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

                                    Form 10-K


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


                   For the fiscal year ended September 29, 2006

                                       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 001-13403

                         AMERICAN ITALIAN PASTA COMPANY
             (Exact name of registrant as specified in its charter)

                Delaware                                    84-1032638
    (State or other jurisdiction of         (I.R.S. Employer Identification No.)
    incorporation or organization)

     4100 N. Mulberry Drive, Suite 200                      64116
           Kansas City, Missouri                          (Zip Code)
 (Address of principal executive offices)

               Registrant's telephone number, including area code:
                                 (816) 584-5000

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

       Securities registered pursuant to Section 12(g) of the Act: Class A
              Convertible Common Stock: $.001 par value per share

     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 Section 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 (ss. 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.  (Check
one):
Large accelerated filer | |  Accelerated filer  |X|  Non-accelerated filer   | |

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

     As of March 31,  2006,  March 30, 2007 and March 28,  2008,  the  aggregate
market  value of the  Registrant's  Class A  Convertible  Common  Stock  held by
non-affiliates  (using  the  closing  price)  was  approximately   $116,997,000,
$196,346,000 and $100,039,000, respectively.

     The  number of shares  outstanding  as of June 2, 2008 of the  Registrant's
Class A  Convertible  Common  Stock  was  19,387,454  and  there  were no shares
outstanding of the Registrant's Class B Convertible Common Stock.

                   DOCUMENTS INCORPORATED BY REFERENCE: None.

                         AMERICAN ITALIAN PASTA COMPANY

                                    FORM 10-K
                      FISCAL YEAR ENDED SEPTEMBER 29, 2006
                                      INDEX



                                                                            Page

Explanatory Note                                                              ii

PART I.........................................................................1

   ITEM 1.      BUSINESS.......................................................1

   ITEM 1A.     RISK FACTORS...................................................7

   ITEM 1B.     UNRESOLVED STAFF COMMENTS.....................................15

   ITEM 2.      PROPERTIES....................................................15

   ITEM 3.      LEGAL PROCEEDINGS.............................................16

   ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........18


PART II.......................................................................18

   ITEM 5.      MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
                MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.............18

   ITEM 6.      SELECTED FINANCIAL DATA.......................................20

   ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS...........................22

   ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....34

   ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................35

   ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                ACCOUNTING AND FINANCIAL DISCLOSURE...........................66

   ITEM 9A.     CONTROLS AND PROCEDURES.......................................66

   ITEM 9B.     OTHER INFORMATION.............................................69


PART III......................................................................70

   ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE........70

   ITEM 11.     EXECUTIVE COMPENSATION........................................74

   ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT AND RELATED STOCKHOLDER MATTERS....................81

   ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
                DIRECTOR INDEPENDENCE.........................................85

   ITEM 14.     PRINCIPAL ACCOUNTING FEES AND SERVICES........................87


PART IV.......................................................................88

   ITEM 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES.......................88

                                       i

                                Explanatory Note

Restatement of Historical Financial Statements

As more fully  described  in  Footnote 3 to the Audited  Consolidated  Financial
Statements included in the Company's previously filed Annual Report on Form 10-K
for fiscal year ended  September  30, 2005 the Company  restated its  previously
issued audited  consolidated  financial statements for fiscal years 2001 through
2004 and its  unaudited  consolidated  financial  statements  for the  first two
quarters of fiscal year 2005, (the "Restatement").

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains statements  concerning potential future
events.  These  forward-looking  statements  are based upon  assumptions  by our
management,  as of the  date of this  Annual  Report  on  Form  10-K,  including
assumptions  about risks and  uncertainties  faced by us.  Readers can  identify
these  forward-looking   statements  by  the  use  of  verbs  such  as  expects,
anticipates,  believes,  estimates,  intends,  projects, may, will, predicts, or
similar verbs or conjugations  of such verbs.  If any of our  assumptions  prove
incorrect or should unanticipated  circumstances arise, our actual results could
materially differ from those anticipated by such forward-looking statements. The
differences  could be caused by a number of  factors or  combination  of factors
including,  but not limited to, those factors  described below in Item 1A - Risk
Factors.  Readers  are  strongly  encouraged  to  consider  those  factors  when
evaluating any such forward-looking statements.  Except as otherwise required by
the federal securities laws, we will not update any  forward-looking  statements
in this Annual Report on Form 10-K to reflect future events or developments.

                                       ii

                                     PART I

ITEM 1.  BUSINESS

General

American  Italian Pasta Company is a Delaware  corporation and was  incorporated
and commenced  operations in 1988. Unless the context otherwise  indicates,  all
references  in this Annual  Report on Form 10-K to "the  Company",  "we",  "us",
"our",  and  similar  words  are to  American  Italian  Pasta  Company  and  its
subsidiaries.  We believe we are the largest  producer and marketer of dry pasta
in  North  America,  by  volume,  based on data  available  from  A.C.  Nielsen,
published  competitor  financial  information,  industry  sources  such  as  the
National  Pasta  Association,  suppliers,  trade  magazines  and our own  market
research.  During the fiscal year ended  September  29, 2006, we had revenues of
$367.0 million.

Our fiscal  year ends on the last  Friday of  September  or the first  Friday of
October, resulting in a 52- or 53-week year depending on the calendar. Our first
three quarters end on the Friday last  preceding  December 31, March 31 and June
30 or the first  Friday of the  following  month of each  quarter.  Fiscal years
2006, 2005 and 2004 were 52 weeks and ended on September 29, 2006, September 30,
2005 and October 1, 2004.

We  produce  approximately  200 dry pasta  shapes  in  milling,  production  and
distribution facilities, located in Excelsior Springs, Missouri, Columbia, South
Carolina,  Tolleson, Arizona, and Verolanuova,  Italy. We outsource distributing
operations at all of our facilities and we outsource  milling at the Arizona and
Italy plants.  Operations at our Wisconsin plant were temporarily  idled in July
2004 through  October 2004 and that plant was  permanently  closed in April 2006
and sold in August 2006.  Our U.S.  plants  serve both retail and  institutional
customers. We believe the construction of the Missouri plant in 1988 represented
the first use in North America of a vertically  integrated,  high-capacity pasta
plant using Italian milling and pasta production technology.  Our South Carolina
plant, which is also vertically  integrated,  commenced  operations in 1995, and
our Arizona plant commenced operations in 2003. The Italy plant, which commenced
operations in 2001,  serves retail and institutional  customers  internationally
and retail customers in the United States.

Our executive  offices are located at 4100 N. Mulberry Drive,  Suite 200, Kansas
City, Missouri 64116, and our telephone number is (816) 584-5000. Our website is
located at  http://www.aipc.com.  We make  available  free of charge through our
website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K,  and all  amendments  to those  reports as soon as they are
reasonably  available  after these  materials are  electronically  filed with or
furnished to the Securities and Exchange  Commission.  Information  contained in
our website is not a part of this Annual Report on Form 10-K.

AIPC Way

During fiscal year 2006, we developed the AIPC Way,  which  embodies our vision,
mission, operational model, business approach, core capabilities and values. The
components of the AIPC Way are as follows:

•    Vision  - What  we  will  achieve  - To be,  and to be seen  as,  the  best
     developer of category solutions for our customers in dry grocery.

•    Mission - What we will do - Focus on dry  grocery  categories  where we can
     leverage our  relationships  and  capabilities,  to develop  private label,
     branded and ingredient solutions for our retail, foodservice and industrial
     customers  and  by  exceeding  expectations,   provide  our  customers  and
     shareholders with enhanced value.

•    Operating  Model - How we plan and  execute  -  Always  operate  with  high
     ethical standards.  Strategic  planning.  Business planning and performance
     management.   Sales  and  operations   planning.   People   evaluation  and
     development.

•    Core  Capabilities  - What do we need to be great - Great people.  Category
     leadership.  Service leadership.  Speed to market.  Operational excellence.
     Cross function collaboration. Strong customer relationships.

                                       1

•    Values   -  What   we   believe   -   Integrity.   Quality.   Environmental
     sustainability. Empowerment and accountability. Passion to exceed.

Products and Brands

Our product  line is  comprised of  approximately  2,700 items or  stock-keeping
units  ("SKUs").  In many instances,  we produce pasta to our customers'  unique
specifications. We produce approximately 200 different shapes and sizes of pasta
products  in  multiple  package  configurations,  including  bulk  packages  for
institutional  customers  and smaller  individually-wrapped  packages for retail
consumers.  The varied  shapes and sizes  include long goods such as  spaghetti,
linguine,  fettuccine,  angel hair and  lasagna,  and short  goods such as elbow
macaroni, mostaccioli, rigatoni, rotini, ziti and egg noodles.

In fiscal  year 2006,  we  developed a  comprehensive  strategy to ensure we are
pursuing a  profitable  health  platform  through our private  label and branded
business in grocery retailers,  club stores, mass merchants and discount stores.
We have developed a number of whole wheat and multi-grain,  enriched multi-grain
and organic products.

Our products are produced to satisfy the specifications of our customers as well
as our own product  specifications.  We conduct internal  laboratory  evaluation
against   competitive   products   on  physical   characteristics   and  cooking
performance.  Physical  characteristics  considered  include color, speck count,
shape  and  consistency.   Cooking  performance  considerations  include  starch
release,  protein content,  and texture.  Our customers also perform competitive
product comparisons on a regular basis.

Our U.S. production facilities are inspected each year by the American Institute
of Baking ("AIB"),  the leading United States baking, food processing and allied
industries  evaluation  agency,  for  sanitation  and food  safety.  Our  plants
consistently achieve the AIB  Excellent/Superior  ratings. We also implemented a
comprehensive  Hazard  Analysis  Critical  Control  Point  ("HACCP")  program to
continuously monitor and improve the safety,  quality and  cost-effectiveness of
the Company's facilities and products.

Our Italian plant is inspected by AIB and a European  representative  similar to
AIB, the British Retail Consortium - Food Safety ("BRC"),  one of the recognized
European Food Safety Bodies.  Our facility  received the "Grade A" certification
from the BRC. Our Italian plant is an ISO 9002 certified production facility and
certified  organic  by  Consorzio  Per  Il  Controllo  Dei  Prodotti   Biologici
(Consortium  for the Control of  Biological  Production).  In addition,  we have
implemented HACCP and Food Safety Programs consistent with the U.S. facilities.

Marketing and Distribution

We actively sell and market our domestic  products  through our sales  employees
and with the use of food brokers and distributors  throughout the United States,
Canada, Mexico, and the Caribbean. Our senior management is directly involved in
the  selling  process  in all  customer  markets.  Our  over-arching  sales  and
marketing  strategy  is to  provide  category  leadership,  a  complete  product
offering, quality product,  competitive pricing and superior customer service to
attract  new  customers  and to  maintain  and  grow  pasta  sales  to  existing
customers.  We work with our  customers  to develop  marketing  and  promotional
programs  specifically  tailored to stimulate pasta consumption in their trading
area based upon the specific strategy and role for pasta.

We have established a significant market presence in North America by developing
strategic   customer   relationships   with  food  industry  leaders  that  have
substantial  pasta  requirements.  We supply  private label and branded pasta to
many of the largest grocery retailers in the United States, including serving as
a primary supplier of pasta to Wal-Mart, Inc. ("Wal-Mart"). We have historically
been the largest  pasta  supplier to Sysco,  the nation's  largest  marketer and
distributor  of  food  service   products.   We  also  have   developed   supply
relationships with leading food processors, which use our pasta as an ingredient
in their branded food products.

Our Italian plant enables us to offer  authentic  Italian pasta  products.  This
facility serves North American,  European,  and other international markets with
branded, private label, industrial and food service products.

As  part of our  overall  customer  development  strategy,  we use our  category
management  expertise  to assist  customers  in their  distribution  and  supply
management decisions regarding pasta products. Our category management expertise
allows us to recommend  pricing,  SKU assortment  and shelf space  allocation to
both private

                                       2

label and branded customers.  Our representatives also assist food processors in
incorporating  our pasta as an ingredient in their customers' food products.  We
provide dedicated  technical  support to our  institutional  customers by making
recommendations  regarding  the  processing  of pasta in  their  facilities.  We
believe  that  these  value-added  activities  provide  customers  with a better
appreciation and awareness of our products.

We have  demonstrated our commitment to customer service through the development
of enhanced  customer service  programs.  Examples of these programs include our
creation of an Efficient  Customer  Response ("ECR") model which uses Electronic
Data  Interchange  ("EDI")  and  vendor  replenishment  programs  to assist  key
customers,  and category  management  services for our private label and branded
customers.

Our primary distribution  centers in North America are strategically  located at
our production  facilities in South Carolina,  Missouri and Arizona to serve the
national market.  Finished products are automatically conveyed via enclosed case
conveying systems from the production facilities to the distribution centers for
palletizing and storage until shipping. The combination of integrated facilities
and  multiple  distribution  centers  enables  us to realize  distribution  cost
savings and provides lead-time, fill rate and inventory management advantages to
our  customers.  The  operation  of the  Missouri,  South  Carolina  and Arizona
distribution   centers  is  outsourced   under  a  long  term   agreement   with
Ozburn-Hessey  Logistics,  LLC ("OHL"),  a firm  specializing  in warehouse  and
logistics management services.

Pasta Production

Pasta's  primary  ingredient  is semolina,  which is extracted  from durum wheat
through a milling process. Durum wheat is used primarily for pasta. Each variety
of durum  wheat has its own unique set of  protein,  gluten  content,  moisture,
density,  color  and  other  attributes  which  affect  the  quality  and  other
characteristics  of  the  semolina.  We  blend  semolina  from  different  wheat
varieties as needed to meet customer specifications.

Our ability to produce high-quality pasta generally begins with purchasing durum
wheat  directly  from  farmer  elevators  and  grower-owned  cooperatives.  This
purchasing method ensures that the extracted semolina meets our  specifications.
We have  several  sources  for  durum  wheat  and are not  dependent  on any one
supplier or sourcing area. As a result, we believe that we have adequate sources
of supply for durum wheat. We occasionally  buy and sell semolina to balance our
milling and production requirements.

Durum wheat is a cash crop whose market price  fluctuates.  To a certain extent,
we manage our durum wheat cost risk through  cost  pass-through  mechanisms  and
other  arrangements with our customers and advance purchase  contracts for durum
wheat that are generally a few months in duration. We seek to manage the balance
of such risk through  continued  improvement in our  efficiencies and pricing of
our products.  Competitive pressures may limit our ability to pass-through these
costs.

Durum wheat is shipped by rail to our  production  facilities  in  Missouri  and
South  Carolina.  We have one rail contract  that will expire in July 2008.  For
other rail carriers that we utilize, we negotiate annual pricing arrangements or
are subject to applicable tariff rates.

We purchase  durum wheat and have it converted  to semolina  and  semolina/flour
blends for our  Tolleson,  Arizona  facility from an adjacent  milling  facility
owned by Bay State Milling  Company ("Bay State") under the terms of a long-term
supply  agreement.  The  agreement  is for an initial  10-year term with renewal
provisions   thereafter.   In  the  event  of  ownership  changes  or  sustained
under-performance,  we have  contractual  rights to purchase  the mill at a book
value established at the start of the supply agreement less future depreciation.
We are  obligated  to  purchase  80% of our  annual  Tolleson  requirements  for
semolina  from Bay State with an annual  minimum of 50 million  pounds.  We have
satisfied our minimum requirements and paid Bay State approximately $9.8 million
in fiscal year 2006,  $12.6  million in fiscal year 2005,  and $10.9  million in
fiscal year 2004.

Until the April 2006 shutdown of our Kenosha,  Wisconsin facility,  we purchased
semolina for that plant from Horizon Milling, LLC ("Horizon"),  (a joint venture
between Cenex Harvest  States and Cargill  Foods) under the terms of a long-term
supply  agreement.  In August of 2006, we advised  Horizon that the economic and
business  circumstances had changed since  commencement of the supply agreement,
that we were  invoking  the material  adverse  effect  provisions  of the supply
agreement and that we had sold the facility. See Item 3 - Legal Proceedings.

                                       3

In Italy, we purchase our semolina  requirements  from Italian mills to meet our
specific quality and customer needs.

We generate  and sell  by-products  from our milling  operations  in the form of
flour and mill feed.  These products compete in the marketplace with alternative
products  for feed usage and,  therefore,  fluctuate  in price  accordingly.  We
manage  our  by-product  sales  price  risk  through a variety  of pass  through
mechanisms and with forward sales contracts.

We  purchase  our  packaging  supplies,  including  poly-cellophane,  paperboard
cartons, boxes and totes from third parties. We believe we have adequate sources
of packaging supplies. In addition, we rely on supply and operations planning to
optimize  finished  goods  inventory,  minimize  the  risk of  obsolescence  for
finished  goods  and raw  materials,  maximize  customer  service,  and  achieve
efficient factory utilization.

Trademarks and Patents

We hold a number of  federally  registered  and common law  trademarks  which we
consider to be of value and importance to our business.  We have also registered
other trademarks.  Although we hold numerous  patents,  we do not believe any of
the patents to be material to our business.

Dependence on Major Customers

Historically,  a limited  number of customers  have  accounted for a substantial
portion of our  revenues.  During the fiscal  years ended  September  29,  2006,
September  30,  2005 and  October  1,  2004,  sales to  Wal-Mart  accounted  for
approximately 22%, 21% and 18%,  respectively,  and sales to Sysco accounted for
approximately  11% of our revenues for each of the fiscal years listed.  Through
December 31, 2006,  we had an exclusive  supply  contract with Sysco (the "Sysco
Agreement").  We  expect  to  continue  to rely on a  limited  number  of  major
customers for a substantial portion of our revenues in the future.

Under the terms of the Sysco Agreement,  we served as the exclusive U.S. private
label  supplier to Sysco of certain  dry pasta  products  bearing a  Sysco-owned
label and sold through Sysco's network of operating  companies.  During the term
of the Sysco  Agreement,  we were the primary supplier of dry pasta to Sysco and
had the  exclusive  right to supply  dry pasta to Sysco for sale  under  Sysco's
brand names.  Subsequent  to December 31, 2006,  we continue to supply Sysco and
its network of operating companies on a non-exclusive  basis. Under the terms of
the  Sysco  Agreement,  we were  precluded  from  pursuing  other  food  service
distributors.  We are pursuing  other food service  distributors  representing a
market  opportunity of approximately  75% of the food service space not occupied
by Sysco.

We do not have long-term supply contracts with a substantial number of our other
customers, including Sysco and Wal-Mart.  Accordingly, we are dependent upon our
customers to sell our products and to assist us in promoting  market  acceptance
of, and creating demand for, our products.  An adverse change in, or termination
or  expiration  without  renewal  of, our  relationships  with or the  financial
viability of one or more of our major  customers  could have a material  adverse
effect on our business, financial condition and results of operations.

Competition

We operate in a highly competitive environment against numerous well-established
national, regional and foreign companies, and many smaller companies. We compete
in the procurement of raw materials, the development of new products and product
lines,  the  improvement  and  expansion of previously  introduced  products and
product lines and the production,  marketing and distribution of these products.
Some of these companies with which we compete have longer  operating  histories,
significantly  greater brand recognition and financial and other resources.  Our
products  compete  with a broad range of food  products,  both in the retail and
institutional customer markets.  Competition in these markets generally is based
on achieving distribution,  product quality, pricing,  packaging or advertising,
promotion and customer service and logistics capabilities.

Our direct  competitors  include Barilla (a large  multi-national  Italian-owned
diversified  food company  with two  manufacturing  facilities  operating in the
U.S.),  New World Pasta  Company  owned by Ebro  Puleva  (Spain's  leading  food
processor),  Dakota Growers Pasta Company, Philadelphia Macaroni Co. Inc. and A.
Zerega's  Sons,  Inc.,  and

                                       4

foreign  companies such as Italian pasta producer De Cecco.  For sales in Europe
and other  international  markets,  our Italian plant  competes with Barilla and
numerous Italian pasta producers.

Pasta Markets

Although we have  international  sales,  more than 95% of our revenues in fiscal
year 2006 were from sales in North America.

North  American  pasta (in all its forms)  consumption is estimated to have been
approximately  $5.3  billion in fiscal year 2006 (as  measured by A.C.  Nielsen,
which  data does not  include  Wal-Mart).  The pasta  industry  consists  of two
primary  customer  markets:  (i) Retail,  which includes  grocery  stores,  club
stores,  mass merchants,  drug and discount stores that sell branded and private
label pasta to  consumers;  and (ii)  Institutional,  which  includes  both food
service distributors that supply restaurants,  hotels, schools and hospitals, as
well as food processors that use pasta as a food ingredient.

Customer Markets - Retail: The U.S. retail market includes  traditional  grocery
retailers,  club stores,  mass merchants,  drug and discount stores.  We are the
leading  producer of retail dry pasta in the U.S.  consisting  of our brands and
the Private Label  businesses  of our  customers.  The second,  third and fourth
largest  purveyors of retail pasta in the United  States by volume are New World
Pasta, Barilla and Dakota Growers Pasta Company,  respectively.  Our strategy is
to provide our retail  partners  with a full  portfolio of pasta  products  from
regional  brands to store  brands to  authentic  Italian  imported  products and
specialty  products all delivered within the highest quality  standards and with
exceptional customer service.

Customer Markets - Institutional:  The  Institutional  market includes both food
service distributors that supply restaurants,  hotels, schools and hospitals, as
well as food  processors  that use  pasta  as a food  ingredient.  Food  service
customers   include   businesses  and   organizations   that  sell  products  to
restaurants,  healthcare  facilities,  schools,  hotels and industrial  caterers
("broadliners")   and  multi-unit   restaurant   chains  that  procure  directly
("multi-units").  The food service market is highly  fragmented and is served by
numerous regional and local food distributors.  We were historically constrained
to the approximate 25% of the food service market occupied by Sysco Corporation.
Since January 1, 2007, we have been able to participate  more fully in the other
75% of this market.

The Institutional market also includes sales to food processors who use pasta as
an ingredient  in their food  products  such as frozen  dinner  entrees and side
dishes,  dry  side  dish  mixes,   canned  soups  and  single-serve  meals.  The
consistency  and  quality  of  the  color,  starch  release,   texture,  cooking
consistency,  and  gluten  and  protein  content  of  pasta  produced  for  food
processors  is  crucial  to the  success of their  products.  As a result,  food
processors have stringent specifications for these attributes.

The  size  of the  Institutional  market  is  affected  by the  number  of  food
processors that elect to produce pasta internally  rather than outsourcing their
production.  A substantial  amount of the pasta used by food processors has been
and continues to be manufactured  internally for use by food processors in their
own products.

Government Regulation; Environmental Matters

We are subject to various laws and regulations  relating to the operation of our
production facilities, the production,  packaging, labeling and marketing of our
products and pollution control,  including air emissions, which are administered
by federal,  state, and other governmental  agencies.  Our production facilities
are subject to inspection by the U.S. Food and Drug  Administration  ("FDA") and
the  Occupational  Safety and Health  Administration,  as well as various  state
agencies.

Our  facilities  are  subject  to  air  permitting  by  the  U.S.  Environmental
Protection   Agency  and/or   authorized   States  under  federal  and/or  state
regulations  implementing  the federal Clean Air Act. Each of our  facilities is
currently  operating  under  valid  permits.  Costs to renew  these  permits are
immaterial.

Our facilities are subject to certain safety regulations  including  regulations
issued  pursuant  to  the  U.S.   Occupational  Safety  and  Health  Act.  These
regulations require us to comply with certain  manufacturing safety standards to

                                       5

protect  our  employees  from  accidents.  We  believe  that we are in  material
compliance with all employee safety regulations.

Our  facilities  are also  subject to annual  reporting  requirements  under the
Emergency  Planning  and  Community   Right-to-Know  Act  and  its  implementing
regulations.  No permit is required, but we do submit Tier II reports to federal
and/or state regulators,  local emergency planning organizations,  and the local
fire department with jurisdiction over the facilities  quantifying all hazardous
materials stored on our property that meet or exceed threshold quantities. Costs
associated with this annual reporting are minimal.

The Comprehensive  Environmental Response Compensation and Liability Act of 1980
("CERCLA"),  as amended,  and other  similar  state laws  require the cleanup of
hazardous waste disposal sites.  Parties that may be liable under CERCLA for the
cleanup of a hazardous  waste disposal site include the current  property owner,
the  operator,  owners and operators of the property at the time of a release of
hazardous  substances,  the arranger of the  disposal,  and the  transporter  of
hazardous  substances.   To  date,  we  have  not  been  notified  by  the  U.S.
Environmental  Protection  Agency,  any state agency, or any other private party
that we are considered responsible or potentially responsible for some aspect of
the  cleanup of any  hazardous  waste  disposal  site under  CERCLA or any other
similar state laws.

In fiscal year 2004, we received the Customs Trade Partnership Against Terrorism
("C-TPAT")  certification  from the United States Customs and Border  Protection
("CBP")  division of the Department of Homeland  Security.  CBP developed C-TPAT
after the  September  11, 2001  terrorist  attacks as a way to identify low risk
importers and facilitate the efficient  release of goods,  even under heightened
security  conditions.  To become a participant of C-TPAT,  our security measures
were  reviewed  and  certified by CBP. As part of the C-TPAT  certification  and
review process,  CBP is reviewing the  implementation of our security  measures.
C-TPAT  certification  includes  certain  benefits to participants  and may help
reduce the risk of significant delays in the importation of our product.

All imported pasta is subject to U.S. import regulations. Duties are assessed in
accordance with the Harmonized Tariff Schedule of the United States.

See Item 3 - Legal Proceedings.

Employees

As of September 29, 2006, we employed 620  full-time  persons  worldwide of whom
187 were administrative and 433 manufacturing  employees. Our 563 U.S. employees
were not represented by any labor unions.  Our 57 Italian employees were subject
to a national labor agreement and were represented by a labor union. We consider
our employee relations to be excellent.

Pasta Industry Environment

During fiscal year 2006,  the dry pasta market  continued  some  improvement  as
consumer demand for pasta products  increased  slightly  compared to fiscal year
2005.

Restructuring and Rightsizing Program; Subsequent Company Developments

In response to the pasta industry  conditions  that existed in fiscal year 2004,
we announced a  Restructuring  and  Rightsizing  program during our third fiscal
quarter of that year.  The key  elements of the  Restructuring  and  Rightsizing
program included reductions in the Company's workforce,  manufacturing  capacity
and inventory  levels and related changes to our distribution  network.  In that
regard,  during the fourth quarter of fiscal year 2004, we idled full operations
at  our  Kenosha,  Wisconsin  manufacturing  facility;   temporarily  shut  down
production at two of our other  domestic  manufacturing  facilities;  and exited
certain leased domestic distribution centers.

In connection with this  Restructuring  and Rightsizing  program,  during fiscal
year 2004, we recorded $2.9 million of restructuring  expenses primarily related
to  employee  severance  and  termination  benefits,  lease  costs,  and  supply
agreement  costs.  In 2005, we recognized  $0.6 million  benefit  related to the
reversal  of a  previously  established  restructuring  reserve due to the early
reactivation  of the Kenosha  plant which was not  contemplated  at the time the
restructuring reserve was established.

                                       6

Following the  implementation  of the Company's  Restructuring  and  Rightsizing
Program  in  the  third   quarter   of  2004,   production   and   manufacturing
inefficiencies,  reduced inventory levels and product  availability  resulted in
customer shipment delays and other customer service shortfalls.  We proceeded to
rebuild  inventory  and it took  until the second  quarter  of fiscal  year 2005
before customer shipment delays were corrected and customer order fill rates had
returned to historical levels.

During the 2005 fiscal year, and through April 2006, we continued to operate our
Wisconsin  plant on an "as needed" basis to meet  production  needs. In February
2006, we determined that the plant would be permanently  closed and divested and
that we would relocate two production lines to our South Carolina plant. In that
regard,  the plant was  permanently  closed in April 2006 and was sold in August
2006. We completed the relocation of our production  lines to our South Carolina
plant in August 2006.

In late 2005,  we performed a  comprehensive  review of the  composition  of our
inventory and identified  significant quantities that had become excess, damaged
and obsolete  due  primarily to our  significant  decrease in revenues,  and the
continued aging of our inventory. This focused effort continued into fiscal year
2006 and resulted in the sale or disposal of  substantial  quantities  of excess
and/or obsolete finished goods, packaging and raw material inventories.  In that
regard,  we recorded  obsolescence  expense of  approximately  $12.2  million in
fiscal year 2005 and an additional provision for obsolescence of $1.4 million in
fiscal year 2006.

ITEM 1A. RISK FACTORS

You should  carefully  consider the risks described  below, as well as the other
information  included or incorporated by reference in this Annual Report on Form
10-K before  investing in our common stock. If any of the following risks occur,
our  business,  financial  condition or operating  results  could be  materially
adversely  affected.  The risks  described below are not the only risks we face.
Additional  risks  and  uncertainties  not  presently  known  to us or  that  we
currently  believe to be immaterial  may also  materially  adversely  affect our
business, financial condition and operating results.

Risks relating to lack of current information about our business.

Material information about our current operating results and financial condition
is  unavailable  because of the delay in filing with the SEC our 2005,  2006 and
2007 annual  reports and quarterly  reports for any quarter  through the date of
this filing.  While we have released  periodic updates  regarding our liquidity,
revenue performance and certain financial data, investors have not had access to
complete  information  about  the  current  state  of our  business.  When  this
information  becomes available to investors,  it may result in an adverse effect
on the trading price of our common stock.

Reputational risks and other risks relating to negative publicity.

We  may  be  subject  to  negative  publicity   resulting  from  our  accounting
restatement  and related  investigations  and  litigation.  While we believe our
customers  focus  primarily on the quality of our  products and service  levels,
this negative publicity could affect our relationship with our current customers
and suppliers if our customers and suppliers  lose  confidence in our ability to
fulfill our commitments,  and could affect our ability to develop  relationships
with  potential  customers and  suppliers,  which could have a material  adverse
effect on our business.

We are subject to ongoing governmental  investigations which could require us to
pay substantial  fines or other  penalties or otherwise have a material  adverse
effect on us.

We have been  responding to subpoenas from the  Enforcement  Division of the SEC
relating to our accounting  practices,  financial reporting,  proxy solicitation
and other matters in connection with an ongoing formal, non-public investigation
by the SEC staff.  While we are  cooperating  with this  investigation,  adverse
developments  in connection with the  investigation,  including any expansion of
scope,  could negatively impact us and could divert the efforts and attention of
our management  team from our ordinary  business  operations.  The United States
Attorney's  Office  for the  Western  District  of  Missouri  ("DOJ")  has  been
coordinating  with the SEC staff on this  matter.  The  nature of the  relief or
remedies the SEC or the DOJ may seek cannot be  predicted at this time,  but may
include monetary penalties and/or injunctive relief,  either of which could have
a  material  adverse  effect  on  us.  A  more

                                       7

detailed  description  of these  investigations  is  included  under the heading
"Legal Proceedings" in this Annual Report on Form 10-K.

We are  currently  cooperating  with the DOJ on a matter  related  to the  prior
revocation of the  anti-dumping  orders with respect to our Italian  subsidiary,
Pasta Lensi,  S.r.l.  The DOJ may take action  related to this matter that could
have a material adverse effect on us. A more detailed description of this matter
is included under the heading "Legal  Proceedings" in this Annual Report on Form
10-K.

The efforts of our current  management team and our Board of Directors to manage
our business have been hindered at times by their need to spend significant time
and effort to resolve issues related to our accounting  restatement  and matters
under  investigation.  To the  extent  our  management  team  and our  Board  of
Directors will be required to devote  significant  attention to these matters in
the  future,  this may have,  at least in the near term,  an  adverse  effect on
operations.

Pending civil litigation and related claims could have a material adverse effect
on us.

A number of lawsuits  have been filed  against us and certain of our current and
former  officers and directors  relating to our  accounting  restatement.  These
suits  include  our  court  approved  settlement  in the  federal  class  action
securities  lawsuit and derivative cases currently  pending in the U.S. District
Court for the Western District of Missouri, the Circuit Court of Jackson County,
Missouri,  and the  Delaware  Chancery  Court for which we have an  agreement in
principle to settle,  subject to court  approval.  Our  directors' and officers'
liability  policies for the applicable  policy year will be depleted as a result
of these lawsuits,  and as a result,  any such  continuing or additional  claims
could have a material adverse effect on our business,  results of operations and
cash flows.  We are unable at this time to estimate our  potential  liability in
such matters.  The defense of these lawsuits may consume  substantial  time, and
they may divert management's  attention and resources from our ordinary business
operations.  More  information  regarding  these  lawsuits is included under the
heading "Legal Proceedings" in this Annual Report on Form 10-K.

Our  indemnification  obligations  and  limitations  of our director and officer
liability  insurance  could  have a  material  adverse  effect on our  business,
results of operations and financial condition.

Several of our current and former  directors,  officers  and  employees  are the
subject of lawsuits and investigations  relating to our accounting  restatement.
Under  Delaware  law,  our  articles  and bylaws,  and  certain  indemnification
agreements,  we may have an  obligation  to  indemnify  our  current  and former
officers   and   directors  in  relation  to  these   matters.   Some  of  these
indemnification  obligations may be covered by certain insurers under applicable
directors'  and officers'  liability  policies.  Our  applicable  directors' and
officers'  liability  policies  for the policy year during  which these  matters
arose has been depleted with the final court approval of the federal  securities
class  action  lawsuit and the  proposed  settlement  of the  derivative  cases,
thereby leaving certain  additional  indemnity  obligations as uninsured.  If we
incur significant uninsured indemnity obligations,  these obligations could have
a material  adverse effect on our business,  results of operations and financial
condition.

Ongoing SEC review may require us to amend our public disclosures further.

We may receive comments from the staff of the SEC relating to this Annual Report
on Form 10-K and our other periodic filings.  As a result, we may be required by
the SEC to amend this Annual Report on Form 10-K or other reports filed with the
SEC in order to make adjustments or additional disclosures.

We could  face  additional  adverse  consequences  as a  result  of our late SEC
filings.

We will continue to incur  additional  expenses  until we are current in our SEC
reporting obligations. Until we are current in our SEC reporting obligations, we
will be precluded from registering any securities with the SEC. In addition,  we
will not be eligible to use a "short  form"  registration  statement on Form S-3
until we have been  current in our  periodic  reporting  obligations  for twelve
months,  which would increase the cost of raising  capital  through the issuance
and sale of equity.

                                       8

If  we  fail  to  establish  and  maintain  effective  disclosure  controls  and
procedures and internal control over financial  reporting,  we may have material
misstatements  in our financial  statements and we may not be able to report our
financial results in a timely manner.

As   required  by  Section   404  of  the   Sarbanes-Oxley   Act  of  2002  (the
"Sarbanes-Oxley  Act"),  management  has conducted an assessment of our internal
control over financial reporting.  Management has identified material weaknesses
in our internal control over financial reporting and concluded that our internal
control over  financial  reporting was not effective as of September 29, 2006. A
description  of  these  material  weaknesses,  is  included  under  the  heading
"Controls and Procedures" in this Annual Report on Form 10-K.

These  and other  previously  reported  historical  material  weaknesses  in our
internal control over financial reporting contributed to the restatements to our
consolidated  financial statements for fiscal year 2004 and prior periods.  Each
of our  material  weaknesses  resulted in more than a remote  likelihood  that a
material  misstatement  would not be  prevented  or  detected.  As a result,  we
performed extensive additional work to obtain reasonable assurance regarding the
reliability of our financial  statements.  Even with this additional work, given
the  numerous  material  weaknesses  identified,  there is a risk of  additional
errors not being  prevented or detected which could cause us to fail to meet our
reporting obligations or result in additional restatements.

We have developed and are  implementing  specific  measures for remedying all of
the identified  material  weaknesses and other  deficiencies that existed at the
end of fiscal year 2006.  There can be no assurance  as to when the  remediation
plan will be fully  implemented.  Until our  remediation  efforts are completed,
management  will  continue to devote  significant  time and  attention  to these
efforts. There will also continue to be an increased risk that we will be unable
to timely file future  periodic  reports with the SEC,  that a default under our
debt  agreements  could occur as a result of further  delays and that our future
financial statements could contain errors that will be undetected.

In the future,  we may  identify  further  material  weaknesses  or  significant
deficiencies in our internal  control over financial  reporting that we have not
discovered  to date.  In addition,  we cannot be certain that we will be able to
maintain adequate  disclosure  controls  procedures over our financial reporting
processes.

A change in our relationship with our major customers could adversely affect our
revenues.

Historically,  a limited  number of customers  has  accounted  for a substantial
portion  of our  revenues.  If our  relationship  with one or more of our  major
customers  changes or ends, our sales could suffer,  which could have a material
adverse effect on our business,  financial  condition and results of operations.
We expect that we will continue to rely on a limited  number of major  customers
for a substantial portion of our revenues in the future. During the fiscal years
ended  September  29,  2006,  September  30, 2005 and October 1, 2004,  sales to
Wal-Mart accounted for approximately 22%, 21%, and 18%, respectively,  and sales
to Sysco accounted for  approximately 11% of our revenues for each of the fiscal
years listed.  Currently,  we do not have  long-term  supply  agreements  with a
substantial number of our customers, including Wal-Mart and Sysco. Our exclusive
arrangement  with Sysco expired on December 31, 2006. There is no guarantee that
the Sysco volumes and revenues will continue as they were under the contract.

Cost increases in raw materials,  energy or packaging  materials could adversely
affect us.

Increases in the cost of raw materials  (including  durum wheat  ingredients and
egg products),  energy (including  transportation  costs) or packaging materials
could have a material  adverse effect on our operating profit and margins unless
and  until we are  able to pass  the  increased  cost  along  to our  customers.
Historically,  changes in sale prices of our pasta  products have lagged changes
in our  materials  costs.  Competitive  pressures  may also limit our ability to
raise  prices or affect  the timing or  magnitude  of such  price  increases  in
response to increased raw materials, energy, packaging materials or other costs.
Accordingly,  we do not know whether, or the extent to which, we will be able to
offset raw materials,  energy,  packaging materials or other cost increases with
increased  product prices. In addition,  a consequent  increase in pricing could
cause a reduction in both industry and our own sales volumes.

The  principal  raw material in our  products is durum wheat.  The cost of durum
wheat  represents a substantial  portion of our total cost of goods sold.  Durum
wheat is used almost  exclusively in pasta  production and is a narrowly traded,
cash-only  commodity crop. Our commodity  procurement and pricing  practices are
intended to reduce the risk of durum wheat cost increases on our  profitability,
but by forward  procurement of our durum needs,  we may

                                       9

temporarily  affect our  ability  to  benefit  from  possible  durum  wheat cost
decreases.  In  2006,  durum  prices  in North  America  escalated  from  recent
historical levels and then stabilized at the higher pricing levels. In the third
quarter of fiscal year 2007 and continuing  into fiscal year 2008,  durum prices
sharply escalated and have risen to price levels not previously experienced.

The supply and price of durum wheat in North  America  and on a global  scale is
subject to market  conditions  and is influenced by several  factors  beyond our
control, including:

•        general economic conditions;

•        global supply and demand (including acres planted and harvest quality);

•        natural disasters, insects, plant diseases, and weather conditions;

•        competition;

•        trade relations;

•        governmental programs and regulations;

•        natural gas costs; and

•        transportation and fuel cost.

While we procure durum directly from North Dakota,  Montana,  and Canada for our
Missouri and South  Carolina  plants,  our Arizona plant is highly  dependent on
durum  from  the  southwest  section  of the  U.S.  Adverse  market  conditions,
including supply  constraints caused by weather or other conditions could have a
material adverse effect on our operating profit and margins.

We also rely on the supply of plastic,  corrugated and other packaging materials
(a significant  portion of our cost of goods sold), which fluctuate in price due
to market conditions beyond our control.

We also rely on rail carriers for  transportation  of durum wheat to our milling
facilities  and ocean and truck  freight  for  movement of our  finished  goods.
Beginning  in  fiscal  2008,  fuel  costs  escalated   sharply,   impacting  our
transportation costs for raw materials and finished goods. If we are not able to
offset  these  costs  through  increased   efficiencies  or  pricing,  we  could
experience  additional  adverse impact on our business,  financial  condition or
results of operations.

If our customers  curtail their  operations,  our financial  performance  may be
adversely affected.

Due to  the  highly  competitive  environment  currently  existing  in the  food
retailing  and  foodservice  industries,  some  of our  retail  and  foodservice
customers have experienced economic difficulty.  In addition, the food retailing
industry has  experienced  consolidation.  A number of our  customers  have been
forced to close stores and certain others have sought bankruptcy protection.  If
a  material  number  of our  customers,  or any one  large  customer,  closed  a
significant number of stores, filed for bankruptcy  protection,  or consolidated
operations with another company, we could be materially adversely affected.

A  decline  in  demand  for dry  pasta  could  adversely  affect  our  financial
performance.

We focus  primarily  on producing  and selling dry pasta.  We expect to continue
this  primary  focus.  Because  of our  product  concentration,  any  decline in
consumer  demand or preference  for dry pasta or any other factor that adversely
affects  the  pasta  market  could  have a  significant  adverse  effect  on our
business, financial condition and results of operations.  During the latter half
of fiscal  year 2004 and  continuing  in fiscal  year  2005,  we  experienced  a
significant  decline in demand for dry pasta products  caused  primarily by diet
driven   changes  to  consumer   preference,   which   adversely   affected  our
profitability.  If demand were to materially  decline again, we could experience
additional  material  adverse  impact on our business,  financial  condition and
results of operations.

If aggregate  production  capacity in the U.S.  pasta  industry  increases or is
under-utilized,  we may have to adopt a more aggressive pricing strategy,  which
could adversely affect our results of operations.

Our  competitive  environment  depends  on the  relationship  between  aggregate
industry  production  capacity and aggregate  market demand for pasta  products.
Production  capacity  above market demand can have a material  adverse effect on
our business, financial condition and results of operations.

                                       10

If we are not able to compete effectively with established  domestic and foreign
producers  of  pasta  products,  our  financial  performance  may  be  adversely
affected.

The  markets in which we  operate  are highly  competitive.  We compete  against
numerous  well-established  national,  regional,  local and foreign companies in
every aspect of our business. Our customers may not continue to buy our products
and we may not be able to compete effectively with all of these competitors.

Some of our  competitors  have longer  operating  histories,  and greater  brand
recognition and financial and other resources than we do. Our direct competitors
include:

•    U.S.  pasta  producers,  including  Barilla,  Ebro  Puleva/New  World Pasta
     Company,  Dakota Growers Pasta Company,  Philadelphia Macaroni Co. Inc. and
     A. Zerega's Sons, Inc.;

•    Foreign  pasta  producers,  including  Barilla,  Rummo,  De Cecco  and Ebro
     Puleva;

•    U.S. food processors that produce pasta internally as an ingredient for use
     in food products, including Kraft Foods, ConAgra, Campbell Soup Company and
     Stouffers Corp.; and

•    Foreign food  processors,  including Pasta Foods,  food brokers and Italian
     pasta manufacturers.

If we are unable to manage our production and inventory  levels,  our ability to
operate  cost-effectively and to maintain high customer service standards may be
adversely affected.

Unanticipated  fluctuations  in demand make it  difficult  to manage  production
schedules, plant operations and inventories. Also, customer inventory management
systems that are intended to reduce a retailer's  inventory  investment increase
pressure on  suppliers  like us to fill  orders  promptly  and  thereby  shift a
portion  of the  retailer's  inventory  management  cost  to the  supplier.  Any
production  of excess  inventory  to meet  anticipated  demand  could  result in
markdowns  and  increased   inventory   carrying  costs.   Any  temporary  plant
suspensions  or shutdowns may cause  inventory  shortfalls.  In addition,  if we
underestimate the demand for our products,  we may be unable to provide adequate
supplies  of  pasta  products  to  retailers  in  a  timely  fashion,   and  may
consequently  lose  sales.  If  product  availability  issues  result in our not
maintaining high customer service  standards,  our customers may not continue to
purchase our products.

Our need for substantial  capital and our level of indebtedness may restrict our
operating and financial  flexibility  and could  adversely  affect our business,
financial condition or operating results.

Our  business  required a  substantial  capital  investment,  which we  financed
through third-party  lenders and public equity offerings.  The amount of debt we
carry and the terms of our  indebtedness  could  adversely  affect us in several
ways, including:

•    our  ability to obtain  additional  financing  in the  future  for  working
     capital,  capital expenditures,  and general corporate purposes,  including
     strategic acquisitions, may be impaired;

•    our ability to use  operating  cash flow in other areas of our business may
     be limited  because a substantial  portion of our cash flow from operations
     may have to be  dedicated to the payment of the  principal  and interest on
     our indebtedness;

•    the terms of such indebtedness restrict our ability to pay dividends;

•    our ability to use operating cash flow in other areas of our business or to
     reduce  our level of  indebtedness  may be  limited  because a  substantial
     portion of our cash flow from  operations  may have to be  dedicated to the
     payment of on-going legal, accounting and other professional fees;

•    we may be more highly  leveraged  than some of our  competitors,  which may
     place us at a competitive disadvantage;

                                       11

•    the  level  of debt we  carry  could  restrict  our  corporate  activities,
     including  our  ability to respond to  competitive  market  conditions,  to
     provide  for  capital  expenditures  beyond  those  permitted  by our  loan
     agreements,  or to take advantage of acquisition opportunities and grow our
     business; and

•    because  substantially  all of our assets are now pledged as collateral for
     our debt, an uncured  default could allow our lenders to sell our assets to
     satisfy our debt obligations.

In the event that we fail to comply with the  covenants  in our  current  credit
facility,  or any future  loan  agreements,  there  could be an event of default
under the applicable instrument.  As a result, all amounts outstanding under our
current or any future debt  instruments may become  immediately due and payable.
We have used,  and may  continue to use,  interest  rate  protection  agreements
covering  our  variable  rate  debt to limit our  exposure  to  variable  rates.
However, we may not be able to enter into such agreements or such agreements may
adversely affect our financial  performance.  If interest rates were to increase
significantly  or if we  are  unable  to  generate  sufficient  cash  flow  from
operations in the future, we may not be able to service our debt and may have to
refinance all or a portion of our debt,  structure our debt differently,  obtain
additional  financing  or sell assets to repay such debt.  We may not be able to
affect such refinancing,  additional financing or asset sales on favorable terms
or at all.

If existing  anti-dumping  measures  imposed  against  certain  foreign  imports
terminate,  we will face increased  competition  from foreign  companies and our
profit margins or market share could be adversely affected.

Anti-dumping  and  countervailing  duties on certain Italian and Turkish imports
imposed by the DOC in 1996  enable us and our  domestic  competitors  to compete
more favorably  against Italian and Turkish  producers in the U.S. pasta market.
In September 2007, the U.S.  International Trade Commission ("ITC") extended the
antidumping and countervailing duty orders for an additional five years, through
2011. If the anti-dumping and countervailing duty orders are repealed or foreign
producers sell competing products in the United States at prices lower than ours
or enter the U.S.  market by  establishing  production  facilities in the United
States, the result would further increase  competition in the U.S. pasta market.
We may be unable to compete effectively with these competitors.  This could have
a material  adverse effect on our business,  financial  condition and results of
operations.

A write-off of our intangible and other long lived assets could adversely affect
our results of operations.

Our total assets reflect  substantial  intangible  assets. The intangible assets
represent the value of our brands and  trademarks  resulting  primarily from our
acquisitions  of the  Mueller's,  Golden  Grain/Mission,  and seven  other pasta
brands  acquired from Borden Foods.  We review our  indefinite-lived  assets for
impairment annually or whenever events or changes in circumstances indicate that
the carrying  amount of an asset may not be recoverable.  When future  operating
performance  of one or more of our  acquired  brands falls  significantly  below
current or expected  levels,  we record an impairment  expense.  A determination
requiring  the  write-off of a  significant  portion of our  intangible  assets,
although a non-cash charge to operations,  would have a material negative effect
on our results of operations and total  capitalization.  In fiscal year 2005, we
recorded brand  impairment  expenses of $88.6  million.  In fiscal year 2006, we
recorded  additional  brand impairment of $1.0 million and sold brands resulting
in a net  intangible  write-off of  approximately  $4.7 million.  The intangible
balance at September 29, 2006 was $82.8 million.

Our total assets also reflect  substantial long lived fixed assets for property,
plant and equipment.  We review  long-lived  assets for  impairment  annually or
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. We evaluate recoverability of assets to be held
and used by comparing  the carrying  amount of an asset to future net cash flows
expected  to be  generated  by the asset.  If such assets are  considered  to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying  amount or fair value less
costs to sell. A determination  requiring write off of a significant  portion of
fixed assets,  although a non-cash  charge to operations,  would have a material
negative  effect on our  results  of  operations  and total  capitalization.  At
September  29, 2006 and  September  30, 2005,  long lived fixed  assets  totaled
$324.5  million  and $360.7  million,  respectively.  In fiscal  year  2006,  we
recorded  charges to pre-tax income of $22.3 million,  primarily  related to the
closure and sale of the Kenosha, Wisconsin facility.

                                       12

Because we produce food products,  we may be subject to product liability claims
and have costs related to product recalls.

We may need to recall some of our products if they become adulterated, infested,
misbranded  or  mislabeled.  We may also be subject to claims or lawsuits if the
consumption of any of our products causes injury. A widespread product recall or
a significant  product liability  judgment against us could cause products to be
unavailable for a period of time and result in a loss of consumer  confidence in
our food products and could have a material  adverse effect on our business.  We
carry insurance against most of these matters;  however,  our insurance coverage
may not be adequate.  The cost of commercially available insurance has increased
significantly  and such  insurance  may not be available in the future at prices
that we can afford.  In addition,  because we often  indemnify our customers for
costs related to product recalls, we could be subject to additional expenses and
any significant  expenses not covered by insurance would  negatively  impact our
operating results.

The loss of the  services of one or more members of our senior  management  team
could have a material  adverse effect on our business,  financial  condition and
results of operations.

Our  operations  and prospects  depend in large part on the  performance  of our
senior  management  team. We may not be able to find qualified  replacements for
any of these individuals if their services were no longer  available.  We do not
currently  maintain  key  person  life  insurance  on any  member of our  senior
management  team.  While we  maintain a Severance  Plan and a  long-term  equity
program for employees,  we do not provide employment agreements to our executive
officers,  except for the  agreement  with Mr. John P. Kelly our  President  and
Chief Executive Officer.

If our  competitors  develop  or  acquire  advanced  technology,  our  financial
performance may be adversely affected.

If other pasta  producers  acquire  equipment  similar to our  equipment or more
advanced equipment that provides greater efficiencies, what we believe to be our
current  competitive  advantage  might be diminished or eliminated,  potentially
causing  pressure on profit  margins or reducing our market  shares.  Erosion of
this advantage could have a material  adverse effect on our business,  financial
condition and results of operations.

Disruptions in transportation of raw materials or finished products or increases
in transportation costs could adversely affect our financial results.

Durum wheat is shipped by rail to our  production  facilities  in  Missouri  and
South  Carolina.  We have one rail contract  that will expire in July 2008.  For
other rail carriers that we utilize, we negotiate annual pricing arrangements or
are  subject  to  applicable  tariff  rates.  There  is no  assurance  that  the
transportation  costs will remain the same under these arrangements when renewed
as rail  carriers have  experienced  recent fuel cost  inflation  which they are
passing on to their  customers.  We also have a rail contract to ship  semolina,
milled and processed at the Missouri  facility,  to our South Carolina facility.
An extended  interruption  in our ability to ship durum wheat by railroad to the
Missouri or South Carolina plants,  or semolina to our South Carolina  facility,
could  cause us to incur  significantly  higher  costs  and  longer  lead  times
associated with the distribution of our pasta to our customers. If we are unable
to provide  adequate  supplies of pasta  products to our  customers  in a timely
fashion due to such delays,  we may subsequently  lose sales.  This could have a
material  adverse  effect on our  business,  financial  condition and results of
operations.  In  addition,  the  inflationary  pressure of higher fuel costs and
continued increases in transportation costs of our finished products, could have
a material  adverse effect on our business,  financial  condition and results of
operations.

Our international business may not be successful.

We  operate  a  pasta-producing  facility  in  Italy.  We do not  have  the same
competitive  scale of  operations  or historic  relationships  with the European
trade or European supply base in these overseas markets that we do in the U.S.

There are several risks  inherent in doing business on an  international  level.
These risks include:

•    export and import restrictions;

•    tariffs and other trade barriers;

                                       13

•    difficulties in staffing and managing foreign operations;

•    managing regulatory requirements across multiple foreign jurisdictions;

•    fluctuations in currency exchange rates and inflation risks;

•    seasonal fluctuations in business activity in other parts of the world;

•    changes  in  a  specific   country's  or  region's  political  or  economic
     conditions, particularly in emerging markets;

•    potentially adverse tax consequences; and

•    difficulty  in securing  or  transporting  raw  materials  or  transporting
     finished product.

Any of these  risks  could  adversely  impact the  success of our  international
operations.  If our international  revenues are inadequate to offset the expense
of maintaining foreign operations,  our business and results of operations could
be harmed.

Our competitive  position and financial results and condition could be adversely
impacted if we are unable to protect our intellectual property.

Our brand trademarks are important to our success and our competitive  position.
Our actions to establish and protect our brand trademarks and other  proprietary
rights  may be  inadequate  to  prevent  imitation  of our  products  by others.
Moreover, we may face claims by third parties that we violate their intellectual
property rights. Any litigation or claims against us, whether or not successful,
could result in substantial  cost,  divert  management's time and attention from
our core business,  significantly harm our reputation,  our business and results
of operations.

A failure to comply with applicable laws and regulations  could adversely affect
our business.

We are subject to laws and regulations administered by federal, state, and other
governmental  agencies  relating to the operation of our production  facilities,
the production,  packaging, labeling and marketing of our products and pollution
control, including air emissions. Any determination by the FDA or other agencies
that our  facilities are not in compliance  with  applicable  regulations  could
interfere  with the  continued  manufacture  and  distribution  of the  affected
products  and,  in some  cases,  might also  require  the  recall of  previously
distributed  products.  Any such  determination  could have a  material  adverse
effect on our business, financial condition and results of operations.

As a result of our voluntary  disclosure to the DOC of incorrect data previously
reported by us to the DOC in  connection  with the DOC  anti-dumping  proceeding
regarding pasta imported from Italy through our Italian subsidiary, Pasta Lensi,
S.r.l., the DOC has initiated a change  circumstances  review of Pasta Lensi and
has  reinstated  Pasta Lensi in the existing  antidumping  order at a 45.6% cash
deposit rate. The preliminary  determination applies, on a prospective basis, to
all imports of subject products from and after February 22, 2008. A cash deposit
rate of 45.6% would have a  significant  adverse  impact to our working  capital
position. We have appealed this determination.  At the time of our disclosure to
the DOC, we also provided this  information  to the DOJ. Our  disclosure of such
information could result in additional  actions by the DOC and/or the DOJ taking
action that could have a material adverse effect on us.  Additional  information
is  provided  in this  Annual  Report on Form  10-K  under  the  heading  "Legal
Proceedings - Department of Commerce matter."

Under  environmental laws, we are exposed to liability primarily as an owner and
operator of real property,  and as such, we may be responsible  for the clean-up
or  other  remediation  of  contaminated   property.   Environmental   laws  and
regulations  can  change  rapidly  and we may become  subject to more  stringent
environmental  laws and  regulations  in the  future  that may be  retroactively
applied  to  earlier  events.  In  addition,   compliance  with  more  stringent
environmental   laws  and   regulations   could  involve   significant   capital
investments.  Additional  information  is provided in this Annual Report on Form
10-K  under the  heading  "Business  -  Governmental  Regulation;  Environmental
Matters."

                                       14

The suspension  and delisting of our common stock from the NYSE could  adversely
affect the value and liquidity of our common stock.

As a result of the delay in filing this Annual Report on Form 10-K and other SEC
periodic and annual  reports,  our common stock has been delisted from the NYSE.
We  currently  are  quoted  under the symbol  ("AITP")  on the Pink  Sheets,  an
electronic  quotation  service  for  securities  traded  over-the-counter.  As a
result,  there may be significantly  less liquidity in the market for our common
stock. In addition,  our ability to raise additional  necessary  capital through
equity  financing,   and  attract  and  retain  personnel  by  means  of  equity
compensation,  may be  impaired.  Furthermore,  we may  experience  decreases in
institutional  and  other  investor  demand,  analyst  coverage,   market-making
activity and information  available  concerning  trading prices and volume,  and
fewer broker-dealers may be willing to execute trades with respect to our common
stock.  The delisting may also decrease the  attractiveness  of our common stock
and cause the trading volume of our common stock to decline,  which could result
in a decline in the market price of our common stock.

We  intend  to seek to be  re-listed  on a  securities  exchange  when we become
current in our SEC reporting.  There can be no assurance whether we will satisfy
the  standards  for listing on an exchange or that an exchange  will approve our
listing.  Nor can there be any  assurance at this time when a  re-listing  would
occur.  Continuing to be quoted only on Pink Sheets could  adversely  affect the
trading market - and potentially the market price - of our common stock.

Our ability to pay dividends to shareholders is restricted by factors  including
contractual provisions and our financial performance.

We have not paid dividends since June 2005 and do not expect to pay dividends in
the  foreseeable  future.  We anticipate that future free cash flow will be used
principally to fund interest expense and repayment of debt. Payment of dividends
is restricted by provisions in our credit facility.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  PROPERTIES

Production  Facilities:  As of  September  29, 2006,  we owned pasta  production
plants  located  in  Excelsior  Springs,  Missouri,  Columbia,  South  Carolina,
Tolleson,  Arizona, and Verolanuova,  Italy. The Kenosha, Wisconsin facility was
permanently  closed in April  2006 and sold in August  2006 with two  production
lines  from the  facility  being  moved to our South  Carolina  plant.  Our U.S.
facilities are strategically  located to support North American  distribution of
our  products and benefit from the rail and  interstate  highway  infrastructure
near each facility. As of September 29, 2006, our facilities had combined annual
production capacity of approximately 940 million pounds of pasta. In addition we
occasionally purchase pasta products from other manufacturers for resale.

Distribution  Centers:  We own the distribution  centers adjoining our Missouri,
South Carolina,  and Arizona plants.  In addition,  as of September 29, 2006, we
leased space in public warehouses located in Kansas, Missouri and Arizona.

The  warehousing  operations  at each of our  distribution  centers in Missouri,
South  Carolina  and Arizona,  including  our leased  facility in Missouri,  are
outsourced  under a long-term  agreement with OHL. OHL  specializes in warehouse
and logistics management services. In addition, OHL provides traffic and freight
management  services  to us  under a long  term  contract,  thereby  effectively
providing for the shipment of all finished products from our facilities.

Our credit  facility,  executed on March 13, 2006 and last amended  December 27,
2007,  and our prior  credit  facility,  granted a  collateral  interest  to our
lenders in substantially all of our tangible and intangible domestic assets.

                                       15

ITEM 3.  LEGAL PROCEEDINGS

Federal Securities, Shareholder Derivative Litigation

Since August, 2005, a number of substantially similar class action lawsuits have
been filed and  consolidated  into a single action in the United States District
Court for the Western  District of Missouri styled In re American  Italian Pasta
Company  Securities  Litigation  (Case No.  05-CV-0725-W-ODS).  The consolidated
amended  complaint names us as a defendant and certain of our former and current
officers and directors,  and our independent  registered public accounting firm,
Ernst & Young  LLP.  It  generally  alleges  that  the  defendants  made  public
statements concerning our financial results that were false and misleading.  The
plaintiffs seek unspecified  monetary damages for alleged  violations of Section
10(b) of the Securities Exchange Act of 1934, Rule 10b-5 promulgated thereunder,
and alleged violations of Section 20(a) of the Securities  Exchange Act of 1934.
The  consolidated   amended  complaint  also  asserted   purported   shareholder
derivative  claims  against  various  of our  current  and former  officers  and
directors for breaches of their fiduciary duties and unjust enrichment,  against
certain of our former  officers  for  violation of the  Sarbanes-Oxley  Act, and
against Ernst & Young LLP for professional  negligence,  accounting malpractice,
and aiding and abetting breaches of fiduciary duty. These allegations  generally
related to our accounting practices and financial reporting,  as well as claimed
improper insider trading and the claimed improper award of bonuses to certain of
our officers and  directors.  The court  subsequently  dismissed the  derivative
claims.  The  case  has  been  certified  as a class  action  on  behalf  of all
purchasers of our common stock on or after January 23, 2002, and who held shares
on August 9, 2005.

By a stipulation of settlement with us and our named former and current officers
and directors  ("settling  defendants"),  executed on October 26, 2007 and filed
with the Court on October 29,  2007,  lead counsel for  plaintiffs  and settling
defendants  agreed to settle the consolidated  action. On February 12, 2008, the
Court gave final  approval  to the  settlement.  The  settlement  of the federal
securities class action lawsuit was for $25 million, comprised of $11 million in
cash,  to be provided  by our  insurers,  and $14 million in our common  shares.
Under the terms of the  settlement,  on March 27, 2008,  class counsel  received
527,903 common shares in satisfaction of the Court approved fee award. The class
will receive approximately  930,000 common shares,  subject to adjustment upward
or downward, based upon the Company's stock price as provided in the stipulation
of settlement.  The settlement was recorded in the fourth quarter of fiscal year
2005.

In November 2005, a shareholder derivative action styled Haag v. Webster, et al.
(Case  No.  05-CV-33137)  was  filed in the  Circuit  Court of  Jackson  County,
Missouri.  The petition names as defendants  certain of our former  officers and
directors and our independent  registered  public accounting firm, Ernst & Young
LLP.  We are  named  as a  nominal  defendant.  The  petition  alleges  that the
defendants  are liable to us for  breaches  of  fiduciary  duties and aiding and
abetting such breaches, corporate waste, gross mismanagement, unjust enrichment,
and  abuse  of  control  based  upon  our  accounting  practices  and  financial
reporting; that certain former and current officers and directors are liable for
breaches  of  fiduciary  duties for  insider  selling  and  misappropriation  of
information;  and that Ernst & Young is liable for  professional  negligence and
accounting  malpractice,  aiding and abetting  breaches of fiduciary  duty,  and
breach  of  contract.  The  petition  seeks  equitable  relief  and  unspecified
compensatory and punitive damages. The proposed settlement requires the adoption
of certain  governance  reforms by the Company  and  payment of $1.5  million in
attorney's  fees and costs to counsel for the  plaintiff,  which payment will be
made under our  insurance  policies.  The  settlement  was recorded in the first
quarter of fiscal year 2006.

On  September  6, 2006,  an action  styled  Chaiet v.  Allen,  et al.  (Case No.
06-744-CV-W-DW)  was filed in the United States  District  Court for the Western
District of Missouri. The complaint asserts claims against certain of our former
and current  officers  and  directors  for  breaches of their  fiduciary  duties
relating to our  accounting  practices and financial  reporting.  Plaintiff also
asserts claims on behalf of a putative  class against our current  directors for
failing  to  schedule  or hold an annual  meeting  for  2006.  We are named as a
nominal  defendant.  The complaint  seeks  unspecified  monetary  damages on our
behalf and an order  requiring that an annual meeting be scheduled and held. The
defendants have moved to dismiss this lawsuit as well. On February 12, 2007, the
court stayed all future proceedings in the matter until forty-five days after we
issue restated  financial  results,  and required us to provide  monthly reports
regarding the status of its restatement  process.  On March 13, 2008, we reached
an agreement, in principle,  subject to court approval, to settle this action on
a consolidated basis with the Haag action.

On March 7, 2007, a suit styled Zaleon v.  American  Italian Pasta Company (C.A.
No. 2775-N) was filed in the Delaware Chancery Court against us alleging that no
annual  meeting of  shareholders  had been held  since

                                       16

February  7, 2005,  and  requesting  that we be  compelled  to convene an annual
meeting.  Proceedings  in that matter are  currently  stayed by agreement of the
parties. The agreement, in principle, to settle the other two derivative actions
will resolve this action.

SEC and DOJ Investigations

Since July 2005, we have been in communication with the staff of the Enforcement
Division  of the  SEC  about  the  matters  under  investigation  by  our  Audit
Committee. In late July 2005, the SEC staff issued a voluntary request to us for
a wide range of  documents  relating  to,  among other  things,  our  accounting
practices,  financial reporting and other public disclosures, 2004 restructuring
program,  internal control weaknesses  identified in our prior SEC filings,  and
compensation  and  benefits  information  for  certain  persons  employed  by or
associated  with us during  the time  period  under  investigation  by the Audit
Committee.

On January 31,  2006,  as part of a formal,  non-public  investigation,  the SEC
staff  issued a subpoena to us,  expressly  incorporating  its earlier  document
requests and requesting additional documents and information  concerning,  among
other things, actual or potential errors in our financial statements,  budgeting
process,  communications  with investors,  and  compensation  for and securities
transactions  by certain  persons  employed by or associated  with us during the
time period under investigation by the Audit Committee. Since that time, the SEC
staff has issued  additional  subpoenas  to us,  seeking  additional  documents,
testimony,  and  information  relating to the same or similar  subject  matters.
Representatives  of the DOJ have  been  coordinating  with the SEC staff in this
investigation.

We are cooperating with these  investigations  and have provided  information to
the SEC staff and the DOJ in response to the  subpoenas  and  requests.  We have
had, and are continuing to have,  discussions with the SEC staff, and separately
with the DOJ, regarding the conclusion of their investigation  activities and of
their  respective  views  of  appropriate  bases  on  which  to  reach  mutually
acceptable settlements.  Such settlements could result in a Deferred Prosecution
Agreement,  which could include the assignment of a corporate monitor, continued
cooperation with any ongoing  investigations  and/or a monetary fine. Due to the
status of ongoing  discussions  with the DOJ and SEC staff,  the Company  cannot
estimate a range of possible  loss that could  result from a monetary  fine,  if
any.  There can be no assurance  that any  settlement  would not have a material
adverse effect on our business,  financial  condition,  results of operations or
cash flows. We have been cooperating with these investigations.

Department of Commerce Matter

In 1996, an investigation by the International  Trade  Administration of the DOC
revealed  that  Italian  and Turkish  producers  were  engaging in unfair  trade
practices  by  selling  pasta at less than fair  value in the U.S.  markets  and
benefiting from subsidies from their respective  governments.  The International
Trade Commission ("ITC") subsequently determined that the unfair trade practices
caused or would cause material injury to U.S.  manufacturers.  As a result,  the
ITC imposed anti-dumping duties (the "AD Order") and countervailing  duties (the
"CV Order") on certain imported pasta from Italy and Turkey  (collectively,  the
"AD/CV  Orders").  In 2001,  the AD/CV Orders were  extended  five years through
2006.  In  September  2007,  the ITC  extended the AD/CV Orders for another five
years through 2011. Under the AD/CV Orders, U.S. importers of certain pasta from
Italian and Turkish  producers  are  assessed  anti-dumping  and  countervailing
duties at rates  determined by the DOC for the relevant foreign  producer.  Each
foreign producer may undergo an annual administrative review which may result in
an increase or decrease of the producer's rate.

During its  ongoing  analysis of  financial  matters,  we reviewed  transactions
reported  to the DOC for the period  July 1, 2002  through  June 30, 2003 in the
antidumping  proceeding on pasta imported from Italy. Based on the data reported
by us and our Italian  subsidiary,  Pasta Lensi,  S.r.l., the DOC revoked the AD
Order with respect to Pasta Lensi. During our investigation, information came to
our  attention  that certain  data  reported to the DOC was  incorrect  and as a
result,  Pasta Lensi may not have been eligible for  revocation of the AD Order.
We  disclosed  the  issue  to the  DOC  and  simultaneously,  we  provided  this
information to the DOJ, which requested further information on this matter. As a
result of our disclosure to the DOC, it published notice on February 22, 2008 in
the Federal  Register of its preliminary  determination to reinstate Pasta Lensi
in the existing  antidumping  duty order at a cash  deposit  rate of 45.6%.  The
preliminary  determination  applies,  on a prospective  basis, to all imports of
subject  products from and after February 22, 2008. A cash deposit rate of 45.6%
would have a significant adverse impact to our working capital position. We have
appealed this determination.  We have substantially mitigated the impact of this
order by changing  our  ingredient  to organic  semolina in March 2008,  thereby
manufacturing  products  for  import  into the U.S.

                                       17

that are exempt from the antidumping duty order.  Based on our review, we do not
believe this order will have a material effect on our financial condition.

Arbitration

Until the April 2006 shutdown of our Kenosha,  Wisconsin facility,  we purchased
semolina for that plant from Horizon Milling, LLC (a joint venture between Cenex
Harvest States and Cargill) under the terms of a long-term supply agreement.  In
August of 2006, we advised Horizon  Milling,  LLC ("Horizon")  that the economic
and  business  circumstances  had  changed  since  commencement  of  the  supply
agreement,  that we were invoking the material adverse effect  provisions of the
supply  agreement and that we had sold the  facility.  Horizon has made a demand
for a  purchase  deficiency  of $0.5  million  from  the  contract  year  ending
September  30, 2006 and notified us that Horizon  believes  additional  purchase
deficiencies  of $2.1 million will be owed through  September  2009, and filed a
claim in  arbitration.  An  arbitration  hearing was held on November 13 and 14,
2007. On December 21, 2007,  the arbitrator  ruled in favor of Horizon  Milling,
LLC.  Under the  ruling,  we are  obligated  to  satisfy  our  minimum  purchase
requirements  for the  purchase  deficiencies  for  fiscal  year  2006  and 2007
totaling $1.2 million and annual purchase deficiencies for fiscal years 2008 and
2009 totaling $1.4 million. The annual purchase  deficiencies will be due at the
conclusion  of each  respective  fiscal  year.  As a result,  we recorded a $2.6
million  liability in fiscal year 2006 related to the cancellation of the supply
agreement when we permanently shutdown our Kenosha facility.

From time to time and in the ordinary course of our business, we are the subject
of  government  investigations  or  audits  and  named as a  defendant  in legal
proceedings  related to various other issues,  including  worker's  compensation
claims, tort claims and contractual disputes.

The matters described above are ongoing and their ultimate resolution may impact
our financial results for the period in which they are resolved,  and may have a
material adverse effect upon our business or consolidated financial statements.

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

We did not submit any matters to the vote of our stockholders  during the fourth
quarter of fiscal year 2006.

                                     PART II

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

Market Information

Our Class A Convertible  Common  Stock,  par value $0.001 per share (the "common
stock")  traded on the NYSE under the symbol  "PLB" until the opening of trading
on December 20, 2006, at which time the NYSE suspended  trading in shares of our
common stock due to our  inability to file with the SEC by December 31, 2006 our
Annual Report on Form 10-K.  Effective on the opening of trading on December 20,
2006,  our  common  stock  was  eligible  to be quoted  on the Pink  Sheets,  an
electronic quotation service for securities traded  over-the-counter,  under the
symbol  "AITP" or  "AITP.PK."  On April 23, 2007,  our common stock was delisted
from the NYSE.

The range of the high and low prices  per share of the  common  stock for fiscal
year 2006 and 2005 was as follows:


                                     Year Ended                 Year Ended
                                 September 29, 2006         September 30, 2005

                                  High          Low         High          Low
                                  ----          ---         ----          ---

        First Quarter            $10.74       $ 5.83       $ 27.75      $ 19.01
        Second Quarter           $ 7.20       $ 3.43       $ 28.16      $ 20.95
        Third Quarter            $ 9.04       $ 6.44       $ 29.85      $ 20.44
        Fourth Quarter           $ 8.47       $ 7.51       $ 21.86      $ 10.66

                                       18

Holders

As of June 2, 2008,  there were 267  shareholders of record of our common stock.
No shares of our Class B Convertible  Common  Stock,  par value $0.001 per share
(the "Class B common  stock") are  outstanding on the date of this Annual Report
on Form 10-K.

Dividends

We  declared  and paid  dividends  on our  common  stock in the  amount of $10.3
million  during fiscal year 2005 (paid in November  2004,  March 2005,  and June
2005). We have not declared or paid dividends since June 2005.

For the foreseeable  future,  we intend to use our earnings to provide funds for
the operation of our business and for the repayment of indebtedness. Our current
credit  facility  (executed  on March 13, 2006 and last  amended on December 27,
2007) contains limitations on the payment of dividends.  We do not expect to pay
dividends in the foreseeable  future. We had no restricted  retained earnings at
September 29, 2006.

Securities Authorized for Issuance Under Equity Compensation Plans

Additional  information on our equity  compensation plans is available under the
heading "Security Ownership of Certain Beneficial Owners and Management" in this
Annual Report on Form 10-K.

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

During fiscal year 2006 we purchased the following shares in connection with the
withholding of taxes upon vesting of restricted stock.

    First Quarter                          Total Number of     Average Price
    Fiscal Year 2006                      Shares Purchased    Paid Per Share
    ----------------                      ----------------    --------------
    October 1 - October 28                           37           $   6.71
    October 29 - November 25                          -           $      -
    November 26 - December 30                        11           $   6.06
                                               --------           --------
                                                     48           $   6.56
                                               ========           ========

    Second Quarter                         Total Number of     Average Price
    Fiscal Year 2006                      Shares Purchased    Paid Per Share
    ----------------                      ----------------    --------------
    December 31 - January 27                      1,458           $   7.10
    January 28 - February 24                          -           $      -
    February 25 - March 31                            -           $      -
                                               --------           --------
                                                  1,458           $   7.10
                                               ========           ========

    Third Quarter                          Total Number of     Average Price
    Fiscal Year 2006                      Shares Purchased    Paid Per Share
    ----------------                      ----------------    --------------
    April 1 - April 28                                -           $      -
    April 29 - May 26                                 -           $      -
    May 27 - June 30                                121           $   7.63
                                               --------           --------
                                                    121           $   7.63
                                               ========           ========

    Fourth Quarter                         Total Number of     Average Price
    Fiscal Year 2006                      Shares Purchased    Paid Per Share
    ----------------                      ----------------    --------------
    July 1 - July 28                                  -           $      -
    July 29 - August 25                           2,854           $   8.47
    August 26 - September 29                        465           $   8.07
                                               --------           --------
                                                  3,319           $   8.41
                                               ========           ========

                                       19

On  October 4, 2002,  the  Company's  Board of  Directors  authorized  up to $20
million to implement a common  stock  repurchase  plan.  There were no purchases
under the plan in fiscal year 2006.  There is $7.9 million  available  under the
Common Stock repurchase plan.

ITEM 6.  SELECTED FINANCIAL DATA

The following  selected  statement of operations data for the fiscal years ended
September  29, 2006,  September  30, 2005 and October 1, 2004,  and the selected
balance  sheet data as of September  29, 2006 and September 30, 2005 are derived
from our Consolidated  Financial  Statements  including the Notes thereto.  This
data should be read in conjunction with the Consolidated  Financial  Statements,
related notes, and other financial  information  included herein.  The following
selected statement of operations data for the fiscal years ended October 3, 2003
and  September  27, 2002,  and the selected  balance sheet data as of October 1,
2004,  October  3, 2003 and  September  27,  2002,  have been  derived  from our
financial statements not included herein.

                                                                                   FISCAL YEAR ENDED
                                                ------------------------------------------------------------------------------------
                                                  Sept. 29, 2006   Sept. 30, 2005   Oct. 1, 2004      Oct. 3, 2003    Sept. 27, 2002
                                                  --------------   --------------   ------------      ------------    --------------
                                                                       (in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenues(1)                                            $ 367,023     $    364,159    $   392,702        $  399,367      $   343,887
Cost of goods sold                                       284,777          300,151        320,851           304,228          254,474
                                                       ---------     ------------    -----------        ----------      -----------

Gross profit                                              82,246           64,008         71,851            95,139           89,413
Selling and marketing expense                             22,871           20,342         27,155            21,649           19,945
General and administrative expense (2)                    35,459           23,198         21,277            17,517           17,626
Litigation settlement (3)                                      -           14,000              -                 -                -
Impairment charges to brands and trademarks                  998           88,550            132                 -                -
Loss on disposition of brands and trademarks (4)           4,708                -              -                 -                -
Losses related to long-lived assets (5)                   22,268            9,759          1,099                41              989
Provision for (recovery from) restructuring
   program (6)                                                 -            (554)          2,868                 -                -
Acquisition and plant start-up expenses (7)                    -                -            240             4,047               28
                                                       ---------     ------------    -----------        ----------      -----------
Operating profit (loss)                                  (4,058)         (91,287)         19,080            51,885           50,825
Interest expense, net                                     29,509           16,234         10,990            12,937           12,944
Other (income) expense (8)                                 (913)         ( 3,544)          2,518             6,871            2,666
                                                       ---------     ------------    -----------        ----------      -----------
Income (loss) before income taxes                       (32,654)        (103,977)          5,572            32,077           35,215
Income tax provision (benefit)                           (2,241)          (3,730)          1,513            11,357           12,958
                                                       ---------     ------------    -----------        ----------      -----------
Net income (loss) (9)                                  $(30,413)     $  (100,247)    $     4,059        $   20,720      $    22,257
                                                       =========     ============    ===========        ==========      ===========

Net income (loss) per common share (basic)             $  (1.65)     $     (5.49)    $      0.22        $     1.16      $      1.24
                                                       =========     ============    ===========        ==========      ===========

Weighted-average common shares outstanding                18,386           18,247         18,043            17,833           17,879
                                                       =========     ============    ===========        ==========      ===========

Net income (loss) per common share
   (assuming dilution)                                 $  (1.65)     $     (5.49)    $      0.22        $     1.12      $      1.19
                                                       =========     ============    ===========        ==========      ===========

Weighted-average common shares outstanding
    (including dilutive securities)                       18,386           18,247         18,562            18,508           18,693
                                                       =========     ============    ===========        ==========      ===========
Cash dividend declared per common share                $       -     $     0.5625    $    0.3750        $        -      $         -
                                                       =========     ============    ===========        ==========      ===========

OTHER FINANCIAL DATA (AT END OF PERIOD):
Cash and temporary investments                         $  22,805     $     11,911    $      2,712       $    2,301      $     8,272
Working capital                                        $  54,285     $     58,971    $     56,106       $   67,476      $    65,906
Plant, property and equipment - net                    $ 324,464     $    360,740    $    384,327       $  387,211      $   365,764
Brand and trademarks                                   $  82,772     $     88,750    $    178,736       $  177,258      $   115,321
Total assets                                           $ 531,969     $    571,926    $    688,311       $  708,755      $   606,013
Long-term debt, less current maturities                $ 260,500     $    276,006    $    286,795       $  300,778      $   258,193

                                       20

Stockholders' equity                                   $ 160,336     $    186,026    $    293,112       $  290,693      $   260,935
Total debt/total capitalization                               62%              60%             50%              51%              50%
Depreciation and amortization expense (10)             $  24,895     $     25,132    $     24,956       $   22,868      $    19,606
Amortization of deferred debt issuance cost (11)       $   4,216     $      2,051    $      1,026       $      838      $       600
-------------------------------------------
     (1) On October 28, 2000, the U.S.  Government enacted the Continued Dumping
     and Subsidy  Offset Act of 2000 (the "CDSOA")  which provides that assessed
     anti-dumping  and subsidy  duties  liquidated by the Department of Commerce
     after October 1, 2000 will be distributed to affected  domestic  producers.
     Accordingly,  revenues in fiscal  years  2002,  2003,  2004,  2005 and 2006
     include payments  received from the Department of Commerce of $7.6 million,
     $2.3 million, $1.5 million, $1.0 million and $2.6 million, respectively, as
     our calculated share,  based on tariffs liquidated by the government during
     these periods on Italian and Turkish imported pasta.  Effective  October 1,
     2007, the CDSOA was repealed,  resulting in the  discontinuation  of future
     distributions to affected domestic producers for duties assessed after such
     date.

     (2)  Included in general and  administrative  expense are costs  related to
     civil  lawsuits  and  governmental  investigations  involving  the Company,
     several of our  current  and  former  directors  and  several of our former
     executive  officers.  We continue to incur significant expense on behalf of
     the  Company  and on  behalf  of the  several  individuals  to whom we have
     indemnification  obligations. In addition, we continue to incur significant
     expense  related  to  the  completion  of our  historical  audits  and  SEC
     reporting  requirements.  The expenses we have incurred  through the fiscal
     year ended  September 29, 2006, in  connection  with all of these  matters,
     including those  associated with our restatement and pending legal matters,
     net of insurance proceeds,  were $2.5 million in fiscal year 2005 and $16.1
     million  in  fiscal  year  2006  and  are  reflected  in our  Statement  of
     Operations under the caption general and administrative expense.

     (3)  Litigation  settlement  relates  to  our  settlement  of  the  federal
     securities  class  action  lawsuit.  The  settlement  is for  $25  million,
     comprised of $11 million in cash, to be provided by our  insurers,  and $14
     million in our common  shares.  The number of shares  issued in  connection
     with the  settlement  is  contingent  upon the stock  price at the date the
     court enters an order of distribution of the common shares.  The settlement
     was recorded in the fourth quarter of fiscal year 2005.

     (4) Loss on disposition of brands and trademarks  relate to the sale of our
     Mrs.  Leepers and Eddie's  Spaghetti brands in the second quarter of fiscal
     year 2006.

     (5) Losses  related to  long-lived  assets  include the sale of our Kenosha
     plant in fiscal year 2006 and certain  pasta  manufacturing  and  packaging
     equipment  that were  disposed  and excess  equipment  written down to fair
     market value.

     (6) Provision  for (recovery  from)  restructuring  expense  relates to our
     Restructuring and Rightsizing  program and includes employee  severance and
     termination  benefits,  lease  costs,  supply  agreement  costs  and  other
     miscellaneous  costs,  discussed  in Item 1 and in Note 5 to the  Company's
     Consolidated Financial Statements, included in Item 8. In fiscal year 2005,
     we recognized  $0.6 million benefit related to the reversal of a previously
     established  restructuring  reserve  due to the early  reactivation  of the
     Kenosha  plant  which was not  contemplated  at the time the  restructuring
     reserve was established.

     (7) For fiscal year 2003, includes  incremental costs associated with brand
     acquisitions  (primarily  Golden  Grain)  of  $2.7  million,  international
     acquisitions of $0.5 million and initial operating  expenses related to our
     new Arizona facility of $0.8 million, for a total of $4.0 million.

     (8) Primarily reflects foreign currency transaction gains/losses on certain
     forward exchange contracts and euro-denominated debt.

     (9) The  change  in  accounting  for  certain  warehousing  costs  has been
     retrospectively  reflected  for all  fiscal  years  in the  financial  data
     presented as discussed in Item 8 - Financial  Statements and  Supplementary
     Data -  Note 4 to the  Company's  Consolidated  Financial  Statements.  The
     effect of the change was to increase (decrease) net income by $0.1 million,
     $(0.1) million, $0.8 million,  $(0.7) million and $(0.3) million for fiscal
     years 2006, 2005, 2004, 2003 and 2002, respectively.

     The effect of  adopting  SFAS 123R in fiscal  year 2006 was an  increase to
     expense of $1,761,000.  The effect on basic and diluted  earnings per share
     was $0.10.  There is no tax impact to this  charge as  deferred  income tax
     benefits otherwise provided are offset by the valuation allowances.

     (10) Reflects aggregate  depreciation and amortization expense of property,
     plant and equipment and other  amortizable  assets excluding  deferred debt
     issuance  costs  (see note 11  below).  Depreciation  and  amortization  is
     reflected in our Statement of  Operations  under the captions cost of goods
     sold and general and administrative expense.

     (11) Reflects amortization of deferred debt issuance costs, which are shown
     in our Statement of Operations under the caption interest expense. The $4.2
     million in fiscal year 2006 includes $1.3 million  related to the write-off
     of the  unamortized  balance of deferred debt  issuance  costs prior to our
     refinancing our credit facility in March 2006.

                                       21

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

The  following  discussion  and analysis of financial  condition  and results of
operations  should be read in conjunction  with "Selected  Financial  Data," our
consolidated  historical  financial statements and the notes to those statements
that appear elsewhere in this report.  Our discussion  contains  forward-looking
statements based upon current expectations that involve risks and uncertainties,
such as our plans, objectives,  expectations and intentions.  Actual results and
the timing of events could differ  materially  from those  anticipated  in these
forward-looking  statements as a result of a number of factors,  including those
set forth under "Note Concerning Forward Looking Information" and "Risk Factors"
elsewhere in this report.

As more fully  described  in  Footnote 3 to the Audited  Consolidated  Financial
Statements  included in our previously  filed Annual Report on Form 10-K for the
fiscal year ended September 30, 2005, we restated our previously  issued audited
consolidated  financial  statements  for fiscal  years 2001 through 2004 and our
unaudited consolidated financial statements for the first two quarters of fiscal
year 2005.

The following table sets forth certain data from our Consolidated  Statements of
Operations,  expressed  as a  percentage  of  revenues,  for each of the periods
presented.



                                                                                   FISCAL YEAR ENDED
                                                           -------------------------------------------------------------------
                                                            September 29, 2006     September 30, 2005      October 1, 2004
                                                            ------------------     ------------------      ----------------

   Revenues:
      Retail                                                          73.1%                  72.9%                 71.1%
      Institutional                                                   26.9                   27.1                  28.9
                                                                  --------            -----------              --------

   Total revenues                                                    100.0                  100.0                 100.0
   Cost of goods sold                                                 77.6                   82.4                  81.7
                                                                  --------            -----------              --------

   Gross profit                                                       22.4                   17.6                  18.3
   Selling and marketing expense                                       6.2                    5.6                   6.9
   General and administrative expense                                  9.7                    6.4                   5.4
   Litigation settlement                                                 -                    3.8                     -
   Impairment charges to brands and trademarks                         0.2                   24.3                   0.1
   Loss on disposition of brands and trademarks                        1.3                      -                     -
   Losses related to long-lived assets                                 6.1                    2.7                   0.3
   Provision for (recovery from)  restructuring expense                  -                  (0.2)                   0.7
   Acquisition and plant start-up expense                                -                      -                   0.1
                                                                  --------            -----------              --------

   Operating profit (loss)                                           (1.1)                 (25.0)                   4.8
   Interest expense, net                                               8.0                    4.5                   2.8
   Other (income) expense                                            (0.2)                  (1.0)                   0.6
                                                                  --------            -----------              --------
   Income (loss) before income taxes                                 (8.9)                 (28.5)                   1.4
   Income tax provision (benefit)                                    (0.6)                  (1.0)                   0.4
                                                                  --------            -----------              --------

   Net income (loss)                                                 (8.3)%                (27.5)%                  1.0%
                                                                  ========            ===========              ========


Overview

We began operations in 1988. We believe we are the largest producer and marketer
of dry pasta in North America. We believe our  vertically-integrated  facilities
and highly efficient production  facilities focused primarily on specific market
segments  and our highly  skilled  workforce  make us an  efficient  company and
enable us to produce  high-quality  pasta at competitive  costs. We believe that
the  combination  of our low cost  structure,  our product  strategy of

                                       22

offering branded,  private label, imported and specialty products,  our scalable
production  facilities  and our key customer  relationships  create  competitive
advantages.   We  generate  revenues  in  two  customer   markets:   retail  and
institutional. Retail market revenues include the sales of our pasta products to
customers who resell the pasta in retail channels  (including  sales to grocery,
club, mass merchant and discount  stores) and encompasses  sales of our branded,
private label, imported and specialty products. These revenues represented 73.1%
and 72.9% of our  total  revenue  for the years  ended  September  29,  2006 and
September 30, 2005, respectively. Institutional market revenues include revenues
from  product  sales to  customers  who use our pasta as an  ingredient  in food
products  or who  resell  our pasta in the  foodservice  (meals  away from home)
market.  It also includes  revenues from sales to government  agencies and other
customers that we pursue  periodically.  The  institutional  market  represented
26.9% and 27.1% of our total revenue for the years ended  September 29, 2006 and
September 30, 2005, respectively.

Average  sales  prices  for  our   non-branded   products   vary   depending  on
customer-specific packaging and raw material requirements, product manufacturing
complexity  and other  service  requirements.  Average  prices  for our  branded
products  are also  based on  competitive  market  factors.  Average  retail and
institutional  prices  will also vary due to  changes in the  relative  share of
customer  revenues and item specific  sales volumes  (i.e.,  product sales mix).
Generally,  average  retail  sales  prices are higher than  institutional  sales
prices. Selling prices of our branded products are higher than selling prices in
our other business units,  including private label. Revenues are reported net of
cash discounts,  product returns,  and promotional and slotting  allowances.  We
have several  arrangements  with  institutional  customers  that provide for the
"pass-through" of direct material cost and certain other cost changes as pricing
adjustments.  The  pass-throughs are generally limited to actual changes in cost
and, as a result,  impact margins in periods of changing  costs and prices.  The
pass-throughs are generally  effective 30 to 90 days following such cost changes
and  thereby  reduce the  long-term  exposure  of our  operating  results to the
volatility of raw material costs. These  pass-through  arrangements also require
us to pass on the benefits of any price  decreases in raw  material  costs.  Our
cost of goods sold consists primarily of raw materials, packaging, manufacturing
costs  (including  depreciation)  and  distribution  (including  transportation)
costs.  A  significant  portion  of our cost of goods  sold is durum  wheat.  We
purchase durum wheat on the open market and,  consequently,  those purchases are
subject to  fluctuations  in cost.  Since mid 2006,  durum prices have increased
substantially  and we  anticipate  these  costs  to  remain  at or  above  these
historically high levels for the foreseeable future. We manage some of our durum
wheat  cost  risk  through  durum  wheat  cost  "pass-through"  arrangements  in
long-term contracts and other non-contractual arrangements with our customers as
discussed  above  and  advance  purchase  contracts  for durum  wheat  which are
generally  a few  months.  For our non  pass-through  customers,  we seek  price
increases to cover our costs.  We seek to achieve  low-cost  production  through
vertical  integration and investment in the most current pasta-making assets and
technologies.  The manufacturing- and  distribution-related  capital assets that
have been or will be acquired to support  this  strategy  are  depreciated  over
their  respective  economic  lives.  Depreciation  expense  is  a  component  of
inventory cost and cost of goods sold.

Critical Accounting Policies

This  discussion and analysis  discusses our results of operations and financial
condition as reflected in our consolidated financial statements, which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States. As discussed in Note 2 to our consolidated  financial statements,
the preparation of financial statements in conformity with accounting principles
generally  accepted  in the  United  States  requires  our  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 reported  amounts of revenues and expenses  during
the  reporting  periods.  On an ongoing  basis,  our  management  evaluates  its
estimates and judgments, including those related to the impairment of long-lived
and intangible  assets,  the method of accounting for share-based  compensation,
and the estimates used to record allowances for doubtful accounts,  reserves for
slow-moving,  damaged and  discontinued  inventory,  reserves for obsolete spare
parts,  promotional  allowances,   income  tax  accruals  and  derivatives.  Our
management bases its estimates and judgments on relevant factors, the results of
which form the basis for making  judgments  about the carrying  values of assets
and liabilities that are not readily apparent from other sources.  See Note 2 to
our consolidated  financial statements for a complete listing of our significant
accounting policies. Our most critical accounting policies are described below.

Impairment  Testing of  Intangible  Assets:  In  accordance  with  Statement  of
Financial  Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets," we do not amortize the cost of intangible assets with indefinite lives,
such as our brands and trademarks. SFAS No. 142 requires that we perform certain
fair value based tests of the  carrying  value of  indefinite  lived  intangible
assets  at least  annually  and more  frequently  should  events or

                                       23

changes in  circumstances  indicate that the carrying amount of an asset may not
be fully  recoverable.  We completed an impairment review of brands in the third
quarter  of fiscal  year 2005  based on  impairment  indicators  of  significant
year-to-date  declines in certain  brand  revenues  during the fiscal  year.  We
subsequently  completed  our annual review of fiscal year 2005 based on the 2006
fiscal year  business plan and our forecast  available in the fourth  quarter of
fiscal 2005. The business plan and forecasts, which included new information and
marketing changes, resulted in the additional brand impairment. These impairment
tests  are   impacted   by   judgments   as  to  future  cash  flows  and  other
considerations.  If such assets are considered to be impaired, the impairment to
be  recognized  is  measured by the amount by which the  carrying  amount of the
assets  exceeds  the fair  value of the  assets.  Assets to be  disposed  of are
reported at the lower of the  carrying  amount or fair value less costs to sell.
The results of the tests  determined  that our brand  portfolios  were impaired.
Based on those  tests we  recorded  impairment  charges of $29.9  million in the
third  quarter and $58.7  million in the fourth  quarter of fiscal year 2005. In
addition,  we completed  our annual review of fiscal year 2006 based on the 2007
fiscal year  business plan and our forecast  available in the fourth  quarter of
fiscal  2006.  We  recorded  impairment  charges  of $1.0  million in the fourth
quarter  of fiscal  year 2006.  Future  events  could  cause our  management  to
conclude  that  impairment  indicators  exist and that the  value of  intangible
assets is further impaired.

Long-Lived  Assets: In accordance with SFAS No. 144,  "Accounting For Impairment
or Disposal of Long-lived  Assets," we review  long-lived  assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. We evaluate recoverability of assets to be held
and used by comparing  the carrying  amount of an asset to future net cash flows
expected  to be  generated  by the asset.  If such assets are  considered  to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed  of are  reported at the lower of their  carrying  amount or fair value
less cost to sell. In fiscal year 2006,  we decided to close the Kenosha  plant.
The  Kenosha  plant and  remaining  assets  were sold in fiscal  year 2006 and a
pre-tax  loss of  $15,566,000  was  recorded in fiscal year 2006  related to the
impairment and sale. Total losses related to long-lived assets amounted to $22.3
million,  $9.8 million and $1.1 million for the fiscal year 2006, 2005 and 2004,
respectively.

Share-Based  Compensation:  In December 2004, the Financial Accounting Standards
Board issued SFAS No. 123R,  "Share-Based  Payment," which is a revision of SFAS
No. 123,  "Accounting for Stock-Based  Compensation" and is applicable to fiscal
years  beginning  after June 15, 2005.  SFAS No. 123R  requires all  share-based
payments  to  employees,  including  grants of  employee  stock  options,  to be
recognized in the income  statement  under the fair value  method.  Prior to the
adoption  of SFAS No.  123R and as  permitted  by SFAS No. 123 and SFAS No. 148,
"Accounting  for  Stock-Based  Compensation  - Transition  and  Disclosure,"  we
elected  to  follow   Accounting   Principles  Board  Opinion  ("APB")  No.  25,
"Accounting  for Stock  Issued to  Employees,"  and related  Interpretations  in
accounting for our stock-based  compensation plans and implemented the pro forma
disclosure only provisions of SFAS No. 123 and SFAS No. 148. Under APB 25, stock
compensation  expense was  recorded  when the exercise  price of employee  stock
options  was less  than the fair  value of the  underlying  stock on the date of
grant.  We  adopted  SFAS  No.  123R on  October  1,  2005  using  the  modified
prospective method in which prior year financial statements are not restated for
the adoption of the new standard.  Under SFAS No. 123R, we use the Black-Scholes
option  pricing  model to  determine  the  fair  value  of  stock  options.  The
Black-Scholes model includes various assumptions, including the expected life of
stock options, the expected volatility and the expected risk-free interest rate.
These  assumptions  reflect  our  best  estimates,  but  they  involve  inherent
uncertainties based on market conditions generally outside our control. While we
do not believe  share-based  compensation would have been materially impacted by
the variability in the range of reasonable  assumptions we could have applied to
value option  awards,  we  anticipate  that  share-based  compensation  could be
materially  impacted  by the  application  of  alternate  assumptions  in future
periods.  Also,  under SFAS No.  123R,  we are  required  to record  share-based
compensation  expense  net  of  estimated   forfeitures.   Our  forfeiture  rate
assumption  used in determining  share-based  compensation  expense is estimated
based on historical data. The actual forfeiture rate and corresponding effect on
share-based  compensation expense could differ from those estimates. For further
discussion of the impact of SFAS No. 123R on our financial statements,  see Note
15 to the Consolidated Financial Statements included in Item 8.

Allowance for Doubtful Accounts - Methodology: We evaluate the collectibility of
our accounts  receivable  based on a combination  of factors.  In  circumstances
where we are aware of a  specific  customer's  inability  to meet its  financial
obligations to us (e.g.  bankruptcy  filings,  and  substantial  down-grading of
credit scores),  we record a specific  reserve for bad debts against amounts due
to reduce the net recognized receivable to the amount we reasonably believe will
be collected. For all other customers, we recognize reserves for bad debts based
on the  length  of time  the  receivables  are  past  due,  and  our  historical
experience.  If circumstances  change (e.g., higher than expected

                                       24

defaults or an unexpected  material adverse change in a major customer's ability
to meet its financial obligations to us), our estimates of the recoverability of
amounts due us could be reduced by a material amount.

Reserve  for  Slow-Moving,  Damaged  and  Discontinued  Inventory:  We carry our
inventory  at  standard  costs,  adjusted  for  capitalized   variances,   which
approximate the lower of cost, determined on a first in, first-out (FIFO) basis,
or market.  We periodically  review our inventory for  slow-moving,  damaged and
discontinued items and provide reserves to reduce such items identified to their
recoverable  amounts.  During  fiscal  year 2006 our reserve  decreased  by $9.0
million from $10.5 million to $1.5  million.  This decrease is the result of the
significant liquidation of discontinued reduced carb and other products.

Promotional Allowance:  Promotional allowances related to our sales are recorded
at the time  revenue is  recognized.  Such  allowances,  where  applicable,  are
estimated  based on anticipated  volume and  promotional  spending with specific
customers.  We periodically  review our estimate for promotional  allowances and
adjust accruals to reflect our estimate of the future liability.

Income  Taxes:  We estimate  our income tax  provision or benefit in each of the
jurisdictions in which we operate,  including  estimating  exposures  related to
examinations  by taxing  authorities.  Although we believe that our accruals for
tax  liabilities  are reasonable and adequate,  tax  regulations  are subject to
interpretation  and  the  tax  controversy  process  is  inherently   uncertain;
therefore,  our assessment can involve both a series of complex  judgments about
future events and rely heavily on estimates and  assumptions.  To the extent the
probable tax outcome of these matters  changes,  such changes in estimates  will
impact the income tax  provision  in the period in which such  determination  is
made.

We must also make judgments  regarding the  realizability of deferred tax assets
and tax  liabilities.  Our judgments  regarding future taxable income may change
due to  changes  in  market  conditions,  changes  in  tax  laws,  tax  planning
strategies or other factors.  If our assumptions and  consequently our estimates
change in the  future,  the  valuation  allowances  we have  established  may be
increased or decreased, resulting in a respective increase or decrease in income
tax expense.

In accordance with criteria  established by SFAS No. 109, "Accounting for Income
Taxes", the valuation  allowance against deferred tax assets as of September 29,
2006 and September 30, 2005 was $52.3 million and $42.1  million,  respectively.
The net income effect of the change in total  valuation  allowance for the years
ended September 29, 2006, September 30, 2005 and October 1, 2004 was an increase
of $10.2 million,  $34.8 million and $0.6 million,  respectively.  The valuation
allowance at September  28, 2006 and  September  30, 2005 was related to federal
and state net  operating  loss and tax credit  carryforwards  and  deferred  tax
assets as well as foreign net  operating  loss  carryforwards  and  deferred tax
assets that in the  judgment of  management,  are not more likely than not to be
realized.  In assessing  the  realizability  of deferred tax assets,  management
considers  whether it is more likely  than not that some or all of the  deferred
tax assets will not be realized. The ultimate realization of deferred tax assets
depends on the  generation of future  taxable income during the periods in which
those temporary  differences are deductible.  Management considers the scheduled
reversal  of  deferred  tax  liabilities  (including  the  impact  of  available
carryback and carryforward  periods) and tax planning  strategies in making this
assessment.  In order to fully realize the deferred tax asset,  the Company will
need to generate future taxable income before the expiration of the deferred tax
assets as governed by the tax code.  Taxable  income  (loss) for the years ended
September 29, 2006,  September 30, 2005 and October 1, 2004 was $(32.4) million,
$(32.2)  million  and  $(49.7)  million,  respectively  as  reported  in our tax
returns.  Due  to  the  existence  as of  September  29,  2006  of a  three-year
cumulative loss,  management has not considered  future years' taxable income in
determining the amount of valuation allowance necessary, but has only considered
taxable income from the reversal of net temporary differences in existence as of
September 29, 2006.

Derivatives:   During  fiscal  2006  and  2005,  we  held  derivative  financial
instruments to manage a variety of risk exposures  including interest rate risks
associated  with  variable  rate  long-term  debt  and  foreign  currency  risks
associated with our Italian  operations.  We use a mark-to-market  convention to
account for our derivative contracts, recording the changes in fair market value
of the  financial  instrument  as a gain or loss to  interest  expense  or other
expense. We terminated all such derivative contracts in fiscal year 2006.

                                       25

To manage foreign currency risks, we use futures  contracts.  The fair values of
these instruments are determined from market quotes. These forward contracts are
valued in a manner similar to that used by the market to value  exchange  traded
contracts;  that is, using standard  valuation  formulas with assumptions  about
future foreign currency exchange rates derived from existing exchange rates, and
interest  rates  observed  in the market.  To manage  interest  rate  risks,  an
interest  rate swap is used to  effectively  convert a portion of variable  rate
debt to fixed  rate.  This  instrument  is  valued  using  the  market  standard
methodology  of  netting  the  discounted  future  fixed cash  receipts  and the
discounted expected variable cash payments. The variable cash payments are based
on an expectation of future interest rates derived from observed market interest
rate curves. We have not changed our methods of calculating these fair values or
developing  the underlying  assumptions.  The values of these  derivatives  will
change over time as cash receipts and payments are made and as market conditions
change.  Our derivative  instruments are not subject to multiples or leverage on
the  underlying  commodity  or price index.  Information  about the fair values,
notional  amounts,  and contractual  terms of these  instruments can be found in
Note  2  to  our  consolidated  financial  statements  and  the  section  titled
"Quantitative  and Qualitative  Disclosures  About Market Risk." We consider our
historical  business patterns and our regularly updated forecasts in determining
the amounts of our foreign  inventory  purchases  to manage  through the futures
contracts,  which help to mitigate  the  exposures  to  fluctuations  in foreign
currency exchange rates.

We do not believe we are exposed to more than a nominal amount of credit risk in
our interest rate and foreign  currency  derivatives as the counter  parties are
established, well capitalized financial institutions.  Our exposure is in liquid
currency  (Euros),  so there is minimal risk that appropriate  derivatives would
not be available in the future.

Pending Litigation; Indemnification Obligations

As described above in Item 3 - Legal Proceedings,  there are a number of pending
civil lawsuits and governmental investigations involving the Company, several of
our current and former directors and several of our former  executive  officers.
We continue to incur significant  expense on behalf of the Company and on behalf
of the several individuals to whom we have indemnification obligations. While we
continue to defend these matters  vigorously,  we cannot  foresee what financial
impact,  if any, the  conclusion  of these  matters may have on the Company.  In
addition,  we continue to incur significant expense related to the completion of
our  historical  audits and SEC  reporting  requirements.  The  expenses we have
incurred  through the fiscal year ended  September 28, 2007, in connection  with
all of these  matters,  including  those  associated  with our  restatement  and
pending legal matters,  net of insurance  proceeds,  were $2.5 million in fiscal
2005, $16.1 million in fiscal 2006 and $13.3 million in fiscal year 2007 and are
reflected  in  our  Statement  of  Operations  under  the  caption  general  and
administrative expense.

Restructuring and Rightsizing Program

We implemented a restructuring and rightsizing  program in the fourth quarter of
fiscal year 2004. During the fourth quarter of fiscal year 2004,  production and
manufacturing  cost  inefficiencies  were  experienced in the transition  period
after our  restructuring  program  changes were  implemented.  This  resulted in
higher  than  projected  operating  costs  due  to  product  waste,   production
inefficiencies and incremental distribution costs.

The operational  factors surrounding the implementation of the restructuring and
the concurrent  reductions in inventory levels resulted in product  availability
issues during the fourth  quarter of 2004,  which  continued  into the first six
months of fiscal year 2005.  To regain  higher  levels of customer  service,  in
mid-October 2004, we partially re-activated the Kenosha, Wisconsin facility that
was idled as part of the  restructuring and rightsizing  program.  By the end of
the second quarter 2005, service levels had again reached our overall historical
standards.

FISCAL YEAR ENDED SEPTEMBER 29, 2006 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
2005

Revenues:  Revenues  increased $2.8 million,  or 0.8%, to $367.0 million for the
fiscal year ended  September 29, 2006,  from $364.2  million for the fiscal year
ended  September 30, 2005.  Revenues  increased  $2.1 million,  or 0.6%,  due to
volume  increase,  and  decreased  $0.9 million,  or 0.2%,  due to lower average
selling  prices.  Revenues  increased  by $1.6  million  due to an  increase  in
payments  received  from the U.S.  government  under the  Continued  Dumping and
Subsidy  Offset Act of 2000.  Revenues  for 2006 and 2005 are based on a 52-week
year.

Revenues  for the Retail  market  increased  $3.1  million,  or 1.2%,  to $268.5
million for the fiscal year ended  September 29, 2006,  from $265.4  million for
the fiscal year ended September 30, 2005.  Revenues  increased $0.3

                                       26

million, or 0.1%, due to volume increase, and increased $0.4 million or 0.2% due
to higher average  selling prices  resulting  from reduced  promotional  support
relating to branded  sales.  Revenues  increased by $0.8 million,  or 0.3%, as a
result of the lower amortization of slotting fees related to our discontinuation
of reduced carb products. Revenues increased by $1.6 million, due to an increase
in payments  received from the U.S.  government under the Continued  Dumping and
Subsidy Offset Act of 2000.

Revenues for the Institutional  market decreased $0.3 million,  or 0.3% to $98.5
million for the fiscal year ended September 29, 2006, from $98.8 million for the
fiscal year ended September 30, 2005.  Revenues increased $1.6 million,  or 1.6%
due to volume gains,  and decreased  $1.9 million,  or 1.9% due to lower average
selling prices and changes in sales mix.

Cost of Goods Sold: As a percentage of revenues, cost of goods sold decreased to
77.6% for fiscal  year 2006,  from 82.4% for fiscal year 2005.  The  majority of
this improvement is attributable to the decrease in obsolescence provisions from
$12.2  million in fiscal year 2005 related to the  significant  decline in sales
including our reduced carb products to $1.4 million in fiscal year 2006.

Gross Profit:  Gross profit increased $18.2 million,  or 28.4%, to $82.2 million
for the fiscal year ended  September 29, 2006, from $64.0 million for the fiscal
year  ended  September  30,  2005.  Gross  profit as a  percentage  of  revenues
increased to 22.4% for the fiscal year ended  September  29, 2006 from 17.6% for
the fiscal year ended September 30, 2005.  Gross profit was impacted by a number
of factors as compared to the prior year, (as discussed above) including revenue
increases of $2.8 million.

Selling and Marketing  Expense:  Selling and marketing  expense  increased  $2.6
million,  or 12.8%,  to $22.9  million for the fiscal year ended  September  29,
2006, from $20.3 million for fiscal year ended September 30, 2005. This increase
is primarily  related to increased  compensation due to the adoption of SFAS No.
123R of $1.0  million  and  payroll  and  bonuses of $1.1  million.  Selling and
marketing expense, as a percentage of revenue,  increased to 6.2% for the fiscal
year ended September 29, 2006, from 5.6% for the comparable prior year period.

General and Administrative Expense: General and administrative expense increased
$12.3 million,  or 53.0%,  to $35.5 million for the fiscal year ended  September
29, 2006, from $23.2 million for the comparable  period last year. This increase
is  attributable  primarily  to  increased  costs  of  professional  fees  being
partially  offset by  decreases  in bad debt  expense and  payroll.  General and
administrative  expenses as a percentage  of revenues  increased to 9.7% for the
fiscal  year ended  September  29,  2006,  from 6.4% for the  fiscal  year ended
September 30, 2005 due primarily to the increased  professional  fees associated
with the  restatement.  During the fiscal year ended  September 29, 2006,  $16.1
million of  professional  fees  related to the  restatement  and  pending  legal
matters were recorded. During fiscal year 2005 the Company recorded $2.5 million
in professional fees related to the restatement and pending legal matters. These
professional  fees,  net  of  insurance,  include  legal,  forensic  accounting,
independent registered public accounting firm fees, public relations and Alvarez
& Marsal  fees.  Since the end of fiscal year 2006,  we have  continued to incur
significant costs related to the restatement and pending legal matters.

Litigation  settlement:  By stipulation  of settlement,  we agreed to settle all
claims  alleged in the federal  securities  class action lawsuit filed in fiscal
year 2005,  for $25 million  comprised of $11 million in cash, to be provided by
our insurers, and $14 million in our common shares. On March 27, 2008, we issued
527,903  shares to counsel for the class action  plaintiffs,  with the number of
shares issued to the members of the class in connection  with the  settlement is
contingent  upon the exercise of certain rights in the  settlement  agreement or
entry of the  Court's  order of  distribution  to the class.  There were no such
costs incurred in fiscal year 2006.

Impairment Charges to Brands and Trademarks: During the year ended September 29,
2006, we recorded $1.0 million of  impairment  charges.  We completed our annual
review of fiscal year 2006 brand intangible values based on the 2007 fiscal year
business  plan and our forecast  available in the fourth  quarter of fiscal year
2006. We completed an impairment review of brands in the third quarter of fiscal
year 2005 based on impairment indicators of significant year-to-date declines in
certain brand  revenues  during the fiscal year. We  subsequently  completed our
annual  review of fiscal year 2005 based on the 2006 fiscal year  business  plan
and our  forecast  available  in the  fourth  quarter of fiscal  year 2005.  The
business  plan and  forecasts,  which  included new  information  and  marketing
changes,  resulted in additional brand impairment.  In connection with these two
impairment  reviews  conducted  during the year ended September 30, 2005,  $88.6
million in impairment charges were recorded.

                                       27

Loss on  disposition  of brands and  trademarks:  During  the second  quarter of
fiscal year 2006,  we sold our Mrs.  Leeper's and Eddie's  Spaghetti  brands and
recorded a loss on disposition  of brands and trademarks of $4.7 million.  There
were no such costs incurred in fiscal year 2005.

Losses related to long-lived assets:  During the fiscal year ended September 29,
2006,  $22.3  million  of losses  related to  long-lived  assets  were  recorded
compared  to  $9.8  million  in  fiscal  year  2005.  In  conjunction  with  our
restructuring and rightsizing program, we temporarily  suspended full operations
at our Kenosha,  Wisconsin,  manufacturing facility in the fourth fiscal quarter
of 2004 and then  reactivated  this facility in the first quarter of fiscal year
2005. In April 2006, this facility was permanently  closed and certain equipment
was  moved to other of our  manufacturing  facilities.  The  Kenosha  plant  and
remaining  assets  were  sold in fiscal  year  2006 and a pre-tax  loss of $15.6
million was  recorded in fiscal  year 2006  related to the closing and sale.  We
received net cash proceeds from the sale of $5.0 million.  In addition,  certain
pasta lines and packaging  equipment  considered  unnecessary for our production
plans  were taken out of  service.  These  assets  were  disposed  or the excess
equipment was written down to fair market value.

Provision for (Recovery  from)  Restructuring  Expense:  In fiscal year 2005, we
recognized  $0.6  million  benefit  related  to  the  reversal  of a  previously
established  restructuring  reserve due to the early reactivation of the Kenosha
plant  which was not  contemplated  at the time the  restructuring  reserve  was
established in fiscal 2004.  There were no such costs or benefits in fiscal year
2006.

Operating  Profit / (Loss):  Operating loss for the fiscal year ended  September
29, 2006, was $4.1 million, a decrease of $87.2 million as compared to operating
loss of $91.3  million  reported for the fiscal year ended  September  30, 2005.
Operating  loss  decreased as a percentage  of revenues to (1.1)% for the fiscal
year ended  September 29, 2006, from (25.0)% for the fiscal year ended September
30, 2005, as a result of the factors discussed above.

Interest Expense: Interest expense for the fiscal year ended September 29, 2006,
was $29.5  million,  increasing  82.1% from the $16.2  million  reported for the
fiscal year ended  September 30, 2005.  The increase is  attributable  to higher
average  borrowing  rates and a higher  interest  rate spread  under our lending
agreement.  The interest  rate in effect at September 29, 2006 and September 30,
2005 was 11.3% and 6.8%, respectively.  In addition, we recorded amortization of
deferred  debt  issuance  costs of $4.2  million  in  fiscal  year 2006 and $2.1
million in fiscal year 2005. The increase in the  amortization  of deferred debt
issuance is  primarily  due to the $1.3  million  write-off  of the  unamortized
balance prior to our refinancing our credit facility in March 2006.

Other  (Income)  Expense:  Other  income for fiscal year 2006 was $0.9  million,
representing  (0.2)% of  revenues.  Other  income for fiscal  year 2005 was $3.5
million,  representing  (1.0)% of revenues.  These amounts primarily reflect the
foreign currency transaction  gains/losses on certain forward exchange contracts
and euro-denominated  debt that was outstanding through our refinancing in March
2006.

Income Tax  Expense / Benefit:  Income tax  benefit  for the fiscal  years ended
September  29, 2006 and  September  30, 2005 was $2.2 million and $3.7  million,
respectively, and reflects effective income tax rates of approximately 6.9% and
3.6%,  respectively.  The low  effective  rate in  fiscal  year 2006 and 2005 is
primarily  due to the $10.2  million  and  $34.8  million  income  effect of our
increased valuation  allowances related to the net operating loss and tax credit
carryforwards  and other  deferred tax assets that  management  believes are not
more likely than not to be realized.

Net Income / Loss:  Net loss for the fiscal year ended  September 29, 2006,  was
$30.4  million,  a decrease of $69.8 million from the $100.2 million of loss for
the fiscal year ended  September 30, 2005, as a result of the factors  discussed
above. Net loss as a percentage of net revenues was (8.3)% versus (27.5)% in the
prior year.

Diluted  income / (loss) per common  share was  $(1.65) per share for the fiscal
year ended September 29, 2006, compared to $(5.49) per share for the fiscal year
ended September 30, 2005.

FISCAL YEAR ENDED  SEPTEMBER  30, 2005  COMPARED TO FISCAL YEAR ENDED OCTOBER 1,
2004

Revenues:  Revenues decreased $28.5 million,  or 7.3%, to $364.2 million for the
fiscal year ended  September 30, 2005,  from $392.7  million for the fiscal year
ended October 1, 2004.  Revenues decreased $35.6 million, or 9.1%,

                                       28

due to volume  decline,  and  increased  $7.6  million,  or 1.9%,  due to higher
average selling prices.  Revenues decreased by $0.5 million due to a decrease in
payments  received  from the U.S.  government  under the  Continued  Dumping and
Subsidy  Offset Act of 2000.  Revenues  for 2005 and 2004 are based on a 52-week
year.

Revenues for the Retail  market  decreased  $13.6  million,  or 4.9%,  to $265.4
million for the fiscal year ended  September 30, 2005,  from $279.0  million for
the fiscal year ended October 1, 2004.  Revenues  decreased  $11.9  million,  or
4.3%, due to volume decline,  and decreased $0.4 million,  or 0.1%, due to lower
average  selling  prices  resulting  from  competitive  pressures  and increased
promotional  support  relating  to branded  sales.  Revenues  decreased  by $0.8
million,  or 0.3%, as a result of the  amortization  of slotting fees related to
our  reduced  carb  product  introduction.   Retail  volumes  were  impacted  by
significant  brand volume decreases of 11.7% mainly driven by lower reduced carb
sales, Golden  Grain-Mission brand declines of 41.5% and Muellers brand declines
of 5.4%.  Revenues  decreased  by $0.5  million,  due to a decrease  in payments
received from the U.S. government under the Continued Dumping and Subsidy Offset
Act of 2000.

Revenues for the  Institutional  market  decreased  $14.9 million,  or 13.1%, to
$98.8 million for the fiscal year ended  September 30, 2005, from $113.7 million
for the fiscal year ended October 1, 2004.  Revenues decreased $20.2 million, or
17.8%, due to volume declines, and increased $5.3 million, or 4.7% due to higher
average selling prices and changes in sales mix.

Cost of Goods Sold: As a percentage of revenues, cost of goods sold increased to
82.4% for fiscal year 2005,  from 81.7% for the fiscal year 2004.  Product costs
were higher than expected  during fiscal year 2005 due to continued  unfavorable
trends in transportation costs, energy-related expenses, by-product sales volume
and  production  volume,  all of which  contributed  to an  increase in per unit
costs.  Cost of goods  sold in 2005 also  includes  other  adjustments  of $13.4
million  including $12.2 million  provision for inventory  obsolescence and $1.2
million in spare parts obsolescence and write-offs.  In addition,  cost of goods
sold in  fiscal  year  2004  included  $7.8  million  of  costs  related  to the
restructuring  program and new product  development  and start-up  costs of $3.9
million related to our newly introduced  reduced carb products.  Such costs were
not incurred in fiscal year 2005.

Gross Profit:  Gross profit  decreased $7.9 million,  or 11.0%, to $64.0 million
for the fiscal year ended  September 30, 2005, from $71.9 million for the fiscal
year ended October 1, 2004.  Gross profit as a percentage of revenues  decreased
to 17.6% for the fiscal year ended  September 30, 2005 from 18.3% for the fiscal
year ended October 1, 2004.  Gross profit was impacted by a number of factors as
compared to the prior year, (as discussed above) including  revenue decreases of
$28.5 million without corresponding decreases in cost of goods sold.

Selling and Marketing  Expense:  Selling and marketing  expense  decreased  $6.9
million,  or 25.4%,  to $20.3  million for the fiscal year ended  September  30,
2005, from $27.2 million for fiscal year ended October 1, 2004. This decrease is
primarily  related  to costs  incurred  in  fiscal  year  2004  relating  to the
introduction of our reduced carb product line. Selling and marketing expense, as
a percentage of revenue,  decreased to 5.6% for the fiscal year ended  September
30, 2005, from 6.9% for the comparable prior year period.

General and Administrative Expense: General and administrative expense increased
$1.9 million,  or 8.9%, to $23.2 million for the fiscal year ended September 30,
2005,  from $21.3 million for the comparable  period last year. This increase is
attributable  primarily to increased  costs of  professional  fees,  information
technology,   organization-related   costs,   regulatory  compliance  costs  and
additional  reserves for doubtful  accounts  related to specifically  identified
uncollectible  accounts  and  customer  deductions.  General and  administrative
expenses as a percentage of revenues increased to 6.4% for the fiscal year ended
September  30, 2005,  from 5.4% for the fiscal year ended October 1, 2004 due to
the effect of these  relatively  fixed  costs being  incurred on reduced  sales.
During the fiscal year ended  September 30, 2005,  $2.5 million of  professional
fees related to the restatement  and pending legal matters were recorded.  These
professional  fees include  legal,  forensic  accounting,  public  relations and
Alvarez & Marsal fees.  Since the end of fiscal year 2005, we have  continued to
incur  significant  costs related to the  restatement and pending legal matters.
There were no such costs  incurred in fiscal year 2004.  During fiscal year 2005
and 2004, we incurred general and administrative  expense due to the recognition
of compensation  costs upon modification of stock option awards of approximately
$0.7 million and $3.6 million, respectively.

Litigation  settlement:  By stipulation  of settlement,  we agreed to settle all
claims  alleged in the federal  securities  class action lawsuit filed in fiscal
year 2005,  for $25 million  comprised of $11 million in cash, to be provided by
our insurers, and $14 million in our common shares. On March 27, 2008, we issued
527,903  shares to counsel for the

                                       29

class action plaintiffs,  with the number of shares issued to the members of the
class in  connection  with the  settlement  is  contingent  upon the exercise of
certain  rights in the  settlement  agreement  or entry of the Court's  order of
distribution  to the class.  There were no such costs  incurred  in fiscal  year
2004.

Impairment of Intangible Assets: During the year ended September 30, 2005, $88.6
million of impairment  charges were recorded.  We completed an impairment review
of  brands  in the  third  quarter  of  fiscal  year  2005  based on  impairment
indicators of significant year-to-date declines in certain brand revenues during
the fiscal year. We subsequently completed our annual review of fiscal year 2005
based on the 2006 fiscal year  business  plan and our forecast  available in the
fourth  quarter of fiscal year 2005.  The  business  plan and  forecasts,  which
included new information  and marketing  changes,  resulted in additional  brand
impairment. In fiscal year 2004, $0.1 million of brand impairment was recorded.

Loss related to long-lived  assets:  During the fiscal year ended  September 30,
2005, $9.8 million of losses related to long-lived assets were recorded compared
to $1.1 million in fiscal year 2004.  These assets were  primarily a combination
of certain pasta lines and packaging equipment considered  unnecessary given the
downturn in sales.  These  assets  were  disposed  or the excess  equipment  was
written down to fair market value.

Provision  for (Recovery  from)  Restructuring  Expense:  During the fiscal year
ended  October 1, 2004,  restructuring  expenses of $2.9 million  were  recorded
relating to the  restructuring  and rightsizing  program  announced in the third
quarter  of  2004.  These  costs  included   estimated  employee  severance  and
termination  benefits,  durum  supply  agreement  costs  and  lease  costs.  The
severance and benefit costs relate to the termination of 14% of our workforce, a
majority of who were employed at manufacturing locations.  Lease costs relate to
the commitments and termination costs for certain leased warehouses that will no
longer be required due to the distribution network restructuring  facilitated by
reduced  inventory  levels.  In fiscal year 2005,  we  recognized  $0.6  million
benefit  related  to the  reversal  of a  previously  established  restructuring
reserve  due to the  early  reactivation  of the  Kenosha  plant  which  was not
contemplated at the time the restructuring reserve was established.

Operating  Profit / (Loss):  Operating loss for the fiscal year ended  September
30,  2005,  was $91.3  million,  a decrease  of $110.4  million as  compared  to
operating  profit of $19.1 million reported for the fiscal year ended October 1,
2004.  Operating profit decreased as a percentage of revenues to (25.0)% for the
fiscal  year ended  September  30,  2005,  from 4.8% for the  fiscal  year ended
October 1, 2004, as a result of the factors discussed above.

Interest Expense: Interest expense for the fiscal year ended September 30, 2005,
was $16.2  million,  increasing  47.3% from the $11.0  million  reported for the
fiscal  year ended  October 1, 2004.  The  increase  is  attributable  to higher
average  borrowing  rates,  a higher  interest  rate  spread  under our  lending
agreement and increased fees related to waivers received from our bank group due
to non-compliance with certain covenants.  In addition, we recorded amortization
of deferred  debt  issuance  costs of $2.1  million in fiscal year 2005 and $1.0
million in fiscal year 2004.

Other  (Income)  Expense:  Other  income for fiscal year 2005 was $3.5  million,
representing  1.0% of  revenues.  Other  expense  for fiscal  year 2004 was $2.5
million,  representing  0.6% of revenues.  These amounts  primarily  reflect the
foreign currency transaction  gains/losses on certain forward exchange contracts
and euro-denominated debt.

Income Tax  Expense /  Benefit:  Income tax  benefit  for the fiscal  year ended
September 30, 2005,  was $3.7 million,  a decrease of $5.2 million from the $1.5
million of income tax  expense for the fiscal  year ended  October 1, 2004,  and
reflects   effective  income  tax  rates  of   approximately   3.6%  and  27.2%,
respectively.  The reduced income tax provision and the lower  effective rate in
fiscal year 2005 is  primarily  due to the $34.8  million  income  effect of our
increased  valuation  allowance related to the net operating loss and tax credit
carryforwards  and other  deferred tax assets that  management  believes are not
more likely than not to be realized.

Net Income / Loss:  Net loss for the fiscal year ended  September 30, 2005,  was
$100.2 million, a decrease of $104.3 million from the $4.1 million of income for
the fiscal  year ended  October 1, 2004,  as a result of the  factors  discussed
above. Net income as a percentage of net revenues was (27.5)% versus 1.0% in the
prior year.

Diluted  income / (loss) per common  share were $(5.49) per share for the fiscal
year ended  September 30, 2005,  compared to $0.22 per share for the fiscal year
ended October 1, 2004.

                                       30

Liquidity and Capital Resources

Our primary  sources of liquidity are cash provided by operations and borrowings
under our credit facility.  Cash and temporary investments totaled $22.8 million
and net working  capital  totaled $54.3 million at September 29, 2006.  Cash and
temporary  investments  totaled  $11.9 million and net working  capital  totaled
$59.0 million at September 30, 2005.

Our net cash  provided by operating  activities  totaled  $41.2  million for the
fiscal year ended  September  29, 2006  compared to $29.7 million for the fiscal
year ended  September  30,  2005 and $45.1  million  for the  fiscal  year ended
October 1, 2004. Our cash provided by operating activities increased from fiscal
year  2005 to  fiscal  year  2006  due to  improved  operating  margins  and the
anticipated  lowering of our investment in working  capital,  primarily  through
control of inventory  levels and management of our accounts  payable and accrued
expenses.  Our declining cash provided by operating  activities from fiscal year
2004 to 2005 is  principally  related to the lower  operating  profits in fiscal
year  2005,  excluding  the  effects of  non-cash  charges  associated  with the
litigation settlement,  impairment charges,  stock-based compensation and losses
related to fixed  assets and a  significant  lowering  of the ratio of  accounts
payable  to  inventory  through  more  timely  payment of vendor  balances.  The
decrease in operating  profit in fiscal year 2005 was driven by declining  pasta
consumption and the effects of actions taken to respond to such sales declines.

Cash  used  in  investing  activities  principally  relates  to  investments  in
production and distribution,  milling and management  information system assets.
Cash  provided by  investing  activities  principally  relates to proceeds  from
disposal of property,  plant and equipment and disposal of pasta brands. Capital
expenditures were $12.6 million,  $12.4 million and $19.4 million for the fiscal
years ended 2006, 2005 and 2004, respectively.  Proceeds on the sale of property
plant and  equipment  were $8.1 million and $1.1 million in fiscal year 2006 and
2005,  respectively.  In fiscal year 2006, we sold our Kenosha facility and sold
one of our  brands.  Cash used in the  purchase  of brands was $2.1  million for
fiscal year 2004. There were no brand acquisitions in fiscal years 2006 or 2005.

Net cash used by  financing  activities  was $27.8  million for fiscal year 2006
compared to net cash used by  financing  activities  of $9.2  million for fiscal
year 2005 and $23.2 million for fiscal year 2004. The $27.8 million of cash used
in fiscal  2006 is  primarily a result of our $20.4  million net debt  reduction
related  to our  refinancing  of our  credit  facility  in March  2006.  We also
incurred  $7.4  million  for  financing  costs  related to the  credit  facility
refinancing.  The $9.2 million of cash used in fiscal 2005 is primarily a result
of a net $0.8 million principal payment on debt and the payment of $10.3 million
in dividends.  The $23.2 million of cash used in fiscal year 2004 is primarily a
result of a net $16.7  million of principal  payments on debt and the payment of
$6.8 million in dividends.

We currently use cash  generated from  operations to fund capital  expenditures,
repayment of debt and working capital requirements.

Credit agreement amendments, waivers and refinancing

On March 13, 2006, we entered into a new $295 million,  five-year  senior credit
facility. The new facility replaces our $290 million senior credit facility that
would have expired on October 2, 2006.

The credit  facility is  comprised of a $265 million term loan and a $30 million
revolving credit facility.  The facility is secured by substantially  all of our
assets and  provides  for interest at either LIBOR rate plus 600 basis points or
at an alternate  base rate  calculated as prime rate plus 500 basis points.  The
facility  has a five-year  term  expiring in March 2011 and does not require any
scheduled  principal  payments.  Principal  pre-payments are required if certain
events occur in the future,  including the sale of certain  assets,  issuance of
equity  and the  generation  of  "excess  cash  flow" (as  defined in the credit
agreement). We used net proceeds from the sale of our Kenosha facility to reduce
the  principal  balance  of the  term  loan by $4.5  million  without  incurring
pre-payment penalties.

Our credit facility contains  restrictive  covenants which include,  among other
things, financial covenants requiring minimum and cumulative earnings levels and
limitations  on the payment of  dividends,  stock  purchases  and our ability to
enter into certain  contractual  arrangements.  We do not currently expect these
limitations to have a material effect on business or results of operations.

On March 14,  2007,  the Company and its lenders  agreed to an  amendment to the
credit facility.  Under the amended credit facility, we were required to deliver
our fiscal year 2005 and fiscal year 2006 audited  financial  statements  to

                                       31

the lenders by December 31,  2007.  If we did not, we could have been in default
of this covenant and could have been subject to default interest.  The amendment
also provided for a lower interest rate spread upon delivery of such statements.
The  amendment  also  allowed  us to make a  one-time  $10.0  million  voluntary
pre-payment of the term loan without incurring a pre-payment  penalty,  which we
did in March 2007.

On December 27, 2007,  the Company and its lenders agreed to an amendment to the
new credit  facility.  Under the amended  credit  facility,  we are  required to
deliver our fiscal year 2005, 2006 and 2007 audited financial  statements to the
lenders by June 30, 2008.  If we do not, we could be in default of this covenant
and could be subject to default  interest.  The  amendment  also  provides for a
lower interest rate spread upon delivery of such statements.

At this time, the current and projected borrowings under our new credit facility
do not exceed  the  facility's  available  commitment.  Absent  any  significant
increases in our  historical  levels of  professional  fees and  indemnification
obligations  expenditures,  we believe that net cash  expected to be provided by
operating activities and the cash available through our existing credit facility
will be  sufficient  to meet our expected  capital and  liquidity  needs for the
foreseeable future.

The following table shows our contractual  payment obligations for our long-term
debt and future  purchase  obligations  as of September  29,  2006.  Interest is
calculated  based on the contractual  loan maturity at the interest rate (11.3%)
in effect at September 29, 2006 (in thousands):


   Payments Due by Period
                                                               Less than          1-3          4-5     After 5
   Certain Contractual Obligations                    Total       1 year        years        years       years
   --------------------------------                   -----       ------        -----        -----       -----

   Long-term debt                                 $ 262,282    $   1,782    $       -    $ 260,500    $      -
   Interest payments                                131,290       29,545       88,545       13,200           -
   Operating leases                                   2,155          941        1,207            7           -
   Supply agreement                                   2,618        1,218        1,400            -           -
   Unconditional durum wheat and semolina
         purchase obligations                        29,955       23,955        3,000        2,000       1,000
                                                  ---------    ---------    ---------   ----------    --------

   Total contractual cash obligations             $ 428,300    $  57,441    $  94,152   $  275,707    $  1,000
                                                  =========    =========    =========   ==========    ========


The Company was in compliance with the restrictive covenants as of September 29,
2006.

Impact of Recent Accounting Pronouncements

In November 2004, the Financial  Accounting  Standards  Board (FASB) issued SFAS
No. 151,  "Inventory  Costs,  an amendment of ARB 43, Chapter 4". This Statement
amends the guidance in ARB No. 43,  Chapter 4,  "Inventory  Pricing," to clarify
the accounting for abnormal amounts of idle facility expense,  freight, handling
costs, and wasted material  (spoilage) so as to require such costs to be treated
as current  period  charges.  In  addition,  this  Statement  requires  that the
allocation of fixed  overhead  costs to the  inventoriable  production  costs be
based on the normal  capacity of the  production  facilities.  The provisions of
this Statement are effective for inventory  costs  incurred  during fiscal years
beginning  after June 15, 2005.  The adoption did not have a material  impact on
the Company's consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment," which is
a revision of SFAS No. 123,  "Accounting  for Stock-Based  Compensation"  and is
applicable to fiscal years beginning after June 15, 2005. SFAS No. 123R requires
all  share-based  payments to  employees,  including  grants of  employee  stock
options,  to be recognized in the income  statement under the fair value method.
Prior to the adoption of SFAS No. 123R and as permitted by SFAS No. 123 and SFAS
No. 148, "Accounting for Stock-Based  Compensation - Transition and Disclosure,"
we elected to follow APB No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations in accounting for our stock-based compensation plans and
implemented  the pro forma  disclosure  only provisions of SFAS No. 123 and SFAS
No. 148. Under APB 25, stock compensation expense was recorded when the exercise
price of employee  stock options was less than the fair value of the  underlying
stock on the date of

                                       32

grant.  We  adopted  SFAS  No.  123R on  October  1,  2005  using  the  modified
prospective method.  Under this transition method, the related compensation cost
for fiscal  year 2006  includes  the  expense  for all awards  granted  prior to
October 1, 2005 and not yet vested as of that date,  as well as, all  applicable
awards granted or modified after such adoption date.  Accordingly,  prior period
amounts have not been restated. However, the balance of unearned compensation on
non-vested  shares and prior stock options  granted with intrinsic  value within
stockholders'  equity has been reclassified to additional  paid-in capital as of
October 1, 2005.

Stock based compensation recognized in our results is based on awards ultimately
expected to vest, and  accordingly  has been reduced for estimated  forfeitures.
SFAS No. 123R  requires  forfeitures  to be  estimated  at the time of grant and
revised  appropriately in subsequent  periods if actual  forfeitures differ from
those estimates. Prior to fiscal year 2006, we accounted for forfeitures as they
occurred.

SFAS No.  123R  requires  the  calculation  of a  beginning  pool of excess  tax
benefits in additional  paid-in capital available to absorb any tax deficiencies
recognized  after the adoption of SFAS No. 123R. We have elected the alternative
transition  method  for  calculating  the  additional  paid-in  capital  pool as
described in SFAS No. 123R - 3,  "Transition  Election Related to Accounting for
Tax Effect of Share-Based Payment Awards".

For  further  discussion  of the  impact  of  SFAS  No.  123R  on our  financial
statements,  see Note 2, "Summary of Significant  Accounting Policies," and Note
15, "Equity Incentive Plans."

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections", which requires that voluntary changes in accounting principles are
to be  applied  retrospectively  to  prior  financial  statements.  See Item - 8
Financial  Statements and Supplementary Data - footnote 4 with respect to change
in accounting for certain warehousing costs.

In June 2006, the FASB issued Financial Accounting Board Interpretation  ("FIN")
No. 48,  "Accounting for Uncertainty in Income Taxes-an  interpretation  of FASB
Statement  No.  109."  FIN  No.  48  provides  a  comprehensive  model  for  the
recognition, measurement and disclosure in the financial statements of uncertain
tax  positions  taken  or  expected  to be taken on a tax  return.  Adoption  is
required for fiscal years  beginning  after  December 15, 2006. The Company will
adopt FIN No. 48  effective  September  29, 2007,  the  beginning of fiscal year
2008. As of the date of this filing,  the Company is in the process of analyzing
the impact of adoption on FIN No. 48 on our financial statements.

In September  2006, the SEC issued Staff  Accounting  Bulletin  ("SAB") No. 108,
"Considering   the  Effects  of  Prior  Year   Misstatements   when  Quantifying
Misstatements in the Current Year Financial  Statements." SAB No. 108 was issued
to address  diversity in the practice of  quantifying  materiality  of financial
statement   misstatements.   Prior  practice   allowed  for  the  evaluation  of
materiality  on the basis of either  (1) the error  quantified  as the amount by
which the current year income statement was misstated ("rollover method") or (2)
the cumulative  error  quantified as the cumulative  amount by which the current
years balance sheet was misstated ("iron curtain method"). The guidance provided
in SAB No. 108 requires both methods to be used in evaluating materiality ("dual
approach").  We considered  the  provisions of SAB No. 108, as  applicable,  for
fiscal year ended September 29, 2006.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS
No. 157 defines fair value,  establishes a framework for measuring fair value in
generally accepted accounting principles ("GAAP"), and expands disclosures about
fair  value  measurements.  SFAS No.  157 does not  require  any new fair  value
measurements  in financial  statements,  but  standardizes  its  definitions and
guidance in GAAP. Thus, for some entities, the application of this statement may
change current  practice.  SFAS No. 157 will be effective  beginning  January 1,
2008. We are currently evaluating the impact that adoption of this statement may
have on our financial position, results of operations, income per share and cash
flows.

In February  2007,  the FASB issued  SFAS No.  159,  "The Fair Value  Option for
Financial  Assets and Financial  Liabilities".  SFAS No. 159 permits entities to
choose to measure many financial  instruments,  and certain other items, at fair
value.  SFAS No. 159 applies to reporting  periods  beginning after November 15,
2007.  Management  believes the adoption of this  pronouncement  will not have a
material impact on its consolidated financial statements.

                                       33

In December 2007, the FASB issued SFAS No. 141R, "Business  Combinations".  This
statement   establishes  a  framework  to  disclose  and  account  for  business
combinations.  The  adoption  of the  requirements  of  SFAS  No.  141R  applies
prospectively  to business  combinations for which the acquisition date is on or
after  fiscal  years  beginning  after  December  15,  2008 and may not be early
adopted.  Management believes the adoption of this pronouncement will not have a
material impact on its consolidated financial statements.

In March  2008,  the FASB issued SFAS No.  161,  "Disclosures  about  Derivative
Instruments and Hedging Activities - An Amendment of SFAS No. 133". SFAS No. 161
requires  enhanced   disclosures  about  an  entity's   derivative  and  hedging
activities,  including how an entity uses derivative instruments, how derivative
instruments  and  related  hedged  items are  accounted  for under SFAS No. 133,
"Accounting  for  Derivative  Instruments  and  Hedging  Activities",   and  how
derivative  instruments  and related  hedged items affect an entity's  financial
position,  financial performance, and cash flows. The provisions of SFAS No. 161
are effective for financial  statements  issued for fiscal years beginning after
November 15, 2008,  and interim  periods  within those fiscal  years.  We do not
expect  the  adoption  of  SFAS  No.  161  to  have  a  material  impact  on our
consolidated financial statements.

Off-Balance Sheet Arrangements

At September 29, 2006, we had no off-balance sheet arrangements that have or are
likely to have a material  current or future effect on our financial  condition,
revenues, expenses, results of operations,  liquidity, capital expenditures,  or
capital resources.

Effect of Inflation

In fiscal years 2006, 2005 and 2004, we experienced  inflationary cost increases
in  certain  operating  costs,  including  raw  materials,  utilities,  freight,
insurance and benefit costs.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Average interest rates on borrowings under our U.S. credit facility were 9.1% in
fiscal year 2006. If interest rates had been 100 basis points higher, our annual
interest  expense  would  have  increased  $1.7  million,   assuming  comparable
borrowing  levels during the year and no impact from our swap  agreements  which
were terminated in March 2006.

The functional  currency for our Italy  operations is the Euro. At September 29,
2006,  we had a net  investment in our Italy  operations  of (euro)28.7  million
($36.5  million).  While we have previously  managed our investment  exposure in
foreign  subsidiaries  with  Euro  borrowings,  we did not have  any  such  Euro
denominated debt under the U.S. credit facility in effect at September 29, 2006.

Our net annual transactional  exposure is approximately  (euro)5.7 million ($7.0
million).  We have  minimal  transactional  exposure to various  other  European
currencies,  primarily the British pound. We may use forward purchase  contracts
to manage these  exposures.  We did not have any forward  contracts at September
29, 2006.

We have  forward  contracts  for a certain  portion  of our future  durum  wheat
requirements.  These  contracts are set price  contracts to deliver grain to our
mill, and are not derivative in nature as they have no net settlement  provision
and are not transferable. We have exposure to certain commodity fluctuations.

                                       34

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         AMERICAN ITALIAN PASTA COMPANY
                   Index to Consolidated Financial Statements

                                                                                     Page


     Report  of  Independent  Registered  Public  Accounting  Firm  on  Internal
                Controls Over Financial Reporting                                      36

     Report of Independent Registered Public Accounting Firm on the Consolidated
                Financial Statements                                                   37

     Consolidated Balance Sheets at September 29, 2006 and September 30, 2005          38

     Consolidated  Statements  of Operations  for the years ended  September 29,
                2006, September 30, 2005 and October 1, 2004                           39

     Consolidated  Statements  of  Stockholders'  Equity  for  the  years  ended
                September 29, 2006, September 30, 2005 and October 1, 2004             40

     Consolidated  Statements  of  Comprehensive  Income  for  the  years  ended
                September 29, 2006, September 30, 2005 and October 1, 2004             41

     Consolidated  Statements  of Cash Flows for the years ended  September  29,
                2006, September 30, 2005 and October 1, 2004                           42


     Notes to Consolidated Financial Statements                                        44

     Schedule II Valuation and Qualifying Accounts                                     91

                                       35

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
American Italian Pasta Company

     We were engaged to audit American  Italian Pasta  Company's,  (the Company)
internal  control over  financial  reporting as of September 29, 2006,  based on
criteria  established in Internal  Control--Integrated  Framework  issued by the
Committee  of  Sponsoring  Organizations  of the Treadway  Commission.  American
Italian Pasta  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  included in the
accompanying  Management's Report on Internal Control over Financial  Reporting.
Our  responsibility  is to express an opinion on the Company's  internal control
over  financial  reporting  based  on our  audit.  We  conducted  our  audit  in
accordance with the standards of the Public Company  Accounting  Oversight Board
(United States).

     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.

     Because the Company was not able to complete the  documentation and testing
of its internal controls over financial  reporting as of September 29, 2006, 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.

     Management  has  identified  the  following  material  weaknesses:  (1) the
Company did not maintain adequate policies and procedures related to initiating,
authorizing,  recording,  processing and reporting transactions, (2) the Company
did not maintain  effective  internal  control over  financial  reporting in the
accounting for revenues;  inventory costs;  promotional  allowances and customer
deduction  receivables;   operating  costs  recorded  as  plant  and  equipment;
property, plant and equipment; brand acquisitions;  deferred expenses,  accruals
and other  items;  stock-based  compensation;  hedging  activities;  and foreign
currency  gains  and  losses,  (3) the  Company  did not  have an  adequate  tax
accounting  function,  (4) the  Company  did not  perform a timely and  complete
preparation and review of the consolidated financial statements, (5) the Company
did not operate an adequate  internal audit function and (6) the Company did not
maintain effective disclosure controls and procedures.  A material weakness is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting,  such  that  there  is  a  reasonable  possibility  that  a  material
misstatement of the Company's annual or interim financial statements will not be
prevented or detected on a timely  basis.  The  presence of a material  weakness
would preclude a conclusion  that internal  control over financial  reporting is
effective.  These material weaknesses were considered in determining the nature,
timing,  and extent of audit  tests  applied in our audit of the 2006  financial
statements.

                                                /s/ Ernst & Young LLP
Kansas City, Missouri
June 23, 2008

                                       36

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors
American Italian Pasta Company

      We have audited the accompanying  consolidated  balance sheets of American
Italian  Pasta  Company (the Company) as of September 29, 2006 and September 30,
2005,  and the related  consolidated  statements  of  operations,  stockholders'
equity,  comprehensive income, and cash flows for each of the three years in the
period  ended  September  29,  2006.  Our audits  also  included  the  financial
statement schedule listed in the Index at Item 15(a). These financial statements
and  schedule  are  the   responsibility  of  the  Company's   management.   Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule based on our audits.

      We conducted  our audits in  accordance  with the  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 American
Italian Pasta  Company at September  29, 2006 and  September  30, 2005,  and the
consolidated  results of its operations and its cash flows for each of the three
years in the period ended September 29, 2006, in conformity with U.S.  generally
accepted  accounting  principles.  Also, in our opinion,  the related  financial
statement  schedule,   when  considered  in  relation  to  the  basic  financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.

     As discussed in Note 2 to the consolidated financial statements,  effective
October 1, 2005 the Company  changed its method of  accounting  for  share-based
payments. As discussed in Note 4 to the consolidated  financial  statements,  in
fiscal 2006 the Company  retrospectively  changed its method of  accounting  for
inventoriable costs related to certain storage and warehousing costs.

      We were engaged to audit,  in accordance  with the standards of the Public
Company  Accounting  Oversight  Board  (United  States),  the  effectiveness  of
American Italian Pasta Company's internal control over financial reporting as of
September   29,   2006,    based   on   criteria    established    in   Internal
Control--Integrated   Framework   issued   by  the   Committee   of   Sponsoring
Organizations  of the  Treadway  Commission  and our report dated June 23, 2008,
expressed a disclaimer of opinion thereon.


                                                /s/ Ernst & Young LLP

Kansas City, Missouri
June 23, 2008

                                       37

                         AMERICAN ITALIAN PASTA COMPANY
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)
                                                                         September 29, 2006    September 30, 2005
                                                                         ------------------    ------------------
    ASSETS
    Current assets:
         Cash and temporary investments                                         $ 22,805              $ 11,911
         Trade and other receivables, net                                         32,706                33,913
         Inventories                                                              40,638                47,287
         Prepaid expenses and other current assets                                 6,389                 8,629
         Deferred income taxes                                                     1,156                 2,774
                                                                                --------              --------
    Total current assets                                                         103,694               104,514
    Property, plant and equipment, net                                           324,464               360,740
    Brands and trademarks                                                         82,772                88,750
    Other assets                                                                  21,039                17,922
                                                                                --------              --------
    Total assets                                                                $531,969              $571,926
                                                                                ========              ========
    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
         Accounts payable                                                       $ 18,555              $ 18,232
         Accrued expenses                                                         28,258                20,411
         Current portion of deferred revenues                                         99                    99
         Income taxes payable                                                        715                 1,155
         Current maturities of long-term debt                                      1,782                 5,646
                                                                                --------              --------
    Total current liabilities                                                     49,409                45,543
    Long-term debt, less current maturities                                      260,500               276,006
    Deferred income taxes                                                         34,728                38,756
    Litigation settlement                                                         26,500                25,000
    Deferred revenue, less current portion                                           496                   595
                                                                                --------              --------
    Total liabilities                                                            371,633               385,900
    Commitments and contingencies
    Stockholders' equity:
         Preferred stock, $.001 par value:
             Authorized shares - 10,000,000                                            -                     -
             Issued and outstanding shares - none
         Class A common stock, $.001 par value:
             Authorized shares - 75,000,000                                           21                    21
             Issued and outstanding shares - 20,779,204 and 18,640,660,
             respectively, at September 29, 2006; 20,566,711 and
             18,433,113, respectively, at September 30, 2005
         Class B common stock, par value $.001
             Authorized shares - 25,000,000                                            -                     -
             Issued and outstanding - none
         Additional paid-in capital                                              245,623               243,708
         Treasury stock, 2,138,544 shares in 2006 and                           (51,857)              (51,817)
             2,133,598 shares in 2005, at cost
         Unearned compensation                                                         -                 (738)
         Accumulated other comprehensive income                                   10,815                 8,705
         Accumulated deficit                                                    (44,266)              (13,853)
                                                                                --------              --------
    Total stockholders' equity                                                   160,336               186,026
                                                                                --------              --------
    Total liabilities and stockholders' equity                                  $531,969              $571,926
                                                                                ========              ========

          See accompanying notes to consolidated financial statements.

                                       38

                         AMERICAN ITALIAN PASTA COMPANY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)

                                                                    Year Ended              Year Ended            Year Ended
                                                                September 29, 2006      September 30, 2005     October 1, 2004
                                                                ------------------      ------------------     ---------------

     Revenues                                                       $    367,023            $    364,159         $   392,702
     Cost of goods sold                                                  284,777                 300,151             320,851
                                                                    ------------            ------------         -----------
     Gross profit                                                         82,246                  64,008              71,851

     Selling and marketing expense                                        22,871                  20,342              27,155
     General and administrative expense                                   35,459                  23,198              21,277
     Litigation settlement                                                     -                  14,000                   -
     Impairment charges to brands and trademarks                             998                  88,550                 132
     Loss on disposition of brands and trademarks                          4,708                       -                   -
     Losses related to long-lived assets                                  22,268                   9,759               1,099
     Provision for (recovery from) restructuring expense                       -                   (554)               2,868
     Acquisition and plant start-up expenses                                   -                       -                 240
                                                                    ------------            ------------         -----------
     Operating profit (loss)                                             (4,058)                (91,287)              19,080
     Interest expense, net                                                29,509                  16,234              10,990
     Other (income) expense, net                                           (913)                 (3,544)               2,518
                                                                    ------------            ------------         -----------

     Income (loss) before income taxes                                  (32,654)               (103,977)               5,572
     Income tax provision (benefit)                                      (2,241)                 (3,730)               1,513
                                                                    ------------            ------------         -----------
     Net income (loss)                                              $   (30,413)            $  (100,247)         $     4,059
                                                                    ============            ============         ===========


     Net income (loss) per common share (basic)                     $     (1.65)            $     (5.49)         $      0.22

     Weighted-average common shares outstanding                           18,386                  18,247              18,043
                                                                    ============            ============         ===========

     Net income (loss) per common share
     (assuming dilution)                                            $     (1.65)            $     (5.49)         $      0.22

     Weighted-average common shares outstanding
     (including dilutive securities)                                      18,386                  18,247              18,562
                                                                    ============            ============         ===========

     Cash dividend declared per common share                        $          -            $     0.5625         $    0.3750
                                                                    ============            ============         ===========

          See accompanying notes to consolidated financial statements.

                                       39

                         AMERICAN ITALIAN PASTA COMPANY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)
                                                                    Year Ended             Year Ended            Year Ended
                                                                September 29, 2006     September 30, 2005     October 1, 2004
                                                                ------------------     ------------------     ---------------
Class A Common Shares
     Balance, beginning of year                                           20,567                  20,234              20,064
     Issuance of shares of common stock                                      212                     333                 170
                                                                    ------------            ------------         -----------
     Balance, end of year                                                 20,779                  20,567              20,234
                                                                    ============            ============         ===========
Class A Common Shares - par value
     Balance, beginning of year                                     $         21            $         20         $        20
     Issuance of shares of common stock                                        -                       1                   -
                                                                    ------------            ------------         -----------
     Balance, end of year                                           $         21            $         21         $        20
                                                                    ============            ============         ===========

Additional Paid-in Capital
     Balance, beginning of year                                     $    243,708            $    240,249         $   232,417
     Reclassification of unearned compensation upon adoption of
     SFAS No. 123R                                                         (738)                       -                   -
     Cancellation of shares of restricted stock                                -                   (100)               (197)
     Issuance of shares of common stock                                        -                   3,953               4,555
     Re-measurement of restricted stock                                        -                 (1,222)               (587)
     Issuance and termination of compensatory stock options                    -                    (63)               (107)
     Stock based compensation                                              2,653                     891               3,858
     Tax benefit from stock compensation                                       -                       -                 310
                                                                               -                       -                   -
     Balance, end of year                                           $    245,623            $    243,708         $   240,249
                                                                    ============            ============         ===========

Treasury Stock, at cost
     Balance, beginning of year                                     $   (51,817)            $   (51,657)         $  (46,585)
     Purchases of treasury stock                                            (40)                   (160)             (5,072)
                                                                    ------------            ------------         -----------
     Balance, end of year                                           $   (51,857)            $   (51,817)         $  (51,657)
                                                                    ============            ============         ===========

Unearned Compensation
     Balance, beginning of year                                     $      (738)            $    (2,240)         $   (1,124)
     Reclassification of unearned  compensation upon adoption of
     SFAS No. 123R                                                           738                       -                   -
     Cancellation of shares of restricted stock                                -                     100                 197
     Issuance of shares of common stock                                        -                   (234)             (2,416)
     Re-measurement of restricted stock                                        -                   1,222                 587
     Issuance and termination of compensatory stock options                    -                      63                 107
     Earned compensation                                                       -                     351                 409
                                                                    ------------            ------------         -----------
     Balance, end of year                                           $          -            $      (738)         $   (2,240)
                                                                    ============            ============         ===========

Accumulated Other Comprehensive Income
     Foreign currency translation adjustment:
     Balance, beginning of year                                      $     8,705            $     10,043         $    6,563
     Change during the period                                              2,110                 (1,338)              3,480
                                                                     -----------            ------------         ----------
     Balance, end of year                                            $    10,815            $      8,705         $   10,043
                                                                     ===========            ============         ==========

Retained Earnings (Deficit)
     Balance, beginning of year                                      $  (13,853)            $     96,697         $   99,402
     Net income (loss)                                                  (30,413)               (100,247)              4,059
     Dividends declared                                                       -                 (10,303)            (6,764)
                                                                     -----------            ------------         ----------
     Balance, end of year                                            $  (44,266)            $   (13,853)         $   96,697
                                                                     ===========            ============         ==========

Total Stockholders' Equity                                           $   160,336            $    186,026         $  293,112
                                                                     ===========            ============         ==========

          See accompanying notes to consolidated financial statements.

                                       40

                         AMERICAN ITALIAN PASTA COMPANY
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (in thousands)

                                                                    Year Ended             Year Ended            Year Ended
                                                                September 29, 2006     September 30, 2005      October 1, 2004
                                                                ------------------     ------------------      ---------------


     Net income (loss)                                               $  (30,413)            $ (100,247)          $     4,059


     Other comprehensive income (loss):

             Foreign currency translation adjustments                      2,110                (1,338)                3,480
                                                                     -----------            -----------          -----------


     Comprehensive income (loss)                                     $  (28,303)            $ (101,585)          $     7,539
                                                                     ===========            ===========          ===========

          See accompanying notes to consolidated financial statements.

                                       41

                         AMERICAN ITALIAN PASTA COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                                                   Year Ended             Year Ended           Year Ended
                                                               September 29, 2006     September 30, 2005     October 1, 2004
                                                               ------------------     ------------------     ---------------

OPERATING ACTIVITIES:
Net income (loss)                                                 $    (30,413)          $   (100,247)          $   4,059
Adjustments to reconcile net income (loss) to net cash
       provided by operations:
       Depreciation and amortization                                     24,895                 25,132             24,956
       Amortization of deferred financing fees                            4,216                  2,051              1,026
       Non cash litigation settlement                                         -                 14,000                  -
       Impairment charges to brands and trademarks                          998                 88,550                132
       Loss on disposition of brands and trademarks                       4,708                      -                  -
       Losses related to long-lived assets                               22,268                  9,759              1,099
       Losses related to disposition of spare parts                           -                  1,223                804
       Provision for (recovery of) doubtful accounts                      (127)                  1,806                656
       Provision for inventory obsolescence                               1,420                 12,155              1,948
       Stock-based compensation expense                                   2,653                  1,242              4,267
       Tax benefit from stock compensation                                    -                      -                310
       Deferred income tax (benefit) expense                            (2,410)                (4,452)              3,032
       (Gain) related to interest rate swap transactions                  (104)                (1,671)            (2,122)
       (Gain) loss related to euro debt borrowing                           981                (3,640)              2,808
       Changes in operating assets and liabilities:
           Trade and other receivables                                    1,742                  4,392              1,015
           Inventories                                                    4,282                (2,338)             12,116
           Prepaid expenses and other current assets                      2,079                    586              2,135
           Accounts payable and accrued expenses                          5,244               (19,303)           (11,834)
           Income taxes                                                   (612)                  1,126                471
           Other                                                          (628)                  (686)            (1,783)
                                                                  -------------          -------------      -------------
Net cash provided by operating activities                                41,192                 29,685             45,095

INVESTING ACTIVITIES:
Purchase of pasta brands                                                      -                      -            (2,115)
Additions to property, plant and equipment                             (12,577)               (12,379)           (19,405)
Proceeds from disposal of pasta brands                                    1,775                      -                  -
Proceeds from disposal of property, plant and equipment                   8,122                  1,107                  2
                                                                  -------------          -------------      -------------
Net cash used in investing activities                                   (2,680)               (11,272)           (21,518)

FINANCING ACTIVITIES:
Proceeds from issuance of debt                                          265,000                 79,962             39,500
Principal payments on debt                                            (285,351)               (80,760)           (56,170)
Dividends declared and paid                                                   -               (10,303)            (6,764)
Proceeds from issuance of common stock net of issuance costs                  -                  3,719              2,139
Purchase of treasury stock                                                 (40)                  (160)            (1,072)
Deferred financing costs                                                (7,369)                (1,677)              (877)
                                                                  -------------          -------------      -------------
Net cash used in financing activities                                  (27,760)                (9,219)           (23,244)
Effect of exchange rate changes on cash                                     142                      5                 78
                                                                  -------------          -------------      -------------
Net increase in cash and temporary investments                           10,894                  9,199                411
Cash and temporary investments, beginning of year                        11,911                  2,712              2,301
                                                                  -------------          -------------      -------------
Cash and temporary investments, end of year                       $      22,805          $      11,911      $       2,712
                                                                  =============          =============      =============

                                       42

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest                                            $      22,551          $      13,019       $      9,659
                                                                  =============          =============       ============
Cash paid for income taxes                                        $         694          $         378       $      1,379
                                                                  =============          =============       ============
Cash received from income taxes                                   $           -          $       2,105       $      2,337
                                                                  =============          =============       ============
Accrual for common stock to be issued in litigation settlement    $           -          $      14,000       $          -
                                                                  =============          =============       ============
Note payable exchanged for treasury stock                         $           -          $           -       $      4,000
                                                                  =============          =============       ============

          See accompanying notes to consolidated financial statements.

                                       43

                         AMERICAN ITALIAN PASTA COMPANY
                   Notes to Consolidated Financial Statements



1.    DESCRIPTION OF THE BUSINESS

American Italian Pasta Company (the "Company") is a Delaware  corporation  which
began  operations in 1988. The Company  believes it is the largest  producer and
marketer of dry pasta in North  America by volume and as of  September  29, 2006
had  manufacturing  and distribution  facilities  located in Excelsior  Springs,
Missouri, Columbia, South Carolina, Tolleson, Arizona, and Verolanuova, Italy.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation - The consolidated  financial statements include the
accounts of the Company and all majority  owned  subsidiaries.  All  significant
intercompany accounts and transactions have been eliminated in consolidation.

Fiscal Year End - The Company's fiscal year ends on the last Friday of September
or the first Friday of October,  resulting in a 52- or 53-week year depending on
the  calendar.  The  Company's  first  three  quarters  end on the  Friday  last
preceding December 31, March 31 and June 30 or the first Friday of the following
month of each quarter.  Fiscal years 2006, 2005 and 2004 were 52 weeks and ended
September 29, 2006, September 30, 2005 and October 1, 2004.

Revenue Recognition - Sales of the Company's products are recognized as revenues
upon transfer of title to the customer  which is typically  upon delivery at the
customers' place of business.  Promotional  allowances  related to the Company's
sales  are  recorded  at the time  revenue  is  recognized  and  reflected  as a
reduction of revenues on the accompanying consolidated statements of operations.
Such allowances, where applicable, are estimated based on anticipated volume and
promotional spending with specific customers. The Company recognizes revenue for
subsidy  offset  payments from the Department of Commerce (See Note 12) when the
amount and the right to receive payment can be reasonably determined.

Foreign  Currency  - The  Company's  functional  currency  is the  U.S.  dollar,
whereas,  the Company's foreign  operations utilize the Euro as their functional
currency.  Accordingly, for purposes of translating foreign subsidiary financial
statements to the U.S. dollar reporting currency,  assets and liabilities of the
Company's  foreign  operations are translated at fiscal year-end  exchange rates
and income and expenses are  translated at the  weighted-average  exchange rates
for the fiscal year.  Foreign  currency gains and losses  resulting from foreign
currency  transactions  are included in  consolidated  operations in the year of
occurrence.  The Company realized foreign currency transaction gains (losses) of
$0.9  million,  $3.5 million and $(2.5)  million for fiscal year 2006,  2005 and
2004,  respectively,  and are reflected in the Statement of Operations under the
caption other income,  net. These amounts include the gains/(losses)  related to
the   Company's   foreign   currency   forward   exchange   contracts   and  its
euro-denominated debt, discussed below.

Use of Estimates - The  preparation of financial  statements in conformity  with
accounting  principles  generally  accepted in the United  States  requires  the
Company to make estimates and  assumptions  that affect the amounts  reported in
the financial  statements and  accompanying  notes.  Actual results could differ
from those estimates.

Risks and  Uncertainties  - The Company  grants credit to certain  customers who
meet the Company's  pre-established credit requirements.  Generally, the Company
does not require  collateral  when trade credit is granted to customers.  Credit
losses are provided for in the financial  statements  when  determined  and have
generally  been within  management's  expectations.  The  allowance for doubtful
accounts  at  September  29, 2006 and  September  30,  2005 was  $1,989,000  and
$2,116,000,  respectively  and is  netted  against  accounts  receivable  in the
consolidated balance sheet.  Uncollectible  accounts are written-off against the
allowance for doubtful  accounts after  collection  efforts have been exhausted.
For the fiscal  years  2006,  2005 and 2004,  bad debt  expense  (recovery)  was
$(127,000),  $1,806,000  and $656,000,  respectively.  At September 29, 2006 and
September 30, 2005, 23% and 26%,  respectively,  of trade and other  receivables
were due from two customers.

Pasta is made from  semolina  milled from durum wheat and the Company  mills the
wheat into semolina at certain of its plants.  Durum wheat is a narrowly  traded
commodity  crop.  The Company  attempts to mitigate  some of the

                                       44

effect of durum wheat cost fluctuations  through forward purchase  contracts and
raw material  cost-based pricing  agreements with certain of its customers.  The
Company's commodity procurement and pricing practices are intended to reduce the
risk of durum wheat cost increases on  profitability,  but also may  temporarily
affect the timing of the Company's  ability to benefit from possible durum wheat
cost decreases for such contracted quantities.

Derivative  Instruments - Statement of Financial  Accounting  Standards ("SFAS")
No.  133,  "Accounting  for  Derivative  Instruments  and  Hedging  Activities",
requires  companies to recognize all of their  derivative  instruments as either
assets or  liabilities  in the balance sheet at fair value.  The  accounting for
changes in the fair value  (i.e.  gains or  losses) of a  derivative  instrument
depends on whether it has been  designated  and  qualifies  as part of a hedging
relationship  and  further,  on the  type of  hedging  relationship.  For  those
derivative instruments that are designated and qualify as hedging instruments, a
company must  designate the hedging  instrument,  based upon the exposure  being
hedged,  as  either a fair  value  hedge,  cash  flow  hedge or a hedge of a net
investment  in a  foreign  operation.  Since  none of the  Company's  derivative
instruments  were  designated as hedges in accordance with or met the continuing
effectiveness  requirements of SFAS No. 133 to qualify for hedge accounting, the
gain or loss for each  derivative  instrument is recognized in current  earnings
during the period of change.

Managing  Cash Flow Risks - At  September  29,  2006,  the  Company did not have
foreign  currency  contracts.  At September  30,  2005,  the Company had forward
contracts with a fair value of $(597,000)  reflected in its consolidated balance
sheets  under  the  caption  accrued  expenses.  The  settlement  of  derivative
contracts  is  reflected  in the  consolidated  statements  of cash  flows as an
operating cash flow.

At September 29, 2006,  the Company did not have interest rate swap  agreements.
At  September  30,  2005,  the Company had interest  rate swap  agreements  that
effectively  convert a portion of its  floating-rate  debt to a fixed-rate basis
over the term of the related debt,  thus  minimizing the impact of interest rate
changes on future interest expense.

Managing Currency Risk Associated with the Investment in Foreign Operations - At
September 29, 2006, the Company did not have any long-term  debt  obligations in
Euros.   At  September  30,  2005,   long-term  debt  includes   obligations  of
(euro)59,200,000  ($71,200,000).  Changes in the U.S. dollar equivalent of these
euro-based  borrowings  were  recorded  as a component  of other  expense in the
consolidated statements of operations.

Financial   Instruments  -  The  carrying  value  of  the  Company's   financial
instruments,   including  cash  and  temporary  investments,   trade  and  other
receivables,   accounts   payable  and  long  term  debt,  as  reported  in  the
accompanying consolidated balance sheets at September 29, 2006 and September 30,
2005,  approximates  fair value.  The estimated  fair value of the interest rate
swap agreements  outstanding at September 30, 2005 of approximately  $878,000 is
the  approximate  amount  the  Company  would  receive  to  terminate  the  swap
agreements  at September 30, 2005.  The Company did not have swap  agreements at
September 29, 2006.

Cash and Temporary  Investments - Cash and temporary investments include cash on
hand,  amounts  due from  banks and highly  liquid  marketable  securities  with
maturities of three months or less at the date of purchase.

Inventories - Inventories are carried at standard costs adjusted for capitalized
variances,  which  approximate  the  lower of cost,  determined  on a  first-in,
first-out  (FIFO)  basis,  or  market.  The  Company  periodically  reviews  its
inventory for slow-moving,  damaged or discontinued  items and provides reserves
to reduce such items  identified  to their  recoverable  amount.  See Note 4 for
discussion of change in accounting principle related to the method of accounting
for warehousing costs.

Property,   Plant  and  Equipment  -  Capital  additions  and  improvements  are
classified  as  property,   plant  and  equipment  and  are  recorded  at  cost.
Depreciation   is  calculated  for  financial   statement   purposes  using  the
straight-line  method over the  estimated  useful  life of the related  asset as
follows:

                                                           Number of Years

     Land improvements                                         28 - 40

     Buildings                                                 30 - 40

     Plant and mill equipment                                  10 - 30

     Furniture, fixtures and equipment                          5 - 10

                                       45

Plant and mill equipment also includes spare parts, recorded at lower of average
cost or realizable  value,  which parts are not  depreciated,  but expensed when
placed in service.  The Company  periodically reviews its spare parts for excess
and  obsolete  items  and  provides  reserves  to  reduce  such  items  to their
recoverable  amounts.  At September 29, 2006 and September 30, 2005, the reserve
was $1.3 million.

Brands and  Trademarks - In  accordance  with SFAS No. 142,  "Goodwill and Other
Intangible  Assets," the Company does not amortize the cost of intangible assets
with indefinite lives, such as its brands and trademarks.  SFAS No. 142 requires
that the Company perform certain fair value based tests of the carrying value of
indefinite lived intangible  assets at least annually and more frequently should
events or changes in circumstances indicate that the carrying amount of an asset
may not be fully  recoverable.  These impairment tests are impacted by judgments
as to future cash flows and other considerations.  If such assets are considered
to be impaired,  the  impairment  to be  recognized is measured by the amount by
which the  carrying  amount of the assets  exceeds the fair value of the assets.
Assets to be disposed of are  reported  at the lower of the  carrying  amount or
fair value less costs to sell. See Note 9,  Acquisitions - Brands and Trademarks
for a discussion of charges to income for brand impairments.

Other Long Lived  Assets - In  accordance  with SFAS No.  144,  "Accounting  for
Impairment or Disposal of  Long-lived  Assets," the Company  reviews  long-lived
assets for impairment whenever events or changes in circumstances  indicate that
the carrying  amount of an asset may not be recoverable.  The Company  evaluates
recoverability of assets to be held and used by comparing the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are  considered  to be  impaired,  the  impairment  to be  recognized  is
measured by the amount by which the  carrying  amount of the assets  exceeds the
fair value of the assets.  Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.

In conjunction  with the  restructuring  and  rightsizing  program,  the Company
temporarily suspended full operations at its Kenosha,  Wisconsin,  manufacturing
facility in the fourth  fiscal  quarter of 2004 and then  partially  reactivated
this facility in October 2004. In fiscal year 2006, the Company decided to close
the Kenosha  plant.  The Kenosha plant and remaining  assets were sold in fiscal
year 2006 and a pre-tax  loss of  $15,566,000  was  recorded in fiscal year 2006
related to the closing and sale. The Company received net cash proceeds from the
sale of  $5,031,000.  Until  the shut  down of its  Kenosha  plant  the  Company
purchased  semolina for that plant from Horizon  Milling,  LLC under a long-term
supply agreement.  In August 2006, the Company advised Horizon that the economic
and  business  circumstances  had  changed  since  commencement  of  the  supply
agreement,  that it was invoking the material  adverse  effect  provision of the
supply agreement and that it had sold the facility.  Horizon made a demand for a
purchase  deficiency of $0.5 million from the contract year ending September 30,
2006,  and asserted that an  additional  deficiency of $2.1 million will be owed
through  September  2009.  Horizon  has  asserted  its claims in an  arbitration
proceeding  for which a hearing was held  November 13 and 14, 2007.  On December
21, 2007, the arbitrator ruled in favor of Horizon.  The Company is obligated to
satisfy its minimum  purchase  requirements  for the purchase  deficiencies  for
fiscal years 2006 and 2007 totaling $1.2 million and purchase  deficiencies  for
fiscal  years  2008 and 2009  totaling  $1.4  million,  which will be due at the
conclusion of the respective  fiscal years. As a result,  the Company recorded a
$2.6 million liability related to the cancellation of the durum supply agreement
in fiscal year 2006.

Income  Taxes - The Company  accounts for income  taxes in  accordance  with the
method  prescribed by SFAS No. 109,  "Accounting  for Income  Taxes." Under this
method,  deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax basis of assets and liabilities, and are
measured  using the  enacted  tax rates and laws that will be in effect when the
differences  are expected to reverse.  Deferred  tax assets are  evaluated as to
future  realization  and valuation  allowances  are  established as necessary to
reduce  the assets to  amounts  that are more  likely  than not  expected  to be
realized in accordance with SFAS No. 109 requirements.

Stock Based Compensation - On October 1, 2005 the Company adopted SFAS No. 123R,
"Share-Based  Payment,"  which is a revision  of SFAS No. 123,  "Accounting  for
Stock-Based  Compensation" using the modified  prospective method. The effect of
adopting  SFAS No.  123R in  fiscal  year 2006 was an  increase  to  expense  of
$1,761,000.  The effect on basic and diluted earnings per share was $0.10. There
is no tax  impact to this  charge as  deferred  income  tax  benefits  otherwise
provided are offset by the  valuation  allowances  as discussed in Note 13. SFAS
No. 123R requires all  share-based  payments to employees,  including  grants of
employee stock options,  to be recognized in the income statement under the fair
value method.  Under this transition method,  the related  compensation cost for
fiscal year 2006 includes the expense for all awards granted prior to October 1,
2005 and not yet  vested as of that  date,  as well as,  all  applicable  awards
granted or modified after such adoption date. Accordingly,  prior period amounts
have

                                       46

not been restated.  However, the balance of unearned  compensation on non-vested
shares and prior stock options granted with intrinsic value within stockholders'
equity has been  reclassified  to  additional  paid-in  capital as of October 1,
2005.  SFAS No. 123R also  requires  that the benefits  associated  with the tax
deductions in excess of recognized  compensation cost be reported as a financing
cash flow, rather than an operating cash flow as required under APB No. 25.

Under SFAS No.  123R,  stock  based  compensation  recognized  in the  Company's
results is based on awards ultimately expected to vest, and accordingly has been
reduced for  estimated  forfeitures.  SFAS No. 123R requires  forfeitures  to be
estimated at the time of grant and revised  appropriately in subsequent  periods
if actual  forfeitures  differ from those estimates.  Prior to fiscal year 2006,
the Company accounted for forfeitures as they occurred.

SFAS No.  123R  requires  the  calculation  of a  beginning  pool of excess  tax
benefits in additional  paid-in capital available to absorb any tax deficiencies
recognized  after the  adoption  of SFAS No.  123R.  The Company has elected the
alternative  transition  method for calculating  the additional  paid-in capital
pool  as  described  in SFAS  No.  123R - 3,  "Transition  Election  Related  to
Accounting for Tax Effect of Share-Based Payment Awards".

Prior to the adoption of SFAS No. 123R and as permitted by SFAS No. 123 and SFAS
No. 148, "Accounting for Stock-Based  Compensation - Transition and Disclosure,"
the  Company  elected  to follow  APB No. 25,  "Accounting  for Stock  Issued to
Employees,"  and  related  Interpretations  in  accounting  for our  stock-based
compensation  plans and implemented the pro forma  disclosure only provisions of
SFAS No. 123 and SFAS No. 148. Under APB No. 25, stock compensation  expense was
recorded  when the exercise  price of employee  stock  options was less than the
fair value of the underlying stock on the date of grant.

Prior to fiscal year 2006, the Company modified certain stock-based compensation
awards  in  connection  with  the  termination  of  certain  employees.  At  the
modification date of these awards, the Company applied the provisions of APB No.
25 and related FASB Interpretation No. 44,  "Stock-Based  Compensation" and EITF
No. 00-23,  "Issues Related to the Accounting for Stock  Compensation  under APB
Opinion No. 25 and FASB  Interpretation  No. 44",  which  generally  require the
intrinsic  value of the award to be  recognized as  compensation  expense on the
date of modification.

In addition, the Company has granted stock-based  compensation awards to certain
non-employee  consultants.  The Company  follows the guidance in EITF No. 96-18,
"Accounting for Equity  Instruments  That Are Issued to Other Than Employees for
Acquiring,  or in Conjunction with Selling,  Goods or Services".  Under EITF No.
96-18, non-employee stock-based compensation awards are recognized at their fair
values, as determined by the Company using a Black-Scholes model.

The Company utilizes the  Black-Scholes  option valuation model to calculate the
fair  value  of each  option  and  stock  appreciation  right  awards.  Expected
volatility  was based on the  combination  of the  historical  volatility of the
Company's common stock and the implied  volatility of its options.  The expected
term of the options and stock  appreciation  rights represent the period of time
until exercise or termination  and is based on historical  experience of similar
awards,  including  vesting  schedules and expectations of future behavior.  The
risk free  interest  rate is based on the U.S.  Treasury rate at the time of the
grant for  instruments  of a comparable  life.  The Company  does not  currently
anticipate a dividend payout in the foreseeable future.

Advertising  Costs -  Advertising  costs are expensed as  incurred.  Advertising
costs were  $3,743,000  in fiscal year 2006,  $3,294,000 in fiscal year 2005 and
$8,012,000 in fiscal year 2004.

Shipping and Handling  Costs - Costs  incurred  related to shipping and handling
are included in cost of goods sold in the Company's  consolidated  statements of
operations.

Net  Income  (Loss) Per Common  Share - Net  income  (loss) per common  share is
calculated using the  weighted-average  number of common shares and, in the case
of  diluted  net  income  per share,  common  equivalent  shares,  to the extent
dilutive,  outstanding  during the periods.  There were no dilutive  securities,
consisting  of options  (see Note 15),  included in the  calculation  of diluted
weighted  average  common  shares for fiscal  years 2006 and 2005,  and  519,000
shares in fiscal year 2004.

Antidilutive shares comprised of stock options and stock appreciation rights for
fiscal  year  2006 were  1,125,345  with  prices  ranging  from  $8.05 - $43.32.
Antidilutive  shares for fiscal year 2005 was 1,714,054 with prices ranging from
$21.88 - $43.32.  Antidilutive  shares for fiscal  year 2004 was  805,866,  with
prices ranging from $34.62 - $44.30.

                                       47

Impact of Recent  Accounting  Pronouncements  - In November  2004, the Financial
Accounting  Standards Board ("FASB") issued SFAS No. 151,  "Inventory  Costs, an
amendment of ARB 43, Chapter 4". This  Statement  amends the guidance in ARB No.
43,  Chapter 4,  "Inventory  Pricing,"  to clarify the  accounting  for abnormal
amounts of idle facility expense,  freight,  handling costs, and wasted material
(spoilage) so as to require such costs to be treated as current period  charges.
In addition, this Statement requires that the allocation of fixed overhead costs
to the  inventoriable  production  costs be based on the normal  capacity of the
production  facilities.  The  provisions  of this  Statement  are  effective for
inventory  costs incurred during fiscal years beginning after June 15, 2005. The
adoption did not have a material impact on the Company's  consolidated financial
statements.

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections,  which requires that voluntary changes in accounting  principle are
to be applied  retrospectively  to prior financial  statements.  See Note 4 with
respect to change in accounting for certain warehousing costs.

In June 2006, the FASB issued Financial Accounting Board Interpretation  ("FIN")
No. 48,  "Accounting for Uncertainty in Income Taxes-an  interpretation  of FASB
Statement  No.  109."  FIN  No.  48  provides  a  comprehensive  model  for  the
recognition, measurement and disclosure in the financial statements of uncertain
tax  positions  taken  or  expected  to be taken on a tax  return.  Adoption  is
required for fiscal years  beginning  after  December 15, 2006. The Company will
adopt FIN No. 48  effective  September  29, 2007,  the  beginning of fiscal year
2008. As of the date of this filing,  the Company is in the process of analyzing
the impact of adoption on FIN No. 48 on its financial statements.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS
No. 157 defines fair value,  establishes a framework for measuring fair value in
generally accepted accounting principles ("GAAP"), and expands disclosures about
fair  value  measurements.  SFAS No.  157 does not  require  any new fair  value
measurements  in financial  statements,  but  standardizes  its  definitions and
guidance in GAAP. Thus, for some entities, the application of this statement may
change current  practice.  SFAS No. 157 will be effective  beginning  January 1,
2008.  The Company is  currently  evaluating  the impact  that  adoption of this
statement may have on its financial position, results of operations,  income per
share and cash flows.

In February  2007,  the FASB issued  SFAS No.  159,  "The Fair Value  Option for
Financial  Assets and Financial  Liabilities".  SFAS No. 159 permits entities to
choose to measure many financial  instruments,  and certain other items, at fair
value.  SFAS No. 159 applies to reporting  periods  beginning after November 15,
2007.  Management  believes the adoption of this  pronouncement  will not have a
material impact on the Company's consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, "Business  Combinations" ("SFAS
No. 141R").  This Statement  establishes a framework to disclose and account for
business combinations. The adoption of the requirements of SFAS No. 141R applies
prospectively  to business  combinations for which the acquisition date is on or
after  fiscal  years  beginning  after  December  15,  2008 and may not be early
adopted.  Management believes the adoption of this pronouncement will not have a
material impact on the Company's consolidated financial statements.

In March  2008,  the FASB issued SFAS No.  161,  "Disclosures  about  Derivative
Instruments and Hedging Activities - An Amendment of SFAS No. 133". SFAS No. 161
requires  enhanced   disclosures  about  an  entity's   derivative  and  hedging
activities,  including how an entity uses derivative instruments, how derivative
instruments  and  related  hedged  items are  accounted  for under SFAS No. 133,
"Accounting  for  Derivative  Instruments  and  Hedging  Activities",   and  how
derivative  instruments  and related  hedged items affect an entity's  financial
position,  financial performance, and cash flows. The provisions of SFAS No. 161
are effective for financial  statements  issued for fiscal years beginning after
November 15, 2008, and interim  periods  within those fiscal years.  The Company
does not expect the  adoption  of SFAS No. 161 to have a material  impact on its
consolidated financial statements.

3.  RESTATEMENT OF PREVIOUSLY REPORTED FINANCIAL STATEMENTS

As more fully  described  in  Footnote 3 to the Audited  Consolidated  Financial
Statements included in the Company's previously filed Annual Report on Form 10-K
for fiscal year ended  September  30, 2005 the Company  restated its  previously
issued audited  consolidated  financial statements for fiscal years 2001 through
2004 and its  unaudited  consolidated  financial  statements  for the  first two
quarters of fiscal year 2005.

                                       48

4.  CHANGE IN ACCOUNTING PRINCIPLE AND METHOD OF ACCOUNTING

Effective  October 1, 2005 (fiscal year 2006), the Company  voluntarily  changed
its method of accounting  for certain  warehousing  costs,  principally  storage
costs.  Prior to this change,  the Company  capitalized  warehousing  costs as a
component of finished goods inventory. Beginning in fiscal year 2006, such costs
are reflected as a period expense.  The Company  believes that reflecting  these
warehousing costs as a period expense is an improvement in presenting  financial
condition and results of  operations,  particularly  with respect to providing a
more accurate  reflection of the carrying  value of inventory on a lower of cost
or market basis, the costs of storing  inventory  subsequent to the cessation of
the production  process and the cost of goods  ultimately sold. The Company also
believes this produces a better  matching of the costs  incurred to  manufacture
inventories with the revenues  generated upon their sale, and is more reflective
of the  substance of both the storage of such goods for varying  periods of time
prior to customer demand and the gross profit realized upon their ultimate sale.
SFAS No. 154,  "Accounting Changes and Error Corrections," issued by the FASB in
May 2005,  requires that voluntary changes in an accounting  principle are to be
applied  retrospectively to prior financial  statements.  Although the change of
accounting  was adopted in fiscal year 2006,  the Company  reflected  the change
retroactively in its fiscal year 2005 financial statements to be consistent with
the  presentation  of the change in accounting  upon adoption of SFAS No. 154 in
fiscal  year  2006 due to the close  proximity  of the  filing of the  Company's
fiscal  year 2006  financial  statements  to be included in its Form 10-K to the
filing of the fiscal year 2005  financial  statements  included in the Company's
Annual  Report on Form 10-K for that  year.  The  effect  of the  change  was to
increase (decrease) net income by $131,000,  $(118,000), and $768,000 for fiscal
years  2006,  2005  and  2004,  respectively.  The  retroactive  application  to
beginning  retained earnings as of October 4, 2003, the first day of fiscal year
2004,  was a decrease of  $1,566,000.  The effect on earnings per share assuming
dilution  was $0.01,  $(0.01) and $0.04 for fiscal  years  2006,  2005 and 2004,
respectively.

5.  RESTRUCTURING AND RIGHTSIZING PROGRAM

During  the  third  quarter  of  fiscal  year  2004,  the  Company  announced  a
restructuring  and rightsizing  program to better align its production  capacity
and cost structure with the Company's current business and operating profile and
the  pasta  industry   environment.   The  restructuring  program  responded  to
industry-wide  reductions in demand  related to recent  changes in consumer diet
trends  and  to  manufacturing  overcapacity  in the  pasta  industry.  The  key
strategic  elements  of  the  restructuring  and  rightsizing  program  included
reductions  in the  Company's  workforce,  manufacturing  capacity and inventory
levels and the related  reconfiguration  of its  distribution  network.  In that
regard,  during the fourth  quarter of fiscal 2004,  the Company  suspended full
operations  at  one of  its  manufacturing  facilities;  temporarily  shut  down
production  at two of its four  domestic  manufacturing  facilities;  and exited
certain leased domestic distribution centers.

During fiscal years 2005 and 2004, the Company  recorded  $554,000 of income and
$2,868,000  of expense due to  restructuring,  respectively.  The 2004  expenses
primarily include employee severance and termination  benefits of $659,000 lease
costs of $1,172,000 and supply  agreement  costs of $700,000.  The severance and
benefit costs relate to the  termination of  approximately  14% of the Company's
workforce,  a majority of who were employed at  manufacturing  locations.  Lease
costs  relate  to the  commitment  and  termination  costs  for  certain  leased
warehouses  that will no  longer be  required  due to the  distribution  network
restructuring  facilitated by reduced inventory  levels.  Supply agreement costs
relate  to  amounts  to be paid  under a raw  materials  supply  agreement  that
includes a minimum  purchase  commitment  not  expected to be met in fiscal year
2005 due to the temporary  suspension  of  operations at the Kenosha,  Wisconsin
plant in  connection  with the  restructuring.  The 2005 income  results  from a
reduction  in the total costs  originally  provided due to lower  severance  and
termination benefits than expected and a reduction in supply agreement costs due
to higher than  anticipated  level of  operations at the Kenosha plant in fiscal
year 2005.

As of September 30, 2005, the remaining  liability related to the accrual of the
restructuring  costs was $301,000  and is included in "Accrued  expenses" on the
accompanying  Consolidated  Balance  Sheets.  There  was no  such  liability  at
September 29, 2006. The following tables reflect the composition of the accounts
recorded  for  such  restructuring  charges  and the  non-cash  adjustments  and
payments made related thereto for fiscal year 2004, 2005 and 2006.

                                       49

                                                      Restructuring
                                                    Charges Initially      Non-Cash           Cash           Balance at
Fiscal Year 2004                                         Recorded         Adjustments       Payments       October 1, 2004
----------------                                         --------         -----------       --------       ---------------
Employee severance and termination benefits              $    659            $    -         $  (380)           $    279
Lease costs                                                 1,172                 -            (613)                559
Supply agreement costs                                        700                 -                -                700
Other                                                         337                 -            (243)                 94
                                                         --------            ------         --------           --------

Total                                                    $  2,868            $    -         $(1,236)           $  1,632
                                                         ========            ======         ========           ========

                                                      Balance at          Non-Cash            Cash             Balance at
Fiscal Year 2005                                    October 1, 2004      Adjustments        Payments       September 30, 2005
----------------                                    ---------------      -----------        --------       ------------------
Employee severance and termination benefits              $   279             $(155)         $  (124)          $        -
Lease costs                                                  559                  -            (559)                   -
Supply agreement costs                                       700              (399)                -                 301
Other                                                         94                  -             (94)                   -
                                                         -------             ------         --------           --------

Total                                                    $ 1,632             $(554)         $  (777)            $    301
                                                         =======             ======         ========            ========

                                                        Balance at          Non-Cash          Cash              Balance at
Fiscal Year 2006                                    September 30, 2005     Adjustments      Payments        September 29, 2006
----------------                                    ------------------     -----------      --------        ------------------
Employee severance and termination benefits              $     -             $    -          $     -             $     -
Lease costs                                                    -                  -                -                   -
Supply agreement costs                                       301                  -            (301)                   -
Other                                                          -                  -                -                   -
                                                         -------             ------          -------             -------

Total                                                    $   301            $     -          $ (301)             $     -
                                                         =======            =======          =======             =======

6.  INVENTORIES
Inventories consist of the following (in thousands):
                                                                            September 29, 2006      September 30, 2005
                                                                            ------------------      ------------------
   Finished goods                                                                  $ 29,373           $    42,311
   Raw materials, additives, packaging materials and work-in-process                 12,764                15,446
   Reserves for slow-moving, damaged and discontinued inventory                     (1,499)              (10,470)
                                                                                 $   40,638            $   47,287
                                                                                 ==========            ==========


7. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following (in thousands):


                                                                 September 29, 2006       September 30, 2005
                                                                 ------------------       ------------------
               Land and improvements                                     $  11,603               $  13,947
               Buildings                                                   108,722                 120,899
               Plant and mill equipment                                    337,866                 354,223
               Furniture, fixtures and equipment                            27,118                  25,304
                                                                         ---------               ---------
                                                                           485,309                 514,373
               Accumulated depreciation                                  (176,782)               (163,294)
                                                                         ---------               ---------
                                                                           308,527                 351,079
               Spare parts, net of reserve                                   7,824                   7,295
               Construction in progress                                      8,113                   2,366
                                                                         ---------               ---------
                                                                         $ 324,464               $ 360,740
                                                                         =========               =========

                                       50

The Company  capitalizes  interest costs  associated with the  construction  and
installation  of property,  plant and  equipment.  During the fiscal years ended
September 29, 2006, September 30, 2005 and October 1, 2004,  $489,000,  $584,000
and $243,000, respectively, of interest cost was capitalized.

Depreciation  expense for the fiscal years ended  September 29, 2006,  September
30,  2005 and  October 1, 2004 was  $22,472,000,  $22,882,000  and  $23,299,000,
respectively. Plant and mill equipment, at cost, includes the write-down to fair
market  value due to  impairment  amounting  to  $5,245,000  and  $7,728,000  at
September 29, 2006 and September 30, 2005,  respectively.  The impairment charge
is  recorded  in  losses  related  to  long-lived  assets  in  the  accompanying
consolidated  statements of operations.  There were no impairment write-downs at
October 1, 2004.

In conjunction  with the Company's  restructuring  and rightsizing  program,  it
temporarily suspended full operations at its Kenosha,  Wisconsin,  manufacturing
facility in the fourth fiscal quarter of 2004 and then reactivated this facility
in the first quarter of fiscal year 2005. In the second  quarter of fiscal 2006,
the Company  decided to close the Kenosha  facility and recognized an impairment
loss based on the  estimated  fair  value.  In April  2006,  this  facility  was
permanently closed and certain equipment was moved to other of our manufacturing
facilities. The Kenosha plant and remaining assets were sold in fiscal year 2006
and a pre-tax  loss of  $15,566,000  was recorded in fiscal year 2006 related to
the impairment and sale. The Company received net cash proceeds from the sale of
$5,031,000.

The Company maintains certain property,  plant and equipment in Italy with a net
book value  totaling  $41,638,000  and  $41,959,000  at  September  29, 2006 and
September 30, 2005, respectively.

8.  OTHER ASSETS

Other assets consist of the following (in thousands):
                                   September 29, 2006        September 30, 2005
                                   ------------------        ------------------
  Package design costs                      $ 11,488                   $ 10,867
  Deferred debt issuance costs                 6,098                      6,840
  Insurance settlement                        12,500                     11,000
  Other                                        1,692                      2,385
                                          ----------                  ----------
                                              31,778                     31,092
  Accumulated amortization                   (10,739)                   (13,170)
                                          ----------                  ----------
                                            $ 21,039                     17,922
                                          ==========                  ==========

Package design costs relate to certain  incremental  third party costs to design
artwork and produce die plates and negatives  necessary to manufacture and print
packaging materials according to the Company and customer specifications.  These
costs are amortized  ratably over a three year period. In the event that product
packaging  is  discontinued  prior to the end of the  amortization  period,  the
respective  package design costs are written off.  Package design costs,  net of
accumulated  amortization,  were $2,418,000 and $3,266,000 at September 29, 2006
and September 30, 2005,  respectively.  Annual  amortization  of package  design
costs is estimated to be $1,384,000,  $811,000 and $223,000 in fiscal year 2007,
2008 and 2009, respectively.

Deferred debt issuance  costs relate to the Company's  long-term debt and credit
facilities  and are amortized  over the term of the credit  facility  which is a
five-year  period  ending  March  2011.  Annual  amortization  is  recorded as a
component of interest expense.  Deferred debt issuance costs, net of accumulated
amortization  at September 29, 2006 and September 30, 2005,  were $5,441,000 and
$2,273,000,  respectively.  The  Company  refinanced  its  credit  facility  and
long-term  debt in March 2006 and charged  income for the remaining  unamortized
deferred debt issuance cost at that time.

The insurance  settlement  asset relates to the Company's  stipulation to settle
all claims  alleged in the  federal  securities  class  action  lawsuit  for $25
million composed of $11 million in cash, to be provided by its insurers, and $14
million in its common shares. The number of shares issued in connection with the
settlement  is  contingent  upon the stock price at the date the court enters an
order of  distribution  of the common  shares.  The fiscal  year 2006  insurance
settlement  also includes  $1.5 million for  settlement  related to  shareholder
derivative  action to be provided  by the  Company's  insurers.  See Note 14 for
additional information.

                                       51

9.  ACQUISITIONS - BRANDS AND TRADEMARKS

In February  2003,  the Company  purchased  the Mrs.  Leeper's  specialty  pasta
business for 100,000 shares of the Company's common stock,  plus a cash earn-out
tied to sales and profit growth over the next three years.  In January 2004, the
Company   repurchased   the  shares  issued  pursuant  to  the  acquisition  for
$5,000,000, (consisting of a $4,000,000 note payable and $1,000,000 in cash) and
paid $2,000,000.  This amount includes $950,000 of intangible assets recorded in
brands  in lieu of all cash  earn-out  consideration  tied to  future  sales and
profit  growth,  $810,000  recorded  in  other  assets  related  to a  four-year
non-compete  agreement  with the former  owners of Mrs.  Leeper's  and  $240,000
related to severance on the  termination of employment  agreements in connection
with the  transaction and was charged to general and  administrative  expense in
fiscal year 2004. The  non-compete  agreement was amortized over the term of the
agreement  until the brand was sold in  fiscal  year 2006 as  discussed  further
below.

The  purchase  price  for  each  of the  brand  acquisitions  was  allocated  to
trademarks,  brand name, and inventory.  Effective  October 1, 2001, the Company
adopted SFAS No. 142,  "Goodwill and Other Intangible  Assets",  and assigned an
indefinite  life to  trademarks  and brand  name and,  accordingly,  records  no
amortization expense related to these assets. The trademarks and brand names are
the Company's only intangible assets.

The  Company's  fiscal  year 2004  annual  impairment  review of its  brands and
trademarks resulted in $132,000 brand impairment.

The Company performed an impairment review of its brands in the third quarter of
fiscal year 2005 based on  impairment  indicators  of  significant  year-to-date
declines in certain  brand  revenues  during the fiscal year.  The result of the
review,  using a  discounted  cash flow  model,  was a brand  impairment  charge
aggregating $29.9 million being recorded. The Company subsequently completed its
annual  impairment review of fiscal year 2005 using a discounted cash flow model
and based on the 2006 fiscal year  business  plan and its forecast  available in
the fourth quarter of fiscal year 2005.  The business plan and forecasts,  which
included new information and marketing changes, resulted in the additional brand
impairment.  The  result of this  review  was a brand  impairment  charge in the
fourth quarter of fiscal year 2005 of $58.7 million.  The total brand impairment
charges recorded in fiscal year 2005 was $88.6 million.

The Company sold the Mrs.  Leeper's brand and Eddie's Spaghetti brand trademarks
and related  inventory  in fiscal year 2006 for $1.8 million in net proceeds and
recorded a write-down of  approximately  $4.7 million related to brands and $0.3
million  related  to the  write-off  of the  remaining  unamortized  non-compete
agreement.

The  Company  performed  its fiscal  year 2006  annual  review of its brands and
trademarks based on the fiscal year 2007 business plan and forecasts. The result
of this review was a brand impairment of $1.0 million.

10.  ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):
                                                 September 29, 2006       September 30, 2005
                                                 ------------------       ------------------

  Accrued promotional costs                              $ 9,370                 $ 8,501
  Accrued bonus expense                                    3,216                       -
  Accrued interest expense                                 4,479                   2,088
  Other accrued expenses                                  11,193                   9,822
                                                        --------                 --------
                                                        $ 28,258                 $ 20,411
                                                        ========                =========

11.  LONG-TERM DEBT

Long-term debt consists of the following (in thousands):
                                                 September 29, 2006        September 30, 2005
                                                 ------------------        ------------------

  Borrowings under U.S. credit facility                $ 260,500                 $ 276,006
  Borrowings under Italian credit facility                 1,782                     3,646
  Other unsecured notes payable                                -                     2,000
                                                       ---------                ----------
                                                         262,282                   281,652
             Less current portion                          1,782                     5,646
                                                       ---------                ----------
                                                       $ 260,500                 $ 276,006
                                                       =========                ==========

                                       52

On March 13, 2006, the Company entered into a new $295 million, five-year senior
credit facility.  The facility replaced the Company's $290 million senior credit
facility  that would have  expired on October 2, 2006.  The credit  facility  is
comprised  of a $265  million  term  loan  and a $30  million  revolving  credit
facility.  The facility is secured by substantially  all of the Company's assets
and  provides  for interest at either LIBOR rate plus 600 basis points or at the
agent  bank's  base rate  calculated  as prime rate plus 500 basis  points.  The
facility  has a five-year  term  expiring in March 2011 and does not require any
scheduled  principal  payments.  Principal  pre-payments are required if certain
events occur in the future,  including the sale of certain  assets,  issuance of
equity  and the  generation  of  "excess  cash  flow" (as  defined in the credit
agreement).  The Company used net proceeds from the sale of its Kenosha facility
to  reduce  the  principal  balance  of the term  loan by $4.5  million  without
incurring pre-payment  penalties.  The credit facility also includes a quarterly
unused  commitment fee equal to 1% times the amount by which the credit facility
commitment  exceeds the total of outstanding  loans and  outstanding  letters of
credit as defined in the agreement. In fiscal year 2006, the Company also had an
Italian credit facility providing for available  borrowing of $6.4 million.  The
Italian credit facility is secured by Italian receivables. The interest rates in
effect at  September  29,  2006 and  September  30,  2005  were  11.3% and 6.8%,
respectively,  on the U.S.  credit  facility.  The  interest  rates in effect at
September 29, 2006 and September 30, 2005 were 3.7% and 3.4%,  respectively,  on
the Italian  credit  facility.  Included  in the  borrowings  under U.S.  credit
facility is the estimated fair value of interest rate swap  agreements  totaling
$0.9 million at September 30, 2005.

The Company's  credit  facility  contains  restrictive  covenants which include,
among  other  things,  financial  covenants  requiring  minimum  and  cumulative
earnings levels and limitations on the payment of dividends, stock purchases and
its ability to enter into certain contractual arrangements. The Company does not
currently expect these  limitations to have a material effect on its business or
results of  operations.  At September 30, 2005,  the Company was in violation of
its debt covenants in place under the facility, but had received waivers for the
violations  through  March 16,  2006.  The  Company was in  compliance  with its
restrictive covenants under the credit facility at September 29, 2006.

On March 14, 2007, the Company and its lenders agreed to an amendment to the new
credit facility.  The amendment  provided,  among other things, the extension of
certain financial reporting  covenants.  Under the amended credit facility,  the
Company  was  required  to deliver  its  fiscal  2005 and  fiscal  2006  audited
financial  statements  to the lenders by December 31,  2007.  If the Company did
not,  it could be in  default of this  covenant  and could be subject to default
interest.  The  amendment  also  provided for a lower  interest rate spread upon
delivery of such  statements.  The amendment  also allowed the Company to make a
one-time $10.0 million voluntary  pre-payment of the term loan without incurring
a pre-payment penalty, which the Company did in March 2007.

On December 27, 2007,  the Company and its lenders agreed to an amendment to the
new credit facility.  Under the amended credit facility, the Company is required
to deliver its fiscal year 2005, 2006 and 2007 audited  financial  statements to
the lenders by June 30, 2008. If the Company does not, it could be in default of
this  covenant  and could be subject to default  interest.  The  amendment  also
provides for a lower interest rate spread upon delivery of such statements.

Other  unsecured notes payable at September 30, 2005,  relates to  consideration
provided to reacquire the stock  initially  issued as part of the Mrs.  Leeper's
transaction, as discussed in Note 9.

The Company  also has  outstanding  letters of credit  that total  approximately
$1,531,000   and  $500,000  at  September  29,  2006  and  September  30,  2005,
respectively.

Annual maturities of long-term debt obligations for each of the next five fiscal
years  reflecting  the terms of the  credit  facility  discussed  above,  are as
follows (in thousands):

                    2007                           $   1,782

                    2008                                   -

                    2009                                   -

                    2010                                   -

                    2011                             260,500
                                                     -------
                                                   $ 262,282
                                                   =========

                                       53

12.  CONTINUED DUMPING AND SUBSIDY OFFSET ACT OF 2000

On October 28, 2000,  the U.S.  government  enacted the  "Continued  Dumping and
Subsidy Offset Act of 2000" (the "Act"),  commonly known as the Byrd  Amendment,
which provides that assessed  anti-dumping and subsidy duties  liquidated by the
Department  of Commerce on Italian and Turkish  imported  pasta after October 1,
2000  will be  distributed  to  affected  domestic  producers.  The  legislation
creating the dumping and subsidy  offset  payment  provides for annual  payments
from the U.S.  government.  The  Company  recognized  revenue  under  the Act of
$2,628,000,  $1,043,000  and  $1,504,000  in fiscal  years 2006,  2005 and 2004,
respectively.  Effective October 1, 2007, the Act was repealed, resulting in the
discontinuation  of future  distributions  to affected  domestic  producers  for
duties assessed after such date.

13.  INCOME TAXES

Significant   components  of  the  income  tax  provision  are  as  follows  (in
thousands):

                                                 Year ended               Year ended                Year ended
                                             September 29, 2006       September 30, 2005         October 1, 2004
                                             ------------------       ------------------         ---------------
Current income tax expense (benefit):
     U.S.                                            $ 89                   $ 581                    $ (1,896)
     Foreign                                           80                     141                         377
                                                 --------               ----------                    --------
                                                      169                     722                      (1,519)
                                                 --------               ----------                    --------
Deferred income tax expense (benefit):
     U.S.                                          (2,719)                 (4,655)                      2,159
     Foreign                                          309                     203                         873
                                                 ---------             -----------                   --------
                                                   (2,410)                 (4,452)                      3,032
                                                 ---------             -----------                   --------

Net income tax expense (benefit)                 $ (2,241)             $   (3,730)                   $  1,513
                                                 =========             ===========                   ========

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows (in thousands):




                                                                   September 29, 2006      September 30, 2005
                                                                   ------------------      ------------------
Deferred tax assets:
      Net operating loss carryforwards                                    $ 46,309                $ 27,705
      Tax credit carryforwards                                              15,127                  15,065
      Inventory valuation                                                    1,274                   4,765
      Foreign currency exchange                                                  -                   4,397
      Stock-based compensation                                               2,456                   1,640
      Intangible assets                                                     12,536                  14,459
      Accounts receivable valuation                                          2,399                   1,800
      Prepaid expenses and other current assets                                509                       -
      Other                                                                  5,085                   4,994
                                                                          --------                --------
                                                                            85,695                  74,825
      Valuation allowance                                                  (52,333)                (42,096)
                                                                          --------                --------
Total deferred tax assets                                                   33,362                  32,729
                                                                          --------                --------

Deferred tax liabilities:
      Tangible assets                                                       66,934                  68,541
      Prepaid expenses and other current assets                                  -                     170
                                                                          --------                --------
Total deferred tax liabilities                                              66,934                  68,711
                                                                          --------                --------
Net deferred tax liabilities                                              $ 33,572                $ 35,982
                                                                          ========                ========

                                       54

The  following  is the  component  of income  (loss)  before  income tax expense
(benefit) for domestic and foreign operations:

                                                                Year ended              Year ended             Year ended
                                                            September 29, 2006      September 30, 2005       October 1, 2004
                                                            ------------------      ------------------       ---------------

           Domestic                                              $(31,565)              $(104,883)               $  (665)
           Foreign                                                 (1,089)                     906                  6,237
                                                                 ---------              ----------               --------
                                                                 $(32,654)              $(103,977)               $  5,572
                                                                 =========              ==========               ========


The  reconciliation  of income tax  computed at the U.S.  statutory  tax rate to
income tax expense is as follows (in thousands):

                                                         Year ended            Year ended             Year ended
                                                     September 29, 2006    September 30, 2005      October 1, 2004
                                                     ------------------    ------------------      ---------------

Income / (loss) before income taxes                         $ (32,654)           $ (103,977)               $ 5,572
U.S. statutory tax rate                                         X 35%                  X 35%                 X 35%
                                                       ---------------          -------------       ---------------
Federal income tax expense / (benefit) at
U.S. statutory rate                                           (11,429)              (36,392)                 1,950
State income tax expense / (benefit),
  net of federal tax effect                                      (969)               (2,251)                    90
Foreign tax rate differential                                    (173)                  (71)                 (814)
Change in valuation allowance                                   10,237                34,756                   622
Tax credits                                                       (62)                  (36)                 (256)
Other, net                                                         155                   264                  (79)
                                                       ---------------          -------------       ---------------
Total income tax expense / (benefit)                       $   (2,241)             $ (3,730)               $ 1,513
                                                       ===============          =============       ===============


Income tax  benefit  allocated  to other  items is as follows (in thousands):


                                                               Year ended            Year ended              Year ended
                                                           September 29, 2006    September 30, 2005        October 1, 2004
                                                           ------------------    ------------------        ---------------


              Stock option arrangements (recorded
                 directly as an increase to "Additional      $           -          $          -             $     310
                 Paid-In Capital")                           =============         =============             ==========


The income tax benefit  related to stock option  deductions for fiscal year 2005
initially  recorded as an increase to additional  paid-in capital has been fully
offset by a  valuation  reserve to reduce the amount of the  deferred  tax asset
otherwise recorded in the amount of $1,315,000,  as the Company does not believe
it is more likely than not that the net operating  loss related  thereto will be
utilized prior to expiration. No such valuation reserves were recorded for stock
option deductions recorded in fiscal years 2006 and 2004.

The Company had federal net operating  loss  carryforwards  of  $115,586,000  at
September 29, 2006,  expiring in 2024 through 2026, and $68,718,000 at September
30, 2005,  expiring in 2024 and 2025.  A partial  valuation  allowance  has been
established against the federal net operating loss carryforward at September 29,
2006 and  September  30, 2005 as the Company  does not believe it is more likely
than not that the carryforward  will be utilized prior to expiration.  In making
this  determination,  the Company did not consider  future taxable income due to
the  existence of a  three-year  cumulative  loss as of  September  29, 2006 and
September 30, 2005. The Company only considered  taxable income to the extent of
reversals of net temporary differences in existence as of September 29, 2006 and
September 30, 2005.

The Company had various state net operating loss  carryforwards  of $170,296,000
at September 29, 2006 and  $106,029,000 at September 30, 2005, that have various
expiration dates from 2008 to 2024. The realizability of these losses is subject
to the Company's  ability to generate taxable income in future years and is also
dependant upon the Company's  continued  business activity in each state and its
corresponding  apportioned  taxable  income  in  each  state.  A full  valuation
allowance has been established against these net operating loss carryforwards at
September 29, 2006 and September 30, 2005, as the Company does not believe it is
more likely than not that they will be utilized prior to expiration.

                                       55

The Company had AMT credit  carryforwards  of  $10,277,000 at both September 29,
2006 and  September  30, 2005,  with no  expiration  date.  A partial  valuation
allowance has been  established  against these credits at September 29, 2006 and
September  30, 2005 as the  Company  does not believe it is more likely than not
that these credits will be fully  utilized.  In making this  determination,  the
Company  did not  consider  future  taxable  income  due to the  existence  of a
three-year  cumulative loss as of September 29, 2006 and September 30, 2005. The
Company  only  considered  taxable  income  to the  extent of  reversals  of net
temporary  differences  in existence as of September  29, 2006 and September 30,
2005.

The  Company  had  general  business  credit  carryforwards  of $705,000 at both
September 29, 2006 and September 30, 2005,  with various  expiration  dates from
2013 to 2023. A full  valuation  allowance  has been  established  against these
credits as of September  29, 2006 and September 30, 2005 as the Company does not
believe it is more likely than not that these credits will be utilized  prior to
expiration.  In making this  determination,  the Company considered that the net
operating  loss  carryforwards  existing at September 29, 2006 and September 30,
2005 would be utilized prior to the  utilization of the general  business credit
carryforwards and general business credit  carryforwards are set to expire prior
to the expiration of the net operating loss carryforwards.

At  September  29,  2006 the  Company  had state  tax  credit  carryforwards  of
$4,145,000  that have varying  expiration  dates from 2011 to 2020. At September
30, 2005, the Company had state tax credit  carryforwards of $4,083,000 that had
varying expiration dates from 2010 to 2019. A full valuation  allowance has been
established against these credits for both years as the Company does not believe
it is more  likely  than  not  that  these  credits  will be  utilized  prior to
expiration.

No U.S. income taxes have been provided on the undistributed earnings of foreign
subsidiaries that have been retained for reinvestment. Any taxes paid to foreign
governments  on those  earnings  may be used,  in whole or in part,  as  credits
against the U.S. tax on any dividends distributed from earnings. The Company did
not have undistributed earnings at September 29, 2006.

14.  COMMITMENTS AND CONTINGENCIES

Purchase and Supply Agreements:

The  Company  had  durum  wheat  and  semolina  purchase   commitments  totaling
approximately  $30.0  million  and  $23.5  million  at  September  29,  2006 and
September 30, 2005, respectively.

Under agreements with one of its primary rail carriers, the Company is obligated
to transport  substantially all wheat volumes  purchased on these carriers.  The
Company was in compliance with these obligations at September 29, 2006.

The Company  purchases  its raw material  requirements  (including  semolina and
semolina/flour blends) for its Tolleson, Arizona facility from Bay State Milling
Company  under the terms of a  long-term  supply  agreement  (10-year  term with
renewal  provisions).  The Company is  obligated  to purchase  80% of its annual
Tolleson  requirements  for semolina from Bay State with an annual minimum of 50
million pounds.  The Company has satisfied its minimum  requirements  for fiscal
years 2006, 2005 and 2004. In the event Bay State's  ownership  changes or under
performs,  the  Company  has  contractual  rights  to  purchase  the  mill at an
established book value less applicable depreciation to that point.

Operating Leases:

The Company leases office space,  computer equipment and other equipment,  under
lease agreements  accounted for as operating leases.  The office lease agreement
contains renewal options and rental  escalation  clauses,  as well as provisions
for the payment of utilities,  maintenance  and taxes. As of September 29, 2006,
the  Company's  future  minimum  rental  payments  due under the  non-cancelable
operating lease agreements consist of the following (in thousands):

                                       56

                                    2007             $  941
                                    2008                566
                                    2009                425
                                    2010                216
                                    2011                  7
                                 Thereafter               -
                                                     -------
                                                     $ 2,155
                                                     =======

Rent expense was  approximately  $1.1 million for fiscal years 2006 and 2005 and
$1.3 million for fiscal year 2004.

Governmental Investigations and Other Matters:

•    Beginning  in the  late  summer  of 2005,  the  Company  received  document
     requests  and formal  subpoenas  from the  Enforcement  Division of the SEC
     relating  to  its  accounting   practices,   financial   reporting,   proxy
     solicitation  and other  matters in  connection  with a formal,  non-public
     investigation  by the SEC staff of the  Company  and  certain  persons  and
     entities  employed by or  associated  with the Company.  The United  States
     Attorney's  Office for the Western  District  of Missouri  ("DOJ") has also
     been  investigating  these matters and has been  coordinating  with the SEC
     staff. The Company has had, and is continuing to have, discussions with the
     SEC staff,  and separately with the DOJ,  regarding the conclusion of their
     investigation activities and of their respective views of appropriate bases
     on which to reach mutually acceptable  settlements.  Such settlements could
     result  in a  Deferred  Prosecution  Agreement,  which  could  include  the
     assignment of a corporate monitor,  continued  cooperation with any ongoing
     investigations  and/or  a  monetary  fine.  Due to the  status  of  ongoing
     discussions with the DOJ and SEC staff, the Company cannot estimate a range
     of possible loss that could result from a monetary  fine, if any. There can
     be no  assurance  that any  settlement  would not have a  material  adverse
     effect on our business,  financial condition, results of operations or cash
     flows. The Company is cooperating with these investigations.

•    On October 28, 2005, the Company  received notice from the Employee Benefit
     Security  Administration of the U.S.  Department of Labor ("EBSA") that the
     EBSA was  commencing an  investigation  regarding its 401(k) plan. The EBSA
     visited  the  Company's  offices on January  18,  2006 to review  requested
     information  and  interview its Director of Human  Resources  regarding the
     401(k) plan. The Company is cooperating  with the EBSA and has provided the
     EBSA with all requested information.

•    During the Company's  ongoing  analysis of financial  matters,  it reviewed
     transactions  reported to the U.S.  Department  of Commerce (the "DOC") for
     the period July 1, 2002 through June 30, 2003 in the antidumping proceeding
     on pasta imported from Italy. Based on the data reported by the Company and
     its Italian subsidiary,  Pasta Lensi,  S.r.l., the DOC revoked the AD Order
     with respect to Pasta Lensi. During its investigation,  information came to
     the Company's attention that certain data reported to the DOC was incorrect
     and as a result,  Pasta Lensi may not have been eligible for  revocation of
     the AD Order. The Company  disclosed the issue to the DOC.  Simultaneously,
     the Company provided this  information to the DOJ, which requested  further
     information on this matter. As a result of the Company's  disclosure to the
     DOC, it published  notice on February  22, 2008 in the Federal  Register of
     its  preliminary  determination  to  reinstate  Pasta Lensi in the existing
     antidumping  duty order at a cash  deposit rate of 45.6%.  The  preliminary
     determination  applies,  on a prospective  basis, to all imports of subject
     products  from and after  February  22,  2008. A cash deposit rate of 45.6%
     would have a significant  adverse impact to our working  capital  position.
     The Company has appealed this determination.  The Company has substantially
     mitigated  the impact of this order by changing its  ingredient  to organic
     semolina in March 2008, thereby manufacturing  products for import into the
     U.S.  that  are  exempt  from  the  antidumping  duty  order.  Based on the
     Company's  review,  the  Company  does not  believe  this order will have a
     material effect on its financial condition.

Each of these matters is ongoing and involves  various  risks and  uncertainties
that could have a material adverse effect on our business, results of operations
and financial condition.

Litigation Claims and Disputes:

•    Beginning in August, 2005, seven lawsuits containing similar allegations of
     misrepresentations   and  omissions   concerning  the  Company's  financial
     statements  and asserting  both  derivative and direct claims were filed in
     the

                                       57

     United States District Court for the Western  District of Missouri  against
     the Company,  certain of its current and former directors and officers, and
     its independent  registered  public  accounting firm,  Ernst & Young,  LLP.
     These  lawsuits were  consolidated  into a single  lawsuit  asserting  both
     derivative  and direct claims.  On June 16, 2006,  the Court  dismissed the
     derivative  claims because the plaintiffs  failed to make a required demand
     on the Company's  Board of Directors.  By stipulation  of settlement  filed
     with the Court on October 29, 2007, the Company agreed to settle all claims
     alleged  in  the  lawsuit,  including  those  alleging  violations  of  the
     Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  On February 12,
     2008, the Court granted final approval of the settlement. The settlement of
     the federal securities class action lawsuit was for $25 million,  comprised
     of $11 million in cash, to be provided by the Company's  insurers,  and $14
     million in the Company's common shares.  Under the terms of the settlement,
     on March  27,  2008,  class  counsel  received  527,903  common  shares  in
     satisfaction  of the Court  approved  fee  award.  The class  will  receive
     approximately  930,000  common  shares,  subject  to  adjustment  upward or
     downward,  based  upon  the  Company's  stock  price  as  provided  in  the
     stipulation  of  settlement.  The  settlement  was  recorded  in the fourth
     quarter of fiscal year 2005.

•    In November 2005, a shareholder  derivative action was filed in the Circuit
     Court of Jackson County,  Missouri.  The plaintiff  alleges that certain of
     the Company's  former  officers and directors are liable to the Company for
     breaches  of  fiduciary  duties  and  aiding and  abetting  such  breaches,
     corporate waste, gross mismanagement,  unjust enrichment,  abuse of control
     based upon the Company's  accounting  practices  and  financial  reporting,
     insider  selling  and   misappropriation  of  information,   and  that  its
     independent registered public accounting firm, Ernst & Young LLP, is liable
     for professional negligence and accounting malpractice, aiding and abetting
     breaches of fiduciary  duties and breach of contract.  The Company is named
     as a nominal defendant in this matter. The plaintiff seeks equitable relief
     and unspecified  compensatory and punitive damages.  On March 13, 2008, the
     Company reached an agreement in principle,  subject to court  approval,  to
     settle this  action.  The  proposed  settlement  requires  the  adoption of
     certain  governance  reforms by the Company and payment of $1.5  million in
     attorney's fees and costs to counsel for the plaintiff,  which payment will
     be made under our insurance  policies.  The  settlement was recorded in the
     first quarter of fiscal year 2006.

•    In September  2006,  another action was filed in the United States District
     Court  for  the  Western  District  of  Missouri.   The  plaintiff  asserts
     derivative  claims  against  certain of the  Company's  former and  current
     officers and directors for breaches of their  fiduciary  duties relating to
     the Company's accounting practices and financial reporting.  Plaintiff also
     asserts claims on behalf of a putative class against the Company's  current
     directors for failing to schedule or hold an annual  meeting for 2006.  The
     Company is named as a nominal  defendant.  The plaintiff seeks  unspecified
     monetary  damages on the Company's  behalf and an order  requiring  that an
     annual  meeting be scheduled  and held.  On February  12,  2007,  the Court
     stayed all further  proceedings in the suit until forty-five days after the
     Company's issuance of restated financial results,  and required the Company
     to provide monthly reports regarding the status of its restatement process.
     On March 13, 2008, the Company  reached an agreement in principle,  subject
     to court approval,  to settle this action on a consolidated  basis with the
     November 2005 shareholders derivative action described above.

•    On March 7,  2007,  a lawsuit  was  filed in the  Delaware  Chancery  Court
     against the Company  alleging that no annual  meeting of  shareholders  had
     been held  since  February  7, 2005,  and  requesting  that the  Company be
     compelled  to convene an annual  meeting.  Proceedings  in that  matter are
     currently  stayed by  agreement  of the  parties.  On March 13,  2008,  the
     Company reached an agreement in principle,  subject to court  approval,  to
     settle this action as part of the  resolution  of the other two  derivative
     actions.

Each of these  actions is  ongoing,  and the  Company  continues  to defend them
vigorously.  Although  the  Company  cannot  predict the outcome of any of these
actions,  an adverse result in one or more of them could have a material adverse
effect on its business, results of operations and financial condition.

From time to time and in the  ordinary  course of its  business,  the Company is
named as a defendant in legal proceedings  related to various issues,  including
worker's  compensation claims, tort claims and contractual  disputes.  While the
resolution of such matters may have an impact on the Company's financial results
for the  period  in which  they are  resolved,  the  Company  believes  that the
ultimate  disposition  of  these  matters  will  not,  individually  or  in  the
aggregate,  have a material  adverse  effect upon its  business or  consolidated
financial statements.

                                       58

Indemnification and Pending Litigation Obligations:

The Company has  incurred  and will  continue  to incur  significant  expense on
behalf  of the  Company  and on behalf of the  several  individuals  to whom the
Company  has   indemnification   obligations   related  to  certain  claims  and
investigations  involving the Company and these  individuals.  In addition,  the
Company continues to incur significant  expense related to the completion of its
historical audits and SEC reporting  requirements.  The expenses the Company has
incurred  through the fiscal year ended  September 28, 2007, in connection  with
all of these  matters,  including  those  associated  with its  restatement  and
pending legal matters,  net of insurance  proceeds,  were $2.5 million in fiscal
year 2005,  $16.1  million in fiscal year 2006 and $13.3  million in fiscal year
2007.

Employment and Consulting Agreements:

The Company had  employment  agreements  with  certain  officers  providing  for
payments to be made in the event the employee is terminated  related to a change
in control as well as severance provisions not related to change in control.

On  September  28, 2005 the Company  entered into a  consulting  agreement  with
Alvarez & Marsal LLC, to provide  management  services and a co-chief  executive
officer.  The agreement  calls for fees and incentive  cash bonuses,  as well as
warrants for the Company's  stock,  which  warrants are described  more fully in
Note 20, Unearned Compensation.

15.  EQUITY INCENTIVE PLANS

In October  1992,  a stock  option  plan was  established  that  authorizes  the
granting of options to purchase up to 1,201,880  shares of the Company's  common
stock by certain officers and key employees. In October 1993, an additional plan
was established that authorizes the granting of options to purchase up to 82,783
shares of the Company's common stock. In October 1997, a third stock option plan
was established that authorizes the granting of restricted shares and/or options
to purchase up to  2,000,000  shares of the  Company's  common  stock by certain
officers, key employees and contract employees. In December 2000, a fourth stock
option plan was established  that authorizes the granting of restricted  shares,
options and stock appreciation  rights to purchase up to 1,000,000 shares of the
Company's  common  stock  by  certain  officers,   key  employees  and  contract
employees.  In February 2004, shareholders approved an additional 800,000 shares
under the 2000 plan. The stock options become  exercisable  over the next one to
five years in varying amounts,  depending on the terms of the individual  option
agreements,  and expire 10 years from the date of grant. The stock  appreciation
rights  become  exercisable  over the next one to four years in varying  amounts
depending on the terms of the individual agreements, and expire seven years from
the date of grant.

The  Company  adopted  SFAS No.  123R on  October  1, 2005  using  the  modified
prospective  method. The effect of the adoption of SFAS No. 123R is discussed in
Note 2.

The assumptions used to record stock-based  compensation  expense under SFAS No.
123R for fiscal year 2006 and present the pro forma  information  under SFAS No.
123 for fiscal years 2005 and 2004 are as follows:






                                            Risk-Free     Dividend                 Expected Life     Black Scholes
                                          Interest Rate     Yield     Volatility      (years)           Values
                                          ---------------------------------------------------------------------------

   Fiscal Year 2004 Weighted Average          3.51%         2.0%         35.7%          4.8             $ 9.60
   Fiscal Year 2005 Weighted Average          3.93%         2.0%         34.9%          4.3             $ 7.99
   Fiscal Year 2006 Weighted Average          4.70%         0.0%         45.9%          4.5             $ 1.69



A summary of the Company's stock option activity, and related information, is as
follows:

                                       59

                                                                                           Weighted
                                                                                            Average
                                                                                           Remaining
                                                                        Weighted          Contractual
                                                     Number of          Average              Term
                                                       Shares        Exercise Price       (in years)
                                                    ----------       --------------       -----------
           Outstanding at September 30, 2005          2,619,756           $27.03
                Exercised                                     -                -
                Granted                                       -                -
                Cancelled/Expired                   (1,525,126)           $24.79
                                                    -----------
           Outstanding at September 29, 2006          1,094,630           $30.16                5.6
                                                    ===========


           Vested or expected to vest at              1,066,348           $30.17                5.5
           September 29, 2006

           Exercisable at September 29, 2006            928,265           $30.20                5.2


There is no aggregate  intrinsic  value for any options  outstanding,  vested or
expected to vest,  or  exercisable  at September 29, 2006 as the market price of
the  Company's  stock,  on that date,  was less than the  exercise  price of all
outstanding options.

There was no  weighted-average  grant date fair value of options in fiscal  year
2006 as no options were issued during the year. The weighted-average  grant date
fair value of options  granted  during the fiscal  years 2005 and 2004 was $7.99
and $9.60, respectively. There was no intrinsic value of stock options exercised
in fiscal 2006 as no stock  options were  exercised  during the year.  The total
intrinsic value of stock options exercised in the fiscal years 2005 and 2004 was
$4,630,000 and $1,224,000,  respectively. No cash was received in fiscal 2006 as
no stock  options were  exercised  during the year.  The Company  recorded  cash
received from the exercise of stock options of $3,550,000  and $1,815,000 in the
fiscal years 2005 and 2004, respectively.

The total fair value of options that vested  during the fiscal years 2006,  2005
and 2004 was $1.9 million, $5.6 million and $2.9 million, respectively.

The following table summarizes  outstanding and exercisable options at September
29, 2006:

                                  Options Outstanding                           Options Exercisable

                                       Weighted                                                      Weighted
                                       Average                                         Weighted      Average
                                     Contractual       Weighted                         Average    Contractual
                        Number           Life           Average          Number        Exercise        Life
 Exercise Prices      Outstanding     (in years)    Exercise Price     Exercisable       Price      (in years)
 ---------------      -----------     ----------    --------------     -----------       -----      ----------

$   12.23-18.50          141,007        2.4            $ 18.16           141,007        $ 18.16          2.4
$   19.70-24.38           60,700        2.9            $ 22.47            54,700        $ 22.53          2.3
$   25.00-28.68          289,097        5.9            $ 26.39           237,177        $ 26.22          5.4
$   28.90-36.00          206,060        7.0            $ 30.75           128,423        $ 31.73          6.6
$   36.81-43.32          397,766        6.1            $ 38.03           366,958        $ 38.01          6.0


Under SFAS No. 123R, the Company  recognized  compensation  expense related to stock option awards of $1,797,000 in
fiscal 2006.

Prior to the  implementation  of SFAS No. 123R,  the Company had issued  certain
stock option awards whereby the exercise price was less than the market price on
the  measurement  date. The Company has recognized  total  compensation  expense
related to stock option  awards of $731,000 and  $3,698,000 in fiscal years 2005
and 2004,  respectively.  The Company has  recognized  expense  related to other
stock awards of $140,000,  $160,000 and $160,000 in fiscal years 2006,  2005 and
2004, respectively.

A summary of the  Company's  stock  appreciation  rights  activity,  and related
information, is as follows:

                                       60

                                                                                                           Weighted
                                                                                                           Average
                                                                        Weighted         Aggregate        Remaining
                                                     Number of          Average          Intrinsic     Contractual Term
                                                       Shares        Exercise Price        Value          (in years)
                                                     ---------       --------------      ---------     ----------------
           Outstanding at September 30, 2005 *                -              -
                Exercised                                     -              -
                Granted                                 895,688          $5.64
                Cancelled/Expired                     (106,073)          $5.50
                                                      ---------
           Outstanding at September 29, 2006            789,615          $5.66            $ 1,678,000          6.5
                                                      =========

           Vested or expected to vest                   655,380          $5.66            $ 1,393,000          6.5

           Exercisable                                        -          $   -            $         -            -

         * Fiscal  year 2006 was the first  year for stock  appreciation  rights
           activity.



The following table summarizes  outstanding and exercisable  stock  appreciation
rights at September 29, 2006:



                       Stock Appreciation Rights Outstanding,                      Exercisable
                                       Weighted                                                      Weighted
                                       Average                                         Weighted      Average
                                     Contractual       Weighted                         Average    Contractual
                        Number           Life           Average          Number        Exercise        Life
 Exercise Prices      Outstanding     (in years)    Exercise Price     Exercisable       Price      (in years)
 ---------------      -----------     ----------    --------------     -----------       -----      ----------

$   5.50- 8.40           789,615           6.5         $ 5.66                  -         $   -             -


The weighted average fair value for stock appreciation  rights granted was $1.69
for the fiscal year ended September 29, 2006.

As of September  29, 2006,  the Company had  $1,716,000  of future  unrecognized
compensation costs related to stock options and stock appreciation rights. These
costs are  expected  to be  recognized  over a weighted  average  period of 3.02
years.

In fiscal year 2007, the Company granted stock appreciation  rights with respect
to 526,944 shares of common stock. The weighted average exercise price in fiscal
year 2007 was $8.96.  In the first half of fiscal year 2008, the Company granted
stock appreciation  rights with respect to 954,868 shares of common stock with a
weighted average exercise price of $7.43.

The pro forma information  regarding net income (loss) and net income (loss) per
share has been determined as if the Company had accounted for its employee stock
options  under the fair value method of SFAS No. 123 as required for fiscal 2005
and 2004.  The fair value for these  options was  estimated at the date of grant
using a Black-Scholes option pricing model.

The Company's pro forma information follows (in thousands,  except for per share
information):

                                       61

                                                             September 30, 2005     October 1, 2004
                                                             ------------------     ---------------
     Net income (loss) as reported                                $ (100,247)            $  4,059
     Total stock based compensation expense
        included  in  net  income,  net  of  related  tax
        effects                                                         1,242               2,682
     Deduct stock based compensation expense
        determined  under fair value based method for all
        awards, net of related tax effects                            (5,877)             (2,903)
                                                                      -------             --------

     Pro forma net income (loss)                              $     (104,882)            $  3,838
                                                              ===============            ========

     Basic earnings (loss) per share:
        As reported                                           $        (5.49)             $  0.22
        Pro forma                                             $        (5.75)             $  0.21
     Diluted earnings (loss) per share:
        As reported                                           $        (5.49)             $  0.22
        Pro forma                                             $        (5.75)             $  0.21


There is no income tax effect provided above related to the actual and pro forma
compensation  for fiscal year 2005 as  deferred  income tax  benefits  otherwise
provided are offset by valuation allowances as discussed in Note 13.

16.  EMPLOYEE BENEFIT PLANS

The Company has a defined  contribution  plan organized  under Section 401(k) of
the Internal Revenue Code covering substantially all employees.  The plan allows
all qualifying employees to contribute up to the tax deferred contribution limit
allowable by the Internal Revenue Service.  The Company currently matches 50% of
the employee  contributions,  which is not to exceed 6% - 12% of the  employee's
salary,  depending on the length of the employee's  service to the Company.  The
Company may contribute  additional amounts to the plan as determined annually by
the Board of  Directors.  Employer  contributions  related  to the plan  totaled
$726,000,  $706,000  and  $747,000  for the  years  ended  September  29,  2006,
September 30, 2005 and October 1, 2004, respectively.

The Company  sponsors an Employee  Stock Purchase Plan ("ESPP") which offers all
employees the election to purchase the Company  common stock at a price equal to
90% of the  market  value on the last day of the  calendar  quarter.  Authorized
shares  under this plan were  100,000.  During  fiscal  year 2005,  the  Company
suspended the ESPP.

17.  STOCK REPURCHASE PLAN AND TREASURY SHARES

In October 2002, the Company's  Board of Directors  authorized up to $20,000,000
to implement a common stock  repurchase  plan.  The Company did not purchase any
shares in fiscal years 2006, 2005 and 2004 under this program.

In fiscal year 2004,  the Company  purchased  100,000 shares of its common stock
for  $5,000,000  related  to the Mrs.  Leeper's  acquisition  (see Note 9).  The
purchase  price of the  shares,  recorded as a cost of  treasury  stock,  was in
excess of the market value at the time of purchase by $835,000.

The Company repurchased 4,946 shares at a weighted average price of $7.99, 7,902
shares at a weighted  average  price of $20.27,  and 1,739  shares at a weighted
average price of $41.65 in connection with the withholding of taxes upon vesting
of restricted stock in fiscal year 2006, 2005 and 2004, respectively.

18.  DIVIDENDS

The Company  declared and paid  dividends in the first three  quarters of fiscal
year 2005, totaling  $10,303,000 ($.5625 per share), and in the third and fourth
quarters  of fiscal  year  2004,  totaling  $6,764,000  ($.375  per  share).  No
dividends  have been  declared  or paid since the third  quarter of fiscal  year
2005. See Note 11,  Long-Term Debt,  regarding  credit facility  restrictions on
payment of future dividends.

                                       62

19.  STOCKHOLDER RIGHTS PLAN

On December 3, 1998,  the  Company's  Board of Directors  adopted a  Stockholder
Rights Plan. Under the Plan, each common stockholder at the close of business on
December  16,  1998  received a dividend  of one right for each share of Class A
common stock held.  Each right  entitles the holder to purchase from the Company
one one-hundredth of a share of a new series of participating Preferred Stock at
an initial  purchase price of $110.00.  The rights will become  exercisable  and
will  detach from the Common  stock a specified  period of time after any person
has become the  beneficial  owner of 15% (20% if an  institutional  investor) or
more of the  Company's  common  stock or  commenced a tender or  exchange  offer
which, if consummated,  would result in any person becoming the beneficial owner
of 15% (20% if an  institutional  investor)  or more of the common  stock.  When
exercisable,  each right  will  entitle  the  holder,  other than the  acquiring
person,  to purchase for the purchase price the Company's  common stock having a
value of twice the purchase price.

If, following an acquisition of 15% (20% if an  institutional  investor) or more
of the  Company's  Common Stock,  the Company is involved in certain  mergers or
other business combinations or sells or transfers more than 50% of its assets or
earning  power,  each right will entitle the holder to purchase for the purchase
price  common  stock of the other  party to such  transaction  having a value of
twice the purchase price.

At any time after a person has acquired 15% (20% if an  institutional  investor)
or more (but  before  any person has  acquired  more than 50%) of the  Company's
Common  Stock,  the Company may exchange all or part of the rights for shares of
Common Stock at an exchange ratio of one share of Common Stock per right.

The Company may redeem the rights at a price of $.01 per right at any time prior
to a specified  period of time after a person has become the beneficial owner of
15% (20% if an  institutional  investor) or more of its Common Stock. The rights
will expire on December 16, 2008, unless earlier exchanged or redeemed.

20.  RESTRICTED STOCK AND WARRANTS

During the years ended  September 29, 2006 and  September 30, 2005,  the Company
issued 239,682 and 9,350 shares of restricted stock to employees of the Company,
respectively,  with a  weighted-average  grant date  values of $4.25 and $25.02,
respectively.  In fiscal year 2006,  the Company  adopted  SFAS No. 123R and has
recorded  expense on the restricted stock as it vests equal to the fair value at
the end of each reporting  period.  For fiscal year 2005 and prior,  the Company
recorded these  restricted  stock awards as unearned  compensation.  The Company
maintains certain  restricted stock  compensation  plans for which employees are
allowed to elect to have taxes withheld at amounts greater than minimum required
amounts on vested shares through the Company's repurchase of shares,  triggering
variable  accounting  treatment  in  fiscal  year  2005 and  prior.  The  awards
contained  either a cliff or straight  line vesting  provision  and,  therefore,
expense is  recognized  over the vesting  period.  The  compensation  expense is
calculated  under  an  accelerated   vesting  method  in  accordance  with  FASB
Interpretation 28, "Accounting for Stock Appreciation  Rights and Other Variable
Stock Option or Award Plans. The expense  recognized was $289,000,  $351,000 and
$409,000 in fiscal years 2006,  2005 and 2004,  respectively.  Under APB No. 25,
for fiscal year 2005 and prior,  the unearned  compensation  is  classified as a
reduction  to  stockholders'  equity in the  accompanying  consolidated  balance
sheets.  In addition,  subsequent to fiscal 2006,  the Company  granted  231,257
shares of restricted stock with a weighted average grant date value of $8.09 and
in connection  with the  separation  of  employees,  42,527 shares of restricted
stock were  cancelled.  At  September  29,  2006,  unrecognized  cost related to
restricted  stock awards  total  approximately  $1,480,000.  These costs will be
recognized over a weighted average period of 3.3 years.

The Company's restricted stock activity is as follows:
                                                                              Weighted Average
                                                                                 Grant Date
                                                        Number of Shares         Fair Value
                                                        ----------------         ----------
              Outstanding at September 30, 2005              72,363               $ 30.19
              Granted                                       239,682               $  4.25
              Vested                                       (17,302)               $ 30.90
              Cancelled / expired                          (60,696)               $  9.70
                                                           --------
              Balance at September 29, 2006                 234,047               $  8.89
                                                            =======

                                       63

On September 28, 2005, the Company entered into a letter  agreement with Alvarez
& Marsal,  LLC  ("A&M")  for their  evaluation  of the  Company's  business  and
recommendations for improving its operating and financial  performance.  Part of
A&M's compensation includes warrants that expire in September, 2010, to purchase
shares of the Company's  common stock.  On March 10, 2006 the September 28, 2005
letter  agreement  was  amended,  and  among  other  compensation   adjustments,
finalized the number of warrants at 472,671 with an  established  exercise price
of $5.67 per share.  Based on the performance  period specified in the September
28, 2005  agreement,  the warrants  vested on January 26, 2006, and based on the
value of the warrants at the date of vesting and the subsequent amendment to the
September 28, 2005 agreement, the total value of the warrants expensed in fiscal
year 2006 was $427,000.  The prorated expense to fiscal year ended September 30,
2005 was immaterial.

21.  MAJOR CUSTOMERS

Sales to Wal-Mart, Inc. during the years ended September 29, 2006, September 30,
2005  and  October  1,  2004,   represented   22%,  21%  and  18%  of  revenues,
respectively.  Sales to Sysco Corporation represented 11% in each of the periods
listed above.

22.  BOARD OF DIRECTORS STOCK REMUNERATION

The Company provides outside  directors with an annual retainer amount in common
stock equal to $20,000 per director.

23.  QUARTERLY FINANCIAL DATA - UNAUDITED

The  following  quarterly  financial  data is  unaudited,  but in the opinion of
management,  all adjustments  necessary for a fair  presentation of the selected
data for these interim periods presented have been included.

Quarterly financial data is as follows (in thousands, except per share data):

                                       64

                                                                   First             Second              Third             Fourth
2006                                                              Quarter            Quarter            Quarter            Quarter
----                                                              -------            -------            -------            -------

Revenues                                                          $  93,766          $  91,560          $  85,998          $  95,699
Cost of goods sold                                                   72,213             71,047             68,562             72,955
                                                                    -------            -------            -------            -------
Gross profit                                                         21,553             20,513             17,436             22,744

Selling and marketing expense                                         5,385              6,685              6,294              4,507
General and administrative expense                                   10,156              9,815              6,551              8,937
Impairment charges to brands and trademarks                               -                  -                  -                998
Loss on disposition of brands and trademarks                              -              4,708                  -                  -
Losses (gains) related to long-lived assets                              73             16,561              5,634                  -
                                                                    -------           --------          ----------           -------
Operating profit (loss)                                               5,939           (17,256)            (1,043)              8,302
Interest expense, net                                                 5,765              8,652              7,362              7,730
Other (income) expense                                              (1,017)                258              (181)                 27
                                                                    -------           --------          ----------           -------

Income (loss) before income taxes                                     1,191           (26,166)            (8,224)                545
Income tax provision (benefit)                                           97            (1,609)              (813)                 84
                                                                    -------         ----------         -----------           -------
Net income (loss)                                              $      1,094         $ (24,557)         $  (7,411)         $      461
                                                               ============         ==========         ==========         ==========
Net income (loss) per common share (basic)                     $       0.06         $   (1.33)         $   (0.40)         $     0.02
Net income (loss) per common share (assuming dilution)         $       0.06         $   (1.33)         $   (0.40)         $     0.02

     Due to changes in stock  prices  during the year and timing of  issuance of
     shares,  the  cumulative  total of  quarterly  net income  (loss) per share
     amounts may not equal income per share for the year.


                                                                   First             Second              Third             Fourth
2005                                                              Quarter            Quarter            Quarter            Quarter
----                                                              -------            -------            -------            -------

Revenues                                                        $   92,900        $    93,624          $  84,187         $   93,448
Cost of goods sold                                                  75,175             73,460             77,970             73,546
                                                                 ---------           --------          --------           ----------
Gross profit                                                        17,725             20,164              6,217             19,902
Selling and marketing expense                                        5,188              4,783              5,465              4,906
General and administrative expense                                   4,815              6,108              5,669              6,606
Impairment charges to brands and trademarks                              -                  -                  -             14,000
Losses related to long-lived assets                                      -                  -             29,835             58,715
Acquisition and plant start-up expenses                                  -              3,920              1,485              4,354
Provision for restructuring expense                                   (255)              (161)               (95)               (43)
                                                             --------------        -----------        -----------          ---------
Operating profit (loss)                                              7,977              5,514            (36,142)           (68,636)
Interest expense, net                                                2,440              3,842              6,139              3,813
Other (income) expense                                               5,671             (4,105)            (5,691)               581
                                                             --------------        -----------        -----------          ---------

Income (loss) before income taxes                                     (134)             5,777            (36,590)           (73,030)
Income tax provision (benefit)                                         473                635             (1,079)            (3,759)
                                                             --------------       -----------        -----------           ---------
Net income (loss)                                            $        (607)       $     5,142        $   (35,511)          $(69,271)
                                                             ==============       ===========        ============          =========

Net income (loss) per common share (basic)                   $       (0.03)       $      0.28        $     (1.94)          $  (3.78)
Net income (loss) per common share (assuming dilution)       $       (0.03)       $      0.28        $     (1.94)          $  (3.78)

     Due to changes in stock  prices  during the year and timing of  issuance of
     shares,  the  cumulative  total of  quarterly  net income  (loss) per share
     amounts may not equal income per share for the year.

                                       65

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

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Background

As of September 29, 2006, the end of the period covered by this Annual Report on
Form 10-K,  management  performed  an  evaluation  of the  effectiveness  of our
disclosure  controls and procedures as defined in Rules  13a-15(e) and 15d-15(e)
of the Exchange Act. However,  since that date, we have experienced  significant
changes in our senior  management  and,  as a result,  the  persons who were our
chief executive  officer and chief financial officer during the 2006 fiscal year
were no longer with the Company  when the  disclosure  controls  assessment  was
conducted as of September 29, 2006. The  assessment  was,  therefore,  performed
under the  supervision  and with the  participation  of our then Chief Executive
Officer,  who  joined  us on  September  28,  2005,  and our  current  principal
financial  officer,  who was our  controller  throughout  the 2006 fiscal  year.
However,  while the  assessment  was not  completed  due to the Audit  Committee
investigation  and the  allocation of resources  necessary  for the  restatement
process,  management  concluded  that the  Company's  disclosure  controls  were
ineffective.

Our management has concluded that the consolidated financial statements included
in this Annual Report on Form 10-K fairly present, in all material respects, our
consolidated  financial  position,  results of operations and cash flows for the
periods presented in conformity with generally  accepted  accounting  principles
("GAAP").

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act. Internal control over financial reporting is a
process  designed by, or under the supervision  of, our principal  executive and
principal  financial  officers,  or persons  performing  similar  functions,  to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with GAAP. Internal control over financial reporting includes those policies and
procedures  that  pertain to the  maintenance  of records  that,  in  reasonable
detail,  accurately and fairly reflect the  transactions and dispositions of our
assets;  that provide  reasonable  assurance that  transactions  are recorded as
necessary to permit preparation of financial statements in accordance with GAAP;
that provide reasonable  assurance that receipts and expenditures are being made
only in  accordance  with  proper  authorization;  and that  provide  reasonable
assurance regarding prevention or timely detection of unauthorized  acquisition,
use or  disposition  of our assets  that  could  have a  material  effect on our
consolidated financial statements. This assessment used the criteria in Internal
Control  -  Integrated   Framework   issued  by  the   Committee  of  Sponsoring
Organizations of the Treadway Commission ("COSO").

Internal control over financial  reporting cannot provide absolute  assurance of
achieving  financial reporting  objectives because of its inherent  limitations.
Internal  control over  financial  reporting is a process  that  involves  human
diligence  and  compliance  and is subject to lapses in judgment and  breakdowns
resulting from human failures.  Internal  control over financial  reporting also
can be  circumvented by collusion or improper  override of controls.  Because of
such  limitations,  there  is a risk  that  material  misstatements  may  not be
prevented  or detected  on a timely  basis by internal  control  over  financial
reporting.

A material  weakness is a  deficiency,  or a  combination  of  deficiencies,  in
internal  control  over  financial  reporting,  such that there is a  reasonable
possibility  that a material  misstatement  of the  Company's  annual or interim
financial statements will not be prevented or detected on a timely basis.

As of September 29, 2006,  management  concluded that our internal  control over
financial  reporting was not effective because of the material  weaknesses as of
that date,  which are described  below.  In addition,  management  was unable to
observe or assess all the elements of internal control over financial  reporting
in  existence  as of  September  29,  2006  directly  related  to our  financial
statement  closing  process and the related  process for the  preparation of our
consolidated financial statements for external purposes because certain of these
internal controls have since been either extensively  modified or were performed
by individuals no longer employed by us.

                                       66

Because  we were not able to  complete  the  documentation  and  testing  of our
internal controls over financial  reporting,  our independent  registered public
accounting  firm,  Ernst  &  Young,  LLP,  has  disclaimed  an  opinion  on  the
effectiveness of our internal control over financial reporting.  Their report as
of September 29, 2006 is set forth in Item 8 of this Annual Report on Form 10-K.

Although  management was unable to complete its assessment of the  effectiveness
of our internal  control over financial  reporting as of September 29, 2006, the
following  material  weaknesses  have been  identified  as of that  date.  It is
possible that had management  been able to complete its  assessment,  additional
material weaknesses as of September 29, 2006 may have been identified.

Material Weaknesses

•        Policies and Procedures

              We did not maintain  adequate  policies and procedures  related to
              initiating,   authorizing,  recording,  processing  and  reporting
              transactions.  In  addition,  we did  not  maintain,  or  did  not
              perform,   appropriate   review   procedures.   This  led  to  (a)
              inconsistent  execution of business  practices,  (b)  inability to
              ensure practices were in accordance with management standards, (c)
              ambiguity in delegation of authority,  (d) misapplication of GAAP,
              and (e) errors in financial reporting.

•        Application of GAAP

              We did not maintain  effective  internal  control  over  financial
              reporting  and  did  not  provide  appropriate  training  for  our
              personnel,   resulting  in  material   misapplications   of  GAAP,
              including the following primary categories:

              •    accounting for revenues;

              •    accounting for inventory costs;

              •    accounting for promotional allowances and customer deduction
                   receivables;

              •    operating costs recorded as plant and equipment;

              •    accounting for property, plant and equipment;

              •    accounting for brand acquisitions;

              •    accounting for deferred expenses, accruals and other items;

              •    accounting for stock-based compensation;

              •    accounting for hedging activities; and

              •    accounting for foreign currency gain (loss).

•        Tax Accounting

              We did not have an adequate tax accounting function.

•        Financial Statement Preparation and Reporting

              We did not perform a timely and complete preparation and review of
              our  consolidated  financial  statements  because  we  were in the
              process of preparing the Restatement.

•        Internal Audit

              We did not operate an adequate internal audit function.

                                       67

•        Disclosure Controls

              We did not maintain effective  disclosure controls and procedures,
              including an effective  Disclosure  Committee,  designed to ensure
              complete and accurate  disclosure  as required by GAAP and various
              regulatory  bodies. In addition,  we did not file various periodic
              reports on a timely  basis as required by the rules of the SEC and
              the NYSE.  The Company  believes the  disclosure  controls are key
              elements of internal control over financial reporting that provide
              reasonable  assurances that transactions are recorded as necessary
              to permit  preparation of financial  statements in accordance with
              generally accepted accounting principles.

There  is a  reasonable  possibility  that  directly  or  indirectly  due to the
material weaknesses described above a material  misstatement of our consolidated
financial  statements  would not have been prevented or detected had we prepared
our consolidated financial statements on a timely basis.

The material weaknesses we identified  adversely affected our ability to account
accurately for our revenues,  our expenses,  our assets and our  liabilities and
were a  contributing  factor to the  preparation  and  reporting  of  inaccurate
financial  statements and inaccurate  and incomplete  disclosures  regarding our
operating results and financial condition in prior years.

Remediation Initiatives

The following  material  weakness was  identified by management as of October 1,
2005 and has been fully  remediated  during our fiscal year ended  September 29,
2006:

•        Control Environment

            •            The  control  environment  was fully  remediated  as of
                         September 29, 2006.  All officers who were  responsible
                         for  financial   reporting  of  the  accounting  errors
                         addressed  by  the  Restatement  are no  longer  in our
                         employ.

            •            We have hired a General Counsel.

            •            We have  substantially  revised and  emphasized  to our
                         employees  our Code of  Business  Conduct  and  Ethics,
                         which, among other things,  reiterated to our employees
                         the previously implemented ethics hotline through which
                         employees   at  all  levels  can   anonymously   submit
                         information  regarding  unethical  behavior  and  other
                         irregularities they become aware of or have observed.

            •            We have established the senior  management  position of
                         Chief  Compliance   Officer  with  a  direct  reporting
                         responsibility to the Chairman of our Audit Committee.

In fiscal 2006,  we continued  our  substantial  efforts,  which began in fiscal
2005, to address our previously reported material weaknesses. To fully remediate
the material  weaknesses  necessitates  designing new business process controls,
and testing them to ensure that they address the  previously  reported  material
weaknesses.  We continue to review and make  necessary  changes to the design of
our system of internal  control,  through critical  assessments of the roles and
responsibilities of each functional group within the organization, enhancing and
documenting policies and procedures and providing relevant training, supervision
and review where appropriate.

Subsequent  to  September  30, 2005  through  September  28,  2007,  we have the
following changes to our internal control over financial reporting:

•        Policies and Procedures

              We have  established  policy  statements and process  overviews in
              appropriate areas of accounting and financial  reporting controls,
              as well as continuing to develop  implementation  procedures under
              each policy statement.

                                       68

•        Application of GAAP

              We  have  added  internal  staff  with  appropriate  training  and
              experience  in GAAP  application  and  established  a procedure to
              research and document GAAP issues and  decisions.  We have engaged
              external  consultants  to review and document our  application  of
              GAAP.  In  addition,  we have  enhanced  our  general  ledger  and
              automated other accounting systems.

•        Tax Accounting

              We  have  engaged  external  resources  to  perform  required  tax
              accounting procedures.

•        Internal Audit

              We have been able  to redirect  significant  time of our  Internal
              Audit  staff  to  reviewing,  testing  and  documenting  financial
              controls.  External  consultants  are  used  to  supplement  these
              efforts.

•        Disclosure Controls

              We have implemented  periodic  meetings among  our legal,  finance
              and operations  departments  to discuss  various  operational  and
              financial  reporting   issues,  including,   among  other  issues,
              acquisitions and/or divestitures, facility openings  and closings,
              contractual,  legal and regulatory matters,  and  periodic reviews
              of comparative  financial results. We have  filed our consolidated
              financial  statements contained in our Annual Report on  Form 10-K
              for the fiscal year ended September 30, 2005.

Continued Internal Control and Financial Reporting Matters

•        We continued to experience turnover in our accounting personnel;

•        Primary  attention  of  our  accounting  personnel  was  placed  on the
         preparation  of  fiscal  2005 and  2006  financial  statements  and the
         restatement  of financial  statements  for prior periods and,  thus, to
         date less attention has been placed on subsequent periods; and

•        Our ability to improve our internal  control  process and implement our
         remediation  initiatives and test the  effectiveness of enhancements to
         internal controls has been limited.

Our testing and evaluation of the operating  effectiveness and sustainability of
the changes to our internal  control over  financial  reporting  with respect to
these  material  weaknesses  will continue as the above  referenced  remediation
actions are still in the  implementation  process.  As a result, we may identify
additional  changes that are required to remediate these material  weaknesses or
to otherwise improve internal controls.

ITEM 9B.          OTHER INFORMATION

None.

                                       69

                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Executive Officers

The following table sets forth certain  information  about each of our executive
officers as of June 2, 2008.

NAME                       AGE       POSITION
----                       ---       --------

John P. Kelly........       56       Chief Executive Officer and President

Walter N.  George....       51       Executive Vice President - Operations and
                                     Supply Chain

Paul R. Geist........       45       Executive Vice President - Chief Financial
                                     Officer

Robert W. Schuller...       47       Executive Vice President - General Counsel


JOHN P. KELLY joined the Company on November 6, 2007 as Chief Operating  Officer
and was named Chief Executive Officer and President and elected as a director in
January,  2008.  Mr. Kelly has over 30 years of experience in consumer  packaged
goods,  including  employment with Oscar Mayer Foods  Corporation,  Kraft Foods,
Inc.,  Haagen-Dazs  Company and Fiorucci Foods.  From June 2002 to May 2007, Mr.
Kelly was President of VDW Acquisition Ltd. d/b/a San Antonio Farms, a maker and
marketer of Mexican sauces. From May 2007 to his appointment by the Company, Mr.
Kelly was Senior Vice President of Bay Valley Foods, LLC, an operating  division
of Treehouse Foods, which acquired San Antonio Farms.

WALTER N. GEORGE  joined the Company in January 2001 as Senior Vice  President -
Supply  Chain and  Logistics.  He was  promoted to  Executive  Vice  President -
Operations and Supply Chain in February 2003. Prior to joining the Company,  Mr.
George was Vice President of Supply Chain for Hill's Pet Nutrition,  Inc., a pet
food producer, from February 1989 to January 2001.

PAUL R. GEIST joined the company as Vice  President and Corporate  Controller on
October 18, 2004. He was named principal  accounting officer on August 14, 2006,
and  serves as  principal  financial  officer.  In  January  2008,  he was named
Executive Vice President and Chief Financial  Officer.  Prior to joining us, Mr.
Geist  was  the  Vice   President/Controller  for  Potbelly  Sandwich  Works,  a
privately-owned restaurant company, from March 2004 to September 2004 and was an
independent  financial  consultant from January 2003 to February 2004. Mr. Geist
was employed by Westar Energy,  Inc, an electric utility,  from November 1999 to
January 2003,  serving as Senior Vice President and Chief Financial Officer from
October  2001 to January  2003 and Vice  President  Corporate  Development  from
February 2001 to September 2001.

ROBERT W. SCHULLER was named  Executive  Vice  President and General  Counsel on
June  5,  2006.  Mr.  Schuller  has  20  years  of  legal  experience,  both  in
corporations  and in private  practice.  Mr. Schuller was general counsel at VT,
Inc. from September  2004 to May 2006, a privately held company with  affiliated
automobile dealerships and related insurance and real estate holdings.  From May
2002 to December 2003, Mr. Schuller was general counsel and corporate  secretary
of  Farmland  Industries,  Inc.  ("Farmland"),  which at the time was one of the
largest agricultural  cooperatives in the nation with operations  throughout the
U.S. and overseas and which filed a petition under the Federal  bankruptcy  laws
in May 2002. Previously,  Mr. Schuller held a number of in-house legal positions
with Farmland from 1994 to 2002.

                                       70

Information Regarding Directors of the Company

Our Board of Directors  consists of 9 independent  directors and Mr. Kelly,  our
CEO and president,  who are divided into three separate  classes.  Directors are
elected  for three year  terms,  or until  their  successors  are  elected.  The
following  table  sets  forth  certain  information  about  each of our  current
directors. Information on Mr. Kelly is set forth above.

                                                       COMMITTEE
NAME                         AGE (1)                   MEMBERSHIPS
----                         -------                   -----------

David W. Allen........        47                       Compensation

Jonathan E. Baum......        47                       Audit, Compensation
                                                       (Chair)

Mark C. Demetree......        51                       Compensation

Robert J. Druten......        61                       Audit (Chair)

James A. Heeter.......        59                       Audit, Nominating and
                                                       Governance (Chair)

John P. Kelly.........        56                       -

Ronald C. Kesselman...        65                       Compensation

Terrence C. O'Brien...        45                       Nominating and Governance

William R. Patterson..        66                       Audit

Tim M. Pollak.........        62                       Nominating and Governance

(1) As of June 2, 2008

DAVID W. ALLEN became a member of the Board on May 2, 2006,  filling an existing
vacancy. Mr. Allen was appointed Senior Vice President,  Supply Chain Operations
of Del Monte Foods Co., in June 2006, having served as a consultant to Del Monte
beginning in November 2005. Prior to that, Mr. Allen was Chief Operating Officer
of U.S.  Foodservice,  a division  of Royal  Ahold,  from 2004 to 2005 and Chief
Executive  Officer of WorldChain,  Inc., a supply chain services  company,  from
2001 to 2004.  He served as Vice  President,  Worldwide  Operations of Dell Inc.
from 1999 to 2000.  From 1991 to 1999,  Mr. Allen held a variety of positions at
Frito-Lay North America, a division of PepsiCo Inc., most recently as its Senior
Vice President, Operations.

JONATHAN E. BAUM has served as a Director of the  Company  since 1994.  Mr. Baum
has been the Chairman and Chief  Executive  Officer of George K. Baum & Company,
an investment banking firm, since 1994. Mr. Baum is also a director of George K.
Baum Merchant Banc, L.L.C. and Prairie Capital  Management,  Inc., both merchant
banking firms that are affiliated with George K. Baum & Company. Recently he has
become a trustee and member of the finance and  investment  committee at Midwest
Research  Institute and a board member and audit  committee chair of the Greater
Kansas City Community Foundation.

MARK C. DEMETREE has served as a Director since 1998.  Since 1997, Mr.  Demetree
has been  Chairman  and CEO of British  Salt  Holdings,  LLC  ("British  Salt").
British  Salt is the largest  vacuum salt  producer in the United  Kingdom,  and
through its affiliate,  US Salt, LLC, is the fourth largest vacuum salt producer
in North America.  Mr. Demetree is non-executive  Chairman of the Board of Texas
Petrochemicals,  Inc., a processor and refiner of petro-chemical products. He is
a managing  member of Pinnacle  Properties  Holdings,  LLC, a Boston-based  real
estate  investment  and  development  fund.  He is also an Operating  Partner in
Silverhawk  Capital  Partners,   a  private  equity  investment  fund  based  in
Greenwich, Connecticut.

                                       71

ROBERT J. DRUTEN  became a member of the Board on December 12,  2007,  filing an
existing  vacancy.  Mr.  Druten  served as Executive  Vice  President  and Chief
Financial  Officer of Hallmark Cards,  Inc.,  until his retirement in 2006. From
1991 until 1994,  he served as  Executive  Vice  President  and Chief  Financial
Officer of Crown Media,  Inc., a cable  communications  subsidiary  of Hallmark.
Prior to his employment with Hallmark and Crown Media, Mr. Druten held executive
positions with Pioneer Western Corporation a subsidiary of Kansas City Southern,
and was employed as a certified  public  accountant.  Mr.  Druten  serves on the
boards of  directors  of Kansas  City  Southern,  rail  transportation  company,
Alliance  Holdings,  GP,  L.P.,  a publicly  traded  limited  partnership  whose
publicly  traded  subsidiary is engaged in the production and marketing of coal,
and  Entertainment   Properties  Trust,  a  real  estate  investment  trust  for
entertainment related properties.

JAMES A.  HEETER has  served as a Director  since May of 2000.  Mr.  Heeter,  an
attorney,  has been the Managing Partner of the Kansas City,  Missouri office of
the law firm of Sonnenschein Nath & Rosenthal,  a limited liability partnership,
for over five years. Mr. Heeter serves on the Firm-wide Executive Committee.

RONALD C.  KESSELMAN  became a member of the Board on June 1,  2006,  filling an
existing vacancy. Mr. Kesselman has a 30-year career of holding senior executive
and management  positions with consumer products and food processing  companies.
He is currently a consumer  products  consultant and was previously the Chairman
of the Berwind Group, a privately held enterprise.  Mr. Kesselman also serves on
the Board of Directors  of Homax  Products,  Inc., a privately  held company and
supplier of home improvement products.  Mr. Kesselman was the Chairman and Chief
Executive  Officer of Elmer's Products from 1995 to 2004. Mr. Kesselman has also
served in a number of management positions with Fortune 500 companies, including
Borden, Inc., Mattel Corporation and Quaker Oats Company.

TERENCE C. O'BRIEN has served as a Director  since April 2003.  Mr.  O'Brien has
been the Chairman and Chief Executive Officer of Wholesome  Holdings Group, LLC,
a food and beverage  acquisitions  group,  since June 2006.  Prior to that,  Mr.
O'Brien  had  been  President  and CEO of  Brach's  Confections,  Inc.,  a candy
company,  which is a subsidiary  of  Barry-Callebaut  Group,  a publicly  listed
company on the Swiss Stock  Exchange  since  August,  2003.  Prior to that,  Mr.
O'Brien  served as Senior Vice  President  of Sales and Customer  Marketing  for
Morningstar  Foods,  a division of Dean Foods,  a processor and  distributor  of
dairy  products  from 1998 to 2003.  From 1997 to 1998,  Mr.  O'Brien  was Chief
Operating  Officer for Beaconeye,  Inc., a publicly held pioneer in the consumer
laser vision correction field.

WILLIAM  R.  PATTERSON  has  served  as a  Director  since  1997.  He was  named
non-executive  Chairman of the Board on October 17,  2005.  Mr.  Patterson  is a
founder and manager of Stonecreek  Management,  LLC, a private  investment  firm
since August 1998.  Prior to that, he served as Vice  President of PSF Holdings,
L.L.C., and the Executive Vice President,  Chief Financial Officer and Treasurer
of its wholly-owned  subsidiary,  Premium Standard Farms, Inc. ("PSF,  Inc."), a
fully-integrated  pork producer and processor  from October 1996 to August 1998.
From  January to October  1996,  Mr.  Patterson  was a  principal  of  Patterson
Consulting,  LLC, a financial  consulting  firm,  and as a consultant was acting
chief financial  officer for PSF, Inc. From 1976 through 1995, Mr. Patterson was
a partner in Arthur  Andersen  LLP.  Mr.  Patterson  is also a director  of Paul
Mueller  Company,  a  manufacturer  of stainless  steel  vessels and  processing
systems.

TIM M.  POLLAK  has served as a Director  since June 2001.  Mr.  Pollak has been
President of Sagaponack Associates, Inc., a private consulting firm specializing
in branding and marketing, since 1998. Since 2007, Mr. Pollak has been a partner
of Vertical  Knowledge LLC.  Also,  since 2006, Mr. Pollak has been a partner of
Reason,  Inc.  From 1978 to 1998,  Mr. Pollak held various  senior  positions at
Young & Rubicam,  Inc., a global advertising company,  including CEO of New York
and  Asia-Pacific  divisions  and Vice  Chairman,  Worldwide  Director of Client
Services and he was also a director.  Mr. Pollak was also  previously a director
of the Meow Mix Company, a cat food company.

The Audit Committee

The Audit  Committee is responsible for and oversees a number of matters related
to the Company's  financial  statements,  and its relationship to and use of its
independent  registered public  accounting firm. A more complete  description of
the Audit Committee's  functions is provided in its Charter,  which is available
on the  Company's  website at  http://www.aipc.com.  The current  members of the
Audit Committee are Messrs.  Druten,  Patterson,

                                       72

Heeter and Baum. Mr. Druten is the Chairman of the Audit Committee and the Board
has determined that Mr.  Patterson is an "audit committee  financial  expert" as
defined in Item 407(d) (5) of Regulation S-K.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities  Exchange Act of 1934, as amended,  requires our
directors,  executive officers,  and persons who own more than 10 percent of our
common  stock  (collectively,  "Reporting  Persons"),  to file  reports of their
ownership of such stock, and the changes therein, with the SEC and to furnish us
with a copy of such reports (the "Section 16  Reports").  Based upon a review of
Forms 3 and 4 and  amendments  thereto  furnished  to us during the most  recent
fiscal  year and any  written  representation  from a  person  that no Form 5 is
required to be filed with the SEC,  all such  reports due were filed in a timely
manner  during  fiscal year 2006 except that a Form 4 was filed late for Messrs.
Schroeder,  George,  Webster  and  Shadid in  connection  with the  delivery  of
restricted  stock for tax  withholdings,  a Form 3 was filed late for Mr.  Geist
upon  becoming an  executive  officer,  a Form 4 was filed late for Mr. Geist in
connection with the grant of stock appreciation rights.

Code of Ethics

Our Board of Directors  has adopted a Code of Ethics ("the Code")  applicable to
all  directors,  officers  and  employees.  The Code is posted on our website at
http://www.aipc.com. We will satisfy any disclosure requirements under Item 5.05
of Form 8-K regarding an amendment to, or waiver from, any provision of the Code
with respect to our principal  executive officer,  principal  financial officer,
principal  accounting  officer  and  persons  performing  similar  functions  by
disclosing   the  nature  of  such   amendment  or  waiver  on  our  website  at
http://www.aipc.com, or in a report on Form 8-K.

                                       73

     ITEM 11  EXECUTIVE COMPENSATION

     Executive Compensation

     The Summary  Compensation Table below shows certain information  concerning
     the compensation paid by the Company during fiscal year 2006 to (i) Mr. Tim
     Webster,  who was Co-CEO until his  resignation in December 2005,  (ii) Mr.
     James Fogarty,  who became Co-CEO on September 28, 2005, CEO on December 5,
     2005 and  President  on January 26,  2006,  (iii) the next four most highly
     compensated  executive  officers who were serving at the end of fiscal year
     2006 (of which we had only  three) and (iv) Mr.  Shadid  and Mr.  Trott who
     resigned during fiscal year 2006 but received  compensation that would have
     included them in this table (the "Named Executive Officers") based upon the
     total salary and bonus paid with respect to fiscal year 2006.




                                         FISCAL PERIOD COMPENSATION                   LONG-TERM
                                         --------------------------              COMPENSATION AWARDS
                                                                                 -------------------

                                                                                               SECURITIES
                                                                                               UNDERLYING                  ALL
   NAME AND                FISCAL                                           RESTRICTED       OPTIONS / SARs               OTHER
PRINCIPAL POSITION         PERIOD        SALARY ($)       BONUS ($)         STOCK AWARDS($)       (1) (#)            COMPENSATION($)
------------------         ------        ----------       ---------         ---------------       -------            ---------------

James P.  Fogarty             2006               --              --                      --            --                         --
   Chief Executive            2005               --              --                      --            --                         --
   Officer and
   President(2)

Timothy S.  Webster           2006     $ 99,519 (3)         $    --          $        --(4)            --         $      219,706 (5)
   Former President and       2005      575,000 (3)          53,906                      --        50,000                 26,957 (5)
   Co- Chief Executive        2004      566,923 (3)              --                      --            --                 22,582 (5)
   Officer(6)

George Shadid                 2006     $ 267,677           $290,000          $ 164,131 (4)(7)      51,986         $       20,523 (8)
   Former Chief Financial     2005       280,769             46,484                      --        25,000                 13,252 (8)
   Officer(6)                 2004       153,945(9)              --            384,000    (7)      20,000                  3,525 (8)

Walter N.  George             2006     $ 241,812          $  139,750         $142,090 (4)(10)      45,006         $      20,767 (11)
   EVP - Operations and       2005       232,308              21,844               --               9,000                19,555 (11)
   Supply Chain               2004       224,231                  --          576,000 (12)         30,000                19,167 (11)


Paul R. Geist                 2006     $ 164,112          $  154,663         $ 37,736(4)(13)       11,952         $   16,457 (14)
   EVP - Chief Financial
   Officer (6)

Daniel W.  Trott              2006     $  156,938       $         --         $       -- (4)            --         $          139,147
   Former EVP - Sales and     2005        307,692             29,063                 --            12,000                67,747 (15)
   Marketing(6)               2004        296,538                 --            384,000 (16)       60,000                60,750 (15)

Robert W. Schuller            2006     $   71,923         $   37,507         $       --                --         $       2,929 (17)
   EVP - General
   Counsel(6)

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

(1)            The amounts shown in this column represent  options (fiscal years
               2004 and 2005) and stock appreciation rights ("SAR") (fiscal year
               2006) granted under our 2000 Equity Incentive Plan. Upon exercise
               of a SAR, the  executive  receives the number of shares of common
               stock  equal in value to the  difference  between the fair market
               value on the grant date and the fair market value on the exercise
               date multiplied by the number of shares exercised.

(2)            Mr.  Fogarty  served  as the  Company's  president  and CEO  from
               September  2005 to  January  18,  2008.  Mr.  Fogarty  was not an
               employee  of the Company and did not receive a salary or bonus or
               any  other

                                       74

               compensation  from the  Company  in his  role as Chief  Executive
               Officer or President.  Mr. Fogarty is a Managing Director of A&M,
               the entity to which the Company  pays fees and  expenses  under a
               letter  agreement.  A description of Mr.  Fogarty's  relationship
               with  the  Company  is  included   under  the  heading   "Certain
               Relationships    and   Related    Transactions,    and   Director
               Independence" in this Annual Report on Form 10-K.

(3)            Includes  $71,692 of income  earned but  deferred  in fiscal year
               2004 and $15,481 in fiscal year 2005,  with  $97,242  paid to Mr.
               Webster upon  termination of the deferred  compensation in fiscal
               year 2005, which amount is not included in his base salary.

(4)            As of September 29, 2006, Mr.  Webster,  Mr. Trott and Mr. Shadid
               held no shares of restricted stock. Mr. George held 42,627 shares
               of  restricted  stock with a value of  $331,638.  Mr.  Geist held
               9,359  shares with a value of $72,813,  based on the market price
               of our Common Stock on September 29, 2006.

(5)            Includes  contributions  on the officer's  behalf to the American
               Italian Pasta Company  Retirement  Savings Plan in the amounts of
               $0,  $9,187 and $5,311,  in fiscal  years 2006,  2005,  and 2004,
               respectively,  premiums paid by the Company on insurance policies
               in the amounts of $3,058,  $12,438 and  $12,457,  in fiscal years
               2006,  2005,  and 2004,  respectively,  and premiums  paid by the
               Company on a split dollar life insurance policy in the amounts of
               $0,  $5,332 and $4,814,  in fiscal  years 2006,  2005,  and 2004,
               respectively,  automobile  allowance of $20,831 and executive tax
               preparation of $4,150 in fiscal year 2006, and severance payments
               of $191,667 in fiscal year 2006.

(6)            Mr.  Webster  resigned in December  2005.  Mr. Trott  resigned in
               March  2006.  Mr.  Shadid  resigned as Chief  Financial  Officer,
               effective   August  8,  2006,  but  remained  an  employee  until
               September  1, 2006.  Mr.  Geist  became an  executive  officer on
               August 14,  2006 and became  Chief  Financial  Officer in January
               2008. Mr. Schuller started with the Company in June 2006.

(7)            Mr. Shadid was granted 38,619 shares of restricted stock on March
               6, 2006, with 50% vesting ratably over four years and 50% vesting
               on March 6,  2010.  Mr.  Shadid  was  granted  10,000  shares  of
               restricted stock on August 4, 2004,  vesting in five equal annual
               installments on each of the first five anniversaries of the grant
               date.  All  unvested  shares  were  cancelled  upon Mr.  Shadid's
               resignation. All dividends are paid on restricted stock.

(8)            Includes  contributions  on the officer's  behalf to the American
               Italian Pasta Company  Retirement  Savings Plan in the amounts of
               $9,630 and $3,803 in fiscal years 2006 and 2005 and premiums paid
               by the Company on  insurance  policies in the amounts of $10,893,
               $9,449  and  $3,525,   in  fiscal  years  2006,  2005  and  2004,
               respectively.

(9)            Includes  $111,638  in fees  related to Mr.  Shadid's  consulting
               services  performed during May 2004 through August 2004 before he
               became an employee of the Company.

(10)           Mr. George was granted 33,433 shares of restricted stock on March
               6, 2006, with 50% vesting ratably over four years and 50% vesting
               on March 6, 2010. All dividends are paid on the restricted stock.

(11)           Includes  contributions  on the officer's  behalf to the American
               Italian Pasta Company  Retirement  Savings Plan in the amounts of
               $8,344,  $7,225 and $6,577, in fiscal years 2006, 2005, and 2004,
               respectively,  and  premiums  paid by the  Company  on  insurance
               policies  in the  amounts of $12,423,  $12,330  and  $12,590,  in
               fiscal years 2006, 2005, and 2004, respectively.

(12)           Mr.  George was  granted  15,000  shares of  restricted  stock on
               August 4, 2004, vesting in five equal annual installments on each
               of the  first  five  anniversaries  of the  date  of  grant.  All
               dividends are paid on the restricted stock.

                                       75

(13)          Mr. Geist was granted 8,879 shares of  restricted  stock on March
              6, 2006, with 50% vesting ratably over four years and 50% vesting
              on March 6, 2010. All dividends are paid on the restricted stock

(14)          Includes  contributions  on the officer's  behalf to the American
              Italian  Pasta Company  Retirement  Savings Plan in the amount of
              $6,279 and premiums paid by the Company on insurance  policies in
              the amount of $10,178 in fiscal year 2006.

(15)          Includes  contributions  on the  officer's  behalf to the American
              Italian  Pasta Company  Retirement  Savings Plan in the amounts of
              $785,  $1,626  and  $1,318 in fiscal  years  2006,  2005 and 2004,
              respectively,  and  premiums  paid  by the  Company  on  insurance
              policies  in the  amounts of $9,129,  $12,017 and $4,337 in fiscal
              years 2006,  2005 and 2004,  respectively,  and relocation fees of
              $54,104 and $30,095 in fiscal  years 2005 and 2004,  respectively,
              automobile allowance of $15,843 in fiscal year 2006, executive tax
              preparation of $3,400 in fiscal year 2006,  severance  payments of
              $109,990  in fiscal  year 2006 and a signing  bonus of  $25,000 in
              fiscal year 2004.

(16)          Mr. Trott was granted 5,000 shares of  restricted  stock on August
              25, 2003, vesting in five equal annual installments on each of the
              first five  anniversaries of the date of grant, in connection with
              his employment  agreement.  Mr. Trott was granted 10,000 shares of
              restricted  stock on August 4, 2004,  vesting in five equal annual
              installments on each of the first five  anniversaries  of the date
              of grant.  Unvested  shares granted to Mr. Trott fully vested upon
              his termination  with us. All dividends are paid on the restricted
              stock.

(17)          Includes  premiums  paid by the Company on insurance  policies in
              the amount of $2,929 in fiscal year 2006.


Option/SAR Grants in Fiscal Year 2006

The  following  table  sets  forth   information   with  respect  to  the  stock
appreciation rights granted by us during fiscal year 2006 to the Named Executive
Officers. We did not grant options in fiscal year 2006.



                                            INDIVIDUAL GRANTS
                                   --------------------------------------
                                             % OF TOTAL
                                                 SARS                                         POTENTIAL REALIZABLE VALUE AT
                               SHARES          GRANTED TO                                     ASSUMED ANNUAL RATES OF STOCK
                             UNDERLYING        EMPLOYEES                                          PRICE APPRECIATION
                                SARS           IN FISCAL      PRICE PER        EXPIRATION         FOR SAR TERM (2)
                                GRANTED         2005          SHARE (1)        DATE             ---------------------------
 NAME                        ----------        ---------      ---------        ----------         5%              10%                                                          5%              10%
 ----                                                                                             --              ---

 James P.  Fogarty                  --               --             --              --            --              --

 Timothy S.  Webster                --               --             --              --            --              --

 George D.  Shadid              51,986             5.80           5.50         3/06/13           116,399         271,260 (3)

 Walter N.  George              45,006             5.02           5.50         3/06/13           100,777         234,839

 Paul R. Geist                  11,952             1.33           5.50         3/06/13            26,761          62,365

 Robert W. Schuller                 --               --             --              --             --              --

 Daniel W.  Trott                   --               --             --              --             --              --
----------------

                                       76

(1)           The exercise price is based on the fair market at the date of the
              grant of the SAR.  The  term of all SARs is seven  years  from the
              grant date. All SARs granted have a vesting schedule of four years
              with 50% vesting  ratably and 50% upon the fourth  anniversary  of
              the grant.  Upon exercise of the SAR, the  executive  receives the
              number of shares of common stock equal in value to the differences
              between the fair market value of a share on the grant date and the
              fair market value on the exercise date multiplied by the number of
              shares  exercised.  Our award  agreements  provide that 50% of any
              award  outstanding and not exercisable or subject to restrictions,
              shall,  subject to certain  exceptions,  become exercisable in the
              event of a change in control  (as such term is defined in the 2000
              Equity Incentive Plan), with our Board  maintaining  discretion to
              accelerate  vesting of outstanding awards in the event of a change
              in control.

(2)           The amounts  shown as  potential  realizable  values are based on
              assumed  annualized  rates of appreciation in the price of common
              stock of five  percent and ten percent  over the term of the SAR,
              as set forth in the rules of the SEC.  Actual  gains,  if any, on
              SAR exercises are dependent  upon the future  performance  of the
              common  stock.  There  can be no  assurance  that  the  potential
              realizable values reflected in this table will be achieved.

(3)           SARs granted to Mr. Shadid were unvested upon his termination and
              were  cancelled.  Additional  information is available  under the
              heading  "Executive   Compensation  -  Employment  and  Severance
              Agreements."

Aggregated Option/SAR Exercises in Fiscal Year 2006 and Fiscal Year End Option Values

The following table sets forth  information with respect to the aggregate option
and SAR exercises  during fiscal year 2006 by the Named  Executive  Officers and
the number and value of options and SARs held by such  officers as of  September
29, 2006.

                                                       Number of                    Value of Unexercised
                                               Unexercised Options/SARs           In-the-Money Options/SARs (1)
                             Shares
                            Acquired
                              Upon           Value             Exercisable/
Name                       Exercise (#)   Realized ($)        Unexercisable (2)      Exercisable / Unexercisable
----                      ------------   ------------        -----------------       ---------------------------

James P.  Fogarty            --               --             --            --               --             --

Timothy S.  Webster          --               --             --            --               --             --

George D.  Shadid            --               --             21,800      75,186            --          $ 118,528


Walter N.  George            --               --            110,500      63,006            --           102,614


Paul R. Geist                --               --              5,500      19,952            --           27,251

Robert W. Schuller           --               --             --           --                --             --

Daniel W. Trott              --               --             --           --                --             --
----------------

(1)       Based on the price of our  common  stock at the close of  business  on
          September  29,  2006 (which was $7.78) and the  exercise  price of the
          stock appreciation rights. No outstanding options were in the money on
          September 29, 2006.

(2)       Any unvested options granted to Messrs.  Webster and Shadid terminated
          upon termination of their employment with us. Unvested options granted
          to Mr.  Trott fully  vested upon his  termination  with us. Any vested
          options held by Messrs. Webster, Trott and Shadid expired three months
          after their termination date if not exercised.  Additional information
          is available  under the heading  "Executive  Compensation - Employment
          and Severance Agreements" in this Annual Report on Form 10-K.

                                       77

Indemnification  Agreements,  Employment and Severance  Agreements and Change of
Control Arrangements with Named Executive Officers

Indemnification Agreements

We have entered into an  Indemnification  Agreement  with each of our directors,
Named   Executive   Officers   and   certain  of  our  other   employees.   Each
Indemnification  Agreement provides that we will indemnify the directors,  Named
Executive  Officers and  employees to the fullest  extent  permitted by Delaware
law, subject to certain  limitations.  We agree to advance expenses and maintain
director and officer insurance.  The agreements also describe certain procedures
and limitations applicable to our indemnification obligations.

Pursuant to our letter agreement with A&M, we have agreed to indemnify our Chief
Executive Officer and President and other employees of A&M to the same extent as
the most favorable  indemnification we extend to our officers and directors.  We
have  also  agreed  to  indemnify  A&M,  its  shareholders,  employees,  agents,
representatives  and subcontractors in the performance of their duties set forth
in the letter agreement with A&M.

Employment and Severance Agreements

Mr.  Webster.  On May 30,  2002,  Mr.  Webster and the Company  entered  into an
employment  agreement,  which  was  amended  on  March  3,  2003 to  extend  the
termination  date of the agreement to September 29, 2006.  Under the  employment
agreement,  Mr.  Webster  was  entitled  to an  initial  annual  base  salary of
$460,000,  subject to annual adjustment and periodically  updated job evaluation
by the Compensation  Committee.  Mr. Webster was also eligible to receive annual
bonuses at the  discretion of the Board under the Company's  Salaried Bonus Plan
(the "Bonus Plan").

Effective December 4, 2005, the Company entered into a separation agreement with
Mr. Webster. The separation agreement provides that Mr. Webster received (1) any
base salary earned  through  December 4, 2005 (the  "Resignation  Date") but not
paid and accrued  vacation,  less  applicable  taxes,  (2) cash severance in the
amount  of  $287,500,  less  applicable  taxes,  payable  in six  equal  monthly
installments,  and  (3)  continued  healthcare  benefits  until  May  31,  2006.
Participation  in all other  benefit  and  compensation  plans and  arrangements
ceased as of the Resignation Date. Vesting of stock options and restricted stock
ceased as of the  Resignation  Date.  Stock options vested as of the Resignation
Date were exercisable for a period of three months after the Resignation Date.

Under the separation  agreement,  Mr. Webster agreed to release the Company from
all  claims  other  than  certain   indemnification  claims.  In  addition,  the
non-compete  and   non-solicitation   provisions  of  Mr.  Webster's  employment
agreement  remain  in effect  for 18 months  after  the  Resignation  Date.  The
confidentiality   provisions  of  the  employment  agreement  remain  in  effect
indefinitely.

Mr.  Trott.  Mr.  Trott and the Company  entered into an  employment  agreement,
effective  August 25, 2003, with a termination date of September 30, 2006. Under
the  employment  agreement,  Mr.  Trott was entitled to an annual base salary of
$300,000 beginning January 1, 2004, subject to annual adjustments. Mr. Trott was
also eligible to receive annual bonuses at the discretion of the Board under the
Bonus Plan and pursuant to the terms of Exhibit A to his employment agreement.

As a result of Mr.  Trott's  separation  from  employment in March 2006,  and in
accordance  with the  provisions  of his  employment  agreement,  Mr.  Trott was
entitled to receive (1) any base salary earned through his separation, including
any accrued but unused  vacation,  (2) his current base salary  ($317,750) for a
period  of 12  months  following  his  separation,  payable  in equal  bi-weekly
installments,  subject to Mr. Trott's obligation under the employment  agreement
to  mitigate  these  payments  and (3)  continued  eligibility  for 18 months to
participate,  at his cost, in all health,  medical and life  insurance  programs
generally provided to employees,  subject to obtaining  comparable coverage with
another employer.  Participation in all other benefit and compensation plans and
arrangements  ceased as of his  separation.  All  outstanding  stock options and
restricted stock vested as of his separation.  Unexercised stock options expired
three months after the Separation  Date. On August 28, 2007, the Company entered
into a cash  settlement and release  agreement with Mr. Trott in satisfaction of
all the above obligations.

                                       78

Mr.  George.  On September 1, 2002,  Mr. George and the Company  entered into an
employment  agreement  that expired on September 30, 2005.  Under the employment
agreement, Mr. George was entitled to an initial annual base salary of $190,000,
subject to annual  adjustments.  Mr. George was also eligible to receive  annual
bonuses at the discretion of the Board under the Bonus Plan.

On October 1, 2005,  the Company  entered  into a severance  agreement  with Mr.
George. The severance  agreement repeats and continues certain provisions of the
employment  agreement.  Under the terms of the severance  agreement,  Mr. George
agreed  that  during  his  employment  and for a period of 18  months  after any
termination  of  employment,  he will not  compete  with the Company nor solicit
employees  or  customers  of  the  Company.  Mr.  George  also  agreed  to  hold
confidential certain information of the Company.

The severance agreement provides that if Mr. George is terminated by the Company
without cause (as defined in the severance  agreement) or if he resigns for good
reason (as defined in the  severance  agreement),  the  Company  will pay to Mr.
George  severance in the amount of (1) unpaid base salary and earned bonus as of
the  termination  date and (2) base  salary for a period of 12 months  following
termination.  In addition,  if at the date of  termination  Mr.  George has been
employed for 10 consecutive  years, he will be paid 50% of the prorated bonus he
would have been  entitled to if employed  through the bonus  period.  Mr. George
shall also be entitled to participate for 18 months after termination in Company
health,  medical and other  benefit  plans.  Participation  shall cease when Mr.
George becomes eligible for comparable  programs of a subsequent  employer.  All
severance  obligations  are  conditioned  on  compliance  by Mr. George with his
non-competition, non-solicitation and confidentiality obligations.

Mr.  Shadid.  Mr. Shadid and the Company  entered into an employment  agreement,
effective  August 1, 2004, with a termination  date of September 30, 2007. Under
the  employment  agreement,  Mr.  Shadid was entitled to an initial  annual base
salary of $275,000, subject to annual adjustments.  Mr. Shadid was also eligible
to receive  annual  bonuses at the  discretion of the Board under the Bonus Plan
and pursuant to the terms of Exhibit A to his employment agreement.

As a result of the  termination  of Mr.  Shadid's  employment as of September 1,
2006, and in accordance  with the provisions of his  employment  agreement,  Mr.
Shadid received (1) any base salary earned through the termination date, and (2)
any bonus that had been  approved and  declared  earned and payable by the Board
prior to the termination  date.  Participation  in any benefit and  compensation
plans and other arrangements ceased as of the termination date. Vesting of stock
options and restricted  stock ceased as of the termination  date.  Stock options
vested as of the termination  date were exercisable for a period of three months
after the termination date.

The  non-compete,  non-solicitation  and  non-disparagement  provisions  of  Mr.
Shadid's  employment  agreement  remain in effect  for 24 months  following  the
termination  date. The  confidentiality  provisions of the employment  agreement
remain in effect indefinitely.

Mr. Kelly.  On November 6, 2007,  Mr.  Kelly and the  Company  entered  into an
employment  agreement,  which may be terminated by either party, with or without
cause.  Under the  employment  agreement,  Mr.  Kelly is  entitled to receive an
initial  annual base salary of $450,000,  subject to annual  adjustments  at the
discretion of the Compensation Committee. Mr. Kelly was awarded 49,000 shares of
restricted stock and 145,000 stock appreciation  rights under the Company's 2000
Equity Incentive Plan, vesting 25% in each of the first two years and 50% in the
third year.  These awards fully vest if Mr. Kelly is  terminated  for any reason
other than  cause,  as  defined  in the  Employment  Agreement.  The  employment
agreement  provides for annual cash incentives upon reaching  specified targets,
and Mr. Kelly is entitled to  participate  with other senior  executives  in all
Company benefit plans.  Upon  termination,  for cause or resignation,  Mr. Kelly
shall be entitled only to payment of base salary and annual  incentive  payments
earned  through the date of  termination.  Upon  termination  without cause or a
material  reduction  of  responsibilities,  Mr.  Kelly will receive the benefits
available under the Company's Severance Plan.

The  non-compete,  non-solicitation  and  non-disparagement  provisions  of  Mr.
Kelly's  employment  agreement  remain in effect  for 18  months  following  the
termination  date. The  confidentiality  provisions of the employment  agreement
remain in effect indefinitely.

                                       79

Alvarez and Marsal Agreement

On September 28, 2005, we entered into a letter agreement, as amended, with A&M.
Under the terms of the letter  agreement,  Mr. Fogarty,  a managing  director of
A&M,  served as Chief  Executive  Officer  and  President  of the  Company  from
September 2005 to January 18, 2008 and additional A&M personnel provide services
at our request.  A description  of the letter  agreement is available  under the
heading  "Certain   Relationships   and  Related   Transactions,   and  Director
Independence" in this Annual Report on Form 10-K.

Salaried Bonus Plan

The Company  maintains  the Bonus Plan for  certain  salaried  employees  of the
Company,  including the Named Executive  Officers.  The Bonus Plan permits these
employees to earn cash  performance  bonus awards of up to a percentage of their
respective salaries as determined by the Board of Directors, or by management on
the  Board's  behalf.  The  amount  of any  bonus  is based  upon the  Company's
performance and the individual performance of such participant.

Change of Control Under 2000 Equity Incentive Plan

Generally, in the event of a "change in control," as such term is defined in the
2000 Equity  Incentive  Plan (the  "Incentive  Plan"),  all  outstanding  awards
granted under the Incentive  Plan that are  outstanding  and not  exercisable or
subject  to  restrictions,   shall,   subject  to  certain  exceptions,   become
immediately exercisable,  and all restrictions shall be removed, as of the first
date that the  change in control  has been  deemed to have  occurred,  and shall
remain  as such  for the  remaining  life  of the  award.  In  2006,  our  award
agreements  provided that 50% of any award  outstanding  and not  exercisable or
subject  to  restrictions,   shall,   subject  to  certain  exceptions,   become
exercisable  in the event of a change  of  control,  with our Board  maintaining
discretion to accelerate the vesting of the remaining  outstanding awards in the
event of a change of control.

Severance Plan

The Company  maintains  a  Severance  Plan that is  generally  available  to all
employees of the Company. The Severance Plan permits eligible employees, who are
involuntarily  terminated by the Company,  to receive  severance pay equal to an
amount based on the position  the  terminated  employee had with the Company and
the  number  of  years  of his or her  service  with  the  Company,  if  certain
requirements  are met. In addition,  for certain  senior level  employees of the
Company,  including Named  Executive  Officers,  all  outstanding  equity awards
accelerate  and  immediately  vest in the event of a change in  control  and the
employee's termination other than for cause within twelve months.

Compensation Committee Interlocks and Insider Participation

All  compensation  decisions during the fiscal year ended September 29, 2006 for
each of the Named  Executive  Officers,  except for Mr. Fogarty were made by the
Compensation Committee of the Board of Directors, consisting of Messrs. Niehaus,
Demetree,  Baum,  Kesselman  and  Allen,  none of whom is or was an  officer  or
employee of the Company  during  fiscal  2006.  Mr.  Niehaus  resigned  from the
Compensation Committee of the Board of Directors in January 2008.

Compensation of Directors

Horst  Schroeder,  who resigned as Chairman of the Board on October 27, 2005 and
as a  member  of the  Board  on  January  25,  2006,  and Mr.  Webster  received
compensation as employees in fiscal 2005 and a portion of fiscal 2006. All other
directors in 2006 were non-employee  directors.  All non-employee  directors are
paid an annual  retainer of $20,000  payable in common stock and $14,000 payable
in cash.  Effective October 17, 2005, the Chairman of the Board,  which is now a
non-executive  position,  began  receiving  an annual cash  retainer of $65,000.
Directors are paid $1,750 for each meeting of the Board  attended,  and $350 for
each  telephonic  Board  meeting  participation.  Directors who are members of a
committee (other than the Audit Committee) of the Board are paid $1,000 for each
committee meeting attended, and $350 for those conducted by telephone. Effective
October 17, 2005, the Chairman and other members of the Audit Committee are paid
$3,500 and $1,500 per meeting, respectively, for in person meetings and $350 for
those  conducted by  telephone.  A Director who is chairman of the  Compensation
and/or

                                       80

Nominating/Governance  Committee  is paid an  annual  cash  retainer  of
$3,500. The Audit Committee Chairman is paid an annual cash retainer of $80,000,
which  was  increased  from  $5,000,   effective  October  17,  2005.  The  Lead
Independent  Director is paid an annual cash  retainer of $3,500.  All directors
are reimbursed for out of pocket expenses incurred in connection with attendance
at meetings of the Board and meetings of Board committees. Compensation, if any,
for service on Special  Committees is determined by the Board at the time of the
establishment of such committees.

As called for by its Corporate Governance Principles,  the Company has adopted a
policy  regarding  minimum stock  ownership by members of the Board.  The policy
generally  requires  that at all times each  director own at least the number of
shares equal to the annual stock retainer  payment  discussed above. The minimum
number of shares  required to be held by a director is calculated as of the date
the payment is made. Any  subsequent  change in the value of the shares will not
affect the amount of stock a director is required  to hold.  During  fiscal year
2006, all directors were in compliance with this policy.

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

               STOCK OWNED BENEFICIALLY BY DIRECTORS, NOMINEES
                    AND CERTAIN EXECUTIVE OFFICERS

The following table sets forth information regarding beneficial ownership of the
Company's Common Stock as of June 2, 2008 by: (i) each Director;  (ii) the Named
Executive Officers; and (iii) all Directors and executive officers as a group.

                                                                       CLASS A COMMON STOCK
                                                                        BENEFICIALLY OWNED
NAME OF BENEFICIAL OWNER (1)                         NUMBER OF SHARES (2)                     PERCENT
----------------------------                         --------------------                     -------

Jonathan E. Baum (3)                                          21,073                              *

Timothy S. Webster (4)                                            --                              *

Tim M. Pollak                                                 13,559                              *

Robert J. Druten                                               3,960                              *

Mark C. Demetree                                              14,378                              *

William R. Patterson                                          18,922                              *

Terence C. O'Brien                                            11,870                              *

James A. Heeter (5)                                            7,954                              *

Walter N. George (2)                                         219,185                           1.1%

Daniel W. Trott (6)                                               --                              *

George D. Shadid (7)                                              --                              *

Ronald C. Kesselman                                            5,838                              *

David W. Allen                                                 5,838                              *

James P. Fogarty                                                  --                              *

John P. Kelly                                                 49,000                              *

Paul R. Geist (2)                                             42,178                              *

Robert W. Schuller (2)                                        39,930                              *

All Directors and executive officers
   as a group (13 persons) (2)                               453,685                            2.3
     * Less than 1% of the outstanding common stock.

                                       81

(1)        Beneficial  ownership is determined  in accordance  with the rules of
           the United States Securities and Exchange  Commission,  but generally
           refers to either  the sole or shared  power to vote or dispose of the
           shares.  Such shares,  however,  are not deemed  outstanding  for the
           purposes of computing the  percentage  ownership of any other person.
           Except as  otherwise  indicated  in a  footnote  to this  table,  the
           persons  in this table have sole  voting  and  investment  power with
           respect to all shares of common stock shown as beneficially  owned by
           them.

(2)        In computing the number of shares  beneficially owned by a person and
           the  percentage  ownership  of that  person,  shares of common  stock
           subject  to  options  and  warrants  held by  that  person  that  are
           currently  exercisable or will become  exercisable  within 60 days of
           June 2, 2008 are deemed beneficially owned by that person. Options or
           stock appreciation rights to purchase shares of common stock that are
           currently  exercisable or will become  exercisable  within 60 days of
           June 2, 2008 to purchase  shares of common stock are as follows:  Mr.
           George (141,656  shares),  Mr. Geist (16,512 shares) and Mr. Schuller
           (9,572  shares) and all  executive  officers and directors as a group
           (167,740  shares).  Also includes shares of restricted  stock held by
           Mr. Kelly, Mr. George, Mr. Geist and Mr. Schuller,  which are subject
           to time vesting.

(3)        Includes  13,292  shares held by George K. Baum  Holdings,  Inc.  and
           1,172  shares  held  by  Grandchild,  L.P.  (as  to  which  Mr.  Baum
           disclaimed beneficial  ownership).  As an officer and/or equity owner
           of the entities holding such shares,  Mr. Baum may share voting power
           with  respect  to such  shares.  Mr.  Baum  also may be deemed to own
           beneficially  200  shares  held by his wife,  Sarah  Baum,  and 1,600
           shares held by his wife as custodian for their minor children.

(4)        Mr. Webster  resigned in December 2005. We have no information on his
           current stock ownership.

(5)        Mr. Heeter also may be deemed to own  beneficially  4,344 shares held
           by Sonberk  Profit Sharing Plan (c/o  Sonnenschein  Nath & Rosenthal)
           IDA FBO James A.  Heeter,  745  shares  held by his  wife,  Judith S.
           Heeter,  and 300 shares held by his wife as custodian for their minor
           children.  Mr. Heeter disclaims  beneficial  ownership of such shares
           held by or for the benefit of his wife and children.

(6)        Mr.  Trott  resigned in March  2006.  We have no  information  on his
           current stock ownership.

(7)        Mr. Shadid  resigned as Chief  Financial  Officer in August 2006, but
           remained an employee until  September 1, 2006. We have no information
           on his current stock ownership.

                                       82

                             PRINCIPAL STOCKHOLDERS

The  following  table  sets  forth  certain  information   regarding  beneficial
ownership  of the  Common  Stock  as of June  2,  2008  by  each  person  owning
beneficially  more than five percent of the outstanding  shares of common stock,
based on information available to the Company. Beneficial ownership is generally
either the sole or shared power to vote or dispose of the shares. The percentage
ownership  is based on the  number of  shares  outstanding  as of June 2,  2008.
Except as otherwise noted, the holders have sole voting and dispositive power.

                                                                           Class A Common Stock
                                                                            Beneficially Owned
   Name and Address of Beneficial Owner                        Number of Shares               Percent (1)
   ------------------------------------                        ----------------               -----------

   Jana Partners, LLC (2)
        200 Park Avenue, Suite 3300
        New York, NY 10166                                          2,898,223                      14.9%

   SCSF Equities, LLC (3)
        5200 Town Center Circles, Suite 470
        Boca Raton, FL 33486                                        2,888,300                      14.9%

   PrimeCap Management Company (4)
       225 So.  Lake Avenue #400
       Pasadena, CA 91101                                           1,889,081                       9.7%

   FMR Corp. (5)
       82 Devonshire Street
       Boston, MA 02109                                             1,939,400                      10.0%

   Kenmare Capital Partners L.L.C. (6)                              1,268,683                       6.5%

   Dimensional Fund Advisors, LP (7)
        1299 Ocean Avenue, 11th Floor
        Santa Monica, CA 90401                                      1,207,150                       6.2%

   Arnhold and S. Bleichroeder Advisors LLC (8)                     1,148,806                       5.9%

   Franklin Resources, Inc. (9)
        One Franklin Parkway
        San Mateo, CA 94403-1906                                      975,000                       5.0%

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


(1)      Beneficial  ownership is determined in accordance with the rules of the
         United  States  Securities  and Exchange  Commission.  In computing the
         number and percentage of shares  beneficially owned by a person and the
         percentage ownership of that person,  shares of Common Stock subject to
         options and warrants held by that person that are currently exercisable
         or will  become  exercisable  within 60 days of June 2, 2008 are deemed
         outstanding.  Such shares,  however, are not deemed outstanding for the
         purposes of computing the percentage ownership of any other person.

(2)      Based on a Form 4 filed April 8, 2008.

(3)      Number of shares  based on a Form 4 filed  April 7,  2008.  Based on an
         amended Schedule 13D dated July 21, 2006, these securities are owned by
         various  individual  and  institutional  investors.  According  to such
         Schedule 13D, SCSF Equities, LLC, Sun Capital Securities Offshore Fund,
         Ltd., Su Capital Securities Fund, LP, Sun Capital Securities  Advisors,
         LP, Sun Capital  Securities,  LLC, Marc J. Leder,  and Rodger R. Krouse
         share voting power.

                                       83

(4)      Based on an amended  Schedule 13G dated February 6, 2008.  According to
         such Schedule 13G,  PrimeCap  Management  Company has sole voting power
         with respect to 1,766,971 shares and sole power to dispose of 1,889,081
         shares.

(5)      Based on an amended Schedule 13G, dated February 14, 2007. Fidelity Low
         Priced  Stock  Fund   (Fidelity),   82   Devonshire   Street,   Boston,
         Massachusetts  02109,  a wholly-owned  subsidiary of FMR Corp.,  and an
         investment  adviser  registered  under the  Investment  Advisers Act of
         1940, is the beneficial owner of 1,843,000 common shares as a result of
         acting as investment adviser to various investment companies. Edward C.
         Johnson 3d, FMR Corp.,  through its control of Fidelity,  and the funds
         each has sole power to dispose of the  1,843,000  shares.  Neither  FMR
         Corp.,  nor Edward C. Johnson 3d,  Chairman of FMR Corp.,  has the sole
         power to vote or direct the voting of the shares owned  directly by the
         Fidelity Funds, which power resides with the Funds' Boards of Trustees.
         Fidelity carries out the voting of the shares under written  guidelines
         established by the Funds' Boards of Trustees.  Members of the Edward C.
         Johnson  3d  family  are the  predominant  owners  of Class B shares of
         common stock of FMR Corp., representing approximately 49% of the voting
         power of FMR Corp.  The  Johnson  family  group  and all other  Class B
         shareholders  have entered into a shareholders'  voting agreement under
         which all Class B shares will be voted in accordance  with the majority
         vote of Class B shares. Accordingly,  through their ownership of voting
         common stock and the execution of the  shareholders'  voting agreement,
         members of the Johnson  family may be deemed,  under the United  States
         Investment  Company  Act of  1940,  to form a  controlling  group  with
         respect to FMR Corp.

 (6)     Based on an  amended  Schedule  13G dated  February  14,  2008 filed on
         behalf of Kenmare Capital  Partners L.L.C.,  Kenmare Select  Management
         L.L.C., Kenmare Offshore Management L.L.C. (collectively "Kenmare") and
         Mark McGrath,  principal of Kenmare, relating to the purchase of shares
         of the  Company by  Kenmare  for the  account  of Kenmare  Fund I, L.P.
         (Kenmare I"), Kenmare Select Fund L.P.  ("Kenmare  Select") and Kenmare
         Offshore Fund,  Ltd.  ("Kenmare  Offshore").  Kenmare  Capital,  as the
         general  partner of Kenmare I and  Kenmare  Select  Management,  as the
         general partner of Kenmare Select have no voting or dispositive  power.
         Kenmare  Offshore  Management,   as  the  general  partner  of  Kenmare
         Offshore,  has the  sole  power to vote and  dispose  of the  1,268,683
         shares held by Kenmare Offshore.  As principal,  Mr. McGrath may direct
         the vote and disposition of the 1,268,683 shares  beneficially owned by
         Kenmare.

(7)      Based on an amended  Schedule 13G dated  February 6, 2008. The Schedule
         13G indicates that Dimensional Fund Advisors LP (formerly,  Dimensional
         Fund Advisors Inc.)  ("Dimensional"),  an investment advisor registered
         under  Section 203 of the  Investment  Advisors Act of 1940,  furnishes
         investment  advice to four investment  companies  registered  under the
         Investment  Company Act of 1940,  and serves as  investment  manager to
         certain  other  commingled  group trusts and separate  accounts.  These
         investment companies,  trusts and accounts are the "Funds." In its role
         as  investment  advisor or manager,  Dimensional  possesses  investment
         and/or voting power over the securities of the Issuer described in this
         schedule  that are  owned by the  Funds,  and may be  deemed  to be the
         beneficial  owner  of the  shares  of the  Issuer  held  by the  Funds.
         However,  all  securities  reported in this  schedule  are owned by the
         Funds. Dimensional disclaims beneficial ownership of such securities.

(8)      Based on a  Schedule  13G  dated  February  12,  2008.  Arnhold  and S.
         Bleichroeder  LLC ("ASB") may be deemed to be the  beneficial  owner of
         1,148,806 shares as a result of acting as investment advisor to various
         clients.

(9)      Based  upon an amended  Schedule  13G dated  January  31,  2007,  these
         securities are beneficially owned by one or more closed-end  investment
         companies  or  other  managed  accounts  that are  investment  advisory
         clients  of   investment   advisors   that  are  direct  and   indirect
         subsidiaries of Franklin Resources, Inc ("FRI"). Charles B. Johnson and
         Rupert H.  Johnson,  Jr.  (the  "Principal  Shareholders")  each own in
         excess  of 10% of the  outstanding  common  stock  of FRI  and  are the
         principal  stockholders of FRI. FRI and the Principal  Shareholders are
         the  beneficial  owners of  securities  held by  persons  and  entities
         advised by FRI subsidiaries.

                                       84

Equity Compensation Plan Information

The following table gives  information about our common stock that may be issued
upon the  exercise  of  options  and stock  appreciation  rights  under our 1992
Nonqualified Stock Option Plan, 1993 Nonqualified Stock Option Plan, 1997 Equity
Incentive Plan and 2000 Equity  Incentive  Plan and that may be purchased  under
our Employee  Stock  Purchase Plan as of September 29, 2006.  The Company has no
equity plans that have not been approved by stockholders.

---------------------------------------------------------------------------------------------------------------------
                                                                                             Number of securities
                                Number of securities to be                                  remaining available for
                                  issued upon exercise of     Weighted-average exercise      future issuance under
                                   outstanding options,         price of outstanding       equity compensation plans
                                    warrants and stock          options, warrants and        (excluding securities
                                    appreciation rights                rights              reflected in column (a))
        Plan Category                     (a) (1)                        (b)                        (c) (2)
---------------------------------------------------------------------------------------------------------------------
  Equity compensation plans              1,312,288                     $19.89                      2,016,975
   approved by stockholders
---------------------------------------------------------------------------------------------------------------------

(1)      Includes an estimate of the number of shares that would be issued under
         the  2000  Equity   Incentive   Plan  due  to  the  exercise  of  stock
         appreciation  rights  based  upon the  closing  price  of the  stock on
         September 29, 2006. Upon exercise of the stock appreciation  rights the
         executives  receive the number of shares of common stock equal in value
         to the  difference  between the fair market value on the grant date and
         the fair market value on the exercise  date times the number of shares.
         Only the number of shares  delivered at exercise will count against the
         securities remaining available for future issuance.

(2)      Includes an estimate of the number of shares that would be issued under
         the  2000  Equity   Incentive   Plan  due  to  the  exercise  of  stock
         appreciation  rights  based  upon the  closing  price  of the  stock on
         September 29, 2006. Upon exercise of the stock appreciation  rights the
         executives  receive the number of shares of common stock equal in value
         to the  difference  between the fair market value on the grant date and
         the fair market value on the exercise  date times the number of shares.
         Only the number of shares  delivered at exercise will count against the
         securities  remaining  available for future  issuance.  Includes 47,476
         shares reserved for issuance under the Employee Stock Purchase Plan.

ITEM 13.  CERTAIN   RELATIONSHIPS   AND  RELATED   TRANSACTIONS,   AND  DIRECTOR
          INDEPENDENCE

Horst Schroeder

The Company  entered  into an  agreement  with HWS &  Associates,  Inc.  ("HWS")
effective  October 1, 1999,  and amended on January 21, 2002,  pursuant to which
the Company  agreed to reimburse HWS for certain costs and expenses  incurred by
HWS in connection  with  supporting  the  activities of Horst W. Schroeder as an
employee  and Chairman of the Board of the Company and the  activities  of other
employees of the Company.  Mr.  Schroeder was a Director  until January 25, 2006
and the Chairman of the Board of the Company  until  October 17, 2005,  owns HWS
and serves as its President.  Pursuant to this agreement,  on a quarterly basis,
beginning  October 1, 1999 and  continuing  during  the term of Mr.  Schroeder's
employment by the Company, HWS invoiced the Company in advance for reimbursement
of such expenses,  and was reimbursed for such expenses in the amount of $13,750
per quarter.  In fiscal year 2005, the Company paid Mr. Schroeder  $73,468 under
this agreement.  This agreement  terminated on January 25, 2006, and the Company
paid $40,500 in satisfaction of all obligations thereunder.

Mr.  Schroeder  resigned as Chairman of the Board on October 17, 2005,  and as a
member of the Board of Directors on January 25, 2006.  On January 25, 2006,  the
Company entered into a separation  agreement with Mr. Schroeder.  The separation
agreement  provides that Mr.  Schroeder  received (1) $120,000,  less applicable
taxes,  which is equal to the minimum annual base compensation as defined in his
employment  agreement  with the Company and (2)  continued  healthcare  benefits
until September 30, 2006.  Participation  in all other benefit and  compensation
plans and arrangements  ceased as of January 25, 2006 (the "Termination  Date").
In  addition,  pursuant  to the  separation

                                       85

agreement the Company  agreed to reimburse HWS & Associates,  Inc., a management
consulting  firm owned by Mr.  Schroeder,  in the amount of $40,500  for certain
costs and  expenses,  which  satisfies  in full any and all  obligations  of the
Company to Mr. Schroeder in respect of the letter agreements between the Company
and HWS &  Associates,  Inc.  dated as of October 1, 1999 and January 21,  2002.
Vesting of stock options and restricted stock ceased as of the Termination Date.
Stock options vested as of the Termination Date were exercisable for a period of
three months after the Termination Date.

Under the separation agreement, Mr. Schroeder agreed to release the Company from
all  claims  other  than  certain   indemnification  claims.  In  addition,  the
non-compete  provisions  of the  employment  agreement  remain in effect for two
years  after  the  Termination  Date.  The  confidentiality  provisions  of  the
employment agreement remain in effect indefinitely.

Agreement with Alvarez & Marsal

On September 28, 2005, the Company entered into a letter agreement,  as amended,
with A&M.  Under the terms of the  letter  agreement,  Mr.  Fogarty,  a managing
director of A&M, served as Chief Executive  Officer and President of the Company
from September  2005 to January 18, 2008 and  additional  A&M personnel  provide
services at the Company's request.

The Company  paid A&M $600 per hour for the  services of Mr.  Fogarty and hourly
rates  ranging from $200 to $500 for the services of the  additional  personnel.
However,  the  maximum  number  of hours  A&M  could  bill the  Company  for Mr.
Fogarty's time in any one month is 200 hours.  The Company also  compensates A&M
for  reasonable  out-of-pocket  expenses.  In addition,  A&M has  received  $1.5
million of incentive compensation based upon satisfactory  completion of certain
enumerated  financial targets for fiscal year 2006. A&M has received  additional
incentive compensation of $520,000 based on certain financial targets for fiscal
year 2007  being  met and has  received  additional  incentive  compensation  of
$520,000  upon the Company  filing its fiscal  year 2005  Annual  Report on Form
10-K.

In addition,  the Company issued A&M a warrant to purchase 472,671 shares of the
Company's Class A Convertible Common Stock. The warrant provides for an exercise
price of $5.67  per  share.  The  warrant  is fully  vested  and will  expire on
September 28, 2010. The warrant contains  anti-dilution  protection and provides
for certain  adjustments  to the number of shares that may be purchased  and the
exercise  price in the event the  Company  declares  a stock  dividend,  a stock
split,   combines  or  consolidates   the  shares,   or  in  the  event  of  any
reclassification,   change  in  the  outstanding   securities  of  the  Company,
reorganization or merger of the Company,  or sale of all or substantially all of
its assets.

The letter agreement may be terminated by either party with or without cause. If
the Company  terminates the letter  agreement for cause at any time, the warrant
will  terminate  and  the  Company  will  be  relieved  of all  of  its  payment
obligations thereunder,  except for the payment of fees and expenses incurred by
A&M through the effective  date of  termination,  the potential  maintenance  of
director and officer  liability  insurance for two years following  termination,
and the obligation to indemnify A&M and its affiliates against certain claims or
losses  arising out of their  performance  of services for the  Company.  If the
Company  terminates  the letter  agreement  without cause or A&M  terminates the
letter agreement for good reason, A&M will be entitled to retain the warrant, to
receive  fees  and  expenses  incurred  by A&M  through  the  effective  date of
termination,   and  to  receive  any  remaining   incentive   compensation  upon
satisfaction  of the  enumerated  financial  target.  In  addition,  A&M and its
affiliates  will be entitled to be indemnified  against certain claims or losses
arising out of their performance of services for the Company and the Company may
be required to maintain director and officer  liability  insurance for two years
following termination.

Determination of Independence

The Board has affirmatively  determined that, except for Mr. John Kelly, our CEO
and president,  no current director has a material relationship with us and each
director  is an  "Independent  Director,"  as  defined by the rules of the NYSE.
While the Company is no longer listed on the NYSE,  the Board has  determined to
continue to use the NYSE independence standards.

                                       86

ITEM 14.     PRINCIPAL ACCOUNTING FEES AND SERVICES

Fees and Services of Ernst & Young LLP

The following  table  summarizes fees billed to the Company by Ernst & Young LLP
for fiscal years 2006 and 2005:

         Service                                                   2006              2005 (1)
         -------
                                                               -------------    --------------

         Audit fees                                             $  1,137,000        $9,624,000
         Audit-related fees                                          407,000           352,000
                                                               -------------    --------------
         Total audit and audit-related fees                        1,544,000         9,976,000
                                                               -------------    --------------

                                                               -------------    --------------
         Total tax fees                                              536,000           667,000
                                                               -------------    --------------
         Total fees                                             $  2,080,000     $  10,643,000
                                                               =============    ==============


 (1)     The audit for fiscal year 2005  represent the fees billed in connection
         with the fiscal  year 2005 audit  which  included  fees  related to the
         restatement and the re-audits of fiscal years 2002 through 2004.

Audit-related  fees principally relate to benefit plan audits and Sarbanes-Oxley
compliance.  Total  tax  fees  principally  relate  to  tax  return  preparation
services,   foreign   trade  zone   qualification   assistance   and  other  tax
consultations.

The Audit  Committee  approves  in  advance  all audit  and  non-audit  services
performed by Ernst & Young.  There are no other specific  policies or procedures
relating to the  pre-approval of services  performed by Ernst & Young. The Audit
Committee  considered whether the audit and non-audit services rendered by Ernst
& Young  were  compatible  with  maintaining  Ernst &  Young's  independence  as
auditors of the Company's financial statements.

                                       87

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)      The following items are filed as a part of the report:

1.       The Company's  consolidated financial statements prepared in accordance
         with  Regulation  S-X,   including  the   consolidated   statements  of
         operations,  cash flows, stockholders' equity, and comprehensive income
         for the three fiscal years ended September 29, 2006, September 30, 2005
         and  October  1,  2004,  and  the  consolidated  balance  sheets  as of
         September 29, 2006 and  September  30, 2005,  and related notes and the
         Report of Independent  Registered  Public  Accounting Firm are included
         under Item 8 of this Annual Report on Form 10-K.

2.       Valuation and Qualifying  Accounts Schedule.  Other financial statement
         schedules have been omitted  because they either are not required,  are
         immaterial or are not applicable or because equivalent  information has
         been  included  in the  financial  statements,  the  notes  thereto  or
         elsewhere herein.

3.       The list of exhibits following the signature page of this Annual Report
         on Form 10-K is incorporated by reference herein in partial response to
         this Item 15.

                                       88

                                   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.

                                       AMERICAN ITALIAN PASTA COMPANY
                                       By:    /s/ John P. Kelly
                                           -------------------------------------
                                           John P. Kelly
                                           President and Chief Executive Officer
Date:  June 23, 2008

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

                        POWER OF ATTORNEY AND SIGNATURES

         Each of the undersigned hereby severally  constitute and appoint Robert
Schuller with power of substitution and  resubstitution,  as his true and lawful
attorneys,  with full power to them and each of them  singly,  to sign for us in
our names in the capacities indicted below, all amendments to this Annual Report
on Form 10-K and  generally  to do all  things in our names and on our behalf in
such  capacities  to enable  American  Italian  Pasta Company to comply with the
provisions of the Securities  Exchange Act of 1934, and all  requirements of the
Securities  and Exchange  Commission  with respect to this Annual Report on Form
10-K.


/s/ William R. Patterson            Chairman of the Board of Directors                           June 23, 2008
-------------------------
William R. Patterson

/s/ John P. Kelly                   President, Chief Executive Officer and Director
-------------------------           (principal executive officer)
John P. Kelly                                                                                    June 23, 2008

/s/ Paul R. Geist                   Executive Vice President and Chief Financial Officer         June 23, 2008
-------------------------           (principal financial and accounting officer)
Paul R. Geist

/s/ Jonathan E. Baum                Director                                                     June 23, 2008
-------------------------
Jonathan E. Baum

/s/ Tim M. Pollak                   Director                                                     June 23, 2008
-------------------------
Tim M. Pollak

/s/ Mark C. Demetree                Director                                                     June 23, 2008
-------------------------
Mark C. Demetree

/s/ James A. Heeter                 Director                                                     June 23, 2008
-------------------------
James A. Heeter

/s/ Terence C. O'Brien              Director                                                     June 23, 2008
-------------------------
Terence C. O'Brien

/s/ David W. Allen                  Director                                                     June 23, 2008
-------------------------
David W. Allen

/s/ Ronald C. Kesselman             Director                                                     June 23, 2008
-------------------------
 Ronald C. Kesselman

/s/ Robert J. Druten                Director                                                     June 23, 2008
-------------------------
 Robert J. Druten

                                       89

           SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
            PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH
        HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT

                                 Not applicable.

                                       90

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                         AMERICAN ITALIAN PASTA COMPANY




                                                       Balance at        Charged                               Balance
                                                       Beginning         to Costs                              at End
Description                                            of Period         and Expense    Deductions (1)         of Period
-----------                                            ----------        -----------    --------------         ---------
Year Ended September 29, 2006:
Deducted from asset accounts:
   Allowance for doubtful accounts                    $ 2,116,000        $ (127,000)       $         -       $ 1,989,000
   Allowance for slow-moving, damaged and
   discontinued inventory                              10,470,000          1,420,000        10,391,000         1,499,000
                                                      -----------        -----------       -----------       -----------
Total                                                 $12,586,000        $ 1,293,000       $10,391,000       $ 3,488,000
                                                      ===========        ===========       ===========       ===========

Year ended September 30, 2005:
Deducted from asset accounts:
   Allowance for doubtful accounts                    $ 1,351,000        $ 1,806,000       $ 1,041,000       $ 2,116,000
   Allowance for slow-moving, damaged and
   discontinued inventory                               3,702,000         12,155,000         5,387,000        10,470,000
                                                      -----------         ----------       -----------        ----------
Total                                                 $ 5,053,000        $13,961,000       $ 6,428,000       $12,586,000
                                                      ===========        ===========       ===========       ===========

Year ended October 1, 2004:
Deducted from asset accounts:
   Allowance for doubtful accounts                    $ 1,553,000        $   656,000       $   858,000       $ 1,351,000
   Allowance for slow-moving, damaged and
   discontinued inventory                               1,857,000          1,948,000           103,000         3,702,000
                                                      -----------        -----------       -----------       -----------
Total                                                 $ 3,410,000        $ 2,604,000       $   961,000       $ 5,053,000
                                                      ===========        ===========       ===========       ===========


(1)      Deductions  from the allowance  for doubtful  accounts  equal  accounts
         receivable  written  off,  less  recoveries,   against  the  allowance.
         Deductions  from allowance for  slow-moving,  damaged and  discontinued
         inventory equal  inventory  written off, less  recoveries,  against the
         allowance.

                                       91

EXHIBIT INDEX


Exhibit
Number     Description
-------    ---------

(3) Articles and By-Laws

          3.1  The Company's  amended and restated  Certificate of Incorporation
               dated October 7, 1997  (incorporated  by reference to Exhibit 3.1
               to the  Company's  Annual  Report on Form 10-K for  fiscal  2005,
               filed June 16, 2008).

          3.2  The Company's  amended and restated  Bylaws dated October 7, 1997
               (incorporated by reference to Exhibit 3.2 to the Company's Annual
               Report on Form 10-K for fiscal 2005, filed June 16, 2008).

(4)      Instruments Defining the Rights of Security Holders, Including Indentures

          4.1  The  specimen  certificate  representing  the  Company's  Class A
               Convertible   Common   Stock,   par   value   $0.001   per  share
               (incorporated by reference to Exhibit 4.1 to the IPO Registration
               Statement).

          4.2  The  specimen  certificate  representing  the  Company's  Class B
               Convertible   Common   Stock,   par   value   $0.001   per  share
               (incorporated by reference to Exhibit 4.2 to the IPO Registration
               Statement).

          4.3  Section 7.1 of the Company's amended and restated  Certificate of
               Incorporation (filed as Exhibit 3.1 hereto).

          4.4  Article II of the Company's amended and restated Bylaws (filed as
               Exhibit 3.2 hereto).

          4.5  Sections 1, 2, 3, 4 of Article III of the  Company's  amended and
               restated Bylaws (filed as Exhibit 3.2 hereto).

          4.6  Article VII of the Company's  amended and restated  Bylaws (filed
               as Exhibit 3.2 hereto).

          4.7  Article IX of the Company's amended and restated Bylaws (filed as
               Exhibit 3.2 hereto).

          4.8.1 Amended and  Restated  Credit  Agreement,  dated as of March 13,
               2006,  by and between the Company and Bank of America,  N.A.,  as
               Lender,   letter  of  credit  issuer  and  Administrative   Agent
               (incorporated  by reference to Exhibit 4.1 to the Company's  Form
               8-K filed March 15, 2006).

          4.8.2 First Amendment to Amended and Restated Credit Agreement,  dated
               as of March 13, 2007 (incorporated by reference to Exhibit 4.2 to
               the Company's Form 8-K filed March 16, 2007.)

          4..8.3 Second  Amendment  to Amended and  Restated  Credit  Agreement,
               dated as of  December  27, 2007  (incorporated  by  reference  to
               Exhibit 4.1 to the Company's Form 8-K filed December 31, 2007).

          4.9  Shareholders  Rights Agreement,  dated December 3, 1998,  between
               American Italian Pasta Company and UMB Bank, N.A. as Rights Agent
               (incorporated   by  reference  to  Exhibit  1  to  the  Company's
               Registration  Statement  dated  December  14, 1998 on Form 8-A12B
               (Commission File No. 001-13403)).

                                       92

          4.10 Certificate and First Amendment to Rights Agreement (incorporated
               by reference to Exhibit 4 to the Company's Form 8-K filed January
               6, 2003).

          4.11 Warrant to Purchase Class A Convertible  Common Stock dated March
               10,  2006  (incorporated  by  reference  to  Exhibit  10.2 to the
               Company's Form 8-K filed March 16, 2006).

(10)      Material Contracts


          10.1* Board  of  Directors   Compensation  Program   (incorporated  by
               reference to Exhibit 10.1 to the Company's  Annual Report on Form
               10-K for fiscal 2005, filed June 16, 2008).

          10.2* Form of  Indemnification  Agreement  with Officers and Directors
               (incorporated  by reference to Exhibit 10.2 to the Company's Form
               8-K filed August 16, 2005), and schedule of parties (incorporated
               by reference to Exhibit 10.2 to the  Company's  Annual  Report on
               Form 10-K for fiscal 2005, filed June 16, 2008).

          10.5.1*  Employment  Agreement  between  the  Company  and  Timothy S.
               Webster dated May 30, 2002  (incorporated by reference to Exhibit
               10 to the  Company's  Form 10-Q for the  period  ending  June 30,
               2002).

          10.5.2*  Employment  Agreement  dated  September  1, 2002  between the
               Company and Warren B.  Schmidgall  (incorporated  by reference to
               Exhibit  10.10 to the  Company's  Form 10-K for the period ending
               September  30,  2002)  and  Amendment  to  Employment   Agreement
               (incorporated  by reference to Exhibit 10.1 to the Company's Form
               8-K filed August 16, 2005).

          10.5.3*  Employment  Agreement by and between  American  Italian Pasta
               Company   and  Horst  W.   Schroeder   dated   January  14,  2003
               (incorporated  by reference to Exhibit 10.1 to the Company's Form
               10-Q for the period ending March 31, 2003).

          10.5.4*  Employment  Agreement  dated  August 25,  2003,  between  the
               Company and Daniel W. Trott (incorporated by reference to Exhibit
               10.32 to the Company's Form 10-K for the period ending October 3,
               2003).

          10.5.5* Employment  Agreement  dated  September 10, 2004,  between the
               Company  and  George D.  Shadid  (incorporated  by  reference  to
               Exhibit 10.1 to the Company's Form 8-K dated September 15, 2004).

          10.5.6* Severance  Agreement between the Company and Walt George dated
               October 1, 2005 (incorporated by reference to Exhibit 10.1 to the
               Company's Form 8-K filed October 6, 2005).

          10.5.7* Retention Bonus for Chief Financial  Officer  (incorporated by
               reference  to  Exhibit  10.1  to the  Company's  Form  8-K  filed
               November 18, 2005).

          10.5.8*  Separation  Agreement  between  the  Company  and  Timothy S.
               Webster  dated  December 5, 2005  (incorporated  by  reference to
               Exhibit 10.1 to the Company's Form 8-K filed December 8, 2005).

          10.5.9*  Separation   Agreement  between  the  Company  and  Horst  W.
               Schroeder  dated January 25, 2006  (incorporated  by reference to
               Exhibit 10.1 to the Company's Form 8-K filed January 31, 2006).

                                       93

          10.5.10*  Cash  Incentive   Plan  for  fiscal  2006,   2007  and  2008
               (incorporated  by reference to Exhibit  10.5.10 to the  Company's
               Annual Report on Form 10-K for fiscal 2005, filed June 16, 2008).

          10.5.11*  Employment  agreement  dated  November  6, 2007  between the
               Company and John P. Kelly  (incorporated  by reference to Exhibit
               10.1 to the Company's Form 8-K filed November 8, 2007).

          10.6.1* 1996 Salaried Bonus Plan (incorporated by reference to Exhibit
               10.13 to the IPO Registration Statement).

          10.6.2* 1997 Equity  Incentive  Plan  (incorporated  by  reference  to
               Exhibit 10.14 to the IPO Registration Statement).

          10.6.3* First amendment to 1997 Equity Incentive Plan (incorporated by
               reference  to  Exhibit  10.1 to the  Company's  Form 10-Q for the
               period ending July 31, 1998).

          10.6.4* American  Italian Pasta Company 2000 Equity Incentive Plan, as
               amended  (incorporated  by  reference  to  Exhibit  10.5  to  the
               Company's Form 10-Q for the period ending June 29, 2001).

          10.6.5* Amendment to the 2000 Equity  Incentive Plan  (incorporated by
               reference  to  Exhibit  10.1 to the  Company's  Form 10-Q for the
               period ending January 2, 2004).

          10.6.6* Form of Restricted Stock Agreement for Restricted Stock Awards
               granted  pursuant to the  Company's  2000 Equity  Incentive  Plan
               (incorporated by reference to Exhibit 10.25 to the Company's Form
               10-K for the period ending September 30, 2002).

          10.6.7* Form of Stock Option Award  Agreement  for Stock Option Awards
               Pursuant   to  the   Company's   2000   Equity   Incentive   Plan
               (incorporated  by reference to Exhibit 10.4 to the Company's Form
               10-Q for the period ending March 31, 2003).

          10.6.8* New  Form  of  Restricted  Stock  Agreement  (incorporated  by
               reference to Exhibit 10.1 to the  Company's  Form 8-K filed March
               8, 2006).

          10.6.9*  Form   of   Stock   Appreciation   Rights   Award   Agreement
               (incorporated  by reference to Exhibit 10.2 to the Company's Form
               8-K filed March 8, 2006).

          10.10 Product Supply and Pasta Production  Cooperation Agreement dated
               May  7,  1998   between  the   Registrant   and  Harvest   States
               Cooperatives  (incorporated  by  reference to Exhibit 10.2 to the
               Company's Form 10-Q for the period ending July 31, 1998).

          10.11 Flour Purchase  Agreement by and between  American Italian Pasta
               Company  and Bay  State  Milling  Company  dated  August  7, 2002
               (incorporated by reference to Exhibit 10.22 to the Company's Form
               10-K for the period ending  September 30, 2002). (We have omitted
               certain  information  from the  Agreement and filed it separately
               with the  Securities  and  Exchange  Commission  pursuant  to our
               request for  confidential  treatment  under Rule  24b-2.  We have
               identified the omitted confidential  information by the following
               statement,  "Confidential  portions of material have been omitted
               and  filed   separately   with  the   Securities   and   Exchange
               Commission,"  as  indicated   throughout  the  document  with  an
               asterisk in brackets ([*])).

          10.12 Second Amended and Restated Supply Agreement by and between AIPC
               Sales Co. and Sysco  Corporation  dated  July 1,  2003.  (We have
               omitted  certain  information  from the  Agreement  and  filed it
               separately with the Securities and Exchange  Commission  pursuant
               to our request for  confidential  treatment under Rule 24b -2. We
               have  identified  the

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               omitted  confidential  information  by the  following  statement,
               "Confidential  portions of material  have been  omitted and filed
               separately  with the  Securities  and  Exchange  Commission,"  as
               indicated  throughout  the document  with an asterisk in brackets
               ([*]) (incorporated by reference to Exhibit 10.0 to the Company's
               Form 10-Q for the period ending June 30, 2003).

          10.13 Letter Agreement between the Company and Alvarez & Marsal,  LLC,
               dated  September 28, 2005  (incorporated  by reference to Exhibit
               10.1 to the Company's Form 8-K filed October 4, 2005).

          10.14 Letter Agreement between the Company and Alvarez & Marsal,  LLC,
               dated March 10, 2006  (incorporated  by reference to Exhibit 10.1
               to the Company's Form 8-K filed March 16, 2006).

          10.15 Letter Agreement between the Company and Alvarez & Marsal,  LLC,
               dated March 21, 2007  (incorporated  by reference to Exhibit 10.1
               to the Company's Form 8-K filed March 27, 2007).

          10.16 Letter Agreement between the Company and Alvarez & Marsal,  LLC,
               dated  January 24, 2008  (incorporated  by  reference  to Exhibit
               10.16 to the  Company's  Annual  Report on Form  10-K for  fiscal
               2005, filed June 16, 2008).

          10.17 Real Estate Contract between the Company and ST Specialty Foods,
               Inc.  dated June 12, 2006  (incorporated  by reference to Exhibit
               10.1 to the Company's Form 8-K filed June 16, 2006).

18        Letter regarding change in accounting principles.

21        Subsidiaries of the registrant.
          List of subsidiaries is attached hereto as Exhibit 21.

23        Consent of Ernst & Young LLP.

24        Power of Attorney.

          The  power of  attorney  is set  forth on the  signature  page of this
          Annual Report on Form 10-K.

31.1      Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2      Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32        Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*        Represents a management contract or a compensatory plan or arrangement

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