**UNITED STATES****SECURITIES 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 January 31, 2006**                                             |
|   |       |                                                                                             |
|   |       | **or**                                                                                           |
|   |       |                                                                                             |
| o      | ** ** | **Transition  Report Pursuant to Section 13 or 15(d) of the Securities Exchange****Act of 1934** |

 

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**Commission File No. 000-50111**

 

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**DAKOTA GROWERS PASTA COMPANY, INC.**

(Exact name of registrant as specified in itscharter)

 

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

 

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

(Address of principal executive officesincluding zip code)

 

**(701) 652-2855**

(Registrant’s telephone number, including areacode)

 

**NOT APPLICABLE**

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

 

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.

| Yes ý    Noo |
|---------------------------------------|

 

Indicate by check mark whether theregistrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

| Large accelerated  filer  o |   | Accelerated filer  o |   | Non-accelerated  filer  ý |
|---------------------------------------|--------|--------------------------------|--------|------------------------------------------|

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act).

| Yes  o    No  ý |
|--------------------------------------------------------------|

 

As of March 17, 2006, the Registrant had13,169,382 shares of common 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)**       | ** ** | ** **         | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                                                                                                              | ** ** | **January 31,  2006** | ** ** | **July 31,  2005** | ** ** |
| **ASSETS**                                                                                                              |       |                  |       |               |       |
| ** **                                                                                                              |       |                  |       |               |       |
| CURRENT ASSETS                                                                                                          |       |                  |       |               |       |
| Cash and cash  equivalents                                                                                              |       | $                     | 107        |               | $          | 229 |   |
|                                                                                                                    |       |                  |       |               |       |
| Trade accounts  receivable, less allowance for cash discounts and doubtful accounts of $1,768  and $1,507, respectively |       | 16,950                |       | 16,188             |       |
|                                                                                                                    |       |                  |       |               |       |
| Other  receivables                                                                                                      |       | 206                   |       | 411                |       |
|                                                                                                                    |       |                  |       |               |       |
| Inventories                                                                                                             |       | 24,013                |       | 28,102             |       |
|                                                                                                                    |       |                  |       |               |       |
| Prepaid expenses                                                                                                        |       | 3,160                 |       | 2,578              |       |
|                                                                                                                    |       |                  |       |               |       |
| Deferred income  taxes                                                                                                  |       | 955                   |       | 955                |       |
|                                                                                                                    |       |                  |       |               |       |
| Total current  assets                                                                                                   |       | 45,391                |       | 48,463             |       |
|                                                                                                                    |       |                  |       |               |       |
| PROPERTY AND EQUIPMENT                                                                                                  |       |                  |       |               |       |
| In service                                                                                                              |       | 120,693               |       | 111,394            |       |
|                                                                                                                    |       |                  |       |               |       |
| Construction in  progress                                                                                               |       | 5,712                 |       | 7,350              |       |
|                                                                                                                    |       | 126,405               |       | 118,744            |       |
| Less accumulated  depreciation                                                                                          |       | (54,265               | )          | (52,286            | )          |
|                                                                                                                    |       |                  |       |               |       |
| Net property and  equipment                                                                                             |       | 72,140                |       | 66,458             |       |
|                                                                                                                    |       |                  |       |               |       |
| INVESTMENT IN COOPERATIVE BANK                                                                                          |       | 1,840                 |       | 2,054              |       |
|                                                                                                                    |       |                  |       |               |       |
| GOODWILL                                                                                                                |       | 16,654                |       | 16,654             |       |
|                                                                                                                    |       |                  |       |               |       |
| OTHER ASSETS                                                                                                            |       | 951                   |       | 1,501              |       |
|                                                                                                                    |       |                  |       |               |       |
|                                                                                                                    |       | $                     | 136,976    |               | $          | 135,130 |   |

 

2

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| ** **                                                                                                                                                      | ** ** | **(Unaudited)**       | ** ** | ** **         | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                                                                                                                                                      | ** ** | **January 31,  2006** | ** ** | **July 31,  2005** | ** ** |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                   |       |                  |       |               |       |
| ** **                                                                                                                                                      |       |                  |       |               |       |
| CURRENT LIABILITIES                                                                                                                                             |       |                  |       |               |       |
| Excess  outstanding checks over cash on deposit                                                                                                                 |       | $                     | 3,169      |               | $          | 3,110 |   |
| Accounts payable                                                                                                                                                |       | 6,113                 |       | 4,197              |       |
| Accrued  liabilities                                                                                                                                            |       | 5,993                 |       | 6,229              |       |
| Notes payable                                                                                                                                                   |       | 7,500                 |       | 10,000             |       |
| Current portion  of long-term debt                                                                                                                              |       | 5,771                 |       | 4,771              |       |
|                                                                                                                                                            |       |                  |       |               |       |
| Total current  liabilities                                                                                                                                      |       | 28,546                |       | 28,307             |       |
|                                                                                                                                                            |       |                  |       |               |       |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                   |       | —                |       | —             |       |
| LONG-TERM DEBT, net of current portion                                                                                                                          |       | 27,545                |       | 25,385             |       |
| DEFERRED INCOME TAXES                                                                                                                                           |       | 11,676                |       | 11,419             |       |
| OTHER LIABILITIES                                                                                                                                               |       | 60                    |       | 85                 |       |
| MANDATORILY REDEEMABLE PREFERRED STOCK                                                                                                                          |       |                  |       |               |       |
| Series A, 6%  cumulative, $100 par value, 533 shares authorized, 0 and 67 shares issued and  outstanding as of January 31, 2006 and July 31, 2005, respectively |       | —                |       | 7                  |       |
|                                                                                                                                                            |       |                  |       |               |       |
| Total  liabilities                                                                                                                                              |       | 67,827                |       | 65,203             |       |
|                                                                                                                                                            |       |                  |       |               |       |
| NONCONTROLLING INTERESTS                                                                                                                                        |       | 7,963                 |       | 8,795              |       |
|                                                                                                                                                            |       |                  |       |               |       |
| 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                |       |
| Common stock,  $.01 par value, 75,000,000 shares authorized, 13,169,382 issued and  outstanding                                                                 |       | 132                   |       | 132                |       |
| Additional paid-in  capital                                                                                                                                     |       | 62,823                |       | 62,807             |       |
| Accumulated  deficit                                                                                                                                            |       | (1,882                | )          | (1,920             | )          |
|                                                                                                                                                            |       |                  |       |               |       |
| Total  stockholders’ equity                                                                                                                                |       | 61,186                |       | 61,132             |       |
|                                                                                                                                                            |       |                  |       |               |       |
| Total  liabilities and stockholders’ equity                                                                                                                |       | $                     | 136,976    |               | $          | 135,130 |   |

 

See Notes toConsolidated Financial Statements

 

3

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** **

**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

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

 
| ** **                                                                         | ** ** | **Three Months Ended  January 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                         | ** ** | **2006**                            | ** ** | **2005** | ** ** |
| Net revenues  (net of discounts and allowances of $6,693 and $5,755, respectively) |       | $                                   | 42,490     |   | $ | 40,698 |   |
|                                                                               |       |                                |       |   |   |
| Cost of goods sold                                                                 |       | 38,124                              |       | 35,783 |   |
|                                                                               |       |                                |       |   |   |
| Gross profit                                                                       |       | 4,366                               |       | 4,915 |   |
|                                                                               |       |                                |       |   |   |
| Marketing, general and administrative expenses                                     |       | 4,246                               |       | 4,091 |   |
|                                                                               |       |                                |       |   |   |
| Operating income                                                                   |       | 120                                 |       | 824 |   |
|                                                                               |       |                                |       |   |   |
| Other income (expense)                                                             |       |                                |       |   |   |
| Interest and  other income                                                         |       | 1,032                               |       | 414 |   |
| Gain on  disposition of property, equipment and other assets                       |       | 13                                  |       | 13 |   |
| Interest  expense, net                                                             |       | (676                                | )          | (617 | ) |
|                                                                               |       |                                |       |   |   |
| Income before noncontrolling interests and income  taxes                           |       | 489                                 |       | 634 |   |
|                                                                               |       |                                |       |   |   |
| Noncontrolling interests                                                           |       | 522                                 |       | 618 |   |
|                                                                               |       |                                |       |   |   |
| Income before income taxes                                                         |       | 1,011                               |       | 1,252 |   |
|                                                                               |       |                                |       |   |   |
| Income tax expense                                                                 |       | 394                                 |       | 488 |   |
|                                                                               |       |                                |       |   |   |
| Net income                                                                         |       | 617                                 |       | 764 |   |
| Dividends on preferred stock                                                       |       | 451                                 |       | — |   |
|                                                                               |       |                                |       |   |   |
| Net earnings on common stock                                                       |       | $                                   | 166        |   | $ | 764 |   |
|                                                                               |       |                                |       |   |   |
| Net earnings per common share                                                      |       |                                |       |   |   |
| Basic                                                                              |       | $                                   | 0.01       |   | $ | 0.06 |   |
|                                                                               |       |                                |       |   |   |
| Diluted                                                                            |       | $                                   | 0.01       |   | $ | 0.06 |   |
|                                                                               |       |                                |       |   |   |
| Weighted average common shares outstanding                                         |       |                                |       |   |   |
| Basic                                                                              |       | 13,169                              |       | 13,169 |   |
|                                                                               |       |                                |       |   |   |
| Diluted                                                                            |       | 13,570                              |       | 13,529 |   |

 

See Notes toConsolidated Financial Statements

 

4

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| ** **                                                                           | ** ** | **Six Months Ended  January 31,** | ** ** |
|--------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                           | ** ** | **2006**                          | ** ** | **2005** | ** ** |
| Net revenues (net of discounts and allowances of  $13,819 and $12,017, respectively) |       | $                                 | 86,562     |   | $ | 76,575 |   |
|                                                                                 |       |                              |       |   |   |
| Cost of goods sold                                                                   |       | 76,956                            |       | 67,680 |   |
|                                                                                 |       |                              |       |   |   |
| Gross profit                                                                         |       | 9,606                             |       | 8,895 |   |
|                                                                                 |       |                              |       |   |   |
| Marketing, general and administrative expenses                                       |       | 8,113                             |       | 9,775 |   |
|                                                                                 |       |                              |       |   |   |
| Operating income (loss)                                                              |       | 1,493                             |       | (880 | ) |
|                                                                                 |       |                              |       |   |   |
| Other income (expense)                                                               |       |                              |       |   |   |
| Interest and  other income                                                           |       | 1,061                             |       | 423 |   |
| Loss (gain) on  disposition of property, equipment and other assets                  |       | (572                              | )          | 22 |   |
| Interest  expense, net                                                               |       | (1,225                            | )          | (1,255 | ) |
|                                                                                 |       |                              |       |   |   |
| Income (loss) before noncontrolling interests and  income taxes                      |       | 757                               |       | (1,690 | ) |
|                                                                                 |       |                              |       |   |   |
| Noncontrolling interests                                                             |       | 908                               |       | 2,639 |   |
|                                                                                 |       |                              |       |   |   |
| Income before income taxes                                                           |       | 1,665                             |       | 949 |   |
|                                                                                 |       |                              |       |   |   |
| Income tax expense                                                                   |       | 649                               |       | 370 |   |
|                                                                                 |       |                              |       |   |   |
| Net income                                                                           |       | 1,016                             |       | 579 |   |
| Dividends on preferred stock                                                         |       | 451                               |       | — |   |
|                                                                                 |       |                              |       |   |   |
| Net earnings on common stock                                                         |       | $                                 | 565        |   | $ | 579 |   |
|                                                                                 |       |                              |       |   |   |
| Net earnings per common share                                                        |       |                              |       |   |   |
| Basic                                                                                |       | $                                 | 0.04       |   | $ | 0.04 |   |
|                                                                                 |       |                              |       |   |   |
| Diluted                                                                              |       | $                                 | 0.04       |   | $ | 0.04 |   |
|                                                                                 |       |                              |       |   |   |
| Weighted average common shares outstanding                                           |       |                              |       |   |   |
| Basic                                                                                |       | 13,169                            |       | 13,169 |   |
|                                                                                 |       |                              |       |   |   |
| Diluted                                                                              |       | 13,570                            |       | 13,529 |   |

 

See Notes toConsolidated Financial Statements

 

5

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**DAKOTA GROWERS PASTA COMPANY, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In Thousands)(Unaudited)**

 
| ** **                                                                  | ** ** | **Six Months Ended  January 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                  | ** ** | **2006**                          | ** ** | **2005** | ** ** |
| OPERATING ACTIVITIES                                                        |       |                              |       |   |   |
| Net income                                                                  |       | $                                 | 1,016      |   | $ | 579 |   |
| Adjustments to  reconcile net income to net cash from operating activities: |       |                              |       |   |   |
| Depreciation and  amortization                                              |       | 3,540                             |       | 3,850 |   |
| Loss (gain) on  disposition of property, equipment and other assets         |       | 572                               |       | (22 | ) |
| Net loss  allocated from joint venture under equity method                  |       | —                            |       | 856 |   |
| Noncontrolling  interests                                                   |       | (908                              | )          | — |   |
| Deferred income  taxes                                                      |       | 257                               |       | 147 |   |
| Stock-based  employee compensation                                          |       | 16                                |       | — |   |
| Accrued  promotional costs applied to marketing prepayments                 |       | —                            |       | 3,593 |   |
| Changes in  assets and liabilities                                          |       |                              |       |   |   |
| Trade  receivables                                                          |       | (762                              | )          | (4,673 | ) |
| Other  receivables                                                          |       | 205                               |       | 893 |   |
| Inventories                                                                 |       | 4,089                             |       | 578 |   |
| Prepaid expenses                                                            |       | (756                              | )          | (24 | ) |
| Other assets                                                                |       | 25                                |       | 5 |   |
| Accounts payable                                                            |       | 1,916                             |       | 511 |   |
| Other accrued  liabilities                                                  |       | (236                              | )          | (570 | ) |
| NET CASH FROM OPERATING ACTIVITIES                                          |       | 8,974                             |       | 5,723 |   |
|                                                                        |       |                              |       |   |   |
| INVESTING ACTIVITIES                                                        |       |                              |       |   |   |
| Purchases of  property and equipment                                        |       | (9,031                            | )          | (1,096 | ) |
| Payments for  package design costs                                          |       | (89                               | )          | (412 | ) |
| Proceeds from  cooperative bank equity retirements                          |       | 214                               |       | 120 |   |
| Investments in  joint venture                                               |       | —                            |       | (2,970 | ) |
| NET CASH USED FOR INVESTING ACTIVITIES                                      |       | (8,906                            | )          | (4,358 | ) |
|                                                                        |       |                              |       |   |   |
| FINANCING ACTIVITIES                                                        |       |                              |       |   |   |
| Net change in  excess outstanding checks over cash on deposit               |       | 59                                |       | 1,732 |   |
| Net change in  short-term notes payable                                     |       | (2,500                            | )          | 3,500 |   |
| Principal  payments on long-term debt                                       |       | (4,771                            | )          | (7,176 | ) |
| Proceeds from  long-term debt borrowings                                    |       | 7,931                             |       | — |   |
| Dividends paid  on common stock                                             |       | (527                              | )          | — |   |
| Dividends paid  on preferred stock                                          |       | (451                              | )          | — |   |
| Preferred stock  retirements                                                |       | (7                                | )          | (7 | ) |
| Investments by  noncontrolling interests                                    |       | 76                                |       | — |   |
| NET CASH USED FOR FINANCING ACTIVITIES                                      |       | (190                              | )          | (1,951 | ) |
|                                                                        |       |                              |       |   |   |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                     |       | (122                              | )          | (586 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                              |       | 229                               |       | 589 |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                    |       | $                                 | 107        |   | $ | 3 |   |
|                                                                        |       |                              |       |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                           |       |                              |       |   |   |
| Cash payments  for                                                          |       |                              |       |   |   |
| Interest (net of  amounts capitalized)                                      |       | $                                 | 1,316      |   | $ | 1,411 |   |
|                                                                        |       |                              |       |   |   |
| Income taxes                                                                |       | $                                 | 740        |   | $ | (200 | ) |

 

See Notes toConsolidated Financial Statements

 

6

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**DAKOTAGROWERS PASTA COMPANY, INC.**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

The following notes should be read in conjunction with the notes to thefinancial statements for the year ended July 31, 2005 as filed in the Company’sForm 10-K.

 

**NOTE 1 – ORGANIZATION**

** **

Dakota Growers PastaCompany, Inc. (“Dakota Growers” or “the Company”) is a North Dakota corporationthat operates a milling and pasta manufacturing facility in Carrington, NorthDakota. In addition, the Company’s wholly-owned subsidiary, Primo Piatto, Inc. (“PrimoPiatto”), a Minnesota corporation, operates a pasta manufacturing facility inNew Hope, Minnesota.

 

**NOTE 2 – FINANCIAL STATEMENTPRESENTATION**

** **

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)considered necessary for a fair presentation have been included. Operatingresults for the three and six month periods ended January 31, 2006 are notnecessarily indicative of the results that may be expected for the year endedJuly 31, 2006. The unaudited consolidated financial statements included in thisForm 10-Q should be read in conjunction with the consolidated financialstatements and footnotes included in the Company’s Form 10-K for the year endedJuly 31, 2005. The information contained in the balance sheet as of July 31,2005 was derived from the Company’s audited annual report for fiscal year 2005.Reclassifications have been made to facilitate comparability with currentpresentation. Such reclassifications have no effect on the net results ofoperations.

 

The financial informationpresented herein includes the consolidated balance sheets and results ofoperations of theCompany, its wholly-owned subsidiary, Primo Piatto, Inc., and DNA DreamfieldsCompany, LLC (“DNA Dreamfields”), which the Company began to consolidate infiscal year 2005. All material inter-company accounts and transactions havebeen eliminated in the preparation of the consolidated financial statements.

 

**NOTE 3 – NEW ACCOUNTING STANDARDS**

** **

TheFASB issued SFAS No. 123(R), “Share-Based Payment” in December 2004. SFAS No.123(R) is a revision of SFAS No. 123, “Accounting for Stock Based Compensation”and is effective for the first interim or annual reporting period for fiscal yearsbeginning after June 15, 2005. SFAS No. 123(R) requires the cost of share-basedpayments to employees, including grants of employee stock options, to bemeasured based on grant-date fair values. That cost is recognized over theperiod during which an employee is required to provide service in exchange forthe award, usually the vesting period. The Company adopted SFAS No. 123(R) inthe quarter ended October 31, 2005. The adoption of this statement did not havea material impact on the Company’s financial statements. However, futureemployee stock option grants may have a material impact on the Company’sfinancial statements as a result of SFAS No. 123(R).

 

7

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TheFASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB 43, Chapter 4”in November 2004. SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facilityexpense, freight, handling costs, and wasted material (spoilage) so as torequire such costs to be treated as current period charges. Further, thisstatement requires that the allocation of fixed overhead costs to inventoriableproduction costs be based on the normal capacity of the productionfacilities.  The provisions of this Statement are effective for inventorycosts incurred during fiscal years beginning after June 15, 2005. The Companyadopted SFAS No. 151 in the quarter ended October 31, 2005. The adoption ofthis statement did not have a material impact on the Company’s financialstatements. However, future changes in the Company’s production or logisticscould have a material impact on the Company’s financial statements as a resultof SFAS No. 151.

 

**NOTE 4 –INVENTORIES**

** **

Inventories are valued at lower of cost or market. Inventories as of January31, 2006 include raw materials and packaging of $7,979,000 and finished goodsof $16,034,000. Inventories at July 31, 2005 include raw materials andpackaging of $7,262,000 and finished goods of $20,840,000.

 

###### **NOTE 5 – LOAN AGREEMENTS**

###### ** **

TheCompany has a $25.0 million revolving credit facility with CoBank which matureson May 31, 2006. Balances outstanding under this revolving line of creditarrangement totaled $7.5 million as of January 31, 2006, and $10.0 million asof July 31, 2005. The Company had $17.5 million available for borrowings under thisline of credit as of January 31, 2006.

 

TheCompany also has a term loan facility with CoBank under which the Company mayborrow an aggregate principal amount of up to $19.0 million through May 1,2006. Balances outstanding under the term loan were $17.0 million and $9.1million as of January 31, 2006 and July 31, 2005, respectively. The Company had$2.0 million available for borrowings under the CoBank term loan facility as ofJanuary 31, 2006.

 

TheCompany’s various debt agreements with CoBank and certain institutional noteholders 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 31,2006.

 

###### **NOTE 6 – EARNINGS PERSHARE**

###### ** **

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.

 

Dilutivesecurities, consisting of stock options and convertible preferred stock,included in the calculation of diluted weighted average common shares totaled 401,000and 360,000 for the three and six month periods ended January 31, 2006 and 2005,respectively. As there is currently no established public trading market forthe Company’s common stock, the Company has assumed the proceeds from theexercise of stock options would reduce debt and, thus, interest expense.

 

8

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**NOTE 7 – DNADREAMFIELDS COMPANY, LLC**

 

EffectiveMay 1, 2005, the Company’s ownership in DNA Dreamfields increased to46.7%. In conjunction with the Company’sincrease in ownership in DNA Dreamfields and changes in the DNADreamfields 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. Theresults for the three and six month periods ended January 31, 2006 arepresented to include the results of operations of DNA Dreamfields in theconsolidated income statements.

 

The Company entered into a “2005 Line ofCredit Loan Agreement” with DNA Dreamfields in the fourth quarter of fiscalyear 2005. Under that Agreement, the Company will loan up to $5,000,000 toDNA Dreamfields, with DNA Dreamfields able to repay and reborrow amounts underthe Line of Credit Loan Agreement from time to time. The Line of CreditLoan Agreement matures on May 31, 2010. The balance outstanding relatedto advances to DNA Dreamfields under the Line of Credit Loan Agreement totaled$1,840,000 and $465,000 as of January 31, 2006 and July 31, 2005, respectively.These inter-company amounts have been eliminated in the preparation of theconsolidated financial statements.

 

###### **NOTE 8 – DIVIDENDS**

###### ** **

OnDecember 15, 2005, the Company’s Board of Directors authorized the payment of a4 cents per share dividend on its Series D Delivery Preferred Stock and anon-periodic dividend payment of 4 cents per share on its common stock, payableon January 10, 2006 to shareholders of record as of December 19, 2005.

 

**NOTE 9 – STOCK OPTIONS**

 

On December 22,2005, the Compensation Committee of the Board of Directors granted incentivestock options to purchase 141,256 shares of the Company’s common stock at a pershare exercise price of $4.00. The vesting of these options is subject tocertain qualifications, including but not limited to, the continued employmentof the optionee with the Company. Subject to the foregoing qualifications andcertain other qualifications, fifty percent of theseoptions vest on December 22, 2006, twenty-five percent vest on December 22,2007, and twenty-five percent vest on December 22, 2008.

 

**NOTE 10 – CONTINUED DUMPING AND SUBSIDY OFFSET ACT OF 2000**

 

U.S.Customs and Border Protection (“Customs”) has distributed antidumping andcountervailing duties assessed on certain pasta imported from Italy and Turkeyto affected domestic producers pursuant to the Continued Dumping and SubsidyOffset Act of 2000 (the “Offset Act”), which was enacted in October 2000. TheCompany received payments in the amount of $1,103,000 and $425,000 in December2005 and 2004, 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, the amount ofexpenditures by domestic pasta producers and the amount of antidumping andcountervailing duties collected by Customs.

 

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###### **NOTE 11 – COMMITMENTS**

 

The Company forward contracts for a certain portion of its future durumwheat requirements. The Company had outstanding commitments for grain purchasestotaling $12,819,000 as of January 31, 2006, 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.

 

The Company had commitments to purchase pasta equipment totaling$126,000 as of January 31, 2006. These amounts are expected to be paid withinone year.

 

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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF 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, 2005.

 

**Forward-LookingStatements**

 

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, 2005 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 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 andfoodservice markets, although we serve and continually look for opportunitiesin the entire dry pasta industry. The Company’s cost of goods sold consistsmainly of raw materials (primarily durum wheat), packaging, and manufacturingand distribution costs. The Company competes through low cost production, highproduct quality, flexibility and customer service.

 

Netincome for the quarter ended January 31, 2006 totaled $617,000 compared to net incomeof $764,000 for the quarter ended January 31, 2005. Net income for the sixmonths ended January 31, 2006 totaled $1,016,000 versus $579,000 for the sixmonths ended January 31, 2005. The Company paid dividends of $451,000($0.04 per share) on its Series D Delivery Preferred Stock and $527,000 ($0.04per share) on its common stock during the second quarter of fiscal year 2006. Net earnings per basic common share, after theeffect of dividends on preferred stock, were $0.01 per share for the quarterended January 31, 2006 compared to $0.06 per share for the quarter ended January31, 2005. Net earnings per basic common share were $0.04 per share for the sixmonths ended January 31, 2006 and 2005.

 

TheCompany’s net revenues increased 4.4% for the quarter ended January 31, 2006when compared to the same period of last year, primarily due to higher pastaper unit selling prices. Net revenues for the six months ended January 31, 2006were up 13.0% compared to the same period of last year, with the increaseresulting mostly from increased pasta sales volumes in the first quarter offiscal year 2006 when compared to the same quarter of last year. Benefitsderived from increased sales and lower durum costs were partially offset bycontinued high transportation costs. Freight cost increases during fiscal year2006 have been driven by a combination of higher diesel fuel prices and reducedrail and truck availability. The effectiveness of the Company’s rail programswas diminished in the second quarter of fiscal 2006 as lower finished goodsinventory levels limited the Company’s ability to utilize rail programs toforward warehouses. The Company does not expect significant improvements infreight costs for the remainder of fiscal year 2006. Sales price increases whichbecame effective starting in the second quarter of fiscal year 2006 areexpected to partially mitigate the impact of these higher costs.

 

TheCompany undertook a $15 million capital project at its New Hope, Minnesotafacility to better balance its pasta production capabilities and improveoperating costs. A main component of this project was the installation of anew, state-of-the-art short goods production line. The new short goods line,which became operational during the Company’s second quarter of fiscal 2006,increased the New Hope plant’s capacity by 35% to approximately 230 millionpounds annually. However, higher conversion costs per unit at the New Hopefacility during the installation and start-up of the new production linenegatively impacted the Company’s results for the first and second quarters offiscal year 2006. The Company also recorded a $598,000 loss on disposalduring the six months ended January 31, 2006 related to the retirement ofcertain equipment in conjunction with the capital project at the New Hopefacility.

 

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**CriticalAccounting 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 requires managementto make 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 thecircumstances. However, future events are subject to change and the bestestimates and judgments may require adjustment. For a complete description ofthe Company’s significant accounting policies, please see Note 1 to theconsolidated financial statements included in the Company’s Form 10-K for the yearended July 31, 2005. Our critical accounting policies are those that havemeaningful impact on the reporting of our financial condition and results, andthat require significant management judgment and estimates. These policiesinclude our accounting for (a) allowance for doubtful accounts, (b) inventoryvaluation, (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.

 

*AssetImpairment*

 

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 impairment indicatorsexist and that the value of certain long-lived assets is impaired.

 

*IncomeTaxes*

 

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, 2006 willbe realized through the generation of future taxable income and tax planningstrategies.

 

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**Basis of Presentation**

 

EffectiveMay 1, 2005, the Company began to include DNA Dreamfields in itsconsolidated financial statements.  The results for the three and sixmonths ended January 31, 2006 are presented to include the results ofoperations of DNA Dreamfields in the consolidated income statement. See Note 7of the consolidated financial statements for additional information.

 

**Resultsof Operations**

 

*Comparisonof the Three Months Ended January 31, 2006 and 2005*

 

***Net Revenues.***Netrevenues totaled $42.5 million for the three months ended January 31, 2006, anincrease of $1.8 million, or 4.4%, compared to $40.7 million for the threemonths ended January 31, 2005. Overall, pasta per unit selling prices increased5.4% while sales volumes declined by 0.3%. Retail revenues increased $0.1million, or 0.6%, due to an 8.5 % increase in average selling prices offset bya 7.3% volume decline. Foodservice revenues increased $0.4 million, or 3.4%,due to a 2.0% increase in average selling prices and a 1.4% increase in salesvolumes. Ingredient revenues increased $1.4 million, or 26.8%, due to a 14.5%volume gain and a 10.8% increase in average selling prices.

 

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 $2.9 million for the three monthsended January 31, 2006, a decrease of $0.1 million when compared to the sameperiod of the prior year.

 

***Cost of Goods Sold.*** Cost of goods sold increased $2.3million, or 6.5%, to $38.1 million for the three months ended January 31, 2006,compared to $35.8 million for the three months ended January 31, 2005. Gross profitas a percentage of net revenues decreased to 10.3% for the three months ended January31, 2006 from 12.1% for the three months ended January 31, 2005, primarily dueto the negative impacts of higher freightcosts and higher per unit conversion costs for the quarter ended January 31,2006. These factors were partially offset by lower durumcosts.

 

***Marketing, General, and Administrative (“MG&A”) Expenses.*** MG&Aexpenses increased 3.8% to $4.3 million for the three months ended January 31,2006, compared to $4.1 million for the three months ended January 31, 2005. MG&Aexpenses as a percentage of net revenues decreased to 10.0% for the threemonths ended January 31, 2006, from 10.1% for the comparable quarter of theprior year.

 

***Interest and Other Income.*** Interestand other income totaled $1.0 million for the three months ended January 31,2006 compared to $0.4 million for the three months ended January 31, 2005. U.S.Customs and Border Protection (“Customs”) has distributed antidumping andcountervailing duties assessed on certain pasta imported from Italy and Turkeyto affected domestic producers pursuant to the Continued Dumping and SubsidyOffset Act of 2000 (the “Offset Act”), which was enacted in October 2000. TheCompany received payments in the amount of $1.1 million and $0.4 million inDecember 2005 and 2004, respectively, under the Offset Act. These amounts havebeen classified 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, the amount ofexpenditures by domestic pasta producers and the amount of antidumping andcountervailing duties collected by Customs.

 

***Interest Expense.*** Interest expense for the three monthsended January 31, 2006 totaled $0.7 million, up $0.1 million from $0.6 millionfor the corresponding period of the prior year.

 

***Noncontrolling Interests.***Noncontrollinginterests reflect the portion of the DNA Dreamfields Company, LLC net lossallocable to other members of DNA Dreamfields and totaled $0.5 million and $0.6million for the three months ended January 31, 2006 and 2005, respectively.

 

***Income Taxes.***Income tax expense for the threemonths ended January 31, 2006 and 2005 totaled $0.4 million and $0.5 million,respectively, and reflects an effective corporate income tax rate ofapproximately 39%.

 

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***Net Income.***Net income for the three months ended January 31, 2006 totaled $0.6million compared to net income of $0.8 million for the three months endedJanuary 31, 2005. Net earnings available to common shareholders for the threemonths ended January 31, 2006 totaled $0.2 million after reducing net incomefor dividends declared on Series D Delivery Preferred Stock.

 

*Comparisonof the Six Months Ended January 31, 2006 and 2005*

 

***Net Revenues.***Netrevenues totaled $86.6 million for the six months ended January 31, 2006, anincrease of $10.0 million, or 13.0%, compared to $76.6 million for the sixmonths ended January 31, 2005. Total pasta sales volumes increased 10.7% withsales in each of the retail, foodservice and ingredient markets realizingvolume gains. Ingredient sales volumes had the highest percentage increase at25.9%, while foodservice sales volumes increased 7.6%, and retail sales volumesincreased 6.9%. Overall, pasta per unit selling prices increased 2.9% withretail selling prices up 5.4%, foodservice selling prices up 1.1% andingredient selling prices up 5.0%.

 

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 $5.4 million and $5.3 million for the sixmonths ended January 31, 2006 and 2005, respectively.

 

***Cost of Goods Sold.*** Cost of goods sold increased $9.3million, or 13.7%, to $77.0 million for the six months ended January 31, 2006,compared to $67.7 million for the six months ended January 31, 2005. Theincrease was primarily due to higher sales volumes. Gross profit as apercentage of net revenues decreased to 11.1% for the six months ended January31, 2006 compared to 11.6% for the six months ended January 31, 2005. Higherfreight costs and higher per unit conversion costs negatively impacted grossprofit percentage for the six months ended January 31, 2006. These factors werepartially offset by lower durum costs.

 

***Marketing, General, and Administrative (“MG&A”) Expenses.*** MG&Aexpenses decreased $1.7 million, or 17.0%, to $8.1 million for the six monthsended January 31, 2006, compared to $9.8 million for the six months ended January31, 2005. The decrease was primarily due to lower consumer advertising costsassociated with DreamfieldsTM pasta products. MG&A expenses as apercentage of net revenues decreased to 9.4% for the six months ended January31, 2006, from 12.8% for the comparable period of last year.

 

***Interest and Other Income.*** Interestand other income totaled $1.1 million for the six months ended January 31, 2006compared to $0.4 million for the six months ended January 31, 2005.Substantially all of the amounts relate to payments received by the Company inDecember 2005 and 2004 under the Offset Act. The Company cannot reasonablyestimate the potential amount, if any, that it may receive under the Offset Actin future periods as any such amount will be based upon future events overwhich the Company has little or no control, including, but not limited to, theamount of expenditures by domestic pasta producers and the amount ofantidumping and countervailing duties collected by Customs.

 

***(Loss) Gain on Disposition of Property, Equipment and Other Assets.***The Companyincurred a Loss on Disposition of $0.6 million during the six months ended January31, 2006. Virtually all of this loss was related to the retirement of certainequipment in conjunction with the capital project at the New Hope, Minnesotafacility.

 

***Interest Expense.*** Interest expense for the six monthsended January 31, 2006 and 2005 totaled $1.2 million and $1.3 million,respectively.

 

***Noncontrolling Interests.***Noncontrollinginterests reflect the portion of the DNA Dreamfields Company, LLC net lossallocable to other members of DNA Dreamfields and totaled $0.9 million and $2.6million for the six months ended January 31, 2006 and 2005, respectively. The$1.7 million decrease was due to a reduction in the net loss reported by DNADreamfields for the six months ended January 31, 2006 when compared to lastyear, partially offset by the Company’s increased ownership in DNA Dreamfields.

 

***Income Taxes.***Income tax expense for the sixmonths ended January 31, 2006 totaled $0.6 million compared to $0.4 million forthe six months ended January 31, 2005, and reflects an effective corporateincome tax rate of approximately 39%.

 

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***Net Income.***Net income for the six months ended January 31, 2006 totaled $1.0million, compared to $0.6 million for the six months ended January 31, 2005. Netearnings available to common shareholders for the six months ended January 31,2006 totaled $0.6 million after reducing net income for dividends declared onpreferred stock.

 

**Liquidityand Capital Resources**

 

TheCompany’s primary sources of liquidity are cash provided by operations andborrowings under its revolving credit facility. Working capital as of January 31,2006 totaled $16.8 million compared to $20.2 million as of July 31, 2005.

 

The Company has a $25.0 million revolving creditfacility with CoBank, which extends through May 31, 2006. The balanceoutstanding on the line of credit was $7.5 million as of January 31, 2006,leaving $17.5 million available for borrowings as of that date.

 

The Company also has a term loan facility withCoBank under which the Company may borrow an aggregate principal amount of upto $19.0 million through May 1, 2006. The balance outstanding under the termloan was $17.0 million as of January 31, 2006, leaving $2.0 million availablefor borrowings under the CoBank term loan facility as of that date.

 

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 31,2006 and the date of this filing.

 

Netcash from operating activities totaled $9.0 million and $5.7 million for thesix months ended January 31, 2006 and 2005, respectively. Significant itemscontributing to this increase were changes in inventories, accounts payable andnet income as adjusted for non-cash items. Inventories decreased $4.1 million forthe six months ended January 31, 2006. The decrease in inventories for the sixmonths ended January 31, 2006 related to the Company’s utilization ofinventories built-up over the latter portion of fiscal year 2005 to compensatefor reduced pasta production volumes resulting from the production upgradeproject at the New Hope manufacturing facility.

 

Net cash used for investing activities totaled $8.9million and $4.4 million for the six months ended January 31, 2006 and 2005, respectively.The majority of this increase related to capital expenditures for the New Hope upgradeproject. As of January 31, 2006, the Company had expended a majority of theestimated $15 million total project cost. Due to current sales demand andrelated production capabilities, the Company has delayed the installation ofcertain pasta production equipment totaling approximately $4.0 millionassociated with the New Hope project.

 

Netcash used for financing activities totaled $0.2 million and $2.0 million forthe six months ended January 31, 2006 and 2005, respectively. The $0.2 millionof net cash from financing activities for the six months ended January 31, 2006included $7.9 million in borrowings under the CoBank secured term loan facilityto finance the New Hope production upgrade project. The Company also paiddividends of $0.5 million ($0.04 per share) on its Series D Delivery PreferredStock and $0.5 million ($0.04 per share) on its common stock during the secondquarter of fiscal year 2006.

 

TheCompany entered into a “2005 Line of Credit Loan Agreement” with DNADreamfields in the fourth quarter of fiscal year 2005, under which the Companywill loan up to $5.0 million to DNA Dreamfields on a revolving basis throughMay 31, 2010. The balance outstanding related to advances to DNA Dreamfieldsunder the Line of Credit Loan Agreement totaled $1.8 million and $0.5 millionas of January 31, 2006 and July 31, 2005, respectively.

 

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The following table summarizes the Company’scontractual obligations as of January 31, 2006 (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              |       | 33,316    |       | $                                      | 5,771      |                            | $          | 22,545                          |       | $                                | 5,000      |   | $ | — |   |
| Durum purchase obligations  |       | 12,819    |       | 12,819                                 |       | —                          |       | —                          |       | —                           |       |
| Warehouse obligations       |       | 4,161     |       | 1,773                                  |       | 2,388                           |       | —                          |       | —                           |       |
| Operating leases            |       | 2,098     |       | 1,311                                  |       | 752                             |       | 35                              |       | —                           |       |
|                        |       |      |       |                                   |       |                            |       |                            |       |                             |       |
|                        |       | $         | 52,394     |                                   | $          | 21,674                          |       | $                               | 25,685     |                             | $          | 5,035 |   | $ | — |   |
|                             |            |           |            |                                        |            |                                 |            |                                 |            |                                  |            |  |  |  |  |  |

 

TheCompany forward contracts for a certain portion of its future durum wheatrequirements. At January 31, 2006, the Company had outstanding commitments forgrain purchases totaling $12.8 million related to forward purchase contracts.These contracts are set price contracts to deliver grain to the Company’s mill,and are not derivative in nature as they have no net settlement provision andare 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 andterm loan facilities, will be sufficient to meet the Company’s expected capitaland liquidity requirements for the foreseeable future.

 

**ITEM3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Market risk is therisk of loss to future earnings, to fair values or to future cash flows thatmay result 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 forward contracts for a certain portion of its future durumwheat requirements. These contracts are set price contracts to deliver grain tothe Company’s mill, and are not derivative in nature as they have no netsettlement provision and are not transferable. The Company does not believe itis subject to any material market risk exposure with respect to interest rates,commodity prices, exchange rates, equity prices, or other market changes thatwould require disclosure under this item.

 

**ITEM4. CONTROLS AND PROCEDURES**

 

***Evaluation of Disclosure Controls and Procedures***

 

TheCompany’s Chief Executive Officer, Timothy J. Dodd, and Chief Financial Officer,Edward O. Irion, have evaluated the Company’s disclosure controls andprocedures as of the end of the period covered by this report. Based upon thereview, they have concluded that these controls and procedures are effective.

 

***Changes in Internal Controls over Financial Reporting***

 

Inconjunction with the resignation of Thomas P. Friezen as the Company’s ChiefFinancial Officer and the appointment of Edward O. Irion to the position of ChiefFinancial Officer on February 21, 2006, applicable internal controls overfinancial reporting were reviewed and changed as necessary. Mr. Irion mostrecently served as the Company’s Vice President — Finance and Chief AccountingOfficer. There were no other changes in the Company’s internal controls over financialreporting during the Company’s fiscal second quarter ended January 31, 2006 thathave materially affected, or are reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

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**PART II – OTHER INFORMATION**

 

**ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

TheAnnual Meeting of Stockholders of the Company was held on January 7, 2006. Thefollowing proposals were presented for stockholder consideration at the AnnualMeeting:

 

•      The election of four directors to serve asClass I directors.

•      Approval of the appointment of Eide BaillyLLP as the Company’s independent auditors for fiscal year 2006.

 

Atthe Annual Meeting, the Company’s stockholders elected each of the Company’snominees named in its Proxy Statement, dated December 8, 2005, to serve asdirectors on the Board of Directors of the Company. Following are the resultsfor the election of directors:

 
| **Class I directors:** | ** ** | **Shares Voted For** | ** ** | **Shares Withheld** | ** ** |
|------------------------|------------|----------------------|------------|---------------------|------------|
|                   |       |                 |       |                |       |
| John S. Dalrymple III  |       | 7,340,641            |       | 455,459             |       |
| James F. Link          |       | 7,116,198            |       | 679,902             |       |
| John D. Rice, Jr.      |       | 7,398,264            |       | 397,836             |       |
| Michael T. Tokarz      |       | 7,407,784            |       | 388,316             |       |

 

Thenewly elected Class I directors, John S. Dalrymple III, James F. Link, John D.Rice, Jr., and Michael T. Tokarz will serve three year terms ending with theannual meeting in 2009. Roger A. Kenner, Eugene J. Nicholas and Jeffrey O. Toppwill continue serving as directors until the annual meeting in 2007. Allyn K.Hart, Curtis R. Trulson and Michael E. Warner will continue serving asdirectors until the annual meeting in 2008.

 

Inaddition, the stockholders approved the appointment of Eide Bailly LLP as theCompany’s independent auditors for fiscal year 2006, as follows:

 
| Share Voted For      |   | 7,649,644 |   |
|----------------------|--------|-----------|--------|
| Shares Voted Against |   | 82,654    |   |
| Shares Abstained     |   | 63,802    |   |

 

**ITEM6. EXHIBITS**

 
| **Exhibits** |   |                                                                                                 |
|--------------|--------|------------------------------------------------------------------------------------------------------|
|         |   |                                                                                                 |
| 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.                                                                              |

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on 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 |       |           |
| Timothy J. Dodd     |       | (Principal Executive                  |       | March 17, 2006 |
|                |       | Officer)                              |       |           |
|                |       |                                  |       |           |
| /s/ Edward O. Irion |       | Chief Financial Officer               |       |           |
| Edward O. Irion     |       | (Principal Financial and              |       | March 17, 2006 |
|                |       | Accounting Officer)                   |       |           |

 

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