UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-Q





x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934





For the
quarterly period ended May 2, 2009


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
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer Identification No.)





1200
      State Fair Blvd., Syracuse, New York
              13221-4737(Address
      of principal executive offices)
              (Zip
      Code)





(315)
453-7284


(Registrant’s
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    YES x           NO
 ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the proceeding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).  YES   ̈  NO
 ̈





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





Large
      accelerated filer   ̈
              Accelerated
      filer   ̈Non-accelerated
      filer   ̈
                (Do
      not check if a smaller reporting company)
              Smaller
      reporting company  x





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





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 x           NO
 ̈





Common Stock, par value $.01
per share:  8,779,832 shares outstanding as of June
10, 2009





FORM 10-Q
INDEX




PAGEPART
      I.  FINANCIAL INFORMATIONItem
                      1.
                      Financial
      Statements
                      
                      4Item
                      2.
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      
                      15Item
                      3.
                      Quantitative
      and Qualitative Disclosures About Market Risk
                      
                      19Item
                      4.
                      Controls
      and Procedures
                      
                      19PART
      II.  OTHER INFORMATIONItem
                      1.
                      Legal
      Proceedings
                      
                      20Item
                      2.
                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                      
                      20Item
                      6.
                      Exhibits
                      
                      20


- 2
-


SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS





Certain
statements included in this Form 10-Q, including without limitation, statements
included in Item 2 - “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 preceded by,
followed by or that include words such as “believe”, “anticipate”, “estimate”,
“expect”, “could”, “may”, 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 the risks set forth in Item 1A – “Risk
Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31,
2009; general economic and business conditions; economic and competitive
uncertainties; 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; 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; our ability to pursue strategic alternatives; 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.  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.




- 3
-


PART
I





ITEM
1.      Financial Statements





The Penn
Traffic Company


Condensed
Consolidated Balance Sheets


(In
thousands)





May
      2,
                        
                        
                        January
      31,2009
                        
                        
                        2009(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                        
                        $
                        35,617
                        
                        
                        $
                        56,434Accounts
      and notes receivable (less allowance for doubtful accounts of $2,213 and
      $2,676, respectively)
                        
                        
                        19,019
                        
                        
                        
                        19,454Inventories
                        
                        
                        42,677
                        
                        
                        
                        44,306Prepaid
      expenses and other current assets
                        
                        
                        5,638
                        
                        
                        
                        5,990Total
      current assets
                        
                        
                        102,951
                        
                        
                        
                        126,184Capital
      leases:Capital
      leases
                        
                        
                        10,768
                        
                        
                        
                        10,768Less:
      Accumulated amortization
                        
                        
                        (3,603
                        )
                        
                        
                        (3,357
                        )Capital
      leases, net
                        
                        
                        7,165
                        
                        
                        
                        7,411Fixed
      assets:Land
                        
                        
                        9,036
                        
                        
                        
                        9,036Buildings
                        
                        
                        12,663
                        
                        
                        
                        12,538Equipment
      and furniture
                        
                        
                        78,596
                        
                        
                        
                        80,819Vehicles
                        
                        
                        8,077
                        
                        
                        
                        8,020Leasehold
      improvements
                        
                        
                        11,502
                        
                        
                        
                        10,906Total
      fixed assets
                        
                        
                        119,874
                        
                        
                        
                        121,319Less:
      Accumulated depreciation
                        
                        
                        (69,659
                        )
                        
                        
                        (68,019
                        )Fixed
      assets, net
                        
                        
                        50,215
                        
                        
                        
                        53,300Other
      assets:Intangible
      assets, net
                        
                        
                        2,572
                        
                        
                        
                        2,883Other
      assets
                        
                        
                        3,699
                        
                        
                        
                        3,936Total
      other assets
                        
                        
                        6,271
                        
                        
                        
                        6,819Total
      assets
                        
                        $
                        166,602
                        
                        
                        $
                        193,714





The
accompanying notes are an integral part of these statements.


- 4
-





The Penn
Traffic Company


Condensed
Consolidated Balance Sheets, continued


(In
thousands, except share and per share data)





May
      2,
                          
                          
                          January
      31,2009
                          
                          
                          2009(unaudited)LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Current
      portion of obligations under capital leases
                          
                          $
                          1,463
                          
                          
                          $
                          1,519Current
      maturities of long-term debt (Note 5)
                          
                          
                          16,302
                          
                          
                          
                          17,296Accounts
      payable
                          
                          
                          10,465
                          
                          
                          
                          8,119Other
      current liabilities
                          
                          
                          38,079
                          
                          
                          
                          39,848Deferred
      income taxes (Note 6)
                          
                          
                          7,261
                          
                          
                          
                          7,373Total
      current liabilities
                          
                          
                          73,570
                          
                          
                          
                          74,155Non-current
      liabilities:Obligations
      under capital leases
                          
                          
                          7,131
                          
                          
                          
                          7,443Long-term
      debt (Note 5)
                          
                          
                          3,260
                          
                          
                          
                          19,338Defined
      benefit pension plan liability (Note 8)
                          
                          
                          25,560
                          
                          
                          
                          25,903Deferred
      income taxes (Note 6)
                          
                          
                          571
                          
                          
                          
                          523Other
      non-current liabilities
                          
                          
                          29,697
                          
                          
                          
                          30,265Total
      non-current liabilities
                          
                          
                          66,219
                          
                          
                          
                          83,472Total
      liabilities
                          
                          
                          139,789
                          
                          
                          
                          157,627Commitments
      and contingencies (Notes 4, 5, 8, and 9)Stockholders’
      equity (Note 11):Preferred
      stock - authorized 1,000,000 shares, $.01 par value;10,000 shares issued
      and outstanding at May 2, 2009 and January 31, 2009
                          
                          
                          100
                          
                          
                          
                          100Common
      stock - authorized 15,000,000 shares, $.01 par value;8,641,676 shares
      issued and outstanding at May 2, 2009 and January 31, 2009
                          
                          
                          86
                          
                          
                          
                          86Capital
      in excess of par value
                          
                          
                          128,148
                          
                          
                          
                          128,148Deficit
                          
                          
                          (101,247
                          )
                          
                          
                          (91,953
                          )Accumulated
      other comprehensive loss
                          
                          
                          (274
                          )
                          
                          
                          (294
                          )Total
      stockholders’ equity
                          
                          
                          26,813
                          
                          
                          
                          36,087Total
      liabilities and stockholders’ equity
                          
                          $
                          166,602
                          
                          
                          $
                          193,714





The
accompanying notes are an integral part of these statements.


- 5
-





The Penn
Traffic Company


Condensed
Consolidated Statements of Operations


(In
thousands, except share and per share data)


(unaudited)





Quarter Ended
                            
                            
                            Quarter EndedMay 2,
                            
                            
                            May 3,2009
                            
                            
                            2008Revenues
                            
                            $
                            200,077
                            
                            
                            $
                            212,107Cost
      and operating expensesCost
      of sales
                            
                            
                            137,809
                            
                            
                            
                            145,990Selling
      and administrative expenses
                            
                            
                            68,960
                            
                            
                            
                            74,201Loss
      / (gain) on sale of assets
                            
                            
                            49
                            
                            
                            
                            (484
                            )Loss
      on store closings
                            
                            
                            12
                            
                            
                            
                            519Asset
      impairment charge
                            
                            
                            123
                            
                            
                            
                            809206,953
                            
                            
                            
                            221,035Operating
      loss
                            
                            
                            (6,876
                            )
                            
                            
                            (8,928
                            )Interest
      expense
                            
                            
                            2,020
                            
                            
                            
                            1,529Reorganization
      and other expenses
                            
                            
                            23
                            
                            
                            
                            110Loss
      from continuing operationsbefore
      income taxes
                            
                            
                            (8,919
                            )
                            
                            
                            (10,567
                            )Income
      tax (benefit) / expense (Note 6)
                            
                            
                            (37
                            )
                            
                            
                            156Loss
      from continuing operations
                            
                            
                            (8,882
                            )
                            
                            
                            (10,723
                            )Discontinued
      operations (Note 7)Loss
      from discontinued operations
                            
                            
                            (412
                            )
                            
                            
                            (1,708
                            )Net
      loss
                            
                            $
                            (9,294
                            )
                            
                            $
                            (12,431
                            )Net
      loss per share -basic
      and diluted: (Note 3)Loss
      per share from continuing operations
                            
                            $
                            (1.05
                            )
                            
                            $
                            (1.26
                            )Loss
      per share from discontinued operations
                            
                            $
                            (0.05
                            )
                            
                            $
                            (0.20
                            )Net
      loss per share - basic and diluted
                            
                            $
                            (1.10
                            )
                            
                            $
                            (1.46
                            )Basic
      and diluted shares outstanding and to be issued
                            
                            
                            8,641,676
                            
                            
                            
                            8,650,110




The
accompanying notes are an integral part of these statements.


- 6
-


The Penn
Traffic Company


Condensed
Consolidated Statements of Cash Flows


(In
thousands)


(unaudited)





Quarter
      Ended
                
                
                Quarter
      EndedMay
      2,
                
                
                May
      3,2009
                
                
                2008Operating
      activities:Net
      loss
                
                $
                (9,294
                )
                
                $
                (12,431
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                
                
                4,646
                
                
                
                5,664Provision
      for doubtful accounts
                
                
                133
                
                
                
                619Loss
      / (gain) on sale of assets
                
                
                49
                
                
                
                (1,874
                )Asset
      impairment charge
                
                
                123
                
                
                
                2,604Amortization
      of deferred finance costs
                
                
                261
                
                
                
                333Deferred
      income taxes
                
                
                (64
                )
                
                
                92Phantom
      stock
                
                
                73
                
                
                
                131Net
      change in operating assets and liabilities:Accounts
      and notes receivable
                
                
                302
                
                
                
                4,083Prepaid
      expenses and other current assets
                
                
                352
                
                
                
                1,026Inventories
                
                
                1,629
                
                
                
                1,691Other
      assets
                
                
                (25
                )
                
                
                (4
                )Accounts
      payable and other current liabilities
                
                
                577
                
                
                
                (8,067
                )Liabilities
      subject to compromise
                
                
                -
                
                
                
                (1,103
                )Defined
      benefit pension plan liability
                
                
                (323
                )
                
                
                (847
                )Other
      non-current liabilities
                
                
                (534
                )
                
                
                (1,302
                )Net
      cash used in operating activities
                
                
                (2,095
                )
                
                
                (9,385
                )Investing
      activities:Capital
      expenditures
                
                
                (1,398
                )
                
                
                (1,764
                )Proceeds
      from sale of assets
                
                
                116
                
                
                
                3,498Net
      cash (used in) provided by investing activities
                
                
                (1,282
                )
                
                
                1,734Financing
      activities:Payment
      of mortgages
                
                
                (72
                )
                
                
                (72
                )Net
      repayments under revolving credit facility
                
                
                (17,000
                )
                
                
                -Reduction
      in capital lease obligations
                
                
                (368
                )
                
                
                (316
                )Payment
      of deferred financing costs
                
                
                -
                
                
                
                (1,084
                )Net
      cash used in financing activities
                
                
                (17,440
                )
                
                
                (1,472
                )Net
      decrease in cash and cash equivalents
                
                
                (20,817
                )
                
                
                (9,123
                )Cash
      and cash equivalents at beginning of period
                
                
                56,434
                
                
                
                20,916Cash
      and cash equivalents at end of period
                
                $
                35,617
                
                
                $
                11,793





The
accompanying notes are an integral part of these statements.


- 7
-


The Penn
Traffic Company


Condensed
Consolidated Statements of Stockholders’ Equity


For the
unaudited period January 31, 2009 to May 2, 2009


(In
thousands, except share data)





Capital
      in
                    
                    
                    
                    
                    
                    Accumulated
      Other
                    
                    
                    TotalPreferred
                    
                    
                    Common
                    
                    
                    Excess
      of
                    
                    
                    
                    
                    
                    Comprehensive
                    
                    
                    Stockholders'Stock
                    
                    
                    Stock
                    
                    
                    Par
      Value
                    
                    
                    Deficit
                    
                    
                    (Loss)
      Income
                    
                    
                    EquityBalance
      at January 31, 2009
                    
                    $
                    100
                    
                    
                    $
                    86
                    
                    
                    $
                    128,148
                    
                    
                    $
                    (91,953
                    )
                    
                    $
                    (294
                    )
                    
                    $
                    36,087Net
      loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (9,294
                    )
                    
                    
                    
                    
                    
                    
                    (9,294
                    )Amortization
      of net actuarial loss in net pension benefit cost
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    20
                    
                    
                    
                    20Comprehensive
      loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (9,274
                    )Balance
      at May 2, 2009
                    
                    $
                    100
                    
                    
                    $
                    86
                    
                    
                    $
                    128,148
                    
                    
                    $
                    (101,247
                    )
                    
                    $
                    (274
                    )
                    
                    $
                    26,813




The
accompanying notes are an integral part of these statements.


- 8
-


The Penn
Traffic Company


Notes to
Condensed Consolidated Financial Statements





Note
1 – Basis of Presentation





The
accompanying unaudited condensed consolidated financial statements of The Penn
Traffic Company and subsidiaries (the “Company”) have been prepared in
accordance with accounting principles generally accepted in the United States
(“GAAP”) for interim financial information and with the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by GAAP for complete audited financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring deferrals and accruals) considered necessary for a fair presentation
have been included. The operating results for the periods presented are not
necessarily indicative of the results to be expected for the full year. For
further information, refer to the audited consolidated financial statements and
footnotes thereto included in the Company’s Annual Report on Form 10-K for the
fiscal year ended January 31, 2009.





The
balance sheet as of January 31, 2009, has been derived from the audited
consolidated financial statements as of such date, but does not include all of
the information and footnotes required by GAAP for complete financial
statements. The Company emerged from Chapter 11 bankruptcy proceedings and
applied fresh-start reporting effective April 16, 2005, in accordance with
Statement of Position 90-7, “Financial Reporting by Entities in Reorganization
under the Bankruptcy Code”.





All
significant intercompany transactions and accounts have been eliminated in
consolidation.





Certain
prior year amounts have been reclassified to conform to current year
presentation.





Reporting
Periods





The
Company’s fiscal year ends each year on the Saturday closest to January 31.
Fiscal year 2010 is the 52-week period ending January 30, 2010. Fiscal year 2009
was the 52-week period ended January 31, 2009. The information presented in this
Quarterly Report on Form 10-Q is for the 13-week quarter ended May 2,
2009.





Operating
Segments





On
December 21, 2008, the Company completed the sale of its wholesale food
distribution business segment. Subsequent to that date, the Company consists of
one operating segment, the retail food segment.




Note
2 – Recent Accounting Standards





In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, “Fair Value Measurements” (“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. In February 2008, the
FASB issued FASB Staff Position (“FSP”) 157-2, which delays the effective date
of the application of SFAS 157 to fiscal years beginning after November 15,
2008, for all non-financial assets and non-financial liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis. Effective February 1, 2009, the Company adopted FSP 157-2,
which did not have a material effect on the Company’s consolidated financial
statements.





In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141 (revised 2007), “Business Combinations” (“SFAS 141(R)”), which replaces SFAS
141. SFAS 141(R) changes the accounting for business combinations, and applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. Additionally, for business combinations in which the
acquisition date was before the effective date of SFAS 141(R), the requirements
of SFAS 109, “Accounting for Income Taxes”, as amended by SFAS 141(R), are
applied prospectively. The Company currently maintains a full valuation
allowance against its deferred tax assets. Prior to the effective date of SFAS
141(R), deferred income tax benefits resulting from the reversal of valuation
allowances related to net operating loss carry-forwards and deductible temporary
differences that existed at the time of our emergence from bankruptcy protection
reduced intangible assets. Under SFAS 141(R), these income tax benefits are
recognized as an adjustment to income tax expense. Effective February 1, 2009,
the Company adopted SFAS 141(R), which did not have a material effect on the
Company’s consolidated financial statements for the quarter ended May 2, 2009,
but which could have a significant impact on our future financial
statements.





In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160, “Noncontrolling Interests in Consolidated Financial Statements, an
amendment of ARB 51” (“SFAS 160”), which changes the accounting and reporting
for minority interests. SFAS 160 is effective for fiscal years beginning on or
after December 15, 2008. Effective February 1, 2009, the Company adopted SFAS
160, which had no impact on the Company’s consolidated financial
statements.





- 9
-





In
December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about
Postretirement Benefit Plan Assets”. This FSP amends SFAS No. 132 (revised
2003), “Employers’ Disclosures about Pensions and Other Postretirement
Benefits”, to provide guidance on an employer’s disclosures about plan assets of
a defined benefit pension or other postretirement plan on investment policies
and strategies, major categories of plan assets, inputs and valuation techniques
used to measure the fair value of plan assets and significant concentrations of
risk within plan assets. FSP 132(R)-1 is effective for fiscal years ending after
December 15, 2009, and will enhance the disclosures associated with
postretirement benefit plans in the Company’s consolidated financial statements
for the fiscal year ending January 30, 2010.





In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments”. This FSP amends SFAS No. 107, “Disclosures
about Fair Value of Financial Instruments”, and APB 28, “Interim Financial
Reporting”, to require companies to include the disclosures about the fair value
of financial instruments required by SFAS 107 whenever it issues interim
financial information. This FSP is effective for interim periods ending after
June 15, 2009, with early adoption permitted for periods ending after March 15,
2009. The Company has elected to adopt this FSP and include the required
disclosures for the period ended May 2, 2009.





In May
2009, the FASB issued Statement of Financial Accounting Standards No. 165,
“Subsequent Events” (“SFAS 165”). SFAS 165 requires disclosure of the date
through which an entity has evaluated subsequent events and whether that
represents the date the financial statements were issued or were available to be
issued. SFAS 165 is effective for interim and fiscal periods beginning after
June 15, 2009. Management expects that the adoption of this statement will not
have a material effect on the consolidated financial statements.




Note
3 - Per Share Data





Basic and
diluted net loss per share is based on the net loss available to common
stockholders and the number of shares of common stock issued and estimated to be
issued pursuant to the Company’s bankruptcy reorganization plan. Diluted loss
per share for the quarters ended May 2, 2009 and May 3, 2008, does not include
689,146 and 639,923 shares of common stock, respectively, issuable on the
conversion of preferred stock, which was issued in December 2007, as the effect
is anti-dilutive. The following table details the calculation of our basic and
diluted per share data (amounts in thousands, except share and per share
data):





Quarter Ended
                                    
                                    
                                    Quarter EndedMay 2,
                                    
                                    
                                    May 3,2009
                                    
                                    
                                    2008Loss
      from continuing operations
                                    
                                    $
                                    (8,882
                                    )
                                    
                                    $
                                    (10,723
                                    )Less:
      cumulative preferred stock dividends
                                    
                                    
                                    (200
                                    )
                                    
                                    
                                    (200
                                    )Loss
      available to common stock holders
                                    
                                    
                                    (9,082
                                    )
                                    
                                    
                                    (10,923
                                    )Loss
      from discontinued operations
                                    
                                    
                                    (412
                                    )
                                    
                                    
                                    (1,708
                                    )Net
      loss available to common stockholders
                                    
                                    $
                                    (9,494
                                    )
                                    
                                    $
                                    (12,631
                                    )Weighted
      average shares
                                    
                                    
                                    8,641,676
                                    
                                    
                                    
                                    8,650,110Loss
      per share from continuing operations
                                    
                                    $
                                    (1.05
                                    )
                                    
                                    $
                                    (1.26
                                    )Loss
      per share from discontinued operations
                                    
                                    
                                    (0.05
                                    )
                                    
                                    
                                    (0.20
                                    )Net
      loss per share - basic and diluted
                                    
                                    $
                                    (1.10
                                    )
                                    
                                    $
                                    (1.46
                                    )




Note
4 – Liabilities Subject to Compromise





In
connection with the Company’s Chapter 11 bankruptcy proceedings, the Ohio Bureau
of Workers’ Compensation (“OBWC”) 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 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.  On August 22, 2008, the
Company and the OBWC filed a Notice of Presentment of Stipulation and Order with
Respect to Settlement of Ohio Bureau of Workers’ Compensation Claims (the
“Stipulation”) with the United States Bankruptcy Court for the Southern District
of New York, pursuant to which the Company and the OBWC have agreed that the
OBWC will release all potential claims against the Company in exchange for the
following payments by the Company to the OBWC: a payment of $500,000 on
September 9, 2008; and payments of $217,500 on each of the following dates:
March 2, 2009; September 1, 2009; March 1, 2010; and September 1,
2010.  The Stipulation further provides that the payments to be made
in 2010 shall be backed by a letter of credit.  The Bankruptcy Court
approved the Stipulation on September 5, 2008, and the Company has made all
required payments through May 2009.  In addition, the Company issued
290,491 shares of its common stock, par value $0.01 per share, to the OBWC
during the year ended January 31, 2009.  As of May 2, 2009, the
Company has accrued $652,500 related to the OBWC Chapter 11 claim, recording
$435,000 in current liabilities and $217,500 in other non-current liabilities
based upon the payment terms of the Stipulation.




- 10
-





Note
5 – Long-term Debt





The
Company maintains a revolving credit and term loan facility with a group of
financial institutions providing for a $50 million revolving credit
facility commitment that includes a maximum sub-limit commitment for letters of
credit of $47.5 million, and a $6 million term loan.  The Company
also maintains a supplemental real estate credit facility with another group of
lenders providing for additional term loan borrowings of up to
$10 million.  The maturity date of both facilities is April 13,
2010.  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 real estate owned by the
Company.  Availability under both credit facilities is dependent on
levels of eligible accounts receivable, inventory and certain other
assets.  On February 6, 2009, the Company repaid the entire
outstanding balance of $17 million on the revolving credit
facility.





Provisions
of both credit facilities require the maintenance of $13.5 million of
availability under the revolving credit facility and limit, among other things,
the assumption of additional debt and the payment of
dividends.  Availability is based on a calculation of the Company’s
asset borrowing base less outstanding borrowings and letters of credit, which is
also increased by certain cash balances totaling $32.9 million at May 2,
2009.  Outstanding letters of credit under the revolving credit
facility, which are primarily associated with supporting workers’ compensation
obligations, were approximately $39.7 million at May 2, 2009.  Total
availability in excess of outstanding borrowings and letters of credit was
approximately $30.5 million at May 2, 2009.  Actual borrowings
are limited to the $50 million credit commitment and the $47.5 million letter of
credit sub-limit.  Revolving loan advances in excess of outstanding
balances are at the discretion of the lenders.





The
carrying amount of debt reported in our balance sheet approximates fair value as
of May 2, 2009, and January 31, 2009.





The
Company also has $3.6 million in borrowings under mortgages, maturing at various
dates through 2021, secured by first liens on the related
properties.





Note
6 – Income Taxes





The
Company maintains a full valuation allowance against substantially all of its
deferred tax assets including amounts resulting from net operating loss
carry-forwards.  The valuation allowance will be maintained until
there is sufficient positive evidence to conclude that it is more likely than
not that the deferred tax assets will be realized.





The
Company does not have any material tax positions that meet a
“more-likely-than-not” recognition threshold. As such, the Company has not
recorded any liabilities for uncertain tax positions. During the quarter ended
May 2, 2009, there have been no material changes to the amount of uncertain tax
positions.





For
federal tax purposes, the Company is subject to a review of its fiscal year
ended 2008 tax return. The Company’s New York State tax returns for the fiscal
years ended 2004 through 2008 are currently under examination by the New York
State Department of Taxation and Finance.  To date, the New York State
Department of Taxation and Finance has made information document requests. For
other states’ tax purposes, the Company is subject to a review of its fiscal
years ended 2005 through 2008 state tax returns.





Note
7 – Dispositions and Discontinued Operations





Dispositions





During
the quarter ended May 2, 2009, the Company closed three stores.  The
assets of one store met the criteria to be classified as held for sale at
January 31, 2009; however the net book value of those assets was not
significant.  The results of operations of that store were included
within discontinued operations for the year ended January 31, 2009, and for
prior periods.  The results of operations of the other two stores were
determined to be immaterial and are reported within continuing
operations.  An impairment loss of $0.1 million was recognized with
respect to assets related to closed stores in accordance with Statement of
Financial Accounting Standards No. 144, “Accounting for the Impairment or
Disposal of Long-lived Assets”.   Also, the Company recorded a
liability of less than $0.1 million, representing the present value of the
remaining lease rentals reduced by estimated sublease rentals that could be
reasonably obtained for the two closed stores in accordance with Statement of
Financial Accounting Standards No. 146, “Accounting for Costs Associated with
Exit or Disposal Activities”.


- 11
-





During
the quarter ended May 3, 2008, the Company closed five stores and sold one
store.  The Company anticipated that revenues would continue to be
generated from customers of one of the five closed stores from Company stores
located in the same vicinity.  Accordingly, the results of operations
of this store were included in continuing operations.  The Company no
longer has a presence in the vicinity of the other four closed stores and has
reported the results of operations of those stores within discontinued
operations.  The store that was sold resulted in cash proceeds of $1.8
million and an associated leasehold gain of $1.3 million for the quarter
ended May 3, 2008, which is reported within discontinued operations
along with that store’s results of operations.





During
the quarter ended May 3, 2008, an impairment loss of $2.6 million was recognized
with respect to the assets related to the five closed stores.  In
addition, the Company recorded a liability of $0.9 million representing the
present value of the remaining lease rentals reduced by estimated sublease
rentals that could reasonably be obtained for the five closed
stores.  In addition, certain ongoing maintenance expense related to
the bakery operations have been classified as discontinued operations in the
quarter ended May 3, 2008.





Discontinued
Operations





Discontinued
operations consist of the following for the quarters ended May 2, 2009, and May
3, 2008 (in thousands):





Quarter Ended
                            May 2,
                            2009
                          
                          
                          Quarter Ended
                            May 3,
                            2008Bakery
      - results of operations
                          
                          $
                          -
                          
                          
                          $
                          (10
                          )Wholesale
      food distribution - results of operations
                          
                          
                          -
                          
                          
                          
                          788Retail
      stores - gain on sale of assets
                          
                          
                          -
                          
                          
                          
                          1,390Retail
      stores - loss on store closings
                          
                          
                          -
                          
                          
                          
                          (402
                          )Retail
      stores - asset impairment charge
                          
                          
                          -
                          
                          
                          
                          (1,795
                          )Retail
      stores - results of operations
                          
                          
                          (412
                          )
                          
                          
                          (1,679
                          )Loss
      from discontinued operations
                          
                          $
                          (412
                          )
                          
                          $
                          (1,708
                          )


Note
8 – Retirement Plans





The
Company has three 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.





The
following table provides the components of net periodic pension cost / (benefit)
(in thousands):





Quarter Ended
                          
                          
                          Quarter EndedMay 2,
                          
                          
                          May 3,2009
                          
                          
                          2008(unaudited)Service
      cost
                          
                          $
                          269
                          
                          
                          $
                          313Interest
      cost
                          
                          
                          1,444
                          
                          
                          
                          1,474Expected
      return on plan assets
                          
                          
                          (1,217
                          )
                          
                          
                          (1,593
                          )Amortization
      of unrecognized actuarial loss / (gain)
                          
                          
                          20
                          
                          
                          
                          (236
                          )Net
      periodic pension cost / (benefit)
                          
                          $
                          516
                          
                          
                          $
                          (42
                          )


For the
quarters ended May 2, 2009 and May 3, 2008, the Company contributed $0.8 million
and $0.8 million, respectively, to the defined benefit pension
plans.


- 12
-





The
Company maintains a 401(k) savings plan for eligible employees.  The
plan provides for contributions by the Company for all employees not covered by
other union pension plans.  The Company’s contributions aggregated
$0.3 million and $0.4 million for the quarters ended May 2, 2009 and
May 3, 2008, respectively.





The
Company also participates in three union-sponsored, multi-employer defined
benefit pension plans.  The Company recognizes as net pension expense
any required contributions made during the period and recognizes as a liability
any required contributions that are due and unpaid.   For the
quarters ended May 2, 2009 and May 3, 2008, the Company contributed $1.2 million
and $1.2 million, respectively, to the multi-employer defined benefit pension
plans.  Approximately 87% of the Company’s employees are unionized,
93% of whom are members of one union.





Note
9 – Commitments and Contingencies





The
United States Attorney Office for the Northern District of New York (the “USAO”)
and the Securities and Exchange Commission (“SEC”) have been conducting
investigations relating to certain of the Company’s accounting practices and
policies 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
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. These officers had been terminated by the Company in February
2006.  The SEC's complaint further alleges that the individuals
deceived the Company’s accounting personnel to carry out their fraudulent scheme
and aided and abetted the Company’s violations of the Securities Exchange Act of
1934 and rules thereunder.  In addition, on the same date, the USAO
announced that a federal grand jury has returned an indictment against the
above-mentioned individuals on related criminal charges.





On
September 30, 2008, the Company reached a settlement with the SEC with respect
to its ongoing investigation.  Without admitting or denying the
allegations in the SEC’s complaint, the Company agreed to settle the charges by
consenting to a permanent injunction against any future violations of the
federal securities laws. The SEC imposed no fines or monetary penalties on the
Company. As part of the settlement, the Company has hired an independent
examiner who will provide annual reports to the SEC, the USAO and the Company’s
board on, among other things, the Company’s promotional-allowance internal
controls and financial reporting. The examiner will serve for three
years.  Other settlement terms included the Company’s consent to
reform its internal controls and policies and procedures related to promotional
allowances, as well as implementation of a telephone hotline for associates and
vendors to anonymously notify the Company of misconduct related to promotional
allowances.





On
October 28, 2008, the Company entered into a non-prosecution agreement with the
USAO.  Under the agreement, the USAO has agreed not to prosecute the
Company for any crimes committed by its employees between 2001 and 2004 relating
to the matters that were the subject of the USAO’s previously announced
investigation of, among other things, the Company’s accounting policies,
practices and related conduct.  The USAO’s obligations under the
agreement are subject to a number of conditions, including the
Company’s:





·    acceptance
of responsibility for the conduct of its employees between 2001 and
2004;


·    adoption
of the remedial measures required under, and compliance with the terms of, the
previously announced settlement of the SEC’s investigation of the Company,
including its compliance with specified federal securities laws;
and


·    provision
of full cooperation to the USAO and Federal Bureau of Investigation with respect
to their ongoing investigations through the conclusion of any and all related
criminal trials.





If the
USAO determines that the Company has deliberately given false, incomplete or
misleading information under the agreement, or if the Company commits a crime or
otherwise knowingly, intentionally and materially violates any provision of the
agreement, then the Company may be subject to prosecution for any federal
criminal violation of which the USAO has knowledge, including any federal
criminal violation relating to the matters subject to the USAO’s investigation.
The Company agreed that any such prosecutions that are not time-barred by the
applicable statute of limitations on the date of the agreement may be commenced
against the Company notwithstanding the expiration of the statute of limitations
after the date of the agreement.





The
Company has incurred significant legal costs associated with these matters to
date and may continue to do so.  These costs are recorded in selling
and administrative expenses as incurred.


- 13
-


On March
12, 2008, the Company commenced an action in the Supreme Court for the State of
New York for the County of Onondaga seeking declaratory judgment to resolve a
dispute over the lease term for commercial property pertaining to a store that
was closed in 2007.  The Company is seeking an order declaring the
proper and effective lease termination date to be November 30, 2009, rather than
June 30, 2017, the date asserted by the landlord.  The Company
estimates that the increased rent expense for the additional lease term asserted
by the landlord to be approximately $2.8 million.  At present, the
Company is unable to estimate the likelihood 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 supply
agreement for grocery and other non-perishable merchandise, the Company is
obligated to generate annual fees of at least $3.0 million to the
supplier.  In connection with the five-year supply agreement for
general merchandise and health and beauty products, 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.





The
consideration received by the Company for the sale of the wholesale food
distribution business is subject to a true-up calculation based on the volume of
shipments to certain wholesale customers in the twelve months immediately
following the sale compared to the Company’s fiscal year ended February 2,
2008.





Note
10 – 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 number of shares of common stock that can be
granted are limited to 902,268 in the aggregate.





At May 2,
2009, there were 188,260 shares of phantom stock granted, 100,000 shares of
phantom stock forfeited, and 88,260 shares of phantom stock outstanding to
officers and non-officer directors.  There are no shares of phantom
stock unvested as of May 2, 2009.  In accordance with Statement of
Financial Accounting Standards No. 123(R), “Share-Based Payment,” 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 was $0.1 million for the quarters
ended May 2, 2009 and May 3, 2008, respectively.





Note
11 – Subsequent Event





On May
14, 2009, the holder of 2,000 shares of Penn Traffic preferred stock elected to
convert their shares into shares of Penn Traffic common stock.  In
accordance with the provisions of the preferred stock, the Company issued
138,156 shares of common stock to the holder on the date of
conversion.




- 14
-




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





Introduction





We
operate 80 supermarkets in upstate New York, Pennsylvania, Vermont and New
Hampshire; including corporate-owned stores under the “BiLo”, “P&C”, and
“Quality” trade names.





Our
primary objective is to enhance the in-store experience of our customers and
improve our long-term financial performance.  Under the direction of
our senior team, we are focusing on rebuilding our core
business.  This means re-establishing basic disciplines and
reemphasizing and instilling a much stronger profitable growth culture around
sales and margin, as well as delivering a sufficient economic return on
assets.





Results
of Operations





The
following table sets forth certain Consolidated Statement of Operations
components expressed as percentages of revenues for the quarters ended May 2,
2009 and May 3, 2008.





Quarter Ended
                          May 2, 2009
                        
                        
                        Quarter Ended
                          May 3, 2008Revenues
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %Gross
      profit (1)
                        
                        
                        31.1
                        %
                        
                        
                        31.2
                        %Selling
      and administrative expenses
                        
                        
                        34.5
                        %
                        
                        
                        35.0
                        %Loss
      / (gain) on sale of assets
                        
                        
                        0.0
                        %
                        
                        
                        -0.2
                        %Loss
      on store closings
                        
                        
                        0.0
                        %
                        
                        
                        0.2
                        %Asset
      impairment charge
                        
                        
                        0.0
                        %
                        
                        
                        0.4
                        %Operating
      loss
                        
                        
                        -3.4
                        %
                        
                        
                        -4.2
                        %Interest
      expense
                        
                        
                        1.0
                        %
                        
                        
                        0.8
                        %Reorganization
      and other expenses
                        
                        
                        0.0
                        %
                        
                        
                        0.1
                        %Loss
      from continuing operations before income taxes
                        
                        
                        -4.4
                        %
                        
                        
                        -5.1
                        %Income
      tax expense
                        
                        
                        0.0
                        %
                        
                        
                        0.1
                        %Loss
      from continuing operations
                        
                        
                        -4.4
                        %
                        
                        
                        -5.2
                        %Loss
      from discontinued operations
                        
                        
                        -0.2
                        %
                        
                        
                        -0.7
                        %Net
      loss
                        
                        
                        -4.6
                        %
                        
                        
                        -5.9
                        %


(1)
            Revenues
      less cost of sales.


- 15
-


Quarter
Ended May 2, 2009 and Quarter Ended May 3, 2008





Revenues





Revenues
for the quarter ended May 2, 2009 decreased to $200.1 million from $212.1
million for the quarter ended May 3, 2008.  The $12.0 million decrease
in revenues was mainly attributable to a reduction in the number of stores
reported within continuing operations, from 87 at May 3, 2008, to 80 at May 2,
2009, as well as a 4.8% decline in same store sales.





Gross
Profit





Gross
profit was $62.3 million, or 31.1% of revenues, for the quarter ended May 2,
2009, compared to $66.1 million, or 31.2% of revenues, for the quarter
ended May 3, 2008.  The $3.8 million decrease is primarily the result
of decreased sales discussed above.  Gross profit percentage remained
relatively steady, reflecting the impact of increased commodity costs that were
not fully passed on to customers in order to maintain value, offset by a
continued increase in sales of higher-margin private label and signature
products.





Selling
and Administrative Expenses





Selling
and administrative expenses for the quarter ended May 2, 2009 were
$69.0 million, or 34.5% of revenues, compared to $74.2 million, or 35.0% of
revenues, for the quarter ended May 3, 2008.  The $5.2 million
decrease in selling and administrative expenses is comprised primarily of
decreases in salary and wages of $1.3 million, professional fees of $1.2
million, advertising of $1.1 million, bad debt expense of $0.8 million, and
utilities of $0.6 million. The decrease in selling and administrative expenses
was mainly driven by the closure of stores detailed
above.  Additionally, we are beginning to see the positive impact of
cost-reduction initiatives implemented during fiscal years 2009 and
2010.





Depreciation
and Amortization





Depreciation
and amortization expense was $4.6 million, or 2.3% of revenues, for the quarter
ended May 2, 2009, compared to $5.7 million, or 2.7% of revenues, for the
quarter ended May 3, 2008.  The decrease in depreciation and
amortization during the quarter ended May 2, 2009, was primarily due to a $6.8
million write-down of intangible assets made in fiscal year 2009 in conjunction
with the recognition of deferred income tax benefits attributable to the
reversal of valuation allowance of pre-reorganization net operating loss
carry-forwards for prior years, as well as a decrease in gross depreciable
assets relating to the closure of 17 stores since the quarter ended May 3,
2008.





Loss
/ (Gain) on Sale of Assets and Loss on Store Closings





Loss /
(gain) on sale of assets and loss on store closings totaled $0.1 million, or
less than 0.1% of revenues, for the quarter ended May 2, 2009, compared to
a net of $0.0 million, or less than 0.1% of revenues, for the quarter ended May
3, 2008.





Asset
Impairment Charge





Asset
impairment charge was $0.1 million, or less than 0.1% of revenues, for the
quarter ended May 2, 2009, compared to $0.8 million, or 0.4% of revenues, for
the quarter ended May 3, 2008.  This reflects the larger number of
stores closed during the first quarter of fiscal 2009.





Operating
Loss





Operating
loss for the quarter ended May 2, 2009, was $6.9 million, or 3.4% of revenues,
compared to the operating loss of $8.9 million, or 4.2% of revenues, for the
quarter ended May 3, 2008.





Interest
Expense





Interest
expense for the quarter ended May 2, 2009, was $2.0 million, or 1.0% of
revenues, compared to the interest expense of $1.5 million, or 0.8% of revenues,
for the quarter ended May 3, 2008.  The increase is primarily the
result of miscellaneous financing and legal fees associated with the payment of
our revolving line of credit during the quarter ended May 2, 2009, as well as
increased amortization of deferred financing fees compared to the prior
year.  Additionally, interest expense for the quarter ended May 3,
2008, excludes $0.8 million of interest expense attributable to the wholesale
business, which is included within discontinued operations.


- 16
-


Loss
from Continuing Operations before Income Taxes





Loss from
continuing operations before income taxes for the quarter ended May 2, 2009 was
$8.9 million, or 4.4% of revenues, compared $10.6 million, or 5.1% of revenues,
for the quarter ended May 3, 2008.  The $1.7 million decrease in loss
from continuing operations before income taxes is primarily due to a decrease in
selling and administrative expenses (as a result of decreased payroll,
professional fees, and advertising) and asset impairment, partially offset by a
decrease in sales.





Net
Loss





Net loss
for the quarter ended May 2, 2009 was $9.3 million, or 4.6% of revenues,
compared to a net loss of $12.4 million, or 5.9% of revenues, during the
quarter ended May 3, 2008.





Liquidity
and Capital Resources





Overview





As of May
2, 2009, we had cash and cash equivalents of $35.6 million and total debt
outstanding of $28.2 million (consisting of $6.0 million in a term loan
facility, $10.0 million in a supplemental real estate credit facility, $3.6
million in mortgages payable, and $8.6 million in capital lease
obligations).  We also have the ability to draw down our revolving
credit facilities, subject to borrowing base restrictions.  As of May
2, 2009, the revolving credit commitment available to us is $50.0
million.  We note, however, that as a result of the calculation of our
asset borrowing base of collateral, the revolving credit available to borrow is
significantly lower than $50 million.  As of May 2, 2009, total
availability in excess of outstanding borrowings and letters of credit is $30.5
million.  We are required to maintain a minimum of $13.5 million in
excess revolver availability.  As of May 2, 2009, we were above that
minimum requirement by $17.0 million.





We
believe that our existing cash on hand, available borrowings under our credit
facilities, and other sources of cash will be sufficient to satisfy our
currently anticipated cash requirements for at least the next 12
months.  However, we cannot be certain that future events or
developments, including, but not limited to, customer trip consolidation,
decreased customer counts, continued economic and financial volatility, and the
inability to extend or obtain current or new financing, will not change that
assessment.





Financial
Results





Operating
Activities





Cash used
in operating activities for the quarter ended May 2, 2009, was $2.1 million as
compared to cash used in operating activities of $9.4 million for the quarter
ended May 3, 2008.  For the quarter ended May 2, 2009, we incurred a
net loss of $9.3 million, adjustments for non cash items of $5.2 million, and a
net decrease in operating assets of $2.0 million.  For the quarter
ended May 3, 2008, we incurred a net loss of $12.4 million, adjustments for
non-cash items of $7.6 million, and a net increase in operating assets of $4.5
million.





Investing
Activities





Cash used
in investing activities for the quarter ended May 2, 2009, was $1.3 million
compared to cash provided by investing activities of $1.7 million for the
quarter ended May 3, 2008.  The $3.0 million decrease was due to
a decrease in proceeds from the sale of fixed assets ($0.1 million compared to
$3.5 million), the result of closing fewer stores in the quarter ended May
2, 2009.





Financing
Activities





Cash used
in financing activities for the quarters ended May 2, 2009, and May 3, 2008, was
$17.4 million and $1.5 million, respectively.  The increase
primarily reflects the $17.0 million payment of our revolving line of credit
during the quarter ended May 2, 2009.





Borrowings





The
Company maintains a revolving credit and term loan facility with a group of
financial institutions providing for a $50 million revolving credit
facility commitment which includes a maximum sub-limit commitment for letters of
credit of $47.5 million, and a $6 million term loan.  The Company
also maintains a supplemental real estate credit facility with another group of
lenders, providing for additional term loan borrowings of up to
$10 million.  The maturity date of both facilities is April 13,
2010.  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 real estate owned by the
Company.  Availability under both credit facilities is dependent on
levels of eligible accounts receivable, inventory and certain other
assets.  On February 6, 2009, the Company repaid the entire
outstanding balance of $17.0 million on the revolving credit
facility.


- 17
-





Provisions
of both credit facilities require the maintenance of $13.5 million of
availability under the revolving credit facility and limit, among other things,
the assumption of additional debt and the payment of
dividends.  Availability is based on a calculation of the Company’s
asset borrowing base less outstanding borrowings and letters of credit, which is
also increased by certain cash balances totaling $32.9 million at May 2,
2009.  Outstanding letters of credit under the revolving credit
facility, which are primarily associated with supporting workers’ compensation
obligations, were approximately $39.7 million at May 2, 2009.  Total
availability in excess of outstanding borrowings and letters of credit was
approximately $30.5 million at May 2, 2009.  Actual borrowings
are limited to the $50 million credit commitment and the $47.5 million letter of
credit sub-limit.  Revolving loan advances in excess of outstanding
balances are at the discretion of the lenders.





The
Company also has $3.6 million in borrowings under mortgages secured by first
liens on the related properties.





Certain
Contingencies





The
United States Attorney Office for the Northern District of New York (the “USAO”)
and the Securities and Exchange Commission (“SEC”) have been conducting
investigations relating to certain of the Company’s accounting practices and
policies 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
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. These officers had been terminated by the Company in February
2006.  The SEC's complaint further alleges that the individuals
deceived the Company’s accounting personnel to carry out their fraudulent scheme
and aided and abetted the Company’s violations of the Securities Exchange Act of
1934 and rules thereunder.  In addition, on the same date, the USAO
announced that a federal grand jury has returned an indictment against the
above-mentioned individuals on related criminal charges.





On
September 30, 2008, the Company reached a settlement with the SEC with respect
to its ongoing investigation.  Without admitting or denying the
allegations in the SEC’s complaint, the Company agreed to settle the charges by
consenting to a permanent injunction against any future violations of the
federal securities laws. The SEC imposed no fines or monetary penalties on the
Company. As part of the settlement, the Company has hired an independent
examiner who will provide annual reports to the SEC, the USAO and the Company’s
board on, among other things, the Company’s promotional-allowance internal
controls and financial reporting. The examiner will serve for three
years.  Other settlement terms included the Company’s consent to
reform its internal controls and policies and procedures related to promotional
allowances, as well as implementation of a telephone hotline for associates and
vendors to anonymously notify the company of misconduct related to promotional
allowances.





On
October 28, 2008, the Company entered into a non-prosecution agreement with the
USAO.  Under the agreement, the USAO has agreed not to prosecute the
Company for any crimes committed by its employees between 2001 and 2004 relating
to the matters that were the subject of the USAO’s previously announced
investigation of, among other things, the Company’s accounting policies,
practices and related conduct.  The USAO’s obligations under the
agreement are subject to a number of conditions, including the
Company’s:





·    acceptance
of responsibility for the conduct of its employees between 2001 and
2004;


·    adoption
of the remedial measures required under, and compliance with the terms of, the
previously announced settlement of the SEC’s investigation of the Company,
including its compliance with specified federal securities laws;
and


·    provision
of full cooperation to the USAO and Federal Bureau of Investigation with respect
to their ongoing investigations through the conclusion of any and all related
criminal trials.





If the
USAO determines that the Company has deliberately given false, incomplete or
misleading information under the agreement, or if the Company commits a crime or
otherwise knowingly, intentionally and materially violates any provision of the
agreement, then the Company may be subject to prosecution for any federal
criminal violation of which the USAO has knowledge, including any federal
criminal violation relating to the matters subject to the USAO’s investigation.
The Company agreed that any such prosecutions that are not time-barred by the
applicable statute of limitations on the date of the agreement may be commenced
against the Company notwithstanding the expiration of the statute of limitations
after the date of the agreement.





The
Company has incurred significant legal costs associated with these matters to
date and may continue to do so.  These costs are recorded in selling
and administrative expenses as incurred.


- 18
-





ITEM
      3.
            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 May 2, 2009, was $16.0 million with a weighted average interest
rate of 12.5%.  A 1.0% change in interest rates would impact
pre-tax income by $0.2 million based on the debt outstanding May 2,
2009.  In addition to the variable rate debt, we had $3.6 million of
fixed rate debt outstanding at May 2, 2009 with a weighted average interest rate
of 6.5%.  We view the fixed rate debt as a partial hedge against
interest rate fluctuations.





ITEM
      4.
            CONTROLS
      AND PROCEDURES





Disclosure
controls and procedures under Rule 13a-15(e) of the Securities Exchange Act of
1934 (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 a company in the reports it files or
submits under the Exchange Act is accumulated and communicated to the company’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.  Based on their current observations, members of
management, with input, where appropriate, from members of the audit committee,
have concluded that our disclosure controls and procedures were effective as of
May 2, 2009, 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.





Change
in our Internal Control over Financial Reporting





There
have been no changes during the quarter ended May 2, 2009, that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.


- 19
-


PART
II – OTHER INFORMATION





ITEM
1.  LEGAL PROCEEDINGS





Reference
is made to Item 3 of the Company’s Annual Report on Form 10-K for the year ended
January 31, 2009, and to Note 9 to the Consolidated Condensed Financial
Statements included in Part I of this Report on Form 10-Q.





ITEM
2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS





On May
14, 2009, CR Intrinsic Investors LLC, the holder of 2,000 shares of our Series A
Convertible Preferred Stock, par value $0.01 per share, elected to convert such
shares into shares of our common stock.  In accordance with the
provisions of such preferred stock, we issued 138,156 shares of our common stock
to CR Intrinsic Investors LLC on the date of conversion.  The Company
received no proceeds as a result of this transaction.





ITEM
      6.
            EXHIBITS





The
following are filed as Exhibits to this Report:





Exhibit No.
              
              Description10.1
              
              Board
      of Directors Compensation Agreement31.1
              
              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.





Signatures





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





THE
PENN TRAFFIC COMPANY





By:
                /s/  Gregory J. YoungName:
                Gregory
      J. YoungTitle:
                Chief
      Executive Officer and PresidentBy:
                /s/  Tod A. NestorName:
                Tod
      A. NestorTitle:
                Senior
      Vice President and Chief Financial
Officer


- 20
-