**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-Q**





(Mark
      One)




x
            
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934




For
      the
      quarterly period ended **July
      31, 2007**




or




o
            
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT




**** For
      the
      transition period from  to




**** Commission
      File Number **001-31756**




**Argan,
                Inc.**(Exact
                Name of registrant as Specified in Its
                Charter)





**Delaware**
            **13-1947195**(State
                or other Jurisdiction of Incorporation
              or
                Organization)
            (I.R.S.
                Employer Identification No.)




**One
                Church Street, Suite 401, Rockville MD
                20850**(Address
                of Principal Executive Offices) (Zip
                Code)





**(301)
                315-0027**(Registrant’s
                telephone number, including area
                code)





____________________________________(Former
                Name, Former Address and Former Fiscal Year,
              if
                Changed Since Last Report)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15 (d) of the Exchange Act of 1934 during the preceding
      12 months (or for such shorter period that the Registrant was required to file
      such reports), and (2) has been subject to such filing requirements for the
      past
      90 days.


Yes þ No o





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
                filerþ





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




Common
      Stock, par value $0.15 per share, outstanding at September 12, 2007: 11,094,012.









**ARGAN,
      INC.**




**INDEX**




Page
                  No.PART I.
              
              FINANCIAL
                  INFORMATION
              
              3Item
                  1.
              
              Financial
                  Statements (unaudited)
              
              3Condensed
                  Consolidated Balance Sheets - July 31, 2007 and January 31,
                  2007
              
              3Condensed
                  Consolidated Statements of Operations for the Three and Six Months
Ended
                  July 31, 2007 and 2006
              
              4Condensed
                  Consolidated Statements of Cash Flows for the Six Months Ended
                  July 31, 2007 and 2006
              
              5Notes
                  to Condensed Consolidated Financial Statements
              
              6Item
                  2.
              
              Management’s
                  Discussion and Analysis of Financial Condition and
                  Results of Operation
              
              15Item
                  3.
              
              Quantitative
                  and Qualitative Disclosures about Market Risk
              
              27Item
                  4.
              
              Controls
                  and Procedures
              
              27PART II.
              
              OTHER
                  INFORMATION
              
              27Item
                  1.
              
              Legal
                  Proceedings
              
              27Item
                  1a.
              
              Risk
                  Factors
              
              28Item
                  2.
              
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              
              28Item
                  3.
              
              Defaults
                  Upon Senior Securities
              
              28Item
                  4.
              
              Submission
                  of Matters to a Vote of Security Holders
              
              28Item
                  5.
              
              Other
                  Information
              
              29Item
                  6.
              
              Exhibits
              
              29SIGNATURES
              
              
              
              30




2




**ARGAN,
        INC.**
 **Condensed
        Consolidated Balance Sheets**
 **(Unaudited)**


July
                  31,
              
              January
                  31,2007
              
              2007**ASSETS****CURRENT
                  ASSETS:**Cash
                  and cash equivalents
              
              $
              49,140,000
              
              $
              25,393,000Accounts
                  receivable, net of allowance for doubtful accounts of
                  $88,000at
                  7/31/07 and $137,000 at 1/31/2007
              
              
              30,397,000
              
              
              23,030,000Receivable
                  from affiliated entity
              
              
              -
              
              
              155,000Investments
                  available for sale
              
              
              -
              
              
              2,283,000Escrowed
                  cash
              
              
              15,034,000
              
              
              15,031,000Estimated
                  earnings in excess of billings
              
              
              3,919,000
              
              
              12,003,000Current
                  deferred tax asset
              
              
              435,000
              
              
              -Inventories,
                  net of reserves of $143,000 at 07/31/2007 and $104,000at
                  01/31/2007
              
              
              2,442,000
              
              
              2,387,000Prepaid
                  expenses and other current assets
              
              
              1,512,000
              
              
              643,000**TOTAL
                  CURRENT ASSETS**
              
              
              102,879,000
              
              
              80,925,000Property
                  and equipment, net of accumulated depreciation of$2,922,000
                  at 7/31/2007 and $2,379,000 at 1/31/2007
              
              
              2,887,000
              
              
              3,250,000Other
                  assets
              
              
              235,000
              
              
              313,000Goodwill
              
              
              23,981,000
              
              
              23,981,000Other
                  intangible assets, net
              
              
              8,572,000
              
              
              12,661,000**TOTAL
                  ASSETS**
              
              $
              138,554,000
              
              $
              121,130,000**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****CURRENT
                  LIABILITIES:**Accounts
                  payable
              
              $
              33,020,000
              
              $
              44,248,000Due
                  to affiliates
              
              
              -
              
              
              7,000Accrued
                  expenses
              
              
              6,794,000
              
              
              5,873,000Estimated
                  loss on uncompleted contracts
              
              
              74,000
              
              
              -Billings
                  in excess of cost and earnings
              
              
              46,223,000
              
              
              15,705,000Current
                  portion of long-term debt
              
              
              2,584,000
              
              
              2,586,000**TOTAL
                  CURRENT LIABILITIES**
              
              
              88,695,000
              
              
              68,419,000Deferred
                  income tax liability
              
              
              495,000
              
              
              1,471,000Other
                  liabilities
              
              
              21,000
              
              
              14,000Long-term
                  debt
              
              
              5,423,000
              
              
              6,715,000**TOTAL
                  LIABILITIES**
              
              
              94,634,000
              
              
              76,619,000**STOCKHOLDERS'
                  EQUITY**Preferred
                  stock, par value $0.10 per share; 500,000 shares
                  authorized;no
                  shares issued and outstanding
              
              
              -
              
              
              -Common
                  stock, par value $0.15 per share;30,000,000
                  shares authorized; 11,097,245 sharesissued
                  and 11,094,012 shares outstandingat
                  7/31/2007 and 1/31/2007
              
              
              1,664,000
              
              
              1,664,000Warrants
                  outstanding
              
              
              849,000
              
              
              849,000Additional
                  paid-in capital
              
              
              57,285,000
              
              
              57,190,000Accumulated
                  other comprehensive loss
              
              
              (13,000
              )
              
              (8,000
              )Accumulated
                  deficit
              
              
              (15,832,000
              )
              
              (15,151,000
              )Treasury
                  stock at cost; 3,233 shares at 7/31/2007 and 1/31/2007
              
              
              (33,000
              )
              
              (33,000
              )**TOTAL
                  STOCKHOLDERS' EQUITY**
              
              
              43,920,000
              
              
              44,511,000**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              138,554,000
              
              $
              121,130,000




The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.




3




**ARGAN,
        INC.**
 **Condensed
        Consolidated Statements of Operations**
 **(Unaudited)**


Three
                  months ended July 31,
              
              Six
                  months ended July 31,2007
              
              2006
              
              2007
              
              2006Net
                  salesPower
                  industry services
              
              $
              45,599,000
              
              $
              -
              
              $
              88,953,000
              
              $
              -Nutraceutical
                  products
              
              
              5,036,000
              
              
              5,211,000
              
              
              9,985,000
              
              
              11,040,000Telecom
                  infrastructure services
              
              
              2,502,000
              
              
              3,349,000
              
              
              4,631,000
              
              
              6,482,000Net
                  Sales
              
              
              53,137,000
              
              
              8,560,000
              
              
              103,569,000
              
              
              17,522,000Cost
                  of salesPower
                  industry services
              
              
              40,590,000
              
              
              -
              
              
              83,835,000
              
              
              -Nutraceutical
                  products
              
              
              4,122,000
              
              
              3,940,000
              
              
              8,288,000
              
              
              8,326,000Telecom
                  infrastructure services
              
              
              1,858,000
              
              
              2,678,000
              
              
              3,701,000
              
              
              5,001,000Gross
                  profit
              
              
              6,567,000
              
              
              1,942,000
              
              
              7,745,000
              
              
              4,195,000Selling,
                  general and administrative expenses
              
              
              4,773,000
              
              
              1,944,000
              
              
              9,334,000
              
              
              3,920,000(Loss)
                  income from operations
              
              
              1,794,000
              
              
              (2,000
              )
              
              (1,589,000
              )
              
              275,000Interest
                  expense and amortization ofsubordinated
                  debt issuance costs
              
              
              181,000
              
              
              216,000
              
              
              385,000
              
              
              477,000Interest
                  Income
              
              
              (653,000
              )
              
              (1,000
              )
              
              (1,286,000
              )
              
              (3,000
              )(Loss)
                  income from operations beforeincome
                  taxes
              
              
              2,266,000
              
              
              (217,000
              )
              
              (688,000
              )
              
              (199,000
              )Income
                  tax benefit (expense)
              
              
              (932,000
              )
              
              62,000
              
              
              7,000
              
              
              26,000Net
                  income (loss)
              
              $
              1,334,000
              
              $
              (155,000
              )
              $
              (681,000
              )
              $
              (173,000
              )Earnings
                  per share:Basic
                  earnings per share
              
              $
              0.12
              
              $
              (0.03
              )
              $
              (0.06
              )
              $
              (0.04
              )Diluted
                  earnings per share
              
              $
              0.12
              
              $
              (0.03
              )
              $
              (0.06
              )
              $
              (0.04
              )Weighted
                  average number of shares:Basic
              
              
              11,094,000
              
              
              4,549,000
              
              
              11,094,000
              
              
              4,179,000Diluted
              
              
              11,196,000
              
              
              4,549,000
              
              
              11,094,000
              
              
              4,179,000




The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.




4




ARGAN,
      INC.


Condensed
      Consolidated Statements of Cash Flows


(Unaudited)




Six
                  Months ended July 31,2007
              
              2006**CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (681,000
              )
              $
              (173,000
              )Adjustments
                  to reconcile net loss to net cash provided by operating
                  activities:Depreciation
                  and other amortization
              
              
              644,000
              
              
              518,000Amortization
                  of debt issuance costs
              
              
              -
              
              
              257,000Amortization
                  of purchased intangibles
              
              
              4,089,000
              
              
              660,000Deferred
                  income taxes
              
              
              (1,411,000
              )
              
              (246,000
              )Non-cash
                  stock option compensation expense
              
              
              100,000
              
              
              80,000Gain
                  on sale of property and equipment
              
              
              9,000
              
              
              8,000Gain
                  on sale of investments
              
              
              11,000
              
              
              -Changes
                  in operating assets and liabilities:Accounts
                  receivable, net
              
              
              (7,212,000
              )
              
              (537,000
              )Restricted
                  cash for surety bond
              
              
              (3,000
              )
              
              -Estimated
                  earnings in excess of billings
              
              
              8,084,000
              
              
              94,000Inventories,
                  net
              
              
              (55,000
              )
              
              543,000Prepaid
                  expenses and other current assets
              
              
              (869,000
              )
              
              (337,000
              )Accounts
                  payable and accrued expenses
              
              
              (10,307,000
              )
              
              164,000Billings
                  in excess of cost and earnings
              
              
              30,518,000
              
              
              7,000Due
                  from affiliates
              
              
              (7,000
              )
              
              (99,000
              )Estimated
                  loss on uncompleted contracts
              
              
              74,000
              
              
              -Other
              
              
              (9,000
              )
              
              14,000Net
                  cash provided by operating activities
              
              
              22,975,000
              
              
              953,000**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Proceeds
                  from sale of investments
              
              
              2,272,000
              
              
              -Proceeds
                  from sale of property and equipment
              
              
              18,000
              
              
              4,000Purchases
                  of property and equipment
              
              
              (224,000
              )
              
              (612,000
              )Net
                  cash provided by (used in) investing activities
              
              
              2,066,000
              
              
              (608,000
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Net
                  proceeds from sale of stock
              
              
              -
              
              
              1,863,000Proceeds
                  from debt
              
              
              3,292,000
              
              
              2,855,000Principal
                  payments on debt
              
              
              (4,586,000
              )
              
              (3,107,000
              )Principal
                  payments on subordinated note due former owner ofVitarich
                  Laboratories, Inc.
              
              
              -
              
              
              (1,800,000
              )Net
                  cash (used in) provided by financing activities
              
              
              (1,294,000
              )
              
              1,611,000**NET
                  INCREASE IN CASH AND CASH EQUIVALENTS**
              
              
              23,747,000
              
              
              1,956,000**CASH
                  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD**
              
              
              25,393,000
              
              
              5,000**CASH
                  AND CASH EQUIVALENTS AT END OF PERIOD**
              
              $
              49,140,000
              
              $
              1,961,000**SUPPLEMENTAL
                  CASH FLOW INFORMATION**Cash
                  paid for interest and income taxes is as follows:Interest
              
              $
              729,000
              
              $
              128,000Income
                  taxes
              
              $
              2,700,000
              
              $
              8,000Non-cash
                  investing and financing activities are as follows:Net
                  increase in fair value of interest rate swaps
              
              $
              9,000
              
              $
              -




The
      accompanying notes are an integral part of the condensed consolidated financial
      statements.




5




**ARGAN,
      INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**NOTE
      1- DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION**




***Business***




Argan,
      Inc. (AI or the Company) conducts its operations through its wholly owned
      subsidiaries, Gemma Power Systems, LLC and affiliates (GPS) which was acquired
      in December 2006, Vitarich Laboratories, Inc. (VLI) which was acquired in August
      2004, and Southern Maryland Cable, Inc. (SMC) which was acquired in July 2003.
      Through GPS, the Company provides a full range of development, consulting,
      engineering, procurement, construction, commissioning, operating and maintenance
      services to the power energy market for a wide range of customers including
      public utilities, independent power project owners, municipalities, public
      institutions and private industry. Through VLI, the Company develops,
      manufactures and distributes premium nutritional supplements, whole-food dietary
      supplements and personal care products. Through SMC, the Company provides
      telecommunications infrastructure services including project management,
      construction and maintenance to the Federal Government, telecommunications
      and
      broadband service providers, as well as to electric utilities primarily in
      the
      Mid-Atlantic region.





AI
      operates in three reportable segments.




***Basis
      of presentation***




The
      condensed consolidated balance sheet as of July 31, 2007, the condensed
      consolidated statements of operations for the three and six months ended July
      31, 2007 and 2006, and the condensed consolidated statements of cash flows
      for
      the six months ended July 31, 2007 and 2006 are unaudited. In the opinion of
      management, the accompanying financial statements contain all adjustments,
      which
      are of a normal and recurring nature, considered necessary to present fairly
      the
      financial position of the Company as of July 31, 2007 and the results of its
      operations and its cash flows for the interim periods presented. The Company
      prepares its interim financial information using the same accounting principles
      as it does for its annual financial statements.




These
      financial statements do not include all disclosures associated with annual
      financial statements and, accordingly, should be read in conjunction with the
      footnotes contained in the Company’s consolidated financial statements for the
      year ended January 31, 2007, together with the independent registered public
      accounting firm’s report, included in the Company’s Annual Report on Form
      10-KSB, as filed with the Securities and Exchange Commission (SEC). The results
      of operations for any interim period are not necessarily indicative of the
      results of operations for any other interim period or for a full fiscal
      year.




**NOTE
      2 - RECENT ACCOUNTING STANDARDS**




In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard (“FAS”) No. 157, “Fair Value
      Measurements.” This Standard defines fair value, establishes a framework for
      measuring fair value in generally accepted accounting principles and expands
      disclosures about fair value measurements. The Company plans to adopt FAS 157
      on
      February 1, 2008, as required. The adoption of FAS 157 is not expected to have
      a
      material impact on the Company’s financial condition and results of
      operations.




In
      February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities.” FAS 159 permits companies to measure many
      financial instruments and certain other items at fair value at specified
      election dates. The provisions of FAS 159 will be effective for the Company
      beginning February 1, 2008. The Company does not expect FAS 159 to have a
      significant impact on the consolidated financial statements.




6




**NOTE
      3 - ESTIMATED LOSS ON UNCOMPLETED CONTRACTS**




During
      the six months ended July 31, 2007, the Company experienced an unexpected
      increase in costs related to one of the GPS contracts. Unexpected costs included
      labor productivity being below expectations and previous experience, labor
      rate
      increases due to overtime requirements to meet the completion date, and
      engineering issues resulting in considerable rework and additional materials.
      The Company anticipates, that upon completion of the contract, which is 99%
      complete at July 31, 2007, it expects to incur a loss of approximately $8.2
      million, which as of July 31, 2007, has been recognized. The Company has
      recorded an estimated loss for this contract as of July 31, 2007 of
      $74,000.




**NOTE
      4 - INVENTORIES**




Inventories
      are stated at the lower of cost or market (net realizable value). Cost is
      determined on the first-in, first-out (FIFO) method. Appropriate consideration
      is given to obsolescence, excessive inventory levels, product deterioration,
      and
      other factors in evaluating net realizable value.




Inventories
      consist of the following:




July
                  31,
                2007
              
              January
                  31,
                2007Raw
                  materials
              
              $
              2,285,000
              
              $
              2,264,000Work-in
                  process
              
              
              145,000
              
              
              100,000Finished
                  goods
              
              
              155,000
              
              
              127,000Less:
                  Reserves
              
              
              (143,000
              )
              
              (104,000
              )Inventories,
                  net
              
              $
              2,442,000
              
              $
              2,387,000





**NOTE
      5- INTANGIBLE ASSETS** ****




The
      Company’s intangible assets consist of the following at July 31,
      2007:




**Estimated
                Useful Life**
            
            **Gross
                Carrying Amount**
            
            **Accumulated
                Amortization**
            
            **Net
                Carrying**
              **Amount**Intangible
                Assets Being
              Amortized:Contractual
                Customer
              Relationships
                - VLI & SMC
            
            
            5-7
                years
            
            $
            2,854,000
            
            $
            1,715,000
            
            $
            1,139,000Customer
                Relationships - GPS
            
            
            1-2
                years
            
            
            6,678,000
            
            
            4,209,000
            
            
            2,469,000Proprietary
                Formulas - VLI
            
            
            3
                years
            
            
            1,813,000
            
            
            1,775,000
            
            
            38,000Non-Compete
                Agreement -
              GPS
                & VLI
            
            
            5
                years
            
            
            2,334,000
            
            
            1,118,000
            
            
            1,216,000Trade
                Name - GPS
            
            
            15
                years
            
            
            3,643,000
            
            
            157,000
            
            
            3,486,000Intangible
                Assets Not Being
              Amortized:Trade
                Name - SMC
            
            
            Indefinite
            
            
            224,000
            
            
            —
            
            
            224,000Total
                other intangible assets
            
            
            
            
            $
            17,546,000
            
            $
            8,974,000
            
            $
            8,572,000Goodwill
            
            
            Indefinite
            
            $
            23,981,000
            
            $
            —
            
            $
            23,981,000




Amortization
      expense totaling $4,089,000 for the six months ended July 31, 2007, consisted
      of
      $3,505,000, $230,000, $232,000 and $122,000 for Contractual Customer
      Relationships, Proprietary Formulas, Non-Compete Agreement and Trade Name,
      respectively. Amortization expense totaling $660,000 for the six months ended
      July 31, 2006, consisted of $251,000, $229,000 and $180,000 for Contractual
      Customer Relationships, Proprietary Formulas and Non-Compete Agreement,
      respectively.




7




**NOTE
      6 - RELATED PARTY TRANSACTIONS**




The
      Company leases administrative, manufacturing and warehouse facilities for VLI
      from an individual who was the former officer and shareholder of VLI. The lease
      costs through March 2007, the date of his termination, are included as related
      party expenses below. SMC’s administrative and maintenance facilities were
      rented from a former officer through July 2006. The total expense under these
      arrangements was $45,000 for the six months ended July 31, 2007, and $64,000
      and
      $140,000 for the three and six months ended July 31, 2006,
      respectively.




The
      Company entered into a supply agreement with an entity owned by the former
      shareholder of VLI whereby the supplier committed to sell to the Company and
      the
      Company committed to purchase on an as-needed basis, certain organic products.
      VLI made $47,000 in purchases under the supply agreement through March 2007,
      the
      date that the former officer and shareholder of VLI was terminated and $38,000
      and $55,000 in purchases under the supply agreement for the three and six months
      ended July 31, 2006, respectively.




The
      Company also sold its products in the normal course of business to an entity
      in
      which the former officer and owner of VLI has an ownership interest. VLI had
      approximately $117,000 in sales with this entity through the aforementioned
      termination in March 2007, and $157,000 and $286,000 in sales with this entity
      for the three and six months ended July 31, 2006, respectively. At July 31,
      2007
      and January 31, 2007, the previously affiliated entity owed $156,000 and
      $155,000, respectively, to VLI.




**NOTE
      7 - DEBT**




On
      December 11, 2006, Argan amended its financing arrangements with the Bank.
      The
      amended financing arrangement includes an amended 3-year term loan for VLI
      in
      the amount of $1.4 million with interest at LIBOR (5.32% at July 31, 2007)
      plus
      3.25%; a new 4-year term loan that was used to acquire GPS in the amount of
      $8.0
      million with interest at LIBOR plus 3.25%; and a revolving loan with a maximum
      amount of $4.25 million available until May 31, 2008, with interest at LIBOR
      plus 3.25%.




The
      financing arrangements provide for measurement at the Company’s fiscal year end
      and at each of the Company’s fiscal quarter ends (using a rolling 12-month
      period) of certain financial covenants including requiring that the ratio of
      total funded debt to EBITDA not to exceed 2.25 to 1 for the year ending January
      31, 2007 and not to exceed 2 to 1 for future quarters, requiring a fixed charge
      coverage ratio of not less than 1.25 to 1, and requiring the ratio of senior
      funded debt to EBITDA not to exceed 1.75 to 1 for the year ended January 31,
      2007 and not to exceed 1.50 to 1 for future quarters. The Bank’s consent
      continues to be required for acquisitions and divestitures. The Company
      continues to pledge the majority of the Company’s assets to secure the financing
      arrangements.




The
      amended financing arrangement contains a subjective acceleration clause which
      allows the Bank to declare amounts outstanding under the financing arrangements
      due and payable if certain material adverse changes occur. The Company believes
      that it will continue to comply with its financial covenants under the financing
      arrangement. If the Company’s performance does not result in compliance with any
      of its financial covenants, or if the Bank seeks to exercise its rights under
      the subjective acceleration clause referred to above, the Company would seek
      to
      modify its financing arrangement, but there can be no assurance that the Bank
      would not exercise their rights and remedies under the financing arrangement
      including accelerating payment of all outstanding senior debt due and
      payable.




At
      July
      31, 2007, the Company was in compliance with the covenants of its amended
      financing arrangements.




**NOTE
      8 - INCOME TAXES**




The
      estimated effective income tax rate for the six months ended July 31, 2007
      was
      1%. For the six months ended July 31, 2006, the effective income tax benefit
      rate was 13%.




8




The
      Company’s income tax benefit for the six months ended July 31, 2007 and 2006
      differs from the “expected” tax benefit computed by applying the U.S. Federal
      corporate income tax rate of 34% to the loss from operations before income
      taxes
      for the six months ended July 31, 2007 and 2006.




2007
            
            2006Computed
                “expected” tax benefit
            
            $
            234,000
            
            $
            68,000Increase
                (decrease) resulting from:State
                income taxes, net
            
            
            (203,000
            )
            
            (16,000
            )Permanent
                differences
            
            
            (24,000
            )
            
            (26,000
            )$
            7,000
            
            $
            26,000





During
      the six months ended July 31, 2007, the Company’s effective tax benefit rate was
      impacted by its inability to utilize certain current operating losses for state
      income tax reporting purposes.





The
      Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN
      48”), on February 1, 2007. FIN 48 clarifies the accounting for uncertainty in
      income taxes recognized in an enterprise’s financial statements in accordance
      with FASB Statement 109, “Accounting for Income Taxes,” and prescribes a
      recognition threshold and measurement process for financial statement
      recognition and measurement of tax positions taken or expected to be taken
      in a
      tax return. FIN 48 also provides guidance on derecognition, classification,
      interest and penalties, accounting in interim periods, disclosure and
      transition. The Company has concluded that there is no material effect as a
      result of adopting this standard.




The
      Company is subject to income taxes in the U.S. federal jurisdiction and various
      state jurisdictions. Tax regulations within each jurisdiction are subject to
      the
      interpretation of the related tax laws and regulations and require significant
      judgment to apply. With few exceptions, the Company is no longer subject to
      U.S.
      federal, state and local income tax examinations by tax authorities for the
      years before 2003.




**NOTE
      9 - STOCK BASED COMPENSATION**




The
      Company has a stock option plan which was established in August 2001 (Plan).
      Under the Plan, the Company’s Board of Directors may grant stock options to
      officers, directors and key employees. In June 2007, the Shareholders voted
      to
      amend the Plan to authorize the grant of options for up to 650,000 shares of
      the
      Company’s common stock.




Stock
      options granted may be “Incentive Stock Options” (“ISOs”) or “Nonqualified Stock
      Options” (NSOs”). ISOs have an exercise price at least equal to the stock’s fair
      market value at the date of grant, a ten year term and vest and become fully
      exercisable one year from the date of grant. NSOs may be granted at an exercise
      price equal to the stock’s fair market value at the date of grant or at a price
      other than the stock’s fair market value at the date of grant and have up to a
      ten year term, and vest and become fully exercisable as determined by the
      Board.




The
      fair
      value of each stock option award is estimated on the date of grant using a
      Black-Scholes option-pricing model based on the following weighted average
      assumptions:




Six
                Months Ended July 31,2007
            
            2006Dividend
                yield
            
            
            —
            
            
            —Expected
                volatility
            
            
            71
            %
            
            57
            %Risk-free
                interest rate
            
            
            4.85
            %
            
            5.11
            %Expected
                life in years
            
            
            5
            
            
            5




9




A
      summary
      of stock option activity under the Plan during the six months ended July 31,
      2007 is presented below:




**Options**
            
            **Shares**
            
            **Weighted-**
              **Average
                Exercise**
              **Price**
            
            **Weighted-**
              **Average**
              **Remaining**
              **Contract
                Term**
            
            **Aggregate**
              **Intrinsic**
              **Value**Outstanding
                at January 31, 2007
            
            
            244,000
            
            $
            4.20Granted
            
            
            107,000
            
            $
            6.27Exercised
            
            
            —Forfeited
                or expired
            
            
            (3,000
            )
            $
            7.79Outstanding
                at July 31, 2007
            
            
            348,000
            
            $
            4.81
            
            
            5.7
            
            $
            962,000Vested
                or expected to vest
              July
                31, 2007
            
            
            348,000
            
            $
            4.81
            
            
            5.7
            
            $
            962,000Exercisable
                at July 31, 2007
            
            
            225,000
            
            $
            4.05
            
            
            7.7
            
            $
            411,000






The
      per
      share weighted average grant date fair value of options granted during the
      six
      months ended July 31, 2007 and 2006 was $4.61 and $1.34, respectively. No
      options were exercised during the six months ended July 31, 2007 and 2006.
      At
      July 31, 2007, there was $444,000 unrecognized compensation cost related to
      stock options granted under the Plan. The weighted-average period over which
      the
      compensation expense for these awards is expected to be recognized is through
      June 2008.




A
      summary
      of the status of the Company’s nonvested shares as of July 31, 2007, and changes
      during the year then ended, is present below:




**Shares**
            
            **Aggregate**
              **Intrinsic**
              **Value**Nonvested
                at January 31, 2007
            
            
            16,000Granted
            
            
            107,000Vested
            
            
            —Forfeited
            
            
            —Nonvested
                at July 31, 2007
            
            
            123,000
            
            $
            4.50




The
      fair
      value of nonvested shares is determined using the Black-Scholes option-pricing
      model based on the excess of the opening trading price of the Company’s shares
      on the grant date in excess of exercise price.




In
      connection with the Company’s private placement in April 2003, the Company
      issued warrants to purchase shares of the Company’s common stock at a price of
      $7.75 per share with a ten year term. 180,000 of the warrants were granted
      to
      three individuals who became the executive officers of the Company upon
      completion of the offering. In addition, MSR Advisors, Inc. (MSR) received
      warrants to purchase 50,000 shares of the Company’s stock. A director of the
      Company is the Chief Executive Officer of MSR. The fair value of the warrants
      of
      $849,000 was recognized as offering costs. All warrants are
      exercisable.




At
      July
      31, 2007, there were 874,000 shares of the Company’s common stock available for
      issuance upon exercise of stock options and warrants.




**NOTE
      10 - INCOME (LOSS) PER SHARE**




Basic
      and
      diluted net loss per share information is presented in accordance with SFAS
      No.
      128, *Earnings
      Per Share.* Basic
      loss per share is calculated by dividing the net loss attributable to common
      shares outstanding which includes common stock equivalents. The Company’s common
      stock equivalents consist of outstanding stock options and
      warrants.




10




Weighted
      average shares outstanding used in the calculation of earnings per
      share:




Three
              months ended July 31,
            
            Six
                months ended July 31,2007
            
            2006
            
            2007
            
            2006Net
                Income (Loss)
            
            $
            1,334,000
            
            $
            (155,000
            )
            $
            (681,000
            )
            $
            (173,000
            )Weighted
                average number of
              shares
                outstanding - basic
            
            
            11,094,000
            
            
            4,549,000
            
            
            11,094,000
            
            
            4,179,000Effect
                of the increase of stock
              options
                and warrants
            
            
            102,000
            
            
            -
            
            
            -
            
            
            -Weighted
                average number of
              shares
                outstanding - diluted
            
            
            11,196,000
            
            
            4,549,000
            
            
            11,094,000
            
            
            4,179,000Basic
                Income (Loss) Per Share
            
            $
            0.12
            
            $
            (0.03
            )
            $
            (0.06
            )
            $
            (0.04
            )Diluted
                Income (Loss) Per Share
            
            $
            0.12
            
            $
            (0.03
            )
            $
            (0.06
            )
            $
            (0.04
            )Shares
                excluded from the
              computation
                of diluted weighted
              average
                number of shares, since
              their
                inclusion would be
              anti-dilutive
            
            
            -
            
            
            4,000
            
            
            100,000
            
            
            2,000




**NOTE
      11 - SEGMENT REPORTING**




The
      Company has three reportable operating segments. Operating segments are defined
      as components of an enterprise about which separate financial information is
      available that is evaluated regularly by the chief operating decision maker,
      or
      decision making group, in deciding how to allocate resources and assessing
      performance.




The
      Company’s three reportable segments are power industry services, telecom
      infrastructure services and nutraceutical products. The Company conducts its
      operations through its wholly owned subsidiaries - GPS, VLI and SMC. The “Other”
column includes the Company’s corporate and unallocated expenses.




The
      Company’s operating segments are organized in separate business units with
      different management, customers, technology and services. The respective
      segments account for the respective businesses using the accounting policies
      in
      Note 2 to the Company’s Form 10-KSB.




11


The
      following information is for the three months ended July 31, 2007, except for
      total assets and goodwill which is as of July 31, 2007 :





Power
                Industry Services
            
            Nutraceutical
              Products
            
            Telecom
              Infrastructure
              Services
            
            Other
            
            ConsolidatedNet
                sales
            
            $
            45,599,000
            
            $
            5,036,000
            
            $
            2,502,000
            
            
            —
            
            $
            53,137,000Cost
                of sales
            
            
            40,590,000
            
            
            4,122,000
            
            
            1,858,000
            
            
            —
            
            
            46,570,000Gross
                profit
            
            
            5,009,000
            
            
            914,000
            
            
            644,000
            
            
            —
            
            
            6,567,000Selling,
                general andadministrativeexpenses
            
            
            2,553,000
            
            
            1,015,000
            
            
            340,000
            
            
            865,000
            
            
            4,773,000Income
                (loss) from operations
            
            
            2,456,000
            
            
            (101,000
            )
            
            304,000
            
            
            (865,000
            )
            
            1,794,000Interest
                expense
            
            
            (149,000
            )
            
            (141,000
            )
            
            (7,000
            )
            
            116,000
            
            
            (181,000
            )Other
                income, net
            
            
            722,000
            
            
            —
            
            
            10,000
            
            
            (79,000
            )
            
            653,000Income
                (loss) beforeincome
                taxes
            
            $
            3,029,000
            
            $
            (242,000
            )
            $
            307,000
            
            $
            (828,000
            )
            
            2,266,000Income
                tax expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            932,000Net
                Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,334,000Depreciation
                andamortization
            
            $
            41,000
            
            $
            149,000
            
            $
            126,000
            
            $
            4,000
            
            $
            320,000Amortization
                ofintangibles
            
            $
            1,695,000
            
            $
            304,000
            
            $
            26,000
            
            
            —
            
            $
            2,025,000Goodwill
            
            $
            16,476,000
            
            $
            6,565,000
            
            $
            940,000
            
            
            —
            
            $
            23,981,000Total
                Assets
            
            $
            116,531,000
            
            $
            14,850,000
            
            $
            4,484,000
            
            $
            2,689,000
            
            $
            138,554,000Fixed
                asset
              additions
            
            
            —
            
            $
            39,000
            
            $
            85,000
            
            
            —
            
            $
            124,000




12


The
      following information is for the six months ended July 31, 2007, except for
      total assets and goodwill which is as of July 31, 2007 :





Power
                Industry Services
            
            Nutraceutical
              Products
            
            Telecom
              Infrastructure
              Services
            
            Other
            
            ConsolidatedNet
                sales
            
            $
            88,953,000
            
            $
            9,985,000
            
            $
            4,631,000
            
            
            —
            
            $
            103,569,000Cost
                of sales
            
            
            83,835,000
            
            
            8,288,000
            
            
            3,701,000
            
            
            
            
            
            95,824,000Gross
                profit
            
            
            5,118,000
            
            
            1,697,000
            
            
            930,000
            
            
            
            
            
            7,745,000Selling,
                general andadministrativeexpenses
            
            
            5,105,000
            
            
            2,185,000
            
            
            698,000
            
            
            1,346,000
            
            
            9,334,000(Loss)
                income fromoperations
            
            
            13,000
            
            
            (488,000
            )
            
            232,000
            
            
            (1,346,000
            )
            
            (1,589,000
            )Interest
                expense
            
            
            (316,000
            )
            
            (176,000
            )
            
            (9,000
            )
            
            116,000
            
            
            (385,000
            )Other
                income, net
            
            
            1,348,000
            
            
            —
            
            
            10,000
            
            
            (72,000
            )
            
            1,286,000(Loss)
                income beforeincome
                taxes
            
            $
            1,045,000
            
            $
            (664,000
            )
            $
            233,000
            
            $
            (1,302,000
            )
            
            (688,000
            )Income
                tax benefit
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            7,000Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            ($681,000
            )Depreciation
                andamortization
            
            $
            94,000
            
            $
            293,000
            
            $
            249,000
            
            $
            8,000
            
            $
            644,000Amortization
                ofintangibles
            
            $
            3,428,000
            
            $
            609,000
            
            $
            52,000
            
            
            —
            
            $
            4,089,000Goodwill
            
            $
            16,476,000
            
            $
            6,565,000
            
            $
            940,000
            
            
            —
            
            $
            23,981,000Total
                Assets
            
            $
            116,531,000
            
            $
            14,850,000
            
            $
            4,484,000
            
            $
            2,689,000
            
            $
            138,554,000Fixed
                assetadditions
            
            $
            4,000
            
            $
            124,000
            
            $
            96,000
            
            
            —
            
            $
            224,000






The
      following information is for the three months ended July 31, 2006, except for
      total assets and goodwill which is as of July 31 2006 :





Nutraceutical
              Products
            
            Telecom
              Infrastructure
              Services
            
            Other
            
            ConsolidatedNet
                sales
            
            $
            5,211,000
            
            $
            3,349,000
            
            $
            —
            
            $
            8,560,000Cost
                of sales
            
            
            3,940,000
            
            
            2,678,000
            
            
            —
            
            
            6,618,000Gross
                profit
            
            
            1,271,000
            
            
            671,000
            
            
            —
            
            
            1,942,000Selling,
                general and administrativeexpenses
            
            
            1,070,000
            
            
            424,000
            
            
            450,000
            
            
            1,944,000Income
                (loss) from operations
            
            
            201,000
            
            
            247,000
            
            
            (450,000
            )
            
            (2,000
            )Interest
                expense and amortizationof
                subordinated debt issuancecosts
            
            
            81,000
            
            
            10,000
            
            
            125,000
            
            
            216,000Other
                income, net
            
            
            —
            
            
            1,000
            
            
            —
            
            
            1,000Income
                (loss) before income taxes
            
            $
            120,000
            
            $
            238,000
            
            $
            (575,000
            )
            
            (217,000
            )Income
                tax benefit
            
            
            
            
            
            
            
            
            
            
            
            62,000Net
                loss
            
            
            
            
            
            
            
            
            
            
            $
            (155,000
            )Depreciation
                and amortization
            
            $
            139,000
            
            $
            119,000
            
            $
            141,000
            
            $
            399,000Amortization
                of intangibles
            
            $
            304,000
            
            $
            25,000
            
            $
            —
            
            $
            329,000Goodwill
            
            $
            6,565,000
            
            $
            940,000
            
            $
            —
            
            $
            7,505,000Total
                assets
            
            $
            17,315,000
            
            $
            5,427,000
            
            $
            418,000
            
            $
            23,160,000Fixed
                asset additions
            
            $
            93,000
            
            $
            238,000
            
            $
            8,000
            
            $
            339,000




13




The
      following information is for the six months ended July 31, 2006, except for
      total assets and goodwill which is as of July 31 2006 :





Nutraceutical
              Products
            
            Telecom
              Infrastructure
              Services
            
            Other
            
            ConsolidatedNet
                sales
            
            $
            11,040,000
            
            $
            6,482,000
            
            $
            —
            
            $
            17,522,000Cost
                of sales
            
            
            8,326,000
            
            
            5,001,000
            
            
            —
            
            
            13,327,000Gross
                profit
            
            
            2,714,000
            
            
            1,481,000
            
            
            —
            
            
            4,195,000Selling,
                general and administrativeexpenses
            
            
            2,157,000
            
            
            838,000
            
            
            925,000
            
            
            3,920,000Income
                (loss) from operations
            
            
            557,000
            
            
            643,000
            
            
            (925,000
            )
            
            275,000Interest
                expense and amortizationof
                subordinated debt issuancecosts
            
            
            208,000
            
            
            29,000
            
            
            240,000
            
            
            477,000Other
                income, net
            
            
            —
            
            
            3,000
            
            
            —
            
            
            3,000Income
                (loss) before income taxes
            
            $
            349,000
            
            $
            617,000
            
            $
            (1,165,000
            )
            
            (199,000
            )Income
                tax benefit
            
            
            
            
            
            
            
            
            
            
            
            26,000Net
                loss
            
            
            
            
            
            
            
            
            
            
            $
            (173,000
            )Depreciation
                and amortization
            
            $
            273,000
            
            $
            231,000
            
            $
            271,000
            
            $
            775,000Amortization
                of intangibles
            
            $
            609,000
            
            $
            51,000
            
            $
            $
                —
            
            $
            660,000Goodwill
            
            $
            6,565,000
            
            $
            940,000
            
            $
            $
                —
            
            $
            7,505,000Total
                assets
            
            $
            17,315,000
            
            $
            5,427,000
            
            $
            418,000
            
            $
            23,160,000Fixed
                asset additions
            
            $
            189,000
            
            $
            415,000
            
            $
            8,000
            
            $
            612,000




**NOTE
      12 - CONTINGENCIES**




On
      March
      22, 2005, WFC filed a civil action against the Company, and its executive
      officers. The suit was filed in the Superior Court of the State of California
      for the County of Los Angeles. WFC purchased the capital stock of the Company's
      wholly owned subsidiary, Puroflow Incorporated, pursuant to the terms of the
      Stock Purchase Agreement dated October 31, 2003. WFC alleged that the Company
      and its executive officers breached the Stock Purchase Agreement between WFC
      and
      the Company and engaged in misrepresentations and negligent conduct with respect
      to the Stock Purchase Agreement. WFC sought declaratory relief, compensatory
      and
      punitive damages in an amount to be proven at trial as well as the recovery
      of
      attorney's fees. This action was removed to the United States District Court
      for
      the Central District of California.




This
      case
      was scheduled for trial on April 10, 2007. On March 15, 2007, the District
      Court
      granted the Company and its executive officers' motion for summary judgment,
      thereby dismissing WFC's lawsuit against the Company and its executive officers
      in its entirety. WFC has filed a notice of appeal and the Company will
      vigorously contest WFC’s appeal.




Although
      the Company has reviewed WFC’s claim and believes that substantially all of the
      claims are without merit, the Company has recorded an accrual of approximately
      $100,000 and $286,000 at July 31, 2007 and January 31, 2007, respectfully,
      for
      subsequent legal services and estimated legal fees related to potential ongoing
      legal costs of the WFC claim that it considers to be probable and that can
      be
      reasonably estimated. It is possible however, that the ultimate resolution
      of
      WFC’s claim could result in a material adverse effect on the Company’s results
      of operations for a particular reporting period.




On
      August
      27, 2007, Kevin Thomas filed a lawsuit against the Company, VLI and Rainer
      Bosselmann in the Circuit Court of Florida. Mr. Thomas was the former owner
      of
      VLI and alleges that the Company has breached various agreements with, and
      violated its fiduciary duty to him. The Company believes that Mr. Thomas’ claims
      are groundless, that it has defenses to those claims and that it intends to
      contest his charges vigorously. The Company believes that Mr. Thomas has
      previously executed releases of many of his claims. In addition, the Company
      believes it has significant counterclaims against Mr. Thomas.




14




In
      the
      normal course of business, the Company has pending claims and legal proceedings.
      It is the opinion of the Company’s management, based on information available at
      this time, that none of the other current claims and proceedings will have
      a
      material effect on the Company’s consolidated financial statements.




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




The
      following discussion summarizes the financial position of Argan, Inc. and its
      subsidiaries as of July 31, 2007, and the results of operations for the three
      and six months ended July 31, 2007 and 2006, and should be read in conjunction
      with (i) the unaudited condensed consolidated financial statements and
      notes thereto included elsewhere in this Quarterly Report on Form 10-Q and
      (ii) the consolidated financial statements and accompanying notes to our
      Annual Report on Form 10-KSB for the fiscal year ended January 31, 2007 filed
      with the Securities and Exchange Commission on April 26, 2007.





**Cautionary
      Statement Regarding Forward Looking Statements**


The
      Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for
      certain forward-looking statements. We have made statements in this Quarterly
      Report on Form 10-Q that may constitute “forward-looking statements”. The words
“believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,”
“would,” “could,” or other similar expressions are intended to identify
      forward-looking statements. These forward-looking statements are based on our
      current expectations and beliefs concerning future developments and their
      potential effects on us. There can be no assurance that future developments
      affecting us will be those that we anticipate. All comments concerning our
      expectations for future revenues and operating results are based on our
      forecasts for our existing operations and do not include the potential impact
      of
      any future acquisitions. These forward-looking statements involve significant
      risks and uncertainties (some of which are beyond our control) and assumptions.
      They are subject to change based upon various factors, including but not limited
      to the risks and uncertainties summarized below:





**•**
            
            cyclical
                changes in demand for our products and services;**•**
            
            cyclical
                nature of the individual markets in which our customers
                operate;**•**
            
            That
                the dollar amount of our backlog, as stated at any given time, is
                not
                indicative of our future earnings;**•**
            
            delays
                or difficulties related to our projects including additional costs,
                reductions in revenues or the payment of liquidated
                damages;**•**
            
            the
                effect of our percentage-of-completion accounting
                policies;**•**
            
            changes
                in the estimates and assumptions we use to prepare our financial
                statements;**•**
            
            our
                ability to obtain surety bonds or other means of credit support for
                projects;**•**
            
            our
                ability to obtain waivers or amendments with our lenders or sureties,
                or
                to collateralize letters of credit or surety bonds upon non-compliance
                with covenants in our Credit Facility or surety indemnity
                agreements;**•**
            
            compliance
                with certain debt covenants, which as a result, may interfere with
                our
                ability to successfully execute our business plan;**•**
            
            our
                indebtedness, which could adversely affect our financial condition
                and
                impair our ability to fulfill our obligations under our financing
                arrangements;**•**
            
            various
                legal, regulatory and litigation risk including but not limited to,
                class
                action lawsuits, regulatory activities and associated periodic reviews
                of
                the SEC and Public Company Accounting Oversight
                Board;




15




**•**
            
            the
                nature of our contracts, particularly fixed-price
                contracts;**•**
            
            the
                failure to meet schedule or performance requirements of our
                contracts;**•**
            
            our
                dependence on subcontractors;**•**
            
            possible
                cost escalations associated with our fixed-price
                contracts;**•**
            
            our
                ability to obtain new contracts for large-scale projects and the
                timing of
                the performance of these contracts;**•**
            
            The
                effect on our reputation and financial exposure due to the failure
                of our
                partners to perform their contractual obligations;**•**
            
            our
                dependence on a few significant customers;**•**
            
            delays
                and/or defaults in customer payments;**•**
            
            potential
                professional liability, product liability, warranty and other potential
                claims, which may not be covered by insurance;**•**
            
            the
                presence of competitors with greater financial resources and the
                impact of
                competitive products, services and pricing;**•**
            
            work
                stoppages and other labor problems;**•**
            
            our
                liquidity position;**•**
            
            a
                determination to write-off a significant amount of our intangible
                assets;**•**
            
            our
                ability to successfully identify, integrate and complete
                acquisitions;**•**
            
            our
                failure to attract and retain qualified personnel;**•**
            
            our
                ability to retain key members of our management;**•**
            
            our
                competitors’ ability to develop or otherwise acquire equivalent or
                superior technology;**•**
            
            general
                economic conditions;**•**
            
            future
                changes in accounting standards or interpretations;**•**
            
            inability
                to maintain an effective system of internal control, which could
                result in
                inaccurate reporting of our financial results or an inability to
                prevent
                fraud;**•**
            
            provisions
                in our articles of incorporation and by-laws and rights agreement
                could
                make it more difficult to acquire us and may reduce the market price
                of
                our common stock;**•**
            
            changes
                in the U.S. economy and global markets as a result of terrorists’
                actions;**•**
            
            increases
                in employee-related costs and expenses including healthcare and other
                employee benefits such as unemployment insurance and workers’
                compensation; and**•**
            
            our
                dependency on technology in our operations and the possible impact
                of
                system and information technology
                interruptions.





Should
      one or more of these risks or uncertainties materialize, or should any of our
      assumptions prove incorrect, actual results may vary in material respects from
      those projected in the forward-looking statements. We undertake no obligation
      to
      publicly update or revise any forward-looking statements, whether as a result
      of
      new information, future events or otherwise. For a more detailed discussion
      of
      some of the foregoing risk and uncertainties, see “Item 1 — Description of
      Business — Risk Factors” in our Annual Report on Form 10-KSB as filed with the
      Securities and Exchange Commission on April 26, 2007, as well as the other
      reports and registration statements filed by us with the SEC and under “Forward
      Looking Statements” on our website. These documents are available free of charge
      from the SEC or from our corporate headquarters. Our annual, quarterly, and
      current reports and amendments thereto, filed with the SEC are available on
      our
      website. For more information about us and the announcements we make from time
      to time, visit our website at *www.arganinc.com* .




**GENERAL**




Argan,
      Inc. (the “Company,” “we,” “us,” or “our”) conduct our operations through our
      wholly owned subsidiaries, Gemma Power Systems, LLC (“GPS”) that we acquired in
      December 2006, Vitarich Laboratories, Inc. (“VLI”) that we acquired in August
      2004 and Southern Maryland Cable, Inc. (“SMC”) that we acquired in July 2003.
      Through GPS, we provide a full range of development, consulting, engineering,
      procurement, construction, commissioning, operating and maintenance services
      to
      the energy market for a wide range of customers including public utilities,
      independent power project owners, municipalities, public institutions and
      private industry. Through SMC, we provide telecommunications infrastructure
      services including project management, construction and maintenance to the
      Federal Government, telecommunications and broadband service providers as well
      as electric utilities. Through VLI, we develop, manufacture and distribute
      premium nutritional products.




16




**CRITICAL
      ACCOUNTING POLICIES**




The
      preparation of our consolidated financial statements requires us to make
      estimates and judgments that affect the reported amounts of assets, liabilities
      and equity and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. These estimates, particularly estimates relating
      to
      revenue recognition, valuation of net deferred tax assets, and litigation and
      contingencies, have a material impact on our financial statements and are
      discussed in detail throughout our analysis of the results of operations
      discussed below.




In
      addition to evaluating estimates relating to the items discussed above, we
      also
      consider other estimates and judgments, including, but not limited to, those
      related to our allowance for doubtful accounts, inventory valuation, and whether
      there has been an impairment to our long lived assets and intangibles. We base
      our estimates on historical experience and various other assumptions that we
      believe are reasonable under the circumstances, the results of which form the
      basis for making judgments about the carrying value of assets, liabilities
      and
      equity that are not readily apparent from other sources. Actual results and
      outcomes could differ from these estimates and assumptions.




As
      discussed in the Note 8 to the Condensed Consolidated Financial Statements,
      we
      have adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income
      Taxes” (“FIN 48”). Other than this change, there have been no significant
      changes to our critical accounting estimates during the six months ended July
      31, 2007.




For
      a
      more detailed explanation of the judgments made in these areas and a discussion
      of our accounting estimates and policies, refer to “Critical Accounting
      Policies” included in Item 6 and “Summary of Significant Accounting
      Policies” (Note 2) included in our Annual Report on Form 10-KSB for the year
      ended January 31, 2007.




**BACKLOG**




Backlog
      represents the total accumulation of new work awarded less the amount of revenue
      recognized to date on contracts at a specific point in time. We believe backlog
      is an indicator of future earnings potential. Although backlog reflects business
      that we consider to be firm, cancellations or reductions may occur and may
      reduce backlog and future revenue. We have a significant number of customers
      that consistently extend or add to the scope of existing contracts. We do not
      include any estimate of this ongoing work in backlog until awarded.




At
      July
      31, 2007, the Company had entered into power industry service contracts for
      the
      construction of seven facilities, representing a total backlog of $205 million
      compared to contracts of six facilities representing a total backlog of $171
      million at January 31, 2007. Management anticipates these facilities will be
      completed at various dates through fiscal year 2009.





**CONSOLIDATED
      RESULTS OF OPERATIONS**


The
      following summarizes the results of our operations for the three and six months
      ended July 31, 2007 compared to the three and six months ended July 31,
      2006.




17


**ARGAN,
        INC.**
 **Condensed
        Consolidated Statements of Operations**
 **(Unaudited)**


Three
                months ended July 31,
            
            Six
                months ended July 31,2007
            
            2006
            
            2007
            
            2006Net
                salesPower
                industry services
            
            $
            45,599,000
            
            $
            -
            
            $
            88,953,000
            
            $
            -Nutraceutical
                products
            
            
            5,036,000
            
            
            5,211,000
            
            
            9,985,000
            
            
            11,040,000Telecom
                infrastructure services
            
            
            2,502,000
            
            
            3,349,000
            
            
            4,631,000
            
            
            6,482,000Net
                Sales
            
            
            53,137,000
            
            
            8,560,000
            
            
            103,569,000
            
            
            17,522,000Cost
                of salesPower
                industry services
            
            
            40,590,000
            
            
            -
            
            
            83,835,000
            
            
            -Nutraceutical
                products
            
            
            4,122,000
            
            
            3,940,000
            
            
            8,288,000
            
            
            8,326,000Telecom
                infrastructure services
            
            
            1,858,000
            
            
            2,678,000
            
            
            3,701,000
            
            
            5,001,000Gross
                profit
            
            
            6,567,000
            
            
            1,942,000
            
            
            7,745,000
            
            
            4,195,000Selling,
                general and administrative expenses
            
            
            4,773,000
            
            
            1,944,000
            
            
            9,334,000
            
            
            3,920,000(Loss)
                income from operations
            
            
            1,794,000
            
            
            (2,000
            )
            
            (1,589,000
            )
            
            275,000Interest
                expense and amortization ofsubordinated
                debt issuance costs
            
            
            181,000
            
            
            216,000
            
            
            385,000
            
            
            477,000Interest
                Income
            
            
            (653,000
            )
            
            (1,000
            )
            
            (1,286,000
            )
            
            (3,000
            )(Loss)
                income from operations beforeincome
                taxes
            
            
            2,266,000
            
            
            (217,000
            )
            
            (688,000
            )
            
            (199,000
            )Income
                tax benefit (expense)
            
            
            (932,000
            )
            
            62,000
            
            
            7,000
            
            
            26,000Net
                income (loss)
            
            $
            1,334,000
            
            $
            (155,000
            )
            $
            (681,000
            )
            $
            (173,000
            )Earnings
                per share:Basic
                earnings per share
            
            $
            0.12
            
            $
            (0.03
            )
            $
            (0.06
            )
            $
            (0.04
            )Diluted
                earnings per share
            
            $
            0.12
            
            $
            (0.03
            )
            $
            (0.06
            )
            $
            (0.04
            )Weighted
                average number of shares:Basic
            
            
            11,094,000
            
            
            4,549,000
            
            
            11,094,000
            
            
            4,179,000Diluted
            
            
            11,196,000
            
            
            4,549,000
            
            
            11,094,000
            
            
            4,179,000




**Comparison
      of the Results of Operations for the three months ended July 31, 2007 to the
      Results of Operations for the three months ended July 31, 2006.**





The
      following analysis provides information as to the results of our operations
      since our acquisition of GPS which represents a significant acquisition and
      the
      creation of our power industry services segment to our operations prior to
      this
      acquisition. Following this analysis, we also present a comparison of our
      current results to pro forma results as though the acquisition occurred on
      February 1 2006.





**Net
      Sales**




Net
      sales
      of power industry services were $45.6 million for the three months ended July
      31, 2007. We had no sales to power industry services for the three months ended
      July 31, 2006.





Net
      sales
      of nutraceutical products were $5.0 million for the three months ended July
      31,
      2007, compared to net sales of nutraceutical products of $5.2 million for the
      three months ended July 31, 2006. The decrease in net sales of nutraceutical
      products of $175,000 or 3% is due primarily to decreased sales to one of VLI’s
      largest customers, which was offset in part by sales increases to a new large
      customer.




18




Net
      sales
      of telecommunications infrastructure services were $2.5 million for the three
      months ended July 31, 2007 compared to $3.3 million for the three months ended
      July 31, 2006 for a decrease in net sales of telecommunications infrastructure
      services of $847,000 or 25%. The decrease is due primarily to decreased revenues
      for services to SMC’s three largest customers.




**Cost
      of Sales**




For
      the
      three months ended July 31, 2007, cost of sales for power industry services
      were
      $40.6 million or 89% of net sales for power industry services compared to no
      cost of sales related to power industry services for the three months ended
      July
      31, 2006.




During
      the three months ended July 31, 2007, the Company experienced an unexpected
      increase in costs related to one of the GPS contracts. Unexpected costs include
      labor productivity being below expectations and previous experience, labor
      rate
      increases due to overtime requirements to meet the completion date, and
      engineering issues resulting in considerable rework and additional materials.
      The Company anticipates that upon completion of the contract which is 99%
      complete at July 31, 2007, it will incur an expected loss of approximately
      $8.2
      million as of July 31, 2007 which has been recognized. The Company has recorded
      an estimated loss for this contract as of July 31, 2007 of $74,000 for
      additional costs to be incurred as the project is completed.




For
      the
      three months ended July 31, 2007, cost of sales for nutraceutical products
      were
      $4.1 million or 81.9% of net sales for nutraceutical products compared to $3.9
      million or 75.6% of net sales for nutraceutical products for the three months
      ended July 31, 2006. VLI experienced a higher percentage of cost of sales during
      the three months ended July 31, 2007 due to increased cost for raw materials
      as
      well as increases in obsolescence reserves for inventory.




For
      the
      three months ended, July 31, 2007, cost of sales for telecommunications
      infrastructure services was $1.9 million or 74.3% of net sales of
      telecommunications infrastructure services compared to $2.7 million or 80%
      of
      net sales for telecommunications infrastructure services for the three months
      ended July 31, 2006. SMC experienced a decrease in percentage of cost of sales
      due to higher margin on certain outside plant projects.





**Selling,
      General and Administrative Expenses**




For
      the
      three months ended July 31, 2007, selling, general and administrative expenses
      were approximately $4.8 million or 9.0% of consolidated net sales compared
      to
      approximately $1.9 million or 23% of consolidated net sales for the three months
      ended July 31, 2006. An increase of $2.8 million in expenses was due primarily
      to the acquisition of GPS which was acquired on December 8, 2006 and had
      approximately $2.6 million in selling, general and administrative expenses
      for
      the three months ended July 31, 2007, including the amortization of purchased
      intangibles totaling $1.7 million.




**Interest
      Income**




We
      had
      interest income of $653,000 for the three months ended July 31, 2007 compared
      to
      interest income of $1,000 for the three months ended July 31, 2006. Interest
      income increased primarily due to an increase in interest and investment income
      from cash and cash equivalents and investments held for sale. We acquired a
      significant amount of cash and investments held for sale when we acquired GPS
      on
      December 8, 2006.





**Income
      Tax Benefit (Expense)**




Our
      consolidated effective income tax rate was 41% for the three months ended July
      31, 2007 compared to a 29% effective income tax benefit rate for the three
      months ended July 31, 2006.




19




During
      the three months ended July 31, 2006, the Company recorded amortization of
      issuance cost for subordinated debt which is treated as a permanent difference
      for income tax reporting purposes.





**Comparison
      of the Results of Operations for the six months ended July 31, 2007 to the
      Results of Operations for the six months ended July 31,
      2006.**





**Net
      Sales**




Net
      sales
      of power industry services were $89 million for the six months ended July 31,
      2007. We had no sales of power industry services for the six months ended July
      31, 2006. We acquired GPS on December 8, 2006. The increase in net sales of
      power industry services is due to the acquisition of GPS on December 8,
      2006.





Net
      sales
      of nutraceutical products were $10 million for the six months ended July 31,
      2007, compared to net sales of nutraceutical products of $11 million for the
      six
      months ended July 31, 2006. The decrease in net sales of nutraceutical products
      of $1.1 million or 10% is due primarily to decreased sales to two of VLI’s
      largest customers, Tri Vita Corporation and Rob Reiss Companies which was offset
      in part by sales increases to Cyberwise.com, Market America and Renew
      Life.





Net
      sales
      of telecommunications infrastructure services were $4.6 million for the six
      months ended July 31, 2007 compared to $6.5 million for the six months ended
      July 31, 2006 for a decrease in net sales of telecommunications infrastructure
      services of $1.9 million or 29%. The decrease is due primarily to decreased
      revenues for services to SMC’s three largest customers, Verizon communications,
      Inc., Southern Maryland Electrical Cooperative, and Electronic Data Systems
      Corp.





**Cost
      of Sales**




For
      the
      six months ended July 31, 2007, cost of sales for power industry services were
      $83.8 million or 94.2% of net sales for power industry services compared to
      no
      cost of sales related to power industry services for the six months ended July
      31, 2006.




During
      the six months ended July 31, 2007, the Company experienced an unexpected
      increase in costs related to one of the GPS contracts. Unexpected costs include
      labor productivity being below expectations and previous experience, labor
      rate
      increases due to overtime requirements to meet the completion date, and
      engineering issues resulting in considerable rework and additional materials.
      The Company anticipates that upon completion of the contract which is 99%
      complete at July 31, 2007, it will incur an expected loss of approximately
      $8.2
      million as of July 31, 2007 which has been recognized. The Company has recorded
      an estimated loss for this contract as of July 31, 2007 of $74,000 for
      additional costs to be incurred as the project is completed.




For
      the
      six months ended July 31, 2007, cost of sales for nutraceutical products were
      $8.3 million or 83% of net sales for nutraceutical products compared to $8.3
      million or 75.4% of net sales for nutraceutical products for the six months
      ended July 31, 2006. VLI experienced a higher percentage of cost of sales during
      the six months ended July 31, 2007 due to higher raw material costs.





For
      the
      six months ended July 31, 2007, cost of sales for telecommunications
      infrastructure services was $3.7 million or 80% of net sales of
      telecommunications infrastructure services compared to $5.0 million or 77.2%
      of
      net sales for telecommunications infrastructure services for the six months
      ended July 31, 2006. SMC experienced an increase in percentage of cost of sales
      due to lower margin on certain outside plant projects.





**Selling,
      General and Administrative Expenses**




For
      the
      six months ended July 31, 2007, selling, general and administrative expenses
      were approximately $9.3 million or 9.0% of consolidated net sales compared
      to
      approximately $3.9 million or 22% of consolidated net sales for the six months
      ended July 31, 2006. An increase of $5.4 million in expenses was due primarily
      to the acquisition of GPS which was acquired on December 8, 2006 and had
      approximately $5.1 million in selling, general and administrative expenses
      for
      the six months ended July 31, 2007, including the amortization of purchased
      intangibles totaling $3.4 million.




20





**Interest
      Income**




We
      had
      interest income of $1.3 million for the six months ended July 31, 2007 compared
      to interest income of $3,000 for the six months ended July 31, 2006. Interest
      income increased primarily due to an increase in interest and investment income
      from cash and cash equivalents and investments held for sale. We acquired a
      significant amount of cash and investments held for sale when we acquired GPS
      on
      December 8, 2006.





**Income
      Tax Benefit**




Our
      consolidated effective income tax benefit rate was 1% for the six months ended
      July 31, 2007 compared to a 13% effective income tax benefit rate for the six
      months ended July 31, 2006.





The
      Company’s income tax benefit for the six months ended July 31, 2007 and 2006
      differs from the “expected” tax computed by applying the U.S. Federal corporate
      income tax rate of 34% to the loss from operations before income taxes for
      the
      six months ended July 31, 2007 and 2006.




2007
            
            2006Computed
                “expected” tax benefit
            
            $
            234,000
            
            $
            68,000Increase
                (decrease) resulting from:State
                income taxes, net
            
            
            (203,000
            )
            
            (16,000
            )Permanent
                differences
            
            
            (24,000
            )
            
            (26,000
            )$
            7,000
            
            $
            26,000





During
      the six months ended July 31, 2007, the Company’s effective tax benefit rate was
      impacted by its inability to utilize certain current operating losses for state
      income tax reporting purposes.





**CONSOLIDATED
      RESULTS OF OPERATIONS COMPARED TO PRO FORMA RESULTS**





The
      following summarizes the results of our operations for three and six months
      ended July 31, 2007 compared to unaudited pro forma results of operations for
      the three and six months ended July 31, 2006 as if the acquisition of GPS,
      the
      new bank financing of $8.0 million and the private offering of 2,853,335 shares,
      was completed on February 1, 2006.




The
      unaudited pro forma statement of operations does not purport to be indicative
      of
      the results that would have actually been obtained if the acquisition of GPS
      occurred on February 1, 2006 or that may be obtained in the future. GPS
      previously reported its results of operations using a calendar year-end. No
      material events occurred subsequent to these reporting periods that would
      require adjustment to our unaudited pro forma statements of operations. The
      acquisition of GPS had no impact on the previously reported amounts for our
      nutraceutical products and telecom infrastructure services
      segments.




Three
                months ended July 31,
            
            Six
                months ended July 31,2007
            
            2006
            
            2007
            
            2006Net
                salesPower
                industry services
            
            $
            45,599,000
            
            $
            22,393,000
            
            $
            88,953,000
            
            $
            37,627,000Nutraceutical
                products
            
            
            5,036,000
            
            
            5,211,000
            
            
            9,985,000
            
            
            11,040,000Telecom
                infrastructure services
            
            
            2,502,000
            
            
            3,349,000
            
            
            4,631,000
            
            
            6,482,000Net
                sales
            
            
            53,137,000
            
            
            30,953,000
            
            
            103,569,000
            
            
            55,149,000Cost
                of salesPower
                industry services
            
            
            40,590,000
            
            
            20,171,000
            
            
            83,835,000
            
            
            35,229,000Nutraceutical
                products
            
            
            4,122,000
            
            
            3,940,000
            
            
            8,288,000
            
            
            8,326,000Telecom
                infrastructure services
            
            
            1,858,000
            
            
            2,678,000
            
            
            3,701,000
            
            
            5,001,000Gross
                profit
            
            
            6,567,000
            
            
            4,164,000
            
            
            7,745,000
            
            
            6,593,000Selling
                and general and administrative expenses
            
            
            4,773,000
            
            
            2,686,000
            
            
            9,334,000
            
            
            5,369,000(Loss)
                income from operations
            
            $
            1,794,000
            
            $
            1,478,000
            
            $
            (1,589,000
            )
            $
            1,224,000





21




**Comparison
      of the Unaudited Results of Operations for the three months ended July 31,
      2007
      to the Unaudited Pro Forma Results of Operations for the three months ended
      July
      31, 2006**




**Net
      Sales**




Net
      sales
      of power industry services were $45.6 million for the three months ended July
      31, 2007, compared to $22.4 million of pro forma net sales of power industry
      services in the three months ended July 31, 2006. The increase in pro forma
      net
      sales of power industry services is primarily due to increased sales from new
      projects started during the year ended January 31, 2007 in Carleton, Nebraska
      for an ethanol facility, three biodiesel projects and a peaking facility in
      Wallingford, CT.




Net
      sales
      of nutraceutical products were $5.0 million for the three months ended July
      31,
      2007, compared to net sales of nutraceutical products of $5.2 million for the
      three months ended July 31, 2006. The decrease in net sales of nutraceutical
      products of $175,000 or 3% is due primarily to decreased sales to one of VLI’s
      largest customers, Rob Reiss Companies, which was offset in part by sales
      increases to Renew Life.




Net
      sales
      of telecommunications infrastructure services were $2.5 million for the three
      months ended July 31, 2007 compared to $3.3 million for the three months ended
      July 31, 2006 for a decrease in net sales of telecommunications infrastructure
      services of $847,000 or 25%. The decrease is due primarily to decreased revenues
      for services to SMC’s three largest customers, Verizon Communications, Inc.,
      Southern Maryland Electrical Cooperative, and Electronic Data Systems Corp.




**Cost
      of Sales**




For
      the
      three months ended July 31, 2007, pro forma cost of sales for power industry
      services were $40.6 million or 89% of pro forma net sales for power industry
      services compared to $20.2 million or 90.1% pro forma net sales related to
      power
      industry services for the three months ended July 31, 2006. The increase in
      the
      level of construction activity by GPS is the reason for significant dollar
      increase in cost of sales.




During
      the three months ended July 31, 2007, the Company experienced an unexpected
      increase in costs related to one of the GPS contracts. Unexpected costs include
      labor productivity being below expectations and previous experience, labor
      rate
      increases due to overtime requirements to meet the completion date, and
      engineering issues resulting in considerable rework and additional materials.
      The Company anticipates that upon completion of the contract which is 99%
      complete at July 31, 2007, it will incur an expected loss of approximately
      $8.2
      million as of July 31, 2007 which has been recognized. The Company has recorded
      an estimated loss for this contract as of July 31, 2007 of $74,000 for
      additional costs to be incurred as the project is completed.




22




For
      the
      three months ended July 31, 2007, cost of sales for nutraceutical products
      were
      $4.1 million or 81.9% of net sales for nutraceutical products compared to $3.9
      million or 75.6% of net sales for nutraceutical products for the three months
      ended July 31, 2006. VLI experienced a higher percentage of cost of sales during
      the three months ended July 31, 2007 due to increased cost for raw materials
      as
      well as increases in obsolescence reserves for inventory.




For
      the
      three months ended July 31, 2007, cost of sales for telecommunications
      infrastructure services was $1.9 million or 74.3% of net sales of
      telecommunications infrastructure services compared to $2.7 million or 80%
      of
      net sales for telecommunications infrastructure services for the three months
      ended July 31, 2006. SMC experienced a decrease in percentage of cost of sales
      due to higher margin on certain outside plant projects.





**Selling,
      General and Administrative Expenses**




For
      the
      three months ended July 31, 2007, selling, general and administrative expenses
      were approximately $4.8 million or 9.0% of consolidated net sales compared
      to
      approximately $2.7 million or 8.7% of consolidated pro forma net sales for
      the
      three months ended July 31, 2006. The increase of $2.1 million in expenses
      was
      due primarily to amortization of purchased intangibles related to
      GPS.





**Comparison
      of the Unaudited Results of Operations for the six months ended July 31, 2007
      to
      the Unaudited Pro Forma Results of Operations for the six months ended July
      31,
      2006.**




**Net
      Sales**




Net sales of
      power industry services were $89 million for the six months ended July 31,
      2007,
      compared to net sales of $37.7 million for power industry services for the
      six
      months ended July 31, 2006. The increase in net sales of power industry services
      is due to the GPS starting a number of large projects in the second half of
      fiscal year 2007 which are ongoing.




Net
      sales
      of nutraceutical products were $10 million for the six months ended July 31,
      2007, compared to net sales of nutraceutical products of $11 million for the
      six
      months ended July 31, 2006. The decrease in net sales of nutraceutical products
      of $1.1 million or 10% is due primarily to decreased sales to two of VLI’s
      largest customers, TRI Vita Corporation and Rob Reiss Companies which was offset
      in part by sales increases to Cyberwise.com, Market America and Renew Life.




Net
      sales
      of telecommunications infrastructure services were $4.6 million for the six
      months ended July 31, 2007 compared to $6.5 million for the six months ended
      July 31, 2006. A decrease in net sales of telecommunications infrastructure
      services of $1.9 million or 29%. The decrease is due primarily to decreased
      revenues for services to SMC’s three largest customers, Verizon Communications,
      Inc., Southern Maryland Electrical Cooperative, and Electronic Data Systems
      Corp. Sales decreased due to current lower contractual levels of activity with
      each of SMC’s major customers.




**Cost
      of Sales**




For the six
      months ended July 31, 2007, cost of sales for power industry services were
      $83.8
      million or 94.2% of net sales for power industry services compared to pro forma
      cost of sales of $35.2 million or 93.6% of proforma net sales related to power
      industry services for the six months ended July 31, 2006. The dollar increase
      in
      cost of sales is due to the aforementioned projects which GPS has commenced.




23




During
      the six months ended July 31, 2007, the Company experienced an unexpected
      increase in costs related to one of the GPS contracts. Unexpected costs include
      labor productivity being below expectations and previous experience, labor
      rate
      increases due to overtime requirements to meet the completion date, and
      engineering issues resulting in considerable rework and additional materials.
      The Company anticipates that upon completion of the contract which is 99%
      complete at July 31, 2007, it will incur an expected loss of approximately
      $8.2
      million as of July 31, 2007 which has been recognized. The Company has recorded
      an estimated loss for this contract as of July 31, 2007 of $74,000 for
      additional costs to be incurred as the project is completed.




For
      the
      six months ended July 31, 2007, cost of sales for nutraceutical products were
      $8.3 million or 83% of net sales for nutraceutical products compared to $8.3
      million or 75.4% of net sales for nutraceutical products for the six months
      ended July 31, 2006. VLI experienced a higher percentage of cost of sales during
      the six months ended July 31, 2007 due to higher raw material
      costs.




For
      the
      six months ended July 31, 2007, cost of sales for telecommunications
      infrastructure services was $3.7 million or 80% of net sales of
      telecommunications infrastructure services compared to $5.0 million or 77.2%
      of
      net sales for telecommunications infrastructure services for the six months
      ended July 31, 2006. SMC experienced an increase in percentage of cost of sales
      due to lower margin on certain outside plant projects.




**Selling,
      General and Administrative Expenses**




F or
      the
      six months ended July 31, 2007, selling, general and administrative expenses
      were approximately $9.3 million or 9.0% of consolidated net sales compared
      to
      approximately $5 million or 9.7% of pro forma net sales for the six months
      ended
      July 31, 2006. An increase of $4.3 million in expenses was due primarily to
      the
      acquisition of GPS which was acquired on December 8, 2006 and had approximately
      $5.1 million in selling, general and administrative expenses for the six months
      ended July 31, 2007 due to amortization of purchased intangibles totaling $3.4
      million.





**LIQUIDITY
      AND CAPITAL RESOURCES**




**Cash
      Position and Indebtedness**




W e
      had
      working capital of $14.2 million at July 31, 2007 compared to working capital
      of
      $12.5 million at January 31, 2007. Cash and cash equivalents as of July 31,
      2007
      were $49.1 million compared to $25.4 million as of January 31, 2007. We also
      have an available balance of $4.3 million under our financing arrangements
      with
      the Bank.




**Cash
      Flows**




Net cash
      provided by operations for the six months ended July 31, 2007, was $22.9 million
      compared with $953,000 of cash provided by operations for the six months ended
      July 31, 2006 primarily due to the billing and collection of receivables from
      five GPS projects.




The
      Company’s non-cash expenses increased during the six months ended July 31, 2007
      compared to the six months ended July 31, 2006. Depreciation and amortization
      increased by $126,000 to $644,000 for the six months ended July 31, 2007 from
      $518,000 for the same period one year ago. Amortization of purchased intangibles
      increased by $3.4 million to $4.1 million
      for the six months ended July 31, 2007 from $660,000 for the six months ended
      April 30 **,** 2006.
      All of the aforementioned increases in non-cash expenses are primarily due
      to the
      acquisition of GPS.




During
      the six months ended July 31, 2007, estimated earnings in excess of billings
      provided cash of $8.1 million, primarily due to billings processed on several
      GPS construction projects.




24




During
      the six months ended July 31, 2007, billing in excess of estimated earnings
      provided $30.5 million in cash flow due primarily from cash GPS collected on
      projects to cover committed costs for projects in process.




During
      the six months ended July 31, 2007, accounts payable and accrued expenses used
      $10.3 million in cash as GPS paid for costs for various projects in
      process.




During
      the six months ended July 31, 2007, net cash provided by investing activities
      was $2.1 million compared to net cash used in investing activities of $608,000
      for the six months ended July 31, 2006. The increase is the result of proceeds
      received from the sale of investments and a decrease in budgeted purchases
      of
      property, plant and equipment.




For
      the
      six months ended July 31, 2007, net cash used in financing activities was
      approximately $1.3 million compared to $189,000 used in financing activities
      for
      the six months ended April 30, 2006. The increase is the result of principal
      payments on debt due to the term financing arrangements established in December
      2006 at the time of the GPS acquisition.




During
      the six months ended July 31, 2006, the Company received proceeds of $1,863,000
      from sale of stock which were used primarily to pay $1.8 million in principal
      payments on a subordinated note due the former owner of VLI.




The
      financing arrangements provide for the measurement at the Company’s fiscal year
      end and at each of the Company’s fiscal quarter ends (using a rolling 12-month
      period) of certain financial covenants including requiring that the ratio of
      total funded debt to EBITDA not to exceed 2.25 to 1 for the year ending January
      31, 2007 and not to exceed 2 to 1 for future quarters, requiring a fixed charge
      coverage ratio of not less than 1.25 to 1, and requiring the ratio of senior
      funded debt to EBITDA not to exceed 1.75 to 1 for the year ended January 31,
      2007 and not to exceed 1.50 to 1 for future quarters. The Bank’s consent
      continues to be required for acquisitions and divestitures. The Company
      continues to pledge the majority of the Company’s assets to secure the financing
      arrangements.




The
      amended financing arrangement contains a subjective acceleration clause which
      allows the Bank to declare amounts outstanding under the financing arrangements
      due and payable if certain material adverse changes occur. The Company believes
      that it will continue to comply with its financial covenants under the financing
      arrangement. If the Company’s performance does not result in compliance with any
      of its financial covenants, or if the Bank seeks to exercise its rights under
      the subjective acceleration clause referred to above, the Company would seek
      to
      modify its financing arrangement, but there can be no assurance that the Bank
      would not exercise their rights and remedies under the financing arrangement
      including accelerating payment of all outstanding senior debt due and
      payable.




At
      July
      31, 2007, the Company was in compliance with the covenants of its amended
      financing arrangements.




Management
      believes that cash on hand, cash generated from the Company’s future operations
      combined with capital resources available under its line of credit is adequate
      to meet the Company’s future operating cash needs. Any future acquisitions,
      other significant unplanned costs or cash requirements may require the Company
      to raise additional funds through the issuance of debt and equity securities.
      There can be no assurance that such financing will be available on terms
      acceptable to the Company, or at all. If additional funds are raised by issuing
      equity securities, significant dilution to the existing stockholders may
      result.




**Earnings
      before Interest, Taxes, Depreciation and Amortization (Non-GAAP
      Measurement)**




We
      present Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
      to provide investors with a supplemental measure of our operating performance.
      The following table shows the reconciliation of EBITDA to our reported net
      loss:




25








Six
              months ended July 31,2007
            
            2006Net
                loss, as reported
            
            $
            (681,000
            )
            $
            (173,000
            )Interest
                expense and amortization ofSubordinated
                debt issuance costs
            
            
            385,000
            
            
            477,000Tax
                benefit
            
            
            (7,000
            )
            
            (26,000
            )Depreciation
                and amortization
            
            
            644,000
            
            
            518,000Amortization
                of intangible assets
            
            
            4,089,000
            
            
            660,000EBITDA
            
            $
            4,430,000
            
            $
            1,456,000




Management
      uses EBITDA, a non-GAAP financial measure, for planning purposes, including
      the
      preparation of operating budgets and to determine appropriate levels of
      operating and capital investments. Management also believes that EBITDA provides
      additional insight for analysts and investors in evaluating the Company's
      financial and operational performance and in assisting investors in comparing
      the Company's financial performance to those of other companies in the Company's
      industry. However, EBITDA is not intended to be an alternative to financial
      measures prepared in accordance with GAAP and should not be considered in
      isolation from our GAAP results of operations. Pursuant to the requirements
      of
      SEC Regulation G, a detailed reconciliation between the Company's GAAP and
      non-GAAP financial results is provided above and investors are advised to
      carefully review and consider this information as well as the GAAP financial
      results that are disclosed in the Company's SEC filings.




**Customers**




During
      the six months ended July 31, 2007, the majority of our revenues were provided
      by a broad range of engineering, procurement and construction services to the
      power industry. Certain of our more significant customer relationships included
      six power industry service customers, Great Earth Fuels of Houston LLC, ALTRA
      Nebraska, LLC (ALTRA), CMEEC-Pierce (CP), Renewable Bio Fuels, Port Neches
      (RBF), and Roseville Energy Park (REP) accounted for 26.6%, 19.1%, 18.7%, 12.6%
      and 8.4% of consolidated net sales for the six months ended July 31, 2007.
      Total
      revenues from power industry services accounted for 86% of consolidated net
      sales. In addition, we had sales from VLI, who provides nutritional and
      whole-food supplements as well as personal care products to customers in the
      global nutrition industry. VLI sales accounted for 10% of revenues. No customer
      at VLI contributed more than 2% to our revenues. SMC provided services to
      telecommunications and utility customers as well as to the Federal Government,
      which accounted for in the aggregate, 4% of revenues.


During
      the six months ended July 31, 2006, we did not have revenues from the power
      industry. Revenues consisted of sales from the nutritional and whole-food
      supplements as well as personal care products to customers in the global
      nutrition industry and services to telecommunications and utilities customers
      as
      well as to the Federal Government, through a contract with EDS. Certain of
      our
      more significant customers during the six months ended July 31, 2006 were with
      TriVita corporation (TVC), Rob Reiss Companies (RRC), Verizon Communications,
      Inc. (VZ), Southern Maryland Electrical Cooperative (SMECO), EDS, CyberWize.com,
      Inc. (C) and Orange Peel Enterprises, Inc. (OPE). TVC, RRC, C and OPE are VLI
      customers. SMC’s significant customers are VZ, SMECO, and EDS. TVC, RRC, C and
      OPE accounted for approximately 17%, 15%, 7% and 4% of consolidated net sales
      during the three months ended July 31, 2006. VZ, SMECO and EDS accounted for
      approximately 10%, 11% and 9% of consolidated net sales during the six months
      ended July 31, 2006. Combined TVC, RRC, VZ, SMECO, EDS, C and OPE accounted
      for
      approximately 75% of consolidated net sales during the six months ended July
      31,
      2006.




**Seasonality**




The
      Company's power industry services and telecom infrastructure services operations
      are expected to have seasonally weaker results in the first and fourth quarters
      of the year, and may produce stronger results in the second and third quarters.
      This seasonality is primarily due to the effect of winter weather on
      construction and outside plant activities as well as reduced daylight hours
      and
      customer budgetary constraints. Certain customers tend to complete budgeted
      capital expenditures before the end of the year, and postpone additional
      expenditures until the subsequent fiscal period.




26





**RECENT
      ACCOUNTING STANDARDS**




In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard (“FAS”) No. 157, “Fair Value
      Measurements.” This Standard defines fair value, establishes a framework for
      measuring fair value in generally accepted accounting principles and expands
      disclosures about fair value measurements. The Company plans to adopt FAS 157
      on
      February 1, 2008, as required. The adoption of FAS 157 is not expected to have
      a
      material impact the Company’s financial condition and results of
      operations.




In
      February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities.” FAS 159 permits companies to measure many
      financial instruments and certain other items at fair value at specified
      election dates. The provisions of FAS 159 will be effective for the Company
      beginning February 1, 2008. The Company does not expect FAS 159 to have a
      significant impact on the consolidated financial statements.




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




We
      have
      not used any material derivative financial instruments during the three months
      ended July 31, 2007 and 2006. We are exposed to market risk for changes in
      interest rates for borrowings under the new financing arrangements as discussed
      above. Borrowings under the financing arrangement bear interest at LIBOR plus
      an
      additional margin and therefore are subject to fluctuations in interest
      rates.




**ITEM
      4. CONTROLS AND PROCEDURES**




**Evaluation
      of disclosure controls and procedures.** Our
      management, with the participation of our chief executive officer and chief
      financial officer, evaluated the effectiveness of our disclosure controls and
      procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
      Act)
      as of July 31, 2007. Management recognizes that any controls and procedures,
      no
      matter how well designed and operated, can provide only reasonable assurance
      of
      achieving their objectives, and management necessarily applies its judgment
      in
      evaluating the cost-benefit relationship of possible controls and procedures.
      Based on the evaluation of our disclosure controls and procedures as of July
      31,
      2007, our chief executive officer and chief financial officer concluded that,
      as
      of such date, our disclosure controls and procedures were effective at the
      reasonable assurance level.




**Changes
      in internal controls.** No
      change
      in our internal control over financial reporting (as defined in Rules 13a-15(f)
      and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended
      April 30, 2007 that has materially affected, or is reasonably likely to
      materially affect, our internal control over financial reporting.




**PART
      ll**




**OTHER
      INFORMATION**




**ITEM
      1.**  **LEGAL
      PROCEEDINGS**




On
      March
      22, 2005, WFC filed a civil action against the Company, and its executive
      officers. The suit was filed in the Superior Court of the State of California
      for the County of Los Angeles. WFC purchased the capital stock of the Company's
      wholly owned subsidiary, Puroflow Incorporated, pursuant to the terms of the
      Stock Purchase Agreement dated October 31, 2003. WFC alleged that the Company
      and its executive officers breached the Stock Purchase Agreement between WFC
      and
      the Company and engaged in misrepresentations and negligent conduct with respect
      to the Stock Purchase Agreement. WFC sought declaratory relief, compensatory
      and
      punitive damages in an amount to be proven at trial as well as the recovery
      of
      attorney's fees. This action was removed to the United States District Court
      for
      the Central District of California.




27




This
      case
      was scheduled for trial on April 10, 2007. On March 15, 2007, the District
      Court
      granted the Company and its executive officers' motion for summary judgment,
      thereby dismissing WFC's lawsuit against the Company and its executive officers
      in its entirety. WFC has filed a notice of appeal and the Company will
      vigorously contest WFC’s appeal.




Although
      the Company has reviewed WFC’s claim and believes that substantially all of the
      claims are without merit, the Company has recorded an accrual of approximately
      $100,000 and $286,000 at July 31, 2007 and January 31, 2007, respectfully,
      for
      subsequent legal services and estimated legal fees related to potential ongoing
      legal costs of the WFC claim that it considers to be probable and that can
      be
      reasonably estimated. It is possible however, that the ultimate resolution
      of
      WFC’s claim could result in a material adverse effect on the Company’s results
      of operations for a particular reporting period.




On
      August
      27, 2007, Kevin Thomas filed a lawsuit against the Company, VLI and Rainer
      Bosselmann in the Circuit Court of Florida. Mr. Thomas was the former owner
      of
      VLI and alleges that the Company has breached various agreements with, and
      violated its fiduciary duty to him. The Company believes that Mr. Thomas’ claims
      are groundless, that it has defenses to those claims and that it intends to
      contest his charges vigorously. The Company believes that Mr. Thomas has
      previously executed releases of many of his claims. In addition, the Company
      believes it has significant counterclaims against Mr. Thomas.




In
      the
      normal course of business, the Company has pending claims and legal proceedings.
      It is the opinion of the Company’s management, based on information available at
      this time, that none of the other current claims and proceedings will have
      a
      material effect on the Company’s consolidated financial statements.




**ITEM
      1A.**  **RISK
      FACTORS**




Our
      Annual Report on Form 10-KSB for the year ended January 31, 2007, under Item
      1
      Description of Business, Risk Factors includes a detailed discussion of our
      risk
      factors. There have been no material revisions to the Risk Factors as filed
      in
      our Annual Report Form 10-KSB for the year ended January 31, 2007.




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




None.




**ITEM
      3.**  **DEFAULTS
      UPON SENIOR SECURITIES**


None.




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




The
      Company held its annual meeting of stockholders in New York, New York on June
      19, 2007. The following sets forth matters submitted to a vote of the
      stockholders at the annual meeting.




a.  Seven
      members were elected to the Board of Directors, each to serve until the next
      annual meeting of the Company and until their respective successors have been
      elected to the Board of Directors and qualified. The following seven individuals
      were elected to the Board of Directors by the holders of common stock of the
      Company:




Rainer
      H.
      Bosselmann, DeSoto Jordan, William Leimkuhler, Daniel A. Levinson, W. G.
      Champion Mitchell, James W. Quinn and Peter L. Winslow.




Messrs.
      Bosselmann, Leimkuhler, Levinson, Quinn and Winslow were elected by a vote
      of
      9,786,235 shares of common stock with 10,714 shares of common stock withheld.
      Messrs. Mitchell and Jordan were elected by a vote of 9,786,225 shares of common
      stock with 10,724 shares of common stock withheld.




28




b.  The
      stockholders approved the amendment to the Certificate of Incorporation to
      increase the number of authorized shares of common stock from 12,000,000 shares
      to 30,000,000 shares by a vote of 9,745,642 shares of common stock with 51,145
      shares of common stock against and 162 shares of common stock abstained.




c.  The
      stockholders approved the Amendment of the Stock Option Plan to increase the
      number of shares available for issuance under stock options to 650,000 shares
      by
      a vote of 9,341,179 shares voting for, 14,630 shares voting against, 146 shares
      abstained and 440,994 did not vote.




d.  The
      stockholders ratified the appointment of Grant Thornton LLP to audit the
      financial statements of the Company and its subsidiaries for the year ended
      January 31, 2008, by a vote of 9,761,509 shares of common stock voting for,
      31,619 shares of common stock voting against and 3,821 shares of common stock
      abstained.





**ITEM
      5.**  **OTHER
      INFORMATION**




None .





**ITEM
      6.**  **EXHIBITS**


**Exhibit
                  No.******
              
              ******Title**Exhibit:
                  31.1
              
              Certification
                  of Chief Executive Officer, pursuant to Rule 13a-14(c)
                  under the Securities Exchange Act of 1934Exhibit:
                  31.2
              
              Certification
                  of Chief Financial Officer, pursuant to Rule 13a-14(c)
                  under the Securities Exchange Act of 1934Exhibit:
                  32.1
              
              Certification
                  of Chief Executive Officer, pursuant to 18
                  U.S.C. Section 1350Exhibit:
                  32.2
              
              Certification
                  of Chief Financial Officer, pursuant to 18
                  U.S.C. Section 1350






29





**SIGNATURES**





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


**ARGAN,
              INC.**September
                12, 2007
            By:
            /s/ Rainer
              BosselmannRainer
                Bosselmann
              Chairman
                of the Board and Chief Executive Officer




September
                12, 2007
            By:
            /s/ Arthur
              F. TrudelArthur
                F. Trudel
              Senior
                Vice President, Chief Financial Officer and Secretary




30