**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

**FORM 10-Q**
| **x**  | ** ** | **Quarterly Report Pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934**  |
|--------|------------|---------------------------------------------------------------------------------------------------------|
|   | ** ** | **For the quarterly period ended April 30,  2006**                                                 |
|   |       |                                                                                                    |
|   | ** ** | **or**                                                                                                  |
|   |       |                                                                                                    |
| **o**  | ** ** | **Transition Report Pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934** |

 

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CommissionFile No. 000-50111

 

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**DAKOTA GROWERS PASTA COMPANY, INC.**

(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 the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.       Yes  x   No  o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):

Largeaccelerated filer  o                              Acceleratedfiler  o                                         Non-acceleratedfiler  x

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).        Yes  o    No  x

Asof June 14, 2006, the Registrant had 13,169,382 shares of common stock,par value $0.01 per share, outstanding.

 

 

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**PART I — FINANCIALINFORMATION**

 

**ITEM 1.FINANCIAL STATEMENTS**

 

**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(In Thousands, Except ShareInformation)**

 
| ** **                                                                                                              | ** ** | **(Unaudited)**    | ** ** | ** **        | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-------------------|------------|
| ** **                                                                                                              | ** ** | **April 30,** | ** ** | **July 31,** | ** ** |
| ** **                                                                                                              | ** ** | **2006**           | ** ** | **2005**          | ** ** |
| **ASSETS**                                                                                                              | ** ** | ** **         | ** ** | ** **        | ** ** |
|                                                                                                                    |       |               |       |              |       |
| CURRENT ASSETS                                                                                                          |       |               |       |              |       |
| Cash and cash  equivalents                                                                                              |       | $                  | 299        |              | $          | 229 |   |
|                                                                                                                    |       |               |       |              |       |
| Trade accounts  receivable, less allowance for cash discounts and doubtful accounts of $1,962  and $1,507, respectively |       | 17,690             |       | 16,188            |       |
|                                                                                                                    |       |               |       |              |       |
| Other  receivables                                                                                                      |       | 103                |       | 411               |       |
|                                                                                                                    |       |               |       |              |       |
| Inventories                                                                                                             |       | 24,383             |       | 28,102            |       |
|                                                                                                                    |       |               |       |              |       |
| Prepaid expenses                                                                                                        |       | 3,034              |       | 2,578             |       |
|                                                                                                                    |       |               |       |              |       |
| Deferred income  taxes                                                                                                  |       | 955                |       | 955               |       |
|                                                                                                                    |       |               |       |              |       |
| Total current  assets                                                                                                   |       | 46,464             |       | 48,463            |       |
|                                                                                                                    |       |               |       |              |       |
| PROPERTY AND EQUIPMENT                                                                                                  |       |               |       |              |       |
| In service                                                                                                              |       | 122,768            |       | 111,394           |       |
| Construction in  progress                                                                                               |       | 4,278              |       | 7,350             |       |
|                                                                                                                    |       | 127,046            |       | 118,744           |       |
| Less accumulated  depreciation                                                                                          |       | (55,723            | )          | (52,286           | )          |
|                                                                                                                    |       |               |       |              |       |
| Net property and  equipment                                                                                             |       | 71,323             |       | 66,458            |       |
|                                                                                                                    |       |               |       |              |       |
| INVESTMENT IN  COOPERATIVE BANK                                                                                         |       | 1,515              |       | 2,054             |       |
|                                                                                                                    |       |               |       |              |       |
| GOODWILL                                                                                                                |       | 16,654             |       | 16,654            |       |
|                                                                                                                    |       |               |       |              |       |
| OTHER ASSETS                                                                                                            |       | 835                |       | 1,501             |       |
|                                                                                                                    |       |               |       |              |       |
|                                                                                                                    |       | $                  | 136,791    |              | $          | 135,130 |   |

 

(continuedon next page)

 

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**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(InThousands, Except Share Information)**

 
| ** **                                                                                                                                                    | ** ** | **(Unaudited)**    | ** ** | ** **        | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-------------------|------------|
| ** **                                                                                                                                                    | ** ** | **April 30,** | ** ** | **July 31,** | ** ** |
| ** **                                                                                                                                                    | ** ** | **2006**           | ** ** | **2005**          | ** ** |
| **LIABILITIES  AND STOCKHOLDERS' EQUITY**                                                                                                                     | ** ** | ** **         | ** ** | ** **        | ** ** |
|                                                                                                                                                          |       |               |       |              |       |
| CURRENT  LIABILITIES                                                                                                                                          |       |               |       |              |       |
| Excess outstanding checks over cash on deposit                                                                                                                |       | $                  | 3,048      |              | $          | 3,110 |   |
| Accounts payable                                                                                                                                              |       | 3,777              |       | 4,197             |       |
| Accrued liabilities                                                                                                                                           |       | 5,910              |       | 6,229             |       |
| Notes payable                                                                                                                                                 |       | 6,000              |       | 10,000            |       |
| Current portion of long-term debt                                                                                                                             |       | 6,271              |       | 4,771             |       |
|                                                                                                                                                          |       |               |       |              |       |
| Total current liabilities                                                                                                                                     |       | 25,006             |       | 28,307            |       |
|                                                                                                                                                          |       |               |       |              |       |
| COMMITMENTS AND  CONTINGENCIES                                                                                                                                |       | —             |       | —            |       |
| LONG-TERM DEBT,  net of current portion                                                                                                                       |       | 29,045             |       | 25,385            |       |
| DEFERRED INCOME  TAXES                                                                                                                                        |       | 12,053             |       | 11,419            |       |
| OTHER  LIABILITIES                                                                                                                                            |       | 47                 |       | 85                |       |
| MANDATORILY  REDEEMABLE PREFERRED STOCK                                                                                                                       |       |               |       |              |       |
| Series A, 6% cumulative, $100 par value, 533 shares  authorized, 0 and 67 shares issued and outstanding as of April 30, 2006 and  July 31, 2005, respectively |       | —             |       | 7                 |       |
|                                                                                                                                                          |       |               |       |              |       |
| Total liabilities                                                                                                                                             |       | 66,151             |       | 65,203            |       |
|                                                                                                                                                          |       |               |       |              |       |
| NONCONTROLLING  INTERESTS                                                                                                                                     |       | 7,941              |       | 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                                                                                                                                    |       | 62,848             |       | 62,807            |       |
| Accumulated deficit                                                                                                                                           |       | (394               | )          | (1,920            | )          |
|                                                                                                                                                          |       |               |       |              |       |
| Total stockholders' equity                                                                                                                                    |       | 62,699             |       | 61,132            |       |
|                                                                                                                                                          |       |               |       |              |       |
| Total  liabilities and stockholders' equity                                                                                                                   |       | $                  | 136,791    |              | $          | 135,130 |   |

 

SeeNotes to Consolidated Financial Statements

 

3

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**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

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

 
| ** **                                                                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **April 30,**               | ** ** |
| ** **                                                                         | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| Net revenues  (net of discounts and allowances of $6,130 and $6,372, respectively) |       | $                                | 41,968     |   | $ | 39,122 |   |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Cost of goods  sold                                                                |       | 35,565                           |       | 34,005 |   |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Gross profit                                                                       |       | 6,403                            |       | 5,117 |   |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Marketing,  general and administrative expenses                                    |       | 3,356                            |       | 3,168 |   |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Operating income                                                                   |       | 3,047                            |       | 1,949 |   |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Other income  (expense)                                                            |       |                             |       |   |   |
| Interest and other income (expense)                                                |       | (21                              | )          | 6 |   |
| Gain on disposition of property, equipment and other  assets                       |       | 13                               |       | 13 |   |
| Interest expense, net                                                              |       | (626                             | )          | (466 | ) |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Income before  noncontrolling interests and income taxes                           |       | 2,413                            |       | 1,502 |   |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Noncontrolling  interests                                                          |       | 24                               |       | 144 |   |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Income before  income taxes                                                        |       | 2,437                            |       | 1,646 |   |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Income tax  expense                                                                |       | 950                              |       | 642 |   |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net income                                                                         |       | $                                | 1,487      |   | $ | 1,004 |   |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net earnings per  common share                                                     |       |                             |       |   |   |
| Basic                                                                              |       | $                                | 0.11       |   | $ | 0.08 |   |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Diluted                                                                            |       | $                                | 0.11       |   | $ | 0.08 |   |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Weighted average  common shares outstanding                                        |       |                             |       |   |   |
| Basic                                                                              |       | 13,169                           |       | 13,169 |   |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Diluted                                                                            |       | 13,590                           |       | 13,570 |   |

 

SeeNotes to Consolidated Financial Statements

 

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**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(In Thousands,Except Per Share Amounts)(Unaudited)**

 
| ** **                                                                          | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                          | ** ** | **April 30,**              | ** ** |
| ** **                                                                          | ** ** | **2006**                        | ** ** | **2005** | ** ** |
| Net revenues  (net of discounts and allowances of $19,949 and $18,389 respectively) |       | $                               | 128,530    |   | $ | 115,696 |   |
| ** **                                                                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Cost of goods  sold                                                                 |       | 112,521                         |       | 101,684 |   |
| ** **                                                                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Gross profit                                                                        |       | 16,009                          |       | 14,012 |   |
| ** **                                                                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Marketing,  general and administrative expenses                                     |       | 11,469                          |       | 12,944 |   |
| ** **                                                                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Operating income                                                                    |       | 4,540                           |       | 1,068 |   |
| ** **                                                                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Other income  (expense)                                                             |       |                            |       |   |   |
| Interest and other income                                                           |       | 1,041                           |       | 429 |   |
| Gain (loss) on disposition of property, equipment  and other assets                 |       | (559                            | )          | 34 |   |
| Interest expense, net                                                               |       | (1,850                          | )          | (1,721 | ) |
| ** **                                                                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Income (loss)  before noncontrolling interests and income taxes                     |       | 3,172                           |       | (190 | ) |
| ** **                                                                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Noncontrolling  interests                                                           |       | 931                             |       | 2,784 |   |
| ** **                                                                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Income before  income taxes                                                         |       | 4,103                           |       | 2,594 |   |
| ** **                                                                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Income tax  expense                                                                 |       | 1,599                           |       | 1,012 |   |
| ** **                                                                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Net income                                                                          |       | 2,504                           |       | 1,582 |   |
| Dividends on  preferred stock                                                       |       | (451                            | )          | — |   |
| ** **                                                                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Net earnings on  common stock                                                       |       | $                               | 2,053      |   | $ | 1,582 |   |
| ** **                                                                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Net earnings per  common share                                                      |       |                            |       |   |   |
| Basic                                                                               |       | $                               | 0.16       |   | $ | 0.12 |   |
| ** **                                                                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Diluted                                                                             |       | $                               | 0.16       |   | $ | 0.12 |   |
| ** **                                                                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Weighted average  common shares outstanding                                         |       |                            |       |   |   |
| Basic                                                                               |       | 13,169                          |       | 13,169 |   |
| ** **                                                                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Diluted                                                                             |       | 13,576                          |       | 13,543 |   |

 

SeeNotes to Consolidated Financial Statements

 

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**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(InThousands)(Unaudited)**

 
| ** **                                                                  | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                  | ** ** | **April 30,**              | ** ** |
| ** **                                                                  | ** ** | **2006**                        | ** ** | **2005** | ** ** |
| OPERATING  ACTIVITIES                                                       | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Net income                                                                  |       | $                               | 2,504      |   | $ | 1,582 |   |
| Adjustments to reconcile net income to net cash from  operating activities: | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Depreciation and amortization                                               |       | 5,366                           |       | 5,865 |   |
| Undistributed patronage capital from cooperatives                           |       | (29                             | )          | (46 | ) |
| Loss (gain) on disposition of property, equipment  and other assets         |       | 559                             |       | (34 | ) |
| Net loss allocated from joint venture under equity  method                  |       | —                          |       | 914 |   |
| Noncontrolling interests                                                    |       | (931                            | )          | — |   |
| Deferred income taxes                                                       |       | 634                             |       | 401 |   |
| Stock-based employee compensation                                           |       | 41                              |       | — |   |
| Accrued promotional costs applied to marketing  prepayments                 |       | —                          |       | 5,142 |   |
| Changes in assets and liabilities                                           | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Trade receivables                                                           |       | (1,502                          | )          | (1,418 | ) |
| Due from related parties                                                    |       | —                          |       | 600 |   |
| Other receivables                                                           |       | 308                             |       | 258 |   |
| Inventories                                                                 |       | 3,719                           |       | (4,225 | ) |
| Prepaid expenses                                                            |       | (846                            | )          | 179 |   |
| Other assets                                                                |       | 36                              |       | 7 |   |
| Accounts payable                                                            |       | (420                            | )          | 2,435 |   |
| Other accrued liabilities                                                   |       | (319                            | )          | (441 | ) |
| NET CASH FROM  OPERATING ACTIVITIES                                         |       | 9,120                           |       | 11,219 |   |
| ** **                                                                  | ** ** | ** **                      | ** ** | ** ** | ** ** |
| INVESTING  ACTIVITIES                                                       | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Purchases of property and equipment                                         |       | (9,673                          | )          | (6,227 | ) |
| Payments for package design costs                                           |       | (135                            | )          | (690 | ) |
| Proceeds from cooperative bank equity retirements                           |       | 568                             |       | 228 |   |
| Investments in joint venture                                                |       | —                          |       | (2,970 | ) |
| NET CASH USED  FOR INVESTING ACTIVITIES                                     |       | (9,240                          | )          | (9,659 | ) |
| ** **                                                                  | ** ** | ** **                      | ** ** | ** ** | ** ** |
| FINANCING  ACTIVITIES                                                       | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Net change in excess outstanding checks over cash on  deposit               |       | (62                             | )          | 3,241 |   |
| Net change in short-term notes payable                                      |       | (4,000                          | )          | 1,800 |   |
| Principal payments on long-term debt                                        |       | (4,771                          | )          | (7,176 | ) |
| Proceeds from long-term debt borrowings                                     |       | 9,931                           |       | — |   |
| Dividends paid on common stock                                              |       | (527                            | )          | — |   |
| Dividends paid on preferred stock                                           |       | (451                            | )          | — |   |
| Preferred stock retirements                                                 |       | (7                              | )          | (10 | ) |
| Investments by noncontrolling interests                                     |       | 77                              |       | — |   |
| NET CASH FROM  (USED FOR) FINANCING ACTIVITIES                              |       | 190                             |       | (2,145 | ) |
| ** **                                                                  | ** ** | ** **                      | ** ** | ** ** | ** ** |
| NET CHANGE IN  CASH AND CASH EQUIVALENTS                                    |       | 70                              |       | (585 | ) |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                             |       | 229                             |       | 589 |   |
| CASH AND CASH  EQUIVALENTS, END OF PERIOD                                   |       | $                               | 299        |   | $ | 4 |   |
| ** **                                                                  | ** ** | ** **                      | ** ** | ** ** | ** ** |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION                          |       |                            |       |   |   |
| Cash payments for                                                           | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Interest (net of amounts capitalized)                                       |       | $                               | 2,201      |   | $ | 2,215 |   |
| ** **                                                                  | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Income taxes                                                                |       | $                               | 903        |   | $ | (76 | ) |

 

SeeNotes to Consolidated Financial Statements

 

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**DAKOTAGROWERS PASTA COMPANY, INC.**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

The following notes should be read in conjunctionwith the notes to the financial statements for the year ended July 31,2005 as filed in the Company’s Form 10-K.

**NOTE 1 — ORGANIZATION**

Dakota Growers PastaCompany, 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 and nine month periods ended April 30, 2006 are notnecessarily indicative of the results that may be expected for the year ended July 31,2006. 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 31,2005. The information contained in the balance sheet as of July 31, 2005was 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 DNADreamfields Company, LLC (“DNA Dreamfields”), which the Company began toconsolidate in fiscal year 2005. All material inter-company accounts andtransactions have been eliminated in the preparation of the consolidatedfinancial statements.

**NOTE 3 — NEW ACCOUNTING STANDARDS**

The FASB issued SFAS No. 123(R),“Share-Based Payment” in December 2004. SFAS No. 123(R) is arevision of SFAS No. 123, “Accounting for Stock Based Compensation” and iseffective for the first interim or annual reporting period for fiscal yearsbeginning after June 15, 2005. SFAS No. 123(R) requires the costof share-based payments to employees, including grants of employee stockoptions, to be measured based on grant-date fair values. That cost isrecognized over the period during which an employee is required to provideservice in exchange for the award, usually the vesting period. The Companyadopted SFAS No. 123(R) in the quarter ended October 31, 2005.The adoption of this statement did not have a material impact on the Company’sfinancial statements. However, future employee stock option grants may have amaterial impact on the Company’s financial statements as a result of SFAS No. 123(R).

 

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The FASB 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 production facilities. Theprovisions of this Statement are effective for inventory costs incurred duringfiscal years beginning after June 15, 2005. The Company adopted SFAS No. 151in the quarter ended October 31, 2005. The adoption of this statement didnot have a material impact on the Company’s financial statements. However,future changes in the Company’s production or logistics could have a materialimpact on the Company’s financial statements as a result of SFAS No. 151.

**NOTE 4 — INVENTORIES**

Inventories are valuedat lower of cost or market. Inventories as of April 30, 2006 include rawmaterials and packaging of $6,838,000 and finished goods of $17,545,000.Inventories at July 31, 2005 include raw materials and packaging of$7,262,000 and finished goods of $20,840,000.

###### **NOTE5 — LOAN AGREEMENTS**

Effective June 1, 2006, the Company secured a $25 millionrevolving credit facility with CoBank that extends through May 30, 2007.Interest on the revolving line is currently charged at a variable rateestablished by CoBank based on CoBank’s cost of funds, although the facilityalso allows for a fixed rate option. Balances outstanding under this revolvingline of credit arrangement totaled $6.0 million and $10.0 million as of April 30,2006 and July 31, 2005, respectively. The Company had $19.0 millionavailable for borrowings under the line of credit as of April 30, 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 $19.0 million and $9.1million as of April 30, 2006 and July 31, 2005, respectively.

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 April 30,2006.

###### **NOTE6 — EARNINGS PER SHARE**

Basic earnings per share (EPS) is calculated by dividingnet earnings on common stock by the weighted average number of common sharesoutstanding during the period. Diluted EPS includes the effect of allpotentially dilutive securities, such as stock options and convertiblepreferred stock.

Dilutivesecurities, consisting of stock options and convertible preferred stock,included in the calculation of diluted weighted average common shares totaled421,000 and 401,000 for the three months ended April 30, 2006 and 2005,respectively. Dilutive securities included in the calculation of dilutedweighted average common shares totaled 407,000 and 374,000 for the nine monthsended April 30, 2006 and 2005, respectively. As there is currently noestablished public trading market for the Company’s common stock, the Companyhas assumed the proceeds from the exercise of stock options would reduce debtand, thus, interest expense.

 

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

Effective May 1,2005, the Company’s ownership in DNA Dreamfields increased to 46.7%. In conjunction with the Company’s increase inownership in DNA Dreamfields and changes in the DNA Dreamfieldsoperating agreement and other contractual arrangements, 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 results for thethree and nine month periods ended April 30, 2006 are presented to includethe results of operations of DNA Dreamfields in the consolidated incomestatements.

TheCompany entered into a “2005 Line of Credit Loan Agreement” with DNADreamfields in the fourth quarter of fiscal year 2005. Under thatAgreement, the Company will loan up to $5,000,000 to DNA Dreamfields, with DNADreamfields able to repay and reborrow amounts under the Line of Credit LoanAgreement from time to time. 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 $2,265,000 and $465,000 as of April 30,2006 and July 31, 2005, respectively. These inter-company amounts havebeen eliminated in the preparation of the consolidated financial statements.

###### **NOTE 8 —DIVIDENDS**

On December 15, 2005, the Company’sBoard of Directors authorized the payment of a 4 cents per share dividend onits Series D Delivery Preferred Stock and a non-periodic dividend paymentof 4 cents per share on its common stock, payable on January 10, 2006 toshareholders of record as of December 19, 2005.

**NOTE 9 — STOCK OPTIONS**

On December 22, 2005,the Compensation Committee of the Board of Directors granted incentive stockoptions to purchase 141,256 shares of the Company’s common stock at a per shareexercise price of $4.00. The vesting of these options is subject to certainqualifications, including but not limited to, the continued employment of theoptionee with the Company. Subject to the foregoing qualifications and certainother qualifications, fifty percent of these options vest on December 22,2006, twenty-five percent vest on December 22, 2007, and twenty-fivepercent 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.The Company received payments in the amount of $1,103,000 and $425,000 in December 2005and 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 itsfuture durum wheat requirements. The Company had outstanding commitments forgrain purchases totaling $5,797,000 as of April 30, 2006, related toforward purchase contracts. These contracts are set price contracts to delivergrain to the Company’s mill, and are not derivative in nature as they have nonet settlement provision and are not transferable.

 

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

This Management’s Discussion and Analysisof Financial Condition and Results of Operations (MD&A) should be read inconjunction with the MD&A included in the Company’s Form 10-Kfor the year ended July 31, 2005.

**Forward-Looking Statements**

The following discussion containsforward-looking statements. Such forward-looking statements include, amongothers, those statements including the words “expect”, “anticipate”, “believe”,“may” and similar expressions. Such statements are based on assumptions by theCompany’s management as of the date of this Quarterly Report, and are subjectto risks and uncertainties, including those discussed in the Company’s Form 10-Kfor the year ended July 31, 2005 under “Risk Factors,” that could causeactual results to differ materially from those anticipated. The Companycautions readers not to place undue reliance on such forward-lookingstatements. The Company will not update any forward-looking statements in thisQuarterly Report to reflect future events or developments.

**Summary**

Dakota Growersis the third largest pasta manufacturer in North America. The Company has twoproduction plants, located in Carrington, North Dakota and New Hope, Minnesota,and generates a majority of its revenues from manufacturing pasta for theretail store brand and foodservice markets, although we serve and continuallylook for opportunities in the entire dry pasta industry. The Company’s cost ofgoods sold consists mainly of raw materials (primarily durum wheat), 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 April 30, 2006 totaled $1,487,000compared to net income of $1,004,000 for the quarter ended April 30, 2005.Net income for the nine months ended April 30, 2006 totaled $2,504,000versus $1,582,000 for the nine months ended April 30, 2005. Net earningsper basic common share for the quarter ended April 30, 2006 were $0.11 pershare compared to $0.08 per share for the quarter ended April 30, 2005.Net earnings per basic common share, after the effect of dividends on theCompany’s Series D Delivery Preferred Stock, were $0.16 per share for thenine months ended April 30, 2006 and $0.12 per share for the nine monthsended April 30, 2005. The Company paid dividends of $451,000 ($0.04per 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.

The Company’s net revenuesincreased 7.3% for the quarter ended April 30, 2006 and 11.1% for the ninemonths ended April 30, 2006 when compared to the same periods of the prioryear. The revenue increases were primarily due to higher pasta sales volumes.Benefits derived from increased sales and lower durum costs were partiallyoffset by continued high transportation costs. Freight cost increases duringfiscal year 2006 have been driven by a combination of higher diesel fuel pricesand reduced rail and truck availability. The effectiveness of the Company’srail programs was diminished in the second and third quarters of fiscal 2006 aslower finished goods inventory levels limited the Company’s ability to utilizerail programs to forward warehouses. The Company does not expect significantimprovements in freight costs for the remainder of fiscal year 2006. Salesprice increases which became effective starting in the second quarter of fiscalyear 2006 have partially mitigated the impact of these higher costs.

During fiscal year 2006, 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 fiscal year 2006. The Companyalso recorded a $598,000 loss on disposal during the nine months ended April 30,2006 related to the retirement of certain equipment in conjunction with thecapital project at the New Hope facility.

 

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**Critical Accounting Policies**

The accompanying discussion and analysisof our results of operations and financial condition are based upon ourconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States. The preparationof these financial statements requires management to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenues andexpenses, and related disclosure of contingent assets and liabilities. Theseestimates form the basis for making judgments about the carrying values ofassets and liabilities that are not readily apparent from other sources. Webase our estimates and judgments on historical experience and on various otherassumptions that we believe are reasonable under the circumstances. However,future events are subject to change and the best estimates and judgments mayrequire adjustment. For a complete description of the Company’s significantaccounting policies, please see Note 1 to the consolidated financial statementsincluded in the Company’s Form 10-K for the year ended July 31,2005. Our critical accounting policies are those that have meaningful impact onthe reporting of our financial condition and results, and that requiresignificant management judgment and estimates. These policies include ouraccounting for (a) allowance for doubtful accounts, (b) inventoryvaluation, (c) asset impairment, and (d) income taxes.

*Allowancefor Doubtful Accounts*

We evaluate the collectibility of ouraccounts receivable based on a combination of factors. In cases where we areaware of circumstances that may impair a specific customer’s ability to meetits financial obligations to us, we record a specific allowance against amountsdue to us, and thereby reduce the net recognized receivable to the amount wereasonably believe will be collected. For all other customers, we recognizeallowances for doubtful accounts based on the length of time the receivablesare past due and our historical experience. If the financial condition of ourcustomers deteriorates, additional allowances may be required in the futurethat could have an adverse impact on our future operating results.

*Inventory Valuation*

Inventoriesare stated at the lower of cost or market, determined on a first-in, first-out(FIFO) basis, using product specific standard costs. The Company analyzesvariances between actual manufacturing costs incurred and amounts absorbed atinventory standard costs. Inventory valuations are adjusted for these variancesas applicable. The Company regularly evaluates its inventories and recognizesinventory allowances for discontinued and slow-moving inventories based uponthese evaluations.

*Asset Impairment*

We are required to evaluate ourlong-lived assets, including goodwill, for impairment and write down the valueof any assets if they are determined to be impaired. Evaluating the impairmentof long-lived assets involves management judgment in estimating the future cashflows and fair values related to these assets. Future events could causemanagement to conclude that impairment indicators exist and that the value ofcertain long-lived assets is impaired.

*Income Taxes*

In determining income (loss) forfinancial statement purposes, management must make certain estimates andjudgments in calculating tax liabilities and in determining the recoverabilityof certain deferred tax assets. Deferred tax assets must be reduced by avaluation allowance if, based on the weight of available evidence, it is morelikely than not that some portion or all of the recorded deferred tax assetswill not be realized in future periods. Management believes it is likely thatthe deferred tax assets as of April 30, 2006 will be realized through thegeneration of future taxable income and tax planning strategies.

 

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**Basis of Presentation**

Effective May 1, 2005,the Company began to include DNA Dreamfields Company, LLC (“DNA Dreamfields”)in its consolidated financial statements. The results for the three and ninemonths ended April 30, 2006 and 2005 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.

**Results of Operations**

*Comparison of the Three MonthsEnded April 30, 2006 and 2005*

***Net Revenues.***Netrevenues totaled $42.0 million for the three months ended April 30, 2006,an increase of 7.3%, compared to $39.1 million for the three months ended April 30,2005. Overall, pasta sales volumes increased 5.8% while pasta per unit sellingprices increased 1.3%. Retail revenues decreased $0.1 million, or 0.4%, due toa 2.9% decrease in volume offset by a 2.6% increase in average selling prices.Foodservice revenues increased $0.7 million, or 6.0%, due to a 4.2% increase inaverage selling prices and a 1.7% increase in sales volumes. Ingredientrevenues increased $2.0 million, or 37.0%, due to a 31.1% volume gain and a4.5% increase in average selling prices.

The Company markets semolina production in excess of its ownrequirements as well as durum wheat flour, other flour blends and by-productsof the durum milling process. Mill revenues totaled $3.0 million for the threemonths ended April 30, 2006, an increase of $0.2 million when compared tothe same period of the prior year.

***Cost of Goods Sold.*** Cost ofgoods sold increased $1.6 million, or 4.6%, to $35.6 million for the threemonths ended April 30, 2006, compared to $34.0 million for the threemonths ended April 30, 2005, primarily due to higher sales volumes. Grossprofit as a percentage of net revenues increased to 15.3% for the three monthsended April 30, 2006 from 13.1% for the three months ended April 30,2005, largely due to benefits derived from lower durum costs.

***Marketing, General, andAdministrative (“MG&A”) Expenses.*** MG&Aexpenses increased 6.0% to $3.4 million for the three months ended April 30,2006, compared to $3.2 million for the three months ended April 30, 2005. Theincrease was partially attributable to a severance agreement with Thomas P.Friezen, who resigned as the Company’s Chief Financial Officer in February 2006.MG&A expenses as a percentage of net revenues decreased to 8.0% for thethree months ended April 30, 2006, from 8.1% for the comparable quarter ofthe prior year.

***Interest Expense.*** Interestexpense for the three months ended April 30, 2006 totaled $0.6 million, up$0.1 million from $0.5 million for 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. The loss allocated to thoseother members totaled $24,000 and $144,000 for the three month periods ended April 30,2006 and 2005, respectively.

***Income Taxes.***Income tax expense for thethree month periods ended April 30, 2006 and 2005 totaled $1.0 million and$0.6 million, respectively, and reflects an effective corporate income tax rateof approximately 39%.

***Net Income.***Net income for the three months ended April 30,2006 totaled $1.5 million compared to net income of $1.0 million for the threemonths ended April 30, 2005.

*Comparison of the Nine MonthsEnded April 30, 2006 and 2005*

***Net Revenues.***Netrevenues totaled $128.5 million for the nine months ended April 30, 2006,an increase of $12.8 million, or 11.1%, compared to $115.7 million for the ninemonths ended April 30, 2005. Total pasta sales volumes increased 9.1% withsales in each of the retail, foodservice and ingredient markets realizingvolume gains. Ingredient sales volumes had the highest percentage increase at27.8%, while foodservice sales volumes increased 5.7%, and retail sales volumesincreased 3.7%. Overall, pasta per unit selling prices increased 2.3% withretail selling prices up 4.4%, foodservice selling prices up 2.0% andingredient selling prices up 4.9%.

 

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The Company markets semolina production in excess of its ownrequirements as well as durum wheat flour, other flour blends and by-productsof the durum milling process. Mill revenues totaled $8.4 million and $8.1million for the nine month periods ended April 30, 2006 and 2005,respectively.

***Cost of Goods Sold.*** Cost ofgoods sold increased $10.8 million, or 10.7%, to $112.5 million for the ninemonths ended April 30, 2006, compared to $101.7 million for the ninemonths ended April 30, 2005. The increase was primarily due to highersales volumes. Gross profit as a percentage of net revenues increased to 12.5%for the nine months ended April 30, 2006, compared to 12.1% for the ninemonths ended April 30, 2005.

***Marketing, General, andAdministrative (“MG&A”) Expenses.*** MG&Aexpenses decreased $1.5 million, or 13.0%, to $11.5 million for the nine monthsended April 30, 2006, compared to $13.0 million for the nine months ended April 30,2005. The decrease was primarily due to lower consumer advertising costsassociated with DreamfieldsTM pastaproducts. MG&A expenses as a percentage of net revenues decreased to 8.9%for the nine months ended April 30, 2006, from 11.2% for the comparableperiod of last year.

***Interest and Other Income.***Interestand other income totaled $1.0 million for the nine months ended April 30,2006 compared to $0.4 million for the nine months ended April 30, 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.The Company received payments in the amount of $1.1 million and $0.4 million inDecember 2005 and 2004, respectively, under the Offset Act. These amountshave been classified as other income. The Company cannot reasonably estimatethe potential amount, if any, that it may receive under the Offset Act infuture periods as any such amount will be based upon future events over whichthe Company has little or no control, including, but not limited to, the amountof expenditures by domestic pasta producers and the amount of antidumping andcountervailing duties collected by Customs.

***Gain (Loss) on Disposition ofProperty, Equipment and Other Assets.***The Companyincurred a Loss on Disposition of $0.6 million during the nine months ended April 30,2006. 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.*** Interestexpense for the nine months ended April 30, 2006 and 2005 totaled $1.9million and $1.7 million, respectively.

***Noncontrolling Interests.***Noncontrollinginterests reflect the portion of the DNA Dreamfields Company, LLC net lossallocable to other members of DNA Dreamfields. The loss allocated to thoseother members totaled $0.9 million and $2.8 million for the nine months ended April 30,2006 and 2005, respectively. The $1.9 million decrease was due to a reductionin the net loss reported by DNA Dreamfields for the nine months ended April 30,2006, when compared to the comparable period of the prior year, partiallyoffset by the Company’s increased ownership interest in DNA Dreamfields.

***Income Taxes.***Income tax expense for thenine months ended April 30, 2006 totaled $1.6 million compared to $1.0million for the nine months ended April 30, 2005, and reflects aneffective corporate income tax rate of approximately 39%.

***Net Income.***Net income for the nine months ended April 30,2006 totaled $2.5 million, compared to $1.6 million for the nine months ended April 30,2005. Net earnings available to common shareholders for the nine months ended April 30,2006 totaled $2.1 million after reducing net income for dividends declared onpreferred stock.

**Liquidity and Capital Resources**

The Company’s primary sources ofliquidity are cash provided by operations and borrowings under its revolvingcredit facility. Working capital as of April 30, 2006 totaled $21.5million compared to $20.2 million as of July 31, 2005.

 

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Effective June 1,2006, the Company secured a $25 million revolving credit facility with CoBankthat extends through May 30, 2007. 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.Balances outstanding under this revolving line of credit arrangement totaled$6.0 million and $10.0 million as of April 30, 2006 and July 31,2005, respectively. The Company had $19.0 million available for borrowingsunder the line of credit as of April 30, 2006.

The Companyalso had a term loan facility with CoBank under which the Company could borrowan aggregate principal amount of up to $19.0 million through May 1, 2006.The balance outstanding under the term loan was $19.0 million as of April 30,2006 and no further borrowings are available under the term loan facility.

The Company’s various debt agreements with CoBank and certaininstitutional investors 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 April 30, 2006 and the date of this filing.

Net cash from operating activitiestotaled $9.1 million and $11.2 million for the nine months ended April 30,2006 and 2005, respectively. Significant items contributing to this decreasewere changes in inventories, accounts payable and net income as adjusted fornon-cash items. Inventories decreased $3.7 million for the nine months ended April 30,2006. The decrease in inventories for the nine months ended April 30, 2006related to the Company’s utilization of inventories built-up over the latterportion of fiscal year 2005 to compensate for reduced pasta production volumesresulting from the production upgrade project at the New Hope manufacturingfacility.

Net cash usedfor investing activities totaled $9.2 million and $9.7 million for the ninemonths ended April 30, 2006 and 2005, respectively. A majority of the netcash used for investing activities for the nine months ended April 30, 2006related to capital expenditures for the New Hope upgrade project. Asof April 30, 2006, the Company had expended a majority of the estimated$15 million total New Hope project costs. 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.

Net cash from financing activitiestotaled $0.2 million for the nine months ended April 30, 2006, compared tonet  cash used for financing activitiesof $2.1 million for the nine months ended April 30, 2005, respectively. The$0.2 million of net cash from financing activities for the nine months ended April 30,2006 included $9.9 million in borrowings under the CoBank secured term loanfacility to finance the New Hope production upgrade project. The Company alsopaid dividends of $0.5 million ($0.04 per share) on its Series D DeliveryPreferred Stock and $0.5 million ($0.04 per share) on its common stock duringthe second quarter 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 through May 31,2010. The balances outstanding related to advances to DNA Dreamfields under theLine of Credit Loan Agreement totaled $2.3 million and $0.5 million as of April 30,2006 and July 31, 2005, respectively. These inter-company amounts havebeen eliminated in the preparation of the consolidated financial statements.

 

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The following table summarizes the Company’s contractualobligations as of April 30, 2006 (in thousands):
| ** **                       | ** ** | ** ** | ** ** | **Payments**              | ** ** | **Payments**       | ** ** | **Payments**       | ** ** | **Payments**       | ** ** |
|----------------------------------|------------|------------|------------|---------------------------|------------|--------------------|------------|--------------------|------------|--------------------|------------|
| ** **                       | ** ** | ** ** | ** ** | **Due in Less** | ** ** | **Due in**    | ** ** | **Due in**    | ** ** | **Due After** | ** ** |
| **Contractual Obligations** | ** ** | **Total**  | ** ** | **Than 1 Year** | ** ** | **1-3 Years** | ** ** | **4-5 Years** | ** ** | **5 Years**   | ** ** |
|                             |       |       |       |                      |       |               |       |               |       |               |       |
| Long-term debt                   |       | 35,316     |       | $                         | 6,271      |               | $          | 23,145             |       | $                  | 5,900      |   | $ | — |   |
| Durum purchase  obligations      |       | 5,797      |       | 5,797                     |       | —             |       | —             |       | —             |       |
| Warehouse  obligations           |       | 3,906      |       | 1,925                     |       | 1,981              |       | —             |       | —             |       |
| Operating leases                 |       | 1,747      |       | 1,205                     |       | 522                |       | 20                 |       | —             |       |
|                             |       |       |       |                      |       |               |       |               |       |               |       |
|                             |       | $          | 46,766     |                      | $          | 15,198             |       | $                  | 25,648     |               | $          | 5,920 |   | $ | — |   |
|                                  |            |            |            |                           |            |                    |            |                    |            |                    |            |  |  |  |  |  |

 

The Company forward contracts for acertain portion of its future durum wheat requirements. At April 30, 2006,the Company had outstanding commitments for grain purchases totaling $5.8million 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.

Management believes that net cashcurrently available and to be provided by operating activities, along withamounts available under the Company’s line of credit, will be sufficient tomeet the Company’s expected capital and liquidity requirements for theforeseeable future.

**ITEM 3. QUANTITATIVE ANDQUALITATIVE 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.

**ITEM 4. CONTROLS AND PROCEDURES**

***Evaluation ofDisclosure Controls and Procedures***

The Company’s ChiefExecutive Officer, Timothy J. Dodd, and Chief Financial Officer, Edward O.Irion, have evaluated the Company’s disclosure controls and procedures as ofthe end of the period covered by this report. Based upon the review, they haveconcluded that these controls and procedures are effective.

***Changes inInternal Controls over Financial Reporting***

In conjunction with the resignation ofThomas P. Friezen as the Company’s Chief Financial Officer and the appointmentof Edward O. Irion to the position of Chief Financial Officer on February 21,2006, applicable internal controls over financial reporting were reviewed andchanged as necessary. Mr. Irion most recently served as the Company’s VicePresident — Finance and Chief Accounting Officer. There were no other changesin the Company’s internal controls over financial reporting during the Company’sfiscal third quarter ended April 30, 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**

**ITEM 6. 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**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

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

 

 
| **Signature**       | ** ** | **Title**                              | ** ** | **Date**            |
|---------------------|------------|----------------------------------------|------------|---------------------|
| ** **          | ** ** | ** **                             | ** ** | ** **          |
|                | ** ** | ** **                             | ** ** | ** **          |
| /s/ Timothy J. Dodd |       | President and  Chief Executive Officer |       |                |
| Timothy J. Dodd     |       | (Principal  Executive                  |       | June 14, 2006  |
|                |       | Officer)                               |       |                |
|                |       |                                   |       |                |
|                |       |                                   |       |                |
|                |       |                                   |       |                |
|                |       |                                   |       |                |
| /s/ Edward O. Irion |       | Chief Financial  Officer               |       |                |
| Edward O. Irion     |       | (Principal  Financial and              |       | June 14,  2006 |
|                |       | Accounting  Officer)                   |       |                |
|                |       |                                   |       |                |

 

 

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