownership of such shares and any subsequent  changes in that ownership
to the SEC. To our knowledge,  based upon a review of the copies of the reports
furnished  to us  and  written  representations  that  no  other  reports  were
required, these filing requirements were satisfied during fiscal year 2007.


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
           DIRECTORS INDEPENDENCE

On December 12, 2006, Robert J. Kelly, our Non-Executive Chairman of the Board,
terminated  the  consulting  agreement that he had entered into with us on June
29, 2006. Under the consulting agreement,  Mr. Kelly had been providing certain
consulting and advisory services to us, including certain services  customarily
performed by a chief executive officer of a corporation. We paid Mr. Kelly $0.2
million for his services during the term of the agreement.

On October 30, 2007,  our Board of  Directors  determined  that Messrs.  Burke,
Collins, Evans, Levitan, Cellar, and Sozio are independent under the definition
of independence of the NASDAQ Stock Market in effect on that date. The Board of
Directors   determined  that  Messrs.   Young  and  Kelly  are  not  considered
independent  directors  under the NASDAQ rules for the following  reasons:  Mr.
Young is an executive  officer and employee;  and, during fiscal year 2007, Mr.
Kelly  accepted  compensation  in  excess  of  $100,000  under  his  consulting
agreement with us.


ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES

Fees  billed by Eisner LLP for the audit of our  financial  statements  for the
53-week period ended February 3, 2007, totaled approximately $1.2 million. Such
fees represented the total fees for audit services. There were no audit related
tax or other fees billed by Eisner LLP related to services rendered during such
period.

Pursuant to its Charter,  the Audit  Committee is required to  pre-approve  the
audit  services to be  performed  by the  independent  accountants  in order to
assure  the   provisions  of  such  services  does  not  impair  the  auditor's
independence.  All the above services do not impair the auditor's independence.
All of the above  services were  approved by the Audit  Committee in accordance
with its pre-approval policy.

Annually,  the  independent  accountants  will  present to the Audit  Committee
services  expected to be performed by independent  accountants over the next 12
months.  The  Audit  Committee  will  review  and,  as  it  deems  appropriate,
pre-approve those services.


                                     -121-
<PAGE>

PART IV

ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
           FORM 8-K

Our  consolidated  financial  statements  filed as part of this  report  appear
beginning on page 50.

EXHIBITS:

The following are filed as Exhibits to this Report:

Exhibit No.                        Description
-----------                        -----------

   2.1      First  Amended  Joint Plan of  Reorganization  of The Penn  Traffic
            Company and its Affiliated Debtors and Debtors-in-Possession, dated
            February 4, 2005  (incorporated by reference to Exhibit 2.1 to Form
            8-K filed on March 24, 2005).

   2.2      Notice of Technical  Modifications  to the First Amended Joint Plan
            of  Reorganization  of The Penn Traffic  Company and its Affiliated
            Debtors  and  Debtors  in  Possession   under  Chapter  11  of  the
            Bankruptcy Code dated February 4, 2005  (incorporated  by reference
            to Exhibit 2.3 to the Form 8-K filed on March 24, 2005).

   3.1      Second   Amended  and   Restated   Certificate   of   Incorporation
            (incorporated by reference to Exhibit 3.1 to Form 8-A12G/A filed on
            April 13, 2005).

   3.2      Amended  and  Restated  By-Laws of Penn  Traffic  (incorporated  by
            reference to Exhibit 2 to Form 8-A12G/A filed on June 29, 1999).

  10.1      Global  Settlement  Agreement  and  Mutual  Release,  dated  as  of
            February  4, 2005,  by and between  The  Pension  Benefit  Guaranty
            Corporation,  the Official Committee of Unsecured Creditors and The
            Penn Traffic Company and its affiliated  debtors  (incorporated  by
            reference  to Exhibit  10.1 to the Form 8-K filed on  February  11,
            2005).

  10.2      Form of Change in Control  Protection  Agreement  (incorporated  by
            reference to Exhibit 99.1 to the Form 8-K filed on April 18, 2006).


                                     -122-
<PAGE>

Exhibits (continued):

Exhibits No.
------------

  10.3      Credit  Agreement,  among The Penn Traffic  Company,  Penny Curtiss
            Baking Company,  Inc. and Big M  Supermarkets,  Inc., as borrowers;
            the  other  credit  parties  signatory  thereto;  General  Electric
            Capital   Corporation;   JP  Morgan  Chase  Bank,   N.A.;  The  CIT
            Group/Business  Credit;  GECC Capital Markets Group,  Inc.; and the
            other lenders signatory thereto from time to time  (incorporated by
            reference to Exhibit  99.1 to the Form 8-K filed on  September  12,
            2006).

  10.4      Supplemental  Loan Credit  Agreement,  dated as of April 13,  2005,
            among The Penn Traffic Company,  Penny Curtiss Baking Company, Inc.
            and Big M  Supermarkets,  Inc.,  as  borrowers;  the  other  credit
            parties  signatory  thereto;  Kimco  Capital  Corp.;  and the other
            lenders  signatory  thereto  from  time  to time  (incorporated  by
            reference to Exhibit  99.2 to the Form 8-K filed on  September  12,
            2006).

  10.5      Amendment,  dated December 28, 2006, to the Credit Agreement, among
            The Penn Traffic  Company,  Penny Curtiss Baking Company,  Inc. and
            Big M  Supermarkets,  Inc., as borrowers;  the other credit parties
            signatory thereto; General Electric Capital Corporation;  JP Morgan
            Chase Bank,  N.A.;  The CIT  Group/Business  Credit;  GECC  Capital
            Markets Group,  Inc.; and the other lenders  signatory thereto from
            time to time (incorporated by reference to Exhibit 10.5 to the Form
            10-K filed on August 17, 2007).

  10.6      Amendment, dated December 28, 2006, to the Supplemental Loan Credit
            Agreement,  dated as of April  13,  2005,  among  The Penn  Traffic
            Company, Penny Curtiss Baking Company, Inc. and Big M Supermarkets,
            Inc., as borrowers;  the other credit  parties  signatory  thereto;
            Kimco Capital Corp.; and the other lenders  signatory  thereto from
            time to time (incorporated by reference to Exhibit 10.6 to the Form
            10-K filed on August 17, 2007).

  10.7      Consulting  Agreement,  dated as of June 29, 2006, between The Penn
            Traffic Company and Robert J. Kelly  (incorporated  by reference to
            Exhibit 99.1 to the Form 8-K filed on June 30, 2006).

  10.8      Offer Letter, dated as of October 2, 2006, between The Penn Traffic
            Company and Robert  Panasuk  (incorporated  by reference to Exhibit
            99.1 to the Form 8-K filed on October 6, 2006).

  10.9      Offer  Letter,  dated as of  December  12,  2006,  between The Penn
            Traffic  Company and Robert Panasuk  (incorporated  by reference to
            Exhibit 99.1 to the Form 8-K filed on December 18, 2006).


                                     -123-
<PAGE>

Exhibits (continued):

Exhibits No.
------------

  10.10     Description  of Material Terms of  Compensation  of Randy P. Martin
            (incorporated  by  reference  to the  Form 8-K  filed on March  15,
            2005).

  10.11     Severance  Agreement  between The Penn Traffic Company and Randy P.
            Martin  (incorporated  by reference to Exhibit 99.1 to the Form 8-K
            filed on February 1, 2007).

  10.12     Offer Letter,  dated May 2, 2007,  between The Penn Traffic Company
            and Tod A. Nestor (incorporated by reference to Exhibit 99.1 to the
            Form 8-K filed on May 9, 2007).

  10.13     The Penn Traffic Company 2006 Omnibus Award Plan  (incorporated  by
            reference  to Exhibit  99.4 to the Form 8-K filed on  December  18,
            2006).

  10.14     Form of The Penn  Traffic  Company  Phantom  Stock Award  Agreement
            (incorporated by reference to Exhibit 99.1 to the Form 8-K filed on
            May 18, 2007).

  10.15     Second  Amendment,  dated  as of  August  1,  2007,  to the  Credit
            Agreement,  among The Penn Traffic  Company,  Penny Curtiss  Baking
            Company, Inc. and Big M Supermarkets, Inc., as borrowers; the other
            credit  parties   signatory   thereto;   General  Electric  Capital
            Corporation;  JP Morgan Chase Bank,  N.A.;  The CIT  Group/Business
            Credit;  GECC Capital  Markets  Group,  Inc.; and the other lenders
            signatory  thereto from time to time  (incorporated by reference to
            Exhibit 99.1 to the Form 8-K filed on August 14, 2007).

  10.16     Second  Amendment,  dated as of August 1, 2007, to the Supplemental
            Loan Credit  Agreement,  dated as of April 13, 2005, among The Penn
            Traffic  Company,  Penny  Curtiss  Baking  Company,  Inc. and Big M
            Supermarkets,   Inc.,  as  borrowers;   the  other  credit  parties
            signatory  thereto;  Kimco  Capital  Corp.;  and the other  lenders
            signatory  thereto from time to time  (incorporated by reference to
            Exhibit 99.2 to the Form 8-K filed on August 14, 2007).

  10.17     Promotion  letter,  dated October 1, 2007,  addressed to Gregory J.
            Young  (incorporated  by  reference to Exhibit 99.1 to the Form 8-K
            filed on October 1, 2007).

  16.1      Letter from  Deloitte & Touche LLP to the  Securities  and Exchange
            Commission  dated September 12, 2006  (incorporated by reference to
            Exhibit 99.1 to the Form 8-K filed on September 12, 2006).

                                     -124-
<PAGE>

Exhibits (continued):

Exhibits No.
------------

   21.1     Subsidiaries of The Penn Traffic Company (incorporated by reference
            to Exhibit 21.1 to the Form 10-K filed on August 17, 2007).

   31.1     Certification   of  CEO  pursuant  to  Rule  13a-14(a)   under  the
            Securities Exchange Act of 1934, as amended.

   31.2     Certification   of  CFO  pursuant  to  Rule  13a-14(a)   under  the
            Securities Exchange Act of 1934, as amended.

   32.1     Certification   of  CEO  pursuant  to  Rule  13a-14(b)   under  the
            Securities  Exchange Act of 1934,  as amended,  and Section 1350 of
            Chapter 63 of Title 18 of the United States Code.

   32.2     Certification   of  CFO  pursuant  to  Rule  13a-14(b)   under  the
            Securities  Exchange Act of 1934,  as amended,  and Section 1350 of
            Chapter 63 of Title 18 of the United States Code.



                                     -124-
<PAGE>

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  as of the 31st day of
October 2007.

THE PENN TRAFFIC COMPANY


            By:             /s/  Gregory J. Young
                            -------------------------------------
            Name:           Gregory J. Young
            Title:          President and Chief Executive Officer


Pursuant to the  requirements  of the  Securities  Exchange  Act of 1934,  this
report  has been  signed  below by the  following  persons on its behalf by the
registrant and in the capacities and on the dates indicated:


Signature                        Title                          Date


/s/ Robert J. Kelly              Chairman of the Board          October 31, 2007
--------------------------
Robert J. Kelly


/s/ John E. Burke                Director                       October 31, 2007
--------------------------
John E. Burke


/s/ Kevin P. Collins             Director                       October 31, 2007
--------------------------
Kevin P. Collins


/s/ Ben Evans                    Director                       October 31, 2007
--------------------------
Ben Evans


/s/ Alan C. Levitan              Director                       October 31, 2007
--------------------------
Alan C. Levitan


/s/ Kurt M. Cellar               Director                       October 31, 2007
--------------------------
Kurt M. Cellar


/s/ Scott Sozio                  Director                       October 31, 2007
--------------------------
Scott Sozio


/s/ Gregory J. Young             President and Chief            October 31, 2007
--------------------------       Executive Officer
Gregory J. Young                 and Director


/s/ Tod A. Nestor                Senior Vice-President          October 31, 2007
--------------------------       Chief Financial Officer
Tod A. Nestor


                                     -126-