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 28, 2007

                                       OR

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

                   For the transition period from        to
                        Commission file number 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
      incorporation or organization)                    Identification No.)

           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 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 $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 28, 2007
                                      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.............................................15

   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....33

   ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................34

   ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                ACCOUNTING AND FINANCIAL DISCLOSURE...........................64

   ITEM 9A.     CONTROLS AND PROCEDURES.......................................64

   ITEM 9B.     OTHER INFORMATION.............................................66


PART III......................................................................67

   ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE........67

   ITEM 11.     EXECUTIVE COMPENSATION........................................70

   ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT AND RELATED STOCKHOLDER MATTERS....................87

   ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
                AND DIRECTOR INDEPENDENCE.....................................91

   ITEM 14.     PRINCIPAL ACCOUNTING FEES AND SERVICES........................92


PART IV.......................................................................92

   ITEM 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES.......................92

                                       i

                                Explanatory Note

Restatement of Historical Financial Statements

As more fully described 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  28, 2007, we had revenues of
$398.1 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
2007, 2006 and 2005 were 52 weeks and ended on September 28, 2007, September 29,
2006 and September 30, 2005.

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

We have 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 2007,  we  continued  our  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.  In  addition,  our
Tolleson,  Arizona  plant is certified  organic by the Organic Crop  Improvement
Association  International.  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

                                       2

management  expertise allows us to recommend  pricing,  SKU assortment and shelf
space   allocation   to  both   private   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  $13.8
million in fiscal year 2007, $9.8 million in fiscal year 2006, and $12.6 million
in fiscal year 2005.

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  28,  2007,
September  29, 2006 and  September  30, 2005,  sales to Wal-Mart  accounted  for
approximately  23%,  22% and 21%,  respectively.  During the fiscal  years ended
September 28, 2007,  September  29, 2006 and September 30, 2005,  sales to Sysco
accounted for approximately 9%, 11% and 11%, respectively. We expect to continue
to rely on a limited number of major customers for a substantial  portion of our
revenues in the future.

Through  December 31, 2006, we had an exclusive  supply contract with Sysco (the
"Sysco  Agreement").  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  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 93% of our revenues in fiscal
year 2007 were from sales in North America.

North  American  pasta (in all its forms)  consumption is estimated to have been
approximately  $5.6  billion in fiscal year 2007 (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 28, 2007, we employed 651  full-time  persons  worldwide of whom
176 were administrative and 475 manufacturing  employees. Our 594 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 2007,  the dry pasta market  continued  some  improvement  as
consumer demand for pasta products  increased  slightly  compared to fiscal year
2006.

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  our  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 our 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
fiscal year 2007,  the  composition  of our  inventory was at normal levels with
respect to finished  goods,  packaging  and raw  materials.  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
and $0.8 million in fiscal year 2007.

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

                                       7

monetary  penalties  and/or  injunctive  relief,  either of which  could  have a
material   adverse   effect  on  us.  A  more  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 28, 2007. 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 2007.  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.

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 28, 2007,  September 29, 2006 and September 30, 2005,  sales to
Wal-Mart accounted for approximately 23%, 22% and 21%, respectively.  During the
fiscal years ended  September  28, 2007,  September  29, 2006 and  September 30,
2005, sales to Sysco accounted for approximately 9%, 11% and 11%,  respectively.
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  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.

                                       9

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 unable 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.  There were no such
impairments  in fiscal year 2007 due to  improvements  in demand,  higher  sales
prices and  contribution  margins.  The balance of our brands and  trademarks at
September 28, 2007 was $83.3 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  28, 2007 and  September  29, 2006,  long lived fixed  assets  totaled
$316.1 million and $324.5 million, respectively.

                                       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;

                                       13

     •    tariffs and other trade barriers;

     •    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  28, 2007,  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 28, 2007, 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 28, 2007, we
leased space in public warehouses located in 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 our 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.

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

                                       15

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  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.

                                       16

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

                                       17

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  (which  were paid in the second  quarter of fiscal year
2008) 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 2007.



                                     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 2007 and 2006 was as follows:


                                  Year Ended                 Year Ended
                              September 28, 2007         September 29, 2006

                               High          Low         High          Low
     First Quarter            $11.25       $ 7.06       $10.74        $ 5.83
     Second Quarter           $11.02       $ 8.95        $7.20        $ 3.43
     Third Quarter            $10.85       $ 9.60        $9.04        $ 6.44
     Fourth Quarter           $10.00       $ 7.80        $8.47        $ 7.51

                                       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 28, 2007.

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 2007 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 2007                      Shares Purchased    Paid Per Share
----------------                      ----------------    --------------
September 30 - October 27                     -             $    -
October 28 - November 24                      -             $    -
November 25 - December 29                  7,198            $  8.95
                                        --------            -------
                                           7,198            $  8.95
                                        ========            =======

Second Quarter                         Total Number of     Average Price
Fiscal Year 2007                      Shares Purchased    Paid Per Share
----------------                      ----------------    --------------
December 30 - January 26                     795            $  9.41
January 27 - February 23                     198            $ 10.78
February 24 - March 30                     5,945            $ 10.50
                                        --------            -------
                                           6,938            $ 10.38
                                        ========            =======

Third Quarter                          Total Number of     Average Price
Fiscal Year 2007                      Shares Purchased    Paid Per Share
----------------                      ----------------    --------------
March 31 - April 27                           -             $    -
April 28 - May 25                             79            $ 10.50
May 26 - June 29                             245            $ 10.55
                                        --------            -------
                                             324            $ 10.54
                                        ========            =======

Fourth Quarter                         Total Number of     Average Price
Fiscal Year 2007                      Shares Purchased    Paid Per Share
----------------                      ----------------    --------------
June 30 - July 27                             -             $    -
July 28 - August 24                        4,995            $  6.33
August 25 - September 28                      -             $    -
                                        --------            -------
                                           4,995            $  6.33
                                        ========            =======

                                       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 2007.  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 28, 2007,  September 29, 2006 and September 30, 2005, and the selected
balance  sheet data as of September  28, 2007 and September 29, 2006 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 1, 2004
and October 3, 2003,  and the selected  balance  sheet data as of September  30,
2005,  October 1, 2004 and October 3, 2003, have been derived from our financial
statements not included herein.

                                                                                  FISCAL YEAR ENDED
                                                ------------------------------------------------------------------------------------
                                                  Sept. 28, 2007   Sept. 29, 2006    Sept. 30, 2005     Oct. 1, 2004  Oct. 3,  2003
                                                  --------------   --------------    --------------     ------------  -------------
                                                                        (in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenues(1)                                            $ 398,122        $ 367,023      $    364,159      $   392,702     $  399,367
Cost of goods sold                                       308,819          284,777           300,151          320,851        304,228
                                                       ---------        ---------      ------------      -----------     ----------

Gross profit                                              89,303           82,246            64,008           71,851         95,139
Selling and marketing expense                             21,503           22,871            20,342           27,155         21,649
General and administrative expense (2)                    33,548           35,459            23,198           21,277         17,517
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                 -                -              -
(Gains) losses related to long-lived assets (5)            (109)           22,268             9,759            1,099             41
Provision for (recovery from) restructuring
      program (6)                                              -                -             (554)            2,868              -
Acquisition and plant start-up expenses (7)                    -                -                 -              240          4,047
                                                       ---------        ---------      ------------      -----------     ----------
Operating profit (loss)                                   34,361          (4,058)          (91,287)           19,080         51,885
Interest expense, net                                     29,421           29,509            16,234           10,990         12,937
Other (income) expense (8)                                 (245)            (913)          ( 3,544)            2,518          6,871
                                                       ---------        ---------      ------------      -----------     ----------
Income (loss) before income taxes                          5,185         (32,654)         (103,977)            5,572         32,077
Income tax provision (benefit)                             (163)          (2,241)           (3,730)            1,513         11,357
                                                       ---------        ---------      ------------      -----------     ----------
Net income (loss) (9)                                  $   5,348        $(30,413)      $  (100,247)      $     4,059     $   20,720
                                                       =========        =========      ============      ===========     ==========

Net income (loss) per common share (basic)             $    0.29        $  (1.65)      $     (5.49)      $      0.22     $     1.16
                                                       =========        =========      ============      ===========     ==========

Weighted-average common shares outstanding                18,673           18,386            18,247           18,043         17,833
                                                       =========        =========      ============      ===========     ==========

Net income (loss) per common share
    (assuming dilution)                                $    0.28        $  (1.65)      $     (5.49)      $      0.22     $     1.12
                                                       =========        =========      ============      ===========     ==========

Weighted-average common shares outstanding
    (including dilutive securities)                       18,951           18,386            18,247           18,562         18,508
                                                       =========        =========      ============      ===========     ==========
Cash dividend declared per common share                $       -        $       -      $     0.5625      $    0.3750     $        -
                                                       =========        =========      ============      ===========     ==========

OTHER FINANCIAL DATA (AT END OF PERIOD):
Cash and temporary investments                         $  16,635        $  22,805      $  11,911         $     2,712     $    2,301
Working capital                                        $  55,505        $  54,285      $  58,971         $    56,106     $   67,476
Plant, property and equipment - net                    $ 316,109        $ 324,464      $ 360,740         $   384,327     $  387,211
Brand and trademarks                                   $  83,282        $  82,772      $  88,750         $   178,736     $  177,258
Total assets                                           $ 527,963        $ 531,969      $ 571,926         $   688,311     $  708,755
Long-term debt, less current maturities                $ 240,000        $ 260,500      $ 276,006         $   286,795     $  300,778

                                       20

Stockholders' equity                                   $ 171,918        $ 160,336      $ 186,026         $   293,112     $  290,693
Total debt/total capitalization                               58%              62%            60%                 50%            51%

Depreciation and amortization expense (10)             $  23,409        $  24,895      $  25,132         $    24,956     $   22,868
Amortization of deferred debt issuance cost (11)       $   1,265        $   4,216      $   2,051         $     1,026     $      838
-------------------------------------------


(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  2003,  2004,  2005 2006 and 2007  include  payments
received from the  Department of Commerce of $2.3  million,  $1.5 million,  $1.0
million, $2.6 million and $3.0 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 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
year 2005,  $16.1  million in fiscal year 2006 and $13.3  million in fiscal year
2007 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 principally
in fiscal years 2006, 2005 and 2004.

(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) For fiscal  years  prior to 2007,  the  amount  primarily  reflects  foreign
currency  transaction  gains/losses  on certain forward  exchange  contracts and
euro-denominated debt.

(9) 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, as well as $1.3 million of
amendment  fees that  were  incurred,  prior to the  refinancing  of 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 28, 2007     September 29, 2006     September 30, 2005
                                                   ------------------     ------------------     -------------------

   Revenues:
      Retail                                                  76.5%                  73.1%                   72.9%
      Institutional                                           23.5                   26.9                    27.1
                                                           -------                -------                 -------

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

   Gross profit                                              22.4                    22.4                    17.6
   Selling and marketing expense                              5.4                     6.2                     5.6
   General and administrative expense                         8.4                     9.7                     6.4
   Litigation settlement                                        -                       -                     3.8
   Impairment charges to brands and trademarks                  -                     0.2                    24.3
   Loss on disposition of brands and trademarks                 -                     1.3                       -
   (Gains) losses related to long-lived assets                  -                     6.1                     2.7
   Recovery from  restructuring expense                         -                       -                   (0.2)
                                                           -------                -------                 -------

   Operating profit (loss)                                    8.6                   (1.1)                  (25.0)
   Interest expense, net                                      7.4                     8.0                     4.5
   Other (income) expense                                   (0.1)                   (0.2)                   (1.0)
                                                           -------                -------                 -------
   Income (loss) before income taxes                          1.3                   (8.9)                  (28.5)
   Income tax provision (benefit)                               -                   (0.6)                   (1.0)
                                                           -------                -------                 -------

   Net income (loss)                                          1.3%                  (8.3)%                 (27.5)%
                                                           ======                 =======                 =======


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 offering
branded, private label, imported and specialty products, our scalable production
facilities and our key

                                       22

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  76.5% and 73.1% of our total revenue for
the years  ended  September  28,  2007 and  September  29,  2006,  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 23.5% and 26.9% of our total revenue for
the years ended September 28, 2007 and September 29, 2006, 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  changes  in
circumstances  indicate  that the  carrying  amount of an asset may not be fully
recoverable. We completed

                                       23

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.  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.  We completed our annual review of fiscal year 2007
based on the 2008 fiscal year  business  plan and our forecast  available in the
fourth quarter of fiscal 2007. Based on the review,  no impairment  charges were
recorded in fiscal  year 2007.  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 (gain) loss related to long-lived  assets amounted to
$(0.1)  million,  $22.3 million and $9.8 million for fiscal year 2007,  2006 and
2005, 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 share-based  compensation plans and implemented the pro forma
disclosure  only  provisions  of SFAS No.  123 and SFAS No.  148.  Under APB 25,
share-based  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

                                       24

the receivables are past due, and our historical  experience.  If  circumstances
change (e.g.,  higher than expected  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 2007 our reserve  decreased  by $0.9
million from $1.5 million to $0.6 million. This decrease is the result of better
and more efficient  management  and producing to more accurate  demand levels as
well as disposing  of aged and  discontinued  goods  previously  identified  and
reserved.

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 28,
2007 and September 29, 2006 was $49.8 million and $52.3  million,  respectively.
The net change in total  valuation  allowance for the years ended  September 28,
2007,  September 29, 2006 and September 30, 2005 was a decrease of $2.5 million,
an increase of $10.2 million and an increase of $34.8 million, respectively. The
valuation allowance at September 28, 2007,  September 29, 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 28, 2007, September 29, 2006
and September 30, 2005 was $(1.1) million,  $(32.4) million and $(32.2) million,
respectively,  as  reported  in our  tax  returns.  Due to the  existence  as of
September  28,  2007  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 28, 2007.

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 used 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

Prior to fiscal year 2007,  we managed  foreign  currency  risks  using  futures
contracts.  The fair values of these  instruments  were  determined  from market
quotes.  These forward contracts were 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 was used to  effectively
convert a portion of  variable  rate debt to fixed  rate.  This  instrument  was
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 were based on an  expectation  of future  interest  rates
derived from observed market interest rate curves. We did not change our methods
of calculating these fair values or developing the underlying  assumptions.  The
values of these derivatives changed over time as cash receipts and payments were
made and as  market  conditions  change.  Our  derivative  instruments  were 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."

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.

FISCAL YEAR ENDED SEPTEMBER 28, 2007 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 29,
2006

Revenues:  Revenues increased $31.1 million,  or 8.5%, to $398.1 million for the
fiscal year ended  September 28, 2007,  from $367.0  million for the fiscal year
ended  September 29, 2006.  Revenues  increased  $7.1 million,  or 1.9%,  due to
volume  increase,  and increased  $23.7 million,  or 6.5%, due to higher average
selling  prices.  Revenues  increased  by $0.3  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 2007 and 2006 are based on a 52-week
year.

Revenues for the Retail market  increased  $35.9  million,  or 13.4%,  to $304.4
million for the fiscal year ended  September 28, 2007,  from $268.5  million for
the fiscal year ended September 29, 2006.  Revenues increased $15.4 million,  or
5.7%, due to volume increase,  and increased $20.2 million or 7.5% due to higher
average selling prices.  Revenues  increased by $0.3 million,  or 0.1% 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 $4.8 million or 4.9% to $93.7
million for fiscal year ended  September 28, 2007, from $98.5 million for fiscal
year ended September 29, 2006.  Revenues decreased $5.9 million,  or 6.0% due to
volume losses and increased $1.1 million,  or 1.1% due to higher average selling
prices and changes in sales mix.

Cost of goods sold: As a percentage of revenues,  cost of goods sold remained at
77.6% for fiscal  year 2007 and 2006.  Our raw  materials  and other input costs
were  unfavorable  to prior  year but the effect of the  increase  was offset by
higher  selling  prices.  Cost of goods sold in 2007 also  includes $0.8 million
provision for inventory obsolescence which was a reduction of $0.6 million, from
$1.4 million in fiscal year 2006.

Gross profit: Gross profit increased $7.1 million, or 8.6%, to $89.3 million for
the fiscal year ended September 28, 2007, from $82.2 million for the fiscal year
ended September 29, 2006.  Gross profit as a percentage of revenues  remained at
22.4% for both years.  The increase in gross  profit is directly  related to the
volume growth  described

                                       26

above  and the  ability  of the  Company  to  increase  sales  prices at a level
approximately equal to the increased raw material and other production costs.

Selling and marketing  expense:  Selling and marketing  expense  decreased  $1.4
million, or 6.1%, to $21.5 million for the fiscal year ended September 28, 2007,
from $22.9 million for fiscal year ended  September  29, 2006.  This decrease is
primarily  related to  decreased  payroll  of $0.4  million  and a  decrease  of
share-based  compensation  expense of $0.5  million as  compared  to fiscal year
2006.  Selling and marketing expense,  as a percentage of revenue,  decreased to
5.4% for the fiscal year ended  September 28, 2007, from 6.2% for the comparable
prior year period.

General and administrative expense: General and administrative expense decreased
$2.0 million,  or 5.6%, to $33.5 million for the fiscal year ended September 28,
2007,  from $35.5 million for the comparable  period last year. This decrease is
attributable  primarily to decreased  costs of  professional  fees.  General and
administrative  expenses as a percentage  of revenues  decreased to 8.4% for the
fiscal  year ended  September  28,  2007,  from 9.7% for the  fiscal  year ended
September  29,  2006 due to the effect of these  relatively  fixed  costs  being
incurred on increased  sales.  During the fiscal year ended  September 28, 2007,
$13.3 million of professional  fees related to the restatement and pending legal
matters  were  recorded  compared to $16.1  million in fiscal  year 2006.  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 2007,  we have  continued to incur
significant costs related to the restatement and pending legal matters.

Impairment  of brands and  trademarks:  We completed our annual review of fiscal
year 2007 brand  intangible  values based on the 2008 fiscal year  business plan
and our forecast available in the fourth quarter of fiscal year 2007. The review
resulted in no brand  impairment.  During the year ended  September 29, 2006, we
recorded $1.0 million of impairment charges.

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 dispositions in fiscal year 2007.

Loss related to long-lived  assets:  During the fiscal year ended  September 28,
2007, a $0.1 million gain relating to the sale of long-lived assets was recorded
as compared to $22.3 million of losses  related to  long-lived  assets in fiscal
year 2006. In the second quarter of fiscal 2006, we 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 the Company's other 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 impairment 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.

Operating profit / (Loss):  Operating profit for the fiscal year ended September
28,  2007,  was $34.4  million,  an increase of $38.5  million as compared to an
operating loss of $4.1 million  reported for the fiscal year ended September 29,
2006.  Operating profit (loss) increased as a percentage of revenues to 8.6% for
the fiscal year ended  September 28, 2007, from (1.1)% for the fiscal year ended
September 29, 2006, as a result of the factors discussed above.

Interest expense: Interest expense for the fiscal year ended September 28, 2007,
was $29.4  million,  decreasing  0.3% from the $29.5  million  reported  for the
fiscal year ended  September  29, 2006.  The decrease is  attributable  to lower
average  borrowings  outstanding  offset by higher interest  rates.  The average
interest  rate in effect  during fiscal year 2007 and fiscal year 2006 was 11.4%
and 9.1%,  respectively.  In addition, we recorded amortization of deferred debt
issuance  costs of $1.3  million in fiscal year 2007 and $4.2  million in fiscal
year 2006.  The  decrease  in the  amortization  of  deferred  debt  issuance is
primarily due to the $1.3 million write-off of the unamortized  balance, as well
as $1.3 million of amendment fees that were incurred,  prior to our  refinancing
our credit facility in March 2006.

Other (income) expense:  Other (income) for fiscal year 2007 was $(0.2) million,
representing (0.1)% of revenues.  Other (income) for fiscal year 2006 was $(0.9)
million,  representing  (0.2)% of revenues.  These amounts primarily reflect the
foreign currency transaction  gains/losses.

                                       27

Income tax expense / benefit:  Income tax  benefit for each of the fiscal  years
ended  September  28,  2007 and  September  29,  2006 was $0.2  million and $2.2
million, respectively, and reflects effective income tax rates of 3.1% and 6.9%,
respectively. The effective rates in fiscal year 2007 and 2006 are substantially
below statutory  rates primarily due to the changes in our valuation  allowances
($2.5 million decrease in fiscal 2007 and $10.2 million increase in fiscal 2006)
related  to the net  operating  loss  and tax  credit  carryforwards  and  other
deferred tax assets.

Net income / loss: Net income for the fiscal year ended  September 28, 2007, was
$5.3  million,  an increase of $35.7 million from the $30.4 million loss for the
fiscal year ended  September  29,  2006,  as a result of the  factors  discussed
above.  Net income (loss) as a percentage of net revenues was 1.3% versus (8.3)%
in the prior year.

Diluted  income / (loss)  per common  share was $0.28 for the fiscal  year ended
September 28, 2007,  compared to $(1.65) for the fiscal year ended September 29,
2006.

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 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

                                       28

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 of 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.

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, as well as $1.3 million of amendment fees that were incurred,  prior to
our refinancing our credit facility in March 2006.

                                       29

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 each of 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.

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 $16.6 million
and net working  capital  totaled $55.5 million at September 28, 2007.  Cash and
temporary  investments  totaled  $22.8 million and net working  capital  totaled
$54.3 million at September 29, 2006.

Our net cash  provided by operating  activities  totaled  $23.9  million for the
fiscal year ended  September  28, 2007  compared to $41.2 million for the fiscal
year ended  September  29,  2006 and $29.7  million  for the  fiscal  year ended
September 30, 2005.  Our cash provided by operating  activities  decreased  from
fiscal year 2006 to fiscal year 2007  primarily due to our increased  investment
in inventory and accounts  receivable  due to higher raw material and production
costs and  increased  revenues  in fiscal  2007 as compared to the impact of the
decreased  investment in working  capital in fiscal 2006 from that maintained in
fiscal 2005.  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.

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.  Capital  expenditures  were $9.8
million,  $12.6  million and $12.4  million for the fiscal years 2007,  2006 and
2005,  respectively.  Proceeds on the sale of property  plant and equipment were
$0.3 million,  $8.1 million and $1.1 million in fiscal year 2007, 2006 and 2005,
respectively.  During  fiscal year 2006,  we sold our Kenosha  facility for $5.0
million and sold two of our brands for $1.8 million.

Net cash used in financing activities was $21.0 million for fiscal year 2007 and
$27.8  million for fiscal year 2006 and $9.2  million for fiscal year 2005.  The
$21.0  million  of cash used in  fiscal  2007 is  primarily  a result of a $20.5
million  principal payment on our long-term debt. 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.

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

                                       30

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 replaced 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).  In fiscal  year  2006,  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 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 had 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  28,  2007.  Interest is
calculated  based on the contractual  loan maturity at the interest rate (11.4%)
in effect at September 28, 2007 (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                                $ 241,963    $   1,963      $     -    $ 240,000     $       -

   Interest payments                               100,068       27,393       59,394       13,281             -
   Operating leases                                  3,208        1,130        1,889          189             -
   Supply agreement                                  2,618        1,218        1,400            -             -
   Unconditional durum wheat and semolina
         purchase obligations                       71,625       67,625        2,000        2,000             -
                                                 ---------    ---------     --------    ---------     ---------

   Total contractual cash obligations            $ 419,482    $  99,329     $ 64,683    $ 255,470     $       -
                                                 =========    =========     ========    =========     =========


We were in compliance with the restrictive covenants as of September 28, 2007.

                                       31

Impact of Recent Accounting Pronouncements

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,  in
fiscal years ended September 28, 2007 and 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

                                       32

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.

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 28, 2007, 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 2007, 2006 and 2005, 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 11.4%
in fiscal year 2007.  If interest  rates had been 100 basis points  higher,  our
annual interest expense would have increased $1.5 million,  assuming  comparable
borrowing levels during the year.

The functional  currency for our Italy  operations is the Euro. At September 28,
2007,  we had a net  investment in our Italy  operations  of (euro)26.0  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 28, 2007
or September 29, 2006.

Our net annual transactional  exposure is approximately  (euro)4.6 million ($6.1
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
28, 2007.

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.

                                       33

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                            35

Report of Independent  Registered  Public  Accounting  Firm on
        the Consolidated Financial Statements                                 36

Consolidated Balance Sheets at September 28, 2007 and September 29, 2006      37

Consolidated  Statements of Operations  for the years ended
        September 28, 2007, September 29, 2006 and September 30, 2005         38

Consolidated  Statements of  Stockholders'  Equity for the years
        ended September 28, 2007, September 29, 2006 and September 30,
        2005                                                                  39

Consolidated  Statements of  Comprehensive  Income for the
        years ended September 28, 2007, September 29, 2006 and
        September 30, 2005                                                    40

Consolidated  Statements  of Cash Flows for the years ended
        September 28, 2007, September 29, 2006 and September 30, 2005         41


Notes to Consolidated Financial Statements                                    43

Schedule II Valuation and Qualifying Accounts                                 95

                                       34

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
American Italian Pasta Company

     We have audited  American  Italian Pasta  Company's (the Company)  internal
control over  financial  reporting as of September  28, 2007,  based on criteria
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring  Organizations  of  the  Treadway  Commission  (the  COSO  criteria).
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). Those standards require that
we plan and  perform  the audit to obtain  reasonable  assurance  about  whether
effective  internal  control over  financial  reporting  was  maintained  in all
material  respects.  Our audit included  obtaining an  understanding of internal
control over financial  reporting,  assessing the risk that a material  weakness
exists,  testing  and  evaluating  the design  and  operating  effectiveness  of
internal  control  based  on  the  assessed  risk,  and  performing  such  other
procedures as we considered necessary in the circumstances.  We believe that our
audit provides a reasonable basis for our opinion.

     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.

     A material  weakness is a deficiency,  or 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
following  material  weakness have been  identified and included in management's
assessment. Management has identified material weaknesses in controls related to
the  Company's  policies  and  procedures,  application  of  Generally  Accepted
Accounting Principles (GAAP), financial statement close process,  internal audit
function  and  disclosures  required by GAAP.  These  material  weaknesses  were
considered in determining the nature,  timing, and extent of audit tests applied
in our audit of the fiscal year 2007 financial statements,  and this report does
not affect our report dated June 27, 2008 on those financial statements.

     In our opinion,  because of the effect of the material weaknesses described
above on the  achievement  of the objectives of the control  criteria,  American
Italian  Pasta  Company  has not  maintained  effective  internal  control  over
financial reporting as of September 28, 2007, based on the COSO criteria.


                                       /s/ Ernst & Young LLP
Kansas City, Missouri
June 27, 2008

                                       35

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 28, 2007 and September 29,
2006,  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  28,  2007.  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  28, 2007 and  September  29, 2006,  and the
consolidated  results of its operations and its cash flows for each of the three
years in the period ended September 28, 2007, 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.

      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   28,   2007,    based   on   criteria    established    in   Internal
Control--Integrated   Framework   issued   by  the   Committee   of   Sponsoring
Organizations  of the  Treadway  Commission  and our report dated June 27, 2008,
expressed an adverse opinion thereon.


                                       /s/ Ernst & Young LLP

Kansas City, Missouri
June 27, 2008

                                       36

                         AMERICAN ITALIAN PASTA COMPANY
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)

                                                                                     September 28, 2007    September 29, 2006
                                                                                     ------------------    ------------------
           ASSETS
           Current assets:
                Cash and temporary investments                                              $ 16,635              $ 22,805
                Trade and other receivables, net                                              38,279                32,706
                Inventories                                                                   44,443                40,638
                Prepaid expenses and other current assets                                      7,629                 6,389
                Deferred income taxes                                                          2,381                 1,156
                                                                                            --------              --------
           Total current assets                                                              109,367               103,694
           Property, plant and equipment, net                                                316,109               324,464
           Brands and trademarks                                                              83,282                82,772
           Other assets                                                                       19,205                21,039
                                                                                            --------              --------
           Total assets                                                                     $527,963              $531,969
                                                                                            ========              ========
           LIABILITIES AND STOCKHOLDERS' EQUITY
           Current liabilities:
                Accounts payable                                                            $ 19,195              $ 18,555
                Accrued expenses                                                              31,523                28,258
                Current portion of deferred revenues                                              99                    99
                Income taxes payable                                                           1,082                   715
                Current maturities of long-term debt                                           1,963                 1,782
                                                                                            --------              --------
           Total current liabilities                                                          53,862                49,409
           Long-term debt, less current maturities                                           240,000               260,500
           Deferred income taxes                                                              35,286                34,728
           Litigation settlement                                                              26,500                26,500
           Deferred revenue, less current portion                                                397                   496
                                                                                            --------              --------
           Total liabilities                                                                 356,045               371,633
           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 - 20,832,627 and 18,674,628,
                         respectively, at September 28, 2007; 20,779,204 and
                         18,640,660, respectively, at September 29, 2006
                Class B common stock, par value $.001
                    Authorized shares - 25,000,000                                                 -                     -
                    Issued and outstanding - none
                Additional paid-in capital                                                   247,492               245,623
                Treasury stock, 2,157,999 shares in 2007 and                                (52,029)              (51,857)
                    2,138,544 shares in 2006, at cost
                Accumulated other comprehensive income                                        15,352                10,815
                Accumulated deficit                                                         (38,918)              (44,266)
                                                                                            --------              --------
           Total stockholders' equity                                                        171,918               160,336
                                                                                            --------              --------
           Total liabilities and stockholders' equity                                       $527,963              $531,969
                                                                                            ========              ========

          See accompanying notes to consolidated financial statements.

                                       37

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

                                                                    Year Ended              Year Ended              Year Ended
                                                                September 28, 2007      September 29, 2006      September 30, 2005
                                                                ------------------      ------------------      ------------------

     Revenues                                                          $ 398,122               $ 367,023              $  364,159
     Cost of goods sold                                                  308,819                 284,777                 300,151
                                                                       ---------               ---------              ----------
     Gross profit                                                         89,303                  82,246                  64,008

     Selling and marketing expense                                        21,503                  22,871                  20,342
     General and administrative expense                                   33,548                  35,459                  23,198
     Litigation settlement                                                     -                       -                  14,000
     Impairment charges to brands and trademarks                               -                     998                  88,550
     Loss on disposition of brands and trademarks                              -                   4,708                       -
     (Gains) losses related to long-lived assets                           (109)                  22,268                   9,759
     Recovery from restructuring expense                                       -                       -                   (554)
                                                                       ---------               ---------              ----------
     Operating profit (loss)                                              34,361                 (4,058)                (91,287)
     Interest expense, net                                                29,421                  29,509                  16,234
     Other (income) expense, net                                           (245)                   (913)                 (3,544)
                                                                       ---------               ---------              ----------

     Income (loss) before income taxes                                     5,185                (32,654)               (103,977)
     Income tax provision (benefit)                                        (163)                 (2,241)                 (3,730)
                                                                       ---------               ---------              ----------
     Net income (loss)                                                 $   5,348               $(30,413)              $(100,247)
                                                                       =========               =========              ==========


     Net income (loss) per common share (basic)                        $    0.29               $  (1.65)               $  (5.49)

     Weighted-average common shares outstanding                           18,673                  18,386                  18,247
                                                                       =========               =========               =========

     Net income (loss) per common share
     (assuming dilution)                                               $    0.28               $  (1.65)               $  (5.49)

     Weighted-average common shares outstanding
     (including dilutive securities)                                      18,951                  18,386                  18,247
                                                                       =========               =========               =========

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

          See accompanying notes to consolidated financial statements.

                                       38

                         AMERICAN ITALIAN PASTA COMPANY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)
                                                                         Year Ended             Year Ended            Year Ended
                                                                     September 28, 2007     September 29, 2006    September 30, 2005
                                                                     ------------------     ------------------    ------------------
Class A Common Shares
     Balance, beginning of year                                               20,779                 20,567                20,234
     Issuance of shares of common stock                                           54                    212                   333
                                                                           ---------             ----------              ---------
     Balance, end of year                                                     20,833                 20,779                20,567
                                                                           =========             ==========              ========

Class A Common Shares - par value
     Balance, beginning of year                                            $      21              $      21              $     20
     Issuance of shares of common stock                                            -                      -                     1
                                                                           ---------             ----------              --------
     Balance, end of year                                                  $      21              $      21              $     21
                                                                           =========              =========              ========

Additional Paid-in Capital
     Balance, beginning of year                                            $ 245,623              $ 243,708             $  240,249
     Reclassification of unearned compensation upon adoption of SFAS
     No. 123R                                                                      -                  (738)                      -
     Cancellation of shares of restricted stock                                    -                      -                  (100)
     Issuance of shares of common stock                                            -                      -                  3,953
     Re-measurement of restricted stock                                            -                      -                (1,222)
     Issuance and termination of compensatory stock options                        -                      -                   (63)
     Stock based compensation                                                  1,869                  2,653                    891
                                                                           ---------              ---------              ---------
     Balance, end of year                                                  $ 247,492              $ 245,623              $ 243,708
                                                                           =========              =========              =========

Treasury Stock, at cost
     Balance, beginning of year                                            $(51,857)              $(51,817)              $(51,657)
     Purchases of treasury stock                                               (172)                   (40)                  (160)
                                                                           ---------              ---------              ---------
     Balance, end of year                                                  $(52,029)              $(51,857)              $(51,817)
                                                                           =========              =========              =========

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

Accumulated Other Comprehensive Income
     Foreign currency translation adjustment:
     Balance, beginning of year                                            $  10,815              $   8,705              $  10,043
     Change during the period                                                  4,537                  2,110                (1,338)
                                                                           ---------              ---------              ---------
     Balance, end of year                                                  $  15,352              $  10,815              $   8,705
                                                                           =========              =========              =========

Retained Earnings (Deficit)
     Balance, beginning of year                                            $(44,266)              $(13,853)              $  96,697
     Net income (loss)                                                         5,348               (30,413)              (100,247)
     Dividends declared                                                            -                      -               (10,303)
                                                                           ---------              ---------              ---------
     Balance, end of year                                                  $(38,918)              $(44,266)              $(13,853)
                                                                           =========              =========              =========

Total Stockholders' Equity                                                 $ 171,918              $ 160,336              $ 186,026
                                                                           =========              =========              =========
          See accompanying notes to consolidated financial statements.

                                       39

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

                                                                         Year Ended             Year Ended            Year Ended
                                                                     September 28, 2007     September 29, 2006    September 30, 2005
                                                                     ------------------     ------------------    ------------------


     Net income (loss)                                                    $   5,348              $ (30,413)            $(100,247)


     Other comprehensive income (loss):

             Foreign currency translation adjustments                         4,537                  2,110                (1,338)
                                                                          ---------              ---------              ---------


     Comprehensive income (loss)                                          $   9,885              $(28,303)             $(101,585)
                                                                          =========              =========             ==========

          See accompanying notes to consolidated financial statements.

                                       40

                         AMERICAN ITALIAN PASTA COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                                                   Year Ended             Year Ended            Year Ended
                                                               September 28, 2007     September 29, 2006    September 30, 2005
                                                               ------------------     ------------------    ------------------

OPERATING ACTIVITIES:
Net income (loss)                                                     $   5,348             $ (30,413)          $ (100,247)
Adjustments to reconcile net income (loss) to net cash
       provided by operations:
       Depreciation and amortization                                     23,409                 24,895               25,132
       Amortization of deferred financing fees                            1,265                  4,216                2,051
       Non cash litigation settlement                                         -                      -               14,000
       Impairment charges to brands and trademarks                            -                    998               88,550
       Loss on disposition of brands and trademarks                           -                  4,708                    -
       (Gains) losses related to long-lived assets                        (109)                 22,268                9,759
       Losses related to disposition of spare parts                           -                      -                1,223
       Provision for (recovery of) doubtful accounts                        163                  (127)                1,806
       Provision for inventory obsolescence                                 788                  1,420               12,155
       Stock-based compensation expense                                   1,869                  2,653                1,242
       Deferred income tax expense (benefit)                              (667)                (2,410)              (4,452)
       Gains related to interest rate swap transactions                       -                  (104)              (1,671)
       (Gains) losses related to euro debt borrowing                          -                    981              (3,640)
       Changes in operating assets and liabilities:
           Trade and other receivables                                  (5,372)                  1,742                4,392
           Inventories                                                  (4,182)                  4,282              (2,338)
           Prepaid expenses and other current assets                    (1,203)                  2,079                  586
           Accounts payable and accrued expenses                          2,839                  5,244             (19,303)
           Income taxes                                                     306                  (612)                1,126

           Other                                                          (545)                  (628)                (686)
                                                                      ----------            ----------           ----------
Net cash provided by operating activities                                23,909                 41,192               29,685

INVESTING ACTIVITIES:
Additions to property, plant and equipment                              (9,836)               (12,577)             (12,379)
Proceeds from disposal of pasta brands                                        -                  1,775                    -
Proceeds from disposal of property, plant and equipment                     356                  8,122                1,107
                                                                      ----------            ----------           ----------
Net cash used in investing activities                                   (9,480)                (2,680)             (11,272)

FINANCING ACTIVITIES:
Proceeds from issuance of debt                                                -               265,000                79,962
Principal payments on debt                                             (20,500)             (285,351)              (80,760)
Dividends declared and paid                                                   -                     -              (10,303)
Proceeds from issuance of common stock net of issuance costs                  -                     -                 3,719
Purchase of treasury stock                                                (172)                   (40)                (160)
Deferred financing costs                                                  (308)                (7,369)              (1,677)
                                                                      ----------            ----------           ----------
Net cash used in financing activities                                  (20,980)               (27,760)              (9,219)
Effect of exchange rate changes on cash                                     381                    142                    5
                                                                      ----------            ----------           ----------
Net increase (decrease) in cash and temporary investments               (6,170)                 10,894                9,199
Cash and temporary investments, beginning of year                        22,805                 11,911                2,712
                                                                      ----------            ----------           ----------
Cash and temporary investments, end of year                           $  16,635            $    22,805           $   11,911
                                                                      ==========            ==========           ==========

                                       41

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest                                                 $  28,151            $  22,551            $   13,019
                                                                       =========            =========            ==========
Cash paid for income taxes                                             $     165            $     694            $      378
                                                                       =========            =========            ==========
Cash received from income taxes                                        $      91            $       -            $    2,105
                                                                       =========            =========            ==========
Accrual for common stock to be issued in litigation settlement         $       -                    -            $   14,000
                                                                       =========            =========            ==========

          See accompanying notes to consolidated financial statements.

                                       42

                         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  28, 2007
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 2007, 2006 and 2005 were 52 weeks and ended
September 28, 2007, September 29, 2006 and September 30, 2005.

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 net foreign currency transaction gains of $0.1
million,  $0.9  million and $3.5  million  for fiscal year 2007,  2006 and 2005,
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  28, 2007 and  September  29,  2006 was  $1,870,000  and
$1,989,000,  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  2007,  2006 and 2005,  bad debt  expense  (recovery)  was
$163,000,  $(127,000) and  $1,806,000,  respectively.  At September 28, 2007 and
September 29, 2006, 21% and 23%,  respectively,  of trade and other  receivables
were due from two customers.

                                       43

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 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  28, 2007 and  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 28, 2007 and 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  28,  2007  and  September  29,  2006,  the  Company  did not have any
long-term  debt  obligations  in Euros.  At September 30, 2005,  long-term  debt
included  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 fiscal 2005 consolidated statement 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 28, 2007 and September 29,
2006, approximates fair value.

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.

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

                                       44

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 28, 2007 and September 29, 2006, the reserve
was $1.1 million and $1.3 million, respectively.

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 impairment 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  (which were paid in the second
quarter of fiscal year 2008) 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.

Share-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 years 2006 and 2007 includes  each year's  portion of 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.

                                       45

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.  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,  share-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 share-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 share-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  $2,315,000  in fiscal year 2007,  $3,743,000 in fiscal year 2006 and
$3,294,000 in fiscal year 2005.

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 278,000 dilutive securities
consisting of options and stock appreciation  rights included in the calculation
of diluted  weighted  average common shares for fiscal year 2007.  There were no
dilutive securities in fiscal years 2006 and 2005. See Note 15.

Antidilutive shares comprised of stock options and stock appreciation rights for
fiscal  year  2007  were  940,163  with  prices  ranging  from  $12.23 - $43.32.
Antidilutive shares comprised of stock options and stock appreciation rights

                                       46

for fiscal year 2006 were  1,125,345  with prices  ranging  from $8.05 - $43.32.
Antidilutive  shares for fiscal year 2005 were  1,714,054,  with prices  ranging
from $21.88 - $43.32.

Impact of Recent  Accounting  Pronouncements  - 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.

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

                                       47

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.  The
effect of the change was to  increase  (decrease)  net  income by  $131,000  and
$(118,000)  for  fiscal  years  2006 and  2005,  respectively.  The  retroactive
application to beginning  retained earnings as of October 2, 2004, the first day
of fiscal year 2005,  was a decrease  of  $798,000.  The effect on earnings  per
share  assuming  dilution  was $0.01 and $(0.01) for fiscal years 2006 and 2005,
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  year 2005,  the Company  recorded  $554,000 of income due to the
restructuring.  The 2005  income  results  from a  reduction  in the total costs
originally  provided in fiscal year 2004 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.
There was no remaining  liability related to this  restructuring and rightsizing
program at September 28, 2007 or September 29, 2006.

6.  INVENTORIES

Inventories consist of the following (in thousands):



                                                                   September 28, 2007      September 29, 2006
                                                                   ------------------      ------------------

   Finished goods                                                         $ 30,713            $   29,373
   Raw materials, additives, packaging materials and work-in-process        14,373                12,764
   Reserves for slow-moving, damaged and discontinued inventory              (643)               (1,499)
                                                                        ----------            ----------
                                                                        $   44,443            $   40,638
                                                                        ==========            ==========



7. PROPERTY, PLANT AND EQUIPMENT

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

                                       48

                                                                   September 28, 2007      September 29, 2006
                                                                   ------------------      ------------------

   Land and improvements                                                $   11,867             $  11,603
     Buildings                                                             112,434               108,722
   Plant and mill equipment                                                348,617               337,866
   Furniture, fixtures and equipment                                        30,848                27,118
                                                                        ----------            ----------
                                                                           503,766               485,309
   Accumulated depreciation                                              (199,369)             (176,782)
                                                                        ----------            ----------
                                                                           304,397               308,527
   Spare parts, net of reserve                                               8,154                 7,824
   Construction in progress                                                  3,558                 8,113
                                                                        ----------            ----------
                                                                        $  316,109            $  324,464
                                                                        ==========            ==========

The Company  capitalizes  interest costs  associated with the  construction  and
installation  of property,  plant and  equipment.  During the fiscal years ended
September  28,  2007,  September  29, 2006 and  September  30,  2005,  $789,000,
$489,000 and $584,000, respectively, of interest cost was capitalized.

Depreciation  expense for the fiscal years ended  September 28, 2007,  September
29, 2006 and September 30, 2005, was  $21,758,000,  $22,472,000 and $22,882,000,
respectively. Plant and mill equipment, at cost, includes the write-down to fair
value due to impairment  amounting to $3,966,000 and $5,245,000 at September 28,
2007 and  September  29,  2006,  respectively,  related  to  impairment  charges
recorded in years prior to fiscal  2007.  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 during fiscal year 2007.

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 the Company's other 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  $43,836,000  and  $41,638,000  at  September  28, 2007 and
September 29, 2006, respectively.

8.  OTHER ASSETS

Other assets consist of the following (in thousands):
                                                                   September 28, 2007      September 29, 2006
                                                                   ------------------      ------------------

Package design costs                                                    $   12,713            $   11,488
Deferred debt issuance costs                                                 6,406                 6,098
Insurance settlement                                                        12,500                12,500
Other                                                                        1,173                 1,692
                                                                        ----------            ----------
                                                                            32,792                31,778
Accumulated amortization                                                  (13,587)              (10,739)
                                                                        ----------            ----------
                                                                        $   19,205            $   21,039
                                                                        ==========            ==========


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 $2,079,000 and $2,418,000 at September 28, 2007
and September 29, 2006,  respectively.  Annual  amortization  of package  design
costs is estimated to be $1,186,000,  $586,000 and $307,000 in fiscal year 2008,
2009 and 2010, 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 28,

                                       49

2007 and September 29, 2006, were $4,484,000 and $5,441,000,  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.

9.  ACQUISITIONS - BRANDS AND TRADEMARKS

In accordance with SFAS No. 142,  "Goodwill and Other  Intangible  Assets",  the
Company  assigned an indefinite  life to trademarks and brand names,  previously
acquired  by the  Company,  and  accordingly,  records no  amortization  expense
related to these assets.  The  trademarks and brand names are the Company's only
intangible assets.

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  unamortized  non-compete  agreement
obtained in connection with this brand acquisition.

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.

The  Company  performed  its fiscal  year 2007  annual  review of its brands and
trademarks  based on the fiscal year 2008  business  plan and  forecasts,  which
indicated no brand impairment in fiscal year 2007.

10.  ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

                                     September 28, 2007       September 29, 2006
                                     ------------------       ------------------

       Accrued promotional costs           $  10,389                $  9,370
       Accrued interest expense                3,969                   4,479
       Accrued bonus expense                   5,290                   3,216
       Other accrued expenses                 11,875                  11,193
                                           ---------                --------
                                           $  31,523                $ 28,258
                                           =========                ========


11.  LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

                                       50

                                                     September 28, 2007       September 29, 2006
                                                     ------------------       ------------------

       Borrowings under U.S. credit facility            $    240,000             $    260,500
       Borrowings under Italian credit facility                1,963                    1,782
                                                        ------------             ------------
                                                             241,963                  262,282
       Less current portion                                    1,963                    1,782
                                                        ------------             ------------
                                                        $    240,000             $    260,500
                                                        ============             ============

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
in fiscal  year 2006 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.  As of September 28,
2007 and  September  29,  2006,  the  Company  had an  Italian  credit  facility
providing   for   available   borrowing  of  $7.0  million  and  $6.4   million,
respectively. The Italian credit facility is secured by Italian receivables. The
interest rates in effect at September 28, 2007 and September 29, 2006 were 11.4%
and 11.3%,  respectively,  on the U.S.  credit  facility.  The interest rates in
effect  at  September  28,  2007 and  September  29,  2006  were  5.1% and 3.7%,
respectively, on the Italian credit facility.

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.  The  Company  was in  compliance  with its  restrictive
covenants  under the credit  facility at September  28, 2007 and  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.

The Company  also has  outstanding  letters of credit  that total  approximately
$2,456,000  and  $1,531,000  at  September  28,  2007 and  September  29,  2006,
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):

        2008            $   1,963
        2009                    -
        2010                    -
        2011              240,000
        2012                    -
                        ---------
                        $ 241,963
                        =========

                                       51

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
$2,959,000,  $2,628,000  and  $1,043,000  in fiscal  years 2007,  2006 and 2005,
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 28, 2007       September 29, 2006        September 30, 2005
                                             ------------------       ------------------        ------------------

Current income tax expense (benefit):
     U.S.                                          $   452                    $    89                   $   581
     Foreign                                            52                         80                       141
                                                   -------                    -------                   -------
                                                       504                        169                       722
                                                   -------                    -------                   -------

Deferred income tax expense (benefit):
     U.S.                                            (722)                    (2,719)                   (4,655)
     Foreign                                            55                        309                       203
                                                   -------                    -------                   -------
                                                     (667)                    (2,410)                   (4,452)
                                                   -------                    -------                   -------

Net income tax expense (benefit)                   $ (163)                   $(2,241)                  $(3,730)
                                                   =======                   ========                  ========

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 28, 2007      September 29, 2006
                                                    ------------------      ------------------

Deferred tax assets:
      Net operating loss carryforwards                $     42,018               $   46,309
      Tax credit carryforwards                              15,226                   15,127
      Inventory valuation                                    1,088                    1,274
      Stock-based compensation                               2,934                    2,456
      Intangible assets                                      8,277                   12,536
      Accounts receivable valuation                          2,330                    2,399
      Prepaid expenses and other current assets              2,357                      509
      Other                                                  5,184                    5,085
                                                      ------------               ----------
                                                            79,414                   85,695
      Valuation allowance                                 (49,759)                 (52,333)
                                                      ------------               ----------
Total deferred tax assets                                   29,655                   33,362
                                                      ------------               ----------

Deferred tax liabilities:
         Tangible assets                                    62,560                   66,934
                                                      ------------               ----------
Net deferred tax liabilities                          $     32,905               $   33,572
                                                      ============               ==========


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

                                       52

                             Year ended              Year ended             Year ended
                         September 28, 2007      September 29, 2006     September 30, 2005
                         ------------------      ------------------     ------------------

           Domestic         $     5,666              $ (31,565)             $ (104,883)
           Foreign                (481)                 (1,089)                     906
                            -----------              ----------             -----------
                            $     5,185              $ (32,654)             $ (103,977)
                            ===========              ==========             ===========


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 28, 2007    September 29, 2006     September 30, 2005
                                               ------------------    ------------------     ------------------

Income / (loss) before income taxes                   $  5,185          $   (32,654)             $ (103,977)
U.S. statutory tax rate                                  X 35%                 X 35%                   X 35%
                                                      --------          ------------             -----------
Federal income tax expense / (benefit) at
U.S. statutory rate                                      1,815              (11,429)                (36,392)
State income tax expense / (benefit),
  net of federal tax effect                                (5)                 (969)                 (2,251)
Foreign tax rate differential                              365                 (173)                    (71)
Change in valuation allowance                          (2,574)                10,237                  34,756
Tax credits                                                  -                  (62)                    (36)
Other, net                                                 236                   155                     264
                                                      --------          ------------             -----------
Total income tax expense / (benefit)                  $  (163)          $    (2,241)             $    (3,730)
                                                      ========          ============             ============


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. There are no such stock option deductions recorded
in fiscal years 2007 and 2006.

The Company had federal net operating  loss  carryforwards  of  $103,553,000  at
September 28, 2007, expiring in 2024 through 2027, and $115,586,000 at September
29, 2006,  expiring in 2024 and 2026.  A partial  valuation  allowance  has been
established against the federal net operating loss carryforward at September 28,
2007 and  September  29, 2006 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  28, 2007 and
September 29, 2006. The Company only considered  taxable income to the extent of
reversals of net temporary differences in existence as of September 28, 2007 and
September 29, 2006.

The Company had various state net operating loss  carryforwards  of $160,903,000
at September 28, 2007 and  $170,296,000 at September 29, 2006, that have various
expiration dates from 2008 to 2027. 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 28, 2007 and September 29, 2006, as the Company does not believe it is
more likely than not that they will be utilized prior to expiration.

The Company had AMT credit  carryforwards  of  $10,376,000  and  $10,277,000  at
September  28, 2007 and  September  29, 2006,  respectively,  with no expiration
date. A partial valuation  allowance has been established  against these credits
at September  28, 2007 and September 29, 2006 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  28, 2007 and
September 29, 2006. The Company only considered  taxable income to the extent of
reversals of net temporary differences in existence as of September 28, 2007 and
September 29, 2006.

The  Company  had  general  business  credit  carryforwards  of $705,000 at both
September 28, 2007 and September 29, 2006,  with various  expiration  dates from
2013 to 2023. A full  valuation  allowance  has been  established  against these
credits as of September  28, 2007 and September 29, 2006 as the Company does not
believe it is more likely than not

                                       53

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 28, 2007 and September 29, 2006 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 28, 2007 and  September 29, 2006,  the Company had state tax credit
carryforwards  of  $4,145,000  that have varying  expiration  dates from 2011 to
2020. 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 28, 2007.

14.  COMMITMENTS AND CONTINGENCIES

Purchase and Supply Agreements:

The  Company  had  durum  wheat  and  semolina  purchase   commitments  totaling
approximately  $72.6  million  and  $30.0  million  at  September  28,  2007 and
September 29, 2006, 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 28, 2007.

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 2007, 2006 and 2005. 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 28, 2007,
the  Company's  future  minimum  rental  payments  due under the  non-cancelable
operating lease agreements consist of the following (in thousands):



                                    2008             $ 1,130
                                    2009               1,104
                                    2010                 785
                                    2011                 188
                                    2012                   1
                                 Thereafter                -
                                                     -------
                                                     $ 3,208
                                                     =======


Rent  expense  was  approximately  $1.2  million  for fiscal  year 2007 and $1.1
million for each of the fiscal years 2006 and 2005.

                                       54

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 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

                                       55

     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.

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.

                                       56

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, Restricted Stock and Warrants.

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  share-based  compensation  expense  for stock
options and stock  appreciation  rights under SFAS No. 123R for fiscal year 2007
and 2006 and  present  the pro forma  information  under SFAS No. 123 for fiscal
year 2005 are as follows:


                                            Risk-Free     Dividend                 Expected Life     Black Scholes
                                          Interest Rate     Yield     Volatility      (years)           Values
                                          ---------------------------------------------------------------------------
   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
   Fiscal Year 2007 Weighted Average          4.65%         0.0%         39.2%          4.4             $ 3.56





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

                                       57

                                                                                           Weighted
                                                                                            Average
                                                                                           Remaining
                                                                        Weighted          Contractual
                                                     Number of          Average              Term
                                                       Shares        Exercise Price       (in years)
                                                       ------        --------------       ----------

           Outstanding at September 29, 2006          1,094,630           $30.16
                Exercised                                     -                -
                Granted                                       -                -
                Cancelled/Expired                     (154,466)           $29.98
                                                      ---------
           Outstanding at September 28, 2007            940,164           $30.19                4.3
                                                      =========

           Vested or expected to vest at                930,664           $30.20                4.3
           September 28, 2007

           Exercisable at September 28, 2007            865,949           $30.28                4.1


There is no aggregate  intrinsic  value for any options  outstanding,  vested or
expected to vest,  or  exercisable  at September 28, 2007 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
2007 and  fiscal  year 2006 as no  options  were  issued  during  the year.  The
weighted-average grant date fair value of options granted during the fiscal year
2005 was $7.99.  There was no  intrinsic  value of stock  options  exercised  in
fiscal year 2007 and 2006 as no stock options were exercised during those years.
The total intrinsic value of stock options exercised in the fiscal year 2005 was
$4,630,000.  No cash was  received in fiscal  2007 and 2006 as no stock  options
were exercised  during those years.  The Company recorded cash received from the
exercise of stock options of $3,550,000 in the fiscal year 2005.

The total fair value of options that vested  during the fiscal years 2007,  2006
and 2005 was $1.4 million, $1.9 million, and $5.6 million, respectively.

The following table summarizes  outstanding and exercisable options at September
28, 2007:

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

$   12.23-18.50         134,736        1.5           $ 18.24           134,736              1.5        $ 18.24
$   19.70-24.38          58,550        1.7           $ 22.43            55,700              1.4        $ 22.49
$   25.00-28.68         240,297        4.5           $ 26.36           213,457              4.2        $ 26.24
$   28.90-36.00         130,400        6.1           $ 30.40            94,475              5.8        $ 30.95
$   36.81-43.32         376,181        5.0           $ 38.05           367,581              5.0        $ 38.05

Under SFAS No. 123R,  the Company  recognized  compensation  expense  related to
stock  option  awards  of  $972,000  and  $1,797,000  in  fiscal  2007 and 2006,
respectively.

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 in fiscal year 2005.  The Company has
recognized  expense  related to other stock  awards of  $200,000,  $140,000  and
$160,000 in fiscal years 2007, 2006 and 2005, respectively.

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

                                       58

                                                                                                           Weighted
                                                                                                           Average
                                                                        Weighted         Aggregate        Remaining
                                                     Number of          Average          Intrinsic     Contractual Term
                                                      Shares         Exercise Price        Value          (in years)
                                                      ------         --------------        -----          ----------

           Outstanding at September 29, 2006            789,615          $5.66
                Exercised                                     -              -
                Granted                                 526,944          $8.96
                Cancelled/Expired                      (85,776)          $6.63
                                                     ----------
           Outstanding at September 28, 2007          1,230,783          $7.00          $ 1,894,000           5.8
                                                     ==========

           Vested or expected to vest                 1,085,729          $6.99          $ 1,684,000           5.8

           Exercisable                                   97,552          $5.70          $   248,000           5.5



The following table summarizes  outstanding and exercisable  stock  appreciation
rights at September 28 2007:



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

$ 5.50- 8.40            748,184           5.5        $ 5.71             97,552             5.5         $5.70
$ 7.47- 9.02            482,599           6.3        $ 9.01                  -               -         $   -


The weighted average fair value for stock appreciation  rights granted was $3.56
and $1.69 for the fiscal years ended September 28, 2007 and September 29, 2006.

As of September  28, 2007,  the Company had  $2,152,000  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 2.80
years.

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.
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):

                                                             September 30, 2005
                                                             ------------------

     Net income (loss) as reported                                $ (100,247)
     Total stock based compensation expense
        included in net income, net of related tax effects              1,242
     Deduct stock based compensation expense
        determined  under fair value based method for all
        awards, net of related tax effects                            (5,877)
                                                                  -----------

                                       59

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

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


There is no income tax effect provided above related to the actual and pro forma
compensation  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
$764,000,  $726,000  and  $706,000  for the  years  ended  September  28,  2007,
September 29, 2006 and September 30, 2005, 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 2007, 2006 and 2005 under this program.

The Company  repurchased  19,455  shares at a weighted  average  price of $8.82,
4,946 shares at a weighted average price of $7.99 and 7,902 shares at a weighted
average price of $20.27 connection with the withholding of taxes upon vesting of
restricted stock in fiscal year 2007, 2006 and 2005, 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).  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.

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

                                       60

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 28, 2007 and  September 29, 2006,  the Company
issued  76,994  and  239,682  shares of  restricted  stock to  employees  of the
Company,  respectively,  with a weighted-average  grant date values of $8.80 and
$4.25, 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 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  $697,000,  $289,000 and $351,000 in
fiscal  years 2007,  2006 and 2005,  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  statement of stockholders'  equity. In
addition,  subsequent  to fiscal 2007,  the Company  granted  154,263  shares of
restricted stock with a weighted average grant date value of $7.73. At September
28,  2007,   unrecognized   cost  related  to  restricted   stock  awards  total
approximately $1,228,000. These costs will be recognized over a weighted average
period of 2.5 years.

The Company's restricted stock activity is as follows:

                                                                              Weighted Average
                                                        Number of Shares         Grant Date
                                                        ----------------         Fair Value
                                                                                 ----------
              Outstanding at September 29, 2006             234,047              $   8.89
              Granted                                        76,994              $   8.80
              Vested                                       (42,204)              $  16.24
              Cancelled                                    (42,511)              $   7.38
                                                           --------
              Balance at September 28, 2007                 226,326              $   7.77
                                                           ========


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.

                                       61

21.  MAJOR CUSTOMERS

Sales to Wal-Mart, Inc. during the years ended September 28, 2007, September 29,
2006  and  September  30,  2005,  represented  23%,  22%  and  21% of  revenues,
respectively.  Sales to Sysco during the fiscal years ended  September 28, 2007,
September  29,  2006  and  September  30,  2005,  represented  9%,  11% and 11%,
respectively.

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):

                                       62

                                                            First             Second              Third             Fourth
2007                                                       Quarter            Quarter            Quarter            Quarter
----                                                       -------            -------            -------            -------

Revenues                                                    $ 94,105           $ 96,793           $ 97,158          $ 110,066
Cost of goods sold                                            69,818             75,098             77,441             86,462
                                                            --------           --------           --------          ---------
Gross profit                                                  24,287             21,695             19,717             23,604

Selling and marketing expense                                  4,843              5,716              4,778              6,166
General and administrative expense                             8,302              8,530              8,086              8,630
(Gains) losses related to long-lived assets                       23               (68)               (23)               (41)
                                                            --------           --------           --------          ---------
Operating profit                                              11,119              7,517              6,876              8,849
Interest expense, net                                          7,759              7,399              7,057              7,206
Other (income) expense                                          (58)               (80)               (57)               (50)
                                                            --------           --------           --------          ---------

Income (loss) before income taxes                              3,418                198              (124)              1,693
Income tax provision (benefit)                                 (133)                 22                108              (160)
                                                            --------           --------           --------          ---------
Net income (loss)                                           $  3,551           $    176           $  (232)          $   1,853
                                                            ========           ========           ========          =========
Net income (loss) per common share (basic)                  $   0.19           $   0.01           $ (0.01)          $    0.10
Net income (loss) per common share (assuming dilution)      $   0.19           $   0.01           $ (0.01)          $    0.10

     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
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.

                                       63

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

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Background

As of September 28, 2007, 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. The assessment was performed under the supervision and with
the  participation of our then Chief Executive Officer and our current principal
financial officer, who was our controller throughout the 2007 fiscal year. Based
on such  evaluation,  our  current  Chief  Executive  Officer,  who joined us on
November 6, 2007, and our principal  financial officer,  who was named our Chief
Financial  Officer in January 2008,  have concluded  that, as of the end of such
period,  that our  disclosure  controls and  procedures  were not effective as a
result of the material  weaknesses in internal control over financial  reporting
discussed below.

Not withstanding the assessment of our internal control over financial reporting
as not effective,  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.

Management  assessed the  effectiveness  of the company's  internal control over
financial  reports as of September 28, 2007 using the COSO  framework.  Based on
its assessment,  management has identified material weaknesses and has concluded
that the Company's  internal control over financial  reporting was not effective
as of September 28, 2007. 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 a result of its  continuing  efforts to  complete  the  restatement  of prior
fiscal periods,  management was unable to take necessary  corrective  actions to
remediate the following identified material weaknesses as of September 28, 2007:

                                       64

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  provide  appropriate  training  for  our  personnel,
              resulting  in  material  misapplications  of GAAP,  including  the
              primary categories of accounting for share-based  compensation and
              income taxes.

•    Financial Statement Closing Process

              The controls over the financial  statement closing process did not
              operate effectively. Due to the additional requirements associated
              with  the  Restatement,  the  Company  had not  been  able to file
              required  reports with the SEC on a timely basis,  nor had we been
              able to perform  related  internal  control  activities  including
              reconciliations and financial statement reviews on a timely basis.

•    Internal Audit

              We did not operate an adequate internal audit function.

•    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  and
              procedures  described  herein 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 GAAP.

Changes in Internal Control over Financial Reporting

We have  engaged in, and are  continuing  to engage in,  substantial  efforts to
improve our internal  control over financial  reporting and disclosure  controls
and  procedures   related  to  many  areas  of  our  financial   statements  and
disclosures.

Remediation Initiatives

In fiscal 2007,  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.

The following material  weaknesses were identified by management as of September
29, 2006,  and have had the following  remediation  during our fiscal year ended
September 28, 2007:


                                       65

•     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. However, there are still areas
              for improvement.

•     Tax Accounting

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

Since September 28, 2007, we have the following  changes to our internal control
over financial reporting:

•    Policies and Procedures

              We continue to establish 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.

•    Internal Audit

              We have added a Director of Internal Audit to our staff.

•    Disclosure Controls

              We have  established  a  disclosure  committee.  We have filed our
              consolidated  financial statements contained in our annual reports
              for the fiscal years ended  September  30, 2005 and  September 29,
              2006.

Continued Internal Control and Financial Reporting Matters

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.

                                       66

                                    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  ("Bob") 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.


                                       67

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.


                                       68

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,


                                       69

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 2007,  except for one late Form 4 filed for Mr. George
with respect to the withholding of shares for the for the payment of taxes.

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.

ITEM 11.  EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The following  discussion of executive  compensation  contains  descriptions  of
various employee benefit plans and agreements.  These descriptions are qualified
in their entirety by reference to the full text or detailed  descriptions of the
plans and agreements which are filed as exhibits to our SEC filings.

Introduction

This section  presents an overview and perspective on executive  compensation at
the Company. We discuss our compensation  philosophy and objectives and describe
the structure and process for making executive compensation  decisions.  We also
discuss the design of the major elements of our executive  compensation programs
and  provide  additional  detail on the  compensation  of our  "named  executive
officers" for 2007 as defined by SEC rules.

The SEC has delineated  certain reporting  requirements for the five most highly
compensated  executive  officers  of a  public  company.  We did not  have  five
executive  officers in 2007. Our named  executive  officers for 2007 as shown in
the Summary Compensation Table are as follows:

    Name                    Title
    ----                    -----

   James Fogarty (1)        Chief Executive Officer and President
   Walter George            Executive Vice President, Operations & Supply Chain
   Paul Geist               Executive Vice President, Chief Financial Officer
   Bob Schuller             Executive Vice President, General Counsel
   -----------------------

     (1)  Mr.  Fogarty,  as  an  employee  of  Alvarez  &  Marsal,  received  no
          compensation  from  the  Company  for his  services.  Accordingly,  no
          compensation  information is presented for Mr.  Fogarty.  See "Related
          Party  Transactions"  for a  description  of amounts paid to Alvarez &
          Marsal.  Mr.  John P.  Kelly  became  our Chief  Operating  Officer in
          November  2007 and Chief  Executive  Officer and  President in January
          2008, and received no compensation in fiscal 2007.


                                       70

American Italian Pasta Company Culture and Company-wide Compensation Philosophy

We  emphasize  pay  for  performance  throughout  the  Company  and  design  our
compensation  programs at all levels with  performance  as our primary goal. The
compensation design is not significantly different for our executives than it is
for all team  members -- each  position  is paid  competitively  relative to the
market  for  that  type of role  and  level  of  responsibility.  Here are a few
examples of how reward programs work in our Company:

     •    We are committed to building compensation programs that compensate our
          team  members in a fair and  equitable  fashion and bring  stockholder
          value  through  results-driven  performance.  Annual  bonuses  for all
          salaried employees are based on the same Company performance  metrics,
          with manufacturing employees having certain operations-based  metrics.
          In addition to Company performance, individual performance is a factor
          in  compensation  outcomes.  Named  executive  officers  in 2007  were
          assigned performance ratings by the Chief Executive Officer.

     •    The process we use for setting our  executive  base salaries each year
          mirrors the process  used  throughout  the rest of the  Company.  Base
          salary  ranges  are  set  to be  competitive  at  the  median  of  the
          appropriate  market for each  position.  Based  upon the  individual's
          annual performance assessment and current salary level, base salary is
          determined  using a merit  increase  matrix  and other  common  salary
          administration guidelines.

     •    The  Company  contribution  to our  401(k)  plan is no  different  for
          executives  than it is for all other team members who  participate  in
          the plan. We provide a service-based match as follows: For individuals
          with less than five years of Company service, a 50 cents-on-the-dollar
          match, up to 6% of compensation,  for individuals with between five to
          ten years of  service,  a 50  cents-on-the-dollar  match,  up to 8% of
          compensation,  for individuals  with ten to 15 years of service,  a 50
          cents-on-the-dollar  match,  up  to  10%  of  compensation,   and  for
          individuals   with   more   than   15   years   of   service,   a   50
          cents-on-the-dollar  match, up to 12% of compensation is provided. All
          amounts are subject to applicable IRS limits. We do not offer any type
          of special executive pension plan to our officers.

     •    We do not provide  Company-paid  cars,  country club  memberships,  or
          other similar perquisites to our executives.

     •    We offer equity  compensation as a long-term  incentive for executives
          and key managers representing approximately the top ten percent of the
          organization.

     •    We offer a  severance  plan  designed to retain  executives  and other
          employees.

Philosophy and Objectives of Executive Compensation

We operate in a challenging  and dynamic  sector of the packaged food  industry,
where  quality,  price  and  service  must  be  consistently  delivered  to  our
customers.  In our business,  success depends on a strong culture and an engaged
workforce.  Our results are  driven,  in large part,  by our ability to attract,
retain and motivate outstanding leaders and team members.

In  keeping  with  our  Company-wide  philosophy,   our  executive  compensation
philosophy is designed to fulfill three primary objectives:

     •    To attract, retain and motivate highly qualified senior executives, by
          providing competitive, well-designed programs.

     •    To enhance the Company's  near-term financial  performance,  by basing
          annual cash incentives on objective, quantifiable performance measures
          that  relate  to   enhancement   of  the  value  of  our  Company  and
          profitability during the measured period.


                                       71

     •    To increase  stockholder  value,  by  designing  long-term  incentives
          around stock ownership and aligning the interests of senior executives
          and key  managers  with  those of our  stockholders  while  placing  a
          significant portion of our senior executives' compensation at risk.

To  achieve  these  objectives,  we  utilize  a mix of  compensation  components
including base salary, annual cash incentives,  long-term equity incentives, and
benefits.

Structure and Process for Compensation Decisions

The  Compensation   Committee  of  our  Board  has  overall  responsibility  for
evaluating and approving our executive officer compensation plans,  policies and
programs and making  decisions  regarding  specific  compensation  to be paid or
awarded to our executive officers. A copy of the Compensation  Committee Charter
can be found  on-line at  www.aipc.com  under the Investors  section,  Corporate
Governance  tab.  The  Compensation  Committee  is scheduled to meet as often as
necessary to carry out its  responsibilities.  The Compensation  Committee chair
works  with  management  to set the agenda for each  meeting.  At each  meeting,
executive sessions are held without management present.

In 2007, the Compensation  Committee was made up of five  independent  directors
who collectively  offered extensive  experience in general  management and human
resources.  Members of the  Compensation  Committee for 2007 were Mr. Baum,  Mr.
Kesselman,  Mr. Allen, Mr. Niehaus and Mr.  Demetree.  Mr. Niehaus resigned from
the Board of Directors effective January 31, 2008.

The  Compensation  Committee  has  authority  to engage  and  terminate  outside
consultants   and   approve   all  fees.   In   carrying   out  its  duties  and
responsibilities for 2007, the Compensation Committee engaged Hay Group ("Hay"),
a global consultancy with recognized expertise in compensation, benefit programs
and  workplace  issues.  Hay works on behalf of the  Compensation  Committee and
works  with our  human  resources  department  in the  design  and  analysis  of
executive  compensation  programs.  The  Compensation  Committee  directs Hay to
provide market data and  recommendations  on  compensation  levels and structure
that align with our compensation philosophy. Hay then develops and recommends to
the Compensation  Committee the  compensation  structure for the named executive
officers.  In  addition,  Hay reviews the design and  analysis  performed by our
human  resources  department  on base salary,  annual cash  incentive  bonus and
long-term  incentive  structure  for other senior  officers.  Hay provides  this
information to the Compensation Committee for evaluation and review.

Management  plays  a  significant  role  in  the  compensation-setting  process,
including   recommending   performance  targets,   evaluating   performance  and
recommending salary levels.  Personnel from the human resources department,  and
other senior  officers work with Hay to discuss our philosophy and structure and
to address  relevant tax and accounting  issues.  Based on this input, our Chief
Executive  Officer,  General  Counsel and Hay present  this  information  to the
Compensation  Committee for discussion and approval of compensation  and benefit
plans,  policies and programs.  In 2007, Mr. Fogarty, who was not an employee of
the Company,  participated in this process.  Going forward,  our Chief Executive
Officer will play no role in setting his own compensation.

The Compensation Committee reviewed,  provided input and approved all strategies
and  elements of  compensation  for our  executive  officers  in 2007.  The 2007
process included meetings beginning in October 2006, through January 2007. Among
the steps in the Compensation Committee's process were the following:

      •   Reviewing and updating our executive compensation philosophy to ensure
          it continues to serve the interests of our stockholders.

      •   Evaluating executive officer compensation structures using market data
          developed by Hay, along with publicly available information.

      •   Reviewing  benchmarking  data to ensure our  ability  to  attract  and
          retain key executive officers.

      •   Incorporating   individual  and  Company   performance   metrics  into
          executive compensation programs.


                                       72

      •   Establishing  bonus  performance  metrics  and target,  threshold  and
          maximum amounts under our annual cash bonus plans, and approving final
          cash bonus payouts.

      •   Reviewing and approving  equity awards  consistent  with our long-term
          incentive philosophy.

The Compensation  Committee also assessed the services provided and fees charged
by Hay.  The  assessment  included  a review of Hay's  independence,  expertise,
understanding  of the business  environment  and  dynamics,  including  emerging
trends in executive  compensation and their  applicability  to the Company,  and
Hay's ability to clearly summarize their findings to the Compensation  Committee
and management.  The  Compensation  Committee  determined that Hay  demonstrated
expertise in these areas and that fees charged for services were  reasonable and
within competitive practice.

During discussions, the Compensation Committee reviewed tally sheets for each of
the named  executive  officers.  The tally  sheet  provides  a summary of annual
compensation,  including  the value of  salary,  target  annual  cash  bonus and
long-term incentive awards.

Summary of Executive Compensation Design

Our  compensation  programs  are  designed  to support  the  Company's  business
strategy,  promote  our pay for  performance  philosophy  and attract and retain
highly qualified senior executives. In keeping with our compensation philosophy,
we have developed an executive  compensation  program designed to be competitive
and reward senior  executives  over the  short-term  and long-term for achieving
Company financial  objectives and increasing  stockholder  value. As a result, a
substantial portion of our named executive officers'  compensation is contingent
upon achievement of those objectives.

For 2007, as we do each year,  with the  assistance of Hay, we set target ranges
for total  compensation  that are competitive with those offered by companies in
the Hay All Industrial Market database.  This database is Hay's annual survey of
executive compensation levels at over 200 companies spanning several industries,
including food and beverage,  consumer products,  and light manufacturing.  When
evaluating the data, Hay uses "job size" as the primary variable for comparison.
Hay  considers the  knowledge,  scope,  complexity  and  accountability  of each
position and compares to similar positions in the Hay All Industrial Market.

Our approach to  compensation  design includes four major elements for all named
executive  officers.  These elements  support our  pay-for-performance  culture,
working  together to provide  varied  incentives  linked to our  short-term  and
long-term  performance,  as well as individual performance goals. Following is a
summary of each  element,  its purpose and the method used to  determine  target
ranges of executive compensation for our named executive officers in 2007:

      •   Base Salary.  The starting point in a  compensation  package that will
          attract and retain  executives  is an annual  salary  that  provides a
          steady  income  as a base upon  which  performance  incentives  can be
          designed.  We set base salary ranges for each executive level, utilize
          midpoints  that are at or near the  median  of the base  salaries  for
          executives in the Hay All Industrial Market.

      •   Annual  Incentive.  The annual  incentive is a cash bonus  designed to
          support the near-term  initiatives  of the business and to position us
          for the  future  by  focusing  on annual  goals,  both  financial  and
          operational. We set target annual cash incentive opportunities so that
          target  total cash (base  salary  midpoints,  plus target  annual cash
          incentive  opportunities)  would  be  between  the  50th  to the  75th
          percentile  of total  cash for  executives  in the Hay All  Industrial
          Market when our performance  results achieve the targeted  performance
          levels.

      •   Long-Term  Incentives.   The  long-term  element  is  an  equity-based
          compensation  plan  designed  to reward  performance  objectives  that
          deliver  stockholder value over a sustained period of time,  generally
          four or more years. As a result,  all long-term  incentive awards vest
          over four years.  Awards in 2007 were in the form of time-vested stock
          appreciation  rights  ("SARs")  and  restricted  stock.  The  inherent
          performance-based  nature  of SARs  supports  our pay for  performance
          philosophy.  Time-vested restricted stock has


                                       73

          some pay for  performance  attributes  but is used more for  retention
          purposes. We set long-term incentive equity award levels so that total
          direct compensation (target total cash plus the targeted present value
          of  annual  stock  awards)  would be at the 75th  percentile  of total
          direct  compensation for executives in the Hay All Industrial  Market.
          To  determine  the value of  equity  awards,  we  engaged  an  outside
          consultant to provide valuations using the Black-Scholes methodology.

      •   Benefits.  We provide the same  benefits to  executives as we offer to
          all other team members of the company. These benefits include a 401(k)
          plan,  health plan and group life insurance.  In addition,  Mr. George
          and  Mr.  Geist  and 25  other  key  managers  are  provided  with  an
          individual long-term-disability program.

Percentages of total  compensation  actually  earned from each element will vary
based on a number of factors,  including  performance against objectives and the
value of equity awards upon any  disposition of the underlying  stock. We do not
have a specific  policy  governing the mix of these  elements,  but view them in
light of market conditions and our overall compensation philosophy.

The  Compensation  Committee  recognizes that the engagement of strong talent in
critical  functions may, at times,  entail recruiting new executives and involve
negotiations  with  individual  candidates.  As  a  result,  the  Committee  may
determine  in a  particular  situation  that  it is in  our  best  interests  to
negotiate  compensation  packages  that deviate from the  established  norms and
stated compensation design.

Explanation of Material Elements of Compensation

The following provides a more detailed discussion of our decision-making process
for each of the major elements of our executive compensation programs.

Base Salary

Base salary  target  ranges are set using the Hay data as discussed  above.  For
named  executive  officers,   individual   performance  was  not  considered  in
establishing merit increases in 2007. The Compensation Committee believes that a
competitive  base salary is  essential  to help ensure that the  executive  team
remains in place to focus on the short- and long-term  business  strategy.  Base
salaries for named executive officers are generally reviewed by the Compensation
Committee in December of each year and any  increases  are effective in January.
Based on the Hay market data for the  positions,  the base salaries of our named
executive officers other than Mr. Fogarty for 2007 were as follows:

                                                                        Base Salary
                                                                        (effective
Name                                                                   as of 1/1/07)
--------------------------------------------------------------------------------------
Walter  George, Executive Vice President, Operations & Supply Chain        267,150
Paul  Geist, Executive Vice President, Chief Financial Officer (1)         205,500
Bob Schuller, Executive Vice President, General Counsel                    226,050

     (1)  Mr. Geist's base salary was adjusted to $245,500 effective February 1,
          2007.

Annual Incentive Compensation

We provide an Annual  Incentive  Plan ("AIP")  which  provides a cash  incentive
payout.  Under the AIP,  each year the  Compensation  Committee  sets  objective
performance  measures  chosen  from  certain   predetermined   categories  on  a
Company-wide  basis.  In  addition  to  setting  the  target  performance,   the
Compensation  Committee  also sets the  threshold  and maximum  amounts for each
performance  measure  and the  bonus  percentage  to be paid if the  performance
measures are met. In 2007, the  performance  measures for earning  bonuses under
the AIP were the same for all named  executive  officers.  No adjustments to the
performance  measures were made by the  Compensation  Committee  when  approving
final 2007 bonuses. Upon determining whether targets have been met Company-wide,
certain  incremental  changes  to final  payouts  are made  based on  individual
performance evaluations.

                                       74

Performance  objectives  for annual  incentive  awards are  generally  developed
through the following process. First, management,  including the named executive
officers, develops preliminary recommendations for Compensation Committee review
based on the Company's business plan for the upcoming year. The business plan is
developed by management with review,  modification and ultimate approval made by
the  Board  of  Directors.  Next,  the  Compensation  Committee  and Hay  review
management's  recommendation  (and relevant incentive benchmark data provided by
Hay) and the Compensation Committee establishes the final incentive compensation
plan based on the Company's  business plan. In establishing  the final incentive
compensation  plan,  the  Compensation   Committee  seeks  to  ensure  that  the
incentives  are  consistent  with the  strategic  goals set by the Board and the
business plan approved by the Board,  that the goals are sufficiently  ambitious
so as to provide meaningful  incentive and that bonus payments,  assuming target
levels  of  performance  are  attained,  would be  consistent  with the  overall
compensation program established by the Compensation Committee. Each performance
measure has a payout range of threshold,  target, and maximum designed to reward
certain  levels of  achievement  above and below  target.  However,  no bonus is
earned for any performance  metric that is achieved at a level below  threshold.
The Compensation  Committee sets the target level for each  performance  measure
based on our business  plans for that year.  We believe  these target levels are
aggressive but achievable if our executives implement our business plan. Maximum
levels  are  designed  to  reward  exceptional  performance  and are not  easily
attainable.

In 2007, the performance measures approved by the Compensation Committee for all
named executive  officers were earnings before interest taxes  depreciation  and
amortization  (EBITDA),  as defined,  and net debt reduction.  These performance
metrics were selected because management and the Compensation Committee believed
that the  achievement  of these  objectives  was  important  given the financial
condition of the Company and its financial and operating priorities in 2007.

Following is a definition of each of our bonus  performance  metrics and a brief
explanation of their alignment with our business strategy:

-------------------------------------- -------------------------------------- ----------------------------------------
               Metric                               Definition                         Strategic Importance
               ------                               ----------                         --------------------
-------------------------------------- -------------------------------------- ----------------------------------------
EBITDA                                 Total Company  earnings before income  Indicator of overall Company financial
                                       taxes,        depreciation        and  performance for executives,
                                       amortization. (1)                      stockholders, and the investment
                                                                              community.
-------------------------------------- -------------------------------------- ----------------------------------------
Net Debt Reduction                     Reduction of current debt.             Key   indicator  of  future   financial
                                                                              stability, growth and profitability.
-------------------------------------- -------------------------------------- ----------------------------------------

     (1) Also excludes  long-term  incentive  compensation,  impairment  charges
related  to brands and fixed  assets,  gains or losses on  disposition  of fixed
assets or brands and professional fees.

For 2007, EBITDA requirements were $60.7 million at threshold,  $63.0 million at
target and $67.0 million at maximum. Net debt reduction  requirements were $14.3
million at threshold, $16.6 million at target and $20.6 million at maximum.

The Compensation Committee sets target bonuses at a specified percentage of base
salary based on our compensation  philosophy for cash bonuses.  The target bonus
is paid if the performance measures are achieved at the target levels.  Bonuses,
as a specified percentage of base salary, may be paid below the target bonus, if
the performance  measures are achieved at lower,  threshold levels, or above the
target bonus if the performance measures are achieved at higher, maximum levels.
Actual bonuses are paid on a sliding scale between  threshold and maximum levels
based on  actual  achievement  of each  performance  measure  individually.  The
following reflects the bonus that could have been paid for 2007, as a percentage
of base salary,  for each named executive officer,  if the performance  measures
were achieved at the threshold, target and maximum levels.


                                       75

  ----------------------- ---------------- ---------- --------------- ------------ ----------------- --------------
  Name                       Threshold                    Target                       Maximum
  ----                       ---------                    ------                       -------
  ----------------------- ---------------- ---------- --------------- ------------ ----------------- --------------
  Walter  George               36.5%         $97,510       50%           $133,575        65.0%          $173,648
  ----------------------- ---------------- ---------- --------------- ------------ ----------------- --------------
  Paul  Geist                  25.6%          62,725       35%             85,925        45.5%           111,703
  ----------------------- ---------------- ---------- --------------- ------------ ----------------- --------------
  Bob Schuller                 36.5%          82,508       50%            113,025        65.0%           146,933
  ----------------------- ---------------- ---------- --------------- ------------ ----------------- --------------

The  Compensation  Committee  believes  the  overall  design of the annual  cash
incentive plan for 2007 supports the key initiatives of the Company,  are strong
industry  indicators,  and enhanced the linkage between Company  performance and
stockholder  value.  Both performance  measures of EBITDA and net debt reduction
were met at the maximum level of performance  for payout.  This  established the
base  AIP  bonus  payout  for  2007.  After  all  bonus  calculations  are  made
Company-wide,  certain  incremental  changes,  up or down, are made to the final
payouts based on individual performance evaluations.  The actual bonuses paid in
2007 are shown on the Summary  Compensation  Table in the  Non-Equity  Incentive
Plan Compensation column of this annual report on Form 10-K.

Long-Term Incentive Compensation

We utilize a mix of equity awards, in lieu of cash compensation, to comprise the
long-term  incentive  program.  Our program  design  keeps us  competitive  with
emerging  trends in executive  compensation,  with other companies with which we
compete for executive talent,  and links the success of the Company to increases
in stockholder value.

Grants are made under the 2000 Plan. We use a combination of SARs and restricted
stock  for  executive  officers  and  vice  presidents.  Below  vice  president,
recipients  receive  100% of the award in SARs.  The mix of SARs and  restricted
stock promotes a balance among long-term growth for the organization,  executive
retention,  and stockholder value. Initial award values are set based on a ratio
of 60% SARs and 40% restricted  stock. This ratio was set after reviewing trends
in equity  compensation that showed a majority of long-term  incentive was being
delivered in stock options or their equivalent.

The  Compensation  Committee  approved  the equity  awards to be granted to each
named executive  officer on January 9, 2007.  Details of all the named executive
officer grants are included in the Summary  Compensation Table and the Grants of
Plan-Based Awards Table.

The SARs, and restricted  stock will vest ratably over four years. All SARs have
an  exercise  price  equal to the  closing  stock  price  on the date of  grant.
Beginning  in  2006,  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 of control, with
our Board  maintaining  discretion to accelerate  the  remaining  balance.  Upon
exercise  of the SARs,  the  executives  receive  the number of shares of common
stock equal to the value of  appreciation  in the company's stock from the grant
date to the exercise date times the number of shares.  Executives holding shares
of   restricted   stock  are  eligible  to  receive  all   dividends  and  other
distributions  paid during the restriction  period.  The 2000 Plan prohibits the
re-pricing,  replacing or  re-granting  of  outstanding  stock options either in
connection  with the  cancellation  of such stock option or by amending an award
agreement to lower the strike price of the stock option.

Benefits

Executives receive the same 401(k),  health and group life insurance benefits as
the rest of our  employees  Mr.  Geist and Mr.  George and 25 other key managers
have a long-term disability policy. We provide no perquisites to our executives.

Employment Agreements and Elements of Post-Termination Compensation

We have a written  employment  agreement  with Mr.  Kelly who  became our CEO in
fiscal 2008. We have a severance  agreement with Mr. George,  which is discussed
below under Potential Payments Upon Termination or Change-in-Control.

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


                                       76

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  by the Company
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 case
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.

Severance Plan

We maintain 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 his
or her  service  years 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.

See  Potential  Payments  Upon  Termination  or  Change-in-Control  below  for a
discussion  of this  Severance  Plan.  We believe  this plan is in keeping  with
competitive  practice  within our peer  group and is  necessary  to attract  and
retain talented executives.

Impact of Tax Treatment

In designing executive  compensation  programs, the Compensation Committee takes
into  consideration  the impact of  various  regulatory  issues  such as Section
162(m) and Section  409A of the Internal  Revenue  Code.  Section  162(m) of the
Internal  Revenue Code denies a tax deduction to any publicly  held  corporation
for  compensation  in excess of $1 million paid in a year to any individual who,
on the  last  day of  that  year,  is a named  executive  officer,  unless  such
compensation qualifies as performance-based under Section 162(m) of the Internal
Revenue Code. Generally,  the Compensation  Committee believes that it is in the
best interest of our stockholders to only pay  compensation  which is deductible
by the Company.  However,  where it is deemed necessary and in our best interest
to continue to attract and retain the best  possible  executive  talent,  and to
motivate executives to achieve the goals of our business strategy, the Committee
may approve  compensation  to executive  officers  that may exceed the limits of
deductibility.

Timing of Compensation Decisions

The Compensation  Committee develops an annual agenda to assist it in fulfilling
its responsibilities. In the fourth quarter of the preceding year, in connection
with our annual  budget  process and approval of a business plan by our Board of
Directors,  the Compensation Committee establishes  performance criteria for the
current year bonus program.  In the first quarter of each year, the Compensation
Committee:

     •    Reviews prior year incentive plan performance, including whether bonus
          targets were met and authorizes the  distribution of annual  incentive
          pay-outs, if any, for the prior year.

     •    Approves the equity grants for the current year.

     •    Establishes  the bonus  percentages and target amounts for the current
          year.

     •    Reviews and approves base pay for executives.


                                       77

Equity awards may be made only by the Compensation Committee or those authorized
by the Compensation  Committee in accordance with applicable laws and our equity
plan,  subject to  pre-established  limitations  on individual  awards and total
awards. Grants can only be authorized in writing.  Authorizations of amendments,
modifications  or changes to awards  must be in writing  and can only be adopted
with the approval of the Compensation Committee.  For option and SAR awards, the
awards must be granted at the closing price of our stock on the grant date.

New hire  grants,  grants upon  promotions  and other awards that occur during a
year are normally  made upon the later of the event date or the date approved by
the Compensation Committee.

Compensation Committee Report

The  Compensation  Committee  of the  Company has  reviewed  and  discussed  the
Compensation  Discussion  and Analysis  contained in this Annual  Report on Form
10-K with  management.  Based on such review and  discussions,  the Compensation
Committee recommended to the Board of Directors that the Compensation Discussion
and Analysis be included in this Annual  Report on Form 10-K for the fiscal year
ended September 28, 2007.

                                 COMPENSATION COMMITTEE
                                 Jonathan E. Baum, Chairman
                                 David W. Allen
                                 Mark C. Demetree
                                 Ronald C. Kesselman


Summary Compensation Table for Fiscal 2007

The table below summarizes the total  compensation paid or earned by each of the
named executive officers for 2007.  Information is not included for Mr. Fogarty,
who received no compensation from us, or Mr. Kelly, who became our CEO in fiscal
2008.

----------------------- ----- ------------ ---------- ---------- ---------- --------------- ------------- ---------
                                                                              Non-equity
                                                                              incentive
                                                      Stock      Option          plan
                                                      Awards     Awards      compensation    All Other
  Name and Principal            Salary       Bonus       (3)        (4)          (5)        Compensation   Total
       Position         Year      ($)         ($)        ($)        ($)          ($)            ($)         ($)
----------------------- ----- ------------ ---------- ---------- ---------- --------------- ------------- ---------
Walter  George, EVP     2007     265,363          -    111,661    61,157       184,334         8,502      631,017
Operations & Supply
Chain
----------------------- ----- ------------ ---------- ---------- ---------- --------------- ------------- ---------
Paul  Geist, EVP,       2007     230,587(1)  40,000(2)  8,022     18,611       118,577         8,521      424,318
Chief  Financial
Officer
----------------------- ----- ------------ ---------- ---------- ---------- --------------- ------------- ---------
Bob Schuller, EVP,      2007     224,538          -    10,226      8,022       155,975         7,505      406,266
General Counsel
----------------------- ----- ------------ ---------- ---------- ---------- --------------- ------------- ---------

(1)  Mr. Geist received  $23,077 in additional base pay as special  compensation
     for  performance  of the  duties  of  principal  financial  and  accounting
     officer.

(2)  Mr.  Geist  received  $40,000  as a special  bonus  related  to work on the
     Company's restatement process.

(3)  The amounts shown in this column  represent  restricted  stock grants under
     our 2000 Plan.  See  Compensation  Discussion  and Analysis for  additional
     information  on the 2000 Plan and equity  grants under the 2000 Plan.  This
     column  reflects  the dollar  amount  recognized  for  financial  statement
     reporting  purposes  for the  fiscal  year ended  September  28,  2007,  in
     accordance  with  SFAS  123R  (excluding  estimated  forfeitures)  and thus
     includes amounts from awards granted in and prior to 2007. Assumptions used
     in the  calculation  of this amount are  included in Note 15 to our audited
     financial  statements for the fiscal year ended September 28, 2007 included
     in this Annual Report on Form 10-K.  There were no  forfeitures  in 2007 by
     the named  executive  officers.  See the  Grants of Plan  Based  Awards and
     Outstanding  Equity Awards tables below for  additional  information on our
     equity grants.

(4)  The amounts  shown in this column  represent  SARS  granted  under our 2000
     Plan. See Compensation  Discussion and Analysis for additional  information
     on the 2000  Plan and  equity  grants  under  the 2000  Plan.


                                       78

     This column reflects the dollar amount  recognized for financial  statement
     reporting  purposes  for the  fiscal  year ended  September  28,  2007,  in
     accordance  with  SFAS  123R  (excluding  estimated  forfeitures)  and thus
     includes amounts from awards granted in and prior to 2007. Assumptions used
     in the  calculation  of this amount are  included in Note 15 to our audited
     financial statements for the fiscal year ended September 28, 2007, included
     in this Annual Report on Form 10-K.  There were no  forfeitures  in 2007 by
     the named  executive  officers.  See the  Grants of Plan  Based  Awards and
     Outstanding  Equity Awards table below for  additional  information  on our
     equity grants.

(5)  Represents  the  annual   incentive  bonus  earned  for  fiscal  2007.  See
     Compensation  Discussion  and Analysis for further  discussion of this cash
     incentive plan.

Grants of Plan-Based Awards in Fiscal 2007

The following  table  provides  information  about  non-equity and equity awards
granted to the named executive officers in 2007.

------------------ ------------ -------------------------------- ---------- ------------ ---------- -------------
                                                                   All
                                                                  other
                                                                  stock      All other
                                                                  awards:     option
                                                                  number      awards:
                                                                    of       number of   Exercise
                                                                  shares    securities   or base     Grant Date
                                                                 of stock   underlying   price of    fair value
                                   Estimated future payouts      or units     options    option       of stock
                                  under non-equity incentive        (2)         (3)       awards     and option
     Name          Grant Date           plan awards (1)             (#)         (#)       ($/Sh)       awards
                                --------------------------------
                                Threshold   Target     Maximum
                                   ($)        ($)        ($)
------------------ ------------ ---------- ---------- ---------- ---------- ------------ ---------- -------------

Walter  George      01/09/07                                                  31,619        9.02      $  120,152
------------------ ------------ ---------- ---------- ---------- ---------- ------------ ---------- -------------

                    01/09/07                                       8,885                                  80,143
------------------ ------------ ---------- ---------- ---------- ---------- ------------ ---------- -------------

                                 97,510     133,575    173,648
------------------ ------------ ---------- ---------- ---------- ---------- ------------ ---------- -------------

Paul  Geist         01/09/07                                                  16,096        9.02      $   55,531
------------------ ------------ ---------- ---------- ---------- ---------- ------------ ---------- -------------

                    01/09/07                                       4,101                                  36,991
------------------ ------------ ---------- ---------- ---------- ---------- ------------ ---------- -------------

                                 62,725     85,925     111,703
------------------ ------------ ---------- ---------- ---------- ---------- ------------ ---------- -------------

Bob  Schuller       01/09/07                                                  21,403        9.02     $    81,331
------------------ ------------ ---------- ---------- ---------- ---------- ------------ ---------- -------------

                    01/09/07                                       6,015                                  54,255
------------------ ------------ ---------- ---------- ---------- ---------- ------------ ---------- -------------

                    10/25/06                                                  16,884        7.47          52,847
------------------ ------------ ---------- ---------- ---------- ---------- ------------ ---------- -------------

                    10/25/06                                      10,953                                  81,819
------------------ ------------ ---------- ---------- ---------- ---------- ------------ ---------- -------------

                                 82,508     113,025    146,933
------------------ ------------ ---------- ---------- ---------- ---------- ------------ ---------- -------------

(1)    Represents the threshold,  target and maximum  amounts  payable under our
       annual cash incentive plan for fiscal 2007. See  Compensation  Discussion
       and Analysis for a discussion of this plan. See the Summary  Compensation
       Table for the actual amounts paid in 2007.

(2)    Consists of annual restricted stock grant under our 2000 Plan. The awards
       vest ratably over four years from the grant date,  with the  exception of
       Mr. Schuller's October 25, 2006 grant, which vest upon the anniversary of
       his hire date of June 5, 2006 with 50%  vesting  ratably and 50% upon the
       fourth  anniversary  of his hire date.  See  Compensation  Discussion and
       Analysis for additional information on equity grants under our 2000 Plan.

(3)    Consists  of an annual  SAR grant  under our 2000 Plan.  The awards  vest
       ratably  over four years from the grant date,  with the  exception of Mr.
       Schuller's October 25, 2006 grant, which vest upon the anniversary of his
       hire  date of June 5,  2006  with 50%  vesting  ratably  and 50% upon the
       fourth  anniversary  of his hire  date.  Upon  exercise  of the 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.  See  Compensation  Discussion  and  Analysis  for  additional
       information on equity grants under our 2000 Plan.


                                       79

Outstanding Equity Awards at 2007 Fiscal Year-End

The following  table  provides  information  on the  outstanding  option and SAR
awards and stock  awards for our named  executive  officers  at 2007 fiscal year
end.



------------------------------------------------------------------------------------ ----------------------------------
                                   Option Awards                                               Share Awards
------------------------------------------------------------------------------------ ----------------------------------

                  Number of        Number of          Option            Option          Number of          Market
                 securities        securities        Exercise         Expiration         shares or        value of
                 underlying        underlying          Price             Date            units of         shares or
                 unexercised      unexercised                                           stock that        units of
                   options          options                                              have not         stock that
                     (#)              (#)               ($)                               vested          have not
                 exercisable     unexercisable                                             (2)             vested
   Name                               (1)                                                  (#)               ($)
-------------- ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

Walter
  George                                                                                        8,885           73,212
-------------- ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                             -            31,619             9.02      01/09/14                     -                -
               ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                             -                 -                -                              29,254          241,053
               ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                         5,626            39,380             5.50      03/06/13                     -                -
               ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                         9,000                 -            26.73      02/02/15                     -                -
               ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                             -                 -                -                               6,000           49,440
               ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                        18,000            12,000            28.90      08/04/14                     -                -
               ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                        10,000                 -            39.60      02/07/13                     -                -
               ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                         9,500                 -            38.90      10/23/12                     -                -
               ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                        35,000                 -            36.81      08/27/12                     -                -
               ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                        35,000                 -            27.81      01/15/11                     -                -
-------------- ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

Paul
  Geist                                                                                         4,101           33,792
-------------- ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                             -            16,096             9.02      01/09/14                     -                -
               ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                             -                 -                -                               7,769           64,017
               ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                         1,494            10,458             5.50      03/06/13                     -                -
               ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                         3,500                 -            26.73      02/02/15                     -                -
               ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                         4,000             6,000            27.54      10/26/14                     -                -
               ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                             -                 -                -                                 360            2,966
-------------- ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

Bob
  Schuller                                                                                      6,015           49,564
-------------- ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                             -            21,403             9.02      01/09/14                     -                -
               ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                             -                 -                -                               9,584           78,972
               ---------------- ----------------- ---------------- ----------------- ----------------- ----------------

                         2,111            14,773             7.47      06/05/13                     -                -
-------------- ---------------- ----------------- ---------------- ----------------- ----------------- ----------------


                                       80

(1) The  following  table  provides  information  with respect to the vesting of
outstanding  stock  options and SARs.  Upon  exercise of the 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.  See  Compensation
Discussion and Analysis for a discussion of vesting.

---------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------
                  Award                  Vesting                Vesting                Vesting               Vesting
     Name          Type      # Shares     Date     # Shares      Date     # Shares      Date     # Shares     Date
---------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------

Mr. George        Option      6,000      8/4/08      6,000      8/4/09
                 ---------- ----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------

                    SAR       5,626      3/06/08     5,626     3/06/09     28,128     3/06/10
                 ---------- ----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------

                    SAR       7,905      1/09/08     7,905     1/09/09      7,905     1/09/10      7,904     1/09/11
---------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------

Mr. Geist         Option      2,000     10/26/07     2,000     10/26/08     2,000     10/26/09
                 ---------- ----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------

                    SAR       1,494      3/06/08     1,494     3/06/09      7,470     3/06/10
                 ---------- ----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------

                    SAR       4,024      1/09/08     4,024     1/09/09      4,024     1/09/10      4,024     1/09/11
---------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------

Mr. Schuller        SAR       2,111      6/05/08     2,111     6/05/09     10,551     6/05/10
                 ---------- ----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------

                    SAR       5,351      1/09/08     5,351     1/09/09      5,351     1/09/10      5,350     1/09/11
---------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------

(2)  The following  table  provides  information  with respect to the vesting of
     outstanding  shares of restricted  stock. See  Compensation  Discussion and
     Analysis for a discussion of vesting.

---------------- ----------- ------------ -----------  ----------- ----------- ----------- ---------- ----------
                                Vesting                  Vesting                 Vesting                Vesting
     Name         # Shares       Date      # Shares       Date      # Shares       Date     # Shares     Date
---------------- ----------- ------------ -----------  ----------- ----------- ----------- ---------- ----------

Mr. George         3,000        8/04/08      3,000        8/04/09
---------------- ----------- ------------ -----------  ----------- ----------- ----------- ---------- ----------
                   4,179        3/06/08      4,179        3/06/09     20,896     3/06/10
---------------- ----------- ------------ -----------  ----------- ----------- ----------- ---------- ----------

                   2,221        1/09/08      2,221        1/09/09      2,221     1/09/10      2,222     1/09/11
---------------- ----------- ------------ -----------  ----------- ----------- ----------- ---------- ----------

Mr. Geist           120        10/24/07       120        10/24/08       120      10/24/09
---------------- ----------- ------------ -----------  ----------- ----------- ----------- ---------- ----------

                   1,110        3/06/08      1,110        3/06/09      5,549      3/06/10
---------------- ----------- ------------ -----------  ----------- ----------- ----------- ---------- ----------

                   1,025        1/09/08      1,025        1/09/09      1,025      1/09/10     1,026     1/09/11
---------------- ----------- ------------ -----------  ----------- ----------- ----------- ---------- ----------

Mr. Schuller       1,369       06/05/08      1,369       06/05/09      6,846     06/05/10
---------------- ----------- ------------ -----------  ----------- ----------- ----------- ---------- ----------

                   1,503        1/09/08      1,504        1/09/09      1,504      1/09/10     1,504     1/09/11
---------------- ----------- ------------ -----------  ----------- ----------- ----------- ---------- ----------


Option Exercises and Stock Vested In Fiscal 2007

The following  table provides  information on stock options or SARS exercised or
restricted stock vested in 2007.


                                                Options/SARs Awards                         Stock Awards
                                         ----------------------------------     --------------------------------------
                                           Number of                               Number of
                                             shares                             shares acquired     Value realized
                                          acquired on     Value realized           on vesting       on vesting (1)
                 Name                       exercise        on exercise               (#)                 ($)
---------------------------------------- --------------- -------------------- ------------------- --------------------

Walter  George                                 -                  -                 7,373               71,600
---------------------------------------- --------------- -------------------- ------------------- --------------------

Paul  Geist                                    -                  -                 1,230               12,531
---------------------------------------- --------------- -------------------- ------------------- --------------------

Bob  Schuller                                  -                  -                 1,369               14,306
---------------------------------------- --------------- -------------------- ------------------- --------------------

(1) Amounts reflect the market value of the stock on the vesting date.


                                       81

Potential Payments Upon Termination or Change-In-Control

Severance Plan

Under our Severance Plan, an executive will be entitled to benefits if he or she
is  involuntarily  terminated  from employment by the Company other than due to:
(1)  willful  and  continual  failure  to  substantially   perform  duties;  (2)
commission of an act or acts that constitute a misdemeanor (other than a traffic
violation) or a felony under the law of the United States or its subdivisions or
any  country to which he or she is  assigned  or its  subdivisions,  including a
conviction  for or plea of guilty or no contest to such  misdemeanor  or felony;
(3)  commission  of an  act or  acts  in  material  violation  of the  Company's
significant  policies and/or practices  applicable to executives employed by the
Company;  (4)  willful  act or  willful  failure  to act in a  manner  that  was
injurious to the financial condition or business reputation of the Company;  (5)
act in a manner unbecoming of an executive employed by the Company regardless of
whether such act was in the course of  employment,  or (6) subjection to a fine,
censure or sanction of any kind,  permanent or  temporary,  issued by the SEC or
the New York Stock Exchange.

In addition, to qualify for severance benefits,  the executive must have entered
into an agreement satisfactory to the Company that includes, among other things,
a full and general  release of claims  against the  Company,  a  confidentiality
agreement,  a  non-solicitation   agreement,  a  non-competition   agreement,  a
non-disparagement  agreement, a cooperation agreement and a requirement that any
severance payments will be subject to offsetting mitigation.

Those named executive officers who become eligible to receive severance pay will
receive the following benefits:

  •  2 weeks base  salary at the rate in effect on the date of  termination  for
     every year of service  with the Company  plus an  additional  52 weeks base
     salary at the rate in effect  at the date of  termination,  but in no event
     more  than a  cumulative  cap of 78 weeks of base  salary  (the  applicable
     number of base weeks will be the "Severance  Period");  notwithstanding the
     foregoing,  these  payments  will be reduced by any other amount paid by us
     due to termination of employment,  any amounts received by the officer from
     any employer during the Severance Period, and any unemployment  benefits or
     payments pursuant to the Worker Adjustment and Retraining Notification Act;

  •  In the event a "change of control"  occurred  within 12 months prior to the
     termination  date,  any unvested  restricted  stock and stock  appreciation
     rights  related to Company stock and granted to the executive  prior to the
     executive's termination date will be accelerated and fully vested;

  •  Additional  severance pay equal to the bi-weekly Company subsidy for active
     employees  for the level of medical,  dental and vision  coverage,  if any,
     that was in effect for the executive at the time of  termination  (provided
     that such  payment  will not be made to the  executive  and instead will be
     contributed  to the health plan for the period  equal to one week for every
     year of the  executive's  service with the Company (not to exceed 26 weeks)
     if termination is part of a reduction in force,  Company  reorganization or
     restructuring or changes in the Company's operating  requirements),  plus a
     tax  reimbursement of 32%,  (provided that such payment will not be made to
     the  executive and instead will be  contributed  to the health plan for the
     period equal to one week for every year of the executive's service with the
     Company (not to exceed 26 weeks) if  termination  is part of a reduction in
     force, Company  reorganization or restructuring or changes in the Company's
     operating  requirements),  provided that this additional severance pay will
     stop upon the executive  becoming  employed by another employer and will be
     based  on the  level of  health  plan  coverage  in  effect  on the date of
     termination  of  employment,  and will be paid  regardless of whether COBRA
     coverage is elected;

  •  All  severance  pay will stop upon the  executive  being  reemployed by the
     Company.

The maximum severance pay is two times the lesser of the officer's W-2 wages for
the calendar year preceding the calendar year in which the  termination  occurs,
or the  maximum  amount  that  may be  taken  into  account  under  a  qualified
retirement plan pursuant to Code section 401(a)(17)  ($440,000 for 2006) for the
year in which the  termination of employment  occurs.  All severance pay must be
paid no later  than  December  31 of the  second  calendar  year  following  the
calendar year in which the termination of employment occurs.


                                       82

For purposes of the Severance  Plan,  "change of control" means if "any person,"
as such term is used in Sections 13(d) and 14(d) of the 1934 Act (other than the
Company,  any trustee or other fiduciary  holding  securities  under an employee
benefit plan of the Company or any corporation owned, directly or indirectly, by
the stockholders of the Company in  substantially  the same proportions as their
ownership of stock of the  Company),  is or becomes the  "beneficial  owner" (as
defined in Rule 13(d)(3)  under the Exchange Act),  directly or  indirectly,  of
securities  of the  Company  representing  more than 50% of the  Company's  then
outstanding  securities  or more than 50% of the  combined  voting  power of the
Company's  then  outstanding  securities,  and if, within 12 months  thereafter,
members of the Board of  Directors  of the Company at the  beginning  of that 12
month period  ("existing  directors")  together with any director whose election
was  subsequently  approved  by vote of at  least  two-thirds  of the  Board  of
Directors  in  office  at the  time of such  election  who are  either  existing
directors or approved  directors  ("approved  directors")  cease to constitute a
majority of the Board of Directors.

Severance Agreement for Mr. George

On October 1, 2005,  the Company  entered  into a severance  agreement  with Mr.
George.  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  twelve  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.

"Cause"  is  defined as a  termination  because  (i) Mr.  George  willfully  and
continually  failed to  perform  his  duties;  (ii)  failed  to comply  with any
material  term of the Severance  Agreement;  (iii)  committed a  misdemeanor  or
felony;  (iv) committed a violation of the Company's policies or practices;  (v)
acted in a manner  injurious to the Company or unbecoming  of his  position;  or
(vi)  was  subject  to any  fine  or  sanction  of a  regulatory  or  government
authority. "Good Reason" means any of the following actions taken by the Company
without Mr. George's written consent:  (1) continued failure to pay compensation
if not corrected in a specified time period; (2) specified demotion or reduction
in base salary;  or (3) material refusal to comply with the Severance  Agreement
if not corrected in a specified time period.

Equity Awards Under 2000 Plan

Awards made under our 2000 Plan contain  certain  provisions  which  provide for
acceleration of vesting upon a termination.  Upon a termination not related to a
change-in-control,   executives   are   entitled  to  awards   already   vested.
Notwithstanding the terms described below, upon a change-in-control,  as defined
by the  severance  plan,  that occurs in the 12 months  prior to an  involuntary
termination  entitling the individual to severance  benefits under the Severance
Plan summarized above, all outstanding  unvested stock appreciation right awards
and restricted stock awards are fully vested.

Outstanding, unvested option awards may provide for full, immediate vesting upon
a "change in  control";  provided  that if the  "change in  control" is due to a
merger or asset sale and the  successor  corporation  does not either assume the
outstanding  option award or  substitute an  equivalent  option award,  then the
option award fully vests,  but is only exercisable for a period of 25 days after
notice from the Compensation Committee.

Outstanding,   unvested  stock  appreciation  right  awards  provide  for  full,
immediate  vesting  of 50%  (subject  to  the  discretion  of  the  Compensation
Committee  to  accelerate  all or  part  of the  remaining  50% of  outstanding,
unvested  stock  appreciation  right  awards)  of  outstanding,  unvested  stock
appreciation  right  awards upon a "change of  control".  "Change in control" is
defined in the award  agreement  to occur if any person,  as defined in Sections
13(d)


                                       83

and 14(d) of the 1934 Act is or becomes the beneficial owner of more than 50% of
the Company's  outstanding  securities or combined  voting power of  outstanding
securities  and if within 12 months  thereafter  (1)  continuing  directors  (as
defined  below) cease to constitute a majority of the Board of Directors and (2)
there is a  termination  of  service.  If a merger or asset sale  occurs and the
successor  corporation does not either assume the outstanding stock appreciation
right award or substitutes an equivalent stock  appreciation  right award,  then
50%  of  the  stock  appreciation  right  award  fully  vests,  but  it is  only
exercisable  for a period  of 25 days  after  notice  from the  Company  and for
equivalent  consideration  as received by the  stockholders of the  Compensation
Committee in the merger or asset sale.

Stock options and stock  appreciation  rights are  exercisable  for (1) one year
after  termination on account of retirement,  disability or death, and (2) three
months following a termination for any reason other than retirement,  disability
or death (subject to the discretion of the Compensation Committee to extend this
period). They terminate  immediately upon a termination for cause.  "Retirement"
is  defined  as  retiring  pursuant  to any  Company  retirement  program  or as
otherwise agreed.

Outstanding,  unvested  restricted  stock  awards  provide  for full,  immediate
vesting  upon  termination  due to  death,  disability  or the  normal  or early
retirement of the executive under the terms of the retirement plan maintained by
the Company in which the executive  participates (or if none, after reaching age
65). In addition,  50% (subject to the discretion of the Compensation  Committee
to  accelerate  all or  part  of the  remaining  50%  of  outstanding,  unvested
restricted stock awards) of outstanding,  unvested restricted stock awards fully
vest upon the  occurrence  of a "change of  control",  as  defined  above in the
description of stock appreciation rights.

Except as set forth above in the descriptions of stock  appreciation  rights and
restricted  stock  awards,  for  purposes of the 2000 Plan,  "change in control"
means  any one of the  following:  (1)  "any  person,"  as such  term is used in
Sections 13(d) and 14(d) of the 1934 Act (other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of the Company
or any corporation  owned,  directly or indirectly,  by the  stockholders of the
Company in substantially the same proportions as their ownership of stock of the
Company),  is or becomes the  "beneficial  owner" (as  defined in Rule  13(d)(3)
under the Exchange Act),  directly or  indirectly,  of securities of the Company
representing  more than 50% of the Company's then outstanding  securities or 51%
or  more  of the  combined  voting  power  of  the  Company's  then  outstanding
securities; (2) during a period of two consecutive years, individuals who at the
beginning  of  such  period   constitute  the  Board  of  Directors   ("existing
directors")  and any new Board member other than a Board member  designated by a
person  who has  entered  into  an  agreement  with  the  Company  to  effect  a
transaction described in (1), (2) or (3) ("approved director") whose election by
the Board of Directors or nomination for election by the Company's  shareholders
was approved by a vote of at least  two-thirds of the Board members in office at
the  time of such  election  who  are  either  existing  Directors  or  approved
directors  ("continuing  directors") cease to constitute a majority of the Board
of Directors; (3) the consummation of the merger or consolidation of the Company
with any other corporation,  other than a merger with a wholly-owned subsidiary,
the sale of substantially  all of the assets of the Company,  or the liquidation
or dissolution of the Company, unless, in the case of a merger or consolidation,
(x) the Directors in office  immediately  prior to such merger or  consolidation
will constitute at least a majority of the Board of the surviving corporation of
such  merger or  consolidation  and any  parent (as such term is defined in Rule
12b-2 under the Exchange Act) of such corporation,  or (y) the voting securities
of the  Company  outstanding  immediately  prior  thereto  represent  (either by
remaining  outstanding or by immediately  being converted into voting securities
of the surviving  entity) more than 66 2/3% of the combined  voting power of the
voting  securities of the Company or such surviving  entity and are owned by all
or  substantially  all of  the  persons  who  were  the  holders  of the  voting
securities of the Company  immediately prior to the transaction in substantially
the same  proportions as such holders owned such voting  securities  immediately
prior to the transaction;  or (4) the stockholders of the Company approve either
a plan of complete  liquidation  of the Company or an agreement  for the sale or
disposition by the Company of all or  substantially  all of the Company's assets
(or any transaction having similar effect).

The following  tables provide  information  on potential  benefits that could be
received  by each  named  executive  officers  upon a  termination  or change of
control.


                                       84

                                  Walter George
-----------------------------------------------------------------------------------------------------------------------


                                                                            Termination          Termination after a
    Executive Benefits and Payments          Involuntary Not for              For Good                Change in
         Upon Termination (1)                 Cause Termination                Reason                  Control
---------------------------------------- ---------------------------- ------------------------- -----------------------
Compensation:
  Base Salary                                        $333,938                  $267,150                 $333,938
---------------------------------------- ---------------------------- ------------------------- -----------------------
  Equity Vesting (2)                                        -                         -                 $320,816
---------------------------------------- ---------------------------- ------------------------- -----------------------
Benefits and Perquisites
---------------------------------------- ---------------------------- ------------------------- -----------------------
  Post-Termination Health Care (3)                    $17,726                   $17,726                  $17,726
---------------------------------------- ---------------------------- ------------------------- -----------------------
Total                                                $351,664                  $284,876                 $672,480
---------------------------------------- ---------------------------- ------------------------- -----------------------

(1)  Assumes  termination  as of September  28, 2007.  The closing price for the
     Company's stock as of the last trading day of fiscal 2007 was $8.24.

(2)  Represents the value of accelerated  vesting of all outstanding awards upon
     a change in control. Unvested restricted stock also fully vests upon death,
     disability or retirement. This amount is $290,493.

(3)  Represents the value of post-termination health care benefits or equivalent
     severance payment.


                                   Paul Geist
----------------------------------------------------------------------------------------------------------------------


     Executive Benefits and Payments                  Involuntary Not for                   Termination after a
           Upon Termination (1)                        Cause Termination                     Change in Control
------------------------------------------- ----------------------------------------- --------------------------------
Compensation:
  Base Salary                                                  $273,827                             $273,827
------------------------------------------- ----------------------------------------- --------------------------------
  Equity Vesting (2)                                                  -                              $69,103
------------------------------------------- ----------------------------------------- --------------------------------
Benefits and Perquisites
------------------------------------------- ----------------------------------------- --------------------------------
  Post-Termination Health Care (3)                              $12,760                              $12,760
------------------------------------------- ----------------------------------------- --------------------------------
Total                                                          $286,587                             $355,690
------------------------------------------- ----------------------------------------- --------------------------------

(1)  Assumes  termination  as of September  28, 2007.  The closing price for the
     Company's stock as of the last trading day of fiscal 2007 was $8.24.

(2)  Represents the value of accelerated  vesting of all outstanding awards upon
     a change in control. Unvested restricted stock also fully vests upon death,
     disability or retirement. This amount is $61,050.

(3)  Represents the value of post-termination health care benefits or equivalent
     severance payment.


                                  Bob Schuller
------------------------------------------------------------------------------------------------------------------------


      Executive Benefits and Payments                   Involuntary Not for                   Termination after a
            Upon Termination (1)                         Cause Termination                     Change in Control
--------------------------------------------- ----------------------------------------- --------------------------------
Compensation:
  Base Salary                                                    $239,091                             $239,091
--------------------------------------------- ----------------------------------------- --------------------------------
  Equity Vesting (2)                                                    -                             $139,911
--------------------------------------------- ----------------------------------------- --------------------------------
Benefits and Perquisites
--------------------------------------------- ----------------------------------------- --------------------------------
  Post-Termination Health Care (3)                                $12,051                              $12,051
--------------------------------------------- ----------------------------------------- --------------------------------
Total                                                            $251,142                             $391,053
--------------------------------------------- ----------------------------------------- --------------------------------


                                       85

(1)  Assumes  termination  as of September  28, 2007.  The closing price for the
     Company's stock as of the last trading day of fiscal 2007 was $8.24.

(2)  Represents the value of accelerated  vesting of all outstanding awards upon
     a change in control. Unvested restricted stock also fully vests upon death,
     disability or retirement. This amount is $128,536.

(3)  Represents the value of post-termination health care benefits or equivalent
     severance payment.

Director Compensation

All directors in 2007 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.  The Chairman of the Board  receives 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 each telephonic committee meeting
participation.  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
each  telephonic  meeting  participation.  A  director  who is  chairman  of the
Compensation  and/or Nominating and Governance  Committee is paid an annual cash
retainer of $3,500. The Audit Committee Chairman is paid an annual cash retainer
of $80,000.  All directors are reimbursed for out of pocket expenses incurred in
connection with attendance at Board and Committee meetings.

As called for by the Corporate Governance  Principles,  we have 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
2007, all directors were in compliance with this policy.

2007 Director Compensation Table

The  following  table  sets  forth  the  compensation  paid to our  non-employee
directors in 2007.

-------------------------------------------------------------------------------------------------
                                      Fees                 
                                    Earned or
                                     Paid in                Stock
             Name                     Cash                Awards (1)                   Total
-------------------------------------------------------------------------------------------------
David Allen                         $ 37,867              $ 20,000                    $57,867
-------------------------------------------------------------------------------------------------
Jonathan Baum                         44,150                20,000                     64,150
-------------------------------------------------------------------------------------------------
Mark Demetree                         25,200                20,000                     45,200
-------------------------------------------------------------------------------------------------
James Heeter                          39,700                20,000                     59,700
-------------------------------------------------------------------------------------------------
Ronald Kesselman                      49,384                20,000                     69,384
-------------------------------------------------------------------------------------------------
Terrance O'Brien                      25,850                20,000                     74,850
-------------------------------------------------------------------------------------------------
William Patterson                    185,200                20,000                    205,200
-------------------------------------------------------------------------------------------------
Tim Pollack                           22,050                20,000                     42,050
-------------------------------------------------------------------------------------------------
Raymond Silcock (2)                   36,067                20,000                     56,067
-------------------------------------------------------------------------------------------------
Robert Niehaus (2)                    22,050                20,000                     42,080
-------------------------------------------------------------------------------------------------

(1)  The amounts in this column  represent stock grants under our 2000 Plan. All
     stock is fully vested upon grant.  This column  reflects the dollar  amount
     recognized  for  financial  reporting  purposes  for the fiscal  year ended
     September  28, 2007,  in  accordance  with SFAS 123R  (excluding  estimated
     forfeitures).  Assumptions  used in the  calculations  of these amounts are
     included in Note 15 to our audited financial statements for the fiscal year
     ended September 28, 2007 included in this Annual Report on Form 10-K. There
     were no forfeitures during the year by these persons.  The table below sets
     forth the grant date fair  value of stock  awards in 2007 and the number of
     shares awarded in 2007.

(2)  Mr. Silcock resigned on August 2, 2007 and Mr. Niehaus  resigned  effective
     January 31, 2008.


                                       86

---------------------------------------------------------------------------------
                                     2007                       2007
                                 Awards Grant                Shares of
Name                            Date Fair Value            Stock Granted
---------------------------------------------------------------------------------
David Allen                        $20,000                     1,878
---------------------------------------------------------------------------------
Jonathan Baum                       20,000                     1,878
---------------------------------------------------------------------------------
Mark Demetree                       20,000                     1,878
---------------------------------------------------------------------------------
James Heeter                        20,000                     1,878
---------------------------------------------------------------------------------
Ronald Kesselman                    20,000                     1,878
---------------------------------------------------------------------------------
Terrance O'Brien                    20,000                     1,878
---------------------------------------------------------------------------------
William Patterson                   20,000                     1,878
---------------------------------------------------------------------------------
Tim Pollack                         20,000                     1,878
---------------------------------------------------------------------------------
Raymond Silcock                     20,000                     1,878
---------------------------------------------------------------------------------
Robert Niehaus                      20,000                     1,878
---------------------------------------------------------------------------------

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                             *
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 (4)                                             7,954                             *
Walter N. George (2)                                          219,185                           1.1
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.


                                       87

(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. 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.

                             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                                  2,898,223                     14.9%
     New York, NY 10166

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

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

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


                                       88

Kenmare Capital Partners L.L.C. (6)                               1,268,683                      6.5%
     712 5th Avenue, 9th Floor
     New York, NY 10019

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

Arnhold and S. Bleichroeder Advisors LLC (8)                      1,148,806                      5.9%
     1345 Avenue of Americas
     New York, NY 10105

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

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

(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.

(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.


                                       89

 (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.

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 28, 2007.  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
   approved by stockholders              1,170,378                     $17.04                      2,158,884
------------------------------- ---------------------------- ---------------------------- ----------------------------

(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 28, 2007. 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

                                       90

         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 28, 2007. 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

Policies and Procedures Regarding Related Party Transactions

The  Company  has not  adopted a formal  policy  with  respect to related  party
transactions.  All related party  transactions,  regardless  of size,  are first
reviewed by the  Nominating  and  Governance  Committee  who then reports to the
entire  Board  of  Directors  with  a  recommendation  as  to  approval  of  the
transaction. The Board of Directors then makes the final determination.

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


                                       91

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 or former director who served during the most
recent fiscal year has or had a material  relationship  with us and each current
or former 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.


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 2007 and 2006:

         Service                                         2007       2006
         -------                                    ------------  ----------

         Audit fees                                 $  1,260,000  $1,137,000
         Audit-related fees                               56,000     407,000
                                                    ------------  ----------
         Total audit and audit-related fees            1,316,000   1,544,000
                                                    ------------  ----------

                                                    ------------  ----------
         Total tax fees                                  344,000     536,000
                                                    ------------  ----------
         Total fees                                 $  1,660,000  $2,080,000
                                                    ============  ==========


Audit-related  fees principally relate to benefit plan audits and Sarbanes-Oxley
compliance.  Total  tax fees  principally  relate to tax  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.

                                     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 28, 2007, September 29, 2006
         and  September  30,  2005 and the  consolidated  balance  sheets  as of
         September 28, 2007 and  September  29, 2006,  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.


                                       92

                                   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 27, 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 27,  2008
-------------------------
William R. Patterson

/s/ John P. Kelly                   President, Chief Executive Officer and Director
-------------------------
John P. Kelly                       (principal executive officer)                                June 27,  2008

/s/ Paul R. Geist                   Executive Vice President and Chief Financial Officer         June 27,  2008
-------------------------
Paul R. Geist                       (principal financial and accounting officer)

/s/ Jonathan E. Baum                Director                                                     June 27,  2008
-------------------------
Jonathan E. Baum

/s/ Tim M. Pollak                   Director                                                     June 27,  2008
-------------------------
Tim M. Pollak

/s/ Mark C. Demetree                Director                                                     June 27,  2008
-------------------------
Mark C. Demetree

/s/ James A. Heeter                 Director                                                     June 27,  2008
-------------------------
James A. Heeter

/s/ Terence C. O'Brien              Director                                                     June 27,  2008
-------------------------
Terence C. O'Brien

/s/ David W. Allen                  Director                                                     June 27,  2008
-------------------------
David W. Allen

/s/ Ronald C. Kesselman             Director                                                     June 27,  2008
-------------------------
 Ronald C. Kesselman

/s/ Robert J. Druten                Director                                                     June 27,  2008
-------------------------
 Robert J. Druten


                                       93

           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.


                                       94

                 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 28, 2007:
Deducted from asset accounts:
   Allowance for doubtful accounts                       $ 1,989,000        $   163,000       $   282,000    $  1,870,000
   Allowance for slow-moving, damaged and
   discontinued inventory                                  1,499,000            788,000         1,644,000         643,000
                                                         -----------        -----------        ----------    ------------
Total                                                    $ 3,488,000        $   951,000        $1,926,000    $  2,513,000
                                                         ===========        ===========        ==========    ============

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
                                                         ===========       ============       ===========    ============


(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.


                                       95

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)).


                                       96

                    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).


                                       97

                  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


                                       98

                          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).

                  10.18*  American  Italian  Pasta  Company  Severance  Plan for
                          Senior Vice Presidents and Above.

(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.


                                       99