##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended October 31, 2010
 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)
    
    (I.R.S. Employer Identification No.)
 One Church Street, Suite 201, Rockville, Maryland 20850
 (301) 315-0027  (Registrants Telephone Number, Including Area Code)
 (Former Name, Former Address and Former Fiscal Year,
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ




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##### 



ARGAN, INC. AND SUBSIDIARIES
INDEX
 Page No.PART I. FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets  October 31, 2010 and January 31, 2010
    
    
    3Condensed Consolidated Statements of Operations for the Three and Nine Months Ended October 31, 2010 and 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 2010 and 2009
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    28PART II. OTHER INFORMATION
    
    
    29Item 1. Legal Proceedings
    
    
    29Item 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3. Defaults in Senior Securities
    
    
    30Item 4. [Removed and Reserved]
    
    
    30Item 5. Other Information
    
    
    30Item 6. Exhibits
    
    
    30SIGNATURES
    
    
    31CERTIFICATIONSExhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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ARGAN, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
 October 31,
    
    
    January 31,2010
    
    
    2010(Unaudited)
    
    
    (Note 1)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    76,420,000
    
    
    $
    66,009,000Restricted cash
    
    
    1,620,000
    
    
    
    5,002,000Accounts receivable, net of allowance for doubtful accounts
    
    
    22,684,000
    
    
    
    4,979,000Costs and estimated earnings in excess of billings
    
    
    4,902,000
    
    
    
    12,931,000Inventories, net of reserve for obsolescence
    
    
    1,130,000
    
    
    
    2,010,000Current deferred tax assets
    
    
    2,223,000
    
    
    
    1,603,000Prepaid expenses and other current assets
    
    
    683,000
    
    
    
    2,697,000TOTAL CURRENT ASSETS
    
    
    109,662,000
    
    
    
    95,231,000Property and equipment, net of accumulated depreciation
    
    
    1,596,000
    
    
    
    1,540,000Goodwill
    
    
    18,476,000
    
    
    
    18,476,000Intangible assets, net of accumulated amortization
    
    
    2,996,000
    
    
    
    3,258,000Deferred tax assets
    
    
    1,506,000
    
    
    
    1,628,000Other assets
    
    
    59,000
    
    
    
    140,000TOTAL ASSETS
    
    $
    134,295,000
    
    
    $
    120,273,000LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    12,672,000
    
    
    $
    17,906,000Accrued expenses
    
    
    9,700,000
    
    
    
    10,254,000Billings in excess of costs and estimated earnings
    
    
    15,112,000
    
    
    
    1,874,000Current portion of long-term debt
    
    
    333,000
    
    
    
    1,833,000TOTAL CURRENT LIABILITIES
    
    
    37,817,000
    
    
    
    31,867,000Other liabilities
    
    
    33,000
    
    
    
    38,000TOTAL LIABILITIES
    
    
    37,850,000
    
    
    
    31,905,000COMMITMENTS AND CONTINGENCIES(Note 12)STOCKHOLDERS EQUITYPreferred 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;
13,599,727 and 13,585,727 shares issued at 10/31/10 and 1/31/10, and
13,596,494 and 13,582,494 shares outstanding at 10/31/10 and
1/31/10, respectively
    
    
    2,040,000
    
    
    
    2,038,000Warrants outstanding
    
    
    601,000
    
    
    
    613,000Additional paid-in capital
    
    
    88,276,000
    
    
    
    87,048,000Retained earnings (deficit)
    
    
    5,561,000
    
    
    
    (1,298,000
    )Treasury stock, at cost; 3,233 shares at 10/31/10 and 1/31/10
    
    
    (33,000
    )
    
    
    (33,000
    )TOTAL STOCKHOLDERS EQUITY
    
    
    96,445,000
    
    
    
    88,368,000TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    134,295,000
    
    
    $
    120,273,000
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ARGAN, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Operations
 (Unaudited)
 Three Months Ended October 31,
    
    
    Nine Months Ended October 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenuesPower industry services
    
    $
    42,706,000
    
    
    $
    54,164,000
    
    
    $
    144,475,000
    
    
    $
    172,003,000Nutritional products
    
    
    2,931,000
    
    
    
    4,266,000
    
    
    
    7,817,000
    
    
    
    10,536,000Telecommunications infrastructure services
    
    
    2,523,000
    
    
    
    2,237,000
    
    
    
    6,308,000
    
    
    
    6,693,000Net revenues
    
    
    48,160,000
    
    
    
    60,667,000
    
    
    
    158,600,000
    
    
    
    189,232,000Cost of revenuesPower industry services
    
    
    35,999,000
    
    
    
    48,378,000
    
    
    
    122,568,000
    
    
    
    153,465,000Nutritional products
    
    
    3,139,000
    
    
    
    3,715,000
    
    
    
    8,213,000
    
    
    
    9,435,000Telecommunications infrastructure services
    
    
    1,850,000
    
    
    
    1,727,000
    
    
    
    5,281,000
    
    
    
    5,102,000Cost of revenues
    
    
    40,988,000
    
    
    
    53,820,000
    
    
    
    136,062,000
    
    
    
    168,002,000Gross profit
    
    
    7,172,000
    
    
    
    6,847,000
    
    
    
    22,538,000
    
    
    
    21,230,000Selling, general and administrative expenses
    
    
    4,346,000
    
    
    
    4,015,000
    
    
    
    11,285,000
    
    
    
    10,417,000Income from operations
    
    
    2,826,000
    
    
    
    2,832,000
    
    
    
    11,253,000
    
    
    
    10,813,000Interest expense
    
    
    (7,000
    )
    
    
    (41,000
    )
    
    
    (32,000
    )
    
    
    (155,000
    )Investment income
    
    
    29,000
    
    
    
    15,000
    
    
    
    61,000
    
    
    
    89,000Equity in the earnings of the unconsolidated
subsidiary
    
    
    
    
    
    
    325,000
    
    
    
    
    
    
    
    1,343,000Income before income taxes
    
    
    2,848,000
    
    
    
    3,131,000
    
    
    
    11,282,000
    
    
    
    12,090,000Income tax expense
    
    
    1,313,000
    
    
    
    1,167,000
    
    
    
    4,423,000
    
    
    
    4,475,000Net income
    
    $
    1,535,000
    
    
    $
    1,964,000
    
    
    $
    6,859,000
    
    
    $
    7,615,000Earnings per share:Basic
    
    $
    0.11
    
    
    $
    0.14
    
    
    $
    0.50
    
    
    $
    0.56Diluted
    
    $
    0.11
    
    
    $
    0.14
    
    
    $
    0.50
    
    
    $
    0.55Weighted average number of shares
outstanding:Basic
    
    
    13,596,000
    
    
    
    13,579,000
    
    
    
    13,591,000
    
    
    
    13,506,000Diluted
    
    
    13,669,000
    
    
    
    13,763,000
    
    
    
    13,714,000
    
    
    
    13,765,000
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ARGAN, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 Nine Months Ended October 31,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    6,859,000
    
    
    $
    7,615,000Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Deferred income tax benefit
    
    
    (498,000
    )
    
    
    (287,000
    )Stock option compensation expense
    
    
    1,112,000
    
    
    
    864,000Amortization of purchased intangibles
    
    
    262,000
    
    
    
    267,000Depreciation and other amortization
    
    
    508,000
    
    
    
    459,000Equity in the earnings of the unconsolidated subsidiary
    
    
    
    
    
    
    (1,343,000
    )Other
    
    
    504,000
    
    
    
    35,000Changes in operating assets and liabilities:Restricted cash
    
    
    3,382,000
    
    
    
    4,998,000Accounts receivable
    
    
    (17,851,000
    )
    
    
    8,875,000Costs and estimated earnings in excess of billings
    
    
    8,029,000
    
    
    
    (22,797,000
    )Inventories
    
    
    511,000
    
    
    
    (1,176,000
    )Prepaid expenses and other assets
    
    
    2,018,000
    
    
    
    85,000Accounts payable and accrued expenses
    
    
    (5,785,000
    )
    
    
    (14,000,000
    )Billings in excess of costs and estimated earnings
    
    
    13,238,000
    
    
    
    (4,101,000
    )Other
    
    
    (5,000
    )
    
    
    9,000Net cash provided by (used in) operating activities
    
    
    12,284,000
    
    
    
    (20,497,000
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (488,000
    )
    
    
    (172,000
    )Proceeds from sale of property and equipment
    
    
    12,000
    
    
    
    55,000Net cash used in investing activities
    
    
    (476,000
    )
    
    
    (117,000
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net proceeds from the exercise of stock options and warrants
    
    
    103,000
    
    
    
    737,000Principal payments on long-term debt
    
    
    (1,500,000
    )
    
    
    (1,801,000
    )Net cash used in financing activities
    
    
    (1,397,000
    )
    
    
    (1,064,000
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    10,411,000
    
    
    
    (21,678,000
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    66,009,000
    
    
    
    74,666,000CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    76,420,000
    
    
    $
    52,988,000SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for interest and income taxes:Interest
    
    $
    32,000
    
    
    $
    155,000Income taxes
    
    $
    1,275,000
    
    
    $
    6,701,000
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ARGAN, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 OCTOBER 31, 2010
 (Unaudited)
 NOTE 1  DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
 Description of the Business
  Note 6).
 Basis of Presentation
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Codification of Generally Accepted Accounting Principles in the United States of America (US
GAAP)
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles FASB Accounting Standards Codification Generally Accepted Accounting Standards The Hierarchy of Generally
Accepted Accounting Principles
 New Accounting Standards
 1)
    
    In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Fair Value
Measurements and Disclosures, which provides amendments to ASC 820-10 (Fair Value Measurements
and Disclosures  Overall Subtopic) of the Codification (the Fair Value Update). The Fair
Value Update requires improved disclosures about fair value measurements. Separate
disclosures are required of the amounts of significant transfers in and out of Level 1 and
Level 2 fair value measurements along with description of the reasons for the
transfers. Disclosure of activity in Level 3 fair value measurements is required to be made
on a gross basis rather than as one net number. The Fair Value Update also requires: (1) fair
value measurement disclosures for each class of assets and liabilities, and (2) disclosures
about the valuation techniques and inputs used to measure fair value for both recurring and
nonrecurring fair value measurements, which are required for fair value measurements that fall
into either Level 2 or Level 3.
 Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date in the
principal or most advantageous market. Current accounting guidance prescribes a fair value
hierarchy that has three levels of inputs, both observable and unobservable, with use of the
lowest possible level of input to determine fair value. Level 1 inputs include quoted market
prices in an active market or the price of an identical asset or liability. Level 2 inputs are
market data other than Level 1 inputs that are observable either directly or indirectly including
quoted market prices for similar assets or liabilities, quoted market prices in an inactive
market, and other observable information that can be corroborated by market data. Level 3 inputs
are unobservable and corroborated by little or no market data.
 The new disclosures and clarifications of existing disclosures required by the Fair Value Update
became effective for the Companys interim and annual reporting periods beginning February 1,
2010, except for the Level 3 activity disclosures, which are effective for fiscal years beginning
after December 15, 2010, and for interim periods within those fiscal years. Because these are
enhanced disclosure requirements, there has been no impact on the Companys results of operations
or financial position. In addition, the enhanced disclosure requirements have not materially
affected the Companys financial reporting.
 2)
    
    In July 2010, the FASB issued Accounting Standards Update No. 2010-20, Disclosures about the
Credit Quality of Financing Receivables and the Allowance for Credit Losses, which requires
enhanced disclosures about credit risk exposure in financial statements issued by public
entities on or after December 15, 2010 (the Credit Risk Update). The Companys accounts
receivable substantially consist of trade receivables with short payment terms which are
specifically excluded from the definition of financing receivables. Accordingly, the
disclosure requirements of the Credit Risk Update are not expected to affect the Companys
consolidated financial statements.
 NOTE 2  CASH, CASH EQUIVALENTS AND RESTRICTED CASH
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NOTE 3  ACCOUNTS RECEIVABLE; COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS
    NOTE 4  INVENTORIES
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October 31,
    
    
    January 31,2010
    
    
    2010Raw materials
    
    $
    2,981,000
    
    
    $
    3,586,000Work-in process
    
    
    15,000
    
    
    
    54,000Finished goods
    
    
    269,000
    
    
    
    270,0003,265,000
    
    
    
    3,910,000Less: reserves
    
    
    (2,135,000
    )
    
    
    (1,900,000
    )Inventories, net
    
    $
    1,130,000
    
    
    $
    2,010,000
 NOTE 5  PROPERTY AND EQUIPMENT
    October 31,
    
    
    January 31,2010
    
    
    2010Leasehold improvements
    
    $
    806,000
    
    
    $
    806,000Machinery and equipment
    
    
    3,442,000
    
    
    
    2,990,000Trucks and other vehicles
    
    
    1,737,000
    
    
    
    1,769,0005,985,000
    
    
    
    5,565,000Less  accumulated depreciation
    
    
    (4,389,000
    )
    
    
    (4,025,000
    )Property and equipment, net
    
    $
    1,596,000
    
    
    $
    1,540,000
  NOTE 6  ACQUISITION OF GEMMA RENEWABLE POWER, LLC
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Three Months
    
    
    Nine MonthsEnded October 31,
    
    
    Ended October 31,2009
    
    
    2009Pro forma consolidated net revenues
    
    $
    72,001,000
    
    
    $
    219,545,000Pro forma consolidated net income
    
    $
    2,178,000
    
    
    $
    8,501,000Pro forma net income per share:Basic
    
    $
    0.16
    
    
    $
    0.63Diluted
    
    $
    0.16
    
    
    $
    0.62
   NOTE 7  INTANGIBLE ASSETS
  October 31, 2010
    
    
    January 31,Estimated
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    2010Useful
    
    
    Carrying
    
    
    Accumulated
    
    
    Net
    
    
    NetLife
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmountIntangible assets being amortized:Non-compete agreements  GPS
    
    5 years
    
    $
    534,000
    
    
    $
    416,000
    
    
    $
    118,000
    
    
    $
    198,000Trade name  GPS
    
    15 years
    
    
    3,643,000
    
    
    
    946,000
    
    
    
    2,697,000
    
    
    
    2,879,000Intangible asset not being amortized:Trade name  SMC
    
    Indefinite
    
    
    181,000
    
    
    
    
    
    
    
    181,000
    
    
    
    181,000Total intangible assets
    
    
    
    
    
    $
    4,358,000
    
    
    $
    1,362,000
    
    
    $
    2,996,000
    
    
    $
    3,258,000Goodwill
    
    Indefinite
    
    $
    18,476,000
    
    
    $
    
    
    
    $
    18,476,000
    
    
    $
    18,476,000
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NOTE 8  DEBT
   NOTE 9  STOCK-BASED COMPENSATION
   WeightedWeighted
    
    
    Average
    
    
    WeightedAverage
    
    
    Remaining
    
    
    AverageExercise
    
    
    Contract
    
    
    FairOptions
    
    Shares
    
    
    Price
    
    
    Term (Years)
    
    
    ValueOutstanding, January 31, 2010
    
    
    497,000
    
    
    $
    10.27
    
    
    
    6.47
    
    
    $
    5.45Granted
    
    
    202,000
    
    
    $
    14.23Forfeited
    
    
    (30,000
    )
    
    $
    11.84Exercised
    
    
    (11,000
    )
    
    $
    7.24Outstanding, October 31, 2010
    
    
    658,000
    
    
    $
    11.46
    
    
    
    5.73
    
    
    $
    5.84Exercisable, October 31, 2010
    
    
    415,000
    
    
    $
    10.02
    
    
    
    5.79
    
    
    $
    5.39Exercisable, January 31, 2010
    
    
    374,000
    
    
    $
    9.44
    
    
    
    5.65
    
    
    $
    4.87
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WeightedAverageShares
    
    
    Fair ValueNonvested, January 31, 2010
    
    
    123,000
    
    
    $
    7.21Granted
    
    
    202,000
    
    
    $
    6.54Vested
    
    
    (82,000
    )
    
    $
    7.36Nonvested, October 31, 2010
    
    
    243,000
    
    
    $
    6.60
   Nine MonthsEnded October 31,2010Dividend yield
    
    
    Expected volatility
    
    
    62.58
    %Risk-free interest rate
    
    
    3.44
    %Expected life in years
    
    
    3.33
   NOTE 10  INCOME TAXES
  Nine Months
    
    
    Nine MonthsEnded October 31,
    
    
    Ended October 31,2010
    
    
    2009Computed expected income tax expense
    
    $
    3,836,000
    
    
    $
    4,111,000State income taxes, net of federal tax benefit
    
    
    649,000
    
    
    
    355,000Permanent differences, net
    
    
    (247,000
    )
    
    
    (146,000
    )Other, net
    
    
    185,000
    
    
    
    155,000$
    4,423,000
    
    
    $
    4,475,000
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NOTE 11  NET INCOME PER SHARE
    NOTE 12  LEGAL CONTINGENCIES
  Delta-T Matters
   - 13 -




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Tampa Bay Nutraceutical Company
  Beveragette Ventures LLC
   - 14 -




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NOTE 13  SEGMENT REPORTING AND MAJOR CUSTOMERS
  TelecomPower Industry
    
    
    Nutritional
    
    
    InfrastructureThree Months Ended October 31, 2010
    
    Services
    
    
    Products
    
    
    Services
    
    
    Other
    
    
    ConsolidatedNet revenues
    
    $
    42,706,000
    
    
    $
    2,931,000
    
    
    $
    2,523,000
    
    
    $
    
    
    
    $
    48,160,000Cost of revenues
    
    
    35,999,000
    
    
    
    3,139,000
    
    
    
    1,850,000
    
    
    
    
    
    
    
    40,988,000Gross profit
    
    
    6,707,000
    
    
    
    (208,000
    )
    
    
    673,000
    
    
    
    
    
    
    
    7,172,000Selling, general and administrative
expenses
    
    
    1,804,000
    
    
    
    1,225,000
    
    
    
    327,000
    
    
    
    990,000
    
    
    
    4,346,000Income (loss) from operations
    
    
    4,903,000
    
    
    
    (1,433,000
    )
    
    
    346,000
    
    
    
    (990,000
    )
    
    
    2,826,000Interest expense
    
    
    (7,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,000
    )Investment income
    
    
    19,000
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    29,000Income (loss) before income taxes
    
    $
    4,915,000
    
    
    $
    (1,433,000
    )
    
    $
    346,000
    
    
    $
    (980,000
    )
    
    
    2,848,000Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,313,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,535,000Amortization of purchased intangibles
    
    $
    88,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    88,000Depreciation and other amortization
    
    $
    64,000
    
    
    $
    
    
    
    $
    78,000
    
    
    $
    1,000
    
    
    $
    143,000Fixed asset additions
    
    $
    
    
    
    $
    
    
    
    $
    214,000
    
    
    $
    2,000
    
    
    $
    216,000Goodwill
    
    $
    18,476,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    18,476,000Total assets
    
    $
    97,538,000
    
    
    $
    4,264,000
    
    
    $
    3,243,000
    
    
    $
    29,250,000
    
    
    $
    134,295,000
  TelecomPower Industry
    
    
    Nutritional
    
    
    InfrastructureThree Months Ended October 31, 2009
    
    Services
    
    
    Products
    
    
    Services
    
    
    Other
    
    
    ConsolidatedNet revenues
    
    $
    54,164,000
    
    
    $
    4,266,000
    
    
    $
    2,237,000
    
    
    $
    
    
    
    $
    60,667,000Cost of revenues
    
    
    48,378,000
    
    
    
    3,715,000
    
    
    
    1,727,000
    
    
    
    
    
    
    
    53,820,000Gross profit
    
    
    5,786,000
    
    
    
    551,000
    
    
    
    510,000
    
    
    
    
    
    
    
    6,847,000Selling, general and administrative
expenses
    
    
    2,092,000
    
    
    
    577,000
    
    
    
    371,000
    
    
    
    975,000
    
    
    
    4,015,000Income (loss) from operations
    
    
    3,694,000
    
    
    
    (26,000
    )
    
    
    139,000
    
    
    
    (975,000
    )
    
    
    2,832,000Interest expense
    
    
    (40,000
    )
    
    
    (1,000
    )
    
    
    
    
    
    
    
    
    
    
    (41,000
    )Investment income
    
    
    11,000
    
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    15,000Equity in the earnings of the
unconsolidated subsidiary
    
    
    325,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    325,000Income (loss) before income taxes
    
    $
    3,990,000
    
    
    $
    (27,000
    )
    
    $
    139,000
    
    
    $
    (971,000
    )
    
    
    3,131,000Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,167,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,964,000Amortization of purchased intangibles
    
    $
    87,000
    
    
    $
    1,000
    
    
    $
    
    
    
    $
    
    
    
    $
    88,000Depreciation and other amortization
    
    $
    48,000
    
    
    $
    
    
    
    $
    115,000
    
    
    $
    
    
    
    $
    163,000Fixed asset additions
    
    $
    5,000
    
    
    $
    
    
    
    $
    84,000
    
    
    $
    
    
    
    $
    89,000Goodwill
    
    $
    18,476,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    18,476,000Total assets
    
    $
    79,240,000
    
    
    $
    6,321,000
    
    
    $
    2,937,000
    
    
    $
    36,029,000
    
    
    $
    124,527,000
  - 15 -




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##### Table of Contents



TelecomPower Industry
    
    
    Nutritional
    
    
    InfrastructureNine Months Ended October 31, 2010
    
    Services
    
    
    Products
    
    
    Services
    
    
    Other
    
    
    ConsolidatedNet revenues
    
    $
    144,475,000
    
    
    $
    7,817,000
    
    
    $
    6,308,000
    
    
    $
    
    
    
    $
    158,600,000Cost of revenues
    
    
    122,568,000
    
    
    
    8,213,000
    
    
    
    5,281,000
    
    
    
    
    
    
    
    136,062,000Gross profit
    
    
    21,907,000
    
    
    
    (396,000
    )
    
    
    1,027,000
    
    
    
    
    
    
    
    22,538,000Selling, general and administrative
expenses
    
    
    4,569,000
    
    
    
    2,526,000
    
    
    
    1,198,000
    
    
    
    2,992,000
    
    
    
    11,285,000Income (loss) from operations
    
    
    17,338,000
    
    
    
    (2,922,000
    )
    
    
    (171,000
    )
    
    
    (2,992,000
    )
    
    
    11,253,000Interest expense
    
    
    (32,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,000
    )Investment income
    
    
    41,000
    
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    61,000Income (loss) before income taxes
    
    $
    17,347,000
    
    
    $
    (2,922,000
    )
    
    $
    (171,000
    )
    
    $
    (2,972,000
    )
    
    
    11,282,000Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,423,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,859,000Amortization of purchased intangibles
    
    $
    262,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    262,000Depreciation and other amortization
    
    $
    229,000
    
    
    $
    
    
    
    $
    276,000
    
    
    $
    3,000
    
    
    $
    508,000Fixed asset additions
    
    $
    243,000
    
    
    $
    
    
    
    $
    243,000
    
    
    $
    2,000
    
    
    $
    488,000
  TelecomPower Industry
    
    
    Nutritional
    
    
    InfrastructureNine Months Ended October 31, 2009
    
    Services
    
    
    Products
    
    
    Services
    
    
    Other
    
    
    ConsolidatedNet revenues
    
    $
    172,003,000
    
    
    $
    10,536,000
    
    
    $
    6,693,000
    
    
    $
    
    
    
    $
    189,232,000Cost of revenues
    
    
    153,465,000
    
    
    
    9,435,000
    
    
    
    5,102,000
    
    
    
    
    
    
    
    168,002,000Gross profit
    
    
    18,538,000
    
    
    
    1,101,000
    
    
    
    1,591,000
    
    
    
    
    
    
    
    21,230,000Selling, general and administrative
expenses
    
    
    4,361,000
    
    
    
    1,852,000
    
    
    
    1,223,000
    
    
    
    2,981,000
    
    
    
    10,417,000Income (loss) from operations
    
    
    14,177,000
    
    
    
    (751,000
    )
    
    
    368,000
    
    
    
    (2,981,000
    )
    
    
    10,813,000Interest expense
    
    
    (144,000
    )
    
    
    (11,000
    )
    
    
    
    
    
    
    
    
    
    
    (155,000
    )Investment income
    
    
    68,000
    
    
    
    
    
    
    
    
    
    
    
    21,000
    
    
    
    89,000Equity in the earnings of the
unconsolidated subsidiary
    
    
    1,343,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,343,000Income (loss) before income taxes
    
    $
    15,444,000
    
    
    $
    (762,000
    )
    
    $
    368,000
    
    
    $
    (2,960,000
    )
    
    
    12,090,000Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,475,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,615,000Amortization of purchased intangibles
    
    $
    263,000
    
    
    $
    4,000
    
    
    $
    
    
    
    $
    
    
    
    $
    267,000Depreciation and other amortization
    
    $
    143,000
    
    
    $
    
    
    
    $
    311,000
    
    
    $
    5,000
    
    
    $
    459,000Fixed asset additions
    
    $
    14,000
    
    
    $
    
    
    
    $
    147,000
    
    
    $
    11,000
    
    
    $
    172,000
    - 16 -




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##### Table of Contents



NOTE 14  SUPPLEMENTAL FINANCIAL INFORMATION
   
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Cautionary Statement Regarding Forward Looking Statements
  Business Summary
  Overview and Outlook
   - 17 -




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- 18 -




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- 19 -




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Comparison of the Results of Operations for the Three Months Ended October 31, 2010 and
2009
  Three Months Ended October 31,2010
    
    
    2009Net revenuesPower industry services
    
    $
    42,706,000
    
    
    
    88.7
    %
    
    $
    54,164,000
    
    
    
    89.3
    %Nutritional products
    
    
    2,931,000
    
    
    
    6.1
    %
    
    
    4,266,000
    
    
    
    7.0
    %Telecommunications infrastructure services
    
    
    2,523,000
    
    
    
    5.2
    %
    
    
    2,237,000
    
    
    
    3.7
    %Net revenues
    
    
    48,160,000
    
    
    
    100.0
    %
    
    
    60,667,000
    
    
    
    100.0
    %Cost of revenues **Power industry services
    
    
    35,999,000
    
    
    
    84.3
    %
    
    
    48,378,000
    
    
    
    89.3
    %Nutritional products
    
    
    3,139,000
    
    
    
    107.1
    %
    
    
    3,715,000
    
    
    
    87.1
    %Telecommunications infrastructure services
    
    
    1,850,000
    
    
    
    73.3
    %
    
    
    1,727,000
    
    
    
    77.2
    %Cost of revenues
    
    
    40,988,000
    
    
    
    85.1
    %
    
    
    53,820,000
    
    
    
    88.7
    %Gross profit
    
    
    7,172,000
    
    
    
    14.9
    %
    
    
    6,847,000
    
    
    
    11.3
    %Selling, general and administrative expenses
    
    
    4,346,000
    
    
    
    9.0
    %
    
    
    4,015,000
    
    
    
    6.6
    %Income from operations
    
    
    2,826,000
    
    
    
    5.9
    %
    
    
    2,832,000
    
    
    
    4.7
    %Interest expense
    
    
    (7,000
    )
    
    
    *
    
    
    
    (41,000
    )
    
    
    *Investment income
    
    
    29,000
    
    
    
    *
    
    
    
    15,000
    
    
    
    *Equity in the earnings of the unconsolidated subsidiary
    
    
    
    
    
    
    
    
    
    
    325,000
    
    
    
    *Income before income taxes
    
    
    2,848,000
    
    
    
    5.9
    %
    
    
    3,131,000
    
    
    
    5.1
    %Income tax expense
    
    
    1,313,000
    
    
    
    2.7
    %
    
    
    1,167,000
    
    
    
    1.9
    %Net income
    
    $
    1,535,000
    
    
    
    3.2
    %
    
    $
    1,964,000
    
    
    
    3.2
    %
 *
    
    Less than 1%.**
    
    The cost of revenues percentage amounts represent the percentage of net revenues of
the applicable segment.  - 20 -




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Net Revenues
 Power Industry Services
   Nutritional Products
   Telecommunications Infrastructure Services
    - 21 -




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Cost of Revenues
      Selling, General and Administrative Expenses
  Other Income and Expense
   - 22 -




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Income Tax Expense
  Comparison of the Results of Operations for the Nine Months Ended October 31, 2010 and 2009
  Nine Months Ended October 31,2010
    
    
    2009Net revenuesPower industry services
    
    $
    144,475,000
    
    
    
    91.1
    %
    
    $
    172,003,000
    
    
    
    90.9
    %Nutritional products
    
    
    7,817,000
    
    
    
    4.9
    %
    
    
    10,536,000
    
    
    
    5.6
    %Telecommunications infrastructure services
    
    
    6,308,000
    
    
    
    4.0
    %
    
    
    6,693,000
    
    
    
    3.5
    %Net revenues
    
    
    158,600,000
    
    
    
    100.0
    %
    
    
    189,232,000
    
    
    
    100.0
    %Cost of revenues **Power industry services
    
    
    122,568,000
    
    
    
    84.8
    %
    
    
    153,465,000
    
    
    
    89.2
    %Nutritional products
    
    
    8,213,000
    
    
    
    105.1
    %
    
    
    9,435,000
    
    
    
    89.6
    %Telecommunications infrastructure services
    
    
    5,281,000
    
    
    
    83.7
    %
    
    
    5,102,000
    
    
    
    76.2
    %Cost of revenues
    
    
    136,062,000
    
    
    
    85.8
    %
    
    
    168,002,000
    
    
    
    88.8
    %Gross profit
    
    
    22,538,000
    
    
    
    14.2
    %
    
    
    21,230,000
    
    
    
    11.2
    %Selling, general and administrative expenses
    
    
    11,285,000
    
    
    
    7.1
    %
    
    
    10,417,000
    
    
    
    5.5
    %Income from operations
    
    
    11,253,000
    
    
    
    7.1
    %
    
    
    10,813,000
    
    
    
    5.7
    %Interest expense
    
    
    (32,000
    )
    
    
    *
    
    
    
    (155,000
    )
    
    
    *Investment income
    
    
    61,000
    
    
    
    *
    
    
    
    89,000
    
    
    
    *Equity in the earnings of the unconsolidated subsidiary
    
    
    
    
    
    
    *
    
    
    
    1,343,000
    
    
    
    *Income before income taxes
    
    
    11,282,000
    
    
    
    7.1
    %
    
    
    12,090,000
    
    
    
    6.4
    %Income tax expense
    
    
    4,423,000
    
    
    
    2.8
    %
    
    
    4,475,000
    
    
    
    2.4
    %Net income
    
    $
    6,859,000
    
    
    
    4.3
    %
    
    $
    7,615,000
    
    
    
    4.0
    %
 *
    
    Less than 1%.**
    
    The cost of revenues percentage amounts represent the percentage of net revenues of
the applicable segment. Net Revenues
 Power Industry Services
   - 23 -




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Nutritional Products
  Telecommunications Infrastructure Services
  Cost of Revenues
     - 24 -




---



##### Table of Contents



Selling, General and Administrative Expenses
  Other Income and Expense
  Income Tax Expense
   Liquidity and Capital Resources as of October 31, 2010
    - 25 -




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- 26 -




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Off-Balance Sheet Arrangements
    Earnings before Interest, Taxes, Depreciation and Amortization (Non-GAAP Measurement)
  Three Months Ended October 31,2010
    
    
    2009Net income, as reported
    
    $
    1,535,000
    
    
    $
    1,964,000Interest expense
    
    
    7,000
    
    
    
    41,000Income tax expense
    
    
    1,313,000
    
    
    
    1,167,000Amortization of purchased intangible assets
    
    
    87,000
    
    
    
    88,000Depreciation and other amortization
    
    
    144,000
    
    
    
    163,000EBITDA
    
    $
    3,086,000
    
    
    $
    3,423,000Nine Months Ended October 31,2010
    
    
    2009Net income, as reported
    
    $
    6,859,000
    
    
    $
    7,615,000Interest expense
    
    
    32,000
    
    
    
    155,000Income tax expense
    
    
    4,423,000
    
    
    
    4,475,000Amortization of purchased intangible assets
    
    
    262,000
    
    
    
    267,000Depreciation and other amortization
    
    
    508,000
    
    
    
    459,000EBITDA
    
    $
    12,084,000
    
    
    $
    12,971,000
   - 27 -




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Reconciliations of EBITDANine Months Ended October 31,2010
    
    
    2009EBITDA
    
    $
    12,084,000
    
    
    $
    12,971,000Current income tax expense
    
    
    (4,921,000
    )
    
    
    (4,762,000
    )Interest expense
    
    
    (32,000
    )
    
    
    (155,000
    )Stock option compensation expense
    
    
    1,112,000
    
    
    
    864,000Equity in earnings of the unconsolidated subsidiary
    
    
    
    
    
    
    (1,343,000
    )(Increase) decrease in accounts receivable, net
    
    
    (17,851,000
    )
    
    
    8,875,000Decrease in accounts payable and accrued expenses
    
    
    (5,785,000
    )
    
    
    (14,000,000
    )Changes related to the timing of scheduled billings
    
    
    21,267,000
    
    
    
    (26,898,000
    )Decrease in restricted cash
    
    
    3,382,000
    
    
    
    4,998,000Other, net
    
    
    3,028,000
    
    
    
    (1,047,000
    )Net cash provided by (used in) operations
    
    $
    12,284,000
    
    
    $
    (20,497,000
    )
 Critical Accounting Policies
  Adopted and Other Recently Issued Accounting Pronouncements
  
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
 Changes in internal controls over financial reporting.
  - 28 -




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
   
 ITEM 1A.
    
    RISK FACTORS
     - 29 -




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##### Table of Contents



www.arganinc.com
 
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 None
 
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
 None
 
 ITEM 4.
    
    [REMOVED AND RESERVED]
 
 ITEM 5.
    
    OTHER INFORMATION
  
 ITEM 6.
    
    EXHIBITS
 Exhibit No.
    
    TitleExhibit: 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
  - 30 -




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##### Table of Contents



SIGNATURES
  ARGAN, INC.December 9, 2010
    By:
    /s/ Rainer H. BosselmannRainer H. BosselmannChairman of the Board and Chief Executive OfficerDecember 9, 2010
    By:
    /s/ Arthur F. TrudelArthur F. TrudelSenior Vice President, Chief Financial Officer
and Secretary  - 31 -