10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	for the fiscal year ended July 31, 2007
	or
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)

Securities Registered Pursuant To Section 12(b) Of The Act:

None

Securities Registered Pursuant To Section 12(g) Of The Act:

Common Stock, $.01 par value per share

Series D Delivery Preferred Stock, $.01 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o  No x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o  No x

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, and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

Large Accelerated Filer    o              Accelerated Filer   o              Non-Accelerated Filer    x

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

There is no established public market for the Registrant’s common stock. Although there is a limited, private market for shares of the Registrant’s common stock, the Registrant does not obtain information regarding the transfer price in transactions between its shareholders and therefore is unable to estimate the aggregate market value of the Registrant’s common shares held by non-affiliates. As of October 29, 2007, the Registrant had 10,192,413 shares of common stock, par value $0.01 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

PART I.

Forward-Looking Statements

This report contains forward-looking statements based upon assumptions by the management of Dakota Growers Pasta Company, Inc. (the “Company”, “Dakota Growers” or “we”), a North Dakota corporation, as of the date of this Annual Report, including assumptions about risks and uncertainties faced by the Company. When used in this report, the words “believe,” “expect,” “anticipate,” “will,” “estimate” and similar verbs or expressions are intended to identify such forward-looking statements. If management’s assumptions prove incorrect or should unanticipated circumstances arise, the Company’s actual results could differ materially from those anticipated. These differences could be caused by a number of factors or combination of factors including, but not limited to, those factors described in the “Risk Factors” section of this report. Readers are strongly urged to consider such factors when evaluating any forward-looking statement. The Company undertakes no obligation to update any forward-looking statements in this report to reflect future events or developments.

ITEM 1.  BUSINESS

Introduction

The Company is a North Dakota corporation that was organized on January 30, 2002. It is the successor to and its operations are a continuance of Dakota Growers Pasta Company, a North Dakota cooperative (the “Cooperative”), upon the conversion to a corporation effective July 1, 2002.

The Company owns and operates a vertically integrated, state-of-the-art durum wheat milling and pasta production facility in Carrington, North Dakota. Primo Piatto, Inc. (“Primo Piatto”), a wholly-owned subsidiary of the Company being operated as the Minnesota Division of the Company, currently operates a pasta production plant in New Hope, Minnesota. The Company currently has annual capacity to grind in excess of 12 million bushels of grain and to produce approximately 500 million pounds of pasta.

Pasta Industry and Markets

The Company estimates North American annual dry pasta demand to be roughly 4.0 billion pounds, including pasta used in dinners, side dishes and meal solutions. Based on the Company’s analysis of the marketplace and trade and industry information, the Company believes dry pasta consumption has increased slightly over the last three years.  In addition to the domestic market for dry pasta, much smaller domestic markets exist for refrigerated and frozen pasta.

The Pasta industry identifies domestic dry pasta into two basic markets: retail and institutional. The Company recognizes the institutional market as being comprised of ingredient and foodservice sales.

Retail Market

The Retail market includes sales of branded and private label pasta to grocery stores, club stores, mass merchants and other consumer retail operations. A significant portion of the Retail market is represented by established national or regional pasta brands. The Company estimates that Barilla, New World Pasta Company and American Italian Pasta Company account for over 70% of the branded retail market. The Company focuses almost all of its Retail marketing efforts on private label sales. The market leaders in private label sales are American Italian Pasta Company and Dakota Growers, together representing over 80% of private label sales. A small portion of the Retail market consists of sales to federal and state government entities. 

DNA Dreamfields Company, LLC (“DNA Dreamfields”), of which the Company held a 47% economic ownership as of July 31, 2007, launched a low digestible carbohydrate pasta under the Dreamfields^TM brand name in 2004.  Dreamfields^TM pasta has maintained slightly over a 1% dollar share of the traditional grocery channel pasta market during the last three years based on data from A.C. Nielsen, making it the leading pasta in the low

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carbohydrate pasta category.  Dreamfields^TM pasta also has 65% lower glycemic index than regular pasta.  The Company completed the purchase of 100% of DNA Dreamfields in September 2007.

In 2005, a new trend toward high fiber products developed. While still small relative to the total pasta category, the consumption of these whole wheat/whole grain products continues to grow.  Dreamfields^TM pasta offers fiber benefits similar to the levels of other whole wheat/whole grain pastas while maintaining the integrity of the taste and low carbohydrate traits.  Dakota Growers also manufactures and sells traditional whole wheat/whole grain pastas. 

Institutional Market

Ingredient sales consist of pasta used by food processors as an ingredient or component in a further-processed or combination food product. Such food products include dry pasta dinners, including macaroni and cheese, frozen entrees, refrigerated salads, canned entrees, baby food, and canned and dry soups. The size of the Ingredient market is influenced by the number of food processors that choose to produce pasta internally rather than outsource.

Foodservice sales are to commercial and non-commercial eating establishments such as restaurants, business and industry cafeterias, managed services, hotels and motels, retail vending, recreation, mobile and other away-from-home eating outlets. Marketing dry pasta to this market generally consists of selling to a network of competitive distribution organizations and buying groups, and selling dry pasta to individual restaurant chains and other operator organizations. A small portion of the Foodservice market consists of sales to federal and state government entities.

Co-Pack Arrangements

A portion of each end-user market is supplied under “co-pack” arrangements between pasta manufacturers. These agreements involve the sale of dry pasta products between pasta manufacturers in order to supply short-term volume deficiencies such manufacturers suffer from time to time in meeting customer requirements, and to allow a manufacturer to draw upon particular areas of expertise of other manufacturers, which may be more cost beneficial than self-manufacturing.  Co-pack sales comprised approximately 6%, 3% and 1% of the Company’s net revenues for the years ended July 31, 2007, 2006 and 2005, respectively.

Production and Products

The Company purchases durum wheat which is processed through its milling facility into semolina and durum wheat flours that are then used by the Company to produce dry pasta products.

Pasta production is basically a mixing, extrusion and drying process. The primary ingredients are semolina and water, although egg, tomato, spinach or other ingredients may be added to produce certain products. The finished dry pasta is packed to meet different markets and customer requirements.

The pasta products manufactured by the Company consist of over 80 different shapes and are sold to customers in all markets. In addition to the dry pasta produced by the Company, it purchases additional dry pasta shapes from other manufacturers and resells them. This practice is widely followed by many pasta manufacturers for efficiency and production capacity reasons, and allows distribution of wider product lines to the Company’s customers. Outside purchases of pasta, excluding imports, comprised approximately 2% of net sales for each of the years ended July 31, 2007, 2006 and 2005.   

The Company has an agreement with Gruppo Euricom, an Italian pasta manufacturer, to distribute Gruppo Euricom’s Italian pasta and rice products in the United States and Canada.  These products are primarily private label retail and foodservice products. Sales of imported products comprised approximately 1% to 2% of the Company’s net revenues in each of the last three fiscal years.

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The Company’s identity preservation program provides our customers with food safety, traceability and quality from the field to the plate.  The Company’s proximity to the durum growing regions, its milling and production facilities, and its information technology systems allow the Company to produce products under an identity preservation program.

The Company’s Carrington, North Dakota facilities are certified by the Organic Crop Improvement Association, which allows the Company to offer 100% organic pasta and semolina. The Company’s facilities allow for the isolation of the durum, semolina and pasta to enable this certification.

The Company’s products are manufactured using a comprehensive Hazard Analysis Critical Control Point (HACCP) program, which requires strict monitoring in all aspects of the manufacturing process, to ensure food quality and safety. We believe that meeting HACCP standards strengthens customer confidence in the quality of our products. The Company undergoes food safety and product quality audits at various times throughout the year and has consistently received high scores.

In addition to its pasta products, the Company markets semolina, durum wheat flour and other flour blends to other food product manufacturers as market conditions allow. Lower grade second clear flours and millfeed by-products of the durum milling process are sold primarily for animal feed.  Non-pasta sales represented approximately 8%, 7% and 7% of the Company’s net revenues for the years ended July 31, 2007, 2006 and 2005, respectively.

Sales, Marketing and Customers

The Company markets its products through direct sales, supplemented by the efforts of third party brokers retained by the Company. These brokers receive commissions based upon sales of the Company’s products. The Company’s pasta products are distributed on a broad basis throughout the United States. The Company does not export significant quantities of its pasta products. One customer, U.S. Foodservice, accounted for approximately 12%, 12% and 13% of net revenues for the years ended July 31, 2007, 2006 and 2005, respectively. The Company’s top 10 customers accounted for 50% of revenues in fiscal year 2007, 50% of revenues in fiscal year 2006 and 52% of revenues in fiscal year 2005.  Pasta revenues consisted of 49% Retail and 51% Institutional for fiscal year 2007, 51% Retail and 49% Institutional for fiscal year 2006, and 53% Retail and 47% Institutional for fiscal year 2005. 

The Company sells most of its pasta under “purchase orders”, whereby the customer and the Company are not obligated for any pre-determined length of time, or under pricing commitments agreed to with terms of one year or less.  Pasta products imported from Italy under the Company’s agreement with Gruppo Euricom are primarily sold in the private label retail and foodservice markets.

Series D Delivery Preferred Stock Delivery Rights

Each share of Series D Delivery Preferred Stock of the Company gives its holder the privilege, but not the obligation, to deliver one bushel of durum wheat to the Company each fiscal year on a “first-come, first-served” basis.  From time to time the Company will post notices to the market on its Web site (holders may also telephone the Company for information on market notices) for the purchase of durum wheat. During the 24-hour period following the posting of any market notice and to the extent that the Company’s durum wheat requirements as set forth in the market notice have not been fulfilled by other holders of Series D Delivery Preferred Stock, holders of Series D Delivery Preferred Stock have the right to (i) accept the Company’s offer to purchase durum wheat and (ii) deliver durum wheat to the Company on such terms and conditions as are set forth in the market notice.  However, in any given fiscal year of the Company, the first-come, first-served privilege to deliver durum wheat shall be exercisable to deliver one bushel of durum wheat only once with respect to each share of Series D Delivery Preferred Stock. During the 24-hour period following the posting of any market notice, the Company will not purchase durum wheat from non-holders of Series D Delivery Preferred Stock to fulfill the Company’s durum wheat requirements as set forth in the market notice.  If, after the lapse of a certain amount of time (not less than one day), holders of Series D Delivery Preferred Stock have not sold to the Company all of the durum wheat

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requested in the notice, the Company will fulfill its remaining requirements outside of the Series D Delivery Preferred Stock delivery privilege.

Because the privilege of a holder of Series D Delivery Preferred Stock to deliver durum wheat to the Company only arises if the Company actually requires durum, the privilege is not absolute.  Any and all durum wheat delivered by a holder of Series D Delivery Preferred Stock to the Company must conform to quality specifications established by the Company.

The Company purchases durum wheat primarily on the open market. Durum wheat purchases from holders of the Company’s Series D Delivery Preferred Stock have been negligible.

Competition

Overview

The markets for pasta and semolina/durum wheat flour are highly competitive in most markets and geographic regions. The intensity of competition varies from time to time as a result of a number of factors, including: (1) the degree of industry capacity utilization, (2) comparative product distribution costs, (3) ability to render distinctive service to customers, (4) the price of raw materials, primarily durum wheat, and (5) a distinguishing or unique ability to provide consistent product quality in line with customer specifications.  The Company believes that, in a broad sense, the most influential factor on the intensity of competitive conditions is industry capacity utilization.  It should be noted that detailed information regarding pasta production is somewhat difficult to obtain, as many pasta producers are closely-held enterprises.

Competition in the Pasta Market

The pasta market is highly competitive and includes several well-established enterprises. Those competitors are primarily independent companies and, to a lesser extent, divisions or subsidiaries of other, larger, food products companies. In addition, the Company competes against foreign suppliers, including Italian and Turkish enterprises, that sell pasta in the United States.

The Company markets its products in the Retail market primarily as a private label supplier. The Company’s Dakota Growers Pasta Co.® label to date has slight penetration in local area markets in the Dakotas and Minnesota and its Pasta Sanita® label is sold in small niches ranging from the upper Midwest to select markets in the Northeast United States.  Dreamfields^TM pasta has maintained slightly over a 1% dollar share of the traditional grocery channel pasta market during the last year based on data from A.C. Nielsen, making it the leading pasta in the low carbohydrate pasta category.

The Company’s competition in the private label retail market is primarily American Italian Pasta Company and, to a lesser extent, New World Pasta Company. These private label retail sales compete with retail branded products distributed primarily by Barilla, New World Pasta Company (Ronzoni, San Giorgio, Skinner, American Beauty, Creamette, Prince brands et al), American Italian Pasta Company (Muellers, R&F, Anthony’s, Golden Grain/Mission brands et al) and a variety of smaller domestic and imported brands.

In the Foodservice market, the Company also markets its pasta primarily as a private label supplier, including sales to three of the largest foodservice distributors in the country under their labels. The Company’s main competitors in the Foodservice market are American Italian Pasta Company, A. Zerega’s Sons, Inc., and Barilla, as well as foreign competitors that sell product in the United States. The Company’s Dakota Growers Pasta Co.®, Pasta Sanita® and Pasta Growers® foodservice brands are sold throughout the United States to independent distributors and national chain accounts. The Company has an exclusive distribution agreement with New World Pasta under which the Company is licensed to use the Ronzoni, Prince, San Giorgio and Mrs. Weiss brands in the Foodservice market.

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The Company’s ingredient sales have significantly increased as ingredient purchasers of dry pasta have sought out more reliable low cost suppliers.  The Company’s top competitors in the Ingredient market include American Italian Pasta Company, Philadelphia Macaroni Co. Inc., and A. Zerega’s Sons, Inc. A large portion of the Ingredient market production capacity is represented by self-suppliers, which include Kraft Foods, Campbell Soup Company, ConAgra, Inc., Luigino’s and Stouffers Corporation.

The competitive environment in the pasta industry depends largely on aggregate industry capacity relative to aggregate demand for pasta products. The pasta manufacturing industry experienced restructuring over the past few years which reduced the excess pasta production capacity to what the Company believes is roughly 15% - 20%.  Barilla completed the construction of a plant in Avon, NY, which became operational in mid–2007.

Competition in the Semolina and Durum Wheat Flour Market

Given the commodity nature of the market for semolina and durum flour, sales volume is largely dependent on delivered price when adequate supply conditions exist. Italgrani USA, Inc., Horizon Milling, LLC and Miller Milling collectively are believed to represent approximately 40% of total domestic durum milling capacity, while the Company’s current milling operation represents about 15%.  Most of the durum milling capacity in the United States is either part of an integrated pasta production facility or in an alliance with pasta manufacturers. The Company believes that the integration of its milling and pasta production facilities enables it to compete more effectively with those competitors who also have integrated facilities.

Government Regulation

Trade Policies

Governmental policies and regulations, including those impacting the amount of durum wheat imported from Canada, may affect the operations of the Company and the volume of pasta imports. United States government farm policies also affect durum plantings and thus can have a significant impact on the market price of durum.

Domestic pasta prices are also influenced by competition from foreign pasta producers, and as such, by the trade policies of both the U.S. government and foreign governments. U.S. Customs and Border Protection (Customs) distributes 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”). The Company received net payments of $1.3 million, $1.1 million and $0.4 million in fiscal years 2007, 2006 and 2005, 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 futures events over which the Company has little or no control, including, but not limited to, the amount of expenditures by domestic pasta producers and the amount of antidumping and countervailing duties collected by Customs.

Food and Drug Administration Regulation

As a producer of products intended for human consumption, the Company’s operations are subject to certain federal and state regulations, including regulations promulgated by the United States Food and Drug Administration. The Company believes that it is in material compliance with the applicable regulatory requirements.

Environmental Regulation

Dakota Growers is subject to extensive federal and state environmental laws and regulations with respect to water and air quality, solid waste disposal and odor and noise control. The Company conducts an on-going control program designed to meet these environmental laws and regulations. There are no pending regulatory

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enforcement actions and the Company believes that it is in substantial compliance with applicable environmental laws and regulations.

The Company cannot predict whether future changes in environmental laws or regulations might increase the cost of operating its facilities and conducting its business. Any such changes could have adverse financial consequences for the Company.

Intellectual Property Rights

The Company relies on a combination of trade secret, trademark law, nondisclosure agreements and technical measures to establish and protect its proprietary rights to its products and processes. The Company owns the following trademarks that have been registered with the United States Patent and Trademark Office for the sale of dry pasta: Pasta Growers®, Pasta Sanita®, Zia Briosa®, Primo Piatto® and Dakota Growers Pasta Co.®.

Research and Development

The Company supports research and development programs in North Dakota that focus on improved varieties of durum wheat. Dakota Growers has an on-staff agronomist and is in the midst of a long-term project of small plot, replicated variety trial research, as well as field-scale fungicide research. In connection with plant breeders and researchers, the Company is working to develop scab-resistant, high-gluten durum varieties.

As a result of the creation of DNA Dreamfields Company, LLC and the introduction of the Dreamfields^TM pasta products, the Company is investing and participating in product and manufacturing technique research beyond the scope of traditional dry pasta.

The Company, as part of its operations, maintains a modern, well-equipped laboratory facility designed primarily to evaluate and maintain high quality standards for incoming raw materials, ongoing product manufacturing, and development of new pasta shapes.

Employees

As of October 17, 2007, the Company had 435 employees, 140 of which are covered by collective bargaining agreements at its Primo Piatto, Inc. subsidiary. These collective bargaining agreements expire on December 1, 2007 and September 30, 2008. The Company considers its employee relations to be very good.

Available Information

SEC Filings

The Company’s Internet website address is www.dakotagrowers.com. We make available, free of charge through the “Investors” portion of our website, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “1934 Act”) as soon as reasonably practicable after we electronically file such materials with, or furnish such materials to, the Securities and Exchange Commission. Reports of beneficial ownership filed pursuant to Section 16(a) of the 1934 Act are also available through our website. 

The Securities and Exchange Commission maintains an Internet site that contains reports, proxy, and information statements and other information regarding issuers that file electronically with the Securities and Exchange Commission. The address of that site is www.sec.gov.

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Corporate Governance

The Company’s Code of Conduct, which is applicable to all of our employees, and the Charters of the Committees of our Board of Directors are available under the “Investors” portion of the Company’s website at www.dakotagrowers.com.  Any of these items or any of the Company’s filings with the Securities and Exchange Commission will be provided, without charge, upon written request to:

Investors Relations

Dakota Growers Pasta Company, Inc.

One Pasta Ave

Carrington, ND 58421

ITEM 1A. RISK FACTORS

The following are important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. Additional risks that we do not yet know of, or currently believe are immaterial, may also impair the business operations of the Company.

Consumer Trends

As the Company competes exclusively in the dry pasta industry, changes in consumer trends that result in lowered demand for dry pasta may have a material adverse effect on the Company’s financial condition and results of operations.

Competitive Environment

Both the U.S. pasta industry and global pasta industry are extremely competitive. The Company competes in all dry pasta markets – retail store brand, foodservice and ingredient, with larger, national and international food companies. Competition within the pasta industry is largely dependent upon the relationship of overall industry production capacity to overall market demand for pasta. Developments over the last few years have reduced the level of excess capacity in the domestic pasta industry, although future fluctuations in available capacity are sure to occur.  Some competitors may have long-term, high volume contracts, which guarantee a specified amount of volume over the term of the contract. Other competitors have retail brand equity and larger amounts of marketing dollars to compete against imported and store brand products. The competitive environment has in the past, and may in the future, put pressure on the Company’s profitability and its ability to maintain market share. While the Company has and will continue to apply, where possible, cost saving measures in an effort to remain competitive, there is no guarantee that the Company can operate profitably in the future.

No Public Market for Shares of the Company’s Common Stock and Preferred Stock

Currently no established public trading market exists for the shares of Common Stock and Preferred Stock of the Company, and an active trading market may never develop. The Company maintains no obligation to seek or to obtain a listing on a national market. As a result, you may not be able to readily resell your shares in the Company.

Technology

The Company believes that its overall commitment to maintaining and upgrading pasta manufacturing, milling and packaging equipment is necessary to keep a competitive edge in the pasta industry. In addition, it also acknowledges that ongoing computer system upgrades to better service the demands of its customers are important to long-term success and profitability. The Company may be negatively impacted if it is unable to consistently keep pace with the industry in these areas.

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Pasta, Semolina, Mill By-Product Prices; Durum Wheat and Other Input Costs

The Company’s profitability is directly related to the market price of dry pasta, semolina, durum wheat and mill feed by-products. The supply and price of durum wheat are subject to market conditions and are influenced by many factors beyond the Company’s control including weather patterns affecting durum wheat production, governmental programs and regulations, insects, and plant diseases. Such volatility with respect to the price of the basic raw material for the Company’s products leaves the Company subject to wide variation in its costs from year to year. Durum market prices have increased over the last year with a dramatic increase over the last two months. Future increases in durum costs could have a material adverse effect on operating profits unless we are able to pass cost increases on to our customers. By-products of the milling process compete with other feed products, and fluctuate significantly in price with the availability of these competing feed products.

Increases in other input costs, such as packaging materials, ingredients and fuel costs, could adversely affect us. The costs of packaging materials, ingredients and fuel have varied widely in recent years, and future changes in such costs may cause our results of operations and our operating margins to fluctuate significantly.

Changes in sales prices of our products often lag behind changes in input costs.  Competitive pressures may also limit our ability to increase sales prices timely in response to higher input costs.  If the Company is unable to increase sales prices to offset increases in raw materials, packaging, fuel costs or other input costs, operating margins and profits could be materially adversely affected.

Product Concentration

The Company competes almost exclusively in the dry pasta industry and related flours and by-product markets. Any decline in pricing or demand for dry pasta could have a material adverse effect on the Company’s financial condition and results of operations.

Product Liability

The sale of food products for human consumption involves the risk of injury to consumers. These injuries may result from tampering by unauthorized third parties, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, aflatoxin and other agents, or residues introduced during the growing, storage, handling or transportation phases. The Company has never been involved in a product liability lawsuit. The Company is subject to U.S. Food and Drug Administration inspection and regulations and we believe the Company’s facilities comply in all material respects with all applicable laws and regulations, but we cannot be certain that we will not be subject to claims or lawsuits in the future for injuries relating to the consumption of the Company’s products. The Company carries insurance for product liability claims related to its products and for t he costs related to product recalls. However, we cannot be certain that the Company will not incur claims or liabilities for which it is not insured or that exceed the amount of its insurance coverage.

Government Regulation and Trade Policies

Dakota Growers is subject to extensive federal and state environmental laws and regulations with respect to water and air quality, solid-waste disposal and odor and noise control. The Company conducts an on-going program designed to comply with these laws and regulations. There are no pending regulatory enforcement actions against the Company, and the Company believes that it currently is and will continue to be in substantial compliance with all applicable environmental laws and regulations.

As a producer of products intended for human consumption, the Company’s operations are subject to certain federal and state regulations, including regulations promulgated by the U.S. Food and Drug Administration. The Company believes that it is in material compliance with all applicable regulatory requirements relating to food quality and safety.

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The operations of the Company may be affected by governmental trade policies and regulations, including those impacting the amount of durum wheat imported from Canada. Domestic pasta prices are also influenced by competition from foreign pasta producers, and as such, by the trade policies of both the U.S. government and foreign governments.

Restrictive Loan Covenants

The Company’s loan agreements with CoBank and institutional investors obligate the Company to maintain or achieve certain amounts of equity and working capital and achieve certain financial ratios.  The failure to comply with the various loan covenants may result in interest rate penalties, restrict the Company’s corporate activities or result in a default by the Company which may have a material adverse effect on the Company’s liquidity.

Board of Directors Discretion Regarding Dividends

The Board of Directors of the Company has absolute discretion to determine the manner and amount of payment of dividends on shares of Common Stock and, subject to certain exceptions, Preferred Stock.

ITEM 2.  PROPERTIES AND PROCESSING FACILITIES

Dakota Growers owns and operates a milling facility in North Dakota, and pasta plants in North Dakota and Minnesota. The Company owns the warehouse facilities at the pasta plants. These facilities are supplemented by public warehouses in California, Kansas, Minnesota, New York, North Dakota, Oregon, Ohio and Washington where inventory is maintained and redistributed for the needs of specific customers.

Dakota Growers continues to invest in technologies to improve operational efficiencies, and information technology to provide enterprise visibility to all facilities and activities within the supply chain. These information systems encompass communications, data collection, data storage, process management and record management to ensure the Company is providing a superior level of service to our customers while attempting to reduce operating and administrative expenses.

ITEM 3.  LEGAL PROCEEDINGS

From time to time and in the ordinary course of its business, the Company is named as a defendant in legal proceedings related to various issues, including worker’s compensation claims, tort claims and contractual disputes. Other than such routine litigation, the Company is not currently involved in any material legal proceedings. In addition, the Company is not aware of other potential claims that could result in the commencement of legal proceedings. The Company carries insurance that provides protection against certain types of claims, up to the policy limits of the Company’s insurance.

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

No matters were submitted to a vote of our security holders during the fourth quarter of fiscal year 2007.

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PART II.

ITEM 5.  MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

There is no established public trading market for the Company’s Common Stock or Preferred Stock. As of October 11, 2007 there were 1,242 holders of the Company’s Common Stock.

Ownership of shares of Common Stock may be transferred subject only to the requirements of the applicable securities laws.  Holders of Series D Delivery Preferred Stock have a delivery right, but not a delivery obligation, to sell durum to the Company.  The Company must approve all transfers of shares of Series D Delivery Preferred Stock.

Variable Investment Advisers, Inc. (VIA) has established an Alternative Trading System (ATS) to facilitate trading of the Company’s Common Stock. We do not implicitly or explicitly endorse VIA or their web site, and we are not responsible for products and services that VIA provides. We do not stand behind VIA or receive any fees from them in connection with the services offered on their web site. A link to the web site of VIA is available through the “Investors” portion of the Company’s website at www.dakotagrowers.com. VIA has been instructed by the Company to suspend trading on the ATS until further notice as the Company considers strategic alternatives.

Trading volumes of the Company’s Common Stock have been minimal to date.

On February 9, 2007 the Company entered into a Stock Purchase Agreement (“Agreement”) with MVC Capital, Inc. (“MVC”) and La Bella Holdings, LLC (“LBH”).  On May 10, 2007, the Company completed the transactions pursuant to the Agreement, in which MVC acquired 1,000,000 shares of Series F Convertible Preferred Stock and LBH acquired 1,000,000 shares of common stock for a price of $10 per share. The proceeds from the sale of shares to MVC and LBH were used to fund, in part, a repurchase of common stock from the Company’s stockholders (other than MVC and LBH) pursuant to a tender offer made to stockholders.  Based on the manner of sale and representations of MVC and LBH in the Stock Purchase Agreement,  including a representation by each as to its status as an accredited investor within the meaning of Rule 501 of Regulation D, the Company believes that the issuance of securities to MVC Capital, Inc. and La Bella Holdings, LLC were private placements not involving any public offering within the meaning of Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Regulation D thereof.  The Company therefore believes the offer and sale of the shares to MVC and LBH were exempt from the registration requirements of the Securities Act.

The following table provides information about the shares purchased by the Company in connection with the tender offer:

Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased As Part of Publicly Announced Program	Maximum Number of Shares That May Yet Be Purchased Under the Program
May 2007	3,917,519	$	10.00	3,917,519	None

(1)On March 26, 2007, the Company commenced a tender offer to purchase up to 3,920,000 shares of the Company’s common stock at $10.00 per share in cash.   The tender offer expired on April 27, 2007. The Company completed the purchase of shares pursuant to the tender offer in early May 2007.

During April 2007, two of the Company’s employees exercised options for the purchase of 5,550 shares of the Company’s common stock.  The aggregate consideration received by the Company for the issuance of those shares was $22,200.  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.

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On December 14, 2006, the Company’s Board of Directors authorized the payment of $0.01 per share dividend on its Series D Delivery Preferred Stock and a non-periodic dividend payment of $0.14 per share on its common stock, payable on January 3, 2007 to shareholders of record as of December 20, 2006.

On December 15, 2005, the Company’s Board of Directors authorized the payment of $0.04 per share dividend on its Series D Delivery Preferred Stock and a non-periodic dividend payment of $0.04 per share on its common stock, payable on January 10, 2006 to shareholders of record as of December 19, 2005.

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ITEM 6. SELECTED FINANCIAL DATA

The selected financial data presented below for the fiscal years ended July 31, 2003 through 2007 has been derived from the audited consolidated financial statements of the Company.

Effective May 1, 2005, the Company began to include DNA Dreamfields Company, LLC in its consolidated financial statements.  The financial statements for prior fiscal years have not been restated and therefore do not include consolidated data pertaining to DNA Dreamfields. The Company has included consolidated amounts for DNA Dreamfields in the income statement for the years ending July 31, 2007, 2006 and 2005. See Note 2 of the consolidated financial statements for additional information.

The selected financial data set forth in this section should be read in conjunction with the Company’s consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this report.

SELECTED FINANCIAL DATA

(In thousands, except per share data and ratios)

	Fiscal year ended July 31
	2007			2006			2005			2004			2003
INCOME STATEMENT DATA
Net revenues	$	191,062		$	171,509		$	155,619		$	144,679		$	136,806
Cost of goods sold	165,575			148,904			136,179			132,245			125,160
Gross profit	25,487			22,605			19,440			12,434			11,646
Marketing, general and administrative expenses	12,973			14,190			16,507			8,345			9,816
Loss on asset impairment	—			—			—			704			—
Operating income	12,514			8,415			2,933			3,385			1,830
Other expense - net	(2,199		)	(2,143		)	(1,817		)	(2,835		)	(2,364		)
Noncontrolling interests	52			894			3,003			—			—
Income (loss) before income taxes	10,367			7,166			4,119			550			(534		)
Income tax expense (benefit)	3,759			2,793			1,606			214			(105		)
Net income (loss)	6,608			4,373			2,513			336			(429		)
Dividends on preferred stock	113			451			—			—			3
Net earnings (loss) on common stock	$	6,495		$	3,922		$	2,513		$	336		$	(432	)
Net earnings (loss) per common share - Basic	$	0.52		$	0.30		$	0.19		$	0.03		$	(0.03	)
Weighted average common shares outstanding - Basic	12,501			13,169			13,169			12,265			12,355
Cash dividends declared per common share	$	0.14		$	0.04		$	—		$	—		$	—

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	As of July 31
	2007			2006			2005			2004			2003
BALANCE SHEET DATA
Cash	$	89		$	343		$	229		$	589		$	5
Working capital	20,800			23,273			20,156			16,586			13,429
Total assets	143,166			134,249			135,130			119,415			122,390
Long-term debt (excluding current maturities)	40,681			28,545			25,385			21,087			28,263
Redeemable preferred stock	—			—			7			20			33
Stockholders’ equity	49,150			64,592			61,132			58,619			53,818
OPERATING DATA
Ratio of long-term debt to stockholders’ equity	.83		x	.44		x	.42		x	.36		x	.53		x

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The following discussion contains forward-looking statements. Such statements are based on assumptions by the Company’s management, as of the date of this report, and are subject to risks and uncertainties, including those discussed under “Risk Factors” in this report, 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.

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 pasta for the retail store brand and institutional markets, although we serve and continually look for opportunities in the entire dry pasta industry. Our identity preservation program provides our customers food safety, traceability and quality from the field to the plate. The Company also has a certified organic program and markets organic pasta through its Dakota Growers Pasta Co.^® label, as well as into the private label retail, foodservice, and ingredient markets. The Company competes through low cost production, high product quality, flexibility and customer service.

Net income for the year ended July 31, 2007 totaled $6.6 million compared to net income of $4.4 million for the year ended July 31, 2006. Net earnings per basic common share, after the effect of dividends paid on the Company’s Series D Delivery Preferred Stock, were $0.52 per share for the year ended July 31, 2007 compared to $0.30 for the year ended July 31, 2006. The company paid dividends of $113,000 ($0.01 per share) and $451,000 ($0.04 per share) on its Series D Delivery Preferred Stock and $1,844,000 ($0.14 per share) and $527,000 ($0.04 per share) on its common stock during the second quarters of fiscal years 2007 and 2006, respectively.

The Company’s net revenues increased 11.4% for the year ended July 31, 2007 when compared to the year ended July 31, 2006. Higher per unit selling prices and higher pasta sales volumes contributed to the increase. Benefits derived from increased per unit selling prices and higher pasta sales volumes were partially offset by higher durum costs. Freight cost increases during fiscal year 2006 were driven by a combination of higher diesel fuel prices and reduced rail and truck availability. The Company’s freight costs stabilized in fiscal year 2007.

During fiscal year 2006, the Company initiated a $15 million capital project at its New Hope, Minnesota facility to better balance its pasta production capabilities and improve operating costs. A main component of this project was the installation of a new, state-of-the-art short goods production line. The new short goods line, which became operational during the Company’s second quarter of fiscal 2006, increased the New Hope plant’s capacity by 35% to approximately 230 million pounds annually. The remainder of the project was completed in fiscal year 2007. Higher conversion costs per unit at the New Hope facility during the installation and start-up of the new production equipment negatively impacted the Company’s results for fiscal year 2006 and the first half of fiscal year 2007. The Company also recorded a $683,000 and $598,000 loss on disposal during the year ended July 31, 2007 and 2006, respectively, related to the retirement of certain equipment in conjunction with the capital project at the New Hope facility.

The Company increased its economic ownership in DNA Dreamfields to 47% effective May 2005. DNA Dreamfields was originally formed by the Company and other food technology, manufacturing and consumer products marketing enterprises to develop, manufacture and sell low digestible carbohydrate pasta, rice and potatoes under the Dreamfields^TM brand name. In conjunction with the Company’s increase in ownership in DNA Dreamfields, the DNA Dreamfields operating agreement was amended whereby Dakota Growers was named the managing member of DNA Dreamfields. The Company is the exclusive manufacturer of DreamfieldsTM pasta, and provides administrative, accounting, information technology, sales, customer service and distribution services to DNA Dreamfields.

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Effective September 21, 2007, the Company acquired the remaining units of DNA Dreamfields, increasing its ownership to 100%. Pursuant to the terms of the purchase agreement, the Company acquired the remaining units for an aggregate purchase price of $2,231,614. In conjunction with this purchase, the Company eliminated the noncontrolling interests and reduced recorded goodwill associated with DNA Dreamfields in the Company’s first quarter of fiscal year 2008. The Company will continue to include DNA Dreamfields in its consolidated financial statements.

The Company believes that the DreamfieldsTMline of products is well suited for consumers seeking healthy eating alternatives. DreamfieldsTM pasta has a 65% lower glycemic index than regular pasta as well as 5 grams of digestible carbs and 5 grams of fiber per serving. The DreamfieldsTM pasta products carry a higher selling price and higher profit margins than traditional pasta.

In 2005, a new trend toward high fiber products developed, displacing some of the low carbohydrate consumption. While still small relative to the total pasta category, the consumption of these whole wheat/whole grain products continues to grow. DreamfieldsTM pasta offers fiber benefits similar to the levels of other whole wheat/whole grain pastas while maintaining the integrity of the taste and low carbohydrate traits. Dakota Growers also manufactures and sells traditional whole wheat/whole grain pastas.

The cost of production of dry pasta is significantly impacted by changes in durum wheat market prices, which have varied widely in recent years. The Company attempts to manage the risk associated with durum wheat cost fluctuations through cost pass-through mechanisms with our customers and forward purchase contracts for durum wheat. Volatility with respect to the price of the basic raw material for the Company’s products leaves it subject to wide variation in its costs from year to year. As a result, factors which impact the size and quality of the durum wheat crop and the availability of such wheat in the United States and Canada can have a material adverse impact on the Company. Those factors include such variables as producer strategies, the weather in durum wheat production areas in the United States, Canada and other parts of the world, and import and export policies and regulations. Durum market prices escalated during fiscal year 2007 and are continuing to increase sharply in the first quarter of fiscal year 2008. The Company has generally been successful in obtaining price increases to offset the higher cost of durum. However, any inability by the Company to obtain sales price increases to offset increases in durum costs may negatively impact the Company’s future financial results.

Critical Accounting Policies

The accompanying discussion and analysis of the Company’s results of operations and financial condition are based upon its 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. 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.

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Allowance for Doubtful Accounts

We evaluate the collectibility 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 would deteriorate, additional allowances may be required in the future which 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, 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 fair values and future cash flows related to these assets. The Company used a discounted cash flow analysis in evaluating goodwill for impairment in fiscal years 2007 and 2006 and determined that no impairment charges were necessary.  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 July 31, 2007 will be realized through the generation of future taxable income and tax planning strategies.

Basis of Presentation

Effective May 1, 2005, the Company began to include DNA Dreamfields in its consolidated financial statements.  The financial statements for prior fiscal years have not been restated and therefore do not include consolidated data pertaining to DNA Dreamfields. The Company has included consolidated amounts for DNA Dreamfields in the income statement for the years ending July 31, 2007, 2006 and 2005. See Note 2 of the consolidated financial statements for additional information.

Results of Operations

Comparison of Fiscal Years ended July 31, 2007 and 2006

Net Revenues. Net revenues increased $19.6 million, or 11.4%, to $191.1 million for the year ended July 31, 2007, from $171.5 million for the year ended July 31, 2006. The increase resulted from higher per unit selling prices and higher pasta sales volumes, particularly in the ingredient market.

Revenues from the retail market, a portion of which includes co-pack and governmental sales, increased $4.6 million, or 5.6%, for the year ended July 31, 2007 due to a 7.8% increase in average selling prices offset by a

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2.1% decrease in volume. Foodservice revenues increased $4.3 million, or 8.6%, for the year ended July 31, 2007 due to a 6.2% increase in average selling prices and a 2.3% increase in volume. Ingredient revenues increased $7.1 million, or 25.1%, due to a 7.7% increase in average selling prices and a 16.2% increase in volume.

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 for the year ended July 31, 2007 totaled $15.3 million, an increase of $3.6 million from the prior year. The increase was primarily due to higher per unit selling prices of millfeed and semolina and to a lesser degree an increase in semolina and millfeed sales volumes.

Cost of Goods Sold. Cost of goods sold totaled $165.6 million for the year ended July 31, 2007, an increase of  11.2% compared to the $148.9 million reported for the year ended July 31, 2006. The increase was primarily due to higher durum costs and higher sales volumes. Gross profit as a percentage of net revenues increased to 13.3% in fiscal year 2007 compared to 13.2% in fiscal year 2006 as benefits realized from sales price increases were partially offset by higher durum costs.

Marketing, General and Administrative (“MG&A”) Expenses. MG&A expenses decreased $1.2 million, or 8.5%, to $13.0 million for the year ended July 31, 2007, from $14.2 million for the year ended July 31, 2006. The decrease is primarily due to the reduction in consumer advertising for DreamfieldsTM pasta products. MG&A expenses as a percentage of net revenues decreased from 8.3% to 6.8%.

Interest Expense. Interest expense for the year ended July 31, 2007 totaled $2.8 million, up $0.2 million from $2.6 million for the year ended July 31, 2006. The increase was due to higher interest rates as well as  an increase in outstanding debt as a result of the tender offer that occurred during fiscal year 2007. Cash and equity patronage refunds received from CoBank totaling $132,000 and $144,000 have been netted against interest expense for the years ended July 31, 2007 and 2006, respectively.

Gain (Loss) on Disposition of Property, Equipment and Other Assets. The Company incurred a loss on disposition of $0.6 million during fiscal year 2007. Virtually all of this loss was related to the retirement of certain equipment in conjunction with the capital project at the New Hope, Minnesota facility.

Other Income, net. Other income totaled $1.2 million for the year ended July 31, 2007 and $1.0 million for the year ended July 31, 2006. 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 net payments in the amount of $1.3 million and $1.1 million in fiscal years 2007 and 2006, 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, the amount of expenditures by domestic pasta producers and the amount of antidumping and countervailing duties collected by Customs.

Noncontrolling Interests. Noncontrolling interests reflects the portion of the DNA Dreamfields net loss allocable to the other members of DNA Dreamfields. The loss allocated to those other members totaled $0.1 million and $0.9 million for the years ended July 31, 2007 and 2006, respectively. The $0.8 million decrease was due to a reduction in the net loss reported by DNA Dreamfields for the year ended July 31, 2007, when compared to the prior year.

Income Taxes. Income tax expense for the years ended July 31, 2007 and 2006 totaled $3.8 million and $2.8 million, respectively, reflecting an effective corporate income tax rate of approximately 37% and 39%, respectively.

Net Income. Net income for the year ended July 31, 2007 totaled $6.6 million, an increase of $2.2 million compared to net income of $4.4 million for the year ended July 31, 2006. Net earnings available to common

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shareholders for the years ended July 31, 2007 and 2006 totaled $6.5 million and $3.9 million, respectively, after reducing net income for dividends declared on preferred stock.

Comparison of Fiscal Years ended July 31, 2006 and 2005

Net Revenues. Net revenues increased $15.9 million, or 10.2%, to $171.5 million for the year ended July 31, 2006, from $155.6 million for the year ended July 31, 2005. The increase resulted from higher pasta sales volumes, particularly in the  ingredient market.

Revenues from the retail market, a portion of which includes co-pack and governmental sales, increased $5.0 million, or 6.6%, for the year ended July 31, 2006 due to a 3.7% increase in average selling prices and a 2.8% increase in volume. Foodservice revenues increased $3.1 million, or 6.5%, for the year ended July 31, 2006 due to a 2.5% increase in average selling prices and a 4.0% increase in volume. Ingredient revenues increased $6.6 million, or 30.7%, due to increased sales volumes to new and existing customers.

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 for the year ended July 31, 2006 totaled $11.7 million, an increase of $1.2 million from the prior year. The increase was primarily due to higher semolina sales volumes.

Cost of Goods Sold. Cost of goods sold totaled $148.9 million for the year ended July 31, 2006, an increase of  9.3% compared to the $136.2 million reported for the year ended July 31, 2005. The increase was mainly due to higher sales volumes relative to the prior year. Gross profit as a percentage of net revenues increased to 13.2% in fiscal year 2006 compared to 12.5% in fiscal year 2005, largely due to benefits derived from lower durum costs, which were partially offset by the negative impacts of higher freight costs.

Marketing, General and Administrative (“MG&A”) Expenses. MG&A expenses decreased $2.3 million, or 14.0%, to $14.2 million for the year ended July 31, 2006, from $16.5 million for the year ended July 31, 2005. The decrease is primarily due to the reduction in consumer advertising for DreamfieldsTM pasta products. MG&A expenses as a percentage of net revenues decreased from 10.6% to 8.3%.

Interest Expense. Interest expense for the year ended July 31, 2006, totaled $2.6 million, up $0.3 million from $2.3 million for the year ended July 31, 2005. The increase was mainly due to higher interest rates. Cash and equity patronage refunds received from CoBank totaling $144,000 and $114,000 have been netted against interest expense for the years ended July 31, 2006 and 2005, respectively.

Gain (Loss) on Disposition of Property, Equipment and Other Assets. The Company incurred a Loss on Disposition of $0.5 million during fiscal year 2006. Virtually all of this loss was related to the retirement of certain equipment in conjunction with the capital project at the New Hope, Minnesota facility.

Other Income, net. Other income totaled $1.0 million and $0.4 million for the years ended July 31, 2006 and 2005. The Company received net payments in the amount of $1.1 million and $0.4 million in fiscal years 2006 and 2005, 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, the amount of expenditures by domestic pasta producers and the amount of antidumping and countervailing duties collected by Customs.

Noncontrolling Interests. Noncontrolling interests reflects the portion of the DNA Dreamfields net loss allocable to the other members of DNA Dreamfields. The loss allocated to those other members totaled $0.9 million and $3.0 million for the years ended July 31, 2006 and 2005, respectively. The $2.1 million decrease was due to a reduction in the net loss reported by DNA Dreamfields for the year ended July 31, 2006, when compared to the prior year, partially offset by the Company’s increased ownership interest in DNA Dreamfields.

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Income Taxes. Income tax expense for the years ended July 31, 2006 and 2005 totaled $2.8 million and $1.6 million, respectively, reflecting an effective corporate income tax rate of approximately 39%.

Net Income. Net income for the year ended July 31, 2006 totaled $4.4 million, an increase of $1.9 million compared to net income of $2.5 million for the year ended July 31, 2005. Net earnings available to common shareholders for the year ended July 31, 2006 totaled $3.9 million 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. Net working capital as of July 31, 2007 was $20.8 million compared to $23.3 million as of July 31, 2006.

Effective May 31, 2007, the Company secured a $25 million revolving credit facility with CoBank that extends through May 29, 2008. Interest on the revolving line is at the 7-day 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 7-day LIBOR rate within a range of 175 to 275 basis points above the 7-day LIBOR rate.  Fixed interest rate options are also available. Balances outstanding under this revolving line of credit arrangement totaled $7.4 million as of July 31, 2007. There was no balance outstanding under this revolving line of credit arrangement as of July 31, 2006. The Company had $17.6 million available for borrowings under the line of credit as of July 31, 2007.

On February 14, 2007 the Company entered into a $20 million term loan agreement with CoBank to partially fund the tender offer to purchase up to 3,920,000 shares of our common stock at $10.00 per share in cash. Availability under the term loan was contingent upon at least 50% of the aggregate purchase price of the shares in the tender offer coming from proceeds of the sale of equity securities to MVC Capital, Inc. and La Bella Holdings, LLC. The Company must repay this term loan in 14 equal quarterly installments beginning in May 2011 and concluding in November 2014.  Interest on the term loan is at the 7-day LIBOR rate subject to performance adjustments depending upon the Company’s ratio of total debt to EBITDA. The higher the ratio the higher the adjustment to the 7-day LIBOR rate within a range of 175 to 275 basis points above the 7-day LIBOR rate.  Fixed interest rate options are also available.

On May 10, 2007, the Company closed the sale of 1 million shares of Series F convertible preferred stock to MVC Capital, Inc. and the sale of 1 million shares of common stock to LaBella Holdings, LLC at a purchase price of $10.00 per share. The Company also received $20 million in loan proceeds under a term loan agreement with CoBank.  With the net proceeds of $38.8 million from these financing transactions and working capital provided by the Company, Dakota Growers accepted 3,917,519 shares of common stock that had been properly tendered to the Company at $10.00 per share net in cash pursuant to the Company’s tender offer, which expired on April 27, 2007.

The Company also has a $19.0 million term loan facility with CoBank. The balance outstanding under the term loan was $17.0 million as of July 31, 2007 and no further borrowings are available under this term loan facility.

The Master Loan Agreement with CoBank contains certain restrictive covenants including, but not limited to, financial covenants which require the Company to maintain, at the end of each of the Company’s fiscal quarters, a minimum current ratio of 1.20 to 1.00, a maximum total debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”)  of 4.25 to 1.00, a minimum fixed charge ratio of 1.00 to 1.00 through and including April 30, 2008 and 1.15 to 1.00 thereafter, and a minimum tangible net worth level of at least $25 million adjusted for subsequent earnings and capital contributions.

The Company’s long-term financing is also provided through secured notes held by institutional investors. The Note Purchase Agreement (as amended) with the institutional investors requires the Company to maintain the

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following: (a) consolidated net worth of not less than the sum of (1) $27,000,000 plus (2) an aggregate amount equal to 30% of consolidated net income for each completed fiscal year beginning with the fiscal year ended July 31, 1998, (b) a trailing twelve month ratio of consolidated cash flow to consolidated fixed charges of not less than 2.0 to 1.0 at the end of each fiscal quarter, and (c) a ratio of consolidated funded debt to consolidated cash flow ratio not to exceed 3.0 to 1.0 determined at the end of each fiscal quarter for the immediately preceding four fiscal quarters. The Notes (as amended) require the rate of interest on the unpaid balance be increased by one percent at any time that either (a) the ratio of the Company’s consolidated funded debt to consolidated cash flow is greater than 3.0 to 1.0 as of the end of each fiscal quarter for the immediately preceding four fiscal quarters or (b) the Securities Valuation Office of the National Association of Insurance Commissioners has not assigned a designation category of “1” or “2” to the Notes.

The Company was in compliance with all debt covenants as of July 31, 2007 and the date of this filing.

Net cash from operations totaled $6.0 million, $19.1 million and $12.7 million for the years ended July 31, 2007, 2006 and 2005, respectively. The $13.1 million net decrease from fiscal year 2006 to 2007 was attributable to an increase in receivables and inventories offset by an increase in net income. The $6.4 million net increase from fiscal year 2005 to 2006 was attributable to a $1.9 million increase in net income, a decrease in receivables and inventories, and an increase in accounts payable. In March 2005, the Company entered into an agreement with U.S. Foodservice which finalized the economic terms and conditions governing the purchase of dry pasta products by U.S. Foodservice from the Company. The agreement included provisions to apply accrued promotional amounts to marketing prepayments which reduced the time to recover the unamortized portion of these marketing prepayments made to U.S. Foodservice. The agreement also eliminated the Company’s right to be the exclusive supplier of dry pasta products to U.S. Foodservice and does not provide for minimum purchase commitments by U.S. Foodservice.

Net cash used for investing activities totaled $5.6 million, $10.8 million, and $16.0 million for the years ended July 31, 2007, 2006 and 2005, respectively. A majority of the net cash used for investing activities for the year ended July 31, 2007 and 2006 related to capital expenditures for the New Hope facility upgrade project. A majority of the net cashed used for fiscal year 2005 related to increased fixed asset expenditures in conjunction with the New Hope production upgrade project and increased investments in DNA Dreamfields.

Net cash used for financing activities totaled $0.7 million and $8.2 million for the years ended July 31, 2007 and 2006. Net cash from financing activities totaled $2.9 million for the year ended July 31, 2005. The $0.7 million of net cash used for financing activities for the year ended July 31, 2007 related to payments on long-term debt and dividends.  Also included are the purchase of common stock and the costs associated with issuing and purchasing stock in conjunction with the tender offer in fiscal year 2007. These outlays were offset by the proceeds on long-term debt and the issuance of common stock and series F preferred stock. The $8.2 million of net cash used for financing activities for the year ended July 31, 2006 related primarily to principal payments on short-term and long-term debt. The $2.9 million of net cash from financing activities for the year ended July 31, 2005 included $9.1 million in borrowings under the CoBank secured term loan facility to finance the New Hope production upgrade project and investments in DNA Dreamfields offset by a $7.2 million for scheduled debt principal payments.

The Company increased its economic ownership in DNA Dreamfields from 24% to 30% effective November 2004, and to 47% effective May 2005. In connection with the May 2005 investment in DNA Dreamfields, the Company and the other member/owners of DNA Dreamfields also entered into an Amended and Restated DNA Dreamfields Company, LLC Operating Agreement, under which the Company was named as the “Managing Member” of DNA Dreamfields.  As such, the Company has authority to make all decisions with respect to DNA Dreamfields, its business, assets and operations that do not expressly require either a unanimous vote of the member/owners of DNA Dreamfields or a “Super Majority” vote of the holders of 75% of the outstanding Membership Units in DNA Dreamfields.

The Company also entered into a “2005 Line of Credit Loan Agreement” with DNA Dreamfields in fiscal year 2005.  Under that Agreement, the Company agreed to loan up to $5.0 million to DNA Dreamfields, with

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DNA Dreamfields able to repay and reborrow amounts under the Line of Credit Loan Agreement from time to time.  Interest on amounts outstanding under the Line of Credit Loan Agreement accrue from the date of any advance at a variable rate ranging from a high of the then-current LIBOR thirty day rate plus 8.0% per annum to a low of the then-current LIBOR thirty day rate plus 5.0% per annum based on the adjusted income of DNA Dreamfields.  Interest is payable on a monthly basis. Principal payments due to the Company on a monthly basis will equal DNA Dreamfields monthly net income (as determined in accordance with generally accepted accounting principles) reduced by any cash or other reserves established by DNA upon the decision of the Company as the managing member of DNA Dreamfields.  The Line of Credit Loan Agreement matures on May 31, 2010.  DNA Dreamfields is also required to comply with certain financial covenants under the Line of Credit Loan Agreement. To secure DNA Dreamfield’s obligations under the 2005 Line of Credit Loan Agreement, the member/owners of DNA Dreamfields other than the Company pledged their Membership Units in DNA Dreamfields to the Company pursuant to a “LLC Unit Pledge Agreement”.

Effective September 21, 2007, the Company acquired the remaining units of DNA Dreamfields, increasing its ownership to 100%. Pursuant to the terms of the Purchase Agreement, the Company acquired the remaining units for an aggregate purchase price of $2,231,614 or $37,393 per purchased unit. In conjunction with this purchase, the Company eliminated the noncontrolling interests and reduced recorded goodwill associated with DNA Dreamfields in the Company’s first quarter of fiscal year 2008. The Company will continue to include DNA Dreamfields in its consolidated financial statements.

The following table summarizes the Company’s contractual obligations as of July 31, 2007 (in thousands):

			Payments		Payments		Payments		Payments
			Due in Less		Due in		Due in		Due After
Contractual Obligations	Total		Than 1 Year		1-3 Years		4-5 Years		5 Years
Long-term debt	$	48,545	$	9,171	$	20,724	$	10,800	$	7,850
Capital leases	1,617		310		1,071		236		—
Interest on long-term obligations (1)	11,223		3,000		5,994		1,847		382
Durum purchase obligations	17,211		17,211		—		—		—
Warehouse obligations	2,527		2,527		—		—		—
Operating leases	580		317		263		—		—
	$	81,703	$	32,536	$	28,052	$	12,883	$	8,232

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

The Company forward contracts for a certain portion of its future durum wheat requirements. At July 31, 2007, the Company had outstanding commitments for grain purchases totaling $17.2 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.

Management believes that net cash to be provided by operating activities, along with amounts available under its line of credit will be sufficient to meet the Company’s expected capital and liquidity requirements for the foreseeable future.

Recently Issued Accounting Standards

In June 2006, the FASB issued FASB Interpretation No. 48 (FIN No. 48), “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109”, which clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48 clarifies the application of SFAS No. 109 by defining criteria that an individual tax position must meet for any part of the

22

benefit of that position to be recognized in the financial statements. Additionally, FIN No. 48 provides guidance on the measurement, de-recognition, classification and disclosure of tax positions along with the accounting for the related interest and penalties. The provisions of FIN No. 48 are effective for the fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company will be required to adopt FIN No. 48 for its fiscal year beginning August 1, 2007. The Company does not expect this Statement to have a material impact on its financial statements upon adoption. However, future changes in the Company’s income tax situation may have a material impact on the Company’s financial statements as a result of this Statement.

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

In September 2006, the U.S. Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 addresses the diversity in practice of quantifying financial statement misstatements resulting in the potential build up of improper amounts on the balance sheet. SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108 is effective in fiscal year 2007. SAB 108 allows a one-time transitional cumulative effect adjustment to beginning retained earnings for errors that were not previously deemed material, but are material under the guidance in SAB 108. The adoption of SAB 108 did not have a material effect on the Company’s financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. Other eligible items include firm commitments. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the impact that FAS 159 will have on our financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

The Company forward contracts for a certain portion of its future durum 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. The Company does not believe it is subject to any material market risk exposure with respect to interest rates, commodity prices, exchange rates, equity prices, or other market changes that would require disclosure under this item.

23

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF

DAKOTA GROWERS PASTA COMPANY, INC.

24

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee, Board of Directors and Stockholders

Dakota Growers Pasta Company, Inc.

Carrington, North Dakota

We have audited the accompanying consolidated balance sheets of Dakota Growers Pasta Company, Inc. and Subsidiary as of July 31, 2007 and 2006, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the years ended July 31, 2007, 2006, and 2005. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we do not express such an opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dakota Growers Pasta Company, Inc. and Subsidiary as of July 31, 2007 and 2006, and the results of its operations and its cash flows for each of the years ended July 31, 2007, 2006, and 2005, in conformity with accounting principles generally accepted in the United States of America.

/s/ Eide Bailly LLP

Minneapolis, Minnesota

October 25, 2007

25

DAKOTA GROWERS PASTA COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

JULY 31, 2007 AND 2006

(In Thousands, Except Share Information)

	2007			2006
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	89		$	343
Trade accounts receivable, less allowance for cash discounts and doubtful accounts of $1,048 and $1,080, respectively	18,442			14,441
Other receivables	360			91
Inventories	31,329			26,118
Prepaid expenses	1,389			2,007
Deferred income taxes	1,104			955
Total current assets	52,713			43,955
PROPERTY AND EQUIPMENT
In service	132,655			124,035
Construction in progress	776			4,093
	133,431			128,128
Less accumulated depreciation	(61,985		)	(57,198		)
Net property and equipment	71,446			70,930
INVESTMENT IN COOPERATIVE BANK	1,310			1,515
GOODWILL	16,654			16,654
OTHER ASSETS	1,043			1,195
	$	143,166		$	134,249

(continued on next page)

26

	2007		2006
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Notes payable	$	7,400	$	—
Current portion of long-term debt	9,481		6,771
Accounts payable	7,352		7,250
Excess outstanding checks over cash on deposit	1,759		704
Accrued liabilities	5,921		5,957
Total current liabilities	31,913		20,682
COMMITMENTS AND CONTINGENCIES	—		—
LONG-TERM DEBT, net of current portion	40,681		28,545
DEFERRED INCOME TAXES	13,474		12,417
OTHER LIABILITIES	—		34
Total liabilities	86,068		61,678
NONCONTROLLING INTERESTS	7,948		7,979
STOCKHOLDERS’ EQUITY
Series D delivery preferred stock, non-cumulative, $.01 par value, 11,340,841 authorized, 11,275,297 shares issued and outstanding	113		113
Series F convertible preferred stock, non-cumulative, $.01 par value, 2,100,000 shares authorized, 1,065,000 and 0 shares issued and outstanding as of July 31, 2007 and July 31, 2006, respectively	11		—
Common stock, $.01 par value, 75,000,000 shares authorized, 10,192,413 and 13,169,382 shares issued and outstanding as of July 31, 2007 and July 31, 2006, respectively	102		132
Additional paid-in capital	42,798		62,872
Retained earnings	6,126		1,475
Total stockholders’ equity	49,150		64,592
Total liabilities and stockholders’ equity	$	143,166	$	134,249

See Notes to Consolidated Financial Statements

27

DAKOTA GROWERS PASTA COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED JULY 31, 2007, 2006 AND 2005

(In Thousands, Except Per Share Amounts)

	2007			2006			2005
Net revenues (net of discounts and allowances of $23,953, $26,474, and $24,184 for 2007, 2006 and 2005, respectively)	$	191,062		$	171,509		$	155,619
Cost of goods sold	165,575			148,904			136,179
Gross profit	25,487			22,605			19,440
Marketing, general and administrative expenses	12,973			14,190			16,507
Operating income	12,514			8,415			2,933
Other income (expense)
Interest expense, net	(2,772		)	(2,573		)	(2,283		)
Gain (loss) on disposition of property, equipment and other assets	(649		)	(546		)	38
Other income, net	1,222			976			428
Income before noncontrolling interests and income taxes	10,315			6,272			1,116
Noncontrolling interests	52			894			3,003
Income before income taxes	10,367			7,166			4,119
Income tax expense	3,759			2,793			1,606
Net income	6,608			4,373			2,513
Dividends on preferred stock	113			451			—
Net earnings on common stock	$	6,495		$	3,922		$	2,513
Net earnings per common share
Basic	$	0.52		$	0.30		$	0.19
Diluted	$	0.51		$	0.30		$	0.19
Weighted average common shares outstanding
Basic	12,501			13,169			13,169
Diluted	13,076			13,555			13,549
Dividends per common share	$	0.14		$	0.04		$	—

See Notes to Consolidated Financial Statements

28

DAKOTA GROWERS PASTA COMPANY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

YEARS ENDED JULY 31, 2007, 2006 AND 2005

(In Thousands)

	Series D Delivery			Series F								Additional
	Preferred Stock			Preferred Stock			Common Stock					Paid-in			Accumulated
	Shares	Amount		Shares	Amount		Shares		Amount			Capital			Earnings (Deficit)			Total
BALANCE, JULY 31, 2004	11,275	$	113	—	$	—	13,169		$	132		$	62,807		$	(4,433	)	$	58,619
Net income for the year ended July 31, 2005	—	—		—	—		—		—			—			2,513			2,513
BALANCE, JULY 31, 2005	11,275	$	113	—	$	—	13,169		$	132		$	62,807		$	(1,920	)	$	61,132
Dividends on common stock	—	—		—	—		—		—			—			(527		)	(527		)
Dividends on preferred stock	—	—		—	—		—		—			—			(451		)	(451		)
Stock-based employee compensation	—	—		—	—		—		—			65			—			65
Net income for the year ended July 31, 2006	—	—		—	—		—		—			—			4,373			4,373
BALANCE, JULY 31, 2006	11,275	$	113	—	$	—	13,169		$	132		$	62,872		$	1,475		$	64,592
Dividends on common stock	—	—		—	—		—		—			—			(1,844		)	(1,844		)
Dividends on preferred stock	—	—		—	—		—		—			—			(113		)	(113		)
Stock-based employee compensation	—	—		—	—		—		—			210			—			210
Exercise of stock options	—	—		—	—		6		—			22			—			22
Issuance of common stock	—	—		—	—		1,000		10			9,990			—			10,000
Purchase of common stock	—	—		—	—		(3,918	)	(39		)	(39,136		)	—			(39,175		)
Costs associated with issuing stock	—	—		—	—		—		—			(1,150		)	—			(1,150		)
Issuance of series F preferred stock	—	—		1,000	10		—		—			9,990			—			10,000
Conversion of common stock to series F preferred	—	—		65	1		(65	)	(1		)	—			—			—
Net income for the year ended July 31, 2007	—	—		—	—		—		—			—			6,608			6,608
BALANCE, JULY 31, 2007	11,275	$	113	1,065	$	11	10,192		$	102		$	42,798		$	6,126		$	49,150

See Notes to Consolidated Financial Statements

29

DAKOTA GROWERS PASTA COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED JULY 31, 2007, 2006 AND 2005

(In Thousands)

	2007			2006			2005
OPERATING ACTIVITIES
Net income	$	6,608		$	4,373		$	2,513
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	6,951			7,234			7,675
Undistributed patronage capital from cooperatives	(27		)	(29		)	(46		)
(Gain) loss on disposition of property, equipment and other assets	649			546			(38		)
Net loss allocated from joint venture under equity method	—			—			914
Deferred income taxes	908			998			1,038
Stock-based employee compensation	210			65			—
Accrued promotional costs applied to marketing prepayments	—			—			5,442
Noncontrolling interests	(52		)	(894		)	(219		)
Changes in assets and liabilities
Trade receivables	(4,001		)	1,747			(2,145		)
Other receivables	(269		)	320			626
Inventories	(5,211		)	1,984			(2,891		)
Prepaid expenses	214			(63		)	(508		)
Other assets	(24		)	48			(36		)
Accounts payable	102			3,053			(899		)
Other accrued liabilities	(36		)	(272		)	1,273
NET CASH FROM OPERATING ACTIVITIES	6,022			19,110			12,699
INVESTING ACTIVITIES
Purchases of property and equipment	(5,456		)	(10,755		)	(8,803		)
Investments in joint venture	—			—			(2,970		)
Other investments	69			(476		)	—
Proceeds from cooperative bank equity retirements	232			568			335
Acquisition of controlling interest in joint venture, net of cash acquired	—			—			(3,771		)
Payments for package design costs	(433		)	(180		)	(773		)
NET CASH USED FOR INVESTING ACTIVITIES	(5,588		)	(10,843		)	(15,982		)
FINANCING ACTIVITIES
Net change in excess outstanding checks over cash on deposit	1,055			(2,406		)	3,110
Net change in short-term notes payable	7,400			(10,000		)	(2,200		)
Payments on long-term debt	(6,771		)	(4,771		)	(7,176		)
Principal payments under capital lease obligation	(133		)	—			—
Proceeds from long-term debt	20,000			9,931			9,069
Preferred stock retirements	—			(7		)	(13		)
Investments by noncontrolling interests	21			78			133
Dividends paid on common stock	(1,844		)	(527		)	—
Dividends paid on preferred stock	(113		)	(451		)	—
Issuance of common stock	10,022			—			—
Issuance of series F preferred stock	10,000			—			—
Purchase of common stock	(39,175		)	—			—
Costs associated with issuing and purchasing stock	(1,150		)	—			—
NET CASH FROM (USED FOR) FINANCING ACTIVITIES	(688		)	(8,153		)	2,923
NET CHANGE IN CASH AND CASH EQUIVALENTS	(254		)	114			(360		)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	343			229			589
CASH AND CASH EQUIVALENTS, END OF YEAR	$	89		$	343		$	229
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for
Interest (net of amounts capitalized)	$	2,780		$	2,649		$	2,363
Income taxes	$	2,989		$	1,451		$	79
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Acquisition of pasta equipment through capital lease obligation	$	1,750		$	—		$	—
Acquisition of controlling interest in joint venture:
Current assets less cash							$	38
Current liabilities							(238		)
Goodwill							16,654
Reported amount of previously held interests in joint venture							(3,802		)
Noncontrolling interests							(8,881		)
							$	3,771

See Notes to Consolidated Financial Statements

30

DAKOTA GROWERS PASTA COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JULY 31, 2007, 2006 AND 2005

NOTE 1 -       NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

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

Principles of Consolidation

The consolidated financial statements are comprised of the Company, its wholly-owned subsidiary Primo Piatto, Inc., and DNA Dreamfields Company, LLC (“DNA Dreamfields”), which the Company began to consolidate in fiscal year 2005. All material inter-company accounts and transactions have been eliminated in the preparation of the consolidated financial statements.

The Company acquired an additional 17.25% ownership interest in DNA Dreamfields, effective May 1, 2005, resulting in an increase in the Company’s ownership in DNA Dreamfields to 46.7%. As a result of the ownership increase and changes in the DNA Dreamfields operating agreement and other contractual agreements, the Company reevaluated whether DNA Dreamfields was a variable interest entity under FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities,” (FIN 46(R)). The Company determined that DNA Dreamfields was a variable interest entity and that the Company was the primary beneficiary. Therefore, effective May 1, 2005, the Company began to include DNA Dreamfields in its consolidated financial statements.  The financial statements for prior fiscal years have not been restated and therefore do not include consolidated data pertaining to DNA Dreamfields. The Company has included consolidated amounts for DNA Dreamfields in the income statement for the years ending July 31, 2005, 2006 and 2007. The Company had previously accounted for its investment in and share of net earnings or losses of its ownership interest in DNA Dreamfields Company, LLC under the equity method.

Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Reclassifications have been made to the financial statements as of July 31, 2006 and for the years ended July 31, 2006 and 2005 to facilitate comparability with the statements as of and for the years ended July 31, 2007. Such reclassifications have no effect on the net result of operations.

Risks and Uncertainties

The Company attempts to minimize the effects of durum wheat cost fluctuations mainly through forward contracting and through agreements with certain customers that provide for price adjustments based on raw material cost changes. Such efforts, while undertaken to attempt to minimize the risks associated with increasing durum costs on profitability, may temporarily prevent the Company from recognizing the benefits of declining durum prices.

31

Some of the Company’s currently outstanding debt instruments have fixed interest rates to maturity. If the Company’s operations require additional debt issuance, any changes in interest rates may have an impact on future results.

The Company’s cash balances are maintained in various bank deposit accounts. The deposit accounts may exceed federally insured limits at various times throughout the year.

Impairment and Disposal of Long-Lived Assets

The Company accounts for impairment or disposal of long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Long-lived assets to be disposed of by sale are reported at the lower of the carrying amount or fair value less costs to sell, and will cease to be depreciated. SFAS No. 144 also requires long-lived assets to be disposed of other than by sale to be considered as held and used until disposed of, requiring the depreciable life to be adjusted as an accounting change.

Goodwill

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company does not amortize goodwill. SFAS No. 142 requires that goodwill be evaluated for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company used a discounted cash flow analysis in evaluating goodwill for impairment in fiscal years 2007 and 2006 and determined that no impairment charges were necessary.

Revenue Recognition

Revenues are recognized when risk of loss transfers, which occurs when goods are shipped. Pricing terms, including promotions and rebates, are final at that time. Revenues include amounts billed for products as well as any associated shipping costs billed to deliver such products.

The Company provides allowances for annual promotional programs based upon annual sales volumes. Revenues are presented net of discounts and allowances of $23,953,000, $26,474,000 and $24,184,000 for the years ended July 31, 2007, 2006 and 2005, respectively.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and in financial institutions, and investments with maturities of less than 90 days.

Trade Accounts Receivable and Major Customers

The Company grants unsecured credit to certain customers who meet the Company’s credit requirements. Trade accounts receivable are uncollateralized customer obligations due under normal terms and are generally non-interest bearing. Payments on trade receivables are allocated to specific invoices identified on a customer’s remittance advice or, if unspecified, are generally applied to the earliest unpaid invoices. The carrying amount of

32

the receivables is reduced by an amount that reflects management’s best estimate of amounts that will not be collected. Trade accounts receivable are presented net of allowances for cash discounts and doubtful accounts, which totaled $1,048,000 and $1,080,000 as of July 31, 2007 and 2006, respectively.

One customer accounted for 22% and 15% of accounts receivable as of July 31, 2007 and 2006, respectively and 12%, 12% and 13% of net revenues for the years ended July 31, 2007, 2006 and 2005, respectively.

	Balance at Beginning of Year		Charged to Costs and Expenses		Deductions from Allowance			Balance at End of Year
Allowance for cash discounts:
Year ended July 31, 2007	$	180	$	2,592	$	(2,559	)	$	213
Year ended July 31, 2006	157		2,695		(2,672		)	180
Year ended July 31, 2005	159		2,560		(2,562		)	157
Allowance for doubtful accounts:
Year ended July 31, 2007	$	900	$	9	$	(74	)	$	835
Year ended July 31, 2006	1,350		640		(1,090		)	900
Year ended July 31, 2005	1,050		399		(99		)	1,350
Allowance for cash discounts
and doubtful accounts:
Year ended July 31, 2007	$	1,080	$	2,601	$	(2,633	)	$	1,048
Year ended July 31, 2006	1,507		3,335		(3,762		)	1,080
Year ended July 31, 2005	1,209		2,959		(2,661		)	1,507

Inventories

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 major components of inventories as of July 31, 2007 and 2006 are as follows (in thousands):

	2007		2006
Finished goods	$	22,873	$	19,589
Raw materials and packaging	8,456		6,529
	$	31,329	$	26,118

Concentration of Sources of Labor

The Company’s total hourly and salaried workforce consists of approximately 435 employees, of which 32% are covered by collective bargaining agreements. The expiration dates of the union contracts are December 1, 2007 and September 30, 2008. Approximately 26% of the Company’s workforce is covered by the collective bargaining agreement expiring September 30, 2008.

33

Property and Equipment

Property and equipment are stated at cost. Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. When depreciable properties are retired or sold, the cost and related accumulated depreciation are eliminated from the accounts and the resultant gain or loss is reflected in income. Interest is capitalized on construction projects of higher cost and longer duration.

The initial acquisition of land by the Company was stated at the estimated fair value of the land at acquisition. Subsequent land acquisitions are recorded at cost.

Depreciation is provided for over the estimated useful lives of the individual assets using the straight-line method. The estimated useful lives used in the computation of depreciation expense range from 3 to 40 years. Depreciation expense totaled $6,007,000, $5,686,000 and $5,357,000 for the years ended July 31, 2007, 2006 and 2005, respectively.

Details relative to property and equipment are as follows (in thousands):

	2007			2006
Land and improvements	$	2,952		$	2,934
Buildings	23,114			22,899
Equipment	106,589			98,202
Property and equipment in service	132,655			124,035
Construction in progress	776			4,093
Less accumulated depreciation	(61,985		)	(57,198		)
	$	71,446		$	70,930

Investment in Cooperative Bank

Investment in cooperative bank is stated at cost, plus unredeemed patronage refunds received in the form of capital stock.

Other Assets

The Company capitalizes package design costs, which relate to certain third party costs to design artwork and to produce die plates and negatives necessary to manufacture and print packaging materials according to Company and customer specifications. These costs are amortized ratably over three to five year periods based on estimated useful life. Minor revisions are expensed as incurred. If a product design is discontinued or replaced prior to the end of the amortization period, the remaining unamortized balance is charged to expense. Package design costs are presented net of accumulated amortization totaling $5,281,000 and $4,849,000 as of July 31, 2007 and 2006, respectively.

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The breakdown of other assets, net of accumulated amortization, is as follows (in thousands):

	2007		2006
Package design costs	$	575	$	555
Other	468		640
	$	1,043	$	1,195

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	2007		2006
Accrued promotional costs	$	2,151	$	2,213
Accrued interest	647		664
Accrued freight	582		418
Other	2,541		2,662
	$	5,921	$	5,957

Shipping and Handling Costs

Shipping and handling costs are included in cost of goods sold upon shipment of the Company’s product to its customers.

Advertising

Costs of advertising are expensed as incurred. Advertising expenses included in the consolidated income statement totaled $2,089,000, $2,808,000 and $5,062,000 (primarily related to consumer advertising for Dreamfields^TM  pasta products) for the years ended July 31, 2007, 2006 and 2005, respectively.

Research and Development

Research and development costs are expensed as incurred. Research and development expenses included in the consolidated income statement for the years ended July 31, 2007, 2006 and 2005 totaled $602,000, $730,000 and $1,059,000, respectively, including $415,000, $229,000 and $551,000, respectively, incurred by DNA Dreamfields which the Company began to consolidate in fiscal year 2005.

Interest Expense, Net

The Company earns patronage refunds from its patronage-based debt issued through CoBank based on its share of the net interest income earned by CoBank. These patronage refunds received are applied against interest expense.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates

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expected to apply when the differences are expected to reverse. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.

Stock Options

Effective August 1, 2005, the Company adopted Statement of Financial Accounting Standard No. 123 (revised 2004), “Share Based Payment” (SFAS No. 123R). Under SFAS No. 123R, the Company is required to recognize, as expense, the estimated fair value of all share based payments to employees. In accordance with this standard, 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.

Prior to adopting SFAS No. 123R, the Company had elected to follow Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for its employee stock options and had adopted the pro forma disclosure requirements under SFAS No. 123, “Accounting for Stock-Based Compensation.” Prior to August 1, 2005, the Company had not recognized any compensation expense under APB No. 25 upon the granting or exercise of stock options because the exercise price was equal to or greater than the market price of the underlying stock on the date of grant.

Earnings per Share

Basic Earnings per Share (EPS) is calculated by dividing net earnings on common stock by the weighted average number of common shares effective and outstanding during the period. Diluted EPS includes the effect of all potentially dilutive securities, such as options and convertible preferred stock.

Dilutive securities, consisting of stock options and convertible preferred stock, included in the calculation of diluted weighted average common shares totaled 575,000 shares, 386,000 shares and 380,000 shares for the years ended July 31, 2007, 2006 and 2005, respectively. The series F convertible preferred stock is included in the fully diluted EPS calculation and not included in the basic EPS calculation. 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 for purposes of calculating diluted EPS.

Recently Issued Accounting Standards

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”. SFAS 154 replaces Accounting Principles Board Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements-An Amendment of APB Opinion No. 28”. SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. SFAS 154 requires “retrospective application” of the direct effect of a voluntary change in accounting principle to prior periods’ financial statements where it is practicable to do so. SFAS 154 also redefines the term “restatement” to mean the correction of an error by revising previously issued financial statements. SFAS 154 is effective for accounting changes and error corrections made in fiscal years beginning after December 15, 2005 unless adopted early. The adoption of this accounting standard did not have a material impact on the consolidated financial position, results of operations or cash flows, except to the extent that the statement subsequently requires retrospective application of a future item.

In June 2006, the FASB issued FASB Interpretation No. 48 (FIN No. 48), “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109”, which clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48 clarifies the application of SFAS No. 109 by defining criteria that an individual tax position must meet for any part of the

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benefit of that position to be recognized in the financial statements. Additionally, FIN No. 48 provides guidance on the measurement, de-recognition, classification and disclosure of tax positions along with the accounting for the related interest and penalties. The provisions of FIN No. 48 are effective for the fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company will be required to adopt FIN No. 48 for its fiscal year beginning August 1, 2007. The Company does not expect this Statement to have a material impact on its financial statements upon adoption. However, future changes in the Company’s income tax situation may have a material impact on the Company’s financial statements as a result of this Statement.

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

In September 2006, the U.S. Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 addresses the diversity in practice of quantifying financial statement misstatements resulting in the potential build up of improper amounts on the balance sheet. SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108 is effective in fiscal year 2007. SAB 108 allows a one-time transitional cumulative effect adjustment to beginning retained earnings for errors that were not previously deemed material, but are material under the guidance in SAB 108. The adoption of SAB 108 did not have a material effect on the Company’s financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. Other eligible items include firm commitments. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the impact that FAS 159 will have on our financial statements.

NOTE 2-        DNA DREAMFIELDS COMPANY, LLC

DNA Dreamfields was formed by the Company and other food technology, manufacturing and consumer products marketing enterprises to develop, manufacture and sell low digestible carbohydrate pasta, rice and potatoes under the Dreamfields^TM brand name. The Company initially acquired a 24% ownership interest in DNA Dreamfields during fiscal year 2004. At that time, the Company accounted for the investment using the equity method after reviewing the applicability of FIN 46(R) to the Company’s interest in DNA Dreamfields. The Company increased it economic ownership in DNA Dreamfields to 29.5% in November 2004.

The Company acquired an additional 17.25% ownership interest in DNA Dreamfields effective May 1, 2005, resulting in an increase in the Company’s ownership in DNA Dreamfields to 46.7%. In conjunction with the

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Company’s increase in ownership in DNA Dreamfields, the DNA Dreamfields operating agreement was amended whereby Dakota Growers was named the managing member of DNA Dreamfields. As a result of the ownership increase and changes in the DNA Dreamfields operating agreement and other contractual agreements, the Company reevaluated whether DNA Dreamfields was a variable interest entity under FIN 46(R). The Company determined that DNA Dreamfields was a variable interest entity and that the Company was the primary beneficiary. Therefore, effective May 1, 2005, the Company began to include DNA Dreamfields in its consolidated financial statements. Goodwill totaling $16,654,000 was recorded in conjunction with the Company’s consolidation of DNA Dreamfields. The financial statements for prior fiscal years have not been restated and therefore do not include consolidated data pertaining to DNA Dreamfields. The Company has included consolidated amounts for DNA Dreamfields in the income statements for the years ending July 31, 2007, 2006 and 2005. The Company had previously accounted for its investment in and share of net earnings or losses of its ownership interest in DNA Dreamfields Company, LLC under the equity method.

The Company has entered into a manufacturing agreement with DNA Dreamfields whereby Dakota Growers is the exclusive manufacturer of Dreamfields^TM pasta. The Company has also entered into a services agreement with DNA Dreamfields under which the Company provides administrative, accounting, information technology, sales, customer service and distribution services to DNA Dreamfields.

Pursuant to the terms of the services agreement with DNA Dreamfields, sales of Dreamfields^TM products are included in the Company’s net revenues. Manufacturing, distribution, and promotional costs incurred by the Company related to Dreamfields^TM products are included in the applicable line items of the Company’s income statement. The Company calculates a net amount due to DNA Dreamfields based on the total sales of Dreamfields^TM product less related Dreamfields^TM product and selling costs, as outlined in the manufacturing agreement. All material inter-company accounts and transactions have been eliminated in the preparation of the consolidated financial statements as of and for the years ended July 31, 2007, 2006 and 2005.

The Company entered into a “2005 Line of Credit Loan Agreement” with DNA Dreamfields in fiscal year 2005. Under that Agreement, the Company has agreed to loan up to $5,000,000 to DNA Dreamfields, with DNA Dreamfields able to repay and reborrow amounts under the Line of Credit Loan Agreement from time to time. The Line of Credit Loan Agreement matures on May 31, 2010. The balance outstanding related to advances to DNA Dreamfields under the Line of Credit Loan Agreement totaled $2,283,000 and $2,184,000 as of July 31, 2007 and July 31, 2006, respectively. These amounts have been eliminated in the preparation of the consolidated financial statements. To secure the obligations of DNA Dreamfields under the 2005 Line of Credit Loan Agreement, the other member/owners of DNA Dreamfields have pledged their Membership Units in DNA Dreamfields to the Company.

The Company acquired the remaining shares of DNA Dreamfields effective September 21, 2007, increasing its ownership to 100%. See Note 17 - Subsequent Events.

NOTE 3 -       SHORT-TERM NOTES PAYABLE

Effective May 31, 2007, the Company secured a $25 million revolving credit facility with CoBank that extends through May 29, 2008. Interest on the revolving line is at the 7-day 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 7-day LIBOR rate within a range of 175 to 275 basis points above the 7-day LIBOR rate.  Fixed interest rate options are also available. Balances outstanding under this revolving line of credit arrangement totaled $7.4 million as of July 31, 2007. There was no balance outstanding under this revolving line of credit arrangement as of July 31, 2006. The Company had $17.6 million available for borrowings under the line of credit as of July 31, 2007. Weighted average interest rates on

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short-term borrowings were 7.48%, 6.40% and 4.84% for the years ended July 31, 2007, 2006 and 2005, respectively.

NOTE 4 -       LONG-TERM DEBT

Information regarding long-term debt at July 31, 2007 and 2006 is as follows (in thousands):

	2007		2006
Non-patronage term loan from CoBank due in annual principal
installments of $1,200,000 through September 30, 2008,
interest at 5.71%, collateralized by all assets of the Company	2,400		3,600
Senior Secured Guaranteed Notes, Series A, due in annual
principal installments of $2,571,000 through August 1, 2008,
interest at 8.04%, collateralized by all assets of the Company	5,145		7,716
Senior Secured Guaranteed Notes, Series B, due in annual
principal installments of $1,000,000 through August 1, 2010,
interest at 8.14%, collateralized by all assets of the Company	4,000		5,000
Term loan from CoBank due in quarterly installments of
$ 500,000 for four quarters starting August 20, 2006 and of
$ 1,100,000 quarterly thereafter through May 20, 2011,
variable interest (7.59% at July 31, 2006; 7.07% at July 31, 2007),
collateralized by all assets of the Company	17,000		19,000
Term loan from CoBank due in quarterly installments of
$ 1,350,000 for fourteen quarters starting May 2011 and a
$ 1,100,000 final payment on November 20, 2014,
variable interest (7.07% at July 31, 2007),
collateralized by all assets of the Company	20,000		—
Capital lease, five year term through March 31, 2012,
fixed interest at 6.98%	1,617		—
Total long-term debt	50,162		35,316
Less current portion	9,481		6,771
Net long-term debt	$	40,681	$	28,545

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Aggregate future maturities required on long-term debt and capital leases are as follows (in thousands):

Years ending July 31,
2008	9,481
2009	9,507
2010	5,756
2011	6,532
2012	5,636
Thereafter	13,250
	$	50,162

The Company has a $2,400,000 letter of credit commitment with CoBank, securing the non-patronage loan from CoBank. The letter of credit commitment is subject to a commitment fee of 1.0% on an annualized basis and expires December 31, 2008. Advances on the letter of credit commitment are payable on demand.

The Company’s debt agreements with CoBank and the institutional note holders obligate the Company to maintain or achieve certain amounts of equity and financial ratios and impose restrictions on the Company. The Company was in compliance with these financial covenants as of July 31, 2007.

The Company incurred $3,013,000, $2,960,000 and $2,518,000 of interest on long and short-term debt and other obligations in fiscal years 2007, 2006 and 2005, respectively, of which $109,000, $243,000 and $121,000 was capitalized in the respective periods. Patronage income from CoBank of $132,000, $144,000 and $114,000 was netted against interest expense on the statement of operations for the years ended July 31, 2007, 2006 and 2005, respectively.

On February 14, 2007 the Company entered into a $20 million term loan agreement with CoBank to partially fund a tender offer to purchase up to 3,920,000 shares of the Company’s common stock at $10.00 per share in cash. Availability under the term loan was contingent upon at least 50% of the aggregate purchase price of the shares in the tender offer coming from proceeds of the sale of equity securities to MVC Capital, Inc. and La Bella Holdings LLC. The Company must repay this term loan in quarterly installments beginning in May 2011 and concluding in November 2014.  Interest on the term loan is at the 7-day LIBOR rate subject to performance adjustments depending upon the Company’s ratio of total debt to EBITDA. The higher the ratio the higher the adjustment to the 7-day LIBOR rate within a range of 175 to 275 basis points above the 7-day LIBOR rate.  Fixed interest rate options are also available.

NOTE 5 –      STOCKHOLDERS’ EQUITY

The Company is authorized to issue 75,000,000 shares of Common Stock, $.01 par value per share, 533 shares of Series A Preferred Stock, $100 par value per share, 525 shares of Series B Preferred Stock, $100 par value per share, 2,731 shares of Series C Preferred Stock, $100 par value per share, 11,340,841 shares of Series D Delivery Preferred Stock, $.01 par value per share, 130,000 shares of Series E Junior Participating Preferred Stock, $.01 par value per share, 2,100,000 shares of Series F Convertible Preferred Stock, $.01 par value per share and 11,425,370 shares of undesignated preferred stock, $.01 par value per share.

Holders of Series C Preferred Stock shall receive payment of a non-cumulative annual dividend at the rate of 6% of the $100 par value on each share of Series C Preferred Stock. Each share of Series C Preferred Stock is convertible into 24 shares of Common Stock and 24 shares of Series D Delivery Preferred Stock of the Company. The conversion ratio shall be proportionately adjusted at any time the outstanding shares of Common Stock are increased or decreased without payment by or to the Company or the Company’s shareholders.

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Each share of Series D Delivery Preferred Stock of the Company gives its holder the privilege, but not the obligation, to deliver one bushel of durum wheat to the Company each year on a “first-come, first-served” basis. Because the privilege of a holder of Series D Delivery Preferred Stock to deliver durum wheat to the Company only arises if the Company requires durum, the privilege is not absolute. Holders of Series D Delivery Preferred Stock will be entitled to receive, if and when declared by the Board of Directors, a non-cumulative annual dividend of up to $.04 per share on each share of Series D Delivery Preferred Stock held by such holder. The Company must pay holders of Series D Delivery Preferred Stock a dividend of at least $.01 per share before paying any dividends on Common Stock.

Holders of Series F Convertible Preferred Stock have the right, exercisable at any time upon sixty-five (65) days’ written notice to the Company, to convert any number of the holder’s shares of Series F Preferred Stock into an equal number of shares of the Company’s Common Stock, par value $.01 per share. Series F Convertible Preferred Stock shall not carry the right to vote on matters submitted to the vote of the shareholders of the Company. Except as otherwise provided, the Series F Preferred Stock shall have all rights of the Common Stock, including but not limited to any rights to dividends or to distributions upon liquidation.

The Board of Directors of the Company adopted a Rights Plan that became effective July 1, 2002. Under the Rights Plan, the Board of Directors of the Company has declared a dividend of one purchase right (a “Right”) for each outstanding share of Common Stock held. Each Right will entitle the holder to purchase from the Company one-hundredth of one share of Series E Junior Participating Preferred Stock at a specified price, subject to certain adjustments. The Rights will not become exercisable, and will not be transferable apart from the Company’s shares of Common Stock, until a person or group has acquired 15% or more of the Company’s Common Stock or has commenced a tender or exchange offer for 15% or more of the Company’s Common Stock. In those events, each Right will entitle the holder (other than the acquiring person or group) to receive, upon exercise, common shares of either the Company or the acquiring company having value equal to two times the exercise price of the Right. The Rights issued under the Rights Plan will be redeemable by the Company’s Board of Directors in certain circumstances and will expire ten years from the date of adoption.

On May 10, 2007, the Company closed the sale of 1 million shares of Series F convertible preferred stock to MVC Capital, Inc. (“MVC”) and the sale of 1 million shares of common stock to LaBella Holdings, LLC at a purchase price of $10.00 per share. The Company also received $20 million in loan proceeds under a term loan agreement with CoBank.  With the net proceeds of $38.8 million from these financing transactions and working capital provided by the Company, Dakota Growers purchased 3,917,519 shares of common stock that had been properly tendered to the Company at $10.00 per share net in cash pursuant to the Company’s tender offer, which expired on April 27, 2007.

The Company’s Board of Directors authorized the payment of $0.01 and $0.04 per share dividend on its Series D delivery preferred stock and a non-periodic dividend payment of $0.14 and $0.04 per share on its common stock, payable on January 3, 2007 and January 10, 2006 to shareholders of record as of December 20, 2006 and December 19, 2005, respectively.

NOTE 6 –      EMPLOYEE BENEFIT PLANS

Dakota Growers Pasta Company, Inc. and Primo Piatto, Inc. have a 401(k) plan that covers employees who have met age and service requirements. The plan covers employees who have reached 18 years of age and who have completed 500 hours of service within six months. The Company matches 100% on the first 3% of the employees’ elected deferral and 50% on the next 2%. Employer contributions to the plan totaled $537,000, $499,000 and $437,000 for the years ended July 31, 2007, 2006 and 2005, respectively.

Primo Piatto, Inc. is also required to contribute to a multi-employer pension plan covering certain hourly employees subject to a collective bargaining agreement. Such employees may also participate in the 401(k) plan but are excluded from amounts contributed by Primo Piatto. Contributions to the pension plan for the years ended July 31, 2007, 2006 and 2005 totaled $106,000, $83,000 and $51,000, respectively.

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NOTE 7 -       INCOME TAXES

Significant components of the Company’s deferred tax assets and liabilities as of July 31, 2007 and 2006 related to temporary differences are as follows (in thousands):

	2007			2006
Deferred tax assets
Accounts receivable allowances	$	409		$	421
Accrued expenses and other reserves	695			534
Other	—			68
Total deferred tax assets	1,104			1,023
Deferred tax liabilities
Property and equipment	(13,264		)	(12,485		)
Other	(210		)	—
Net deferred tax liabilities	$	(12,370	)	$	(11,462	)

Classified in the accompanying balance sheets as follows:

	2007			2006
Current assets	$	1,104		$	955
Noncurrent liabilities	(13,474		)	(12,417		)
Net deferred tax liabilities	$	(12,370	)	$	(11,462	)

At July 31, 2005, the Company had an AMT credit carryforward of $851,000, which was utilized in the year ended July 31, 2006. Management believes it is more likely than not that the deferred tax assets as of July 31, 2007 will be realized through the generation of future taxable income and tax planning strategies.

Income tax expense for the years ended July 31, 2007, 2006 and 2005 consists of the following (in thousands):

	2007		2006		2005
Current income tax expense	$	2,851	$	1,795	$	568
Deferred income taxes	908		998		1,038
Income tax expense	$	3,759	$	2,793	$	1,606

The reconciliation of the federal statutory income tax rate to the effective income tax rate for the years ended July 31, 2007, 2006 and 2005 is as follows:

	2007		2006		2005
Federal statutory income tax rate	34.0	%	34.0	%	34.0	%
State income taxes, net of
federal income tax effect	5.0		5.0		5.0
Other	(2.7	)	—		—
Effective income tax rate	36.3	%	39.0	%	39.0	%

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NOTE 8 -   FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is generally defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced liquidation sale. 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.

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 July 31, 2007 and 2006.

NOTE 9 -   OPERATING LEASES

The Company leases equipment and office space under operating lease agreements. Future obligations for operating leases for fiscal years ended July 31 are as follows (in thousands):

Year ending July 31:
2008	$	317
2009	170
2010	79
2011	14
2012	—
Thereafter	—
	$	580

Lease expense totaled $1,138,000, $1,462,000 and $1,413,000 for the years ended July 31, 2007, 2006 and 2005, respectively.

NOTE 10 -   CAPITAL LEASE

On March 30, 2007, the Company entered into a lease agreement for certain pasta equipment, which had previously been accounted for in a sale-leaseback transaction as discussed in Note 11, valued at $1.75 million. The equipment lease, which has a term of 5 years expiring on March 31, 2012, is classified as a capital lease.

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The following is a schedule by years of the future minimum lease payments under the capital lease together with the present value of the net minimum lease payments as of July 31, 2007 (in thousands):

Year ending July 31:
2008	$	413
2009	413
2010	413
2011	413
Later Years	241
Total minimum lease payments	1,893
Less: Amount representing interest	(276		)
Present value of net minimum lease payments	$	1,617

The equipment is being depreciated over its estimated useful economic life and is included in the depreciation expense for the year ending July 31, 2007.

Certain pasta equipment under capital lease at July 31, 2007 (in thousands):

	2007
Equipment	1,750
Less: Accumulated depreciation	(58	)
Total	1,692

NOTE 11 -   SALE-LEASEBACK

The Company entered into a sale-leaseback transaction effective March 29, 2002, for certain pasta production equipment. Proceeds from the sale totaled $5 million. The lease, which was classified as operating, set forth an initial term of five years and called for lease payments of $72,000 per month. At the end of the initial lease term, the Company could renew the lease at fair rental value, terminate the lease and surrender the equipment with the payment of a 10% of equipment cost remarketing fee, or purchase the equipment for $1,750,000. The Company realized a gain on the sale of $255,000, which was deferred and was amortized in proportion to the gross rentals charged to expense over the five-year lease term. The Company entered into a capital lease for this pasta production equipment on March 30, 2007 for $1.75 million as discussed in Note 10.

NOTE 12 - -   COMMITMENTS AND CONTINGENCIES

The Company forward contracts for a certain portion of its future durum wheat requirements. At July 31, 2007, the Company had outstanding commitments for grain purchases totaling $17,211,000 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.

Pursuant to certain warehouse agreements, the Company is obligated to minimum monthly storage and handling amounts totaling $2,527,000 for the year ending July 31, 2008.

The Company is subject to various lawsuits and claims which arise in the ordinary course of its business. While the results of such litigation and claims cannot be predicted with certainty, management believes the disposition of all such proceedings, individually or in aggregate, should not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

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NOTE 13 -   STOCK OPTION PLANS

On January 31, 1997 the Cooperative’s Compensation Committee of the Board of Directors (the “Compensation Committee”) adopted the Dakota Growers Incentive Stock Option Plan (the “Plan”). The Plan was ratified by the Cooperative members at the annual meeting in January 1998. The Compensation Committee or the Board of Directors has the power to determine the key management employees of the Company to receive options and the number of shares to be optioned to each of the employees. Options granted under the Plan are for the purchase of Series C Convertible Preferred Stock at fair market value, which were convertible into Equity Stock as a cooperative, and are now convertible into Common Stock and Series D Delivery Preferred Stock as a corporation at the option of the employee, under the applicable conversion ratio. The maximum number of preferred shares that may be issued pursuant to options granted under the Plan is 15,000, all of which have been issued. Each share of Series C Preferred Stock is convertible into 24 shares of Common Stock and 24 shares of Series D Delivery Preferred Stock of the Company. The conversion ratio is proportionately adjusted if the Company increases the outstanding shares of Common Stock or Series D Delivery Preferred Stock, as applicable, without payment by or to the Company or the Company’s shareholders for such additional shares (e.g. stock split, stock dividend or other action). Options granted under the Plan must be exercised within ten years from the date such options are granted. In the event of the employee’s termination with the Company, all exercisable options may be exercised within 90 days of the termination date. If not exercised, such options lapse.

The Company’s 2002 Stock Option Plan (the “2002 Plan”) was adopted by the Board of Directors on November 21, 2002. All options granted under the 2002 Plan are non-qualified stock options and are for the purchase of the Company’s Common Stock. The maximum number of shares of Common Stock that may be issued pursuant to options granted under the 2002 Plan is 294,456 shares, all of which have been issued. Stock options granted under the 2002 Plan expire 10 years from the date of grant.

On November 21, 2002 the Board of Directors adopted the Dakota Growers Pasta Company, Inc. 2003 Stock Option Plan (the “2003 Plan”), which was approved by the Company’s shareholders at the Annual Meeting on January 11, 2003. The 2003 Plan covers 500,000 shares of the Company’s Common Stock. Participation in this Plan shall be limited to officers, directors, employees, vendors or consultants of the Company or any subsidiary of the Company. Options granted under the 2003 Plan may be incentive stock options (as defined under Section 422 of the Code) or non-qualified stock options, as determined by the 2003 Plan administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated there under. The stock options generally expire 10 years from the date of grant. If the employment of the Optionee is terminated by any reason other than his or her death or disability, all exercisable options may be exercised within 90 days of the termination date. If not exercised, such options lapse.

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

	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, 2004	2,731		$	100-$150	$	112.56	2,731
Exercised	—
Granted	—
Forfeited/Expired	—
Outstanding at July 31, 2005	2,731		$	100-$150	$	112.56	2,731
Exercised	—
Granted	—
Forfeited/Expired	(754	)	$	100	$	100
Outstanding at July 31, 2006	1,977		$	100-$150	$	117.35	1,977
Exercised	—
Granted	—
Forfeited/Expired	—
Outstanding at July 31, 2007	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, 2004	374,980		$	4.25-$6.25	$	5.82	294,456
Exercised	—
Granted	—
Forfeited/Expired	—
Outstanding at July 31, 2005	374,980		$	4.25-$6.25	$	5.82	334,722
Exercised	—
Granted	141,256		$	4.00	$	4.00
Forfeited/Expired	(130,399	)	$	4.00-$6.25	$	5.81
Outstanding at July 31, 2006	385,837		$	4.00-$6.25	$	5.16	242,517
Exercised	(5,550	)	$	4.00	$	4.00
Granted	272,726		$	5.00	$	5.00
Forfeited/Expired	—
Outstanding at July 31, 2007	653,013		$	4.00-$6.25	$	5.10	317,243

Effective August 1, 2005, the Company adopted Statement of Financial Accounting Standard No. 123 (revised 2004), “Share Based Payment” (SFAS No. 123R). Under SFAS No. 123R, the Company is required to recognize, as expense, the estimated fair value of all share based payments to employees. In accordance with this standard, 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. For the years ended July 31, 2007 and 2006, the Company recorded stock-based employee compensation expense of $210,000 and $65,000, respectively.

On October 19, 2006, the Board of Directors granted incentive stock options to purchase 272,726 shares of the Company’s common stock at a per share exercise price of $5.00. The vesting of these options is subject to certain qualifications, including but not limited to, the continued employment of the optionee with the Company. Subject

46

to the foregoing qualifications and certain other qualifications, fifty percent of these options vest on October 19, 2007, twenty-five percent vest on October 19, 2008, and twenty-five percent vest on October 19, 2009.

Prior to adopting SFAS No. 123R, the Company had elected to follow Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for its employee stock options and had adopted the pro forma disclosure requirements under SFAS No. 123, “Accounting for Stock-Based Compensation.” Prior to August 1, 2005, the Company had not recognized any compensation expense under APB No. 25 upon the granting or exercise of stock options because the exercise price was equal to or greater than the market price of the underlying stock on the date of grant.

The fair value of the stock options granted was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:  2007 – risk free interest rate of 4.7%, expected dividend yield of 1.0%, expected life of 5 years and volatility of 25%; 2006 - risk free interest rate of 4.4%, expected dividend yield of 1.0%, expected life of 5 years and volatility of 30%. The pro forma application of Statement of Financial Accounting Standard (SFAS) No. 123 “Accounting for Stock-Based Compensation” would not have had a material impact on net income and earnings per share for the year ended July 31, 2005.

A summary of the status of the Company’s issued but nonvested stock options as of July 31, 2007, and changes during the year ended July 31, 2007, is presented below:

			Weighted-Average
	Common		Grant-Date
Nonvested Stock Options	Shares		Fair Value
Nonvested at July 31, 2006	143,320		$	4.03
Granted	272,726		$	5.00
Vested	(80,276	)	$	4.05
Forfeited/Expired	—
Nonvested at July 31, 2007	335,770		$	4.81

As of July 31, 2007, there was approximately $296,000 of total unrecognized compensation cost related to nonvested employee stock options.  That cost is expected to be recognized over a period of 2.25 years.

NOTE 14 -   RELATED PARTY TRANSACTIONS

Amounts due from executive officers totaled $47,000 as of July 31, 2007 and 2006.

In May 2007, the Company paid MVC Financial Services, Inc. and LaBella Holdings LLC $200,000 each in closing fees. The payments were based on 2% of the issuance of 1,000,000 shares of series F preferred stock at $10 per share and 1,000,000 shares of common stock at $10 per share. See Note 5 – Stockholders’ Equity. MVC Financial Services, Inc. is an affiliate of MVC Capital, Inc., a holder of 5% or greater of the Company’s Common Stock. Michael T. Tokarz, a director of the Company, is a stockholder and Chairman of MVC Capital, Inc. LaBella Holdings LLC is a holder of 5% or greater of the Company’s Common Stock. Richard Thompson, a director of the Company, is a managing member of LaBella Holdings LLC.

NOTE 15 -   CONTINUED DUMPING AND SUBSIDY OFFSET ACT OF 2000

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 $1,300,000, $1,103,000 and $425,000 in December 2006, 2005 and 2004, respectively, under the Offset Act. The net proceeds received under the Offset Act have been classified as Other Income on the Income Statement. 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

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which the Company has little or no control, including, but not limited to, the amount of expenditures by domestic pasta producers and the amount of antidumping and countervailing duties collected by Customs.

NOTE 16 -   QUARTERLY FINANCIAL DATA (UNAUDITED)

Summary quarterly results are as follows (in thousands, except per share amounts):

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
Year ended July 31, 2007
Net revenues	$	48,933	$	47,174	$	46,084	$	48,871
Gross profit	6,073		5,102		6,834		7,478
Operating income	2,831		1,626		3,646		4,411
Net income	894		1,497		1,882		2,335
Basic net earnings per common share	0.07		0.11		0.14		0.20
Year ended July 31, 2006:
Net revenues	$	44,072	$	42,490	$	41,968	$	42,979
Gross profit	5,240		4,366		6,403		6,596
Operating income	1,372		120		3,047		3,876
Net income	399		617		1,487		1,870
Basic net earnings per common share	0.03		0.01		0.11		0.15

The above quarterly financial data is unaudited, but in the opinion of management, all adjustments necessary for a fair presentation of the selected data for these interim periods presented have been included.

NOTE 17 -   SUBSEQUENT EVENTS

Effective September 21, 2007, the Company acquired the remaining units of DNA Dreamfields, increasing its ownership to 100%. Pursuant to the terms of the purchase agreement, the Company acquired the remaining units for an aggregate purchase price of $2,231,614 or $37,393 per purchased unit. In conjunction with this purchase, the Company eliminated the noncontrolling interest and reduced recorded goodwill associated with DNA Dreamfields in the Company’s first quarter of fiscal year 2008. The Company will continue to include DNA Dreamfields in its consolidated financial statements.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

a) Evaluation of Disclosure Controls and Procedures.

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

b) Changes in Internal Controls over Financial Reporting.

There were no changes in the Company’s internal controls over financial reporting during the Company’s most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

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PART III.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Board of Directors

The Board of Directors currently consists of eleven members. The Board may consist of a minimum of seven members and a maximum of fifteen members. The Articles of Incorporation and Bylaws of the Company require that at least five members of the Board of Directors be residents of the State of North Dakota and that at least three members be agricultural producers. The Board of Directors is divided into three classes: Class I, Class II and Class III. Class I, Class II and Class III are to consist of an equal number of directors, except that, if the Board of Directors consists of a number of directors such that mathematically there cannot be an equal number of directors in each of Class I, Class II and Class III, then the one remaining director shall be made a member of Class I and, if there is more than one remaining director, the first remaining director shall be made a member of Class I and the second remaining director shall be made a member of Class II. Each director in each of Class I, Class II and Class III will hold office until the third regular meeting of shareholders following the regular meeting of the shareholders at which such director or such director’s predecessor was elected, until his successor shall have been elected and shall qualify, or until he resigns or is removed.

The table below sets forth certain information concerning the directors of the Company. The directors have been elected to serve three-year terms expiring at the annual meeting in the calendar years indicated in the table below.

Name	Age	Term Expires	Class
John S. Dalrymple III	59	2009	I
Allyn K. Hart	68	2008	III
Roger A. Kenner (1)	58	2010	II
James F. Link	80	2009	I
Eugene J. Nicholas	62	2010	II
John D. Rice, Jr. (1)	53	2009	I
Richard Thompson	55	2008	II
Michael T. Tokarz	57	2009	I
Jeffrey O. Topp	48	2010	II
Curtis R. Trulson	55	2008	III
Michael E. Warner	57	2008	III

(1) Mr. Kenner and Mr. Rice are first cousins.

John S. Dalrymple III. Mr. Dalrymple has been Chairman of the Board of Directors of the Company since 1991. He became Lieutenant Governor of North Dakota in 2000. Mr. Dalrymple had been a state representative since 1984 and served as Chairman of the House Appropriations Committee and of the Budget Section of the North Dakota House of Representatives. He previously served on the board of directors of the U.S. Durum Growers Association. He has been a farmer in the Casselton, North Dakota area since 1971.

Allyn K. Hart. Mr. Hart has been a director of the Company since 1991. Mr. Hart has served on the board of directors of Cavalier County Job Development Authority and U.S. Durum Growers Association and presently serves on the board of Maple Manor Care Center in Langdon, ND. He has been a farmer in the Cavalier County, North Dakota area since 1961.

Roger A. Kenner. Mr. Kenner has been a director of the Company since 1991. Mr. Kenner is chairman of Golden Plains Frozen Foods LLC and is a director of Blue Cross Blue Shield of North Dakota. He has been a farmer and certified seed producer in the Leeds, North Dakota area since 1964.

James F. Link. Mr. Link has been a director of the Company since 1991. Mr. Link has served on the boards of directors of Farm Credit and Minn-Dak Farmers cooperative, including 15 years as its chairman. He has been a farmer in the Wahpeton, North Dakota area since 1947.

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Eugene J. Nicholas. Mr. Nicholas had been a director of the Company since 1991. Mr. Nicholas had been a state representative, and served as chairman of the North Dakota House of Representatives Agriculture Committee. Mr. Nicholas also serves on the board of directors of Country Bank USA, Cando, North Dakota, and the board of governors of Golden Plains Frozen Foods LLC. Mr. Nicholas previously served on the board of directors of the U.S. Durum Growers Association.

John D. Rice, Jr. Mr. Rice is the Vice Chairman of the Board of Directors and has been a director of the Company since 1991. He also served on the boards of directors of the National Pasta Association and U.S. Durum Growers Association. He has been a farmer in the Maddock, North Dakota area since 1968.

Richard Thompson. Mr. Thompson was appointed to the Board of Directors in May 2007. Mr. Thompson is the co-founder and has been a managing member and chief executive officer of GO7 Brands, LLC since May 2006. He started American Italian Pasta Company (AIPC) in 1986 and grew it into the largest pasta manufacturing and durum milling company in North America. He has made numerous appearances in the national media including speaking engagements on entrepreneurial, manufacturing, and branding topics. He has also received positive press from a variety of national and local publications and has served on several boards including public companies. Mr. Thompson serves or has served on various organizations board of directors such as ASPCA, Nashville Humane Association, Pet Food Institute and “ARF” Animal Rescue Fund of the Hamptons. In addition, he is a member of Parents Campaign Development and Alumni Relations at Vanderbilt University, George Washington University - Parents Campaign, and Grocery Manufacturing Association - President’s Advisory Council.

Michael T. Tokarz. Mr. Tokarz has been a director of the Company since 2004. Mr. Tokarz is the Chairman of MVC Capital, a registered investment company traded on the New York Stock Exchange (Ticker: MVC) that makes equity and debt investments. In addition, Mr. Tokarz is the Managing Member of The Tokarz Group, which manages Mr. Tokarz’s personal investments. From 1985 to 2002, Mr. Tokarz was a senior General Partner and Administrative Partner at Kohlberg Kravis Roberts & Co., a private equity firm specializing in management buyouts. Prior to joining KKR, Mr. Tokarz was with Continental Illinois National Bank and Trust Company of Chicago, joining the firm in 1973. He serves or has served on the Board of Directors of numerous companies, including: Conseco, Inc., Walter Industries, Inc., Mueller Water Products, Inc., Safeway, Inc., IDEX Corporation, PRIMEDIA, Inc., Neway Anchorlok International, Inc., Flagstar Corporation, ConAgra Food Corporation, KSL Recreation Corporation, RJR Nabisco Corp, Evenflo & Spalding Holdings Corporation, Beatrice Foods Corporation, Nexstar Financial Corporation, Apertio Limited (UK), United Fixtures Company, Stonewater Controls, Lomonosov Porcelain (Russia), Kamaz A.O. (Russia). Mr. Tokarz also serves on the Board of the University of Illinois Foundation and its Investment Committee and as Chairman of its Budget and Finance Committee. He is a member of the Board of Managers of Illinois Ventures and Chairman of Illinois Emerging Technology Fund, both affiliated with the University of Illinois.

Jeffrey O. Topp. Mr. Topp has been a director of the Company since 1991. He serves on the board of directors of Farmers Elevator, Inc. in Grace City, North Dakota. He is a partner in T-T Ranch and has been a farmer in the Grace City area since 1978.

Curtis R. Trulson. Mr. Trulson has been a director of the Company since 1991. He previously served on the boards of directors of the National Association of Wheat Growers and the North Dakota Grain Growers Association, including service as its President. He has been a farmer in Mountrail County, North Dakota, since 1975.

Michael E. Warner. Mr. Warner has been a director of the Company since 1992. Mr. Warner has been a farmer in the Hillsboro, North Dakota area since 1967. He also currently serves on the board of directors of Warner Equipment Co. and Agriceutical Resources LLC. In 2002, Mr. Warner was awarded a fellowship by the University of Missouri. He served on the board of directors of American Crystal Sugar Company from 1989 through 1996, as part of a 23-year career of service to the sugar industry. He is a past member of the board of

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trustees of Meritcare Health Systems of Fargo, North Dakota, the largest hospital/multiple clinic system between Minneapolis, Minnesota and Seattle, Washington.

Committees of the Board of Directors

Audit Committee. The Audit Committee is responsible for overseeing the accounting and financial reporting processes of the Company and audits of the Company’s financial statements, including assessing and ensuring the independence of the independent auditor, evaluating audit performance and approving the services to be provided by the independent auditor. The Audit Committee has the sole authority to retain, compensate, oversee and terminate the independent auditors. The Audit Committee reviews the Company’s annual audited financial statements, quarterly financial statements and filings with the Securities and Exchange Commission. The Audit Committee reviews reports on various matters, including critical accounting policies of the Company, significant changes in the Company’s selection or application of accounting principles and the Company’s internal control processes. The Audit Committee also pre-approves all audit and non-audit services performed by the independent auditor.

The Audit Committee operates under a written charter adopted by the Board of Directors. The Company’s Audit Committee presently consists of Messrs. Curtis R. Trulson (Chair), Michael E. Warner and John S. Dalrymple III. Under the Company’s bylaws, the Audit Committee of the Board of Directors must be composed of at least three directors who are not employees of the Company. The charter of the Audit Committee requires that members of the Audit Committee must be independent, and the Board of Directors has determined that all members of the Audit Committee are independent directors. The Board of Directors has also determined that Mr. Trulson meets the Securities and Exchange Commission definition of an “audit committee financial expert.”

Compensation Committee. The Compensation Committee operates under a written charter and reviews and approves the compensation and other terms of employment of the Company’s Chief Executive Officer and other senior management of the Company. Among its other duties, the Compensation Committee is responsible for overseeing the Company’s stock-based compensation plans for executive officers and, in consultation with the Nomination Committee, making recommendations on succession plans for the Chief Executive Officer. The Compensation Committee is to annually review the Chief Executive Officer’s compensation and evaluate the Chief Executive Officer’s performance. The current members of the Compensation Committee are Messrs. John S. Dalrymple III (Chair), Curtis R. Trulson and Michael E. Warner.

The charter of the Compensation Committee requires that the Committee consist of independent directors. Each member of the Compensation Committee must also be an “outside director” for purposes of Section 162(m) of the Internal Revenue Code. Each member of the Company’s Compensation Committee meets these requirements.

Nomination Committee. The Nomination Committee operates under a written charter and is charged with the responsibilities of nominating and evaluating Board member candidates and establishing criteria for nomination, developing and recommending governance guidelines and reviewing them periodically, facilitating annual evaluations of the performance of the Board and its members, reviewing the structure and membership of the Company’s Board and committees, and reviewing Board compensation policies. Additionally, the Nomination Committee, in consultation with the Compensation Committee, facilitates development of the mission and objectives of the Chief Executive Officer, succession for the Chief Executive Officer and annual evaluation of the performance of the Chief Executive Officer.

The Company’s bylaws require that the Nomination Committee be comprised of the Chairman of the Board, the Vice-Chairman and the Chief Executive Officer, except that if one individual holds two of the designated offices, the Board of Directors shall appoint a third member to the Nomination committee, who need not be a director of the Company. Additionally, as required by its charter, the Nomination Committee is composed of a majority of independent directors. The current members of the Nomination Committee are Messrs. John S.

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Dalrymple III (Chair), John D. Rice, Jr. and Timothy J. Dodd. The Board of Directors has determined that Messrs. Dalrymple and Rice are independent directors.

Policy Committee. The Policy Committee operates pursuant to a written Policy Committee Charter. The Policy Committee is to provide oversight of the Company’s governance obligations to assure compliance with all applicable laws, regulations, Articles of Incorporation and By-laws by adoption and periodic review of a governance policy. The members of the Policy Committee are Allyn K. Hart (Chair), Curtis R. Trulson and James F. Link. Each member of the committee is a non-employee director and the Board of Directors has determined that there are no relationships that would interfere with a Policy Committee member’s exercise of independent judgment in carrying out his responsibilities as a member of the policy committee.

Executive Officers

The table below lists the executive officers of the Company. Officers are elected annually by the Board of Directors.

Name	Age	Position
Timothy J. Dodd	52	President and Chief Executive Officer
Edward O. Irion	36	Chief Financial Officer

Timothy J. Dodd. Mr. Dodd is the President and Chief Executive Officer of the Company. Prior to joining the Company in December 1991, he had been the Vice President of Manufacturing for American Italian Pasta Company since 1988. Previously, Mr. Dodd participated in the construction and management of two other grain processing facilities, one in Texas and one in Cando, North Dakota. Mr. Dodd serves on the board of directors of Country Bank USA, Cando, North Dakota.

Edward O. Irion. Mr. Irion was appointed as the Company’s Chief Financial Officer effective February 21, 2006. Mr. Irion joined the Company in December 1999 and served as the Company’s Assistant Vice President – Planning and Control until August 2000.  From August 2000 until his appointment as Chief Financial Officer, Mr. Irion served as the Company’s Vice President – Finance and Chief Accounting Officer. He received a Bachelor of Science degree in accounting from Minnesota State University-Moorhead and is a certified public accountant.

Code of Conduct

The Company has adopted a Code of Conduct applicable to all employees. A Code of Ethics certification for senior financial officers, including the principal executive officer, principal financial officer and principal accounting officer, is included within the Code of Conduct.

A copy of the Code of Conduct is available under the “Investors” portion of the Company’s website at www.dakotagrowers.com. A copy of the Company’s Code of Conduct will also be provided, without charge, upon written request to:

Investor Relations

Dakota Growers Pasta Company, Inc.

One Pasta Avenue

Carrington, ND 58421

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ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Overview

This section explains our philosophy, policies and practices relating to executive compensation and presents a review and analysis of the compensation earned during the fiscal year ended July 31, 2007 by our Chief Executive Officer and our Chief Financial Officer to whom we refer collectively as the “named executive officers.”

Compensation Philosophy and Objectives

The Company’s compensation policies with respect to its executive officers, established by the Compensation Committee, are based on the principles that compensation should, to a significant extent, reflect the financial performance of the Company and the individual contribution of the executives to this financial performance. It is the policy of the committee to set executive compensation at levels that are sufficiently competitive with food processing companies of comparable size to attract, retain and motivate the highest quality individuals to contribute to the Company’s goals, objectives and overall financial success. A portion of certain executives’ incentive compensation has historically been paid in stock options in order to align executive and stockholder interests.

The Role of the Compensation Committee

The Compensation Committee operates under a written charter and reviews and approves the compensation and other terms of employment of the Company’s Chief Executive Officer and other senior management of the Company. Among its other duties, the Compensation Committee is responsible for overseeing the Company’s stock-based compensation plans for executive officers and, in consultation with the Nomination Committee, making recommendations on succession plans for the Chief Executive Officer. The Compensation Committee is to annually review the Chief Executive Officer’s compensation and evaluate the Chief Executive Officer’s performance.

Total Compensation for Executive Officers

Base Salary. The base salary of each of our named executive officers is reviewed by the committee as part of the overall annual review of executive compensation. The Compensation Committee sets executive compensation by subjective evaluation of the individual performance of each executive and by marketplace compensation of comparable executives, although salary determinations are not based upon any specific or constant criteria.

Annual Incentive Bonus. Executives are eligible for annual incentive cash bonuses based on individual and Company performance. As no formal criteria have yet been established, these calculations are determined on a subjective basis. These awards are not intended to be in addition to market level compensation but instead are designed to cause a significant part of an executive’s annual compensation to be dependent on the Compensation Committee’s assessment of the executive’s performance and the executive’s contributions to the Company’s financial performance and strategic objectives.

Long-Term, Equity-Based Incentive Compensation. The stock option component of the executive officers’ compensation has been designed to provide executives with incentives for the enhancement of stockholder value. Options are granted at fair market value on the date of grant and generally vest over a number of years. No constant criteria are used year after year in the granting of stock options. For stock option awards for executive officers, the Compensation Committee makes a subjective determination of the effectiveness of the executive and the extent of the executive’s contributions to the Company’s success and, based on that determination, option grants, if any, are awarded to each executive. Because the options are granted with exercise prices equal to the fair market value of the underlying Common Stock on the date of grant, any value that ultimately accrues to the

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executive is based entirely upon the Company’s performance as perceived by investors who establish the market price for the Common Stock.

Post Retirements Benefits. The Company maintains a 401(k) Profit Sharing Plan, in which eligible employees may participate, including the named executive officers. The Company will make a matching contribution to the Plan of 100% of the first 3% of the employees’ annual compensation and 50% of the next 2%. Employee voluntary contributions are immediately vested as well as the employer matching contributions.

Other Compensation. All full-time employees, including the named executive officers, may participate in he Company’s health and welfare benefit programs, including medical and dental care coverage, disability insurance and life insurance.

Compensation Committee Report

The Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based upon the review and discussions, the Committee directed that the Compensation Discussion and Analysis be included in this annual report on Form 10-K.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee are John S. Dalrymple III, Curtis R. Trulson and Michael E. Warner. None of these directors are or have been an officer or employee of the Company. During fiscal year 2007 no executive officer of the Company served as a director or member of the Compensation Committee (or other committee serving an equivalent function) of any other entity, one of whose executive officers served as a director of or member of the Compensation Committee of the Company.

Compensation Committee:

John S. Dalrymple III

Curtis R. Trulson

Michael E. Warner

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Summary Compensation Table

The following table summarizes the amount of compensation paid to the Company’s President and Chief Executive Officer and Chief Financial Officer for the fiscal year ended July 31, 2007.

Summary Compensation Table

												Change in
												Pension
										Non-		Value and
										Equity		Nonqualified
										Incentive		Deferred		All
Name and	Fiscal					Stock		Option		Plan		Compensation		Other
Principal Position	Year	Salary		Bonus		Awards		Awards (2)		Compensation		Earnings		Compensation(1)		Total
Timothy J. Dodd
President and Chief
Executive Officer	2007	$	247,889	$	55,300	$	—	$	50,803	$	—	$	—	$	11,628	$	365,620
Edward O. Irion
Chief Financial Officer	2007	$	192,544	$	37,000	$	—	$	26,718	$	—	$	—	$	13,802	$	270,064

(1)Includes the Company’s 401(k) matching contribution, excess life insurance, the taxable portion of reimbursable business expenses and the taxable portion of other benefits.

(2)The awards shown in this column include stock options granted under our 2003 Stock Option Plan. The amounts are based on the compensation expense recognized for the award pursuant to Statement of Financial Standards No. 123R. See Note 13 to the consolidated Financial Statements for a discussion of the relevent assumptions used in calculating grant date fair value pursuant to FAS 123R.

Grants of Plan-Based Awards in Fiscal Year 2007

The following table sets forth certain information with respect to stock options granted to purchase Common Stock during the fiscal year ended July 31, 2007.

								All other
		Estimated Future Payouts						Stock Awards:	All other	Exercise or
		Under Non-Equity Incentive			Estimated Future Payouts Under			Number of Shares	Option Awards:	Base Price of
	Grant	Plan Awards			Equity Incentive Plan Awards			of Stock	Number of Securities	Option Awards
Name	Date	Threshold($)	Target($)	Maximum($)	Threshold(#)	Target(#)	Maximum(#)	or Units (#)	Underlying Options(#)	($ /sh)
Timothy J. Dodd	10/19/2006	N/A	N/A	N/A	N/A	N/A	N/A	N/A	62,752	$	5.00
Edward O. Irion	10/19/2006	N/A	N/A	N/A	N/A	N/A	N/A	N/A	39,362	$	5.00

(1)  The vesting of these options is subject to certain qualifications, including but not limited to, the continued employment of the optionee with the Company. Subject to the foregoing qualifications and certain other qualifications, fifty percent of these options vest on October 19, 2007, twenty-five percent vest on October 19, 2008, and twenty-five percent vest on October 19, 2009.

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Outstanding Equity Awards at July 31, 2007

The following table summarizes stock options held for Series C Convertible Preferred Stock at the end of fiscal year 2007.

	Option Awards						Stock Awards
									Equity	Equity Incentive
			Equity Incentive						Incentive Plan	Plan Awards:
	Number of	Number of	Plan Awards:						Awards:	Market or
	Securities	Securities	Number of				Number of	Market Value	Number of	Payout Value
	Underlying	Underlying	Securities				Shares or	of Shares or	Unearned Shares,	of Unearned
	Unexercised	Unexercised	Underlying				Units of	Units of	Units or Other	Shares, Units
	Options	Options	Unexercised	Option		Option	Stock That	Stock That	Rights That	or Other Rights
	(#)	(#)	Unearned Options	Exercise		Expiration	Have Not	Have Not	Have Not	That Have Not
Name	Exercisable(1)	Unexercisable	(#)	Prices ($)		Date	Vested (#)	Vested (#)	Vested (#)	Vested($)
Timothy J. Dodd	506	—	—	$	100.00	12/1/2011	—	—	—	$	—
	785	—	—	100.00		12/1/2011	—	—	—	—
	686	—	—	150.00		1/1/2013	—	—	—	—

(1)  Mr. Dodd has been granted options that are currently exercisable or exercisable within 60 days of July 31, 2007, to purchase 1,977 shares of the Company’s Series C Preferred Stock. Each share of Series C Preferred Stock is convertible into 24 shares of Common Stock and 24 shares of Series D Delivery Preferred Stock of the Company.

The following table summarizes stock options held for Common Stock at the end of fiscal year 2007.

	Option Awards						Stock Awards
									Equity	Equity Incentive
			Equity Incentive						Incentive Plan	Plan Awards:
	Number of	Number of	Plan Awards:						Awards:	Market or
	Securities	Securities	Number of				Number of	Market Value	Number of	Payout Value
	Underlying	Underlying	Securities				Shares or	of Shares or	Unearned Shares,	of Unearned
	Unexercised	Unexercised	Underlying				Units of	Units of	Units or Other	Shares, Units
	Options	Options	Unexercised	Option		Option	Stock That	Stock That	Rights That	or Other Rights
	(#)	(#)	Unearned Options	Exercise		Expiration	Have Not	Have Not	Have Not	That Have Not
Name	Exercisable	Unexercisable	(#)	Prices ($)		Date	Vested (#)	Vested (#)	Vested (#)	Vested($)
Timothy J. Dodd	190,800	—	—	$	6.25	12/1/2012	—	—	—	$	—
	13,511	—	—	4.25		2/1/2014	—	—	—	—
	17,696	17,696	—	4.00		12/22/2015	—	—	—	—
	—	62,752	—	5.00		10/19/2016	—	—	—	—
Edward O. Irion	7,723	—	—	$	4.25	2/1/2014	—	—	—	$	—
	5,408	5,408	—	4.00		12/22/2015	—	—	—	—
	—	39,362	—	5.00		10/19/2016	—	—	—	—

Employment Agreements

The Company does not have any employment agreements in place at the current time.

Stock Option Plans

On January 31, 1997 the Cooperative’s Compensation Committee of the Board of Directors (the “Compensation Committee”) adopted the Dakota Growers Incentive Stock Option Plan (the “Plan”). The Plan was ratified by the Cooperative members at the annual meeting in January 1998. The Compensation Committee or the Board of Directors has the power to determine the key management employees of the Company to receive options and the number of shares to be optioned to each of the employees. Options granted under the Plan are for the purchase of Series C Convertible Preferred Stock at fair market value, which were convertible into Equity Stock as a cooperative, and are now convertible into Common Stock and Series D Delivery Preferred Stock as a corporation at the option of the employee, under the applicable conversion ratio. The maximum number of preferred shares that may be issued pursuant to options granted under the Plan is 15,000, all of which have been

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issued. Each share of Series C Preferred Stock is convertible into 24 shares of Common Stock and 24 shares of Series D Delivery Preferred Stock of the Company. The conversion ratio is proportionately adjusted if the Company increases the outstanding shares of Common Stock or Series D Delivery Preferred Stock, as applicable, without payment by or to the Company or the Company’s shareholders for such additional shares (e.g. stock split, stock dividend or other action). Options granted under the Plan must be exercised within ten years from the date such options are granted. In the event of the employee’s termination with the Company, all exercisable options may be exercised within 90 days of the termination date. If not exercised, such options lapse.

The Company’s 2002 Stock Option Plan (the “2002 Plan”) was adopted by the Board of Directors on November 21, 2002. All options granted under the 2002 Plan are non-qualified stock options and are for the purchase of the Company’s Common Stock. The maximum number of shares of Common Stock that may be issued pursuant to options granted under the 2002 Plan is 294,456 shares, all of which have been issued. Stock options granted under the 2002 Plan expire 10 years from the date of grant.

On November 21, 2002 the Board of Directors adopted the Dakota Growers Pasta Company, Inc. 2003 Stock Option Plan (the “2003 Plan”), which was approved by the Company’s shareholders at the Annual Meeting on January 11, 2003. The 2003 Plan covers 500,000 shares of the Company’s Common Stock. Participation in this Plan shall be limited to officers, directors, employees, vendors or consultants of the Company or any subsidiary of the Company. Options granted under the 2003 Plan may be incentive stock options (as defined under Section 422 of the Code) or non-qualified stock options, as determined by the 2003 Plan administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated there under. The stock options generally expire 10 years from the date of grant. If the employment of the Optionee is terminated by any reason other than his or her death or disability, all exercisable options may be exercised within 90 days of the termination date. If not exercised, such options lapse.

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COMPENSATION OF DIRECTORS

Members of the Board of Directors receive compensation for serving on the Board of Directors, as determined from time to time by the Nomination Committee, but with full discussion and action by the Board.

Director Compensation Table

The table below summarizes the compensation paid by the Company to non-employee Directors during the fiscal year ended July 31, 2007.

							Non equity
	Fees earned						Incentive		All
	or paid		Stock		Option		Plan		Other
Name	in cash (1)		Awards		Awards		Compensation		Compensation		Total
John S. Dalrymple III	$	25,200	$	—	$	—	$	—	$	—	$	25,200
Allyn K. Hart	20,000		—		—		—		275		20,275
Roger A. Kenner	19,750		—		—		—		—		19,750
James F. Link	21,500		—		—		—		—		21,500
Eugene J. Nicholas	19,750		—		—		—		—		19,750
John D. Rice, Jr.	19,750		—		—		—		—		19,750
Richard Thompson (3)	4,000		—		—		—		200,000		204,000
Michael T. Tokarz (2)(3)	18,250		—		—		—		275,000		293,250
Jeffrey O. Topp	19,250		—		—		—		—		19,250
Curtis R. Trulson	25,500		—		—		—		—		25,500
Michael E. Warner	21,000		—		—		—		—		21,000

(1)This column represents annual director fees, committee chairman fees and meeting attendance fees earned in fiscal year 2007. Directors are reimbursed for out-of-pocket travel expenses which are not included on this table.

(2)In July 2004, the Company and MVC Financial Services, Inc. (“MVC Financial”) entered into a consulting agreement pursuant to which MVC Financial will provide certain business consulting services to the Company for annual compensation of $75,000 per year and the reimbursement of expenses. MVC Financial Services, Inc. is an affiliate of MVC Capital, Inc., a holder of 5% or greater of the Company’s Common Stock. Michael T. Tokarz, a director of the Company, is a stockholder and Chairman of MVC Capital, Inc. The term of the consulting agreement shall continue until the earlier of (a) the occurrence of a Liquidity Event or (b) the termination by written notice from MVC Financial to the Company. For purposes of this consulting agreement, a “Liquidity Event” shall have occurred on such date that MVC Capital, Inc. no longer beneficially owns at least fifty percent (50%) of the shares of the Company’s Common Stock acquired by MVC Capital Inc. pursuant to the Stock Purchase Agreement dated July 30, 2004 (as adjusted for stock splits, stock dividends, share contributions and the like) or the earlier sale of substantially all of the assets of the Company and the distribution of substantially all of the net proceeds thereof.

(3)In May 2007, the Company paid MVC Financial Services, Inc. and LaBella Holdings LLC (“LBH”) 2% in  closing fees relating to the issuance of 1,000,000 shares of series F preferred stock at $10 per share and 1,000,000 shares of common stock at $10 per share. Mr. Thompson is the Chief Executive Officer and is a member of the Board of Managers of LBH.

The Company provided its directors with compensation consisting of (i) a per diem payment of $500 (except for the Chairman of the Board and Chairman of the Audit Committee who each receive $600 per day) for any day on which a director undertakes activities on the Company’s behalf, including board meetings and other functions of the Company, (ii) a monthly fee of $1,000 (except for the Chairman of the Board and Chairman of the Audit Committee who each receive $1,200 per month), and (iii) reimbursement for out-of-pocket expenses incurred on behalf of the Company.

Effective October 2007, the compensation of the Company’s directors changed to (i) a per diem payment of $1,000 (except for the Chairman of the Board and Chairman of the Audit Committee who will each receive $1,200 per day) for any day on which a director undertakes activities on the Company’s behalf, including board meetings and other functions of the Company, (ii) a monthly fee of $2,000 (except for the Chairman of the Board

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and Chairman of the Audit Committee who will each receive $2,400 per month), and (iii) reimbursement for out-of-pocket expenses incurred on behalf of the Company.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table furnishes information as to the beneficial ownership of the Company’s Common Stock, Series C Convertible Preferred Stock, Series D Delivery Preferred Stock and Series F Convertible Preferred Stock by (a) each person known by us to beneficially own more than 5% of the issued and outstanding shares of the Company’s voting securities, (b) each of the Company’s executive officers, (c) each of the Company’s directors and (d) all of the Company’s directors and executive officers as a group.

The address of each person listed below is c/o Dakota Growers Pasta Company, Inc., One Pasta Avenue, Carrington, North Dakota 58421. Except as otherwise noted, each person listed below has sole investment discretion and voting power. In accordance with the Securities and Exchange Commission’s rules, in computing the number of shares beneficially owned by a person and the percentage ownership of that person, securities subject to options held by that person that are currently exercisable or exercisable within 60 days of July 31, 2007 are treated as outstanding. These shares, however, are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

	Beneficially Owned Securites
	Number of	Percent of		Number of	Percent of		Number of	Percent of		Number of	Percent of
Name of	Shares of	Total Common		Shares of Series	Total Series		Shares of Series	Total Series		Shares of Series	Total Series
Beneficial Owner	Common Stock	Stock		C Preferred	C Preferred		D Preferred	D Preferred		F Preferred	F Preferred
John S. Dalrymple III (1)	204,731	2.0	%	—	—		315,000	2.8	%	—	—
Allyn K. Hart	12,223	0.1		—	—		15,000	0.1		—	—
Roger A. Kenner (2)	109,596	1.1		—	—		140,000	1.2		—	—
James F. Link (3)	49,685	0.5		—	—		54,550	0.5		—	—
Eugene J.Nicholas (4)	53,394	0.5		—	—		58,951	0.5		—	—
John D. Rice, Jr. (5)	17,427	0.2		—	—		20,200	0.2		—	—
Jeffrey O. Topp (6)	325,541	3.2		—	—		271,420	2.4		—	—
Curtis R. Trulson (7)	43,403	0.4		—	—		61,750	0.5		—	—
Michael E. Warner(8)	38,061	0.4		—	—		57,038	0.5		—	—
Timothy J. Dodd (9)	274,148	2.6		1,977	100	%	238,248	2.1		—	—
Edward O. Irion (10)	13,131	0.1		—	—		—	—		—	—
Michael Tokarz (11)	1,016,195	10.0		—	—		—	—		1,065,000	100	%
MVC Capital, Inc. (11)	1,016,195	10.0		—	—		—	—		1,065,000	100
Richard Thompson (12)	1,000,000	9.8		—	—		—	—		—	—
La Bella Holdings LLC (12)	1,000,000	9.8		—	—		—	—		—	—
All directors and officers as a Group (13 persons) (13)	3,157,535	30.1		1,977	100		1,232,157	10.9		1,065,000	100

(1)Includes 23,415 shares of Common Stock and 36,000 shares of Series D Delivery Preferred Stock held in the name of Mr. Dalrymple’s spouse and 111,121 shares of Common Stock and 171,000 shares of Series D Delivery Preferred Stock held in the name of the John S. Dalrymple III Trust, of which Mr. Dalrymple is a trustee.

(2)Includes 54,798 shares of Common Stock and 70,000 shares of Series D Delivery Preferred Stock held in the name of Mr. Kenner’s spouse.

(3)Includes 48,052 shares of Common Stock and 53,050 shares of Series D Delivery Preferred Stock held in the name of Link Sugar Beet Farms Limited Partnership, of which Link Farms LLP is the general partner. Mr. Link has been granted a proxy to vote all common stock of the Company held by Link Sugar Beet Farms Limited Partnership. Mr. Link is also the sole holder of the class of limited partnership interests of Link Sugar Beet Farms relating to the Company’s common stock and under the partnership agreement, the approval of the reporting person is required with respect to certain dispositions of the Company’s common stock by Link Sugar Beet Farms Limited Partnership. Mr. Link disclaims beneficial ownership to the extent his interest in Link Sugar Beet Farms Limited Partnership does not constitute a pecuniary interest.

(4)Includes 26,548 shares of Common Stock and 23,850 shares of Series D Delivery Preferred Stock held in the name of Mr. Nicholas’ spouse.

(5)Includes 15,298 shares of Common Stock and 13,750 shares of Series D Delivery Preferred Stock held in the name of John Rice Farm.

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(6)Includes 120,000 shares of Common Stock and 129,000 shares of Series D Delivery Preferred Stock held in the name of T-T Ranch and 11,482 shares of Common Stock and 16,125 shares of Series D Delivery Preferred Stock held in the name of Mr. Topp’s spouse and children.

(7)Includes 2,203 shares of Common Stock and 6,750 shares of Series D Delivery Preferred Stock held in the name of Trulson Brothers.

(8)Mr. Warner has pledged the securities as collateral.

(9)Mr. Dodd has been granted options that are currently exercisable or exercisable within 60 days of July 31, 2007, to purchase 1,977 shares of the Company’s Series C Preferred Stock and 222,007 shares of the Company’s Common Stock. Each share of Series C Preferred Stock is convertible into 24 shares of Common Stock and 24 shares of Series D Delivery Preferred Stock of the Company. The number of shares of Common Stock presented for Mr. Dodd includes 47,448 shares of Common Stock issuable upon exercise of the options to purchase Series C Preferred Stock of the Company and conversion of each such share of Series C Preferred Stock into 24 shares of Common Stock in the Company. The number of shares of Series D Delivery Preferred Stock presented for Mr. Dodd includes 47,448 of Series D Delivery Preferred Stock issuable upon exercise of the options to purchase Series C Preferred Stock of the Company and conversion of each such share of Series C Preferred Stock into 24 shares of Common Stock in the Company, with one share of Series D Delivery Preferred Stock issuable for each share of Common Stock so issued upon conversion. The number of shares of Common Stock presented for Mr. Dodd includes 222,007 shares of Common Stock issuable upon exercise of the options to purchase Common Stock.

(10)Mr. Irion has been granted options that are currently exercisable or exercisable within 60 days of July 31, 2007. The number of shares presented for Mr. Irion relate to Common Stock shares issuable upon the exercise of the options to purchase Common Stock.

(11)Includes 1,016,195 shares of Common Stock and 1,065,000 Series F Convertible Preferred Stock held by MVC Capital, Inc. Mr. Tokarz is listed as a beneficial owner as he is a stockholder and Chairman of MVC Capital, Inc. Mr. Tokarz shares voting and dispositive control over all shares held by MVC Capital, Inc. Mr. Tokarz disclaims any beneficial ownership of the Company’s securities for purposes of Section 16(a) under the Securities Exchange Act of 1934, as amended, or otherwise, except to the extent of Mr. Tokarz’s pecuniary interests therein. (The holder of Series F Convertible Preferred Stock has the right, exercisable at any time upon sixty-five (65) days’ written notice to the Company, to convert any number of the holder’s shares of Series F Convertible Preferred Stock into an equal number of shares of the Company’s Common Stock.)

(12)Includes 1,000,000 shares of Common Stock held by La Bella Holdings LLC (“LBH”) Mr. Thompson is listed as a beneficial owner as he is the Chief Executive Officer and is a member of the board of managers of LBH. Mr. Thompson shares voting and dispositive control over all shares held by La Bella Holdings LLC. Mr. Thompson disclaims any beneficial ownership of the Company’s securities for purposes of Section 16(a) under the Securities Exchange Act of 1934, as amended, or otherwise, except to the extent of Mr. Thompson’s pecuniary interests therein.

(13)Includes 235,138 shares of Common Stock and 1,977 shares of Series C Preferred Stock issuable upon exercise of options exercisable within 60 days of July 31, 2007, and includes an additional 47,448 shares of Common Stock and 47,448 shares of Series D Delivery Preferred Stock issuable upon conversion of the Series C Preferred Stock underlying such options.

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Equity Compensation Plan Information

See “Item 11. Executive Compensation” for a discussion of the material features of the Company’s Stock Option Plans. The following table provides information regarding the Company’s equity compensation plans as of July 31, 2007.

				Number of Securities Remaining Available
	Number of Securities	Weighted-Average
	to be Issued	Exercise Price of		for Future Issuance
	Upon Exercise of	Outstanding		Under Equity
Plan Category	Outstanding Options	Options		Compensation Plans
	Options to purchase Series C Convertible Preferred Stock (1)
Equity compensation plans approved by security holders	1,977	$	117.35	—
	Options to purchase Common Stock
Equity compensation plans approved by security holders	462,213	$	4.63	32,237
Equity compensation plans not approved by security holders	190,800	$	6.25	—

(1)Each share of Series C Convertible Preferred Stock is convertible into 24 shares of Common Stock and 24 shares of Series D Delivery Preferred Stock of the Company.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Independent Directors

Although none of the company’s securities are listed on the stock exchange or system of dealer quotation, the Company’s Board of Directors follow the rules of the Securities and Exchange Commission and the Nasdaq Stock Market in determining independence for the Board of Directors and the Committees. Under the Nasdaq listing standards, at least a majority of the company’s directors must meet the test of “independence” as defined by Nasdaq. The Nasdaq standards provide that, to qualify as an “independent” director, in addition to satisfying certain bright-line criteria, the Board of Directors must affirmatively determine that a director has no relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board of Directors has determined that each current director, other than Mr. Tokarz, is “independent” as defined by the listing standards of the Nasdaq.

The Company has a Conflict of Interest policy which defines areas where the directors should avoid conflicts of interest or any appearance of a conflict of interest, so that the affairs of the Company will be carried out in an ethical manner. Pursuant to the policy, all directors are to fully disclose to the Company any proposed transaction that may give rise to a conflict of interest before it is consummated. The Board of Directors shall determine whether a conflict of interest exists and whether a proposed transaction may be approved.

See Item 10 – Directors, Executive Officers and Corporate Governance for the discussion of the Board of Directors independence on each of the committees.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table represents aggregate fees billed (in thousands) to the Company for fiscal years ended July 31, 2007 and 2006 by Eide Bailly LLP, the Company’s principal accounting firm.

	Fiscal Year Ended
	2007		2006
Audit Fees	$	64	$	64
Audit-Related Fees (a)	10		9
Tax Fees (b)	16		15
All Other Fees	—		—
Total Fees (c)	$	90	$	88

(a)Primarily benefit plan audit services.

(b)Primarily tax advisory and preparation services.

(c)The Audit Committee has approved all fees.

Auditor Services Pre-approval Policy

The Audit Committee has a formal policy concerning pre-approval of all services to be provided by Eide Bailly LLP, the Company’s independent auditor, including audit, audit-related, tax and other services. The Chair of the Committee has the authority to pre-approve permitted services that require action between regular Committee meetings, provided a report of these services is given to the full Committee at the next regular meeting. The Committee approved all services provided by Eide Bailly LLP during fiscal year 2007.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(a)The following are filed as part of this report:

1.Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of July 31, 2007 and 2006

Consolidated Statements of Operations for the years ended July 31, 2007, 2006 and 2005

Consolidated Statements of Changes in Stockholders’ Equity for the years ended July 31, 2007, 2006 and 2005

Consolidated Statements of Cash Flows for the years ended July 31, 2007, 2006 and 2005

Notes to Consolidated Financial Statements

2.Financial Statement Schedules

All schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.

3.Exhibits

2.1Second Amended and Restated Plan of Merger between Dakota Growers Pasta Company and Dakota Growers Pasta Restructuring Cooperative. (Incorporated by reference to Exhibit 2.1 from the Company’s Pre-Effective Amendment No. 2 to Form S-4 Registration Statement, File No. 333-81946, dated April 19, 2002).

2.2Second Amended and Restated Merger Agreement between Dakota Growers Pasta Restructuring Cooperative and Dakota Growers Corporation. (Incorporated by reference to Exhibit 2.2 from the Company’s Pre-Effective Amendment No. 2 to Form S-4 Registration Statement, File No. 333-81946, dated April 19, 2002).

2.3Second Amended and Restated Merger Agreement between Dakota Growers Corporation and the Company, formerly Dakota Growers Restructuring Company, Inc. (Incorporated by reference to Exhibit 2.3 from the Company’s Pre-Effective Amendment No. 2 to Form S-4 Registration Statement, File No. 333-81946, dated April 19, 2002).

2.4Second Amended and Restated Transaction Agreement between Dakota Growers Pasta Company, Dakota Growers Pasta Restructuring Cooperative, Dakota Growers Corporation and the Company, formerly Dakota Growers Restructuring Company, Inc. (Incorporated by reference to Exhibit 2.4 from the Company’s Pre-Effective Amendment No. 2 to Form S-4 Registration Statement, File No. 333-81946, dated April 19, 2002).

3.1Second 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).

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3.2Second 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).

3.3Certificate 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).

3.4Certificate 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).

4.1Note Purchase Agreement dated July 15, 1998. (Incorporated by reference to Exhibit 4.1 from Dakota Growers Pasta Company’s Amendment No. 1 to Form S-1 Registration Statement on Form S-1/A, File No. 333-65071, declared effective October 21, 1998).

4.2Waiver and First Amendment to Note Purchase Agreements dated November 28, 2000. (Incorporated by reference to Exhibit 4.1 from Dakota Growers Pasta Company’s Quarterly Report on Form 10-Q, File No. 33-99834, for the quarter ended October 31, 2000).

4.3Waiver and Second Amendment to Note Purchase Agreement and Notes dated June 1, 2001. (Incorporated by reference to Exhibit 4.3 from Dakota Growers Pasta Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2001, File No. 33-99834).

10.1Incentive Stock Option Plan. (Incorporated by reference to Exhibit 10.1 from Dakota Growers Pasta Company’s Quarterly Report on Form 10-Q, File No. 33-99834, for the quarter ended April 30, 1998).

10.2Master Lease Agreement dated March 6, 2002 and related Schedule A dated March 29, 2002 between Dakota Growers Pasta Company and Farm Credit Leasing Services Corporation. (Incorporated by reference to Exhibit 10.2 from the Company’s Pre-Effective Amendment No. 2 to Form S-4 Registration Statement, File No. 333-81946, dated April 19, 2002).

10.3Amended and Restated Share Rights Agreement, dated as of April 19, 2002, by and among the Company, formerly Dakota Growers Restructuring Company, Inc., and Wells Fargo Bank Minnesota, National Association, as Rights Agent. (Incorporated by reference to Exhibit 10.1 from the Company’s Pre-Effective Amendment No. 2 to Form S-4 Registration Statement, File No. 333-81946, dated April 19, 2002).

10.4Dakota Growers Pasta Company, Inc. 2002 Stock Option Plan. (Incorporated by reference to Exhibit 10.16 from the Company’s Annual Report on Form 10-K, File No. 000-50111, for the year ended July 31, 2003).

10.5Dakota Growers Pasta Company, Inc. Amended and Restated 2003 Stock Option Plan. (Incorporated by reference to Exhibit 10.6 from the Company’s Quarterly Report on Form 10-Q, File No. 000-50111, for the quarter ended January 31, 2004).

10.6Manufacturing Agreement dated December 26, 2003 between the Company and DNA Dreamfields Company, LLC. (Incorporated by reference to Exhibit 10.2 from the Company’s Quarterly Report on Form 10-Q, File No. 000-50111, for the quarter ended January 31, 2004). Confidential treatment has been granted with respect to portions of the Exhibit.

10.7Services Agreement dated December 26, 2003 between the Company and DNA Dreamfields Company, LLC. (Incorporated by reference to Exhibit 10.3 from the Company’s Quarterly Report on

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Form 10-Q, File No. 000-50111, for the quarter ended January 31, 2004). Confidential treatment has been granted with respect to portions of the Exhibit.

10.8Trademark License Agreement dated December 26, 2003 between the Company and DNA Dreamfields Company, LLC. (Incorporated by reference to Exhibit 10.4 from the Company’s Quarterly Report on Form 10-Q, File No. 000-50111, for the quarter ended January 31, 2004).

10.9Technology Sublicense Agreement dated December 26, 2003 between the Company and DNA Dreamfields Company, LLC. (Incorporated by reference to Exhibit 10.5 from the Company’s Quarterly Report on Form 10-Q, File No. 000-50111, for the quarter ended January 31, 2004).

10.10Stock Purchase Agreement dated July 30, 2004 between the Company and MVC Capital, Inc. (Incorporated by reference to Exhibit 99.2 from the Company’s Report on Form 8-K, File No. 000-50111, filed August 6, 2004).

10.11Registration Rights Agreement dated July 30, 2004 between the Company and MVC Capital, Inc. (Incorporated by reference to Exhibit 99.3 from the Company’s Report on Form 8-K, File No. 000-50111, filed August 6, 2004).

10.12Consulting Agreement dated July 30, 2004 between the Company and MVC Financial Services, Inc. (Incorporated by reference to Exhibit 99.4 from the Company’s Report on Form 8-K, File No. 000-50111, filed August 6, 2004).

10.13Membership Unit Purchase Agreement effective May 1, 2005 between and among Dakota Growers Pasta Company, Inc., B-New, LLC, TechCom Group, LLC and Buhler, Inc. (Incorporated by reference to Exhibit 10.1 from the Company’s Report on Form 8-K, File No. 000-50111, filed July 1, 2005).

10.14Amended and Restated DNA Dreamfields Company, LLC Operating Agreement effective May 1, 2005 between the Company, B-New, LLC, TechCom Group, LLC and Buhler, Inc. (Incorporated by reference to Exhibit 10.2 from the Company’s Report on Form 8-K, File No. 000-50111, filed July 1, 2005).

10.152005 Line of Credit Loan Agreement effective May 31, 2005 by and between the Company (“Lender”) and DNA Dreamfields Company, LLC (“Borrower”). (Incorporated by reference to Exhibit 10.3 from the Company’s Report on Form 8-K, File No. 000-50111, filed July 1, 2005).

10.16Promissory Note effective May 31, 2005 executed by DNA Dreamfields Company, LLC. (Incorporated by reference to Exhibit 10.4 from the Company’s Report on Form 8-K, File No. 000-50111, filed July 1, 2005).

10.17LLC Unit Pledge Agreement effective May 31, 2005 between and among B-New, LLC, TechCom Group, LLC, Buhler, Inc. (collectively the “Pledgors”) and the Company (“Lender”). (Incorporated by reference to Exhibit 10.5 from the Company’s Report on Form 8-K, File No. 000-50111, filed July 1, 2005).

10.18Master Loan Agreement dated May 23, 2005 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 July 7, 2005).

10.19Statused Revolving Credit Supplement dated May 23, 2007 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 May 30, 2007).

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10.20Non-Revolving Credit Supplement dated May 23, 2007 between the Company and CoBank, ACB. (Incorporated by reference to Exhibit 10.2 from the Company’s Report on Form 8-K, File No. 000-50111, filed May 30, 2007).

10.21Multiple Advance Term Loan Supplement dated February 14, 2007 between the Company and CoBank, ACB. (Incorporated by reference to Exhibit 10.3 from the Company’s Report on Form 8-K, File No. 000-50111, filed February 15, 2007).

10.22Continuing Guarantee Agreement dated May 23, 2005 between Primo Piatto, Inc., a wholly-owned subsidiary of the Company, and CoBank, ACB. (Incorporated by reference to Exhibit 10.5 from the Company’s Report on Form 8-K, File No. 000-50111, filed July 7, 2005).

10.23Security Agreement dated May 23, 2005 between Primo Piatto, Inc. and CoBank, ACB. (Incorporated by reference to Exhibit 10.6 from the Company’s Report on Form 8-K, File No. 000-50111, filed July 7, 2005).

10.24Multiple Advance Term Loan Supplement dated February 14, 2007 between the Company and CoBank, ACB. (Incorporated by reference to Exhibit 10.2 from the Company’s Report on Form 8-K, File No. 000-50111, filed February 15, 2007).

10.25Stock Purchase Agreement dated February 9, 2007 between the Company and MVC Capital, Inc. and  La Bella Holdings, LLC. (Incorporated by reference to Exhibit 10.1 from the Company’s Report on  Form 8-K, File No. 000-50111, filed February 15, 2007).

10.26Amendment to the Master Loan Agreement dated February 14, 2007 between CoBank, ACB. and the  Company. (Incorporated by reference to Exhibit 10.4 from the Company’s Report on  Form 8-K, File No. 000-50111, filed February 15, 2007).

10.27Amendment to the Master Loan Agreement dated April 25, 2007 between CoBank, ACB. and the  Company. (Incorporated by reference to Exhibit 10.2 from the Company’s Report on  Form 8-K, File No. 000-50111, filed May 1, 2007).

10.28Extended Term Schedule A dated March 30, 2007 of the Master Lease Agreement dated March 6, 2002 between  the Company and Farm Credit Leasing Services Corporation. (Incorporated by  reference to Exhibit 10.1 from the Company’s Report on form 8-K, File No. 000-50111, filed April  4, 2007).

10.29Unit Purchase Agreement dated September 21, 2007 between the Company, TechCom Group, LLC, Buhler Inc. and B-New, LLC. (Incorporated by reference to Exhibit 10.1 from the Company’s Report on form 8-K, File No. 000-50111, filed September 27, 2007).

21Subsidiary of the registrant.

Name of Subsidiary	Jurisdiction of Incorporation
Primo Piatto, Inc.	Minnesota

23Consent of Independent Registered Public Accounting Firm; Eide Bailly LLP.

31.1Certification of Chief Executive Officer required by Securities and Exchange Commission Rule 13a-14(a) or 15d-14(a).

31.2Certification of Chief Financial Officer required by Securities and Exchange Commission Rule 13a-14(a) or 15d-14(a).

32.1Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

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32.2Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
By:	/s/ Timothy J. Dodd
	Timothy J. Dodd,
	PRESIDENT AND CHIEF EXECUTIVE OFFICER,
	AND PRINCIPAL EXECUTIVE OFFICER
Dated: October 29, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Timothy J. Dodd	President and Chief Executive Officer
Timothy J. Dodd	(Principal Executive Officer)	October 29, 2007
/s/ Edward O. Irion	Chief Financial Officer
Edward O. Irion	(Principal Financial and Accounting Officer)	October 29, 2007
/s/ John S. Dalrymple III
John S. Dalrymple III	Director	October 29, 2007
/s/ John D. Rice, Jr.
John D. Rice, Jr.	Director	October 29, 2007

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Signature	Title	Date
/s/ Curtis R. Trulson
Curtis R. Trulson	Director	October 29, 2007
/s/ Allyn K. Hart
Allyn K. Hart	Director	October 29, 2007
/s/ Roger A. Kenner
Roger A. Kenner	Director	October 29, 2007
/s/ James F. Link
James F. Link	Director	October 29, 2007
/s/ Eugene J. Nicholas
Eugene J. Nicholas	Director	October 29, 2007
/s/ Richard Thompson
Richard Thompson	Director	October 29, 2007
/s/ Michael T. Tokarz
Michael T. Tokarz	Director	October 29, 2007
/s/ Jeffrey O. Topp
Jeffrey O. Topp	Director	October 29, 2007
/s/ Michael E. Warner
Michael E. Warner	Director	October 29, 2007

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EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the use of our report dated October 25, 2007 with respect to the consolidated financial statements of Dakota Growers Pasta Company, Inc. (a North Dakota corporation) for the year ended July 31, 2007 in this Form 10-K (file number 000-50111).

/s/ Eide Bailly LLP

Minneapolis, Minnesota

October 25, 2007

1

EX-31.1

Exhibit 31.1

OFFICER CERTIFICATION

I, Timothy J. Dodd, certify that:

1.I have reviewed this annual report on Form 10-K of Dakota Growers Pasta Company, Inc.;

2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 29, 2007

       /s/ Timothy J. Dodd

Timothy J. Dodd

President and Chief Executive Officer

1

EX-31.2

Exhibit 31.2

OFFICER CERTIFICATION

I, Edward O. Irion, certify that:

1.I have reviewed this annual report on Form 10-K of Dakota Growers Pasta Company, Inc.;

2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 29, 2007

      /s/ Edward O. Irion

Edward O. Irion

Chief Financial Officer

1

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. § 1350 (adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002), I, the undersigned President and Chief Executive Officer of Dakota Growers Pasta Company, Inc. (the “Company”), hereby certify that the Annual Report on Form 10-K of the Company for the annual period ended July 31, 2007 (the “Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date: October 29, 2007

/s/ Timothy J. Dodd

Timothy J. Dodd

President and Chief
Executive Officer

1

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. § 1350 (adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002), I, the undersigned Chief Financial Officer of Dakota Growers Pasta Company, Inc. (the “Company”), hereby certify that the Annual Report on Form 10-K of the Company for the annual period ended July 31, 2007 (the “Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date:  October 29, 2007

/s/ Edward O. Irion

Edward O. Irion

Chief Financial Officer

1