**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 
| **x**      | ** ** | **Quarterly  Report Pursuant to Section 13 or 15(d) of the Securities Exchange****Act of 1934** |
|------------|------------|-----------------------------------------------------------------------------------------------------------|
|       |       | **For  the quarterly period ended January 31, 2008**                                                 |
| ** ** | ** ** |                                                                                                      |
|       |       | **or**                                                                                                    |
| ** ** | ** ** |                                                                                                      |
| **o**      |       | **Transition  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act  of 1934**  |

 

----

 

**Commission File No. 000-50111**

 

----

 

**DAKOTA GROWERS PASTA COMPANY, INC.**

(Exactname of registrant as specified in its charter)

 

| **North Dakota**         | ** ** | **45-0423511**                    |
|--------------------------|------------|-----------------------------------|
| (State of incorporation) |       | (IRS Employer Identification No.) |

 

**One Pasta Avenue, Carrington, ND 58421**

(Addressof principal executive offices including zip code)

 

**(701) 652-2855**

(Registrant’stelephone number, including area code)

 

**NOT APPLICABLE**

(Formername, former address and former fiscal year, if changed since last report)

 

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

Yesx  Noo

 

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

| Large accelerated filer o |   | Accelerated filer o         |
|--------------------------------|--------|-----------------------------|
| Non-Accelerated filer x        |   | Smaller reporting company o |

 

Indicate bycheck mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

Yeso  Nox

 

As of March 17,2008, the Registrant had 10,192,413 shares of Common Stock, par value $0.01 pershare, outstanding.

 

 

----

 

**PART I – FINANCIAL INFORMATION**

 

**ITEM 1.FINANCIAL STATEMENTS**

 

**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(InThousands, Except Share Information)**

 
| ** **                                                                                                              | ** ** | **(Unaudited)**      | ** ** | ** **        | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|-------------------|------------|
| ** **                                                                                                              | ** ** | **January 31,** | ** ** | **July 31,** | ** ** |
| ** **                                                                                                              | ** ** | **2008**             | ** ** | **2007**          | ** ** |
| **ASSETS**                                                                                                              |       |                 |       |              |       |
|                                                                                                                    |       |                 |       |              |       |
| CURRENT ASSETS                                                                                                          |       |                 |       |              |       |
| Cash and cash  equivalents                                                                                              |       | $                    | 138        |              | $          | 89 |   |
|                                                                                                                    |       |                 |       |              |       |
| Trade accounts  receivable, less allowance for cash discounts and doubtful accounts of $1,141  and $1,048, respectively |       | 25,775               |       | 18,442            |       |
|                                                                                                                    |       |                 |       |              |       |
| Other receivables                                                                                                       |       | 1,077                |       | 360               |       |
|                                                                                                                    |       |                 |       |              |       |
| Inventories                                                                                                             |       | 39,588               |       | 31,329            |       |
|                                                                                                                    |       |                 |       |              |       |
| Prepaid expenses                                                                                                        |       | 1,313                |       | 1,389             |       |
|                                                                                                                    |       |                 |       |              |       |
| Deferred income  taxes                                                                                                  |       | 1,104                |       | 1,104             |       |
|                                                                                                                    |       |                 |       |              |       |
| Total current  assets                                                                                                   |       | 68,995               |       | 52,713            |       |
|                                                                                                                    |       |                 |       |              |       |
| PROPERTY AND  EQUIPMENT                                                                                                 |       |                 |       |              |       |
| In service                                                                                                              |       | 133,119              |       | 132,655           |       |
| Construction in  progress                                                                                               |       | 1,462                |       | 776               |       |
|                                                                                                                    |       | 134,581              |       | 133,431           |       |
| Less accumulated  depreciation                                                                                          |       | (64,907              | )          | (61,985           | )          |
|                                                                                                                    |       |                 |       |              |       |
| Net property and  equipment                                                                                             |       | 69,674               |       | 71,446            |       |
|                                                                                                                    |       |                 |       |              |       |
| INVESTMENT IN  COOPERATIVE BANK                                                                                         |       | 1,310                |       | 1,310             |       |
|                                                                                                                    |       |                 |       |              |       |
| INTANGIBLE  ASSETS, NET                                                                                                 |       | 2,691                |       | —            |       |
|                                                                                                                    |       |                 |       |              |       |
| GOODWILL                                                                                                                |       | 8,381                |       | 16,654            |       |
|                                                                                                                    |       |                 |       |              |       |
| OTHER ASSETS                                                                                                            |       | 851                  |       | 1,043             |       |
|                                                                                                                    |       |                 |       |              |       |
|                                                                                                                    |       | $                    | 151,902    |              | $          | 143,166 |   |

 

2

----

 

**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(InThousands, Except Share Information)**

 
| ** **                                                                                                                                        | ** ** | **(Unaudited)**      | ** ** | ** **        | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|-------------------|------------|
| ** **                                                                                                                                        | ** ** | **January 31,** | ** ** | **July 31,** | ** ** |
| ** **                                                                                                                                        | ** ** | **2008**             | ** ** | **2007**          | ** ** |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                    |       |                 |       |              |       |
|                                                                                                                                              |       |                 |       |              |       |
| CURRENT  LIABILITIES                                                                                                                              |       |                 |       |              |       |
| Excess  outstanding checks over cash on deposit                                                                                                   |       | $                    | 12,715     |              | $          | 1,759 |   |
| Accounts payable                                                                                                                                  |       | 7,312                |       | 7,352             |       |
| Accrued  liabilities                                                                                                                              |       | 5,706                |       | 5,921             |       |
| Notes payable                                                                                                                                     |       | 18,220               |       | 7,400             |       |
| Current portion  of long-term debt                                                                                                                |       | 9,495                |       | 9,481             |       |
|                                                                                                                                              |       |                 |       |              |       |
| Total current  liabilities                                                                                                                        |       | 53,448               |       | 31,913            |       |
|                                                                                                                                              |       |                 |       |              |       |
| COMMITMENTS AND  CONTINGENCIES                                                                                                                    |       | —               |       | —            |       |
| LONG-TERM DEBT,  net of current portion                                                                                                           |       | 33,543               |       | 40,681            |       |
| DEFERRED INCOME  TAXES                                                                                                                            |       | 14,305               |       | 13,474            |       |
|                                                                                                                                              |       |                 |       |              |       |
| Total  liabilities                                                                                                                                |       | 101,296              |       | 86,068            |       |
|                                                                                                                                              |       |                 |       |              |       |
| NONCONTROLLING  INTERESTS                                                                                                                         |       | —               |       | 7,948             |       |
|                                                                                                                                              |       |                 |       |              |       |
| STOCKHOLDERS’  EQUITY                                                                                                                        |       |                 |       |              |       |
|                                                                                                                                              |       |                 |       |              |       |
| Series D  delivery preferred stock, non-cumulative, $.01 par value, 11,340,841  authorized, 11,275,297 shares issued and outstanding         |       | 113                  |       | 113               |       |
| Series F  convertible preferred stock, non-cumulative, $.01 par value, 2,100,000 shares  authorized, 1,065,000 shares issued and outstanding |       | 11                   |       | 11                |       |
| Common stock,  $.01 par value, 75,000,000 shares authorized, 10,192,413 issued and  outstanding                                                   |       | 102                  |       | 102               |       |
| Additional  paid-in capital                                                                                                                       |       | 42,890               |       | 42,798            |       |
| Retained  earnings                                                                                                                                |       | 7,490                |       | 6,126             |       |
|                                                                                                                                              |       |                 |       |              |       |
| Total stockholders’  equity                                                                                                                  |       | 50,606               |       | 49,150            |       |
|                                                                                                                                              |       |                 |       |              |       |
| Total  liabilities and stockholders’ equity                                                                                                  |       | $                    | 151,902    |              | $          | 143,166 |   |

 

See Notes to ConsolidatedFinancial Statements

 

3

----

 

**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(In Thousands, Except Per ShareAmounts)(Unaudited)**

 
| ** **                                                                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **January 31,**             | ** ** |
| ** **                                                                         | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Net revenues  (net of discounts and allowances of $6,972 and $5,837, respectively) |       | $                                | 61,990     |   | $ | 47,174 |   |
|                                                                               |       |                             |       |   |   |
| Cost of goods  sold                                                                |       | 55,852                           |       | 42,072 |   |
|                                                                               |       |                             |       |   |   |
| Gross profit                                                                       |       | 6,138                            |       | 5,102 |   |
|                                                                               |       |                             |       |   |   |
| Marketing,  general and administrative expenses                                    |       | 4,766                            |       | 3,476 |   |
|                                                                               |       |                             |       |   |   |
| Operating income                                                                   |       | 1,372                            |       | 1,626 |   |
|                                                                               |       |                             |       |   |   |
| Other income  (expense)                                                            |       |                             |       |   |   |
| Interest and  other income                                                         |       | 2,032                            |       | 1,201 |   |
| Gain/(loss) on  disposition of property, equipment and other assets                |       | (9                               | )          | 13 |   |
| Interest  expense, net                                                             |       | (1,001                           | )          | (556 | ) |
|                                                                               |       |                             |       |   |   |
| Income before  noncontrolling interests and income taxes                           |       | 2,394                            |       | 2,284 |   |
|                                                                               |       |                             |       |   |   |
| Noncontrolling  interests                                                          |       | —                           |       | 171 |   |
|                                                                               |       |                             |       |   |   |
| Income before  income taxes                                                        |       | 2,394                            |       | 2,455 |   |
|                                                                               |       |                             |       |   |   |
| Income tax  expense                                                                |       | 933                              |       | 958 |   |
|                                                                               |       |                             |       |   |   |
| Net income                                                                         |       | 1,461                            |       | 1,497 |   |
| Dividends on  preferred stock                                                      |       | 283                              |       | 113 |   |
|                                                                               |       |                             |       |   |   |
| Net earnings on  common stock                                                      |       | $                                | 1,178      |   | $ | 1,384 |   |
|                                                                               |       |                             |       |   |   |
| Net earnings per  common share                                                     |       |                             |       |   |   |
| Basic                                                                              |       | $                                | 0.12       |   | $ | 0.11 |   |
|                                                                               |       |                             |       |   |   |
| Diluted                                                                            |       | $                                | 0.10       |   | $ | 0.11 |   |
|                                                                               |       |                             |       |   |   |
| Weighted average  common shares outstanding                                        |       |                             |       |   |   |
| Basic                                                                              |       | 10,192                           |       | 13,169 |   |
|                                                                               |       |                             |       |   |   |
| Diluted                                                                            |       | 11,773                           |       | 13,487 |   |
|                                                                               |       |                             |       |   |   |
| Dividends per  common share                                                        |       | $                                | 0.16       |   | $ | 0.14 |   |

 

See Notes to ConsolidatedFinancial Statements

 

4

----

 

**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(InThousands, Except Per Share Amounts)(Unaudited)**

 
| ** **                                                                           | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                           | ** ** | **January 31,**           | ** ** |
| ** **                                                                           | ** ** | **2008**                       | ** ** | **2007** | ** ** |
|                                                                                 |       |                           |       |   |   |
| Net revenues  (net of discounts and allowances of $14,153 and $12,556, respectively) |       | $                              | 116,792    |   | $ | 96,106 |   |
|                                                                                 |       |                           |       |   |   |
| Cost of goods  sold                                                                  |       | 102,141                        |       | 84,931 |   |
|                                                                                 |       |                           |       |   |   |
| Gross profit                                                                         |       | 14,651                         |       | 11,175 |   |
|                                                                                 |       |                           |       |   |   |
| Marketing,  general and administrative expenses                                      |       | 9,536                          |       | 6,717 |   |
|                                                                                 |       |                           |       |   |   |
| Operating income                                                                     |       | 5,115                          |       | 4,458 |   |
|                                                                                 |       |                           |       |   |   |
| Other income  (expense)                                                              |       |                           |       |   |   |
| Interest and  other income                                                           |       | 2,114                          |       | 1,208 |   |
| Loss on  disposition of property, equipment and other assets                         |       | (9                             | )          | (657 | ) |
| Interest  expense, net                                                               |       | (2,051                         | )          | (1,220 | ) |
|                                                                                 |       |                           |       |   |   |
| Income before  noncontrolling interests and income taxes                             |       | 5,169                          |       | 3,789 |   |
|                                                                                 |       |                           |       |   |   |
| Noncontrolling  interests                                                            |       | 202                            |       | 131 |   |
|                                                                                 |       |                           |       |   |   |
| Income before  income taxes                                                          |       | 5,371                          |       | 3,920 |   |
|                                                                                 |       |                           |       |   |   |
| Income tax  expense                                                                  |       | 2,094                          |       | 1,529 |   |
|                                                                                 |       |                           |       |   |   |
| Net income                                                                           |       | 3,277                          |       | 2,391 |   |
| Dividends on  preferred stock                                                        |       | 283                            |       | 113 |   |
|                                                                                 |       |                           |       |   |   |
| Net earnings on  common stock                                                        |       | $                              | 2,994      |   | $ | 2,278 |   |
|                                                                                 |       |                           |       |   |   |
| Net earnings per  common share                                                       |       |                           |       |   |   |
| Basic                                                                                |       | $                              | 0.29       |   | $ | 0.17 |   |
|                                                                                 |       |                           |       |   |   |
| Diluted                                                                              |       | $                              | 0.26       |   | $ | 0.17 |   |
|                                                                                 |       |                           |       |   |   |
| Weighted average  common shares outstanding                                          |       |                           |       |   |   |
| Basic                                                                                |       | 10,192                         |       | 13,169 |   |
|                                                                                 |       |                           |       |   |   |
| Diluted                                                                              |       | 11,707                         |       | 13,473 |   |
|                                                                                 |       |                           |       |   |   |
| Dividends per  common share                                                          |       | $                              | 0.16       |   | $ | 0.14 |   |

 

SeeNotes to Consolidated Financial Statements

 

5

----

 

**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(In Thousands)(Unaudited)**

 
| ** **                                                                             | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                             | ** ** | **January 31,**           | ** ** |
| ** **                                                                             | ** ** | **2008**                       | ** ** | **2007** | ** ** |
| OPERATING  ACTIVITIES                                                                  |       |                           |       |   |   |
| Net income                                                                             |       | $                              | 3,277      |   | $ | 2,391 |   |
| Adjustments to  reconcile net income to net cash from (used for) operating activities: |       |                           |       |   |   |
| Depreciation and  amortization                                                         |       | 3,348                          |       | 3,727 |   |
| Loss on  disposition of property, equipment and other assets                           |       | 9                              |       | 657 |   |
| Noncontrolling  interests                                                              |       | (202                           | )          | (131 | ) |
| Deferred income  taxes                                                                 |       | 831                            |       | 694 |   |
| Stock-based  employee compensation                                                     |       | 92                             |       | 92 |   |
| Changes in  assets and liabilities                                                     |       |                           |       |   |   |
| Trade  receivables                                                                     |       | (7,333                         | )          | (4,719 | ) |
| Other  receivables                                                                     |       | (717                           | )          | (223 | ) |
| Inventories                                                                            |       | (8,259                         | )          | 1,567 |   |
| Prepaid expenses                                                                       |       | 37                             |       | (85 | ) |
| Other assets                                                                           |       | 1                              |       | 6 |   |
| Accounts payable                                                                       |       | (40                            | )          | (1,167 | ) |
| Other accrued  liabilities                                                             |       | (215                           | )          | (492 | ) |
| NET CASH FROM  (USED FOR) OPERATING ACTIVITIES                                         |       | (9,171                         | )          | 2,317 |   |
|                                                                                   |       |                           |       |   |   |
| INVESTING  ACTIVITIES                                                                  |       |                           |       |   |   |
| Purchase of  interests in DNA Dreamfields                                              |       | (2,232                         | )          | — |   |
| Purchases of  property and equipment                                                   |       | (1,278                         | )          | (3,638 | ) |
| Proceeds from  sale of property, equipment and other assets                            |       | 5                              |       | — |   |
| Payments for  package design costs                                                     |       | (71                            | )          | (222 | ) |
| Proceeds from  other investments                                                       |       | 57                             |       | 116 |   |
| Other  investments                                                                     |       | —                         |       | (47 | ) |
| NET CASH USED  FOR INVESTING ACTIVITIES                                                |       | (3,519                         | )          | (3,791 | ) |
|                                                                                   |       |                           |       |   |   |
| FINANCING  ACTIVITIES                                                                  |       |                           |       |   |   |
| Net change in  excess outstanding checks over cash on deposit                          |       | 10,956                         |       | 772 |   |
| Net change in  short-term notes payable                                                |       | 10,820                         |       | 8,100 |   |
| Principal payments  on long-term debt                                                  |       | (6,972                         | )          | (5,771 | ) |
| Principal  payments under capital lease obligation                                     |       | (152                           | )          | — |   |
| Dividends paid  on common stock                                                        |       | (1,630                         | )          | (1,843 | ) |
| Dividends paid  on preferred stock                                                     |       | (283                           | )          | (113 | ) |
| Investments by  noncontrolling interests                                               |       | —                         |       | 21 |   |
| NET CASH FROM  FINANCING ACTIVITIES                                                    |       | 12,739                         |       | 1,166 |   |
|                                                                                   |       |                           |       |   |   |
| NET CHANGE IN  CASH AND CASH EQUIVALENTS                                               |       | 49                             |       | (308 | ) |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                                        |       | 89                             |       | 343 |   |
| CASH AND CASH  EQUIVALENTS, END OF PERIOD                                              |       | $                              | 138        |   | $ | 35 |   |
|                                                                                   |       |                           |       |   |   |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION                                     |       |                           |       |   |   |
| Cash payments  for                                                                     |       |                           |       |   |   |
| Interest (net of  amounts capitalized)                                                 |       | $                              | 2,183      |   | $ | 1,343 |   |
|                                                                                   |       |                           |       |   |   |
| Income taxes                                                                           |       | $                              | 2,510      |   | $ | 1,559 |   |
|                                                                                   |       |                           |       |   |   |
| SUPPLEMENTAL  DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES                 |       |                           |       |   |   |
| Purchase of  interests in DNA Dreamfields                                              |       |                           |       |   |   |
| Goodwill  reduction                                                                    |       | $                              | (8,273     | ) |   |   |
| Amortizable  intangibles                                                               |       | 2,759                          |       |   |   |
| Noncontrolling  interests reduction                                                    |       | 7,746                          |       |   |   |
|                                                                                   |       |                           |       |   |   |
|                                                                                   |       | $                              | 2,232      |   |   |   |

 

SeeNotes to Consolidated Financial Statements

 

6

----

 

**DAKOTAGROWERS PASTA COMPANY, INC.**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

The following notes should beread in conjunction with the notes to the financial statements for the yearended July 31, 2007 as filed in the Company’s Form 10-K.

 

**NOTE 1 - ORGANIZATION**

** **

Dakota GrowersPasta Company, Inc. (“Dakota Growers” or “the Company”) is a North Dakotacorporation that operates a milling and pasta manufacturing facility inCarrington, North Dakota. The Company’s wholly-owned subsidiary, Primo Piatto, Inc.(“Primo Piatto”), a Minnesota corporation, operates a pasta manufacturingfacility in New Hope, Minnesota.  DNADreamfields Company, LLC (“DNADreamfields”) became a wholly-owned subsidiary on September 21, 2007 (SeeNote 7).

 

**NOTE 2 – FINANCIAL STATEMENT PRESENTATION**

** **

The unauditedconsolidated financial statements included herein have been prepared pursuantto the rules and regulations of the Securities and Exchange Commission forquarterly reporting. Accordingly, they do not include all the information andfootnotes required by accounting principles generally accepted in the UnitedStates of America for complete financial statements. In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals except forthe pension accrual as disclosed in Note 13) considered necessary for a fairpresentation have been included. Operating results for the three and six monthperiods ended January 31, 2008 are not necessarily indicative of theresults that may be expected for the year ended July 31, 2008. Theunaudited consolidated financial statements included in this Form 10-Qshould be read in conjunction with the consolidated financial statements andfootnotes included in the Company’s Form 10-K for the year ended July 31,2007. The information contained in the balance sheet as of July 31, 2007was derived from the Company’s audited annual report for fiscal year 2007.Reclassifications have been made to facilitate comparability with currentpresentation. Such reclassifications have no effect on the net results ofoperations.

 

The financialinformation presented herein includes the consolidated balance sheets andresults of operations of theCompany, its wholly-owned subsidiary, Primo Piatto, Inc., and DNADreamfields, which the Company began to consolidate in fiscal year 2005. Allmaterial inter-company accounts and transactions have been eliminated in thepreparation of the consolidated financial statements.

 

**NOTE 3 – NEW ACCOUNTING STANDARDS**

** **

In September 2006,the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”).SFAS No. 157 defines fair value, establishes a framework for measuringfair value and expands disclosure of fair value measurements. SFAS No. 157applies under other accounting pronouncements that require or permit fair valuemeasurements and accordingly, does not require any new fair value measurements. Theprovisions of SFAS No. 157, as amended by FSP No. 157-2 are effectivefor the specified fair value measures for financial statements issued forfiscal years beginning after November 15, 2008 and interim periods withinthose fiscal years for items within scope. We have not yet assessed the impact, if any, that theimplementation of SFAS No. 157 will have on our consolidated results ofoperations or financial condition.

 

In September 2006, the U.S. Securities and Exchange Commission(SEC) issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior YearMisstatements when Quantifying Misstatements in Current Year FinancialStatements”**(SAB 108). SAB108 addresses the diversity in practice of quantifying financial statementmisstatements resulting in the potential build up of improper amounts on thebalance sheet. SAB 108 provides interpretive guidance on how the effects of thecarryover or reversal of prior year misstatements should be considered inquantifying a current year misstatement. The SEC staff believes thatregistrants should quantify errors using both a balance sheet and an income statementapproach and evaluate whether either approach results in quantifying amisstatement that, when all relevant quantitative and qualitative factors areconsidered, is material. SAB 108 was effective in fiscal year 2007. SAB 108allows a one-time transitional cumulative effect adjustment to beginningretained earnings for errors that were not previously deemed material, but arematerial 

 

7

----

 

**DAKOTAGROWERS PASTA COMPANY, INC.**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

under the guidance in SAB 108. The adoption of SAB 108 did not have amaterial effect on the Company’s financial statements.

 

InFebruary 2007, the FASB issued SFAS No. 159, “The Fair Value Optionfor Financial Assets and Financial Liabilities—Including an amendment of FASBStatement No. 115” (“SFAS 159”). SFAS 159 expands the use of fair valueaccounting but does not affect existing standards which require assets orliabilities to be carried at fair value. Under SFAS 159, a company may elect touse fair value to measure accounts and loans receivable, available-for-sale andheld-to-maturity securities, equity method investments, accounts payable,guarantees and issued debt. Other eligible items include firm commitments. SFASNo. 159 is effective for financial statements issued for fiscal yearsbeginning after November 15, 2007. We are currently evaluating the impactthat FAS 159 will have on our financial statements.

 

InDecember 2007, FASB issued SFAS 141 (Revised 2007), “Business Combinations”.The objective of SFAS 141 (Revised 2007) is to improve the relevance,representational faithfulness, and comparability of the information that areporting entity provides in its financial reports about a business combinationand its effects. SFAS 141 (Revised 2007) requires an acquirer to recognize theassets acquired, the liabilities assumed, and any noncontrolling interest inthe acquiree at the acquisition date, measured at their fair values as of thatdate. SFAS 141 (Revised 2007) also requires the acquirer to recognize andmeasure the goodwill acquired in a business combination or a gain from abargain purchase and how to evaluate the nature and financial effects of thebusiness combination. SFAS 141 (Revised 2007) is effective for financialstatements issued for fiscal years beginning after December 15, 2008. TheCompany is in the process of evaluating the impact, if any, that the adoptionof SFAS 141 (Revised 2007) will have on its financial statements.

 

InDecember 2007, FASB issued SFAS 160, “Noncontrolling Interests inConsolidated Financial Statements-an amendment of ARB No. 51”. Theobjective of SFAS 160 is to improve the relevance, comparability, andtransparency of the financial information that a reporting entity provides inits consolidated financial statements. SFAS 160 amends ARB No. 51 toestablish accounting and reporting standards for the noncontrolling interest ina subsidiary and for the deconsolidation of a subsidiary. SFAS 160 also changesthe way the consolidated income statement is presented, establishes a singlemethod of accounting for changes in a parent’s ownership interest in asubsidiary that do not result in deconsolidation, requires that a parentrecognize a gain or loss in net income when a subsidiary is deconsolidated andexpanded disclosures in the consolidated financial statements that clearlyidentify and distinguish between the interests of the parent’s owners and theinterest of the noncontrolling owners of a subsidiary. SFAS 160 is effectivefor financial statements issued for the fiscal years beginning on or after December 15,2008. The Company is in the process of evaluating the impact, if any, that theadoption of SFAS 160 will have on its financial statements.

 

In December 2007, the SECpublished the Staff Accounting Bulletin (“SAB”) No. 110, which amends SAB No.107 by extending the usage of a “simplified” method, as discussed in SAB No.107, in developing an estimate of expected term of “plain vanilla” shareoptions in accordance with SFAS No. 123 (revised 2004), Share-BasedPayment.  In particular, the staffindicated in SAB 107 that it will accept a company’s election to use thesimplified method, regardless of whether the company has sufficient informationto make more refined estimates of expected term.  We are evaluating SAB 110 and its impact onfuture employee stock option grants.

 

**NOTE 4 – INVENTORIES**

** **

Inventoriesare valued at lower of cost or market. Inventories as of January 31, 2008include raw materials and packaging of $9,659,000 and finished goods of$29,929,000. Inventories at July 31, 2007 include raw materials andpackaging of $8,456,000 and finished goods of $22,873,000.

 

###### **NOTE5 – LOAN AGREEMENTS**

###### ** **

In January 2008, the Company increased its revolving creditfacility with CoBank to $45 million from the prior facility of $25 million.This facility extends through January 15, 2009. Interest on the revolvingline is at the 7-day LIBOR rate subject to performance adjustments dependingupon the Company’s ratio of total debt to earnings before interest, taxes,depreciation and amortization or “EBITDA.” The higher the ratio the higher theadjustment to the 7-day LIBOR rate within a range of 175 to 275 basis pointsabove the 7-day LIBOR rate.  Fixed interest rate options are alsoavailable. The balances outstanding under the revolving credit arrangementstotaled $18.2 million and $7.4 million as of January 31, 2008 and July 31,2007, respectively.  The Company had$26.8 million

 

8

----

** **

**DAKOTA GROWERS PASTA COMPANY, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

and $17.6 million available for borrowings under the line of credit asof January 31, 2008 and July 31, 2007, respectively.

 

The Company’s various debt agreements with CoBank and certaininstitutional note holders obligate the Company to maintain or achieve certainamounts of equity and certain financial ratios and impose certain restrictionson the Company. The Company was in compliance with these financial covenants asof January 31, 2008.

 

###### **NOTE6 – EARNINGS PER SHARE**

 

Basic earnings per share (EPS) is calculated by dividing net earningson Common Stock by the weighted average number of common shares outstandingduring the period. Diluted EPS includes the effect of all potentially dilutivesecurities, such as stock options and convertible preferred stock.

 

Dilutive securities, consisting of stock options and convertiblepreferred stock, included in the calculation of diluted weighted average commonshares totaled 1,581,000 and 318,000 for the three months ended January 31,2008 and 2007, respectively. Dilutive securities totaled 1,515,000 and 304,000for the six months ended January 31, 2008 and 2007, respectively. The Series FConvertible Preferred Stock is included in the fully diluted EPS calculationand not included in the basic EPS calculation. As there is currently noestablished public trading market for the Company’s Common Stock, the Companyhas assumed the proceeds from the exercise of stock options would reduce debtand, thus, interest expense.

 

**NOTE 7 –DNA DREAMFIELDS COMPANY, LLC**

 

Effective May 1, 2005, the Company’s ownership in DNA Dreamfieldsincreased to 46.7%. In conjunction withthe Company’s increase in ownership in DNA Dreamfields and changes in theDNA Dreamfields operating agreement and other contractual arrangements, the Company determined that DNADreamfields was a variable interest entity under FASB Interpretation No. 46(R),“Consolidation of Variable Interest Entities,” and that the Company was theprimary beneficiary. Therefore, effective May 1, 2005, the Company beganto include DNA Dreamfields in its consolidated financial statements.

 

Effective September 21, 2007, the Companyacquired the remaining units of DNA Dreamfields, increasing its ownership to100%.  Pursuant to the terms of thepurchase agreement, the Company acquired the remaining units for an aggregatepurchase price of $2,231,614 or $37,393 per purchased unit.  In conjunction with this purchase, theCompany eliminated the noncontrolling interests, recorded amortizableintangible assets (covenants not-to-compete and technology license) and reducedrecorded goodwill associated with the buyout of DNA Dreamfields in the Company’sfirst quarter of fiscal year 2008. The Company will continue to include DNADreamfields in its consolidated financial statements.

 

###### **NOTE8 – DIVIDENDS**

 

OnDecember 20, 2007, the Company’s Board of Directors authorized the paymentof non-periodic dividends of 1 cent per share on its Series D DeliveryPreferred Stock, 16 cents per share on its Common Stock and 16 cents per shareon its Series F Convertible Preferred Stock, payable on January 15,2008 to shareholders of record as of December 31, 2007.

 

OnDecember 14, 2006, the Company’s Board of Directors authorized the paymentof non-periodic dividends of 1 cent per share on its Series D DeliveryPreferred Stock and 14 cents per share on its Common Stock, payable on January 3,2007 to shareholders of record as of December 20, 2006.

 

9

----

 

**DAKOTA GROWERS PASTA COMPANY, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**NOTE 9 – GOODWILL AND OTHER INTANGIBLE ASSETS**

 

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” goodwill and intangible assets with indefinite useful lives are to be tested for impairment at least annually. As of January 31, 2008, the value of goodwill was $8.4 million.

 

Amortizable intangible assets are amortized using the straight-line method over their estimated useful lives, which is the estimated period over which economic benefits are expected to be provided. In conjunction with the acquisition of the remaining units of DNA Dreamfields (See Note 7), the Company recorded amortizable intangible assets including covenants not-to-compete and a technology license.  The covenants not-to-compete totaling $112,000 will be amortized over 36 months. The technology license totaling $2.6 million will be amortized over its estimated useful life of approximately 16 years.

 
| ** **                            | ** ** | **As of January 31, 2008 (in thousands)** | ** ** |
|---------------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Gross Carrying**                                                 | ** ** | **Accumulated** | ** ** | **Net Carrying** | ** ** |
| ** **                            | ** ** | **Amount**                                                              | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
|                                  |       |                                                                    |       |   |   |   |   |
| Covenants  not-to-compete             |       | $                                                                       | 112        |   | $ | (12 | ) | $ | 100 |   |
| Technology  license                   |       | 2,647                                                                   |       | (56 | ) | 2,591 |   |
|                                  |       |                                                                    |       |   |   |   |   |
| Total intangible  assets              |       | 2,759                                                                   |       | (68 | ) | 2,691 |   |
|                                  |       |                                                                    |       |   |   |   |   |
| Goodwill                              |       | 8,381                                                                   |       | — |   | 8,381 |   |
|                                  |       |                                                                    |       |   |   |   |   |
| Total goodwill  and intangible assets |       | $                                                                       | 11,140     |   | $ | (68 | ) | $ | 11,072 |   |

 

Amortization expense of intangible assets for the six months ended January 31, 2008 was $68,000.

 

The following table estimates amortization expense for the next five years (in thousands):

** **
| ** **                                           | ** ** | **Covenants**      | ** ** | **Technology** | ** ** |
|------------------------------------------------------|------------|--------------------|------------|----------------|------------|
| **Fiscal years ending July 31,** | ** ** | **Not-To-Compete** | ** ** | **License**    | ** ** |
|                                                 |       |               |       |           |       |
| 2008                                                 |       | $                  | 31         |           | $          | 138 |   |
| 2009                                                 |       | 37                 |       | 165            |       |
| 2010                                                 |       | 37                 |       | 165            |       |
| 2011                                                 |       | 7                  |       | 165            |       |
| 2012                                                 |       | —             |       | 165            |       |
| 2013 and thereafter                                  |       | —             |       | 1,849          |       |
|                                                 |       |               |       |           |       |
|                                                 |       | $                  | 112        |           | $          | 2,647 |   |

 

10

----

 

**DAKOTA GROWERS PASTA COMPANY, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**NOTE 10 – STOCK OPTIONS**

 

Effective August 1,2005, the Company adopted Statement of Financial Accounting Standard No. 123(revised 2004), “Share Based Payment” (SFAS No. 123R). Under SFAS No. 123R,the Company is required to recognize, as expense, the estimated fair value ofall share based payments to employees. In accordance with this standard, theCompany has elected to recognize the compensation cost of all service basedawards on a straight-line basis over the vesting period of the award.Performance based awards are recognized ratably for each vesting tranche. TheCompany recorded stock-based employee compensation expense of $92,000 for thesix months ended January 31, 2008 and 2007.

 

The following tables set forth information regardingstock options outstanding and exercisable:

 
| ** **                            | ** ** | **Options to purchase Series C Convertible Preferred Stock** | ** ** |
|---------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Number of**                                                                              | ** ** | ** ** | ** ** | **Weighted** | ** ** | ** ** | ** ** |
| ** **                            | ** ** | **Series C**                                                                               | ** ** | **Option** | ** ** | **Average** | ** ** | ** ** | ** ** |
| ** **                            | ** ** | **Convertible**                                                                                 | ** ** | **Price** | ** ** | **Exercise** | ** ** | ** ** | ** ** |
| ** **                            | ** ** | **Preferred Shares**                                                                       | ** ** | **per Share** | ** ** | **Price** | ** ** | **Exercisable** | ** ** |
|                                  |       |                                                                                            |       |   |   |   |   |   |   |
| Outstanding at  July 31, 2007    |       | 1,977                                                                                           |       | $100-$150 |   | $ | 117.35 |   | 1,977 |   |
| Exercised                             |       | —                                                                                          |       |   |   |   |   |   |   |
| Granted                               |       | —                                                                                          |       |   |   |   |   |   |   |
| Forfeited/Expired                     |       | —                                                                                          |       |   |   |   |   |   |   |
| Outstanding at  January 31, 2008 |       | 1,977                                                                                           |       | $100-$150 |   | $ | 117.35 |   | 1,977 |   |

 
| ** **                            | ** ** | **Options to purchase Common Stock** | ** ** |
|---------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                            | ** ** | ** **                                               | ** ** | ** ** | ** ** | **Weighted** | ** ** | ** ** | ** ** |
| ** **                            | ** ** | ** **                                               | ** ** | **Option** | ** ** | **Average** | ** ** | ** ** | ** ** |
| ** **                            | ** ** | **Number of**                                       | ** ** | **Price** | ** ** | **Exercise** | ** ** | ** ** | ** ** |
| ** **                            | ** ** | **Common Shares**                                   | ** ** | **per Share** | ** ** | **Price** | ** ** | **Exercisable** | ** ** |
|                                  |       |                                                     |       |   |   |   |   |   |   |
| Outstanding at  July 31, 2007    |       | 653,013                                                  |       | $4.00-$6.25 |   | $ | 5.10 |   | 317,243 |   |
| Exercised                             |       | —                                                   |       |   |   |   |   |   |   |
| Granted                               |       | —                                                   |       |   |   |   |   |   |   |
| Forfeited/Expired                     |       | —                                                   |       |   |   |   |   |   |   |
| Outstanding at  January 31, 2008 |       | 653,013                                                  |       | $4.00-$6.25 |   | $ | 5.10 |   | 485,128 |   |

 

11

----

 

**DAKOTA GROWERS PASTA COMPANY, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

A summary of the status of theCompany’s issued but nonvested stock options as of July 31, 2007, andchanges during the six months ended January 31, 2008, is presented below:

 
| ** **                            | ** ** | ** ** | ** ** | **Weighted-Average** | ** ** |
|---------------------------------------|------------|------------|------------|----------------------|------------|
| ** **                            | ** ** | **Common** | ** ** | **Grant-Date**       | ** ** |
| **Nonvested Stock Options** | ** ** | **Shares** | ** ** | **Fair Value**  | ** ** |
|                                  |       |       |       |                 |       |
| Nonvested at July 31,  2007      |       | 335,770    |       | $                    | 4.81       |   |
| Granted                               |       | —     |       |                 |       |
| Vested                                |       | (167,885   | )          | $                    | 4.81       |   |
| Forfeited/Expired                     |       | —     |       |                 |       |
| Nonvested at  January 31, 2008   |       | 167,885    |       | $                    | 4.81       |   |

 

As of January 31, 2008, there was approximately$204,000 of total unrecognized compensation cost related to nonvested employeestock options.  That cost is expected to be recognized over a period of1.75 years.

 

**NOTE 11 – CONTINUED DUMPING AND SUBSIDY OFFSET ACT OF 2000**

 

U.S.Customs and Border Protection (“Customs”) has distributed antidumping and countervailingduties assessed on certain pasta imported from Italy and Turkey to affecteddomestic producers pursuant to the Continued Dumping and Subsidy Offset Act of2000 (the “Offset Act”), which was enacted in October 2000. The Companyreceived payments in the amount of $2,200,000 and $1,300,000 in December 2007and 2006, respectively, under the Offset Act. These amounts have beenclassified as other income. The Company cannot reasonably estimate thepotential amount, if any, that it may receive under the Offset Act in futureperiods as any such amount will be based upon future events over which theCompany has little or no control, including but not limited to federallegislation, the amount of expenditures by domestic pasta producers and theamount of antidumping and countervailing duties collected by Customs.  The Act, also known as the Byrd Amendment,has been repealed and therefore, duties assessed on pasta imports after September 30,2007 will no longer be distributed to domestic producers.  However, amounts collected (whether suchcollections occur before or after September 30, 2007) related to dutiesassessed on pasta entries prior to September 30, 2007, are expected to beavailable for future distribution to domestic producers.

 

###### **NOTE12 – COMMITMENTS**

 

The Company forward contracts for a certain portion of its future durumwheat requirements. The Company had outstanding commitments for grain purchasestotaling $89,892,000 as of January 31, 2008, related to forward purchasecontracts. These contracts are set price contracts to deliver grain to theCompany’s mill, and are not derivative in nature as they have no net settlementprovision and are not transferable.

 

**NOTE 13 -  EMPLOYEEBENEFIT PLANS**

** **

In January 2008,the Company reached an agreement with the Teamsters Local No. 120,affiliated with the International Brotherhood of Teamsters, on a three-yearcontract covering the period from December 1, 2007 through December 1,2010.  The contract allows the Company towithdraw employees from the Central States Southeast and Southwest AreasPension Fund (the “Fund”), a multi-employer pension plan.  In conjunction with the Company’s withdrawal,it will make an $850,000 estimated payment to cover the withdrawal liabilityand an additional $110,000 estimated payment into the Company’s 401(k) planfor non-vested employee amounts in the Fund. The Company recorded a $960,000 non-recurring pre-tax charge in itsfiscal second quarter ending January 31, 2008 to reflect these costsassociated with the withdrawal from the Fund.

 

12

----

 

**DAKOTA GROWERS PASTA COMPANY, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**NOTE 14 – INCOME TAXES**

 

The Company adopted the provisions of FASB Interpretation No. 48 “Accounting for Uncertainty of Income Taxes - An Interpretation of FASB Statement No. 109” (“FIN 48”) on August 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“FAS 109”). This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition. As a result of the implementation of FIN 48, the Company recorded no increase in the liability for unrecognized tax benefits and the balance of unrecognized tax benefits was zero at August 1, 2007 and as of January 31, 2008.

 

The Company has adopted theaccounting policy that interest recognized in accordance with Paragraph 15 ofFIN 48 and penalty recognized in accordance with Paragraph 16 of FIN 48 areclassified as part of income taxes. The total amount of interest and penaltyrecognized in the statements of financial position and statements of operationswas zero as of August 1, 2007 and January 31, 2008 and for thesix-months ended January 31, 2008. The Company does not anticipate anysignificant change within 12 months of this reporting date of its uncertain taxpositions. The Company is subject to taxation in the United States and variousstate jurisdictions. There are no ongoing income tax examinations by taxingauthorities at this time. The Company’s various tax years starting 2002 to 2007remain open in various taxing jurisdictions.

 

13

----

 

**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

 

ThisManagement’s Discussion and Analysis of Financial Condition and Results ofOperations (MD&A) should be read in conjunction with the MD&A includedin the Company’s Form 10-K for the year ended July 31, 2007.

 

**Forward-Looking Statements**

 

Thefollowing discussion contains forward-looking statements. Such forward-lookingstatements include, among others, those statements including the words “expect”,“anticipate”, “believe”, “may” and similar expressions. Such statements arebased on assumptions by the Company’s management as of the date of thisQuarterly Report, and are subject to risks and uncertainties, including thosediscussed in the Company’s Form 10-K for the year ended July 31, 2007under “Risk Factors,” that could cause actual results to differ materially fromthose anticipated. The Company cautions readers not to place undue reliance onsuch forward-looking statements. The Company will not update anyforward-looking statements in this Quarterly Report to reflect future events ordevelopments.

 

**Summary**

 

Dakota Growers is the third largest pastamanufacturer in North America. The Company has two production plants, locatedin Carrington, North Dakota and New Hope, Minnesota, and generates a majorityof its revenues from manufacturing pasta for the retail store brand,foodservice and ingredient markets. The Company’s cost of goods sold consistsmainly of raw materials (primarily durum wheat), packaging, and manufacturingand distribution costs.  The Companycompetes through low cost production, high product quality, flexibility andcustomer service.

 

Netincome for the quarters ended January 31, 2008 and January 31, 2007totaled $1.5 million.  Net income for thesix months ended January 31, 2008 totaled $3.3 million compared to $2.4million for the six months ended January 31, 2007.The Company recorded a $960,000 non-recurringpre-tax charge in its fiscal second quarter ending January 31, 2008 toreflect the costs associated with the withdrawal from the Central StatesSoutheast and Southwest Areas Pension Fund. The Company paid dividendsof $0.01 per share on its Series D Delivery Preferred Stock, $0.16 pershare on its Series F Convertible Preferred Stock and $0.16 per share onits Common Stock during the second quarter of fiscal year 2008. Net earnings per basic common share, afterthe effect of dividends on preferred stock, were $0.12 per share for thequarter ended January 31, 2008, compared to $0.11 per share for thequarter ended January 31, 2007. Net earnings per basic common share were$0.29 per share for the six months ended January 31, 2008 and $0.17 pershare for the six months ended January 31, 2007.

 

The Company’s net revenues increased 31.4% for thequarter ended January 31, 2008 and 21.5% for the six months ended January 31,2008 when compared to the same periods of the prior year.  The increase resulted primarily from higherpasta per unit selling prices and, to a lesser extent, higher semolina and millby-product sales prices. Benefits derived from higher selling prices werepartially offset by higher durum costs. Durum prices have continued to increase significantly during fiscal year2008 when compared to fiscal year 2007 prices. The Company has generally been successful in obtaining sales priceincreases to offset higher durum costs. However, if the Company is unable to pass through higher durum or otherinput costs on a timely basis, our financial results may be adversely affected.

 

**Critical Accounting Policies**

 

Theaccompanying discussion and analysis of our results of operations and financialcondition are based upon our consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States. The preparation of these financial statements requiresmanagement to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses, and related disclosure ofcontingent assets and liabilities. These estimates form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. We base our estimates and judgments onhistorical experience and on various other assumptions that we believe arereasonable under the circumstances. However, future events are subject tochange and the best estimates and judgments may require 

 

14

----

 

adjustment.For a complete description of the Company’s significant accounting policies,please see Note 1 to the consolidated financial statements included in theCompany’s Form 10-K for the year ended July 31, 2007. Our criticalaccounting policies are those that have meaningful impact on the reporting ofour financial condition and results, and that require significant managementjudgment and estimates. These policies include our accounting for (a) allowancefor doubtful accounts, (b) inventory valuation, (c) asset impairment,and (d) income taxes.

 

*Allowance for Doubtful Accounts*

 

Weevaluate the collectibility of our accounts receivable based on a combinationof factors. In cases where we are aware of circumstances that may impair aspecific customer’s ability to meet its financial obligations to us, we recorda specific allowance against amounts due to us, and thereby reduce the netrecognized receivable to the amount we reasonably believe will be collected.For all other customers, we recognize allowances for doubtful accounts based onthe length of time the receivables are past due and our historical experience.If the financial condition of our customers deteriorates, additional allowancesmay be required in the future that could have an adverse impact on our futureoperating results.

 

*InventoryValuation*

 

Inventories are stated atthe lower of cost or market, determined on a first-in, first-out (FIFO) basis,using product specific standard costs. The Company analyzes variances betweenactual manufacturing costs incurred and amounts absorbed at inventory standardcosts. Inventory valuations are adjusted for these variances as applicable. TheCompany regularly evaluates its inventories and recognizes inventory allowancesfor discontinued and slow-moving inventories based upon these evaluations.

 

*Asset Impairment*

 

Weare required to evaluate our long-lived assets, including goodwill, forimpairment and write down the value of any assets if they are determined to beimpaired. Evaluating the impairment of long-lived assets involves managementjudgment in estimating the future cash flows and fair values related to theseassets. Future events could cause management to conclude that impairmentindicators exist and that the value of certain long-lived assets is impaired.

 

*Income Taxes*

 

Indetermining income (loss) for financial statement purposes, management mustmake certain estimates and judgments in calculating tax liabilities and indetermining the recoverability of certain deferred tax assets. Deferred taxassets must be reduced by a valuation allowance if, based on the weight ofavailable evidence, it is more likely than not that some portion or all of therecorded deferred tax assets will not be realized in future periods. Managementbelieves it is likely that the deferred tax assets as of January 31, 2008will be realized through the generation of future taxable income and taxplanning strategies.

 

**Results of Operations**

 

*Comparison of the Three Months Ended January 31,2008 and 2007*

 

***Net Revenues.***Netrevenues totaled $62.0 million for the three months ended January 31,2008, an increase of $14.8 million, or 31.4%, compared to $47.2 million for thethree months ended January 31, 2007. Overall, pasta per unit selling prices increased 22.9% while pasta salesvolumes increased 1.4%. Retail revenues increased $4.4 million, or 20.1%, dueto a 25.0% increase in average selling prices offset by a 3.9% volume decline.Foodservice revenues increased $2.5 million, or 19.3%, due to a 22.8% increasein average selling prices offset by a 2.9% volume decline. Ingredient revenuesincreased $3.7 million, or 44.3%, due to a 26.2% increase in average sellingprices and a 14.4% volume gain.

 

The Company marketssemolina production in excess of its own requirements as well as durum wheatflour, other flour blends and by-products of the durum milling process.Revenues from mill product sales totaled $8.0 million 

 

15

----

 

for the three monthsended January 31, 2008, an increase of $4.2 million when compared to thesame period of the prior year.  Theincrease is due to increases in both sales volumes and per unit selling prices.

 

***Cost of Goods Sold.*** Cost of goods sold increased 32.8%, to$55.9 million for the three months ended January 31, 2008, compared to$42.1 million for the three months ended January 31, 2007. The increasewas primarily due to higher durum costs. Gross profit as a percentage of net revenues decreased to 9.9% for thethree months ended January 31, 2008, from 10.8% for the three months endedJanuary 31, 2007 as benefitsrealized from sales price increases were largely offset by higher durum costs.

 

In January 2008, the Company reached anagreement with the Teamsters Local No. 120, affiliated with theInternational Brotherhood of Teamsters, on a three-year contract covering theperiod from December 1, 2007 through December 1, 2010.  The contract allows the Company to withdrawemployees from the Central States Southeast and Southwest Areas Pension Fund(the “Fund”), a multi-employer pension plan. In conjunction with the Company’s withdrawal, it will make an $850,000estimated payment to cover the withdrawal liability and an additional $110,000estimated payment into the Company’s 401(k) plan for non-vested employeeamounts in the Fund.  The Companyrecorded a $960,000 non-recurring pre-tax charge in its fiscal second quarterending January 31, 2008 to reflect these costs associated with thewithdrawal from the Fund.

 

***Marketing, General, and Administrative (“MG&A”) Expenses.*** MG&Aexpenses increased 37.1% to $4.8 million for the three months ended January 31,2008, compared to $3.5 million for the three months ended January 31,2007. The increase was primarily due to higher consumer advertising costsassociated with DreamfieldsTM pasta products. MG&A expenses as apercentage of net revenues increased to 7.7% for the three months ended January 31,2008, from 7.4% for the comparable quarter of the prior year.

 

***Interest and Other Income.*** Interestand other income totaled $2.0 million for the three months ended January 31,2008, compared to $1.2 million for the three months ended January 31,2007. U.S. Customs and Border Protection (“Customs”) has distributedantidumping and countervailing duties assessed on certain pasta imported fromItaly and Turkey to affected domestic producers pursuant to the ContinuedDumping and Subsidy Offset Act of 2000 (the “Offset Act”), which was enacted inOctober 2000. The Company received payments in the amount of $2.2 millionand $1.3 million in December 2007 and 2006, respectively, under the OffsetAct. These amounts have been classified as other income. The Company cannotreasonably estimate the potential amount, if any, that it may receive under theOffset Act in future periods as any such amount will be based upon futureevents over which the Company has little or no control, including but notlimited to federal legislation, the amount of expenditures by domestic pastaproducers and the amount of antidumping and countervailing duties collected byCustoms.  The Act, also known as the ByrdAmendment, has been repealed and therefore, duties assessed on pasta importsafter September 30, 2007 will no longer be distributed to domesticproducers.  However, amounts collected(whether such collections occur before or after September 30, 2007)related to duties assessed on pasta entries prior to September 30, 2007,are expected to be available for future distribution to domestic producers.

 

***Interest Expense.*** Interest expense for the three monthsended January 31, 2008 totaled $1.0 million, an increase of $0.4 millionfrom $0.6 million for the corresponding period of the prior year. The increaseis primarily related to higher outstandingdebt levels as a result of debt incurred to finance a portion of the tenderoffer that was completed in May 2007.

 

***Income Taxes.***Income taxexpense for the three months ended January 31, 2008 and 2007 totaled $0.9million and $1.0 million, respectively, and reflects an effective corporateincome tax rate of approximately 39%.

 

***Net Income. ***Net income for the three months ended January 31,2008 and January 31, 2007 totaled $1.5 million.  Net earnings available to common shareholdersfor the three months ended January 31, 2008 and January 31, 2007totaled $1.2 million and $1.4 million, respectively, after reducing net incomefor dividends declared on the Series D Delivery Preferred Stock and Series FConvertible Preferred Stock.

 

*Comparison of the Six Months Ended January 31,2008 and 2007*

 

***Net Revenues.***Netrevenues totaled $116.8 million for the six months ended January 31, 2008,an increase of $20.7 million, or 21.5%, compared to $96.1 million for the sixmonths ended January 31, 2007. Overall, pasta per 

 

16

----

 

unit selling prices increased 17.1% withingredient selling prices up 21.2%, retail selling prices up 19.2% andfoodservice selling prices up 14.2%. Overall, total pasta sales volumes decreased 1.1% with retail salesvolumes down 6.3% offset by ingredient and foodservice volume increases of 5.4%and 1.0%, respectively.

 

The Company marketssemolina production in excess of its own requirements as well as durum wheatflour, other flour blends and by-products of the durum milling process.Revenues from mill product sales totaled $13.6 million and $7.0 million for thesix months ended January 31, 2008 and 2007, respectively. The increase isdue to increases in both sales volumes and per unit selling prices.

 

***Cost of Goods Sold.*** Cost of goods sold increased 20.3% to$102.1 million for the six months ended January 31, 2008, compared to$84.9 million for the six months ended January 31, 2007.  The increase was primarily due to higherdurum costs.  Gross profit as apercentage of net revenues increased to 12.5% for the six months ended January 31,2008, compared to 11.6% for the six months ended January 31, 2007. Benefitsrealized from sales price increases were partially offset by higher durumcosts.

 

The Company recorded a $960,000 non-recurringpre-tax charge in its fiscal second quarter ending January 31, 2008 toreflect the costs associated with the withdrawal from the Central StatesSoutheast and Southwest Areas Pension Fund.

 

***Marketing, General, and Administrative (“MG&A”) Expenses.*** MG&Aexpenses increased $2.8 million, or 42.0%, to $9.5 million for the six monthsended January 31, 2008, compared to $6.7 million for the six months ended January 31,2007. The increase was primarily due to higher consumer advertising costsassociated with DreamfieldsTM pasta products. MG&A expenses as apercentage of net revenues increased to 8.2% for the six months ended January 31,2008, from 7.0% for the comparable period of last year.

 

***Interest and Other Income.*** Interestand other income totaled $2.1 million for the six months ended January 31,2008, compared to $1.2 million for the six months ended January 31, 2007.Substantially all of the amounts relate to payments received by the Company in December 2007and 2006 under the Offset Act.

 

***Loss on Disposition of Property, Equipment and Other Assets (“Loss onDisposition”). ***The Companyincurred losses on disposition of $9,000 and $657,000 during the six monthsended January 31, 2008 and January 31, 2007, respectively.  The losses were related to retirements ofcertain equipment in conjunction with capital projects at the New Hope,Minnesota facility.

 

***Interest Expense.*** Interest expense for the six monthsended January 31, 2008 and 2007 totaled $2.1 million and $1.2 million,respectively. The increase is primarily related to higher outstandingdebt levels as a result of debt incurred to finance a portion of the tenderoffer that was completed in May 2007.

 

***Noncontrolling Interests. ***Noncontrollinginterests reflect the portion of the DNA Dreamfields Company, LLC net lossallocable to other members of DNA Dreamfields and totaled $0.2 million and $0.1million for the six months ended January 31, 2008 and 2007, respectively.

 

***Income Taxes. ***Income tax expense for thesix months ended January 31, 2008 totaled $2.1 million, compared to $1.5million for the six months ended January 31, 2007, and reflects aneffective corporate income tax rate of approximately 39%.

 

***Net Income. ***Net income for the six months ended January 31,2008 totaled $3.3 million, compared to $2.4 million for the six months ended January 31,2007.  Net earnings available to commonshareholders for the six months ended January 31, 2008 totaled $3.0million, compared to $2.3 million for the six months ended January 31,2007, after reducing net income for dividends declared on preferred stock.

 

**Liquidity and Capital Resources**

 

TheCompany’s primary sources of liquidity are cash provided by operations andborrowings under its revolving credit facility. Working capital as of January 31,2008 totaled $15.5 million, compared to $20.8 million as of July 31, 2007.

 

17

----

 

In January 2008, the Company increased its revolving creditfacility with CoBank to $45 million from the prior facility of $25 million.This facility extends through January 15, 2009. Interest on the revolvingline is at the 7-day LIBOR rate subject to performance adjustments dependingupon the Company’s ratio of total debt to earnings before interest, taxes,depreciation and amortization or “EBITDA.” The higher the ratio the higher theadjustment to the 7-day LIBOR rate within a range of 175 to 275 basis pointsabove the 7-day LIBOR rate.  Fixed interest rate options are alsoavailable. The primary purpose of the revolving credit facility is to financeinventory and receivables. The balances outstanding under the revolving creditarrangements totaled $18.2 million and $7.4 million as of January 31, 2008and July 31, 2007, respectively. The Company had $26.8 million and $17.6 million available for borrowingsunder the line of credit as of January 31, 2008 and July 31, 2007,respectively.

 

TheCompany’s various debt agreements with CoBank and certain institutionalinvestors obligate the Company to maintain or achieve certain amounts of equityand certain financial ratios and impose certain restrictions on the Company.The Company was in compliance with these financial covenants as of January 31,2008 and the date of this filing.

 

Netcash used for operating activities totaled $9.2 million for the six monthsended January 31, 2008, compared to net cash from operating activities of$2.3 million for the six months ended January 31, 2007. The negativecash flows from operating activities related primarily to the increase ininventory and trade receivables, which were partially offset by net incomeadjusted for non-cash items.

 

Net cash used for investing activities totaled$3.5 million and $3.8 million for the six months ended January 31, 2008and 2007, respectively.  A majority ofthe net cash used for investing activities in the six months ended January 31,2008 related tothe purchase of the remaining interests in DNA Dreamfields as well as fixedasset purchases.  The majority of the netcash used for investing activities for the six months ended January 31,2007 related to capital expenditures for the New Hope facility.

 

Netcash from financing activities totaled $12.7 million and $1.2 million for thesix months ended January 31, 2008 and 2007, respectively.  The $12.7 million of net cash fromfinancing activities for the six months ended January 31, 2008 included anincrease in short-term notes payable of $10.8 million and an increase in excessoutstanding checks over cash on deposits of $11.0 million offset by $7.0million in scheduled payments on long-term debt.  The Company paid dividends of $0.1 million($0.01 per share) on its Series D Delivery Preferred Stock, $0.2 million($0.16 per share) on its Series F Convertible Preferred Stock and $1.6million ($0.16 per share) on its Common Stock during the second quarter offiscal year 2008. The Company paid dividends of $0.1 million ($0.01 per share)on its Series D Delivery Preferred Stock and $1.8 million ($0.14 pershare) on its Common Stock during the second quarter of fiscal year 2007.

 

The following table summarizesthe Company’s contractual obligations as of January 31, 2008 (inthousands):

 
| ** **                             | ** ** | ** ** | ** ** | **Payments**              | ** ** | **Payments**       | ** ** | **Payments**       | ** ** | **Payments**       | ** ** |
|----------------------------------------|------------|------------|------------|---------------------------|------------|--------------------|------------|--------------------|------------|--------------------|------------|
| ** **                             | ** ** | ** ** | ** ** | **Due in Less** | ** ** | **Due in**    | ** ** | **Due in**    | ** ** | **Due After** | ** ** |
| **Contractual Obligations**       | ** ** | **Total**  | ** ** | **Than 1 Year** | ** ** | **1-3 Years** | ** ** | **4-5 Years** | ** ** | **5 Years**   | ** ** |
|                                   |       |       |       |                      |       |               |       |               |       |               |       |
| Long-term debt                         |       | $          | 41,574     |                      | $          | 9,174              |       | $                  | 16,450     |               | $          | 10,800 |   | $ | 5,150 |   |
| Capital leases                         |       | 1,464      |       | 321                       |       | 1,109              |       | 34                 |       | —             |       |
| Interest on  long-term obligations (1) |       | 8,527      |       | 2,334                     |       | 4,696              |       | 1,349              |       | 148                |       |
| Durum purchase  obligations            |       | 89,892     |       | 89,892                    |       | —             |       | —             |       | —             |       |
| Warehouse  obligations                 |       | 2,187      |       | 1,533                     |       | 654                |       | —             |       | —             |       |
| Operating leases                       |       | 886        |       | 331                       |       | 471                |       | 84                 |       | —             |       |
|                                   |       |       |       |                      |       |               |       |               |       |               |       |
|                                   |       | $          | 144,530    |                      | $          | 103,585            |       | $                  | 23,380     |               | $          | 12,267 |   | $ | 5,298 |   |

 

----

(1) Based on interest rates as ofJanuary 31, 2008

 

TheCompany forward contracts for a certain portion of its future durum wheatrequirements. At January 31, 2008, the Company had outstanding commitmentsfor grain purchases totaling $89.9 million related to forward 

 

18

----

 

purchasecontracts. These contracts are set price contracts to deliver grain to theCompany’s mill and are not derivative in nature as they have no net settlementprovision and are not transferable.

 

Managementbelieves that net cash currently available and to be provided by operatingactivities, along with amounts available under the Company’s line of credit,will be sufficient to meet the Company’s expected capital and liquidityrequirements for the foreseeable future.

 

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Market risk is the risk of loss to future earnings, to fair values orto future cash flows that may result from changes in the price of a financialinstrument. The value of a financial instrument may change as a result ofchanges in interest rates, commodity prices, exchange rates, equity prices andother market changes. Market risk is attributed to all market-risk sensitivefinancial instruments, including long-term debt.

 

The Company forward contracts for a certainportion of its future durum wheat requirements. These contracts are set pricecontracts to deliver grain to the Company’s mill, and are not derivative innature as they have no net settlement provision and are not transferable. TheCompany does not believe it is subject to any material market risk exposurewith respect to interest rates, commodity prices, exchange rates, equityprices, or other market changes that would require disclosure under this item.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

***Evaluation of DisclosureControls and Procedures***

 

TheCompany’s Chief Executive Officer, Timothy J. Dodd, and Chief FinancialOfficer, Edward O. Irion, have evaluated the effectiveness of the Company’sdisclosure controls and procedures (as defined in Securities Exchange Act of1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered bythis report. Based upon the review, they have concluded that these controls andprocedures are effective in alerting them, in a timely fashion, to informationrequired to be included in the Company’s period Securities and Exchange Commissionfilings.  The design of any system ofcontrols and procedures is based in part upon certain assumptions about thelikelihood of future events.

 

***Changes in Internal Controlsover Financial Reporting***

 

Therewere no changes in the Company’s internal controls over financial reportingduring the Company’s fiscal quarter ended January 31, 2008 thathave materially affected, or are reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

**ITEM 4T. CONTROLS AND PROCEDURES**

 

Not applicable.

 

19

----

 

**PART II – OTHER INFORMATION**

 

**ITEM 1A. RISK FACTORS**

 

Therehave been no material changes from the risk factors disclosed in Part I,Item 1A, of the Company’s Annual Report on Form 10-K for the fiscal yearended July 31, 2007.

 

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

TheAnnual Meeting of Stockholders of the Company was held on January 5, 2008.The following proposals were presented for stockholder consideration at theAnnual Meeting:

 

·                  The electionof one director to serve as a Class II director.

·                  The electionof three directors to serve as Class III directors.

·                  Approval ofthe appointment of Eide Bailly LLP as the Company’s independent auditors forfiscal year 2008.

 

Atthe Annual Meeting, the Company’s stockholders elected each of the Company’snominees named in its Proxy Statement, dated December 5, 2007, to serve asdirectors on the Board of Directors of the Company.  Following are the results for the election ofdirectors:

 
| ** **                 | ** ** | **Shares Voted For** | ** ** | **Shares Withheld** | ** ** |
|----------------------------|------------|--------------------------------|------------|--------------------------|------------|
|                       |       |                           |       |                     |       |
| Class II  director:   |       |                           |       |                     |       |
| Richard Thompson           |       | 5,924,896                      |       | 196,676                  |       |
|                       |       |                           |       |                     |       |
| Class III  directors: |       |                           |       |                     |       |
| Allyn K. Hart              |       | 5,977,761                      |       | 143,811                  |       |
| Curtis R.  Trulson         |       | 5,977,761                      |       | 143,811                  |       |
| Michael E. Warner          |       | 5,896,306                      |       | 225,266                  |       |

 

Thenewly elected Class II director Richard Thompson will serve a two yearterm ending with the annual meeting in 2010 and the newly elected Class IIIdirectors, Allyn K. Hart, Curtis R. Trulson and Michael E. Warner, will serve threeyear terms ending with the annual meeting in 2011. John S. Dalrymple III, JamesF. Link, John D. Rice, Jr. and Michael T. Tokarz will continue serving asdirectors until the annual meeting in 2009. Roger A. Kenner, Eugene J. Nicholasand Jeffrey O. Topp will continue serving as directors until the annual meetingin 2010.

 

Inaddition, the stockholders approved the appointment of Eide Bailly LLP as theCompany’s independent auditors for fiscal year 2008, as follows:

 
| Shares Voted For      |   | 6,095,270 |   |
|-----------------------|--------|-----------|--------|
| Shares Voted  Against |   | 21,920    |   |
| Shares Abstained      |   | 4,382     |   |

 

20

----

 

**ITEM 6. EXHIBITS**

 
| **Exhibits** |   |                                                                                                                                                                                                                                                                                                                                                                   |
|--------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |   |                                                                                                                                                                                                                                                                                                                                                                   |
| 3.1          |   | Second Amended and Restated Articles of  Incorporation of the Company, formerly Dakota Growers Restructuring Company, Inc.  (Incorporated by reference to Exhibit 3.1 from the Company’s  Pre-Effective Amendment No. 2 to Form  S-4 Registration Statement, File No. 333-81946, dated April 19,  2002).                                      |
|         |   |                                                                                                                                                                                                                                                                                                                                                                   |
| 3.2          |   | Second Amended and Restated Bylaws of the  Company, formerly Dakota Growers Restructuring Company, Inc.  (Incorporated by reference to Exhibit 3.3 from the Company’s  Pre-Effective Amendment No. 2 to Form S-4 Registration Statement,  File No. 333-81946, dated April 19, 2002).                                                |
|         |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 3.3          |   | Certificate of Designation of Series E  Junior Participating Preferred Stock of the Company, formerly Dakota Growers  Restructuring Company, Inc. (Incorporated by reference to  Exhibit 3.2 from the Company’s Pre-Effective Amendment No. 2 to  Form S-4 Registration Statement, File No. 333-81946, dated  April 19, 2002). |
|         |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 3.4          |   | Certificate of Designation of Series F  Convertible Preferred Stock of the Company (Incorporated by reference to  Exhibit 3.1 from the Company’s Report on Form 8-K, File  No. 000-50111, filed February 15, 2007).                                                                                                                      |
|         |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 10.1         |   | Amendment to the Master Loan Agreement between  the Company and CoBank, ACB (Incorporated by reference to Exhibit 10.1  from the Company’s Report on Form 8-K, File No. 000-50111, filed  January 29, 2008).                                                                                                                                  |
|         |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 10.2         |   | Statused Revolving Credit Supplement between  the Company and CoBank, ACB (Incorporated by reference to Exhibit 10.2  from the Company’s Report on Form 8-K, File No. 000-50111, filed  January 29, 2008).                                                                                                                                    |
|         |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 10.3         |   | Non-Revolving Credit Supplement between the  Company and CoBank, ACB (Incorporated by reference to Exhibit 10.3 from  the Company’s Report on Form 8-K, File No. 000-50111, filed  January 29, 2008).                                                                                                                                         |
|         |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 10.4         |   | Continuing Guarantee Agreement between DNA  Dreamfields Company, LLC, a wholly-owned subsidiary of the Company, and  CoBank, ACB (Incorporated by reference to Exhibit 10.4 from the  Company’s Report on Form 8-K, File No. 000-50111, filed  January 29, 2008).                                                                             |
|         |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 10.5         |   | Security Agreement between DNA Dreamfields  Company, LLC and CoBank, ACB (Incorporated by reference to Exhibit 10.5  from the Company’s Report on Form 8-K, File No. 000-50111, filed  January 29, 2008).                                                                                                                                     |
|         |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 31.1         |   | Certification  of Chief Executive Officer required by Securities and Exchange Commission  Rule 13a-14(a) or 15d-14(a).                                                                                                                                                                                                                                       |
|         |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 31.2         |   | Certification  of Chief Financial Officer required by Securities and Exchange Commission  Rule 13a-14(a) or 15d-14(a).                                                                                                                                                                                                                                       |
|         |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 32.1         |   | Certification of Chief Executive Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section  1350.                                                                                                                                                                                                                                     |
|         |   |                                                                                                                                                                                                                                                                                                                                                                   |   |   |
| 32.2         |   | Certification of Chief Financial Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.  Section 1350.                                                                                                                                                                                                                                     |
|              |        |                                                                                                                                                                                                                                                                                                                                                                        |  |  |  |  |

 

21

----

 

**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 
|   | DAKOTA  GROWERS PASTA COMPANY, INC. |
|--------|-------------------------------------|
|   | (Registrant)                        |

 
| **Signature**       | ** ** | **Title**                             |   | **Date**            |
|---------------------|------------|---------------------------------------|--------|---------------------|
|                |       |                                  |   |                |
| /s/ Timothy J. Dodd |       | President and Chief Executive Officer |   |                |
|                |       | (Principal Executive                  |   | March 17, 2008 |
| Timothy J. Dodd     |       | Officer)                              |   |                |
|                |       |                                  |   |                |
|                |       |                                  |   |                |
| /s/ Edward O. Irion |       | Chief Financial Officer               |   |                |
|                |       | (Principal Financial and              |   | March 17, 2008 |
| Edward O. Irion     |       | Accounting Officer)                   |   |                |

 

22

----