**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

**x****     ****Quarterly Report Pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934**

 

**For the quarterly period ended January 31,2010**

 

**or**

 

**o****        ****Transition Report Pursuant to Section 13 or 15(d) of theSecurities 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 bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.    Yes x  No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files.)    Yes o  No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

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

 

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 March 17,2010, the Registrant had 10,764,932 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)**      | ** ** | ** **        | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|-------------------|------------|
| ** **                                                                                                         | ** ** | **January 31,** | ** ** | **July 31,** | ** ** |
| ** **                                                                                                         | ** ** | **2010**             | ** ** | **2009**          | ** ** |
| **ASSETS**                                                                                                         |       |                 |       |              |       |
|                                                                                                               |       |                 |       |              |       |
| CURRENT ASSETS                                                                                                     |       |                 |       |              |       |
| Cash and cash equivalents                                                                                          |       | $                    | 7,577      |              | $          | 1,315 |   |
|                                                                                                               |       |                 |       |              |       |
| Trade accounts receivable, less allowance for cash  discounts and doubtful accounts of $780 and $826, respectively |       | 22,654               |       | 20,466            |       |
|                                                                                                               |       |                 |       |              |       |
| Other receivables                                                                                                  |       | 62                   |       | 67                |       |
|                                                                                                               |       |                 |       |              |       |
| Inventories                                                                                                        |       | 29,267               |       | 33,878            |       |
|                                                                                                               |       |                 |       |              |       |
| Prepaid expenses                                                                                                   |       | 1,165                |       | 799               |       |
|                                                                                                               |       |                 |       |              |       |
| Deferred income taxes                                                                                              |       | 947                  |       | 947               |       |
|                                                                                                               |       |                 |       |              |       |
| Total current assets                                                                                               |       | 61,672               |       | 57,472            |       |
|                                                                                                               |       |                 |       |              |       |
|                                                                                                               |       |                 |       |              |       |
|                                                                                                               |       |                 |       |              |       |
| PROPERTY AND EQUIPMENT                                                                                             |       |                 |       |              |       |
| In service                                                                                                         |       | 143,248              |       | 134,112           |       |
| Construction in progress                                                                                           |       | 368                  |       | 975               |       |
|                                                                                                               |       | 143,616              |       | 135,087           |       |
| Less accumulated depreciation                                                                                      |       | (74,871              | )          | (71,960           | )          |
|                                                                                                               |       |                 |       |              |       |
| Net property and equipment                                                                                         |       | 68,745               |       | 63,127            |       |
|                                                                                                               |       |                 |       |              |       |
| INVESTMENT IN COOPERATIVE BANK                                                                                     |       | 1,507                |       | 1,507             |       |
|                                                                                                               |       |                 |       |              |       |
| INTANGIBLE ASSETS, NET                                                                                             |       | 2,286                |       | 2,387             |       |
|                                                                                                               |       |                 |       |              |       |
| GOODWILL                                                                                                           |       | 8,381                |       | 8,381             |       |
|                                                                                                               |       |                 |       |              |       |
| OTHER ASSETS                                                                                                       |       | 427                  |       | 421               |       |
|                                                                                                               |       |                 |       |              |       |
|                                                                                                               |       | $                    | 143,018    |              | $          | 133,295 |   |

 

(continuedon next page)

 

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**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(InThousands, Except Share Information)**

 
| ** **                                                                                                                                                                                                                 | ** ** | **(Unaudited)**      | ** ** | ** **        | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|-------------------|------------|
| ** **                                                                                                                                                                                                                 | ** ** | **January 31,** | ** ** | **July 31,** | ** ** |
| ** **                                                                                                                                                                                                                 | ** ** | **2010**             | ** ** | **2009**          | ** ** |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                                                             |       |                 |       |              |       |
|                                                                                                                                                                                                                       |       |                 |       |              |       |
| CURRENT LIABILITIES                                                                                                                                                                                                        |       |                 |       |              |       |
| Accounts payable                                                                                                                                                                                                           |       | $                    | 13,615     |              | $          | 9,987 |   |
| Accrued liabilities                                                                                                                                                                                                        |       | 6,657                |       | 5,903             |       |
| Notes payable                                                                                                                                                                                                              |       | 5                    |       | —            |       |
| Current portion of long-term debt                                                                                                                                                                                          |       | 5,769                |       | 5,756             |       |
|                                                                                                                                                                                                                       |       |                 |       |              |       |
| Total current liabilities                                                                                                                                                                                                  |       | 26,046               |       | 21,646            |       |
|                                                                                                                                                                                                                       |       |                 |       |              |       |
|                                                                                                                                                                                                                       |       |                 |       |              |       |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                              |       | —               |       | —            |       |
| LONG-TERM DEBT, net of current portion                                                                                                                                                                                     |       | 22,030               |       | 25,418            |       |
| DEFERRED INCOME TAXES                                                                                                                                                                                                      |       | 14,471               |       | 14,065            |       |
|                                                                                                                                                                                                                       |       |                 |       |              |       |
| Total liabilities                                                                                                                                                                                                          |       | 62,547               |       | 61,129            |       |
|                                                                                                                                                                                                                       |       |                 |       |              |       |
| STOCKHOLDERS’ EQUITY                                                                                                                                                                                                  |       |                 |       |              |       |
|                                                                                                                                                                                                                       |       |                 |       |              |       |
| Series D delivery preferred stock,  non-cumulative, $.01 par value, 11,340,841 authorized, 11,322,745 and  11,275,297 shares issued and outstanding as of January 31, 2010 and  July 31, 2009, respectively |       | 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, 10,764,932 and 10,203,063 shares issued and outstanding as of  January 31, 2010 and July 31, 2009, respectively                                     |       | 108                  |       | 102               |       |
| Additional paid-in capital                                                                                                                                                                                                 |       | 46,049               |       | 43,120            |       |
| Retained earnings                                                                                                                                                                                                          |       | 34,190               |       | 28,820            |       |
|                                                                                                                                                                                                                       |       |                 |       |              |       |
| Total stockholders’ equity                                                                                                                                                                                            |       | 80,471               |       | 72,166            |       |
|                                                                                                                                                                                                                       |       |                 |       |              |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                            |       | $                    | 143,018    |              | $          | 133,295 |   |

 

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** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                           | ** ** | **January 31,**   | ** ** |
| ** **                                                                           | ** ** | **2010**               | ** ** | **2009** | ** ** |
| Net revenues (net of discounts and allowances****of $6,847 and $5,981, respectively) |       | $                      | 60,024     |   | $ | 72,067 |   |
| ** **                                                                           |       |                   |       |   |   |
| Cost of goods sold                                                                   |       | 44,380                 |       | 60,953 |   |
| ** **                                                                           |       |                   |       |   |   |
| Gross profit                                                                         |       | 15,644                 |       | 11,114 |   |
| ** **                                                                           |       |                   |       |   |   |
| Marketing, general and administrative expenses                                       |       | 4,581                  |       | 5,361 |   |
| ** **                                                                           |       |                   |       |   |   |
| Operating income                                                                     |       | 11,063                 |       | 5,753 |   |
| ** **                                                                           |       |                   |       |   |   |
| Other income (expense)                                                               |       |                   |       |   |   |
| Interest and other income                                                            |       | 699                    |       | 385 |   |
| Interest expense, net                                                                |       | (196                   | )          | (404 | ) |
| ** **                                                                           |       |                   |       |   |   |
| Income before income taxes                                                           |       | 11,566                 |       | 5,734 |   |
| ** **                                                                           |       |                   |       |   |   |
| Income tax expense                                                                   |       | 4,394                  |       | 2,105 |   |
| ** **                                                                           |       |                   |       |   |   |
| Net income                                                                           |       | 7,172                  |       | 3,629 |   |
| Dividends on preferred stock                                                         |       | 774                    |       | 326 |   |
| ** **                                                                           |       |                   |       |   |   |
| Net earnings on common stock                                                         |       | $                      | 6,398      |   | $ | 3,303 |   |
| ** **                                                                           |       |                   |       |   |   |
| Net earnings per common share                                                        |       |                   |       |   |   |
| Basic                                                                                |       | $                      | 0.61       |   | $ | 0.32 |   |
| ** **                                                                           |       |                   |       |   |   |
| Diluted                                                                              |       | $                      | 0.54       |   | $ | 0.28 |   |
| ** **                                                                           |       |                   |       |   |   |
| Weighted average common shares outstanding                                           |       |                   |       |   |   |
| Basic                                                                                |       | 10,563                 |       | 10,192 |   |
| ** **                                                                           |       |                   |       |   |   |
| Diluted                                                                              |       | 11,958                 |       | 11,958 |   |
| ** **                                                                           |       |                   |       |   |   |
| Dividends per common share                                                           |       | $                      | 0.62       |   | $ | 0.20 |   |

 

SeeNotes to Consolidated Financial Statements

 

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**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

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

 
| ** **                                                                             | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                             | ** ** | **January 31,** | ** ** |
| ** **                                                                             | ** ** | **2010**             | ** ** | **2009** | ** ** |
| Net revenues (net of discounts and allowances****of $14,414 and $13,099, respectively) |       | $                    | 123,788    |   | $ | 159,213 |   |
|                                                                                   |       |                 |       |   |   |
| Cost of goods sold                                                                     |       | 93,358               |       | 139,472 |   |
|                                                                                   |       |                 |       |   |   |
| Gross profit                                                                           |       | 30,430               |       | 19,741 |   |
|                                                                                   |       |                 |       |   |   |
| Marketing, general and administrative expenses                                         |       | 10,037               |       | 10,496 |   |
|                                                                                   |       |                 |       |   |   |
| Operating income                                                                       |       | 20,393               |       | 9,245 |   |
|                                                                                   |       |                 |       |   |   |
| Other income (expense)                                                                 |       |                 |       |   |   |
| Interest and other income                                                              |       | 722                  |       | 421 |   |
| Loss on disposition of property, equipment and  other assets                           |       | (32                  | )          | — |   |
| Interest expense, net                                                                  |       | (411                 | )          | (1,258 | ) |
|                                                                                   |       |                 |       |   |   |
| Income before income taxes                                                             |       | 20,672               |       | 8,408 |   |
|                                                                                   |       |                 |       |   |   |
| Income tax expense                                                                     |       | 7,854                |       | 3,087 |   |
|                                                                                   |       |                 |       |   |   |
| Net income                                                                             |       | 12,818               |       | 5,321 |   |
| Dividends on preferred stock                                                           |       | 774                  |       | 326 |   |
|                                                                                   |       |                 |       |   |   |
| Net earnings on common stock                                                           |       | $                    | 12,044     |   | $ | 4,995 |   |
|                                                                                   |       |                 |       |   |   |
| Net earnings per common share                                                          |       |                 |       |   |   |
| Basic                                                                                  |       | $                    | 1.16       |   | $ | 0.49 |   |
|                                                                                   |       |                 |       |   |   |
| Diluted                                                                                |       | $                    | 1.01       |   | $ | 0.42 |   |
|                                                                                   |       |                 |       |   |   |
| Weighted average common shares outstanding                                             |       |                 |       |   |   |
| Basic                                                                                  |       | 10,383               |       | 10,192 |   |
|                                                                                   |       |                 |       |   |   |
| Diluted                                                                                |       | 11,958               |       | 11,958 |   |
|                                                                                   |       |                 |       |   |   |
| Dividends per common share                                                             |       | $                    | 0.62       |   | $ | 0.20 |   |

 

SeeNotes to Consolidated Financial Statements

 

5

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**DAKOTAGROWERS PASTA COMPANY, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(InThousands)(Unaudited)**

 
| ** **                                                                    | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                    | ** ** | **January 31,** | ** ** |
| ** **                                                                    | ** ** | **2010**             | ** ** | **2009** | ** ** |
| OPERATING ACTIVITIES                                                          |       |                 |       |   |   |
| Net income                                                                    |       | $                    | 12,818     |   | $ | 5,321 |   |
| Adjustments to reconcile net income to net cash****from operating activities: |       |                 |       |   |   |
| Depreciation and amortization                                                 |       | 3,340                |       | 3,287 |   |
| Loss on disposition of property, equipment and  other assets                  |       | 32                   |       | — |   |
| Deferred income taxes                                                         |       | 406                  |       | 1,226 |   |
| Stock-based employee compensation                                             |       | 24                   |       | 64 |   |
| Changes in assets and liabilities                                             |       |                 |       |   |   |
| Trade receivables                                                             |       | (2,188               | )          | 76 |   |
| Other receivables                                                             |       | 5                    |       | (520 | ) |
| Inventories                                                                   |       | 4,611                |       | 15,070 |   |
| Prepaid expenses                                                              |       | (366                 | )          | (85 | ) |
| Other assets                                                                  |       | 6                    |       | 6 |   |
| Accounts payable                                                              |       | 3,628                |       | (5,992 | ) |
| Other accrued liabilities                                                     |       | 754                  |       | (1,107 | ) |
| NET CASH FROM OPERATING ACTIVITIES                                            |       | 23,070               |       | 17,346 |   |
|                                                                          |       |                 |       |   |   |
| INVESTING ACTIVITIES                                                          |       |                 |       |   |   |
| Purchases of property and equipment                                           |       | (8,770               | )          | (665 | ) |
| Proceeds from sale of property, equipment and  other assets                   |       | 2                    |       | — |   |
| Payments for package design costs                                             |       | (133                 | )          | (92 | ) |
| NET CASH USED FOR INVESTING ACTIVITIES                                        |       | (8,901               | )          | (757 | ) |
|                                                                          |       |                 |       |   |   |
| FINANCING ACTIVITIES                                                          |       |                 |       |   |   |
| Net change in excess outstanding checks over cash  on deposit                 |       | —               |       | 213 |   |
| Net change in short-term notes payable                                        |       | 5                    |       | (7,350 | ) |
| Principal payments on long-term debt                                          |       | (3,375               | )          | (7,138 | ) |
| Dividends paid on common stock                                                |       | (6,674               | )          | (2,038 | ) |
| Dividends paid on preferred stock                                             |       | (774                 | )          | (326 | ) |
| Issuance of common stock                                                      |       | 2,911                |       | — |   |
| NET CASH USED FOR FINANCING ACTIVITIES                                        |       | (7,907               | )          | (16,639 | ) |
|                                                                          |       |                 |       |   |   |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                       |       | 6,262                |       | (50 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                |       | 1,315                |       | 125 |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                      |       | $                    | 7,577      |   | $ | 75 |   |
|                                                                          |       |                 |       |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                             |       |                 |       |   |   |
| Cash payments for                                                             |       |                 |       |   |   |
| Interest (net of amounts capitalized)                                         |       | $                    | 457        |   | $ | 1,549 |   |
|                                                                          |       |                 |       |   |   |
| Income taxes                                                                  |       | $                    | 8,626      |   | $ | 3,330 |   |

 

See Notes to Consolidated Financial Statements

 

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**DAKOTA GROWERS PASTA COMPANY,INC.**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(Unaudited)**

 

The following notes should beread in conjunction with the notes to the financial statements for the yearended July 31, 2009 as filed in the Company’s Form 10-K.

 

**NOTE 1 - ORGANIZATION**

 

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

 

**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 (“SEC”)for quarterly reporting. Accordingly, they do not include all the informationand footnotes required by accounting principles generally accepted in theUnited States of America for complete financial statements. In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included. Operatingresults for the three and six month periods ended January 31, 2010 are notnecessarily indicative of the results that may be expected for the year ended July 31,2010. 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 31,2009. The information contained in the balance sheet as of July 31, 2009was derived from the Company’s audited annual report for fiscal year 2009.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 the Company, Primo Piatto and DNA Dreamfields, whichthe 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 ACCOUNTINGPRONOUNCEMENTS**

 

In December 2007, the FASB issued an amendment to ASC (“AccountingStandards Codification”) 805 “Business Combinations” 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. In April 2009, the FASB further amended ASC 805 “BusinessCombinations” to address the initial recognition and measurement of an assetacquired or a liability assumed in a business combination that arises from acontingency and for which the fair value of the asset or liability on the dateof acquisition can be determined. These amendments are effective prospectivelyto business combinations on or after the beginning of the first annualreporting period beginning on or after December 15, 2008 (our fiscal year2010). The adoption of these amendments did not have a material impact on ourconsolidated financial statements.

 

InDecember 2007, the FASB issued authoritative guidance included in ASC 810,“Consolidation.”  The objective of thisguidance is to improve the relevance, comparability, and transparency of thefinancial information that a reporting entity provides in its consolidatedfinancial statements. This guidance establishes accounting and reportingstandards for the noncontrolling interest in a subsidiary and for thedeconsolidation of a subsidiary. This guidance also changes the way theconsolidated income statement is presented, establishes a single method ofaccounting for changes in a parent’s ownership interest in a subsidiary that donot result in deconsolidation, requires that a parent recognize a gain or lossin net income when a subsidiary is deconsolidated and expanded disclosures inthe consolidated financial statements that clearly identify and distinguishbetween the interests of the parent’s owners and the interest of thenoncontrolling owners of a subsidiary. This guidance became effective 

 

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**DAKOTA GROWERS PASTA COMPANY,INC.**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(Unaudited)**

 

for financial statements issued for fiscalyears beginning on or after December 15, 2008. The adoption of thisguidance did not have a material impact on the Company’s financial statements.

 

In April 2008, the FASB issued an amendment providing additionalguidance regarding the factors that should be considered in developing renewalor extension assumptions used to determine the useful life of a recognizedintangible asset as defined in FASB ASC 275 “Risks and Uncertainties” and FASBASC 350 “Intangibles—Goodwill & Other”. The intent of this amendmentis to improve the consistency between the useful life of a recognizedintangible asset and the period of expected cash flows used to measure the fairvalue of the asset. This amendment is effective for our interim and annualfinancial statements beginning in our fiscal year 2010. The adoption of theseamendments did not have a material impact on our consolidated financialstatements.

 

InJune 2009, the FASB issued a new standard, included in ASC 810, “Consolidation,”regarding the consolidation of variable interest entities. The standardincludes guidance for determining whether an entity is a variable interestentity and replaces the quantitative-based risks and rewards approach with aqualitative approach that focuses on identifying which enterprise has the powerto direct the activities of a variable interest entity that most significantlyimpact the entity’s economic performance. It also requires an ongoingreassessment of whether an entity is the primary beneficiary, and it requiresadditional disclosures about an enterprise’s involvement in variable interestentities. This guidance becomes effective as of the beginning of the firstfiscal year that begins after November 15, 2009, our first quarter offiscal year 2011. We are currently evaluating the impact, if any, that theadoption will have on our consolidated financial statements.

 

InJune 2009, the FASB issued an accounting pronouncement regarding the FASBAccounting Standards Codification and the Hierarchy of Generally AcceptedAccounting Principles.  This pronouncement establishes the FASBAccounting Standards Codification (the “Codification”) as the single source ofauthoritative, nongovernmental U.S. GAAP.  The Codification iseffective for financial statements for interim or annual reporting periodsending after September 15, 2009.  All U.S. GAAP accountingliterature is now known as the “Accounting Standard Codification” (“ASC”) andupdates to the Codification are now issued as “Accounting Standards Updates” (“ASU”).As the Codification was not intended to change or alter existing U.S. GAAP, itdid not have any impact on our consolidated financial statements.

 

In August 2009, the FASB issued ASU 2009-05 which providesadditional guidance on measuring the fair value of liabilities under ASC 820.ASU 2009-05 clarifies that the quoted price for the identical liability, whentraded as an asset in an active market, is also a Level 1 measurement for thatliability when no adjustment to the quoted price is required.  Thispronouncement also requires that the fair value of a liability is measuredusing one or more of the following techniques when a quoted price in an activemarket for the identical liability is not available, (1) a valuationtechnique that uses the quoted price for the identical liability when traded asan asset, (2) quoted prices for similar liabilities or similar liabilitieswhen traded as assets, or (3) another valuation technique consistent withthe guidance in ASC 820, for example, an income approach such as a presentvalue technique.The newguidance on measuring liabilities at fair value is effective for the firstinterim or annual reporting period beginning after August 28, 2009, thesecond quarter of our fiscal year 2010. The adoption of these amendments didnot have a material impact on our consolidated financial statements.

 

InDecember 2009, the FASB issued FASB ASU 2009-16, “Transfers and Servicing(Topic 860): Accounting for Transfers of Financial Assets”, to codifySFAS 166, “Accounting for Transfers of Financial Assets an amendment ofFASB Statement No. 140”, which amends the derecognition guidance in FASBStatement No. 140 and eliminates the exemption from consolidation forqualifying special-purpose entities. This statement is effective for financialasset transfers occurring after the beginning of an entity’s first fiscal yearthat begins after November 15, 2009. This statement will be effective forus beginning in our fiscal year 2011. We are currently evaluating the impact,if any, that the adoption will have on our consolidated financial statements.

 

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**DAKOTA GROWERS PASTA COMPANY,INC.**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(Unaudited)**

 

In January 2010, the FASB amended theaccounting standards for fair value measurement and disclosures. The amended guidancerequires disclosures regarding the amounts of significant transfers in and outof Level 1 and Level 2 fair value measurements and the reasons for thetransfers. It also requires separate presentation of purchases, sales,issuances and settlements of Level 3 fair value measurements. The guidance iseffective for interim and annual reporting periods beginning after December 15,2009, with the exception of the additional Level 3 disclosures which areeffective for fiscal years beginning after December 15, 2010. We arecurrently evaluating the impact, if any, that the adoption will have on ourconsolidated financial statements.

 

In February 2010, the FASB issued ASU2010-09, “Subsequent Events (Topic855): Amendments to Certain Recognition and Disclosure Requirements.”This amendment removes the requirement for an SEC filer to disclose a datethrough which subsequent events have been evaluated in both issued and revisedfinancial statements. Revised financial statements include financial statementsrevised as a result of either correction of an error or retrospectiveapplication of U.S. GAAP. The amendment in the ASU was effective for theCompany upon issuance (February 24, 2010). The adoption of ASU 2010-09 hadno effect on our consolidated financial statements.

 

**NOTE 4 — FAIR VALUE MEASURES**

 

The fair value of a financial instrument isgenerally defined as the price that would be received to sell an asset or paidto transfer a liability in an orderly transaction between market participantsat the measurement date. Quoted market prices are generally not available forthe Company’s financial instruments. Accordingly, fair values are based onjudgments regarding anticipated cash flows, future expected loss experience,current economic conditions, risk characteristics of various financialinstruments and other factors. These estimates involve uncertainties andmatters of judgment, and therefore cannot be determined with precision. Changesin assumptions could significantly affect the estimates.

 

FASB ASC 820 “Financial Value Measures andDisclosures” establishes a fair value hierarchy which requires an entity tomaximize the use of observable inputs and minimize the use of unobservableinputs when measuring fair value. The standard describes three levels of inputsthat may be used to measure fair value:

 

Level 1—Quoted pricesin active markets for identical assets or liabilities;

 

Level 2—Observableinputs other than Level 1 prices, such as quoted prices for similar assetsor liabilities; quoted prices in markets that are not active; or other inputsthat are observable or can be corroborated by observable market data forsubstantially the full term of the assets or liabilities; and

 

Level 3—Unobservableinputs that are supported by little or no market activity and that aresignificant to the fair value of the assets or liabilities.

 

The carrying amount of cash and cashequivalents, receivables, payables, short-term debt and other current assetsand liabilities approximates fair value because of the short maturity and/orfrequent repricing of those instruments.

 

The Company believes it is not practical toestimate the fair value of the securities of non-subsidiary cooperativeswithout incurring excessive costs because there is no established market forthese securities and it is inappropriate to estimate future cash flows, whichare largely dependent on future patronage earnings of the non-subsidiarycooperatives.

 

Based upon current borrowing rates withsimilar maturities, the fair value of the long-term debt approximates thecarrying value as of January 31, 2010 and July 31, 2009.

 

9

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**DAKOTA GROWERS PASTA COMPANY,INC.**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(Unaudited)**

 

**NOTE 5 — INVENTORIES**

 

Inventories are valued at lower of cost ormarket. Inventories as of January 31, 2010 include raw materials andpackaging of $8,288,000 and finished goods of $20,979,000. Inventories at July 31,2009 include raw materials and packaging of $10,672,000 and finished goods of$23,206,000.

 

**NOTE 6 — LOAN AGREEMENTS**

 

The Company has a $45 million revolvingcredit facility with CoBank that extends through January 11, 2011 and iscollateralized by all assets of the Company. Interest on the revolving line ofcredit is at the one-month LIBOR rate subject to performance adjustmentsdepending upon the Company’s ratio of total debt to earnings before interest,taxes, depreciation and amortization or “EBITDA.” The higher the ratio thehigher the adjustment to the one-month LIBOR rate within a range of 200 to 300basis points above the one-month LIBOR rate.  Fixed interest rate optionsare also available. The balances outstanding under the revolving creditarrangements totaled $5,000 and $0 as of January 31, 2010 and July 31,2009, respectively.  The Company had$44,995,000 and $45,000,000 available for borrowings under the revolving lineof credit as of January 31, 2010 and July 31, 2009, respectively.

 

During the second quarter of fiscal year2010, the Company also entered into modifications to existing CoBank term loanagreements with respect to debt previously incurred by the Company.  The main modification to the term loansupplements was a change in the index rate from 7-day LIBOR to one-month LIBOR.

 

The Company’s various debt agreements with CoBankand certain institutional note holders obligate the Company to maintain orachieve certain amounts of equity and certain financial ratios and imposecertain restrictions on the Company. The Company was in compliance with thesefinancial covenants as of January 31, 2010.

 

**NOTE 7 — EARNINGS PER SHARE**

 

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

 

Dilutive securities, consisting of stock options and convertiblepreferred stock, included in the calculation of diluted weighted average commonshares totaled 1,395,000 and 1,766,000 for the three months ended January 31,2010 and 2009, respectively, and 1,575,000 and 1,766,000 for the six monthsended January 31, 2010 and 2009, respectively. The Series FConvertible Preferred Stock is included in the fully diluted EPS calculationand not included in the basic EPS calculation. As there is currently noestablished public trading market for the Company’s Common Stock, the Companyhas assumed the proceeds from the exercise of stock options would reduce debtand, thus, interest expense.

 

10

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**DAKOTA GROWERS PASTA COMPANY,INC.**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(Unaudited)**

 

The components of basic earnings per share are as follows (inthousands, except per share amounts):

 
| ** **                                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                    | ** ** | **January 31,**   | ** ** | **January 31,** | ** ** |
| ** **                                    | ** ** | **2010**               | ** ** | **2009**             | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Earnings per share - Basic**                |       |                   |       |                 |       |   |   |   |   |
|                                          |       |                   |       |                 |       |   |   |   |   |
| Net earnings available to common stockholders |       | $                      | 6,398      |                 | $          | 3,303 |   | $ | 12,044 |   | $ | 4,995 |   |
|                                          |       |                   |       |                 |       |   |   |   |   |
| Basic weighted-average shares outstanding     |       | 10,563                 |       | 10,192               |       | 10,383 |   | 10,192 |   |
|                                          |       |                   |       |                 |       |   |   |   |   |
| Earnings per share - Basic                    |       | $                      | 0.61       |                 | $          | 0.32 |   | $ | 1.16 |   | $ | 0.49 |   |

 

The components of diluted earnings per share are as follows (inthousands, except per share amounts):

 
| ** **                                                                     | ** ** | **Three Months Ended  January 31,** | ** ** | **Six Months Ended  January 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                     | ** ** | **2010**                                 | ** ** | **2009**                               | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Earnings per share - Diluted**                                               |       |                                     |       |                                   |       |   |   |   |   |
|                                                                           |       |                                     |       |                                   |       |   |   |   |   |
| Net earnings available to common stockholders                                  |       | $                                        | 6,398      |                                   | $          | 3,303 |   | $ | 12,044 |   | $ | 4,995 |   |
| Plus: Impact of interest expense on the exercise  of options, net of taxes (1) |       | 6                                        |       | 13                                     |       | 18 |   | 26 |   |
| Net earnings available to common stockholders                                  |       | $                                        | 6,404      |                                   | $          | 3,316 |   | $ | 12,062 |   | $ | 5,021 |   |
|                                                                           |       |                                     |       |                                   |       |   |   |   |   |
| Diluted weighted-average shares outstanding:                                   |       |                                     |       |                                   |       |   |   |   |   |
| Basic weighted-average shares outstanding                                      |       | 10,563                                   |       | 10,192                                 |       | 10,383 |   | 10,192 |   |
| Plus: Incremental shares from assumed conversions                              |       |                                     |       |                                   |       |   |   |   |   |
| Options                                                                        |       | 330                                      |       | 701                                    |       | 510 |   | 701 |   |
| Convertible preferred shares                                                   |       | 1,065                                    |       | 1,065                                  |       | 1,065 |   | 1,065 |   |
| Diluted weighted-average shares outstanding                                    |       | 11,958                                   |       | 11,958                                 |       | 11,958 |   | 11,958 |   |
|                                                                           |       |                                     |       |                                   |       |   |   |   |   |
| Earnings per share - Diluted                                                   |       | $                                        | 0.54       |                                   | $          | 0.28 |   | $ | 1.01 |   | $ | 0.42 |   |

 

----

(1) As there is currently no establishedpublic trading market for the Company’s common stock, the Company has assumedthe proceeds from the exercise of stock options would reduce debt and, thus,interest expense.

 

###### **NOTE8 — DIVIDENDS**

###### ** **

On November 19, 2009,the Company’s Board of Directors authorized the payment of non-periodicdividends of $0.01 per share on its Series D Delivery Preferred Stock,$0.62 per share on its Common Stock and $0.62 per share on its Series FConvertible Preferred Stock, payable on January 5, 2010 to stockholders ofrecord as of December 4, 2009.

 

OnDecember 18, 2008, the Company’s Board of Directors authorized the paymentof non-periodic dividends of $0.01 per share on its Series D DeliveryPreferred Stock, $0.20 per share on its Common Stock and $0.20 per share on itsSeries F Convertible Preferred Stock, payable on January 7, 2009 tostockholders of record as of December 26, 2008.

 

**NOTE 9 — STOCK OPTIONS**

 

The Company accounts forshare based payments in accordance with ASC Topic 718 “Compensation — StockCompensation.” Under ASC 718, the Company is required to recognize, as expense,the estimated fair value of all share based payments to employees. Inaccordance with this guidance, the Company has elected to recognize the 

 

11

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**DAKOTA GROWERS PASTA COMPANY,INC.**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(Unaudited)**

 

compensation cost of allservice based awards on a straight-line basis over the vesting period of theaward. Performance based awards are recognized ratably for each vestingtranche. The Company recorded stock-based employee compensation expense of $0and $31,000 for the three months ended January 31, 2010 and 2009,respectively, and $24,000 and $64,000 for the six months ended January 31,2010 and 2009, respectively.

 

During December 2009,certain executive officers and employees of the Company exercised options forthe purchase of 561,869 shares of the Company’s Common Stock and 47,448 sharesof the Company’s Series D Delivery Preferred Stock. The aggregateconsideration received by the Company for the issuance of those shares was $2.9million. The shares were issued in private placement transactions exempt fromthe registration requirements of the Securities Act, pursuant to Section 4(2) ofthe Securities Act.

 

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, 2009    |       | 1,977                                                             |       | $100-$150 |   | $ | 117.35 |   | 1,977 |   |
| Exercised                            |       | (1,977                                                            | )          | $100-$150 |   | $ | 117.35 |   |   |   |
| Granted                              |       | —                                                            |       |   |   |   |   |   |   |
| Forfeited/Expired                    |       | —                                                            |       |   |   |   |   |   |   |
| Outstanding at January 31, 2010 |       | —                                                            |       |   |   |   |   | — |   |

 
| ** **                           | ** ** | **Options to purchase Common Stock** | ** ** |
|--------------------------------------|------------|--------------------------------------|------------|
| ** **                           | ** ** | **Number of  Common Shares**         | ** ** | **Option  Price  per Share** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Exercisable** | ** ** |
|                                 |       |                                 |       |   |   |   |   |   |   |
| Outstanding at July 31, 2009    |       | 642,363                              |       | $4.00-$6.25 |   | $ | 5.11 |   | 574,182 |   |
| Exercised                            |       | (514,421                             | )          | $4.00-$6.25 |   | $ | 5.21 |   |   |   |
| Granted                              |       | —                               |       |   |   |   |   |   |   |
| Forfeited/Expired                    |       | —                               |       |   |   |   |   |   |   |
| Outstanding at January 31, 2010 |       | 127,942                              |       | $4.00-$5.00 |   | $ | 4.71 |   | 127,942 |   |

 

12

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**DAKOTA GROWERS PASTA COMPANY, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

A summary of the status of the Company’s issued but nonvested stockoptions as of January 31, 2010, and changes during the six months ended January31, 2010, is presented below:

 
| ** **                            | ** ** | ** ** | ** ** | **Weighted-Average** | ** ** |
|---------------------------------------|------------|------------|------------|----------------------|------------|
| ** **                            | ** ** | **Common** | ** ** | **Grant-Date**       | ** ** |
| **Nonvested Stock Options** | ** ** | **Shares** | ** ** | **Fair Value**  | ** ** |
|                                  |       |       |       |                 |       |
| Nonvested at July 31, 2009       |       | 68,181     |       | $                    | 5.00       |   |
| Granted                               |       | —     |       |                 |       |
| Vested                                |       | (68,181    | )          | $                    | 5.00       |   |
| Forfeited/Expired                     |       | —     |       |                 |       |
| Nonvested at January 31, 2010    |       | —     |       |                 |       |

 

**NOTE 10 — CONTINUEDDUMPING 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 $692,000 and $384,000 in November 2009and December 2008, respectively, under the Offset Act. These amounts havebeen classified as other income. The Company cannot reasonably estimate thepotential amount, if any, that it may receive under the Offset Act in futureperiods as any such amount will be based upon future events over which the Companyhas little 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 Offset Act, also known as the Byrd Amendment,has been repealed and therefore, duties assessed on pasta imports after September 30,2007 will no longer be distributed to domestic producers.  However, amounts collected (whether suchcollections occur before or after September 30, 2007) related to dutiesassessed on pasta entries prior to September 30, 2007, are expected to beavailable for future distribution to domestic producers.

 

###### **NOTE 11 — COMMITMENTS**

 

The Company forward contracts for a certain portion of its future durumwheat requirements. The Company had outstanding commitments for grain purchasestotaling $14.1 million as of January 31, 2010, related to forward purchasecontracts. These contracts are set price contracts to deliver grain to theCompany’s mill, and are not derivative in nature as they have no net settlementprovision and are not transferable.

 

The Company is currentlycompleting an estimated $10.1 million capital project at its Carringtonfacility. Pasta production associated with the Carrington expansion projectbegan during the quarter ended January 31, 2010. Additional commitmentsfor building construction and pasta equipment totaled $0.7 million as of January 31,2010. These costs are expected to be paid within one year.

 

**NOTE 12 — RELATED PARTYTRANSACTIONS**

 

Jeffrey Topp, a director ofthe Company, sold wheat to the Company through an affiliated entity during thesix months ended January 31, 2010. Those sales totaled $209,000 and$554,000 at market prices for the six months ended January 31, 2010 and2009, respectively. The Company had commitments to purchase wheat totaling $0and $187,500 from Mr. Topp and/or his affiliated entity as of January 31,2010 and July 31, 2009, respectively.

 

13

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**DAKOTA GROWERS PASTA COMPANY, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**NOTE 13 — SUBSEQUENT EVENTS**

 

On March 10,2010, we entered into a definitive agreement (the “Merger Agreement”) to beacquired by Agricore United Holdings Inc., a Delaware corporation (“Parent”), awholly owned subsidiary of Viterra Inc., a corporation incorporated under thelaws of the Province of Saskatchewan (“Viterra”).  Pursuant to the Merger Agreement, BluebirdAcquisition Corporation, a North Dakota corporation and a wholly ownedsubsidiary of Parent (“Merger Sub”) will commence a tender offer (the “Offer”)to purchase all of the outstanding shares of our common stock (“Common Stock”)for $18.28 per share in cash and Series D Non-Cumulative Deliverypreferred stock (“Series D Stock”) for $0.10 per share in cash.  The Offer, which will commence no later than March 24,2010, shall remain open for at least 30 business days and may be extended inaccordance with the terms of the Merger Agreement.  The Offer will be followed by a merger toacquire any Common Stock and Series D Stock that is not tendered in theOffer, in each case at the same price per share paid in the Offer.  Upon successful completion of the Offer, andsubject to the terms and conditions of the Merger Agreement, Merger Sub will bemerged with and into the Company (the “Merger”), and the Company will survivethe Merger as a wholly owned subsidiary of Parent.  Each of the Company’s and Viterra’s boards ofdirectors unanimously approved the Merger Agreement and the transactions contemplatedtherein, which are subject to customary closing conditions, including minimumlevels of participation in the Offer and regulatory approvals.  The accompanying consolidated financialstatements do not reflect any purchase accounting adjustments that thesurviving company of the Merger will be required to make upon completion of theproposed transaction.

 

14

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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&Aincluded in the Company’s Form 10-K for the year ended July 31, 2009.

 

**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, 2009under “Risk Factors,” that could cause actual results to differ materially fromthose anticipated. The Company cautions readers not to place undue reliance onsuch forward-looking statements. The Company will not update anyforward-looking statements in this Quarterly Report to reflect future events ordevelopments.

 

**Summary**

 

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

 

Netincome for the quarter ended January 31, 2010 totaled $7.2 millioncompared to $3.6 million for the quarter ended January 31, 2009.  Net income for the six months ending January 31,2010 totaled $12.8 million compared to $5.3 million for the six months ended January 31,2009.  The Company paid dividends of $0.01 per shareon its Series D Delivery Preferred Stock, $0.62 per share on its Series FConvertible Preferred Stock and $0.62 per share on its Common Stock during thesecond quarter of fiscal year 2010. Net earnings per basiccommon share, after the effect of dividends on preferred stock, were $0.61 pershare for the quarter ended January 31, 2010, compared to $0.32 per sharefor the quarter ended January 31, 2009. Net earnings per basic commonshare were $1.16 per share for the six months ended January 31, 2010compared to $0.49 per share for the six months ended January 31, 2009.

 

The Company’s net revenues decreased 16.7% for thequarter ended January 31, 2010 and 22.3% for the six months ended January 31,2010 when compared to the same periods of the prior year.  The decreases resulted primarily from lowerpasta per unit selling prices and, to a lesser extent, lower mill sales prices.Durum prices continued to decline during the first half of fiscal year 2010when compared to fiscal year 2009.

 

**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, 2009. 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.

 

15

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*Allowance for Doubtful Accounts*

 

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

 

*InventoryValuation*

 

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

 

*Asset Impairment*

 

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

 

*Income Taxes*

 

Indetermining income (loss) for financial statement purposes, management mustmake certain estimates and judgments in calculating tax liabilities and indetermining the recoverability of certain deferred tax assets. Deferred taxassets must be reduced by a valuation allowance if, based on the weight ofavailable evidence, it is more likely than not that some portion or all of therecorded deferred tax assets will not be realized in future periods. Managementbelieves it is likely that the deferred tax assets as of January 31, 2010will be realized through the generation of future taxable income and taxplanning strategies.

 

**Results of Operations**

 

*Comparison of the Three Months Ended January 31,2010 and 2009*

 

***Net Revenues.***Net revenues totaled $60.0 million forthe three months ended January 31, 2010, a decrease of 16.7% compared to$72.1 million for the three months ended January 31, 2009.  Overall, pasta per unit selling prices decreased15.7% while pasta sales volumes increased 0.7%. Revenues from the retailmarket, a portion of which includes co-pack and government sales, decreased$3.9 million, or 11.7%, due to an 8.9% decrease in average selling prices and a3.0% volume decline. Ingredient revenues decreased $3.6 million, or 22.4%, dueto a 26.0% decrease in average selling prices offset by a 4.8% volume increase.Foodservice revenues decreased $2.4 million, or 15.0%, due to a 16.6% decreasein average selling prices offset by a 1.9% volume increase.

 

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 $4.3 million for the three monthsended January 31, 2010, a decrease of $2.2 million when compared to thesame period of the prior year. The decrease is due to lower semolina salesvolumes along with a decrease in per unit selling prices.

 

***Cost of Goods Sold.***Cost of goods sold decreased 27.2%, to $44.4 million for the three months endedJanuary 31, 2010, compared to $61.0 million for the three months ended January 31,2009. The decrease was primarily due to 

 

16

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lowerdurum costs.  Gross profit as apercentage of net revenues improved to 26.1% for the three months ended January 31,2010, from 15.4% for the three months ended January 31, 2009.

 

***Marketing, General, and Administrative (“MG&A”) Expenses.***MG&A expenses decreased 14.6% to $4.6 million for the three months ended January 31,2010, compared to $5.4 million for the three months ended January 31,2009. The decrease was primarily due to lower consumer advertising costsassociated with Dreamfields pasta products and lower professional fees.MG&A expenses as a percentage of net revenues increased to 7.6% for thethree months ended January 31, 2010, from 7.4% for the comparable quarterof the prior year.

 

***Interest and Other Income.***Interest and other income totaled $0.7 million for the three months ended January 31,2010, compared to $0.4 million for the three months ended January 31,2009. U.S. Customs and Border Protection (“Customs”) has distributedantidumping and countervailing duties assessed on certain pasta imported fromItaly and Turkey to affected domestic producers pursuant to the ContinuedDumping and Subsidy Offset Act of 2000 (the “Offset Act”), which was enacted inOctober 2000. The Company received payments in the amount of $0.7 millionand $0.4 million in November 2009 and December 2008, respectively,under the Offset Act. These amounts have been classified as other income. TheCompany cannot reasonably estimate the potential amount, if any, that it mayreceive under the Offset Act in future periods as any such amount will be basedupon future events over which the Company has little or no control, includingbut not limited to federal legislation, the amount of expenditures by domesticpasta producers and the amount of antidumping and countervailing dutiescollected by Customs.  The Offset Act,also known as the Byrd Amendment, has been repealed and therefore, dutiesassessed on pasta imports after September 30, 2007 will no longer bedistributed to domestic producers. However, amounts collected (whether such collections occur before orafter September 30, 2007) related to duties assessed on pasta entriesprior to September 30, 2007, are expected to be available for futuredistribution to domestic producers.

 

***Interest Expense.***Interest expense for the three months ended January 31, 2010 totaled $0.2million, a decrease of $0.2 million from $0.4 million for the correspondingperiod of the prior year.

 

***Income Taxes.***Income taxexpense for the three months ended January 31, 2010 and 2009 totaled $4.4million and $2.1 million, respectively, and reflects an effective corporateincome tax rate of approximately 38% and 37%, respectively.

 

***Net Income. ***Net income for the threemonths ended January 31, 2010 totaled $7.2 million compared to net incomeof $3.6 million for the three months ended January 31, 2009.  Net earnings available to common stockholdersfor the three months ended January 31, 2010 and January 31, 2009totaled $6.4 million and $3.3 million, respectively, after reducing net incomefor dividends declared on Series D Delivery Preferred Stock and Series FConvertible Preferred Stock.

 

*Comparison of the Six Months Ended January 31,2010 and 2009*

 

***Net Revenues.***Net revenues totaled $123.8 million forthe six months ended January 31, 2010, a decrease of $35.4 million, or 22.3%,compared to $159.2 million for the six months ended January 31, 2009.  Overall, pasta per unit selling pricesdecreased 17.6% with ingredient selling prices down 30.2%, foodservice sellingprices down 18.8% and retail selling prices down 10.0%.  Overall, total pasta sales volumes decreased3.6% with ingredient sales down 5.7%, retail sales volumes down 3.9% andfoodservice sales down 0.6%.

 

The Company marketssemolina production in excess of its own requirements as well as durum wheatflour, other flour blends and by-products of the durum milling process.Revenues from mill product sales totaled $8.3 million and $13.8 million for thesix months ended January 31, 2010 and 2009, respectively.  The decrease is due to lower semolina salesvolumes along with a decrease in per unit selling prices.

 

***Cost of Goods Sold.***Cost of goods sold decreased 33.1% to $93.4 million for the six months ended January 31,2010, compared to $139.5 million for the six months ended January 31,2009.  The decrease was primarily due tolower durum costs.  Gross profit as apercentage of net revenues improved to 24.6% for the six months ended January 31,2010, from 12.4% for the six months ended January 31, 2009.

 

17

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***Marketing, General, and Administrative (“MG&A”) Expenses.***MG&A expenses decreased $0.5 million, or 4.4%, to $10.0 million for the sixmonths ended January 31, 2010, compared to $10.5 million for the sixmonths ended January 31, 2009. MG&A expenses as a percentage of net revenues increased to 8.1% forthe six months ended January 31, 2010, from 6.6% for the comparable periodof last year.

 

***Interest and Other Income.***Interest and other income totaled $0.7 million for the six months ended January 31,2010, compared to $0.4 million for the six months ended January 31, 2009.Substantially all of the amounts relate to payments received by the Company in November 2009and December 2008 under the Offset Act.

 

***Interest Expense.***Interest expense for the six months ended January 31, 2010 and 2009totaled $0.4 million and $1.3 million, respectively. The decrease was relatedto lower interest rates and outstanding debt.

 

***Income Taxes. ***Income tax expense for thesix months ended January 31, 2010 totaled $7.9 million, compared to $3.1million for the six months ended January 31, 2009, and reflects aneffective corporate income tax rate of approximately 38% and 37%, respectively.

 

***Net Income. ***Net income for the sixmonths ended January 31, 2010 totaled $12.8 million compared to $5.3million for the six months ended January 31, 2009.  Net earnings available to common stockholdersfor the six months ended January 31, 2010 totaled $12.0 million comparedto $5.0 million for the six months ended January 31, 2009, after reducingnet income for dividends declared on preferred stock.

 

**Liquidity and Capital Resources**

 

TheCompany’s primary sources of liquidity are cash provided by operations andborrowings under its revolving credit facility. Working capital as of January 31,2010 totaled $35.6 million, compared to $35.8 million as of July 31, 2009.

 

The Company has a $45 million revolving credit facility with CoBankwhich extends through January 11, 2011. Interest on the revolving line ofcredit is at the one-month LIBOR rate subject to performance adjustmentsdepending upon the Company’s ratio of total debt to earnings before interest,taxes, depreciation and amortization or “EBITDA.” The higher the ratio thehigher the adjustment to the one-month LIBOR rate within a range of 200 to 300basis points above the one-month LIBOR rate.  Fixed interest rate optionsare also available. The primary purpose of the revolving credit facility is tofinance inventory and receivables. The balances outstanding under the revolvingcredit arrangements totaled $5,000 and $0 as of January 31, 2010 and July 31,2009, respectively.  The Company had$44,995,000 and $45,000,000 available for borrowings under the revolving lineof credit as of January 31, 2010 and July 31, 2009, respectively.

 

Duringthe second quarter of fiscal year 2010, the Company also entered intomodifications to existing CoBank term loan agreements with respect to debtpreviously incurred by the Company.  Themain modification to the term loan supplements was a change in the index ratefrom 7-day LIBOR to one-month LIBOR.

 

TheCompany’s various debt agreements with CoBank and certain institutionalinvestors obligate the Company to maintain or achieve certain amounts of equityand certain financial ratios and impose certain restrictions on the Company.The Company was in compliance with these financial covenants as of January 31,2010 and the date of this filing.

 

Netcash provided from operating activities totaled $23.1 million and $17.3 millionfor the six months ended January 31, 2010 and 2009, respectively. Theincrease was primarily attributable to an increase in net income.

 

Net cash used for investingactivities totaled $8.9 million and $0.8 million for the six months ended January 31,2010 and 2009, respectively.  A majorityof the net cash used for investing activities for the six months ended January 31,2010 related to fixed asset expenditures. The Company is currently completingan estimated $10.1 million capital project at its Carrington facility. Pastaproduction associated with the Carrington expansion project began during thequarter ended January 31, 2010. Additional commitments for buildingconstruction and pasta equipment totaled $0.7 million as of January 31,2010. These costs are expected to be paid within one year.

 

18

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Netcash used for financing activities totaled $7.9 million and $16.6 million forthe six months ended January 31, 2010 and 2009, respectively.  The $7.9 million of net cash used forfinancing activities for the six months ended January 31, 2010 related toscheduled payments on long-term debt and dividend payments. The Company paiddividends of $0.1 million ($0.01 per share) on its Series D DeliveryPreferred Stock, $0.7 million ($0.62 per share) on its Series FConvertible Preferred Stock and $6.7 million ($0.62 per share) on its CommonStock during the second quarter of fiscal year 2010. The Company paid dividendsof $0.1 million ($0.01 per share) on its Series D Delivery PreferredStock, $0.2 million ($0.20 per share) on its Series F ConvertiblePreferred Stock and $2.0 million ($0.20 per share) on its Common Stock duringthe second quarter of fiscal year 2009.

 

The following table summarizesthe Company’s contractual obligations as of January 31, 2010 (inthousands):

 
| ** **                             | ** ** | ** ** | ** ** | **Payments**              | ** ** | **Payments**       | ** ** | **Payments**       | ** ** | **Payments**     | ** ** |
|----------------------------------------|------------|------------|------------|---------------------------|------------|--------------------|------------|--------------------|------------|------------------|------------|
| ** **                             | ** ** | ** ** | ** ** | **Due in Less**           | ** ** | **Due in**         | ** ** | **Due in**         | ** ** | **Due After**    | ** ** |
| **Contractual Obligations**       | ** ** | **Total**  | ** ** | **Than 1 Year** | ** ** | **1-3 Years** | ** ** | **4-5 Years** | ** ** | **5 Years** | ** ** |
|                                   |       |       |       |                      |       |               |       |               |       |             |       |
| Long-term  debt                        |       | $          | 27,799     |                      | $          | 5,769              |       | $                  | 16,880     |             | $          | 5,150 |   | $ | — |   |
| Interest  on long-term obligations (1) |       | 1,713      |       | 654                       |       | 977                |       | 82                 |       | —           |       |
| Wheat  purchase obligations            |       | 14,147     |       | 14,147                    |       | —             |       | —             |       | —           |       |
| Construction  obligations              |       | 700        |       | 700                       |       | —             |       | —             |       | —           |       |
| Warehouse  obligations                 |       | 3,188      |       | 1,616                     |       | 1,572              |       | —             |       | —           |       |
| Operating  leases                      |       | 1,264      |       | 648                       |       | 578                |       | 38                 |       | —           |       |
|                                   |       |       |       |                      |       |               |       |               |       |             |       |
|                                   |       | $          | 48,811     |                      | $          | 23,534             |       | $                  | 20,007     |             | $          | 5,270 |   | $ | — |   |

 

----

(1) Based oninterest rates as of January 31, 2010

 

TheCompany forward contracts for a certain portion of its future durum wheatrequirements. At January 31, 2010, the Company had outstanding commitmentsfor grain purchases totaling $14.1 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 available under the Company’s line of credit,will be sufficient to meet the Company’s expected capital and liquidityrequirements for the foreseeable future.

 

**ProposedMerger**

 

On March 10,2010, we entered into a definitive agreement (the “Merger Agreement”) to beacquired by Agricore United Holdings Inc., a Delaware corporation (“Parent”), awholly owned subsidiary of Viterra Inc., a corporation incorporated under thelaws of the Province of Saskatchewan (“Viterra”).  Pursuant to the Merger Agreement, BluebirdAcquisition Corporation, a North Dakota corporation and a wholly ownedsubsidiary of Parent (“Merger Sub”) will commence a tender offer (the “Offer”)to purchase all of the outstanding shares of our common stock (“Common Stock”)for $18.28 per share in cash and Series D Non-Cumulative Deliverypreferred stock (“Series D Stock”) for $0.10 per share in cash.  The Offer, which will commence no later than March 24,2010, shall remain open for at least 30 business days and may be extended inaccordance with the terms of the Merger Agreement.  The Offer will be followed by a merger toacquire any Common Stock and Series D Stock that is not tendered in theOffer, in each case at the same price per share paid in the Offer.  Upon successful completion of the Offer, andsubject to the terms and conditions of the Merger Agreement, Merger Sub will bemerged with and into the Company (the “Merger”), and the Company will survivethe Merger as a wholly owned subsidiary of Parent.  Each of the Company’s and Viterra’s boards ofdirectors unanimously approved the Merger Agreement and the transactionscontemplated therein, which are subject to customary closing conditions,including minimum levels of participation in the Offer and regulatoryapprovals.

 

19

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

 

Market risk is the potentialloss to future earnings, fair values or cash flows resulting from adversechanges in interest rates, commodity prices, exchange rates, equity prices andother market changes.

 

The Company is exposed tomarket risk from changes in interest rates. For fixed rate debt, interest ratechanges affect the fair value of financial instruments but do not impactearnings or cash flows. Conversely, for variable rate debt, interest ratechanges generally do not affect the fair market value but do impact futureearnings and cash flows, assuming other factors are held constant. A majorityof the balances outstanding under the Company’s current debt agreements aresubject to variable interest rates.

 

The Company is exposed to certain fluctuationsin commodity prices. The Company forward contracts for a certain portion of itsfuture wheat requirements. 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.

 

**ITEM 4T. CONTROLS AND PROCEDURES**

 

***Evaluation of DisclosureControls and Procedures***

 

As required by Rule 13a-15(b) under the Securities ExchangeAct of 1934 (the “Exchange Act”), we conducted an evaluation, under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer (together the “CertifyingOfficers”), of the effectiveness of the design and operation of our disclosurecontrols and procedures as of January 31, 2010, the end of the periodcovered by this report. Based upon that evaluation, the Certifying Officersconcluded that our disclosure controls and procedures were effective as of January 31,2010 to provide reasonable assurance that information required to be disclosedin our Exchange Act reports is recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms and thatsuch information is accumulated and communicated to our management, includingour Certifying Officers, as appropriate, to allow for timely decisionsregarding required disclosure.

 

***InherentLimitations on Effectiveness of Controls***

 

Management is responsiblefor establishing and maintaining adequate internal control over financialreporting to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalpurposes in accordance with U.S. generally accepted accounting principles.Internal control over financial reporting includes those policies andprocedures that (i) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of assets; (ii) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financialstatements in accordance with U.S. generally accepted accounting principles,and that receipts and expenditures are being made only in accordance withauthorizations of the management and the Board; and (iii) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of Company assets that could have a materialeffect on the financial statements.

 

Management personnel,including the Certifying Officers, recognize that our internal control overfinancial reporting cannot prevent or detect all error and all fraud. A controlsystem, no matter how well designed and operated, can provide only reasonable,not absolute, assurance that the control system’s objectives will be met. Thedesign of a control system must reflect the fact that there are resourceconstraints, and the benefits of controls must be considered relative to theircosts. Further, because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that misstatements due toerror or fraud will not occur or that all control issues and instances offraud, if any, have been detected. The design of any system of controls isbased in part on certain assumptions about the likelihood of future events, andthere can be no assurance that any design will succeed in achieving its statedgoals under all potential future conditions.

 

20

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

 

Therewere no changes in the Company’s internal controls over financial reportingduring the Company’s fiscal quarter ended January 31, 2010 that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

21

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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, 2009 except for the following.

 

***The Merger Agreement contains restrictive covenants that may limit ourability to respond to changes in market conditions or pursue businessopportunities.***

 

The Merger Agreementcontains restrictive covenants that limit our ability to take certain actionsduring the period prior to the completion of the proposed offer. Although the MergerAgreement provides that Parent, the parent of Merger Sub, will not unreasonablywithhold its consent to us taking otherwise prohibited actions, there can be noassurances that Parent will grant such consent. These restrictions maymaterially adversely affect our ability to react to changes in marketconditions, take advantage of business opportunities, obtain future financing,fund needed capital expenditures, or finance equipment purchases, any of whichcould have a material and adverse effect on the prospects of our business,which could be detrimental to our stockholders in the event the offer andsubsequent merger are not completed.

 

***Incertain circumstances, the Merger Agreement requires us to pay Agricore UnitedHoldings Inc. a termination fee of $5 million.***

 

Under the Merger Agreement,if the Merger Agreement is terminated under certain circumstances, we may berequired to pay to Agricore United Holdings Inc. a termination fee of $5million in connection with the transactions contemplated by the Merger Agreement.If the Merger Agreement is terminated under circumstances under which thetermination fee is payable, the payment could have material and adverseconsequences to our financial condition and operations after such time.

 

***TheMerger is subject to certain conditions to closing that could result in theMerger not being consummated or  beingdelayed, either of which could negatively impact our business and operatingresults.***

 

Consummation of the Merger is subject to a number of customaryconditions, including but not limited to regulatory approval and acceptance ofthe Offer by a sufficient number of our stockholders.  If any of the conditions to the Merger arenot satisfied or, where waiver is permissible, not waived, the Merger will notbe consummated. Failure to consummate the Merger could adversely affect ourbusiness and results of operations, including:

 

| · |   | requiring us to incur significant transaction costs  without realizing any benefits of the Merger, and depending upon the  circumstances of the failure to complete the Merger, requiring us to pay  Agricore United Holdings Inc. a termination fee of $5.0 million; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                  |
| · |   | causing disruptions in and creating uncertainty  surrounding our business, including affecting our relationships with our  customers, suppliers and employees, which could result in the loss of or  undue strain on some of those relationships;                     |
|   |   |                                                                                                                                                                                                                                                                  |
| · |   | diverting the attention of our management to the  Merger instead of to our operations; and                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                  |
| · |   | preventing us from pursuing other opportunities that  could have been beneficial to our business or our stockholders.                                                                                                                                                 |

 

***Certainof our directors and executive officers have interests in the merger that maybe different from, or in addition to, the interests of our stockholders.***

 

Ourexecutive officers negotiated the terms of the Merger Agreement under thedirection of our board of directors (the “Board”).  The Board unanimouslyadopted, approved, and declared advisable the Merger Agreement and thetransactions contemplated by the Merger Agreement, declared it in the bestinterest of our stockholders for us to enter into the Merger Agreement andconsummate the transactions contemplated by the Merger Agreement, declared theterms of the offer and the Merger fair to our stockholders and recommended thatour stockholders tender their shares into the offer and, if required, vote infavor of adoption of the Merger Agreement.  The members of our board ofdirectors and our executive officers may have interests in the Merger that aredifferent from, or in addition to, or may be deemed to conflict with those ofour stockholders.  These interests may include the continued employment ofcertain of our executive officers by the combined company and theindemnification of former directors and executive officers by the mergedcompany.

 

**ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

DuringDecember 2009, certain executive officers and employees of the Companyexercised options for the purchase of 561,869 shares of the Company’s CommonStock and 47,448 shares of the Company’s Series D Delivery PreferredStock. The aggregate consideration received by the Company for the issuance ofthose shares was $2.9 million. The shares were issued in private placementtransactions exempt from the registration requirements of the Securities Act,pursuant to Section 4(2) of the Securities Act.

 

22

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

 

TheAnnual Meeting of Stockholders of the Company was held on January 9, 2010.The following proposals were presented for stockholder consideration at theAnnual Meeting:

 

·                  Theelection of four directors to serve as Class II directors.

·                  Approvalof the appointment of Eide Bailly LLP as the Company’s independent auditors forfiscal year 2010.

 

Atthe Annual Meeting, the Company’s stockholders elected each of the Company’snominees named in its Proxy Statement, dated December 9, 2009, to serve asdirectors on the Board of Directors of the Company.  Following are the results for the election ofdirectors:

 
| ** **                | ** ** | **Shares Voted For** | ** ** | **Shares Withheld** | ** ** | **Broker Non-Vote** | ** ** |
|---------------------------|------------|----------------------|------------|---------------------|------------|---------------------|------------|
| Class II  directors: |       |                 |       |                |       |                |       |
|                      |       |                 |       |                |       |                |       |
| Roger  A. Kenner          |       | 6,088,411            |       | 324,931             |       | 73,299              |       |
| Eugene  J. Nicholas       |       | 6,099,303            |       | 314,039             |       | 73,299              |       |
| Richard  Thompson         |       | 6,079,675            |       | 333,667             |       | 73,299              |       |
| Jeffrey  O. Topp          |       | 6,095,943            |       | 317,399             |       | 73,299              |       |

 

Thenewly elected Class II directors, Roger A. Kenner, Eugene J. Nicholas,Richard Thompson and Jeffrey O. Topp, will serve three year terms ending withthe annual meeting in 2013.  Allyn K. Hart,Curtis R. Trulson and Michael E. Warner will continue serving as directorsuntil the annual meeting in 2011. John S. Dalrymple III, James F. Link, John D.Rice, Jr. and Michael T. Tokarz will continue serving as directors untilthe annual meeting in 2012.

 

Inaddition, the stockholders approved the appointment of Eide Bailly LLP as theCompany’s independent auditors for fiscal year 2010, as follows:

 
| Shares  Voted For     |   | 6,403,725 |   |
|-----------------------|--------|-----------|--------|
| Shares  Voted Against |   | 43,665    |   |
| Shares  Abstained     |   | 39,251    |   |

 

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**ITEM 6. EXHIBITS**

 
| **Exhibits** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 2.1          |       | Agreement  and Plan of Merger among Agricore United Holdings, Inc., Bluebird  Acquisition Corporation and Dakota Growers Pasta Company, Inc. dated as  of March 10, 2010. (Incorporated by reference to Exhibit 2.1 from  the Company’s Current Report on Form 8-K, File No. 000-50111, filed  with the SEC March 11, 2010).                                                                                    |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 2.2          |       | Guarantee,  by Viterra Inc., for the benefit of Dakota Growers Pasta Company, Inc.  dated as of March 10, 2010. (Incorporated by reference to  Exhibit 2.2 from the Company’s Current Report on Form 8-K, File  No. 000-50111, filed with the SEC March 11, 2010).                                                                                                                                                   |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 2.3          |       | Tender and Support  Agreement, dated as of March 10, 2010, by and between La Bella Holdings  LLC, Agricore United Holdings Inc. and Bluebird Acquisition Corporation  (Incorporated by reference to Exhibit 4 to the Schedule 13D/A (Amendment  No. 1) filed with the SEC by La Bella Holdings LLC on March 12,  2010.                                                                                                              |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 2.4          |       | Tender and Support  Agreement, dated as of March 10, 2010, by and between MVC  Capital, Inc., Agricore United Holdings Inc. and Bluebird Acquisition  Corporation (Incorporated by reference to Exhibit 6 to the Schedule  13D/A (Amendment No. 3) filed with the SEC by MVC Capital, Inc. on  March 16, 2010).                                                                                                           |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 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 Current  Report on Form 8-K, File No. 000-50111, filed with the SEC  February 15, 2007).                                                                                                                                                                                 |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.1          |       | Amendment  to the Rights Agreement, by and between Dakota Growers Pasta  Company, Inc. (f/k/a Dakota Growers Restructuring Company, Inc.)  and Wells Fargo Bank, N.A. (f/k/a Wells Fargo Bank Minnesota, National  Association), dated as of March 10, 2010. (Incorporated by reference to  Exhibit 4.1 from the Company’s Current Report on Form 8-K, File  No. 000-50111, filed with the SEC March 11, 2010). |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.1         |       | Master  Loan Agreement between the Company and CoBank, ACB (Incorporated by reference  to Exhibit 10.1 from the Company’s Report on Form 8-K, File  No. 000-50111, filed with the SEC January 19, 2010).                                                                                                                                                                                                                       |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.2         |       | Statused  Revolving Credit Supplement between the Company and CoBank, ACB (Incorporated  by reference to Exhibit 10.2 from the Company’s Current Report on  Form 8-K, File No. 000-50111, filed with the SEC January 19,  2010).                                                                                                                                                                                               |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.3         |       | Non-Revolving  Credit Supplement between the Company and CoBank, ACB (Incorporated by  reference to Exhibit 10.3 from the Company’s Current Report on  Form 8-K, File No. 000-50111, filed with the SEC January 19,  2010).                                                                                                                                                                                                    |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.4         |       | Multiple  Advance Term Loan Supplement, Loan No. RIE539T07B between the Company  and CoBank, ACB (Incorporated by reference to Exhibit 10.4 from the  Company’s Current Report on Form 8-K, File No. 000-50111, filed  with the SEC January 19, 2010).                                                                                                                                                                    |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.5         |       | Multiple  Advance Term Loan Supplement, Loan No. RIE539T06C between the Company  and CoBank, ACB (Incorporated by reference to Exhibit 10.5 from the  Company’s Current Report on Form 8-K, File No. 000-50111, filed  with the SEC January 19, 2010).                                                                                                                                                                    |

 

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| 31.1   |   | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 (Exchange Act Rule 13a-14(a) or 15d-14(a)). |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                            |
| 31.2   |   | Certification of Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 (Exchange Act 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).                        |

 

**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                  |       | March 17, 2010 |
|                 |       | Officer)                               |       |                |
|                 |       |                                   |       |                |
|                 |       |                                   |       |                |
| /s/ Edward O. Irion  |       | Chief Financial  Officer               |       |                |
| Edward O. Irion      |       | (Principal  Financial and              |       | March 17, 2010 |
|                 |       | Accounting Officer)                    |       |                |

 

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