**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

| **ý** |   | **Quarterly Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934**  |
|------------|--------|----------------------------------------------------------------------------------------------------|
|       |   |                                                                                               |
|       |   | **For the quarterly period ended April 30, 2004**                                             |
|       |   |                                                                                               |
|       |   | **or**                                                                                             |
|       |   |                                                                                               |
| o          |   | **Transition Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934** |

 

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**CommissionFile No. 000-50111**

 

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**DAKOTA GROWERS PASTA COMPANY, INC.**

(Exact name ofregistrant as specified in its charter)

 

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

 

**One Pasta Avenue, Carrington, ND58421**

(Address ofprincipal executive offices including zip code)

 

**(701) 652-2855**

(Registrant’stelephone number, including area code)

 

**NOT APPLICABLE**

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

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90days.                                      Yes  ý  No  o

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the ExchangeAct).                                      Yes  o  No  ý

 

As of June 14, 2004, the Registrant had 12,260,291 shares ofcommon stock, par value $0.01 per share, outstanding.

 

 

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**PART I - FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS**

 

**DAKOTA GROWERS PASTA COMPANY, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(In Thousands, Except Share Information)**

 
|                                                                                                                    |   | **(Unaudited)**          |    |                    |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|---------|-------------------------|--------|
|                                                                                                                    |   | **April 30,  2004** |    | **July 31,  2003** |   |
| **ASSETS**                                                                                                              |   |                     |    |                    |   |
|                                                                                                                    |   |                     |    |                    |   |
| CURRENT ASSETS                                                                                                          |   |                     |    |                    |   |
| Cash and cash equivalents                                                                                               |   | $                        | 1       |                    | $      | 5 |   |
|                                                                                                                    |   |                     |    |                    |   |
| Trade accounts receivable,  less allowance for cash discounts and  doubtful accounts of $1,254 and $1,012, respectively |   | 12,897                   |    | 9,852                   |   |
|                                                                                                                    |   |                     |    |                    |   |
| Other receivables                                                                                                       |   | 531                      |    | 1,225                   |   |
|                                                                                                                    |   |                     |    |                    |   |
| Inventories                                                                                                             |   | 26,149                   |    | 28,082                  |   |
|                                                                                                                    |   |                     |    |                    |   |
| Prepaid expenses                                                                                                        |   | 3,641                    |    | 3,940                   |   |
|                                                                                                                    |   |                     |    |                    |   |
| Deferred income taxes                                                                                                   |   | 569                      |    | 569                     |   |
|                                                                                                                    |   |                     |    |                    |   |
| Total current assets                                                                                                    |   | 43,788                   |    | 43,673                  |   |
|                                                                                                                    |   |                     |    |                    |   |
| PROPERTY AND EQUIPMENT                                                                                                  |   |                     |    |                    |   |
| In service                                                                                                              |   | 109,716                  |    | 108,263                 |   |
| Construction in process                                                                                                 |   | 554                      |    | 868                     |   |
|                                                                                                                    |   | 110,270                  |    | 109,131                 |   |
| Less accumulated depreciation                                                                                           |   | (46,165                  | )       | (41,799                 | )      |
|                                                                                                                    |   |                     |    |                    |   |
| Net property and equipment                                                                                              |   | 64,105                   |    | 67,332                  |   |
|                                                                                                                    |   |                     |    |                    |   |
| INVESTMENT IN COOPERATIVE BANKS                                                                                         |   | 2,404                    |    | 2,413                   |   |
|                                                                                                                    |   |                     |    |                    |   |
| INTANGIBLE ASSETS                                                                                                       |   | 429                      |    | 539                     |   |
|                                                                                                                    |   |                     |    |                    |   |
| OTHER ASSETS                                                                                                            |   | 6,907                    |    | 8,433                   |   |
|                                                                                                                    |   |                     |    |                    |   |
|                                                                                                                    |   | $                        | 117,633 |                    | $      | 122,390 |   |

 

2

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**DAKOTA GROWERS PASTA COMPANY, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(In Thousands, Except Share Information)**

 
|                                                                                                                                                                        |   | **(Unaudited)**          |    |                    |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|---------|-------------------------|--------|
|                                                                                                                                                                        |   | **April 30,  2004** |    | **July 31,  2003** |   |
| **LIABILITIES AND  STOCKHOLDERS’ EQUITY**                                                                                                                              |   |                     |    |                    |   |
|                                                                                                                                                                        |   |                     |    |                    |   |
| CURRENT LIABILITIES                                                                                                                                                         |   |                     |    |                    |   |
| Notes payable                                                                                                                                                               |   | $                        | 10,000  |                    | $      | 9,705 |   |
| Current portion of long-term debt                                                                                                                                           |   | 8,486                    |    | 10,011                  |   |
| Accounts payable                                                                                                                                                            |   | 5,113                    |    | 3,793                   |   |
| Excess outstanding checks over cash on  deposit                                                                                                                             |   | 2,696                    |    | 2,219                   |   |
| Accrued liabilities                                                                                                                                                         |   | 4,915                    |    | 4,516                   |   |
|                                                                                                                                                                        |   |                     |    |                    |   |
| Total current liabilities                                                                                                                                                   |   | 31,210                   |    | 30,244                  |   |
|                                                                                                                                                                        |   |                     |    |                    |   |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                               |   | —                   |    | —                  |   |
| LONG-TERM DEBT, net of current portion                                                                                                                                      |   | 21,087                   |    | 28,263                  |   |
| DEFERRED INCOME TAXES                                                                                                                                                       |   | 10,430                   |    | 9,845                   |   |
| OTHER LIABILITIES                                                                                                                                                           |   | 149                      |    | 187                     |   |
| MANDATORILY REDEEMABLE PREFERRED STOCK                                                                                                                                      |   |                     |    |                    |   |
| Series A, 6% cumulative, $100 par value,  533 shares authorized,  233 and 333 shares issued and outstanding as of  April 30, 2004 and July 31, 2003, respectively |   | 23                       |    | 33                      |   |
|                                                                                                                                                                        |   |                     |    |                    |   |
| Total liabilities                                                                                                                                                           |   | 62,899                   |    | 68,572                  |   |
|                                                                                                                                                                        |   |                     |    |                    |   |
| STOCKHOLDERS’ EQUITY                                                                                                                                                   |   |                     |    |                    |   |
| Series D delivery preferred stock,  non-cumulative, $.01 par value,  11,324,377 shares authorized, 11,275,297 shares issued and outstanding                                 |   | 113                      |    | 113                     |   |
| Common stock, $.01 par value, 75,000,000  shares authorized,  12,554,747 shares issued                                                                                      |   | 126                      |    | 126                     |   |
| Additional paid-in capital                                                                                                                                                  |   | 60,188                   |    | 60,188                  |   |
| Treasury stock at cost, 294,456 shares                                                                                                                                      |   | (1,840                   | )       | (1,840                  | )      |
| Accumulated deficit                                                                                                                                                         |   | (3,853                   | )       | (4,769                  | )      |
|                                                                                                                                                                        |   |                     |    |                    |   |
| Total stockholders’ equity                                                                                                                                             |   | 54,734                   |    | 53,818                  |   |
|                                                                                                                                                                        |   |                     |    |                    |   |
| Total liabilities and stockholders’ equity                                                                                                                             |   | $                        | 117,633 |                    | $      | 122,390 |   |

 

See Notes to Consolidated Financial Statements

 

3

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**DAKOTA GROWERS PASTA COMPANY, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

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

 
|                                                                               |   | **Three  Months Ended  April 30,** |   |
|------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                               |   | **2004**                                |   | **2003** |   |
| Net revenues (net of discounts and  allowances of $5,665 and $3,433, respectively) |   | $                                       | 37,605 |   | $ | 29,435 |   |
|                                                                               |   |                                    |   |   |   |
| Cost of goods sold                                                                 |   | 33,479                                  |   | 28,140 |   |
|                                                                               |   |                                    |   |   |   |
| Gross profit                                                                       |   | 4,126                                   |   | 1,295 |   |
|                                                                               |   |                                    |   |   |   |
| Marketing, general and administrative  expenses                                    |   | 1,987                                   |   | 2,096 |   |
|                                                                               |   |                                    |   |   |   |
| Operating income (loss)                                                            |   | 2,139                                   |   | (801 | ) |
|                                                                               |   |                                    |   |   |   |
| Other income (expense)                                                             |   |                                    |   |   |   |
| Interest and other income (expense)                                                |   | (309                                    | )      | 12 |   |
| Gain on disposition of property, equipment  and other assets                       |   | 14                                      |   | 13 |   |
| Net income allocated from joint venture                                            |   | 30                                      |   | — |   |
| Interest expense, net                                                              |   | (558                                    | )      | (746 | ) |
|                                                                               |   |                                    |   |   |   |
| Income (loss) before income taxes                                                  |   | 1,316                                   |   | (1,522 | ) |
|                                                                               |   |                                    |   |   |   |
| Income tax expense (benefit)                                                       |   | 513                                     |   | (594 | ) |
|                                                                               |   |                                    |   |   |   |
| Net income (loss)                                                                  |   | 803                                     |   | (928 | ) |
| Dividends on preferred stock                                                       |   | —                                  |   | 1 |   |
|                                                                               |   |                                    |   |   |   |
| Net earnings (loss) on common stock                                                |   | $                                       | 803    |   | $ | (929 | ) |
|                                                                               |   |                                    |   |   |   |
| Net earnings (loss) per common share                                               |   |                                    |   |   |   |
| Basic                                                                              |   | $                                       | 0.07   |   | $ | (0.08 | ) |
|                                                                               |   |                                    |   |   |   |
| Diluted                                                                            |   | $                                       | 0.07   |   | $ | (0.07 | ) |
|                                                                               |   |                                    |   |   |   |
| Weighted average common shares outstanding                                         |   |                                    |   |   |   |
| Basic                                                                              |   | 12,260                                  |   | 12,260 |   |
|                                                                               |   |                                    |   |   |   |
| Diluted                                                                            |   | 12,620                                  |   | 12,620 |   |

 

See Notes to Consolidated Financial Statements

 

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**DAKOTA GROWERS PASTA COMPANY, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

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

 
|                                                                                 |   | **Nine  Months Ended  April 30,** |       |
|--------------------------------------------------------------------------------------|--------|----------------------------------------|------------|
|                                                                                 |   | **2004**                               |       | **2003** |   |
| Net revenues (net of discounts and  allowances of $14,971 and $13,327, respectively) |   | $                                      | 110,656    |   | $ | 107,506 |   |
|                                                                                 |   |                                   |       |   |   |
| Cost of goods sold                                                                   |   | 101,577                                |       | 96,276 |   |
|                                                                                 |   |                                   |       |   |   |
| Gross profit                                                                         |   | 9,079                                  |       | 11,230 |   |
|                                                                                 |   |                                   |       |   |   |
| Marketing, general and administrative  expenses                                      |   | 5,996                                  |       | 7,578 |   |
|                                                                                 |   |                                   |       |   |   |
| Operating income                                                                     |   | 3,083                                  |       | 3,652 |   |
|                                                                                 |   |                                   |       |   |   |
| Other income (expense)                                                               |   |                                   |       |   |   |
| Interest and other income                                                            |   | 595                                    |       | 1,089 |   |
| Gain on disposition of property, equipment  and other assets                         |   | 27                                     |       | 36 |   |
| Net loss allocated from joint venture                                                |   | (114                                   | )          | — |   |
| Interest expense, net                                                                |   | (2,090                                 | )          | (2,542 | ) |
|                                                                                 |   |                                   |       |   |   |
| Income before income taxes                                                           |   | 1,501                                  |       | 2,235 |   |
|                                                                                 |   |                                   |       |   |   |
| Income tax expense                                                                   |   | 585                                    |       | 871 |   |
|                                                                                 |   |                                   |       |   |   |
| Net income                                                                           |   | 916                                    |       | 1,364 |   |
| Dividends on preferred stock                                                         |   | —                                 |       | 2 |   |
|                                                                                 |   |                                   |       |   |   |
| Net earnings on common stock                                                         |   | $                                      | 916        |   | $ | 1,362 |   |
|                                                                                 |   |                                   |       |   |   |
| Net earnings per common share                                                        |   |                                   |       |   |   |
| Basic                                                                                |   | $                                      | 0.07       |   | $ | 0.11 |   |
|                                                                                 |   |                                   |       |   |   |
| Diluted                                                                              |   | $                                      | 0.08       |   | $ | 0.11 |   |
|                                                                                 |   |                                   |       |   |   |
| Weighted average common shares outstanding                                           |   |                                   | ** ** |   | ** ** |
| Basic                                                                                |   | 12,260                                 |       | 12,386 |   |
|                                                                                 |   |                                   |       |   |   |
| Diluted                                                                              |   | 12,620                                 |       | 12,606 |   |

 

See Notes to Consolidated Financial Statements

 

5

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**DAKOTA GROWERS PASTA COMPANY, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In Thousands)(Unaudited)**

 
|                                                                                   |   | **Nine  Months Ended  April 30,** |   |
|----------------------------------------------------------------------------------------|--------|----------------------------------------|--------|
|                                                                                   |   | **2004**                               |   | **2003** |   |
| OPERATING ACTIVITIES                                                                   |   |                                   |   |   |   |
| Net income                                                                             |   | $                                      | 916    |   | $ | 1,364 |   |
| Adjustments to reconcile net income to net  cash from (used for) operating activities: |   |                                   |   |   |   |
| Depreciation and amortization                                                          |   | 6,348                                  |   | 7,262 |   |
| Undistributed patronage capital from  cooperatives                                     |   | (51                                    | )      | (63 | ) |
| Gain on disposition of property, equipment  and other assets                           |   | (27                                    | )      | (36 | ) |
| Net loss allocated from joint venture                                                  |   | 114                                    |   | — |   |
| Deferred income taxes                                                                  |   | 585                                    |   | 284 |   |
| Payments for long-term marketing costs                                                 |   | (125                                   | )      | (5,000 | ) |
| Changes in assets and liabilities:                                                     |   |                                   |   |   |   |
| Trade receivables                                                                      |   | (3,045                                 | )      | 5,978 |   |
| Other receivables                                                                      |   | 694                                    |   | 132 |   |
| Inventories                                                                            |   | 1,933                                  |   | (9,636 | ) |
| Prepaid expenses                                                                       |   | 466                                    |   | (1,068 | ) |
| Other assets                                                                           |   | 6                                      |   | 8 |   |
| Accounts payable                                                                       |   | 1,320                                  |   | (1,727 | ) |
| Excess outstanding checks over cash on  deposit                                        |   | 477                                    |   | 661 |   |
| Other accrued liabilities                                                              |   | 399                                    |   | (1,847 | ) |
|                                                                                   |   |                                   |   |   |   |
| NET CASH FROM (USED FOR) OPERATING  ACTIVITIES                                         |   | 10,010                                 |   | (3,688 | ) |
|                                                                                   |   |                                   |   |   |   |
| INVESTING ACTIVITIES                                                                   |   |                                   |   |   |   |
| Purchases of property and equipment                                                    |   | (1,168                                 | )      | (1,232 | ) |
| Proceeds on sale of property, equipment and  other assets                              |   | 8                                      |   | 3 |   |
| Redemption of short term investments                                                   |   | —                                 |   | 1,974 |   |
| Payments for package design costs                                                      |   | (258                                   | )      | (249 | ) |
| Proceeds from cooperative bank equity  retirements                                     |   | 60                                     |   | — |   |
| Investments in joint venture                                                           |   | (240                                   | )      | — |   |
|                                                                                   |   |                                   |   |   |   |
| NET CASH FROM (USED FOR) INVESTING  ACTIVITIES                                         |   | (1,598                                 | )      | 496 |   |
|                                                                                   |   |                                   |   |   |   |
| FINANCING ACTIVITIES                                                                   |   |                                   |   |   |   |
| Net change in short-term notes payable                                                 |   | 295                                    |   | 10,200 |   |
| Principal payments on long-term debt                                                   |   | (8,701                                 | )      | (8,010 | ) |
| Preferred stock retirements                                                            |   | (10                                    | )      | (17 | ) |
| Dividends paid on preferred stock                                                      |   | —                                 |   | (2 | ) |
| Purchase of treasury stock                                                             |   | —                                 |   | (1,840 | ) |
|                                                                                   |   |                                   |   |   |   |
| NET CASH FROM (USED FOR) FINANCING  ACTIVITIES                                         |   | (8,416                                 | )      | 331 |   |
|                                                                                   |   |                                   |   |   |   |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                                |   | (4                                     | )      | (2,861 | ) |
|                                                                                   |   |                                   |   |   |   |
| CASH AND CASH EQUIVALENTS,  BEGINNING OF PERIOD                                        |   | 5                                      |   | 2,866 |   |
|                                                                                   |   |                                   |   |   |   |
| CASH AND CASH EQUIVALENTS,  END OF PERIOD                                              |   | $                                      | 1      |   | $ | 5 |   |
|                                                                                   |   |                                   |   |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW  INFORMATION                                     |   |                                   |   |   |   |
| Cash payments (refunds) for                                                            |   |                                   |   |   |   |
| Interest (net of amounts capitalized)                                                  |   | $                                      | 2,676  |   | $ | 3,169 |   |
|                                                                                   |   |                                   |   |   |   |
| Income taxes                                                                           |   | $                                      | (964   | ) | $ | 1,192 |   |

 

See Notes to Consolidated Financial Statements

 

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**DAKOTA GROWERS PASTA COMPANY, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

The following notes should be read in conjunction with the notes to thefinancial statements for the year ended July 31, 2003 as filed in theCompany’s Form 10-K.

 

**NOTE 1 - ORGANIZATION**

 

Dakota Growers Pasta Company, Inc. (“Dakota Growers” or “the Company”)is a North Dakota corporation that operates milling and pasta manufacturingfacilities in Carrington, North Dakota. In addition, the Company’s wholly ownedsubsidiary, Primo Piatto, Inc., a Minnesota corporation, operates pastamanufacturing facilities in New Hope, Minnesota.

 

**NOTE 2 – FINANCIAL STATEMENTPRESENTATION**

** **

The unaudited consolidated financial statements included herein havebeen prepared pursuant to the rules and regulations of the Securities andExchange Commission. 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)considered necessary for a fair presentation have been included. Operatingresults for the three and nine month periods ended April 30, 2004 are notnecessarily indicative of the results that may be expected for the year endedJuly 31, 2004. The information included in this Form 10-Q should be readin conjunction with Management’s Discussion and Analysis and the consolidatedfinancial statements and footnotes included in the Company’s Form 10-K for theyear ended July 31, 2003. The information contained in the balance sheetas of July 31, 2003 was derived from the Company’s audited annual reportfor fiscal year 2003. Reclassifications have been made to facilitatecomparability with current presentation. Such reclassifications have no effecton the net results of operations.

 

The financial information presented herein includes the consolidatedbalance sheets and results of operations of Dakota Growers Pasta Company, Inc.and its wholly owned subsidiary. All significant intercompany balances andtransactions have been eliminated.

 

###### **NOTE 3 – INVENTORIES**

 

Inventories are valued at lowerof cost or market. Inventories as of April 30, 2004 include raw materialsof $7,429,000 and finished goods of $18,720,000. Inventories at July 31,2003 include raw materials of $5,533,000 and finished goods of $22,549,000.

 

###### **NOTE 4 – LOAN AGREEMENTS**

 

Effective February 24, 2004, the Company secured a $25 millionrevolving credit facility with CoBank. The term of the revolving creditfacility extends through February 21, 2005. The revolving line has a variable interest rateestablished by CoBank based on CoBank’s cost of funds. The balance outstandingunder the revolving line of credit totaled $10,000,000 and $9,705,000 as ofApril 30, 2004 and July 31, 2003, 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 ofApril 30, 2004. The Company has received waivers from CoBank and the institutionalinvestors for covenant noncompliance events existing for the fiscal quartersended October 31, 2003 and January 31, 2004.

 

The Company and CoBank also entered into a new MasterLoan Agreement and Term Loan Supplements effective February 24, 2004.Under the Master Loan Agreement, the Company is required to maintain certain

 

7

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financial ratios including: 1) a current ratio of 1.10to 1.0 through July 31, 2004 and of not less than 1.25 to 1.0 thereafter,2) a long term debt to net worth ratio of 1.10 to 1.0, and 3) a consolidatedfunded debt to consolidated cash flow ratio of not more than 4.0 to 1.0calculated on a trailing four quarter basis through April 30, 2004, and ofnot more than 3.0 to 1.0 thereafter.

 

**NOTE5 – EARNINGS PER SHARE**

 

Basic earnings per share (EPS)is calculated by dividing net earnings on common stock by the weighted averagenumber of common shares effective and outstanding during the period. DilutedEPS includes the effect of all potentially dilutive securities, such as stockoptions and convertible preferred stock.

 

Dilutive securities, consistingof stock options and convertible preferred stock, included in the calculationof diluted weighted average common shares totaled 360,000 for the three monthsended April 30, 2004 and 2003. Dilutive securities included in thecalculation of diluted weighted average common shares totaled 360,000 and220,000 for the nine months ended April 30, 2004 and 2003, respectively.As there is currently no established public trading market for the Company’scommon stock, the Company has assumed the proceeds from the exercise of stockoptions would reduce debt and, thus, interest expense.

 

**NOTE6 – STOCK OPTIONS**

 

TheCompensation Committee of the Board of Directors granted, effectiveFebruary 1, 2004, incentive stock options to purchase 80,524 shares of theCompany’s common stock at a per share exercise price of $4.25. The vesting ofthese options is subject to certain qualifications, including but not limitedto, the continued employment of the optionee with the Company. Subject to theforegoing qualifications and such other certain qualifications, fifty percent ofthese options vest on February 1, 2005, twenty-five percent vest onFebruary 1, 2006, and twenty-five percent vest on February 1, 2007.

 

**NOTE 7 – CONTINUED DUMPING AND SUBSIDY OFFSET ACT OF 2000**

 

The U.S. Customs Service(“Customs”) has distributed antidumping and countervailing duties assessed oncertain pasta imported from Italy and Turkey to affected domestic producerspursuant to the Continued Dumping and Subsidy Offset Act of 2000 (the “OffsetAct”), which was enacted in October 2000. The Company received payments inthe amount of $903,000 and $1,000,000 in December 2003 and 2002, respectively,under the Offset Act, based on duties assessed from October 1, 2001 toSeptember 30, 2003. TheCompany repaid $305,000 to Customs in April 2004 pursuant to a reclamationrequest from Customs. The reclamation request noted Customs had inadvertently leftout an affected domestic producer that had timely filed a valid claim in theallocation calculation, resulting in the initial overpayment to the Company.Amounts received (repaid) under the Offset Act have been classified asother income (expense). The Company cannot reasonably estimate the potentialamount, if any, that it may receive under the Offset Act in future periods asany such amount will be based upon future events over which the Company haslittle or no control, including, but not limited to, the amount of expendituresby domestic pasta producers and the amount of antidumping and countervailingduties collected by Customs.

 

**NOTE 8 –MANDATORILY REDEEEMABLE PREFERRED STOCK**

 

The Company adopted SFAS No. 150, “Accounting forCertain Financial Instruments with Characteristics of Both Liabilities andEquity” effective August 1, 2003. SFAS No. 150 establishes standards forhow an issuer classifies and measures certain financial instruments withcharacteristics of both liabilities and equity. Many of these instruments werepreviously classified as equity. SFAS No. 150 requires that an issuer classifya financial instrument that is within its scope as a liability, or as an assetin some circumstances. This Statement applies to three types of freestandingfinancial instruments. One type of financial instrument to which SFAS No. 150applies

 

8

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is mandatorily redeemable shares, which the issuingcompany is obligated to buy back in exchange for cash or assets.

 

The Company had 233 shares of Series A PreferredStock, $100 par value, outstanding as of April 30, 2004. The Series APreferred Stock is required to be redeemed ratably on a quarterly basis throughDecember 2005. As the shares of Series A Preferred Stock are mandatorilyredeemable, these shares have been classified as a liability in the Company’sconsolidated balance sheet and “dividends” paid on the Series A Preferred Stockhave been recorded as interest expense upon adoption of SFAS No. 150. “Dividends”paid on Series A Preferred Stock prior to the adoption of SFAS No. 150 have notbeen reclassified as interest cost.

 

**NOTE 9 – INVESTMENT IN JOINT VENTURE**

 

The Company has a 24% ownership interest in DNADreamfields Company, LLC, an Ohio limited liability company (“DNADreamfields”). The investment is accounted for using the equity method. DNADreamfields was formed by the Company and other food technology, manufacturingand consumer products marketing enterprises to develop, manufacture and selllow digestible carbohydrate pasta, rice and potatoes under the DreamfieldsTMbrand name. The Company made aggregate investments in DNA Dreamfields of$240,000 through April 30, 2004. Under the terms of the DNA Dreamfieldsoperating agreement, the Company shall contribute, when and as needed, additional funds up to anaggregate of approximately $4.0 million, to DNA Dreamfields to pay for thedevelopment of supply chain, product package development, consumer research,test market launch and regional roll out, advertising and merchandising. Suchcontributions shall be additional capital contributions by the Company withoutthe issuance of any additional ownership units in DNA Dreamfields.

 

**NOTE 10 – RELATED PARTYTRANSACTIONS**

 

The Company has entered into a manufacturingagreement with DNA Dreamfields whereby Dakota Growers is the exclusivemanufacturer of DreamfieldsTM low digestible carbohydrate pasta. TheCompany has also entered into a services agreement with DNA Dreamfields underwhich the Company provides administrative, accounting, information technology,sales, customer service and distribution services to DNA Dreamfields. Shipmentsof DreamfieldsTM low digestible carbohydrate pasta began inFebruary 2004.

 

Pursuant to the services agreement with DNADreamfields, to the extent the Company supplies logistics services for thedelivery and billing of DreamfieldsTM product, the title in and tothe DreamfieldsTM product shall remain with Dakota Growers, and therisk of loss shall pass from Dakota Growers to Dakota Grower’s customers inaccordance with terms and conditions set forth in purchase orders or agreementsbetween Dakota Growers and its customers. Sales of DreamfieldsTM productsare included in the Company’s net revenues. Manufacturing, distribution, andpromotional costs incurred by the Company related to DreamfieldsTM productsare included in the applicable line items of the Company’s income statement. Ona monthly basis, the Company calculates a net amount due to DNA Dreamfieldsbased on the total sales of DreamfieldsTM product less relatedDreamfieldsTM product costs, which include cash discounts, promotionand allowances, brokerage fees, bad debt write-offs, freight costs, storage andhandling fees, and the transfer price established between the Company and DNADreamfields (as outlined in the manufacturing agreement). This net amount dueto DNA Dreamfields, which totaled $1,222,000 for the three and nine monthperiods ended April 30, 2004, is included in the Company’s cost of goodssold. Service fee income from DNA Dreamfields totaling $51,000 for the threeand nine months ended April 30, 2004 is included in net revenues. The netamount due to DNA Dreamfields at April 30, 2004 was $54,000.

 

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###### **NOTE 11 – COMMITMENTS**

 

The Company forward contractsfor a certain portion of its future durum wheat requirements. The Company hadoutstanding commitments for grain purchases totaling $2,249,000 related toforward purchase contracts as of April 30, 2004. These contracts are setprice contracts to deliver grain to the Company’s mill, and are not derivativein nature as they have no net settlement provision and are not transferable.

 

The Company has a commitment to contribute, when and as needed,additional funds up to an aggregate of approximately $4.0 million, to DNADreamfields under the terms of the DNA Dreamfields operating agreement (SeeNote 9 – Investment in Joint Venture).

 

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**ITEM 2.  MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Forward-Looking Statements**

 

The following discussioncontains forward-looking statements. Such forward-looking statements include,among others, those statements including the words “expect”, “anticipate”,“believe”, “may” and similar expressions. Such statements are based onassumptions by the Company’s management, as of the date of this QuarterlyReport, and are subject to risks and uncertainties, including those discussedin the Company’s Form 10-K for the year ended July 31, 2003 under “RiskFactors”, that could cause actual results to differ materially from thoseanticipated. The Company cautions readers not to place undue reliance on suchforward-looking statements. The Company will not update any forward-lookingstatements in this Quarterly Report to reflect future events or developments.

 

**Summary**

 

Dakota Growers is thethird largest producer of dry pasta products in North America. The pastaindustry identifies domestic dry pasta into two basic markets: retail andinstitutional. The Company recognizes the institutional market as beingcomprised of foodservice and ingredient sales. We participate in each of theretail, foodservice and ingredient markets. The Company has two productionplants, located in Carrington, North Dakota and New Hope, Minnesota. TheCompany’s cost of goods sold consists mainly of raw materials (primarily durumwheat), packaging, and manufacturing and distribution costs.

 

Netincome for the three months ended April 30, 2004 totaled $0.8 millioncompared to a $0.9 million net loss incurred for the three months endedApril 30, 2003. The increase in net earnings for the quarter endedApril 30, 2004 when compared to the corresponding period of the prior yearwas largely due to higher pasta sales volumes in the foodservice market and the introduction of  DreamfieldsTM low digestiblecarbohydrate pasta. Net income for the nine months ended April 30, 2004totaled $0.9 million compared to net income of $1.4 million for the nine monthsended April 30, 2003.

 

TheCompany has a 24% ownership interest in DNA Dreamfields Company, LLC. DNADreamfields was formed by the Company and other food technology, manufacturingand consumer products marketing enterprises to develop, manufacture and selllow digestible carbohydrate pasta, rice and potatoes under the DreamfieldsTMbrand name. The Company has entered into a manufacturing agreement withDNA Dreamfields whereby Dakota Growers is the exclusive manufacturer ofDreamfieldsTM low digestible carbohydrate pasta. The Company hasalso entered into a services agreement with DNA Dreamfields under which itprovides administrative, accounting, information technology, sales, customerservice and distribution services to DNA Dreamfields.

 

TheCompany believes that the DreamfieldsTM line of products is well suited for what theCompany views as an increased demand for low carbohydrate products, and thatthe increased sales and shift from lower margin customers and products willultimately provide greater profit margins. The Company expects to incursignificant expenses associated with its commitments to DNA Dreamfieldsrelating to the new product roll-out in its fourth fiscal quarter 2004.DreamfieldsTM low digestible carbohydrate pasta has been acceptedfor distribution into over 20,000 grocery outlets nationwide. Initial shipmentsto customer distribution centers began in February 2004.

 

**Critical Accounting Policies**

 

The accompanyingdiscussion and analysis of our results of operations and financial conditionare based upon our consolidated financial statements, which have been preparedin accordance with accounting principles generally accepted in the UnitedStates. The preparation of these financial statements requires management tomake estimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses, and related disclosure of contingent assetsand liabilities. These estimates form the basis for making judgments about thecarrying values of assets and liabilities that are not readily apparent fromother sources. We base our estimates and judgments on historical experience andon various other assumptions that we believe are reasonable under the

 

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circumstances. However,future events are subject to change and the best estimates and judgments mayrequire adjustment. For a complete description of the Company’s significantaccounting policies, please see Note 1 to the consolidated financial statementsincluded in the Company’s Form 10-K for the year ended July 31, 2003. Ourcritical accounting policies are those that have meaningful impact on thereporting of our financial condition and results, and that require significantmanagement judgment and estimates. These policies include our accounting for(a) allowance for doubtful accounts, (b) asset impairment, and (c) incometaxes.

 

*Allowancefor Doubtful Accounts*

 

We evaluate thecollectibility of our accounts receivable based on a combination of factors. Incases where we are aware of circumstances that may impair a specific customer’sability to meet its financial obligations to us, we record a specific allowanceagainst amounts due to us, and thereby reduce the net recognized receivable tothe amount we reasonably believe will be collected. For all other customers, werecognize allowances for doubtful accounts based on the length of time thereceivables are past due and our historical experience. If the financialcondition of our customers would deteriorate, additional allowances may berequired in the future which could have an adverse impact on our futureoperating results.

 

*Asset Impairment*

 

We are required toevaluate our long-lived assets for impairment whenever indicators of impairmentexist, 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*

 

In determining income forfinancial statement purposes, management must make certain estimates andjudgments in calculating tax liabilities and in determining the recoverabilityof certain deferred tax assets. Deferred tax assets must be reduced by avaluation allowance, if based on the weight of available evidence, it is morelikely than not that some portion or all of the recorded deferred tax assetswill not be realized in future periods. Management believes it is more likelythan not that the deferred tax assets as of April 30, 2004 will berealized through the generation of future taxable income and tax planningstrategies.

 

**Results of Operations**

 

*Comparison of the Three Months Ended April 30, 2004 and2003*

 

***Net Revenues. ***Netrevenues increased $8.2 million, or 27.8%, to $37.6 million for the threemonths ended April 30, 2004, compared to $29.4 million for the threemonths ended April 30, 2003. The increase was primarily due to higherpasta sales volumes and the introduction of DreamfieldsTM pasta products to themarketplace.

 

Revenuesfrom the retail market, a portion of which includes co-pack and governmentalsales, increased $0.8 million, or 4.5%. Retail revenues increased 8.4% due tohigher per unit selling prices. Sales of DreamfieldsTM lowdigestible carbohydrate pasta, which have significantly higher per unit salesprices than our other products, accounted for a majority of the change. Theretail market average selling price increase was offset by a volume decrease,primarily in governmental sales. Foodservice revenues more than doubled whencompared to last year. As noted in previous public filings with the Securitiesand Exchange Commission, sales to U.S. Foodservice were inordinately low duringthe third fiscal quarter 2003 after extremely high sales during the secondquarter fiscal 2003. The foodservice increase is primarily due to normalizedU.S. Foodservice volumes during the third quarter fiscal 2004 versus a yearago. Ingredient revenues increased 14.7%, primarily due to increased salesvolumes.

 

The Company marketssemolina production in excess of its own requirements as well as by-products ofthe durum milling process. Revenues from semolina and by-product salesincreased $1.1 million for the three months ended

 

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April 30, 2004, whencompared to the same period of the prior year. The increase primarily resultedfrom higher semolina sales volumes.

 

***Cost of Goods Sold.*** Cost of goods soldincreased $5.3 million, or 19.0%, to $33.5 million for the three months endedApril 30, 2004, compared to $28.1 million for the three months endedApril 30, 2003. The increase resulted from higher sales volumes. Grossmargin as a percentage of net revenues improved to 11.0% for the three monthsended April 30, 2004 from 4.4% for the three months ended April 30,2003, primarily due to per unitmanufacturing cost improvements and initial sales of higher margin DreamfieldsTMproducts.

 

***Marketing, General, and Administrative (“MG&A”)Expenses.*** MG&A expenses decreased $0.1 million, or5.2%, to $2.0 million for the quarter ended April 30, 2004, compared to$2.1 million for the quarter ended April 30, 2003.  MG&A expenses as a percentage of netrevenues decreased from 7.1% to 5.3% primarily as a result of higher salesduring the quarter ended April 30, 2004 relative to the quarter endedApril 30, 2003.

 

***Interest Expense.*** Interest expense forthe three months ended April 30, 2004 totaled $0.6 million, compared to$0.7 million for the corresponding period of the prior year. Cash and equitypatronage refunds received from CoBank totaling $103,000 and $126,000 have beennetted against interest expense for the three months ended April 30, 2004and 2003, respectively.

 

***Interest and Other Income (Expense).*** Interest and other income (expense) totaled($309,000) for the three months ended April 30, 2004 compared to $12,000for the three months ended April 30, 2003. The U.S. Customs Service(“Customs”) has distributed antidumping and countervailing duties assessed oncertain pasta imported from Italy and Turkey to affected domestic producerspursuant to the Continued Dumping and Subsidy Offset Act of 2000 (the “OffsetAct”), which was enacted in October 2000. The Company received payments inthe amount of $0.9 million and $1.0 million in December 2003 and 2002,respectively, under the Offset Act, based on duties assessed fromOctober 1, 2001 to September 30, 2003. The Company repaid $0.3 millionto Customs in April 2004 pursuant to a reclamation request from Customs,which accounted for a majority of the $309,000 other expense for the threemonths ended April 30, 2004. The reclamation request noted Customs hadinadvertently left out an affected domestic producer that had timely filed avalid claim in the allocation calculation, resulting in the initial overpaymentto the Company. The Company cannot reasonably estimate the potential amount, ifany, that it may receive under the Offset Act in future periods as any suchamount will be based upon future events over which the Company has little or nocontrol, including, but not limited to, the amount of expenditures by domesticpasta producers and the amount of antidumping and countervailing dutiescollected by Customs.

 

***Income Taxes.*** Income tax expense for the three months ending April 30, 2004, was$0.5 million, compared to an income tax benefit of $0.6 million for the threemonths ending April 30, 2003.  Theincome tax expense (benefit) reflects an effective corporate income tax rate ofapproximately 39%.

 

***Net Income (Loss).***Net income for thethree months ended April 30, 2004 totaled $0.8 million compared to a netloss of $0.9 million for the three months ended April 30, 2003. The $1.7million increase resulted primarily from increased sales volumes and other factors as noted above.

 

*Comparison of the Nine Months Ended April 30, 2004 and2003*

 

***Net Revenues.***Net revenues increased$3.2 million, or 2.9%, to $110.7 million for the nine months endedApril 30, 2004, from $107.5 million for the nine months endedApril 30, 2003. The increase for the nine months ended April 30, 2004versus a year ago was primarily due to higher per unit selling prices.

 

Revenuesfrom the retail market, a portion of which includes co-pack and governmentalsales, decreased $2.3 million, or 3.7%, as a result of a 5.6% decrease in salesvolume offset by an increase in per unit selling prices. The retail volumedeclines were largely in governmental and co-pack sales. Foodservice revenuesincreased $2.5 million, or 8.9%, due to a 5.0% increase in per unit selling pricescombined with higher sales volumes. Ingredient revenues increased $1.4million, or 19.5% due to increased sales volumes.

 

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Revenues from semolinaand by-product sales increased $1.5 million for the nine months endedApril 30, 2004, when compared to the nine months ended April 30,2003. The increase resulted from higher semolina sales volumes.

 

***Cost of Goods Sold.*** Cost of goods soldincreased $5.3 million, or 5.5%, to $101.6 million for the nine months endedApril 30, 2004 from $96.3 million for the nine months ended April 30,2003. Gross margin as a percentage of net revenues decreased from 10.4% for thenine months ended April 30, 2003 to 8.2% for the nine months endedApril 30, 2004 due to higher rawmaterial costs and higher per unit manufacturing costs, primarily resultingfrom lower production volumes.

 

***Marketing, General, and Administrative (“MG&A”) Expenses.***MG&A expenses for the nine months ended April 30, 2004 totaled $6.0million, down 20.9% from $7.6 million for the nine months ended April 30,2003.  MG&A expenses as a percentageof net revenues decreased from 7.0% to 5.4%. The decrease in MG&A expenses was primarily due to lower incentivecompensation costs. A portion of incentive compensation for the nine monthsended April 30, 2003 related to a compensatory transaction in conjunctionwith the unwinding of previous stock option exercises and related officer loansin response to the Sarbanes-Oxley Act of 2002.

 

***Interest Expense.*** Interest expense forthe nine months ended April 30, 2004 totaled $2.1 million, down from $2.5million for the nine months ended April 30, 2003.  The decrease was mainly due to lower averageoutstanding debt levels. Cash and equity patronage refunds received from CoBanktotaling $103,000 and $126,000 have been netted against interest expense forthe nine months ended April 30, 2004 and 2003, respectively.

 

***Interest and Other Income.*** Interestand other income totaled $0.6 million for the nine months ended April 30,2004 compared to $1.1 million for the nine months ended April 30, 2003.The Company received payments in the amount of $0.9 million and $1.0 million inDecember 2003 and 2002, respectively, under the Offset Act, based onduties assessed from October 1, 2001 to September 30, 2003. The Company repaid $0.3 million to Customsin April 2004 pursuant to a reclamation request from Customs. Thereclamation request noted Customs had inadvertently left out an affecteddomestic producer that had timely filed a valid claim in the allocationcalculation, resulting in the initial overpayment to the Company. TheCompany cannot reasonably estimate the potential amount, if any, that it may receiveunder the Offset Act in future periods as any such amount will be based uponfuture events over which the Company has little or no control, including, butnot limited to, the amount of expenditures by domestic pasta producers and theamount of antidumping and countervailing duties collected by Customs.

 

***Income Taxes.*** Income tax expense for the nine months ending April 30, 2004, was$0.6 million, compared to $0.9 million for the nine months endingApril 30, 2003.  The income tax expensereflects an effective corporate income tax rate of approximately 39%.

 

***Net Income. ***Net income for the ninemonths ended April 30, 2004 totaled $0.9 million compared to $1.4 millionfor the nine months ended April 30, 2003.

 

**Liquidity and Capital Resources**

 

Our primary sources ofliquidity are cash provided by operations and borrowings under our creditfacility with CoBank. Working capital as of April 30, 2004 totaled $12.6million compared to $13.4 million as of July 31, 2003.

 

Effective February 24, 2004, the Company secured a $25 millionrevolving credit facility with CoBank. The term of the revolving creditfacility extends through February 21, 2005. The revolving line has a variable interest rateestablished by CoBank based on CoBank’s cost of funds. The balance outstandingunder the revolving line of credit totaled $10.0 million as of April 30,2004.

 

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

 

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Company.The Company was in compliance with these financial covenants as ofApril 30, 2004. The Company has received waivers from CoBank and the institutionalinvestors for covenant noncompliance events existing for the fiscal quartersended October 31, 2003 and January 31, 2004.

 

The Company and CoBank also entered into a new MasterLoan Agreement and Term Loan Supplements effective February 24, 2004.Under the Master Loan Agreement, the Company is required to maintain certainfinancial ratios including: 1) a current ratio of 1.10 to 1.0 throughJuly 31, 2004 and of not less than 1.25 to 1.0 thereafter, 2) a long termdebt to net worth ratio of 1.10 to 1.0, and 3) a consolidated funded debt toconsolidated cash flow ratio of not more than 4.0 to 1.0 calculated on atrailing four quarter basis through April 30, 2004, and of not more than3.0 to 1.0 thereafter.

 

Netcash from operating activities totaled $10.0 million for the nine months endedApril 30, 2004 compared to net cash used for operating activities of $3.7million for the nine months ended April 30, 2003. The increase wasprimarily due to a reduction in inventory and lower payments for long-termmarketing costs offset by an increase in trade receivables. A $5.1 millionincrease in inventories for the three months ended April 30, 2004 wasprimarily due to the build up of inventories of DreamfieldsTM pastaproducts.

 

Netcash used for investing activities totaled $1.6 million for the nine monthsended April 30, 2004, compared to net cash from investing activities of$0.5 million for the nine months ended April 30, 2003. Cash used forinvesting activities related primarily to the purchase of milling and pastaequipment and payments for package design costs. The Company redeemedshort-term investments of $2.0 million during the nine months endedApril 30, 2003, accounting for a majority of the change.

 

Netcash used for financing activities totaled $8.4 million for the nine monthsended April 30, 2004, compared to net cash from financing activities of$0.3 million for the nine months ended April 30, 2003. Substantially allof the net cash used for financing activities for the nine months endedApril 30, 2004 related to debt principal payments. The net cash fromfinancing activities for the nine months ended April 30, 2003 consisted ofborrowings under the revolving credit facility offset by long term debtprincipal payments and the purchase of treasury stock.

 

The following table summarizesthe Company’s contractual obligations as of April 30, 2004 (in thousands):

 
| **Contractual Obligations** |   | **Total** |   | **Payments  Due in Less  Than 1 Year** |   | **Payments  Due in  1-3 Years** |   | **Payments  Due in  4-5 Years** |   | **Payments  Due After  5 Years** |   |
|-----------------------------|--------|-----------|--------|----------------------------------------|--------|---------------------------------|--------|---------------------------------|--------|----------------------------------|--------|
|                        |   |      |   |                                   |   |                            |   |                            |   |                             |   |
| Long-term debt              |   | $         | 29,573 |                                   | $      | 8,486                           |   | $                               | 14,313 |                             | $      | 5,774 |   | $ | 1,000 |   |
| Durum purchase obligations  |   | 2,249     |   | 2,249                                  |   | —                          |   | —                          |   | —                           |   |
| Operating leases            |   | 3,221     |   | 1,181                                  |   | 1,987                           |   | 53                              |   | —                           |   |
|                        |   |      |   |                                   |   |                            |   |                            |   |                             |   |
|                        |   | $         | 35,043 |                                   | $      | 11,916                          |   | $                               | 16,300 |                             | $      | 5,827 |   | $ | 1,000 |   |

 

The Company forward contractsfor a certain portion of its future durum wheat requirements. The Company hadoutstanding commitments for grain purchases totaling $2.2 million as ofApril 30, 2004 related to forward purchase contracts. These contracts areset price contracts to deliver grain to the Company’s mill, and are notderivative in nature as they have no net settlement provision and are nottransferable.

 

TheCompany made aggregate investments in DNA Dreamfields totaling $240,000 throughApril 30, 2004. Under the terms of the DNA Dreamfields operatingagreement, the Company shall contribute, when and as needed, additionalfunds up to an aggregate of approximately $4.0 million, to DNA Dreamfields topay for the development of supply chain, product package development, consumerresearch, test market launch and regional roll out, advertising andmerchandising. The Company expects to contribute a significant portion of the$4.0

 

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million commitment to DNADreamfields during the Company’s fourth fiscal quarter 2004 for advertising andmarketing campaigns.

 

Management believes thatnet cash to be provided by operating activities, along with its available lineof credit, will be sufficient to meet the Company’s expected capital andliquidity requirements for the foreseeable future.

 

**ITEM 3.  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Market risk is the riskof loss to future earnings, to fair values or to future cash flows that mayresult from changes in the price of a financial instrument. The value of afinancial instrument may change as a result of changes in interest rates,commodity prices, exchange rates, equity prices, and other market changes.Market risk is attributed to all market-risk sensitive financial instruments,including long-term debt.

 

The Company does notbelieve it is subject to any material market risk exposure with respect tointerest rates, commodity prices, exchange rates, equity prices, or other marketchanges that would require disclosure under this item.

 

**ITEM 4.  CONTROLS ANDPROCEDURES**

 

***Evaluation of Disclosure Controls andProcedures***

 

The Company’s ChiefExecutive Officer and Chief Financial Officer have reviewed the Company’sdisclosure controls and procedures within 90 days prior to the filing of thisQuarterly Report. Based upon this review, these officers believe that theCompany’s disclosure controls and procedures are effective in ensuring thatmaterial information related to the Company is made known to them by otherswithin the Company.

 

***Changes in Internal Controls***

 

Inconjunction with Dakota Growers entering into the services agreement with DNADreamfields, applicable internal controls were reviewed and added as necessary.There were no other significant changes in the Company’s internal controls orin other factors that could significantly affect these controls subsequent tothe date of the most recent evaluation.

 

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**PART II – OTHER INFORMATION**

 

**ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K**

 

**Exhibits**

 

10.1                           MasterLoan Agreement dated February 24, 2004 between the Company and CoBank.

 

10.2                           StatusedRevolving Credit Supplement and Term Supplements dated February 24, 2004between the Company and CoBank.

 

10.3                           Non-RevolvingCredit Supplement dated February 24, 2004 between the Company and CoBank.

 

31.1                           Certification ofChief Executive Officer required by Securities and Exchange Commission Rule13a-14(a) or 15d-14(a).

 

31.2                           Certification ofChief Financial Officer required by Securities and Exchange Commission Rule13a-14(a) or 15d-14(a).

 

32.1                           Certificationof Chief Executive Officer pursuant to Section 906 of the Sarbanes-OxleyAct of 2002, 18 U.S.C. Section 1350.

 

32.2                           Certificationof Chief Financial Officer pursuant to Section 906 of the Sarbanes-OxleyAct of 2002, 18 U.S.C. Section 1350.

 

**Reports on Form 8-K**

 

None.

 

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**SIGNATURES**

 

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

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

 
| **Signature**          |   | **Title**                                                 |   | **Date**            |
|------------------------|--------|-----------------------------------------------------------|--------|---------------------|
|                   |   |                                                      |   |                |
| /s/  Timothy J. Dodd   |   | President  and Chief Executive Officer                    |   |                |
| Timothy  J. Dodd       |   | (Principal  Executive  Officer)                           |   | June 14,  2004 |
|                   |   |                                                      |   |                |
| /s/  Thomas P. Friezen |   | Chief  Financial Officer                                  |   |                |
| Thomas  P. Friezen     |   | (Principal  Financial  Officer)                           |   | June 14,  2004 |
|                   |   |                                                      |   |                |
| /s/  Edward O. Irion   |   | Vice  President – Finance and                        |   |                |
| Edward  O. Irion       |   | Chief  Accounting Officer  (Principal Accounting Officer) |   | June 14,  2004 |

 

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