UNITED STATES ~~SECURITIES AND EXCHANGE COMMISSION~~

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~October~~January 31, ~~2009~~2010

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 000-50111

DAKOTA GROWERS PASTA COMPANY, INC.

(Exact name of registrant as specified in its charter)

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

One Pasta Avenue, Carrington, ND 58421

(Address of principal executive offices including zip code)

(701) 652-2855

(Registrant’s telephone number, including area code)

NOT APPLICABLE

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 registrant was required to submit and post such files.) Yes o No o

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

Large accelerated filer o		Accelerated filer o

Non-Accelerated filer x		Smaller reporting company o

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

As of ~~December~~March 1517, ~~2009~~2010, the Registrant had 10,764,932 shares of ~~common~~Common ~~stock~~Stock, par value $0.01 per share, outstanding.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DAKOTA GROWERS PASTA COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Information)

	(Unaudited)
	October 31,			July 31,
	January 31,			July 31,
	2009			2009
	2010			2009
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	37,~~148~~577		$	1,315
Trade accounts receivable, less allowance for cash discounts and doubtful accounts of $922 and $826, respectively	21,815			20,466
Trade accounts receivable, less allowance for cash discounts and doubtful accounts of $780 and $826, respectively	22,654			20,466
Other receivables	6362			67
Inventories	3329,~~283~~267			33,878
Prepaid expenses	1,~~434~~165			799
Deferred income taxes	947			947
Total current assets	6061,~~690~~672			57,472
PROPERTY AND EQUIPMENT
In service	~~133~~143,~~947~~248			134,112
Construction in progress	~~4,006~~368			975
	137,953			135,087
	143,616			135,087
Less accumulated depreciation	(7374,~~283~~871		)	(71,960		)
Net property and equipment	6468,~~670~~745			63,127
INVESTMENT IN COOPERATIVE BANK	1,507			1,507
INTANGIBLE ASSETS, NET	2,~~336~~286			2,387
GOODWILL	8,381			8,381
OTHER ASSETS	~~424~~427			421
	$	~~138~~143,~~008~~018		$	133,295

(continued on next page)

DAKOTA GROWERS PASTA COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Information)

	(Unaudited)
	October 31,		July 31,
	January 31,		July 31,
	2009		2009
	2010		2009
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	1013,~~975~~615	$	9,987
Accrued liabilities	56,~~965~~657		5,903
Current portion of long-term debt	5,763		5,756
Notes payable	5		—
Total current liabilities	22,703		21,646
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	2322,~~225~~030		25,418
DEFERRED INCOME TAXES	14,~~244~~471		14,065
Total liabilities	6062,~~172~~547		61,129
STOCKHOLDERS’ EQUITY
Series D delivery preferred stock, non-cumulative, $.01 par value, 11,340,841 authorized, 11,275,297 shares issued and outstanding	113		113
Series 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, 10,203,063 shares issued and outstanding	102		102
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	4346,~~144~~049		43,120
Retained earnings	34,~~466~~190		28,820
Total stockholders’ equity	7780,~~836~~471		72,166
Total liabilities and stockholders’ equity	$	~~138~~143,~~008~~018	$	133,295

See Notes to Consolidated Financial Statements

DAKOTA GROWERS PASTA COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

	Three Months Ended
	October 31,
	January 31,
	2009			2008
	2010			2009
Net revenues (net of discounts and allowances of $7,568 and $7,117, respectively)	$	63,764		$	87,145
Net revenues (net of discounts and allowances of $6,847 and $5,981, respectively)	$	60,024		$	72,067
Cost of goods sold	4844,~~978~~380			7860,~~519~~953
Gross profit	1415,~~786~~644			811,~~626~~114
Marketing, general and administrative expenses	54,~~456~~581			5,~~133~~361
Operating income	911,~~330~~063			35,~~493~~753
Other income (expense)
Interest and other income	22699			36385
Loss on disposition of property, equipment and other assets	(32		)	—
Interest expense, net	(196		)	(404		)
Interest expense, net	(214		)	(855		)
Income before income taxes	11,566			5,734
Income before income taxes	9,106			2,674
Income tax expense	4,394			2,105
Income tax expense	3,460			982
Net income	7,172			3,629
Net income	$	5,646		$	1,692
Dividends on preferred stock	774			326
Net income per common share
Net earnings on common stock	$	6,398		$	3,303
Basic	$	0.55		$	0.17
Net earnings per common share
Diluted	$	0.47		$	0.14
Basic	$	0.61		$	0.32
Diluted	$	0.54		$	0.28
Weighted average common shares outstanding
Basic	10,~~203~~563			10,192
Diluted	11,958			11,958
Dividends per common share	$	0.62		$	0.20

See Notes to Consolidated Financial Statements

DAKOTA GROWERS PASTA COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, 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

See Notes to Consolidated Financial Statements

DAKOTA GROWERS PASTA COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)(Unaudited)

	Three Months Ended
	Six Months Ended
	October 31,
	January 31,
	2009			2008
	2010			2009
OPERATING ACTIVITIES
Net income	$	512,~~646~~818		$	15,~~692~~321
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	13,~~641~~340			13,~~638~~287
Loss on disposition of property, equipment and other assets	32			—
Deferred income taxes	~~179~~406			~~390~~1,226
Stock-based employee compensation	24			3464
Changes in assets and liabilities
Trade receivables	(12,~~349~~188		)	~~(2,353~~76		)
Other receivables	45			(~~860~~520		)
Inventories	~~595~~4,611			1215,~~065~~070
Prepaid expenses	(~~635~~366		)	~~105~~(85		)
Other assets	36			36
Accounts payable	~~988~~3,628			(65,~~847~~992		)
Other accrued liabilities	62754			(~~435~~1,107		)
NET CASH FROM OPERATING ACTIVITIES	723,~~190~~070			517,~~432~~346
INVESTING ACTIVITIES
Purchases of property and equipment	(38,~~107~~770		)	(~~552~~665		)
Proceeds from sale of property, equipment and other assets	2			—
Payments for package design costs	(66133		)	(4892		)
NET CASH USED FOR INVESTING ACTIVITIES	(38,~~171~~901		)	(~~600~~757		)
FINANCING ACTIVITIES
Net change in excess outstanding checks over cash on deposit	—			~~4,304~~213
Net change in short-term notes payable	—5			(37,~~300~~350		)
Payments on long-term debt	(2,186		)	(5,956		)
Principal payments on long-term debt	(3,375		)	(7,138		)
NET CASH USED FOR FINANCING ACTIVITIES	(2,186		)	(4,952		)
Dividends paid on common stock	(6,674		)	(2,038		)
NET CHANGE IN CASH AND CASH EQUIVALENTS	1,833			(120		)
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	$	37,~~148~~577		$	575
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for
Interest (net of amounts capitalized)	$	~~278~~457		$	1,~~009~~549
Income taxes	$	48,~~052~~626		$	23,~~654~~330

See Notes to Consolidated Financial Statements

DAKOTA GROWERS PASTA COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

NOTE 1 - ORGANIZATION

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

NOTE 2 — FINANCIAL STATEMENT PRESENTATION

The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ~~for~~(“SEC”) for quarterly reporting. Accordingly, they do not include all the information ~~and~~ and footnotes required by accounting principles generally accepted in the ~~United~~ United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three ~~months~~and six month periods ended ~~October~~January 31, ~~2009~~2010 are not ~~necessarily~~ necessarily 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-Q should be read in conjunction with the consolidated financial statements and footnotes 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, 2009 was derived from the Company’s audited annual report for fiscal year 2009. Reclassifications have been made to facilitate comparability with current presentation. Such reclassifications have no effect on the net results of operations.

The financial ~~information~~ information presented herein includes the consolidated balance sheets and results of operations of the Company, ~~its wholly-owned subsidiary~~ Primo Piatto~~, Inc.,~~ and DNA Dreamfields, which the Company, ~~LLC~~began ~~(“DNA~~to ~~Dreamfields”)~~consolidate in fiscal year 2005. All material inter-company accounts and transactions have been eliminated in the preparation of the consolidated financial statements.

Our consolidated financial statements for the quarter ended October 31, 2009 were evaluated for subsequent events through December 15, 2009, the date the consolidated financial statements were issued.

NOTE 3 — NEW ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued an amendment to ASC (“Accounting Standards Codification”) 805 “Business Combinations” to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. In April 2009, the FASB further amended ASC 805 “Business Combinations” to address the initial recognition and measurement of an asset acquired or a liability assumed in a business combination that arises from a contingency and for which the fair value of the asset or liability on the date of acquisition can be determined. These amendments are effective prospectively to business combinations on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (our fiscal year 2010). The adoption of these amendments did not have a material impact on our consolidated financial statements.

In December 2007, the FASB issued authoritative guidance included in ASC 810, “Consolidation.” The objective of this guidance is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements. This guidance establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance also changes the way the consolidated income statement is presented, establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation, requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent’s owners and the interest of the noncontrolling owners of a subsidiary. This guidance became effective

DAKOTA GROWERS PASTA COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent’s owners and the interest of the noncontrolling owners of a subsidiary. This guidance became effective for financial statements issued for fiscal ~~years~~ years beginning on or after December 15, 2008. The adoption of this guidance did not have a material impact on the Company’s financial statements.

In April 2008, the FASB issued an amendment providing additional guidance regarding the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset as defined in FASB ASC 275 “Risks and Uncertainties” and FASB ASC 350 “Intangibles—Goodwill & Other”. The intent of this amendment is to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. This amendment is effective for our interim and annual financial statements beginning in our fiscal year 2010. The adoption of these amendments did not have a material impact on our consolidated financial statements.

In June 2009, the FASB issued a new standard, included in ASC 810, “Consolidation,” regarding the consolidation of variable interest entities. The standard includes guidance for determining whether an entity is a variable interest entity and replaces the quantitative-based risks and rewards approach with a qualitative approach that focuses on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance. It also requires an ongoing reassessment of whether an entity is the primary beneficiary, and it requires additional disclosures about an enterprise’s involvement in variable interest entities. This guidance becomes effective as of the beginning of the first fiscal year that begins after November 15, 2009, our first quarter of fiscal year 2011. We are currently evaluating the impact, if any, that the adoption will have on our consolidated financial statements.

In June 2009, the FASB issued an accounting pronouncement regarding the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. This pronouncement establishes the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative, nongovernmental U.S. GAAP. The Codification is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. All U.S. GAAP accounting literature is now known as the “Accounting Standard Codification” (“ASC”) and updates 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, it did not have any impact on our consolidated financial statements.

In ~~June~~ August 2009, the FASB issued ~~new~~ASU ~~authoritative~~2009-05 which provides additional guidance, ~~which~~on ~~has~~measuring ~~yet~~the tofair bevalue of liabilities under ASC 820. ~~codified~~ASU 2009-05 clarifies that the quoted price for the identical liability, when traded as an asset in an active market, is also a Level 1 measurement for that liability when no adjustment to the ~~ASC~~quoted price is required. This ~~guidance~~ ~~eliminates~~pronouncement also requires that the ~~concept~~fair value of a ~~“qualifying~~liability ~~special-purpose~~is ~~entity,”~~measured using ~~changes~~one or more of the following techniques when a quoted price in an active ~~requirements~~market for ~~derecognizing~~the ~~financial~~identical ~~assets,~~liability ~~and~~is ~~requires~~not ~~additional~~available, (1) a valuation ~~disclosures.~~technique ~~This~~that ~~guidance~~uses isthe ~~effective~~quoted price for ~~financial~~the ~~asset~~identical ~~transfers~~liability ~~occurring~~when traded as ~~after~~an ~~the~~asset, ~~beginning~~(2) quoted ofprices anfor ~~entity’s~~similar ~~first~~liabilities ~~fiscal~~or ~~year~~similar ~~that~~liabilities when ~~begins~~traded ~~after~~as ~~November~~assets, or (3) 15another valuation technique consistent with the guidance in ASC 820, for example, an income approach such as a present ~~2009~~value technique. The ~~This~~ new guidance ~~becomes~~on measuring liabilities at fair value is effective for the ~~Company~~first interim or annual reporting period beginning inafter ~~our~~August 28, ~~first~~2009, the second quarter of our fiscal year ~~2011~~2010. The ~~Company does not expect the~~ adoption of ~~this~~these ~~guidance~~amendments ~~will~~did not have a material impact on ~~its~~ our consolidated financial statements.

In ~~August~~December 2009, the FASB issued FASB ASU 2009-0516, ~~which~~“Transfers ~~provides~~and ~~additional~~Servicing ~~guidance~~(Topic on860): ~~measuring~~Accounting ~~the~~for ~~fair~~Transfers ~~value~~ of ~~liabilities~~Financial ~~under~~Assets”, ~~ASC~~to ~~820. ASU 2009-05~~codify ~~clarifies~~SFAS 166, ~~that~~“Accounting ~~the quoted price~~ for ~~the~~Transfers ~~identical~~of ~~liability,~~Financial ~~when~~Assets ~~traded as~~ an ~~asset~~ inamendment ~~an active market, is also a Level 1 measurement for that liability~~of ~~when~~FASB noStatement ~~adjustment to the quoted price is required~~No. ~~This pronouncement~~ 140”, ~~also~~which ~~requires~~amends ~~that~~ the ~~fair~~derecognition ~~value~~guidance ofin ~~a liability is measured~~FASB ~~using~~Statement ~~one~~No. 140 orand ~~more~~eliminates of the ~~following~~exemption ~~techniques~~from ~~when~~consolidation ~~a quoted price in an active~~for ~~market~~qualifying ~~for~~special-purpose ~~the~~entities. ~~identical~~This ~~liability~~statement is ~~not~~effective ~~available,~~for ~~(1) a valuation~~financial ~~technique~~asset ~~that~~transfers ~~uses~~occurring ~~the~~after ~~quoted price for~~ the ~~identical~~beginning ~~liability~~of ~~when traded as~~ an ~~asset,~~entity’s ~~(2) quoted~~first ~~prices~~fiscal ~~for similar liabilities or similar liabilities~~year ~~when~~that ~~traded~~begins asafter ~~assets, or (3)~~November ~~another valuation technique consistent with the guidance in ASC 820~~15, ~~for example, an income approach such as a present value technique~~2009. ~~The~~ ~~new guidance~~This onstatement ~~measuring~~will ~~liabilities~~be ~~at fair value is~~ effective for ~~the first~~ ~~interim~~us ~~or annual reporting period~~ beginning ~~after~~in ~~August 28, 2009, the second quarter of~~ our fiscal year ~~2010~~2011. ~~The~~We ~~Company~~are ~~does~~currently ~~not~~evaluating ~~expect~~ the impact, ~~adoption~~if ofany, ~~ASU~~that ~~2009-05~~the adoption will have ~~a material impact~~ on ~~the~~our ~~Company’s~~ consolidated financial statements.

DAKOTA GROWERS PASTA COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

In February 2010, the FASB issued ASU 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements.” This amendment removes the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. The amendment in the ASU was effective for the Company upon issuance (February 24, 2010). The adoption of ASU 2010-09 had no effect on our consolidated financial statements.

NOTE 4 — FAIR VALUE MEASURES

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

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

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

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

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

The carrying amount of cash and cash equivalents, receivables, payables, short-term debt and other current assets and liabilities approximates fair value because of the short maturity and/or frequent repricing of those instruments.

The Company believes it is not practical to estimate the fair value of the securities of non-subsidiary cooperatives without incurring excessive costs because there is no established market for these securities and it is inappropriate to estimate future cash flows, which are largely dependent on future patronage earnings of the non-subsidiary cooperatives.

Based upon current borrowing rates with similar maturities, the fair value of the long-term debt approximates the carrying value as of ~~October~~ January 31, ~~2009~~2010 and July 31, 2009.

DAKOTA GROWERS PASTA COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 — INVENTORIES

Inventories are valued at lower of cost or market. Inventories as of ~~October~~January 31, ~~2009~~ 2010 include raw materials and packaging of $108,~~560~~288,000 and finished goods of $2220,~~723~~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 revolving credit facility with CoBank that extends through January 1311, ~~2010~~2011 and is collateralized by all assets of the Company. Interest on the revolving line of credit is at the 7one-~~day~~month LIBOR rate subject to performance adjustments depending upon the Company’s ratio of total debt to earnings before interest, taxes, depreciation and amortization or “EBITDA.” The higher the ratio the higher the adjustment to the 7one-~~day~~month LIBOR rate within a range of 200 to 300 basis points above the 7one-~~day~~month LIBOR rate. Fixed interest rate options are also available. ~~There~~The ~~were no~~ balances outstanding under the revolving credit arrangements ~~arrangement~~totaled $5,000 and $0 as of ~~October~~January 31, ~~2009~~2010 and July 31, 2009, respectively. The Company had $44,995,000 and $45,000,000 ~~million~~ available for borrowings under the ~~line~~revolving line of credit as of ~~October~~January 31, ~~2009~~ 2010 and July 31, 2009, respectively.

~~The~~During ~~Company’s~~the ~~various~~second ~~debt~~quarter ~~agreements~~of ~~with~~fiscal ~~CoBank and certain~~year ~~institutional~~2010, ~~note holders obligate~~ the Company toalso ~~maintain~~entered orinto ~~achieve~~modifications ~~certain amounts~~to ofexisting ~~equity~~CoBank ~~and~~term ~~certain~~loan agreements ~~financial~~with ~~ratios~~respect ~~and~~to ~~impose~~debt ~~certain~~previously ~~restrictions on~~incurred by the Company. The ~~Company~~main modification to the term loan supplements was a change in ~~compliance~~the ~~with~~index ~~these~~rate ~~financial~~from ~~covenants~~7-day ~~as of~~LIBOR ~~October 31,~~to ~~2009~~one-month LIBOR.

~~NOTE~~The 7Company’s —various ~~EARNINGS~~debt ~~PER~~agreements ~~SHARE~~with CoBank and certain institutional note holders obligate the Company to maintain or achieve certain amounts of equity and certain financial ratios and impose certain restrictions on the Company. The Company was in compliance with these financial covenants as of January 31, 2010.

~~Basic~~NOTE ~~earnings~~7 ~~per~~— ~~share~~EARNINGS ~~(EPS) is~~PER calculated by dividing net earnings on common stock by the weighted average number of common shares outstanding during the period. Diluted EPS includes the effect of all potentially dilutive securities, such as stock options and convertible preferred stock.SHARE

~~Dilutive~~Basic ~~securities,~~earnings ~~consisting~~per ofshare ~~stock~~(EPS) ~~options~~is ~~and~~calculated ~~convertible preferred~~by ~~stock,~~dividing ~~included~~net inearnings on ~~the~~common ~~calculation~~stock ofby ~~diluted~~the weighted average ~~common shares~~number ~~totaled~~of ~~1,755,000~~common ~~and~~shares ~~1,766,000~~outstanding during ~~for~~ the ~~three months ended October 31, 2009 and October 31, 2008, respectively~~period. ~~The~~Diluted ~~Series F Convertible Preferred Stock is included in the fully diluted~~ EPS ~~calculation~~includes ~~and not included in~~ the ~~basic~~effect ~~EPS~~of ~~calculation.~~all Aspotentially ~~there is currently no established~~dilutive ~~public trading market for the Company’s common stock~~securities, ~~the~~such ~~Company~~as ~~has assumed the proceeds from the exercise of~~ stock options ~~would reduce debt~~ and, ~~thus, interest~~convertible ~~expense~~preferred stock.

~~The~~Dilutive ~~components~~securities, consisting of ~~basic~~stock ~~earnings~~options ~~per~~and ~~share~~convertible preferred ~~are~~stock, asincluded ~~follows~~in (the calculation of diluted weighted average common shares 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 months ended January 31, 2010 and 2009, respectively. The Series F Convertible Preferred Stock is included in the fully diluted EPS calculation ~~thousands~~and not included in the basic EPS calculation. As there is currently no established public trading market for the Company’s Common Stock, ~~except~~the ~~per~~Company has ~~share~~assumed ~~amounts):~~the proceeds from the exercise of stock options would reduce debt and, thus, interest expense.

	Three Months Ended
	October 31,
Earnings per share - Basic	2009		2008
Net earnings available to common stockholders	$	5,646	$	1,692
Basic weighted-average shares outstanding	10,203		10,192
Earnings per share - Basic	$	0.55	$	0.17

8DAKOTA GROWERS PASTA COMPANY, INC.

~~DAKOTA GROWERS~~NOTES ~~PASTA~~TO ~~COMPANY,~~CONSOLIDATED ~~INC.~~FINANCIAL STATEMENTS

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~(Unaudited)

The components of basic earnings per share are as follows (~~Unaudited~~in thousands, except per share amounts):

The components of diluted earnings per share are as follows (in thousands, 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

	Three Months Ended
	October 31,
Earnings per share - Diluted	2009		2008
Net earnings available to common stockholders	$	5,646	$	1,692
Plus: Impact of interest expense on the exercise of options, net of taxes (1)	12		23
Net earnings available to common stockholders	$	5,658	$	1,715
Diluted weighted-average shares outstanding:
Basic weighted-average shares outstanding	10,203		10,192
Plus: Incremental shares from assumed conversions
Options	690		701
Convertible preferred shares	1,065		1,065
Diluted weighted-average shares outstanding	11,958		11,958
Earnings per share - Diluted	$	0.47	$	0.14

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

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

	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

~~NOTE~~(1) As 8there —is ~~STOCK~~currently ~~OPTIONS~~no established public trading market for the Company’s common stock, the Company has assumed the proceeds from the exercise of stock options would reduce debt and, thus, interest expense.

TheNOTE Company8 accounts for share based payments in accordance with ASC Topic 718 “Compensation — Stock Compensation.” Under ASC 718, the Company is required to recognize, as expense, the estimated fair value of all share based payments to employees. In accordance with this guidance, the Company has elected to recognize the compensation cost of all service based awards on a straight-line basis over the vesting period of the award. Performance based awards are recognized ratably for each vesting tranche. The Company recorded stock-based employee compensation expense of $24,000 and $34,000, for the three months ended October 31, 2009 and October 31, 2008, respectively.DIVIDENDS

9On November 19, 2009, the Company’s Board of Directors authorized the payment of non-periodic dividends 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 F Convertible Preferred Stock, payable on January 5, 2010 to stockholders of record as of December 4, 2009.

~~DAKOTA~~On ~~GROWERS~~December 18, ~~PASTA~~2008, ~~COMPANY~~the Company’s Board of Directors authorized the payment of non-periodic dividends of $0.01 per share on its Series D Delivery Preferred Stock, ~~INC~~$0.20 per share on its Common Stock and $0.20 per share on its Series F Convertible Preferred Stock, payable on January 7, 2009 to stockholders of record as of December 26, 2008.

~~NOTES TO~~NOTE ~~CONSOLIDATED~~9 ~~FINANCIAL~~— ~~STATEMENTS~~STOCK OPTIONS

~~(Unaudited)~~The Company accounts for share based payments in accordance with ASC Topic 718 “Compensation — Stock Compensation.” Under ASC 718, the Company is required to recognize, as expense, the estimated fair value of all share based payments to employees. In accordance with this guidance, the Company has elected to recognize the

~~The following tables set forth information regarding stock options outstanding and exercisable:~~11

	Options to purchase Series C Convertible Preferred Stock
	Number of		Weighted
	Series C	Option	Average
	Convertible	Price	Exercise
	Preferred Shares	per Share	Price		Exercisable
Outstanding at July 31, 2009	1,977	$100-$150	$	117.35	1,977
Exercised	—
Granted	—
Forfeited/Expired	—
Outstanding at October 31, 2009	1,977	$100-$150	$	117.35	1,977
	Options to purchase Common Stock
			Weighted
		Option	Average
	Number of	Price	Exercise
	Common Shares	per Share	Price		Exercisable
Outstanding at July 31, 2009	642,363	$4.00-$6.25	$	5.11	574,182
Exercised	—
Granted	—
Forfeited/Expired	—
Outstanding at October 31, 2009	642,363	$4.00-$6.25	$	5.11	642,363

DAKOTA GROWERS PASTA COMPANY, INC.

ANOTES ~~summary~~TO ofCONSOLIDATED ~~the status of the~~FINANCIAL ~~Company’s issued but nonvested stock options as of October 31, 2009, and changes during the three months ended October 31, 2009, is presented below:~~STATEMENTS

			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 October 31, 2009	—

(Unaudited)

~~NOTE~~compensation 9cost —of ~~COMMITMENTS~~all service based awards on a straight-line basis over the vesting period of the award. Performance based awards are recognized ratably for each vesting tranche. The Company recorded stock-based employee compensation expense of $0 and $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.

~~The~~During ~~Company~~December 2009, certain ~~forward~~executive ~~contracts~~officers ~~for~~and aemployees ~~certain~~of ~~portion~~the ofCompany ~~its~~exercised ~~future~~options ~~durum~~for ~~wheat~~the ~~requirements.~~purchase ~~The~~of ~~Company~~561,869 ~~had~~shares ~~outstanding~~of ~~commitments~~the ~~for~~Company’s ~~grain~~Common ~~purchases totaling~~Stock ~~$13~~and 47,~~646,000~~448 as shares of ~~October~~the ~~31,~~Company’s ~~2009,~~Series D ~~related~~Delivery toPreferred ~~forward~~Stock. ~~purchase~~The ~~contracts.~~aggregate ~~These~~consideration ~~contracts~~received ~~are~~by ~~set~~the ~~price~~Company ~~contracts~~for tothe ~~deliver~~issuance ~~grain~~of tothose ~~the~~shares ~~Company’s~~was ~~mill,~~$2.9 ~~and~~million. ~~are~~The ~~not~~shares ~~derivative~~were issued in ~~nature~~private asplacement ~~they~~transactions ~~have~~exempt nofrom the ~~net~~registration ~~settlement~~requirements ~~provision~~of ~~and~~the Securities Act, pursuant to Section 4(2) of ~~are~~the ~~not~~Securities ~~transferable~~Act.

10The following tables set forth information regarding stock options outstanding and exercisable:

DAKOTA GROWERS PASTA COMPANY, INC.

	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	—					—

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	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

~~(Unaudited)~~12

~~The~~DAKOTA ~~Company~~GROWERS isPASTA ~~currently undertaking an estimated $10 million capital project at its Carrington facility. As of October 31~~COMPANY, ~~2009, the Company had expended $3~~INC.7 million in conjunction with this project, and had entered into additional commitments for building construction and pasta equipment totaling $5.0 million as of October 31, 2009. These costs are expected to be paid within one year.

~~NOTE~~NOTES 10TO —CONSOLIDATED ~~RELATED~~FINANCIAL ~~PARTY TRANSACTIONS~~STATEMENTS

Jeffrey Topp, a director of the Company, sold wheat to the Company through an affiliated entity in the first quarters of fiscal years 2010 and 2009. Those sales totaled $177,000 and $473,000 at market prices for the quarters ended October 31, 2009 and 2008, respectively. The Company had a commitment to purchase wheat totaling $9,000 and $187,500 from Mr. Topp and/or his affiliated entity as of October 31, 2009 and July 31, 2009, respectively.(Unaudited)

~~NOTE~~A 11summary —of ~~SUBSEQUENT~~the ~~EVENTS~~status of the Company’s issued but nonvested stock options as of January 31, 2010, and changes during the six months ended January 31, 2010, is presented below:

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

			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	—

OnNOTE ~~November 19,~~10 ~~2009,~~— ~~the Company’s Board of Directors authorized~~CONTINUED ~~the~~DUMPING ~~payment~~AND ofSUBSIDY ~~non-periodic~~OFFSET ~~dividends~~ACT ofOF $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 F Convertible Preferred Stock, payable on January 5, 2010 to stockholders of record as of December 4, 2009.2000

11U.S. Customs and Border Protection (“Customs”) has distributed antidumping and countervailing duties assessed on certain pasta imported from Italy and Turkey to affected domestic producers pursuant to the Continued Dumping and Subsidy Offset 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 2009 and December 2008, respectively, under the Offset Act. These amounts have been classified as other income. The Company cannot reasonably estimate the potential amount, if any, that it may receive under the Offset Act in future periods as any such amount will be based upon future events over which the Company has little or no control, including but not limited to federal legislation, the amount of expenditures by domestic pasta producers and the amount of antidumping 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 such collections occur before or after September 30, 2007) related to duties assessed on pasta entries prior to September 30, 2007, are expected to be available for future distribution to domestic producers.

NOTE 11 — COMMITMENTS

The Company forward contracts for a certain portion of its future durum wheat requirements. The Company had outstanding commitments for grain purchases totaling $14.1 million as of January 31, 2010, related to forward purchase contracts. These contracts are set price contracts to deliver grain to the Company’s mill, and are not derivative in nature as they have no net settlement provision and are not transferable.

The Company is currently completing an estimated $10.1 million capital project at its Carrington facility. Pasta production associated with the Carrington expansion project began during the quarter ended January 31, 2010. Additional commitments for 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 PARTY TRANSACTIONS

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

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 be acquired by Agricore United Holdings Inc., a Delaware corporation (“Parent”), a wholly owned subsidiary of Viterra Inc., a corporation incorporated under the laws of the Province of Saskatchewan (“Viterra”). Pursuant to the Merger Agreement, Bluebird Acquisition Corporation, a North Dakota corporation and a wholly owned subsidiary 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 Delivery preferred 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 in accordance with the terms of the Merger Agreement. The Offer will be followed by a merger to acquire any Common Stock and Series D Stock that is not tendered in the Offer, in each case at the same price per share paid in the Offer. Upon successful completion of the Offer, and subject to the terms and conditions of the Merger Agreement, Merger Sub will be merged with and into the Company (the “Merger”), and the Company will survive the Merger as a wholly owned subsidiary of Parent. Each of the Company’s and Viterra’s boards of directors unanimously approved the Merger Agreement and the transactions contemplated therein, which are subject to customary closing conditions, including minimum levels of participation in the Offer and regulatory approvals. The accompanying consolidated financial statements do not reflect any purchase accounting adjustments that the surviving company of the Merger will be required to make upon completion of the proposed transaction.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the MD&A ~~included~~ included in the Company’s Form 10-K for the ~~fiscal~~ year ended July 31, 2009.

Forward-Looking Statements

The following discussion contains forward-looking statements. Such forward-looking statements include, among others, those statements including the words “expect”,” “anticipate”,” “believe”,” “may” and similar expressions. Such statements are based on assumptions by the Company’s management as of the date of this Quarterly Report, and are subject to risks and uncertainties, including those discussed in the Company’s Form 10-K for the year ended July 31, 2009 under “Risk Factors,” that could cause actual results to differ materially from those anticipated. The Company cautions readers not to place undue reliance on such forward-looking statements. The Company will not update any forward-looking statements in this Quarterly Report to reflect future events or developments.

Summary

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

Net income for the quarter ended ~~October~~January 31, ~~2009~~2010 totaled $~~5,646,000~~7.2 ~~compared~~million compared to $~~1,692,000~~3.6 million for the quarter ended ~~October~~January 31, ~~2008~~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 share on its Series D Delivery Preferred Stock, $0.62 per share on its Series F Convertible Preferred Stock and $0.62 per share on its Common Stock during the second quarter of fiscal year 2010. Net earnings per basic common share, after the effect of dividends on preferred stock, were $0.61 per share for the quarter ended January 31, 2010, compared to $0.32 per share for the quarter ended ~~October~~January 31, 2009. Net earnings per basic common share were $01.5516 per share for the six months ended January 31, 2010 compared to $0.1749 per share for the ~~quarter~~six months ended ~~October~~January 31, ~~2008~~2009.

~~Durum prices~~The ~~continued to decline in the first quarter of fiscal year 2010 when compared to fiscal year 2009. Decreases in raw material costs were partially offset by lower sales as the~~ Company’s net revenues decreased 2616.87% for the quarter ended ~~October~~January 31, ~~2009~~2010 and 22.3% for the six months ended January 31, 2010 when compared to the same ~~period~~periods of the prior year. The ~~decrease~~decreases resulted primarily from lower pasta per unit selling prices and, to a lesser extent, lower mill sales ~~volumes~~prices. Durum prices continued to decline during the first half of fiscal year 2010 when compared to fiscal year 2009.

Critical Accounting Policies

The accompanying discussion and analysis of our results of operations and financial condition are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. However, future events are subject to change and the best estimates and judgments may require adjustment. For a complete description of the Company’s significant accounting policies, please see Note 1 to the consolidated financial statements included in the Company’s Form 10-K for the year ended July 31, 2009. Our critical accounting policies are those that have meaningful impact on the reporting of our financial condition and results, and that require significant management judgment and estimates. These policies include our accounting for (a) allowance for doubtful accounts, (b) inventory valuation, (c) asset impairment, and (d) income taxes.

Allowance for Doubtful Accounts

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

record a specific allowance against amounts due to us, and thereby reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we recognize allowances for doubtful accounts based on the length of time the receivables are past due and our historical experience. If the financial condition of our customers deteriorates, additional allowances may be required in the future that could have an adverse impact on our future operating results.

Inventory Valuation

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

Asset Impairment

We are required to evaluate our long-lived assets, including goodwill ~~and other intangible assets~~, for impairment and write down the value of any assets if they are determined to be impaired. Evaluating the impairment of long-lived assets involves management judgment in estimating the future cash flows and fair values related to these assets. Future events could cause management to conclude that impairment indicators exist and that the value of certain long-lived assets is impaired.

Income Taxes

In determining income (loss) for financial statement purposes, management must make certain estimates and judgments in calculating tax liabilities and in determining the recoverability of certain deferred tax assets. Deferred tax assets must be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. Management believes it is likely that the deferred tax assets as of ~~October~~January 31, ~~2009~~2010 will be realized through the generation of future taxable income and tax planning strategies.

Results of Operations

Comparison of the Three Months Ended ~~October~~January 31, 2010 ~~2009~~ and ~~2008~~2009

Net Revenues. Net revenues totaled $6360.80 million for the three months ended ~~October~~January 31, ~~2009~~2010, a decrease of 2616.87%, compared to $8772.1 million for the three months ended ~~October~~January 31, ~~2008~~2009. Overall, pasta per unit selling prices decreased 19 15.27% ~~along~~while ~~with~~pasta ~~a decrease in~~ sales volumes of 7increased 0.47%. Revenues from the retail market, a portion of which includes co-pack and government sales, decreased $53.4 9 million, or 1511.27%, due to aan 118.09% decrease in average selling prices and a 4 3.70% ~~decrease~~ ~~in sales~~ volume decline. ~~Foodservice~~Ingredient revenues decreased $43.76 million, or 22.84%, due to a 2026.70% decrease in average selling prices ~~and~~offset by a 24.78% ~~decrease~~volume inincrease. ~~sales~~Foodservice ~~volumes. Ingredient~~ revenues decreased $102.04 million, or 4215.30%, due to a 32 16.96% decrease in average selling prices ~~and~~offset by a 141.09% ~~decrease~~volume ~~in sales volumes~~increase.

The Company markets semolina production in excess of its own requirements as well as durum wheat flour, other flour blends and by-products of the durum milling process. Revenues from mill product sales totaled $4.03 million for the three months ended ~~October~~January 31, ~~2009~~2010, a decrease of $32.32 million when compared to the same period of the prior year. The decrease is due to lower semolina sales volumes along with a decrease in per unit selling prices.

Cost of Goods Sold. Cost of goods sold decreased ~~$29~~27.~~5 million, or 37.6~~2%, to $4944.04 million for the three months ended ~~October~~ January 31, ~~2009~~2010, compared to $7861.50 million for the three months ended ~~October~~January 31, ~~2008.~~ 2009. The decrease was primarily due to lower durum costs. Gross profit as a percentage of net revenues increased to 23.2% for the three months ended October 31, 2009 from 9.9% for the three months ended October 31, 2008 due to decreases in raw material costs partially offset by lower sales prices.

Marketing, General, and Administrative (“MG&A”) Expenses. MG&A expenses increased 6.3%, to $5.5 million for the quarter ended October 31, 2009, compared to $5.1 million for the quarter ended October 31, 2008. 16

13lower durum costs. Gross profit as a percentage 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.

~~The~~Marketing, General, and Administrative (“MG&A”) Expenses. ~~increase~~MG&A ~~was~~expenses ~~primarily~~decreased ~~due~~14.6% to ~~higher~~$4.6 ~~compensation~~million ~~costs~~for ~~and~~the ~~professional~~three ~~fees~~months ended January 31, ~~offset~~2010, bycompared ato ~~reduction~~$5.4 inmillion ~~consumer~~for ~~marketing~~the ~~and~~three months ended January 31, 2009. The decrease was primarily due to lower consumer advertising costs ~~associated~~ associated with Dreamfields pasta products. and lower professional fees. MG&A expenses as a percentage of net revenues increased to 87.6% for the three ~~quarter~~months ended ~~October~~January 31, ~~2009~~2010, from 5 7.94% for the comparable quarter of the prior year.

Interest ~~Expense~~and Other Income. Interest ~~expense~~and other income totaled $0.7 million for the three months ended ~~October~~January 31, 2010, ~~2009~~compared ~~totaled~~to $0.2 4 million ~~compared~~for the three months ended January 31, 2009. U.S. Customs and Border Protection (“Customs”) has distributed antidumping and countervailing duties assessed on certain pasta imported from Italy and Turkey to affected domestic producers pursuant to the Continued Dumping and Subsidy Offset Act of 2000 (the “Offset Act”), which was enacted in October 2000. The Company received payments in the amount of $0.97 million and ~~for~~$0.4 million in November 2009 and December 2008, respectively, under the ~~comparable~~Offset ~~quarter~~Act. These amounts have been classified as other income. The Company cannot reasonably estimate the potential amount, if any, that it may receive under the Offset Act in future periods as any such amount will be based upon future events over which the Company has little or no control, including but not limited to federal legislation, the amount of expenditures by domestic pasta producers and the amount of antidumping 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 such collections occur before or after September 30, 2007) related to duties assessed on pasta entries prior ~~year~~to September 30, 2007, are expected to be available for future distribution to domestic producers.

~~Income Taxes~~Interest Expense. Interest ~~Income tax~~ expense for the three months ended ~~October~~January 31, 2010 totaled $0.2 ~~2009~~million, ~~and~~a ~~2008~~decrease ~~totaled~~of $30.52 million ~~and~~from $1.0.4 million, ~~respectively,~~for ~~and~~the ~~reflects~~corresponding anperiod ~~effective corporate income tax rate~~ of ~~approximately~~the ~~38%~~prior ~~and 37%, respectively~~year.

~~Net~~ Income Taxes. ~~Net~~ ~~income~~Income tax expense for the three months ended ~~October~~January 31, 2010 and 2009 totaled $54.64 million and $2.1 million, ~~compared~~respectively, toand ~~net~~reflects ~~income of~~an ~~$1.7~~effective ~~million~~corporate income ~~for~~tax ~~the~~rate ~~three~~of ~~months~~approximately ~~ended~~38% ~~October 31~~and 37%, ~~2008~~respectively.

Net Income. Net income for the three months ended January 31, 2010 totaled $7.2 million compared to net income of $3.6 million for the three months ended January 31, 2009. Net earnings available to common stockholders for the three months ended January 31, 2010 and January 31, 2009 totaled $6.4 million and $3.3 million, respectively, after reducing net income for dividends declared on Series D Delivery Preferred Stock and Series F Convertible Preferred Stock.

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

Net Revenues. Net revenues totaled $123.8 million for the 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 prices decreased 17.6% with ingredient selling prices down 30.2%, foodservice selling prices down 18.8% and retail selling prices down 10.0%. Overall, total pasta sales volumes decreased 3.6% with ingredient sales down 5.7%, retail sales volumes down 3.9% and foodservice sales down 0.6%.

The Company markets semolina production in excess of its own requirements as well as durum wheat flour, 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 the six months ended January 31, 2010 and 2009, respectively. The decrease is due to lower semolina sales volumes 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 to lower durum costs. Gross profit as a percentage 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.

Marketing, General, and Administrative (“MG&A”) Expenses. MG&A expenses decreased $0.5 million, or 4.4%, to $10.0 million for the six months ended January 31, 2010, compared to $10.5 million for the six months ended January 31, 2009. MG&A expenses as a percentage of net revenues increased to 8.1% for the six months ended January 31, 2010, from 6.6% for the comparable period of 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 2009 and December 2008 under the Offset Act.

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

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

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

Liquidity and Capital Resources

The Company’s primary sources of liquidity are cash provided by operations and borrowings under its revolving credit facility. Working capital as of ~~October~~January 31, ~~2009~~2010 totaled $3835.06 million, compared to $35.8 million as of July 31, 2009.

The Company has a $45 million revolving credit facility with CoBank which extends through January 1311, ~~2010~~2011. ~~There~~Interest ~~was~~on nothe ~~balance~~revolving ~~outstanding~~line onof credit is at the ~~line~~one-month LIBOR rate subject to performance adjustments depending upon the Company’s ratio of total debt to earnings before interest, taxes, depreciation and amortization or “EBITDA.” The higher the ratio the higher the adjustment to the one-month LIBOR rate within a range of 200 to 300 basis points above the one-month LIBOR rate. Fixed interest rate options are also available. The primary purpose of the revolving credit facility is to finance inventory and receivables. The balances outstanding under the revolving credit arrangements totaled $5,000 and $0 as of ~~October~~January 31, ~~2009~~2010 and July 31, 2009, respectively. ~~Therefore,~~The ~~the~~ Company had $44,995,000 and $45,000,000 ~~million~~ available for borrowings under the revolving line of credit as of ~~October~~January 31, ~~2009~~ 2010 and July 31, 2009, respectively.

~~The~~During ~~Company’s~~the ~~various~~second ~~debt~~quarter ~~agreements~~of ~~with~~fiscal ~~CoBank~~year ~~and~~2010, ~~certain institutional investors obligate~~ the Company toalso ~~maintain~~entered orinto modifications ~~achieve~~to ~~certain~~existing ~~amounts~~CoBank ofterm ~~equity and~~loan ~~certain~~agreements ~~financial~~with ~~ratios~~respect ~~and~~to ~~impose~~debt previously ~~certain~~incurred ~~restrictions~~by on the Company. The main ~~Company~~modification ~~was~~to inthe ~~compliance~~term ~~with~~loan ~~these~~supplements ~~financial~~was ~~covenants~~a aschange ofin ~~October 31, 2009~~the ~~and~~index ~~the~~rate from ~~date~~7-day ofLIBOR ~~this~~to ~~filing~~one-month LIBOR.

~~Net~~The ~~cash~~Company’s ~~provided~~various ~~from~~debt ~~operating~~agreements ~~activities~~with ~~totaled~~CoBank ~~$7.2~~and ~~million~~certain ~~for~~institutional investors obligate the ~~three~~Company to maintain or achieve certain amounts of equity ~~months~~and ~~ended~~certain ~~October 31,~~financial ~~2009~~ratios ~~compared~~and toimpose ~~net~~certain ~~cash~~restrictions ~~provided~~on bythe ~~operating~~Company. ~~activities~~The ofCompany ~~$5.4~~was ~~million~~in ~~for~~compliance ~~the~~with ~~three~~these ~~months~~financial ~~ended~~covenants ~~October~~as of January 31, ~~2008. The~~2010 ~~increase~~and ~~was~~the ~~primarily attributable~~date toof anthis ~~increase in net income~~filing.

Net cash ~~used~~provided ~~for~~from ~~investing~~ operating activities totaled $323.21 million and $017.63 million for the ~~three~~six months ended ~~October~~January 31, ~~2009~~ 2010 and ~~2008~~2009, respectively. A ~~majority~~The ofincrease ~~the~~was ~~net~~primarily ~~cash~~attributable ~~used for investing activities for the quarter ended October 31, 2009 related~~ to ~~fixed asset expenditures. The Company is currently undertaking~~ an ~~estimated~~increase ~~$10 million capital project at its Carrington facility. As of October 31, 2009, the Company had expended $3.7 million~~ in ~~conjunction~~net ~~with this project, and had entered into additional commitments for building construction and pasta equipment totaling $5~~income.~~0 million as of October 31, 2009. These costs are expected to be paid within one year.~~

Net cash used for ~~financing~~ investing activities totaled $28.29 million and $5.0.8 million for the ~~three~~six months ended ~~October~~January 31, 2010 ~~2009~~ and ~~2008~~2009, respectively. A ~~The $2.2~~majority ~~million~~ of the net cash used for ~~financing~~investing activities for the ~~quarter~~six months ended ~~October~~January 31, ~~2009~~2010 related to ~~scheduled~~fixed ~~payments~~asset ~~on long-term debt~~expenditures. The Company is currently completing an estimated $510.01 million ofcapital ~~net~~project ~~cash~~at ~~used~~its ~~for~~Carrington facility. Pasta ~~financing~~production ~~activities~~associated ~~for~~with the Carrington expansion project began during the quarter ended ~~October~~January 31, ~~2008~~2010. ~~included~~Additional ~~$6.0 million~~commitments infor ~~scheduled~~building construction ~~payments~~and onpasta ~~long-term~~equipment ~~debt~~totaled ~~and~~$0.7 amillion ~~decrease~~as inof ~~short-term~~January 31, ~~notes~~2010. ~~payable~~These ~~offset~~costs byare anexpected ~~increase~~to inbe ~~excess~~paid ~~outstanding~~within ~~checks~~one ~~over cash on deposit~~year.

On November 19, 2009, the Company’s Board of Directors authorized the payment of non-periodic dividends 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 F Convertible Preferred Stock, payable on January 5, 2010 to stockholders of record as of December 4, 2009.18

14Net cash used for financing activities totaled $7.9 million and $16.6 million for the six months ended January 31, 2010 and 2009, respectively. The $7.9 million of net cash used for financing activities for the six months ended January 31, 2010 related to scheduled payments on long-term debt and dividend payments. The Company paid dividends of $0.1 million ($0.01 per share) on its Series D Delivery Preferred Stock, $0.7 million ($0.62 per share) on its Series F Convertible Preferred Stock and $6.7 million ($0.62 per share) on its Common Stock during the second quarter of fiscal year 2010. The Company paid dividends of $0.1 million ($0.01 per share) on its Series D Delivery Preferred Stock, $0.2 million ($0.20 per share) on its Series F Convertible Preferred Stock and $2.0 million ($0.20 per share) on its Common Stock during the second quarter of fiscal year 2009.

~~During~~The ~~December 2009,~~following ~~certain~~table ~~executive~~summarizes ~~officers and employees of~~ the Company ~~exercised options for the purchase of 561,869 shares of the Company~~’s ~~Common~~contractual ~~Stock~~obligations ~~and~~as ~~47,448 shares~~ of ~~the Company’s Series~~January D31, ~~Delivery~~2010 ~~Preferred Stock. The aggregate consideration received by~~(in ~~the Company for the issuance of those shares was $2.9 million.~~thousands):

U.S. Customs and Border Protection (“Customs”) has distributed antidumping and countervailing duties assessed on certain pasta imported from Italy and Turkey to affected domestic producers pursuant to the Continued Dumping and Subsidy Offset Act of 2000 (the “Act”). The Company received $692,000 in November 2009 under the Act, which will be recognized as other income in the Company’s second quarter of fiscal year 2010. The Company cannot reasonably estimate the potential amount, if any, that it may receive under the Act in future periods as any such amount will be based upon future events over which the Company has little or no control, including but not limited to federal legislation, the amount of expenditures by domestic pasta producers and the amount of antidumping and countervailing duties collected by Customs. The 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 such collections occur before or after September 30, 2007) related to duties assessed on pasta entries prior to September 30, 2007, are expected to be available for future distribution to domestic producers.

			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	$	—

~~The~~(1) Based on ~~following~~interest ~~table~~rates ~~summarizes the Company’s contractual obligations~~ as of ~~October~~January 31, ~~2009~~ ~~(in thousands):~~2010

			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	$	28,988	$	5,763	$	16,725	$	6,500	$	—
Interest on long-term obligations (1)	1,757		683		992		82		—
Wheat purchase obligations	13,646		13,646		—		—		—
Construction obligations	5,000		5,000		—		—		—
Warehouse obligations	3,766		1,939		1,827		—		—
Operating leases	1,123		557		537		29		—
	$	54,280	$	27,588	$	20,081	$	6,611	$	—

The Company forward contracts for a certain portion of its future durum wheat requirements. At January 31, 2010, the Company had outstanding commitments for grain purchases totaling $14.1 million related to forward purchase contracts. These contracts are set price contracts to deliver grain to the Company’s mill and are not derivative in nature as they have no net settlement provision and are not transferable.

~~(1) Based~~Management believes onthat ~~interest~~net ~~rates~~cash ascurrently available and to be provided by operating activities, along with amounts available under the Company’s line of ~~October 31~~credit, will ~~2009~~be sufficient to meet the Company’s expected capital and liquidity requirements for the foreseeable future.

~~The~~Proposed Company forward contracts for a certain portion of its future durum wheat requirements. At October 31, 2009, the Company had outstanding commitments for grain purchases totaling $13.6 million related to forward purchase contracts. These contracts are set price contracts to deliver grain to the Company’s mill, and are not derivative in nature as they have no net settlement provision and are not transferable.Merger

~~Management~~On March 10, ~~believes~~2010, ~~that~~we ~~net~~entered ~~cash~~into ~~currently~~a ~~available~~definitive ~~and~~agreement (the “Merger Agreement”) to be acquired ~~provided~~ by ~~operating~~Agricore United Holdings Inc., a Delaware corporation (“Parent”), a ~~activities~~wholly owned subsidiary of Viterra Inc., ~~along~~a ~~with~~corporation ~~amounts~~incorporated under the laws ~~Company~~of ~~expects~~the Province of Saskatchewan (“Viterra”). Pursuant to bethe ~~available~~Merger ~~under~~Agreement, ~~its~~Bluebird ~~line~~Acquisition Corporation, a North Dakota corporation and a wholly owned subsidiary of ~~credit~~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 Delivery preferred 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 ~~sufficient~~extended in accordance with the terms of the Merger Agreement. The Offer will be followed by a merger to acquire ~~meet~~any Common Stock and Series D Stock that is not tendered in the Offer, in each case at the same price per share paid in the Offer. Upon successful completion of the Offer, and subject to the terms and conditions of the Merger Agreement, Merger Sub will be merged with and into the Company (the “Merger”), and the Company will survive the Merger as a wholly owned subsidiary of Parent. Each of the Company’s ~~expected~~and ~~capital~~Viterra’s boards of directors unanimously approved the Merger Agreement and the transactions ~~liquidity~~contemplated ~~requirements~~therein, ~~for~~which are subject to customary closing conditions, including minimum levels of participation in the ~~foreseeable~~Offer ~~future~~and regulatory approvals.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the potential loss to future earnings, fair values or cash flows resulting from adverse changes in interest rates, commodity prices, exchange rates, equity prices and other market changes.

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

The Company is exposed to certain fluctuations in commodity prices. The Company forward contracts for a certain portion of its future wheat requirements. These contracts are set price contracts to deliver grain to the Company’s mill, and are not derivative in nature as they have no net settlement provision and are not transferable.

ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (together the “Certifying Officers”), of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~October~~January 31, ~~2009~~2010, the end of the period covered by this report. Based upon that evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective as of ~~October~~January 31, ~~2009~~ 2010 to provide reasonable assurance that information required to be disclosed in in our Exchange Act reports is recorded, processed, summarized and reported ~~within~~ within the time periods specified in the SEC’s rules and forms and that ~~such~~ such information is accumulated and communicated to our management, including ~~our~~ our Certifying Officers, as appropriate, to allow for timely decisions ~~regarding~~ regarding required disclosure.

Inherent Limitations on Effectiveness of Controls

Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the management and the Board; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Company assets that could have a material effect on the financial statements.

Management personnel, including the Certifying Officers, recognize that our internal control over financial reporting cannot prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Changes in Internal Controls over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting during the Company’s fiscal quarter ended ~~October~~January 31, ~~2009~~2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

1621

PART II — OTHER INFORMATION

ITEM 1A. RISK FACTORS

There have 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 year ended July 31, 2009 except for the following.

The Merger Agreement contains restrictive covenants that may limit our ability to respond to changes in market conditions or pursue business opportunities.

The Merger Agreement contains restrictive covenants that limit our ability to take certain actions during the period prior to the completion of the proposed offer. Although the Merger Agreement provides that Parent, the parent of Merger Sub, will not unreasonably withhold its consent to us taking otherwise prohibited actions, there can be no assurances that Parent will grant such consent. These restrictions may materially adversely affect our ability to react to changes in market conditions, take advantage of business opportunities, obtain future financing, fund needed capital expenditures, or finance equipment purchases, any of which could have a material and adverse effect on the prospects of our business, which could be detrimental to our stockholders in the event the offer and subsequent merger are not completed.

In certain circumstances, the Merger Agreement requires us to pay Agricore United Holdings Inc. a termination fee of $5 million.

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

The Merger is subject to certain conditions to closing that could result in the Merger not being consummated or being delayed, either of which could negatively impact our business and operating results.

Consummation of the Merger is subject to a number of customary conditions, including but not limited to regulatory approval and acceptance of the Offer by a sufficient number of our stockholders. If any of the conditions to the Merger are not satisfied or, where waiver is permissible, not waived, the Merger will not be consummated. Failure to consummate the Merger could adversely affect our business 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.

Certain of our directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of our stockholders.

Our executive officers negotiated the terms of the Merger Agreement under the direction of our board of directors (the “Board”). The Board unanimously adopted, approved, and declared advisable the Merger Agreement and the transactions contemplated by the Merger Agreement, declared it in the best interest of our stockholders for us to enter into the Merger Agreement and consummate the transactions contemplated by the Merger Agreement, declared the terms of the offer and the Merger fair to our stockholders and recommended that our stockholders tender their shares into the offer and, if required, vote in favor of adoption of the Merger Agreement. The members of our board of directors and our executive officers may have interests in the Merger that are different from, or in addition to, or may be deemed to conflict with those of our stockholders. These interests may include the continued employment of certain of our executive officers by the combined company and the indemnification of former directors and executive officers by the merged company.

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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

· The election of four directors to serve as Class II directors.

· Approval of the appointment of Eide Bailly LLP as the Company’s independent auditors for fiscal year 2010.

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

	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

The newly elected Class II directors, Roger A. Kenner, Eugene J. Nicholas, Richard Thompson and Jeffrey O. Topp, will serve three year terms ending with the annual meeting in 2013. Allyn K. Hart, Curtis R. Trulson and Michael E. Warner will continue serving as directors until 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 until the annual meeting in 2012.

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

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

ITEM 6. EXHIBITS

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).

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

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

	DAKOTA GROWERS PASTA COMPANY, INC.
	(Registrant)

Signature	Title	Date
/s/ Timothy J. Dodd	President and Chief Executive Officer
Timothy J. Dodd	(Principal Executive ~~Officer)~~	~~December~~March 1517, ~~2009~~2010
	Officer)
/s/ Edward O. Irion	Chief Financial Officer
Edward O. Irion	(Principal Financial and ~~Accounting Officer)~~	~~December~~March 1517, ~~2009~~2010
	Accounting Officer)

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