**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

| **x**      | ** ** | **Quarterly Report Pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934**  |
|------------|------------|---------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                              |
|       |       | **For  the quarterly period ended October 31, 2007**                                               |
|       |       | ** **                                                                                              |
| ** ** | ** ** | **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.**

(Exactname of registrant as specified in its charter)

 

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

 

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

(Addressof principal executive offices including zip code)

 

**(701) 652-2855**

(Registrant’stelephone number, including area code)

 

**NOT APPLICABLE**

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

 

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.                      Yes x No o

 

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

Large accelerated filer o                                      Acceleratedfiler o                                          Non-acceleratedfiler x

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes o No x

 

As of December 17,2007, the Registrant had 10,192,413 shares of common stock, par value $0.01 pershare, outstanding.

 

 

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**PART I – FINANCIAL INFORMATION**

 

**ITEM 1.. FINANCIAL STATEMENTS**

 

**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(InThousands, Except Share Information)**

 
| ** **                                                                                                              | ** ** | **(Unaudited)**            | ** ** | ** **              | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------|------------|
| ** **                                                                                                              | ** ** | **October 31,  2007** | ** ** | **July 31,  2007** | ** ** |
| **ASSETS**                                                                                                              |       |                       |       |                    |       |
|                                                                                                                    |       |                       |       |                    |       |
| CURRENT ASSETS                                                                                                          |       |                       |       |                    |       |
| Cash and cash  equivalents                                                                                              |       | $                          | 77         |                    | $          | 89 |   |
|                                                                                                                    |       |                       |       |                    |       |
| Trade accounts  receivable, less allowance for cash discounts and doubtful accounts of $1,072  and $1,048, respectively |       | 19,222                     |       | 18,442                  |       |
|                                                                                                                    |       |                       |       |                    |       |
| Other  receivables                                                                                                      |       | 457                        |       | 360                     |       |
|                                                                                                                    |       |                       |       |                    |       |
| Inventories                                                                                                             |       | 34,904                     |       | 31,329                  |       |
|                                                                                                                    |       |                       |       |                    |       |
| Prepaid expenses                                                                                                        |       | 1,242                      |       | 1,389                   |       |
|                                                                                                                    |       |                       |       |                    |       |
| Deferred income  taxes                                                                                                  |       | 1,104                      |       | 1,104                   |       |
|                                                                                                                    |       |                       |       |                    |       |
| Total current  assets                                                                                                   |       | 57,006                     |       | 52,713                  |       |
|                                                                                                                    |       |                       |       |                    |       |
|                                                                                                                    |       |                       |       |                    |       |
|                                                                                                                    |       |                       |       |                    |       |
| PROPERTY AND  EQUIPMENT                                                                                                 |       |                       |       |                    |       |
| In service                                                                                                              |       | 133,055                    |       | 132,655                 |       |
| Construction in  progress                                                                                               |       | 975                        |       | 776                     |       |
|                                                                                                                    |       | 134,030                    |       | 133,431                 |       |
| Less accumulated  depreciation                                                                                          |       | (63,508                    | )          | (61,985                 | )          |
|                                                                                                                    |       |                       |       |                    |       |
| Net property and  equipment                                                                                             |       | 70,522                     |       | 71,446                  |       |
|                                                                                                                    |       |                       |       |                    |       |
| INVESTMENT IN  COOPERATIVE BANK                                                                                         |       | 1,310                      |       | 1,310                   |       |
|                                                                                                                    |       |                       |       |                    |       |
| INTANGIBLE  ASSETS, NET                                                                                                 |       | 2,759                      |       | —                  |       |
|                                                                                                                    |       |                       |       |                    |       |
| GOODWILL                                                                                                                |       | 8,381                      |       | 16,654                  |       |
|                                                                                                                    |       |                       |       |                    |       |
| OTHER ASSETS                                                                                                            |       | 912                        |       | 1,043                   |       |
|                                                                                                                    |       |                       |       |                    |       |
|                                                                                                                    |       | $                          | 140,890    |                    | $          | 143,166 |   |

 

2

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**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(InThousands, Except Share Information)**

 
| ** **                                                                                                                                   | ** ** | **(Unaudited)**            | ** ** | ** **              | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                   | ** ** | **October 31,  2007** | ** ** | **July 31,  2007** | ** ** |
| **LIABILITIES  AND STOCKHOLDERS' EQUITY**                                                                                                    |       |                       |       |                    |       |
|                                                                                                                                         |       |                       |       |                    |       |
| CURRENT  LIABILITIES                                                                                                                         |       |                       |       |                    |       |
| Excess  outstanding checks over cash on deposit                                                                                              |       | $                          | 2,019      |                    | $          | 1,759 |   |
| Accounts payable                                                                                                                             |       | 12,337                     |       | 7,352                   |       |
| Accrued  liabilities                                                                                                                         |       | 5,259                      |       | 5,921                   |       |
| Notes payable                                                                                                                                |       | 12,100                     |       | 7,400                   |       |
| Current portion  of long-term debt                                                                                                           |       | 9,490                      |       | 9,481                   |       |
|                                                                                                                                         |       |                       |       |                    |       |
| Total current  liabilities                                                                                                                   |       | 41,205                     |       | 31,913                  |       |
|                                                                                                                                         |       |                       |       |                    |       |
| COMMITMENTS AND  CONTINGENCIES                                                                                                               |       | —                     |       | —                  |       |
| LONG-TERM DEBT,  net of current portion                                                                                                      |       | 34,726                     |       | 40,681                  |       |
| DEFERRED INCOME  TAXES                                                                                                                       |       | 13,935                     |       | 13,474                  |       |
|                                                                                                                                         |       |                       |       |                    |       |
| Total  liabilities                                                                                                                           |       | 89,866                     |       | 86,068                  |       |
|                                                                                                                                         |       |                       |       |                    |       |
| NONCONTROLLING  INTERESTS                                                                                                                    |       | —                     |       | 7,948                   |       |
|                                                                                                                                         |       |                       |       |                    |       |
| STOCKHOLDERS'  EQUITY                                                                                                                        |       |                       |       |                    |       |
|                                                                                                                                         |       |                       |       |                    |       |
| Series D  delivery preferred stock, non-cumulative, $.01 par value, 11,340,841  authorized, 11,275,297 shares issued and outstanding         |       | 113                        |       | 113                     |       |
| Series F  convertible preferred stock, non-cumulative, $.01 par value, 2,100,000 shares  authorized, 1,065,000 shares issued and outstanding |       | 11                         |       | 11                      |       |
| Common stock,  $.01 par value, 75,000,000 shares authorized, 10,192,413 shares issued and  outstanding                                       |       | 102                        |       | 102                     |       |
| Additional  paid-in capital                                                                                                                  |       | 42,856                     |       | 42,798                  |       |
| Retained  earnings                                                                                                                           |       | 7,942                      |       | 6,126                   |       |
|                                                                                                                                         |       |                       |       |                    |       |
| Total  stockholders’ equity                                                                                                             |       | 51,024                     |       | 49,150                  |       |
|                                                                                                                                         |       |                       |       |                    |       |
| Total liabilities  and stockholders’ equity                                                                                             |       | $                          | 140,890    |                    | $          | 143,166 |   |

 

See Notes to ConsolidatedFinancial Statements

 

3

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**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

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

 
| ** **                                                                         | ** ** | **Three Months Ended  October 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2007**                                           | ** ** | **2006** | ** ** |
| Net revenues  (net of discounts and allowances of $7,180 and $6,719, respectively) |       | $                                                  | 54,802     |   | $ | 48,933 |   |
|                                                                               |       |                                               |       |   |   |
| Cost of goods  sold                                                                |       | 46,268                                             |       | 42,860 |   |
|                                                                               |       |                                               |       |   |   |
| Gross profit                                                                       |       | 8,534                                              |       | 6,073 |   |
|                                                                               |       |                                               |       |   |   |
| Marketing,  general and administrative expenses                                    |       | 4,790                                              |       | 3,242 |   |
|                                                                               |       |                                               |       |   |   |
| Operating income                                                                   |       | 3,744                                              |       | 2,831 |   |
|                                                                               |       |                                               |       |   |   |
| Other income  (expense)                                                            |       |                                               |       |   |   |
| Interest and  other income                                                         |       | 82                                                 |       | 8 |   |
| Loss on  disposition of property, equipment and other assets                       |       | —                                             |       | (670 | ) |
| Interest  expense, net                                                             |       | (1,051                                             | )          | (664 | ) |
|                                                                               |       |                                               |       |   |   |
|                                                                               |       |                                               |       |   |   |
| Income before  noncontrolling interests and income taxes                           |       | 2,775                                              |       | 1,505 |   |
|                                                                               |       |                                               |       |   |   |
| Noncontrolling  interests                                                          |       | 202                                                |       | (40 | ) |
|                                                                               |       |                                               |       |   |   |
| Income before  income taxes                                                        |       | 2,977                                              |       | 1,465 |   |
|                                                                               |       |                                               |       |   |   |
| Income tax  expense                                                                |       | 1,161                                              |       | 571 |   |
|                                                                               |       |                                               |       |   |   |
| Net income                                                                         |       | $                                                  | 1,816      |   | $ | 894 |   |
|                                                                               |       |                                               |       |   |   |
| Net income per  common share                                                       |       |                                               |       |   |   |
| Basic                                                                              |       | $                                                  | 0.18       |   | $ | 0.07 |   |
|                                                                               |       |                                               |       |   |   |
| Diluted                                                                            |       | $                                                  | 0.16       |   | $ | 0.07 |   |
|                                                                               |       |                                               |       |   |   |
| Weighted average  common shares outstanding                                        |       |                                               |       |   |   |
| Basic                                                                              |       | 10,192                                             |       | 13,169 |   |
|                                                                               |       |                                               |       |   |   |
| Diluted                                                                            |       | 11,641                                             |       | 13,459 |   |

 

See Notes to ConsolidatedFinancial Statements

 

4

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**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                  | ** ** | **Three Months Ended  October 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                  | ** ** | **2007**                                           | ** ** | **2006** | ** ** |
| OPERATING  ACTIVITIES                                                       |       |                                               |       |   |   |
| Net income                                                                  |       | $                                                  | 1,816      |   | $ | 894 |   |
| Adjustments to  reconcile net income to net cash from operating activities: |       |                                               |       |   |   |
| Depreciation and  amortization                                              |       | 1,664                                              |       | 1,865 |   |
| Loss on  disposition of property, equipment and other assets                |       | —                                             |       | 670 |   |
| Noncontrolling  interests                                                   |       | (202                                               | )          | 40 |   |
| Deferred income  taxes                                                      |       | 461                                                |       | 313 |   |
| Stock-based  employee compensation                                          |       | 58                                                 |       | 24 |   |
| Changes in  assets and liabilities                                          |       |                                               |       |   |   |
| Trade  receivables                                                          |       | (780                                               | )          | (1,468 | ) |
| Other receivables                                                           |       | (97                                                | )          | (24 | ) |
| Inventories                                                                 |       | (3,575                                             | )          | 2,128 |   |
| Prepaid expenses                                                            |       | 127                                                |       | (81 | ) |
| Other assets                                                                |       | 1                                                  |       | 3 |   |
| Accounts payable                                                            |       | 4,985                                              |       | 558 |   |
| Other accrued  liabilities                                                  |       | (662                                               | )          | (983 | ) |
| NET CASH FROM  OPERATING ACTIVITIES                                         |       | 3,796                                              |       | 3,939 |   |
|                                                                        |       |                                               |       |   |   |
| INVESTING ACTIVITIES                                                        |       |                                               |       |   |   |
| Purchase of  interests in DNA Dreamfields                                   |       | (2,232                                             | )          | — |   |
| Purchases of  property and equipment                                        |       | (612                                               | )          | (1,171 | ) |
| Payments for  package design costs                                          |       | (25                                                | )          | (93 | ) |
| Proceeds from  other investments                                            |       | 47                                                 |       | — |   |
| NET CASH USED  FOR INVESTING ACTIVITIES                                     |       | (2,822                                             | )          | (1,264 | ) |
|                                                                        |       |                                               |       |   |   |
| FINANCING  ACTIVITIES                                                       |       |                                               |       |   |   |
| Net change in  excess outstanding checks over cash on deposit               |       | 260                                                |       | 1,064 |   |
| Net change in  short-term notes payable                                     |       | 4,700                                              |       | 1,500 |   |
| Payments on  long-term debt                                                 |       | (5,870                                             | )          | (5,271 | ) |
| Principal  payments under capital lease obligation                          |       | (76                                                | )          | — |   |
| Investments by  noncontrolling interests                                    |       | —                                             |       | 3 |   |
| NET CASH USED  FOR FINANCING ACTIVITIES                                     |       | (986                                               | )          | (2,704 | ) |
|                                                                        |       |                                               |       |   |   |
| NET CHANGE IN  CASH AND CASH EQUIVALENTS                                    |       | (12                                                | )          | (29 | ) |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                             |       | 89                                                 |       | 343 |   |
| CASH AND CASH  EQUIVALENTS, END OF PERIOD                                   |       | $                                                  | 77         |   | $ | 314 |   |
|                                                                        |       |                                               |       |   |   |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION                          |       |                                               |       |   |   |
| Cash payments  for                                                          |       |                                               |       |   |   |
| Interest (net of  amounts capitalized)                                      |       | $                                                  | 1,292      |   | $ | 970 |   |
|                                                                        |       |                                               |       |   |   |
| Income taxes                                                                |       | $                                                  | 1,205      |   | $ | 900 |   |
|                                                                        |       |                                               |       |   |   |
| SUPPLEMENTAL  DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES      |       |                                               |       |   |   |
| Purchase of  interests in DNA Dreamfields                                   |       |                                               |       |   |   |
| Goodwill  reduction                                                         |       | $                                                  | (8,273     | ) |   |   |
| Amortizable  intangibles                                                    |       | 2,759                                              |       |   |   |
| Noncontrolling  interests reduction                                         |       | 7,746                                              |       |   |   |
|                                                                        |       |                                               |       |   |   |
|                                                                        |       | $                                                  | 2,232      |   |   |   |

 

See Notes to Consolidated Financial Statements

 

5

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**DAKOTA GROWERS PASTA COMPANY, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

**NOTE 1 – ORGANIZATION**

 

Dakota GrowersPasta Company, Inc. (“Dakota Growers” or “the Company”) is a North Dakotacorporation that operates a milling and pasta manufacturing facility inCarrington, North Dakota. In addition, the Company’s wholly-owned subsidiary,Primo Piatto, Inc. (“Primo Piatto”), a Minnesota corporation, operates apasta manufacturing facility in New Hope, Minnesota.

 

**NOTE 2 – FINANCIAL STATEMENT PRESENTATION**

 

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

 

The financialinformation presented herein includes the consolidated balance sheets andresults of operations of the Company, its wholly-owned subsidiaryPrimo Piatto, Inc., and DNA Dreamfields Company, LLC (“DNA Dreamfields”),which the Company began to consolidate in fiscal year 2005. All materialinter-company accounts and transactions have been eliminated in the preparationof the consolidated financial statements.

** **

**NOTE 3 – NEW ACCOUNTING STANDARDS**

 

In September 2006, the FASB issued SFAS No. 157, “Fair ValueMeasurements” (“SFAS No. 157”). SFAS No. 157 defines fair value,establishes a framework for measuring fair value and expands disclosure of fairvalue measurements. SFAS No. 157 applies under other accountingpronouncements that require or permit fair value measurements and accordingly,does not require any new fair value measurements. SFAS No. 157 iseffective for financial statements issued for fiscal years beginning after November 15,2007. We have not yet assessed the impact, if any, that the implementation ofSFAS No. 157 will have on our consolidated results of operations orfinancial condition.

 

In September 2006,the U.S. Securities and Exchange Commission (SEC) issued Staff AccountingBulletin No. 108, “Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements*”*(SAB108). SAB 108 addresses the diversity in practice of quantifying financialstatement misstatements resulting in the potential build up of improper amountson the balance sheet. SAB 108 provides interpretive guidance on how the effectsof the carryover or reversal of prior year misstatements should be consideredin quantifying a current year misstatement. The SEC staff believes thatregistrants should quantify errors using both a balance sheet and an incomestatement approach and evaluate whether either approach results in quantifyinga misstatement that, when all relevant quantitative and qualitative factors areconsidered, is material. SAB 108 was effective in fiscal year 2007. SAB 108allows a one-time transitional cumulative effect adjustment to beginningretained earnings for errors that were not previously deemed material, but arematerial under the guidance in SAB 108. The adoption of SAB 108 did not have amaterial effect on the Company’s

 

6

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**DAKOTAGROWERS PASTA COMPANY, INC.**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

financialstatements.

 

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

 

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

 

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

 

**NOTE 4 –INVENTORIES**

 

Inventoriesare valued at lower of cost or market. Inventories as of October 31, 2007include raw materials and packaging of $10,514,000 and finished goods of$24,390,000. Inventories at July 31, 2007 include raw materials andpackaging of $8,456,000 and finished goods of $22,873,000.

 

###### **NOTE5 – LOAN AGREEMENTS**

###### ** **

The Company has a $25 million revolving credit facility with CoBankthat extends through May 29, 2008. Interest on the revolving line iscurrently charged at a variable rate established by CoBank based on CoBank’scost of funds, although the facility also allows for a fixed rate option. Thebalances outstanding under this revolving line of credit arrangement totaled$12.1 million and $7.4 million as of October 31, 2007 and July 31,2007, respectively.  The Company had$12.9 million and $17.6 million available for borrowings under the line ofcredit as of October 31, 2007 and July 31, 2007, respectively.

 

7

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**DAKOTA GROWERS PASTA COMPANY, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

The Company’s various debt agreements with CoBank and certaininstitutional note holders obligate the Company to maintain or achieve certainamounts of equity and certain financial ratios and impose certain restrictionson the Company. The Company was in compliance with these financial covenants asof October 31, 2007.

 

###### **NOTE6 – EARNINGS PER SHARE**

 

Basic earnings per share (EPS)is calculated by dividing net earnings on common stock by the weighted averagenumber of common shares outstanding during the period. Diluted EPS includes theeffect of all potentially dilutive securities, such as stock options andconvertible preferred stock.

 

Dilutive securities, consisting of stock options and convertiblepreferred stock, included in the calculation of diluted weighted average commonshares totaled 1,449,000 and 290,000 for the three months ended October 31,2007 and 2006, respectively. The series F convertible preferred stock isincluded in the fully diluted EPS calculation and not included in the basic EPScalculation. As there is currently no established public trading market for theCompany’s common stock, the Company has assumed the proceeds from the exerciseof stock options would reduce debt and, thus, interest expense.

 

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

 

Effective May 1,2005, the Company increased its ownership in DNA Dreamfields to 46.7%. In conjunction with the Company’s increase inownership in DNA Dreamfields and changes in the DNA Dreamfieldsoperating agreement and other contractual agreements, the Company determined that DNA Dreamfields was a variableinterest entity under FASB Interpretation No. 46(R), “Consolidation ofVariable Interest Entities,” and that the Company was the primary beneficiary.Therefore, effective May 1, 2005, the Company began to include DNADreamfields in its consolidated financial statements.

 

The Company entered into a “2005 Line of Credit Loan Agreement” withDNA Dreamfields in fiscal year 2005. Under that Agreement, the Companywill loan up to $5,000,000 to DNA Dreamfields, with DNA Dreamfields able torepay and reborrow amounts under the Line of Credit Loan Agreement from time totime. The Line of Credit Loan Agreement matures on May 31,2010. The balance outstanding related to advances to DNA Dreamfields underthe Line of Credit Loan Agreement totaled $3,131,000 and $2,283,000 as of October 31,2007 and July 31, 2007, respectively. These inter-company amounts have been eliminated in the preparation ofthe consolidated financial statements.

 

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

 

**NOTE 8 – GOODWILL AND OTHER INTANGIBLE ASSETS**

 

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” goodwill and intangible assets with indefinite useful lives are to be tested for impairment at least annually. As of October 31, 2007, the value of goodwill was $8.4 million.

 

8

 

**DAKOTA GROWERS PASTA COMPANY, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

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

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

 

9

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**DAKOTA GROWERS PASTA COMPANY, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**NOTE 9 – STOCK OPTIONS**

 

Effective August 1,2005, the Company adopted Statement of Financial Accounting Standard No. 123(revised 2004), “Share Based Payment” (SFAS No. 123R). Under SFAS No. 123R,the Company is required to recognize, as expense, the estimated fair value ofall share based payments to employees. In accordance with this standard, theCompany has elected to recognize the compensation cost of all service basedawards on a straight-line basis over the vesting period of the award.Performance based awards are recognized ratably for each vesting tranche. TheCompany recorded stock-based employee compensation expense of $58,000 and$24,000, for the three months ended October 31, 2007 and October 31,2006, respectively.

 

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

 

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

 
|                             |   | **Options  to purchase Common Stock** |       |
|----------------------------------|--------|---------------------------------------|------------|
|                             |   | **Number  of  Common Shares**         | ** ** | **Option  Price  per Share** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Exercisable** |   |
| Outstanding at  July 31, 2007    |   | 653,013                               |       | $4.00-$6.25 |   | $ | 5.10 |   | 317,243 |   |
| Exercised                        |   | —                                |       |   |   |   |   |   |   |
| Granted                          |   | —                                |       |   |   |   |   |   |   |
| Forfeited/Expired                |   | —                                |       |   |   |   |   |   |   |
| Outstanding at  October 31, 2007 |   | 653,013                               |       | $4.00-$6.25 |   | $ | 5.10 |   | 453,606 |   |

 

10

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** **

**DAKOTA GROWERS PASTA COMPANY, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

A summary of the status of theCompany’s issued but nonvested stock options as of October 31, 2007, andchanges during the three months ended October 31, 2007, is presentedbelow:

 
| **Nonvested Stock Options**    | ** ** | **Common  Shares** | ** ** | **Weighted-Average  Grant-Date  Fair Value** | ** ** |
|--------------------------------|------------|--------------------|------------|---------------------------------------------------|------------|
|                           |       |               |       |                                              |       |
| Nonvested at  July 31, 2007    |       | 335,770            |       | $                                                 | 4.81       |   |
| Granted                        |       | —             |       |                                              |       |
| Vested                         |       | (136,363           | )          | $                                                 | 5.00       |   |
| Forfeited/Expired              |       | —             |       |                                              |       |
| Nonvested at  October 31, 2007 |       | 199,407            |       | $                                                 | 4.68       |   |

 

As of October 31, 2007, there was approximately$238,000 of total unrecognized compensation cost related to nonvested employeestock options.  That cost is expected to be recognized over a period of 2years.

 

###### **NOTE10 – COMMITMENTS**

 

The Company forward contractsfor a certain portion of its future durum wheat requirements. The Company hadoutstanding commitments for grain purchases totaling $93,566,000 as of October 31,2007, related to forward purchase contracts. These contracts are set pricecontracts to deliver grain to the Company’s mill, and are not derivative innature as they have no net settlement provision and are not transferable.

 

**NOTE 11 – INCOME TAXES**

 

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

 

The Company has adopted the accounting policy that interest recognized in accordance with Paragraph 15 of FIN 48 and penalty recognized in accordance with Paragraph 16 of FIN 48 are classified as part of income taxes. The total amount of interest and penalty recognized in the statement of operations and statement of financial position was zero as of August 1, 2007. The Company does not anticipate any significant change within 12 months of this reporting date of its uncertain tax positions. The Company is subject to taxation in the United States and various state jurisdictions. There are no ongoing income tax examinations by taxing authorities at this time. The Company’s various tax years starting 2002 to 2007 remain open in various taxing jurisdictions.

 

11

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

 

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

 

**Forward-Looking Statements**

 

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

 

**Summary**

 

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

 

Net income for the quarter ended October 31,2007 totaled $1,816,000 compared to $894,000 for the quarter ended October 31,2006.  Net earnings per basic commonshare for the quarter ended October 31, 2007 were $0.18 per share comparedto $0.07 per share for the quarter ended October 31, 2006.

 

The Company’s net revenues increased 12.0% for thequarter ended October 31, 2007 when compared to the same period of theprior year.  The revenue increase was theresult of higher per unit selling prices offset by a decrease in pasta salesvolumes.  Benefits derived from increasedper unit selling prices were partially offset by higher durum costs. Durumprices continued to increase significantly in the first quarter of fiscal year2008 when compared to fiscal year 2007 prices. The Company has generally beensuccessful in obtaining sales price increases to offset the higher durum cost.  However, if the Company is unable to passthrough higher durum or other input costs on a timely basis, our financialresults may be adversely affected.

 

**Critical Accounting Policies**

 

Theaccompanying discussion and analysis of our results of operations and financialcondition are based upon our consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States. The preparation of these financial statements requiresmanagement to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses, and related disclosure ofcontingent assets and liabilities. These estimates form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. We base our estimates and judgments onhistorical experience and on various other assumptions that we believe arereasonable under the circumstances. However, future events are subject tochange and the best estimates and judgments may require adjustment. For acomplete description of the Company’s significant accounting policies, pleasesee Note 1 to the consolidated financial statements included in the Company’s Form 10-Kfor the year ended July 31, 2007. Our critical accounting policies arethose that have meaningful impact on the reporting of our financial conditionand results, and that require significant management judgment and estimates.These policies include our accounting for (a) allowance for doubtfulaccounts, (b) inventory valuation, (c) asset impairment, and (d) incometaxes.

 

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*Allowance for Doubtful Accounts*

 

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

 

*InventoryValuation*

 

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

 

*Asset Impairment*

 

Weare required to evaluate our long-lived assets, including goodwill and otherintangible assets, for impairment and write down the value of any assets ifthey are determined to be impaired. Evaluating the impairment of long-livedassets involves management judgment in estimating the future cash flows andfair values related to these assets. Future events could cause management toconclude that impairment indicators exist and that the value of certainlong-lived assets is impaired.

 

*Income Taxes*

 

Indetermining income (loss) for financial statement purposes, management mustmake certain estimates and judgments in calculating tax liabilities and indetermining the recoverability of certain deferred tax assets. Deferred taxassets must be reduced by a valuation allowance if, based on the weight ofavailable evidence, it is more likely than not that some portion or all of therecorded deferred tax assets will not be realized in future periods. Managementbelieves it is likely that the deferred tax assets as of October 31, 2007will be realized through the generation of future taxable income and taxplanning strategies.

 

**Results of Operations**

 

*Comparison of the Three Months Ended October 31,2007 and 2006*

 

***Net Revenues.***Net revenues totaled $54.8 million forthe three months ended October 31, 2007, an increase of 12.0%, compared to$48.9 million for the three months ended October 31, 2006. Overall, pastaper unit selling prices increased 11.3% offset by a decrease in pasta salesvolumes of 3.3%.  Revenues from theretail market, a portion of which includes co-pack and government sales, increased$0.9 million, or 3.9%, due to a 13.8% increase in average selling prices offsetby an 8.7% decrease in volume. Foodservice revenues increased $1.5 million, or10.8%, due to a 6.0% increase in average selling prices and a 4.5% increase insales volumes. Ingredient revenues increased $1.1 million, or 12.3%, due to a15.5% in average selling prices offset by a 2.7% decrease in volume.

 

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 $5.6 million for the three monthsended October 31, 2007, an increase of $2.4 million when compared to thesame period of the prior year. The increase is due to increases in both volumesand per unit selling prices.

 

***Cost of Goods Sold.***Cost of goods sold increased $3.4 million, or 8.0%, to $46.3 million for thethree months ended October 31, 2007, compared to $42.9 million for thethree months ended October 31, 2006. The increase was primarily due to higher durum costs.  Gross profit as a percentage of net revenuesimproved to 15.6% for the three months ended October 31, 2007 from 12.4%for the three months ended October 31, 2006.

 

13

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***Marketing, General, and Administrative (“MG&A”) Expenses.***MG&A expenses increased 47.7%, to $4.8 million for the quarter ended October 31,2007, compared to $3.2 million for the quarter ended October 31, 2006. Theincrease was primarily due to higher consumer advertising costs associated withDreamfieldsTM pasta products. MG&A expenses as a percentage ofnet revenues increased to 8.7% for the quarter ended October 31, 2007,from 6.6% for the comparable quarter of the prior year.

 

***Loss on Disposition of Property, Equipment and Other Assets (“Loss onDisposition”). ***TheCompany incurred losses on disposition of $0.7 million during the three monthsended October 31, 2006.   The losseswere related to retirements of certain equipment in conjunction with capitalprojects at the New Hope, Minnesota facility. The Company did not incur a loss on disposition during the three monthsended October 31, 2007.

 

***Interest Expense.***Interest expense for the three months ended October 31, 2007 totaled $1.1million, up $0.4 million from the corresponding period of the prior year.  The increase is primarily related to theincrease in  outstanding long-term debtas a result of the tender offer that occurred during fiscal year 2007.

 

***Noncontrolling Interests. ***Noncontrollinginterests reflects the portion of the DNA Dreamfields Company, LLC net incomeor net loss allocable to other members of DNA Dreamfields.  The loss allocated to other members for thethree months ended October 31, 2007 totaled $202,000 compared to the netincome allocated to the other members totaling $40,000 for the three monthsended October 31, 2006.

 

***Income Taxes.***The income taxexpense for the three months ended October 31, 2007 and 2006 totaled $1.2million and $0.6 million, respectively, and reflects an effective corporateincome tax rate of approximately 39%.

 

***Net Income. ***Net income for the threemonths ended October 31, 2007 totaled $1.8 million, an increase of $0.9million compared to the net income of $0.9 million for the three months ended October 31,2006.

 

**Liquidity and Capital Resources**

 

TheCompany’s primary sources of liquidity are cash provided by operations andborrowings under its revolving credit facility. Working capital as of October 31,2007 totaled $15.8 million compared to $20.8 million as of July 31, 2007.

 

The Company has a $25 million revolving credit facility with CoBankwhich extends through May 29, 2008. The balance outstanding on the line ofcredit was $12.1 million as of October 31, 2007, leaving $12.9 millionavailable for borrowings as of that date. The balance outstanding under therevolving line of credit arrangement was $7.4 million as of July 31, 2007.

 

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 October 31,2007 and the date of this filing.

 

Netcash provided from operating activities totaled $3.8 million for the threemonths ended October 31, 2007 compared to net cash provided by operatingactivities of $3.9 million for the three months ended October 31,2006.  Significant items contributing tothis change were inventories, accounts payable and net income as adjusted fornon-cash items.

 

Net cash used for investing activities totaled$2.8 million and $1.3 million for the three months ended October 31, 2007and 2006, respectively.  A majority ofthe net cash used for investing activities for the quarter ended October 31,2007 related to the purchase of the remaining interestin DNA Dreamfields.  A majority of thenet cash used for investing activities for the quarter ended October 31,2006 related tocapital expenditures for the New Hope facility upgrade project.

 

Netcash used for financing activities totaled $1.0 million and $2.7 million forthe three months ended October 31, 2007 and 2006, respectively.  The $1.0 million of net cash used forfinancing activities for the quarter ended 

 

14

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October 31,2007 included $5.9 million in scheduled payments on long-term debt offset by anincrease in short-term notes payable and excess outstanding checks over cash ondeposit.

 

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 “Act”). The Company received $2.2 million in December 2007under the Act, which will be recognized as other income in the Company’s secondquarter of fiscal year 2008. The Company cannot reasonably estimate thepotential amount, if any, that it may receive under the 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 federal legislation, theamount of expenditures by domestic pasta producers and the amount ofantidumping and countervailing duties collected by Customs. The Act, also knownas the Byrd Amendment, has been repealed and therefore, duties assessed onpasta imports after September 30, 2007 will no longer be distributed todomestic producers. However, amounts collected (whether such collections occurbefore or after September 30, 2007) related to duties assessed on pasta entriesprior to September 30, 2007, are expected to be available for futuredistribution to domestic producers.

 

The following table summarizesthe Company’s contractual obligations as of October 31, 2007 (inthousands):

 
| **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                         |       | $         | 42,674     |                                                       | $          | 9,174                                     |       | $                                         | 16,200     |                                       | $          | 10,800 |   | $ | 6,500 |   |
| Capital leases                         |       | 1,542     |       | 316                                                        |       | 1,090                                     |       | 136                                       |       | —                                     |       |
| Interest on  long-term obligations (1) |       | 9,431     |       | 2,575                                                      |       | 5,090                                     |       | 1,527                                     |       | 239                                        |       |
| Durum purchase  obligations            |       | 93,566    |       | 93,566                                                     |       | —                                    |       | —                                    |       | —                                     |       |
| Warehouse  obligations                 |       | 2,019     |       | 2,019                                                      |       | —                                    |       | —                                    |       | —                                     |       |
| Operating leases                       |       | 666       |       | 320                                                        |       | 332                                       |       | 14                                        |       | —                                     |       |
|                                   |       |      |       |                                                       |       |                                      |       |                                      |       |                                       |       |
|                                   |       | $         | 149,898    |                                                       | $          | 107,970                                   |       | $                                         | 22,712     |                                       | $          | 12,477 |   | $ | 6,739 |   |

 

----

(1)  Based on interest rates as of October 31,2007 

 

TheCompany forward contracts for a certain portion of its future durum wheatrequirements. At October 31, 2007, the Company had outstanding commitmentsfor grain purchases totaling $93.6 million 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.

 

Managementbelieves that net cash currently available and to be provided by operatingactivities, along with amounts the Company expects to be available under itsline of credit, will be sufficient to meet the Company’s expected capital andliquidity requirements for the foreseeable future. The Company is working withits primary lender, CoBank, to increase the seasonal line of credit tosufficiently cover expected future working capital requirements associated withthe increase in durum obligations.

 

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

 

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

 

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

 

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**ITEM 4. CONTROLS AND PROCEDURES**

 

***Evaluation of DisclosureControls and Procedures***

 

TheCompany’s Chief Executive Officer, Timothy J. Dodd, and Chief FinancialOfficer, Edward O. Irion, have evaluated the effectiveness of the Company’sdisclosure controls and procedures (as defined in Securities Exchange Act of1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the periodcovered by this report. Based upon the review, they have concluded that thesecontrols and procedures are effective in alerting them, in a timely fashion, toinformation required to be included in the Company’s period Securities andExchange Commission filings.  The designof any system of controls and procedures is based in part upon certainassumptions about the likelihood of future events.

 

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

 

Therewere no changes in the Company’s internal controls over financial reportingduring the Company’s fiscal quarter ended October 31, 2007 that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

**ITEM 4T. CONTROLS AND PROCEDURES**

 

Not applicable.

 

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**PART II – OTHER INFORMATION**

 

**ITEM 1A. RISK FACTORS**

 

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

 

**ITEM 6. EXHIBITS**

 
| **Exhibits** |   |   |
|--------------|--------|--------|
|         |   |   |
|         | 3.1    |   | Second Amended and Restated Articles of  Incorporation of the Company, formerly Dakota Growers Restructuring  Company, Inc. (Incorporated by reference to Exhibit 3.1 from the  Company’s Pre-Effective Amendment No. 2 to Form S-4 Registration  Statement, File No. 333-81946, dated April 19, 2002). |
|         |   |   |
|         | 3.2    |   | Second Amended and Restated Bylaws of the  Company, formerly Dakota Growers Restructuring Company, Inc.  (Incorporated by reference to Exhibit 3.3 from the Company’s  Pre-Effective Amendment No. 2 to Form S-4 Registration Statement,  File No. 333-81946, dated April 19, 2002). |
|         |   |   |
|         | 3.3    |   | Certificate of Designation of Series E  Junior Participating Preferred Stock of the Company, formerly Dakota Growers  Restructuring Company, Inc. (Incorporated by reference to  Exhibit 3.2 from the Company’s Pre-Effective Amendment No. 2 to  Form S-4 Registration Statement, File No. 333-81946, dated  April 19, 2002). |
|         |   |   |
|         | 3.4    |   | Certificate of Designation of Series F  Convertible Preferred Stock of the Company (Incorporated by reference to  Exhibit 3.1 from the Company’s Report on Form 8-K, File  No. 000-50111, filed February 15, 2007). |
|         |   |   |
|         | 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**

 

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

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

 

 
| **Signature**       | ** ** | **Title**                                     | ** ** | **Date**                |
|---------------------|------------|-----------------------------------------------|------------|-------------------------|
|                |       |                                          |       |                    |
| /s/ Timothy J. Dodd |       | President and Chief Executive Officer         |       |                    |
| Timothy J. Dodd     |       | (Principal Executive  Officer)                |       | December 17,  2007 |
|                |       |                                          |       |                    |
|                |       |                                          |       |                    |
| /s/ Edward O. Irion |       | Chief Financial Officer                       |       |                    |
| Edward O. Irion     |       | (Principal Financial and  Accounting Officer) |       | December 17,  2007 |

 

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