##### 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 July 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  July 31, 2010 and January 31, 2010
    
    
    3Condensed Consolidated Statements of Operations for the Three and Six Months
Ended July 31, 2010 and 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended July
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
    
    
    27Item 4. Controls and Procedures
    
    
    28PART II. OTHER INFORMATION
    
    
    28Item 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3. Defaults in Senior Securities
    
    
    29Item 4. [Removed and Reserved]
    
    
    29Item 5. Other Information
    
    
    29Item 6. Exhibits
    
    
    29SIGNATURES
    
    
    30CERTIFICATIONSExhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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ARGAN, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
 July 31,
    
    
    January 31,2010
    
    
    2010(Unaudited)
    
    
    (Note 1)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    71,980,000
    
    
    $
    66,009,000Restricted cash
    
    
    3,824,000
    
    
    
    5,002,000Accounts receivable, net of allowance for doubtful accounts
    
    
    13,688,000
    
    
    
    4,979,000Costs and estimated earnings in excess of billings
    
    
    8,310,000
    
    
    
    12,931,000Inventories, net of reserve for obsolescence
    
    
    1,917,000
    
    
    
    2,010,000Current deferred tax assets
    
    
    1,065,000
    
    
    
    1,603,000Prepaid expenses and other current assets
    
    
    1,188,000
    
    
    
    2,697,000TOTAL CURRENT ASSETS
    
    
    101,972,000
    
    
    
    95,231,000Property and equipment, net of accumulated depreciation
    
    
    1,515,000
    
    
    
    1,540,000Goodwill
    
    
    18,476,000
    
    
    
    18,476,000Intangible assets, net of accumulated amortization
    
    
    3,083,000
    
    
    
    3,258,000Deferred tax assets
    
    
    1,720,000
    
    
    
    1,628,000Other assets
    
    
    100,000
    
    
    
    140,000TOTAL ASSETS
    
    $
    126,866,000
    
    
    $
    120,273,000LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    15,451,000
    
    
    $
    17,906,000Accrued expenses
    
    
    6,515,000
    
    
    
    10,254,000Billings in excess of costs and estimated earnings
    
    
    9,526,000
    
    
    
    1,874,000Current portion of long-term debt
    
    
    833,000
    
    
    
    1,833,000TOTAL CURRENT LIABILITIES
    
    
    32,325,000
    
    
    
    31,867,000Other liabilities
    
    
    34,000
    
    
    
    38,000TOTAL LIABILITIES
    
    
    32,359,000
    
    
    
    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 7/31/10 and 1/31/10, and
13,596,494 and 13,582,494 shares outstanding at 7/31/10 and
1/31/10, respectively
    
    
    2,040,000
    
    
    
    2,038,000Warrants outstanding
    
    
    601,000
    
    
    
    613,000Additional paid-in capital
    
    
    87,873,000
    
    
    
    87,048,000Retained earnings (deficit)
    
    
    4,026,000
    
    
    
    (1,298,000
    )Treasury stock, at cost; 3,233 shares at 7/31/10 and 1/31/10
    
    
    (33,000
    )
    
    
    (33,000
    )TOTAL STOCKHOLDERS EQUITY
    
    
    94,507,000
    
    
    
    88,368,000TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    126,866,000
    
    
    $
    120,273,000
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ARGAN, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Operations
 (Unaudited)
 Three Months Ended July 31,
    
    
    Six Months Ended July 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenuesPower industry services
    
    $
    50,373,000
    
    
    $
    59,804,000
    
    
    $
    101,769,000
    
    
    $
    117,839,000Nutritional products
    
    
    2,189,000
    
    
    
    3,452,000
    
    
    
    4,886,000
    
    
    
    6,270,000Telecommunications infrastructure services
    
    
    1,947,000
    
    
    
    2,199,000
    
    
    
    3,785,000
    
    
    
    4,456,000Net revenues
    
    
    54,509,000
    
    
    
    65,455,000
    
    
    
    110,440,000
    
    
    
    128,565,000Cost of revenuesPower industry services
    
    
    41,902,000
    
    
    
    53,712,000
    
    
    
    86,569,000
    
    
    
    105,087,000Nutritional products
    
    
    2,391,000
    
    
    
    3,162,000
    
    
    
    5,074,000
    
    
    
    5,720,000Telecommunications infrastructure services
    
    
    1,638,000
    
    
    
    1,625,000
    
    
    
    3,431,000
    
    
    
    3,375,000Cost of revenues
    
    
    45,931,000
    
    
    
    58,499,000
    
    
    
    95,074,000
    
    
    
    114,182,000Gross profit
    
    
    8,578,000
    
    
    
    6,956,000
    
    
    
    15,366,000
    
    
    
    14,383,000Selling, general and administrative expenses
    
    
    3,365,000
    
    
    
    3,188,000
    
    
    
    6,939,000
    
    
    
    6,401,000Income from operations
    
    
    5,213,000
    
    
    
    3,768,000
    
    
    
    8,427,000
    
    
    
    7,982,000Interest expense
    
    
    (11,000
    )
    
    
    (52,000
    )
    
    
    (25,000
    )
    
    
    (114,000
    )Investment income
    
    
    20,000
    
    
    
    24,000
    
    
    
    32,000
    
    
    
    75,000Equity in the earnings of the unconsolidated
subsidiary
    
    
    
    
    
    
    408,000
    
    
    
    
    
    
    
    1,018,000Income from operations before income taxes
    
    
    5,222,000
    
    
    
    4,148,000
    
    
    
    8,434,000
    
    
    
    8,961,000Income tax expense
    
    
    1,921,000
    
    
    
    1,463,000
    
    
    
    3,110,000
    
    
    
    3,309,000Net income
    
    $
    3,301,000
    
    
    $
    2,685,000
    
    
    $
    5,324,000
    
    
    $
    5,652,000Earnings per share:Basic
    
    $
    0.24
    
    
    $
    0.20
    
    
    $
    0.39
    
    
    $
    0.42Diluted
    
    $
    0.24
    
    
    $
    0.19
    
    
    $
    0.39
    
    
    $
    0.41Weighted average number of shares
outstanding:Basic
    
    
    13,593,000
    
    
    
    13,492,000
    
    
    
    13,589,000
    
    
    
    13,469,000Diluted
    
    
    13,699,000
    
    
    
    13,771,000
    
    
    
    13,736,000
    
    
    
    13,756,000
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ARGAN, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 Six Months Ended July 31,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    5,324,000
    
    
    $
    5,652,000Adjustments to reconcile net income to net cash provided by (used in)
operating activities:Deferred income tax expense
    
    
    446,000
    
    
    
    375,000Stock option compensation expense
    
    
    708,000
    
    
    
    578,000Amortization of purchased intangibles
    
    
    175,000
    
    
    
    178,000Depreciation and other amortization
    
    
    364,000
    
    
    
    295,000Equity in the earnings of the unconsolidated subsidiary
    
    
    
    
    
    
    (1,018,000
    )Other
    
    
    186,000
    
    
    
    44,000Changes in operating assets and liabilities:Restricted cash
    
    
    1,178,000
    
    
    
    (4,000
    )Accounts receivable
    
    
    (8,820,000
    )
    
    
    (10,980,000
    )Costs and estimated earnings in excess of billings
    
    
    4,621,000
    
    
    
    (3,906,000
    )Inventories
    
    
    9,000
    
    
    
    (719,000
    )Prepaid expenses and other assets
    
    
    1,482,000
    
    
    
    (371,000
    )Accounts payable and accrued expenses
    
    
    (6,190,000
    )
    
    
    (8,219,000
    )Billings in excess of costs and estimated earnings
    
    
    7,652,000
    
    
    
    (3,693,000
    )Other
    
    
    (4,000
    )
    
    
    6,000Net cash provided by (used in) operating activities
    
    
    7,131,000
    
    
    
    (21,782,000
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (272,000
    )
    
    
    (83,000
    )Proceeds from sale of property and equipment
    
    
    9,000
    
    
    
    13,000Net cash used in investing activities
    
    
    (263,000
    )
    
    
    (70,000
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net proceeds from the exercise of stock options and warrants
    
    
    103,000
    
    
    
    557,000Principal payments on long-term debt
    
    
    (1,000,000
    )
    
    
    (1,259,000
    )Net cash used in financing activities
    
    
    (897,000
    )
    
    
    (702,000
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    5,971,000
    
    
    
    (22,554,000
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    66,009,000
    
    
    
    74,666,000CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    71,980,000
    
    
    $
    52,112,000SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for interest and income taxes:Interest
    
    $
    25,000
    
    
    $
    114,000Income taxes
    
    $
    590,000
    
    
    $
    5,980,000
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ARGAN, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JULY 31, 2010
 (Unaudited)
 NOTE 1  DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
 Description of the Business
   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 Standard
 Fair Value
Measurements and Disclosures Fair Value Measurements and
Disclosures  Overall Subtopic
   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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July 31,
    
    
    January 31,2010
    
    
    2010Raw materials
    
    $
    3,342,000
    
    
    $
    3,586,000Work-in process
    
    
    149,000
    
    
    
    54,000Finished goods
    
    
    311,000
    
    
    
    270,0003,802,000
    
    
    
    3,910,000Less: reserves
    
    
    (1,885,000
    )
    
    
    (1,900,000
    )Inventories, net
    
    $
    1,917,000
    
    
    $
    2,010,000
 NOTE 5  PROPERTY AND EQUIPMENT
    July 31,
    
    
    January 31,2010
    
    
    2010Leasehold improvements
    
    $
    806,000
    
    
    $
    806,000Machinery and equipment
    
    
    3,255,000
    
    
    
    2,990,000Trucks and other vehicles
    
    
    1,746,000
    
    
    
    1,769,0005,807,000
    
    
    
    5,565,000Less  accumulated depreciation
    
    
    (4,292,000
    )
    
    
    (4,025,000
    )Property and equipment, net
    
    $
    1,515,000
    
    
    $
    1,540,000
 NOTE 6  ACQUISITION OF GEMMA RENEWABLE POWER, LLC
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Three Months
    
    
    Six MonthsEnded July 31,
    
    
    Ended July 31,2009
    
    
    2009Pro forma consolidated net revenues
    
    $
    74,015,000
    
    
    $
    147,544,000Pro forma consolidated net income
    
    $
    2,954,000
    
    
    $
    6,323,000Pro forma net income per share:Basic
    
    $
    0.22
    
    
    $
    0.47Diluted
    
    $
    0.21
    
    
    $
    0.46
   NOTE 7  INTANGIBLE ASSETS
  July 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
    
    
    $
    389,000
    
    
    $
    145,000
    
    
    $
    198,000Trade name  GPS
    
    15 years
    
    
    3,643,000
    
    
    
    886,000
    
    
    
    2,757,000
    
    
    
    2,879,000Intangible asset not
being amortized:Trade name  SMC
    
    Indefinite
    
    
    181,000
    
    
    
    
    
    
    
    181,000
    
    
    
    181,000Total intangible assets
    
    
    
    
    
    $
    4,358,000
    
    
    $
    1,275,000
    
    
    $
    3,083,000
    
    
    $
    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
    
    
    177,000
    
    
    $
    15.04Exercised
    
    
    (11,000
    )
    
    $
    7.24Outstanding, July 31, 2010
    
    
    663,000
    
    
    $
    11.59
    
    
    
    5.90
    
    
    $
    5.88Exercisable, July 31, 2010
    
    
    440,000
    
    
    $
    10.10
    
    
    
    5.88
    
    
    $
    5.37Exercisable, 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
    
    
    177,000
    
    
    $
    6.92Vested
    
    
    (77,000
    )
    
    $
    7.43Nonvested, July 31, 2010
    
    
    223,000
    
    
    $
    6.91
   Six MonthsEnded July 31,2010Dividend yield
    
    
    Expected volatility
    
    
    62.38
    %Risk-free interest rate
    
    
    3.50
    %Expected life in years
    
    
    3.38
   NOTE 10  INCOME TAXES
  Six Months
    
    
    Six MonthsEnded July 31,
    
    
    Ended July 31,2010
    
    
    2009Computed expected income tax expense
    
    $
    2,868,000
    
    
    $
    3,047,000State income taxes, net
    
    
    583,000
    
    
    
    338,000Permanent differences, net
    
    
    (341,000
    )
    
    
    (76,000
    )$
    3,110,000
    
    
    $
    3,309,000
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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
  NOTE 13  SUPPLEMENTAL FINANCIAL INFORMATION
   NOTE 14  SEGMENT REPORTING AND MAJOR CUSTOMERS
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TelecomPower Industry
    
    
    Nutritional
    
    
    InfrastructureThree Months Ended July 31, 2010
    
    Services
    
    
    Products
    
    
    Services
    
    
    Other
    
    
    ConsolidatedNet revenues
    
    $
    50,373,000
    
    
    $
    2,189,000
    
    
    $
    1,947,000
    
    
    $
    
    
    
    $
    54,509,000Cost of revenues
    
    
    41,902,000
    
    
    
    2,391,000
    
    
    
    1,638,000
    
    
    
    
    
    
    
    45,931,000Gross profit
    
    
    8,471,000
    
    
    
    (202,000
    )
    
    
    309,000
    
    
    
    
    
    
    
    8,578,000Selling, general and administrative
expenses
    
    
    1,320,000
    
    
    
    761,000
    
    
    
    369,000
    
    
    
    915,000
    
    
    
    3,365,000Income (loss) from operations
    
    
    7,151,000
    
    
    
    (963,000
    )
    
    
    (60,000
    )
    
    
    (915,000
    )
    
    
    5,213,000Interest expense
    
    
    (11,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,000
    )Investment income
    
    
    13,000
    
    
    
    
    
    
    
    
    
    
    
    7,000
    
    
    
    20,000Income (loss) before income taxes
    
    $
    7,153,000
    
    
    $
    (963,000
    )
    
    $
    (60,000
    )
    
    $
    (908,000
    )
    
    
    5,222,000Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,921,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,301,000Amortization of purchased intangibles
    
    $
    88,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    88,000Depreciation and other amortization
    
    $
    98,000
    
    
    $
    
    
    
    $
    97,000
    
    
    $
    1,000
    
    
    $
    196,000Fixed asset additions
    
    $
    102,000
    
    
    $
    
    
    
    $
    7,000
    
    
    $
    
    
    
    $
    109,000Goodwill
    
    $
    18,476,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    18,476,000Total assets
    
    $
    88,319,000
    
    
    $
    4,500,000
    
    
    $
    2,811,000
    
    
    $
    31,236,000
    
    
    $
    126,866,000
  TelecomPower Industry
    
    
    Nutritional
    
    
    InfrastructureThree Months Ended July 31, 2009
    
    Services
    
    
    Products
    
    
    Services
    
    
    Other
    
    
    ConsolidatedNet revenues
    
    $
    59,804,000
    
    
    $
    3,452,000
    
    
    $
    2,199,000
    
    
    $
    
    
    
    $
    65,455,000Cost of revenues
    
    
    53,712,000
    
    
    
    3,162,000
    
    
    
    1,625,000
    
    
    
    
    
    
    
    58,499,000Gross profit
    
    
    6,092,000
    
    
    
    290,000
    
    
    
    574,000
    
    
    
    
    
    
    
    6,956,000Selling, general and administrative
expenses
    
    
    1,110,000
    
    
    
    718,000
    
    
    
    456,000
    
    
    
    904,000
    
    
    
    3,188,000Income (loss) from operations
    
    
    4,982,000
    
    
    
    (428,000
    )
    
    
    118,000
    
    
    
    (904,000
    )
    
    
    3,768,000Interest expense
    
    
    (48,000
    )
    
    
    (4,000
    )
    
    
    
    
    
    
    
    
    
    
    (52,000
    )Investment income
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    24,000Equity in the earnings of the
unconsolidated subsidiary
    
    
    408,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    408,000Income (loss) before income taxes
    
    $
    5,362,000
    
    
    $
    (432,000
    )
    
    $
    118,000
    
    
    $
    (900,000
    )
    
    
    4,148,000Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,463,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,685,000Amortization of purchased intangibles
    
    $
    86,000
    
    
    $
    3,000
    
    
    $
    
    
    
    $
    
    
    
    $
    89,000Depreciation and other amortization
    
    $
    48,000
    
    
    $
    
    
    
    $
    99,000
    
    
    $
    1,000
    
    
    $
    148,000Fixed asset additions
    
    $
    8,000
    
    
    $
    
    
    
    $
    43,000
    
    
    $
    
    
    
    $
    51,000Goodwill
    
    $
    18,476,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    18,476,000Total assets
    
    $
    85,248,000
    
    
    $
    5,470,000
    
    
    $
    2,680,000
    
    
    $
    35,429,000
    
    
    $
    128,827,000
  - 15 -




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##### Table of Contents



TelecomPower Industry
    
    
    Nutritional
    
    
    InfrastructureSix Months Ended July 31, 2010
    
    Services
    
    
    Products
    
    
    Services
    
    
    Other
    
    
    ConsolidatedNet revenues
    
    $
    101,769,000
    
    
    $
    4,886,000
    
    
    $
    3,785,000
    
    
    $
    
    
    
    $
    110,440,000Cost of revenues
    
    
    86,569,000
    
    
    
    5,074,000
    
    
    
    3,431,000
    
    
    
    
    
    
    
    95,074,000Gross profit
    
    
    15,200,000
    
    
    
    (188,000
    )
    
    
    354,000
    
    
    
    
    
    
    
    15,366,000Selling, general and administrative
expenses
    
    
    2,765,000
    
    
    
    1,301,000
    
    
    
    871,000
    
    
    
    2,002,000
    
    
    
    6,939,000Income (loss) from operations
    
    
    12,435,000
    
    
    
    (1,489,000
    )
    
    
    (517,000
    )
    
    
    (2,002,000
    )
    
    
    8,427,000Interest expense
    
    
    (25,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,000
    )Investment income
    
    
    22,000
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    32,000Income (loss) before income taxes
    
    $
    12,432,000
    
    
    $
    (1,489,000
    )
    
    $
    (517,000
    )
    
    $
    (1,992,000
    )
    
    
    8,434,000Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,110,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,324,000Amortization of purchased intangibles
    
    $
    175,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    175,000Depreciation and other amortization
    
    $
    164,000
    
    
    $
    
    
    
    $
    198,000
    
    
    $
    2,000
    
    
    $
    364,000Fixed asset additions
    
    $
    243,000
    
    
    $
    
    
    
    $
    29,000
    
    
    $
    
    
    
    $
    272,000
  TelecomPower Industry
    
    
    Nutritional
    
    
    InfrastructureSix Months Ended July 31, 2009
    
    Services
    
    
    Products
    
    
    Services
    
    
    Other
    
    
    ConsolidatedNet revenues
    
    $
    117,839,000
    
    
    $
    6,270,000
    
    
    $
    4,456,000
    
    
    $
    
    
    
    $
    128,565,000Cost of revenues
    
    
    105,087,000
    
    
    
    5,720,000
    
    
    
    3,375,000
    
    
    
    
    
    
    
    114,182,000Gross profit
    
    
    12,752,000
    
    
    
    550,000
    
    
    
    1,081,000
    
    
    
    
    
    
    
    14,383,000Selling, general and administrative
expenses
    
    
    2,269,000
    
    
    
    1,274,000
    
    
    
    852,000
    
    
    
    2,006,000
    
    
    
    6,401,000Income (loss) from operations
    
    
    10,483,000
    
    
    
    (724,000
    )
    
    
    229,000
    
    
    
    (2,006,000
    )
    
    
    7,982,000Interest expense
    
    
    (104,000
    )
    
    
    (10,000
    )
    
    
    
    
    
    
    
    
    
    
    (114,000
    )Investment income
    
    
    57,000
    
    
    
    
    
    
    
    
    
    
    
    18,000
    
    
    
    75,000Equity in the earnings of the
unconsolidated subsidiary
    
    
    1,018,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,018,000Income (loss) before income taxes
    
    $
    11,454,000
    
    
    $
    (734,000
    )
    
    $
    229,000
    
    
    $
    (1,988,000
    )
    
    
    8,961,000Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,309,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,652,000Amortization of purchased intangibles
    
    $
    174,000
    
    
    $
    4,000
    
    
    $
    
    
    
    $
    
    
    
    $
    178,000Depreciation and other amortization
    
    $
    95,000
    
    
    $
    
    
    
    $
    196,000
    
    
    $
    4,000
    
    
    $
    295,000Fixed asset additions
    
    $
    10,000
    
    
    $
    
    
    
    $
    62,000
    
    
    $
    11,000
    
    
    $
    83,000
    - 16 -




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##### Table of Contents



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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##### Table of Contents



- 19 -




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Comparison of the Results of Operations for the Three Months Ended July 31, 2010 and 2009
  Three Months Ended July 31,2010
    
    
    2009Net revenuesPower industry services
    
    $
    50,373,000
    
    
    
    92.4
    %
    
    $
    59,804,000
    
    
    
    91.4
    %Nutritional products
    
    
    2,189,000
    
    
    
    4.0
    %
    
    
    3,452,000
    
    
    
    5.3
    %Telecommunications infrastructure services
    
    
    1,947,000
    
    
    
    3.6
    %
    
    
    2,199,000
    
    
    
    3.3
    %Net revenues
    
    
    54,509,000
    
    
    
    100.0
    %
    
    
    65,455,000
    
    
    
    100.0
    %Cost of revenues **Power industry services
    
    
    41,902,000
    
    
    
    83.2
    %
    
    
    53,712,000
    
    
    
    89.8
    %Nutritional products
    
    
    2,391,000
    
    
    
    109.2
    %
    
    
    3,162,000
    
    
    
    91.6
    %Telecommunications infrastructure services
    
    
    1,638,000
    
    
    
    84.1
    %
    
    
    1,625,000
    
    
    
    73.9
    %Cost of revenues
    
    
    45,931,000
    
    
    
    84.3
    %
    
    
    58,499,000
    
    
    
    89.4
    %Gross profit
    
    
    8,578,000
    
    
    
    15.7
    %
    
    
    6,956,000
    
    
    
    10.6
    %Selling, general and administrative expenses
    
    
    3,365,000
    
    
    
    6.2
    %
    
    
    3,188,000
    
    
    
    4.9
    %Income from operations
    
    
    5,213,000
    
    
    
    9.5
    %
    
    
    3,768,000
    
    
    
    5.7
    %Interest expense
    
    
    (11,000
    )
    
    
    *
    
    
    
    (52,000
    )
    
    
    *Investment income
    
    
    20,000
    
    
    
    *
    
    
    
    24,000
    
    
    
    *Equity in the earnings of the unconsolidated subsidiary
    
    
    
    
    
    
    
    
    
    
    408,000
    
    
    
    *Income from operations before income taxes
    
    
    5,222,000
    
    
    
    9.6
    %
    
    
    4,148,000
    
    
    
    6.3
    %Income tax expense
    
    
    1,921,000
    
    
    
    3.5
    %
    
    
    1,463,000
    
    
    
    2.2
    %Net income
    
    $
    3,301,000
    
    
    
    6.1
    %
    
    $
    2,685,000
    
    
    
    4.1
    %
 *
    
    Less than 1%.**
    
    The cost of revenues percentage amounts represent the percentage of net revenues of
the applicable segment. Net Revenues
 Power Industry Services
    - 20 -




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##### Table of Contents



Nutritional Products
   Telecommunications Infrastructure Services
   Cost of Revenues
    - 21 -




---



##### Table of Contents



Selling, General and Administrative Expenses
  Other Income and Expense
  Income Tax Expense
   - 22 -




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Comparison of the Results of Operations for the Six Months Ended July 31, 2010 and 2009
  Six  Months Ended July 31,2010
    
    
    2009Net revenuesPower industry services
    
    $
    101,769,000
    
    
    
    92.2
    %
    
    $
    117,839,000
    
    
    
    91.6
    %Nutritional products
    
    
    4,886,000
    
    
    
    4.4
    %
    
    
    6,270,000
    
    
    
    4.9
    %Telecommunications infrastructure services
    
    
    3,785,000
    
    
    
    3.4
    %
    
    
    4,456,000
    
    
    
    3.5
    %Net revenues
    
    
    110,440,000
    
    
    
    100.0
    %
    
    
    128,565,000
    
    
    
    100.0
    %Cost of revenues **Power industry services
    
    
    86,569,000
    
    
    
    85.1
    %
    
    
    105,087,000
    
    
    
    89.2
    %Nutritional products
    
    
    5,074,000
    
    
    
    103.8
    %
    
    
    5,720,000
    
    
    
    91.2
    %Telecommunications infrastructure services
    
    
    3,431,000
    
    
    
    90.6
    %
    
    
    3,375,000
    
    
    
    75.7
    %Cost of revenues
    
    
    95,074,000
    
    
    
    86.1
    %
    
    
    114,182,000
    
    
    
    88.8
    %Gross profit
    
    
    15,366,000
    
    
    
    13.9
    %
    
    
    14,383,000
    
    
    
    11.2
    %Selling, general and administrative expenses
    
    
    6,939,000
    
    
    
    6.3
    %
    
    
    6,401,000
    
    
    
    5.0
    %Income from operations
    
    
    8,427,000
    
    
    
    7.6
    %
    
    
    7,982,000
    
    
    
    6.2
    %Interest expense
    
    
    (25,000
    )
    
    
    *
    
    
    
    (114,000
    )
    
    
    *Investment income
    
    
    32,000
    
    
    
    *
    
    
    
    75,000
    
    
    
    *Equity in the earnings of the unconsolidated subsidiary
    
    
    
    
    
    
    *
    
    
    
    1,018,000
    
    
    
    *Income from operations before income taxes
    
    
    8,434,000
    
    
    
    7.6
    %
    
    
    8,961,000
    
    
    
    7.0
    %Income tax expense
    
    
    3,110,000
    
    
    
    2.8
    %
    
    
    3,309,000
    
    
    
    2.6
    %Net income
    
    $
    5,324,000
    
    
    
    4.8
    %
    
    $
    5,652,000
    
    
    
    4.4
    %
 *
    
    Less than 1%.**
    
    The cost of revenues percentage amounts represent the percentage of net revenues of
the applicable segment. Net Revenues
 Power Industry Services
   Nutritional Products
   - 23 -




---



##### Table of Contents



Telecommunications Infrastructure Services
  Cost of Revenues
    Selling, General and Administrative Expenses
  Other Income and Expense
  Income Tax Expense
   - 24 -




---



##### Table of Contents



Liquidity and Capital Resources as of July 31, 2010
        - 25 -




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##### Table of Contents



Off-Balance Sheet Arrangements
    Earnings before Interest, Taxes, Depreciation and Amortization (Non-GAAP Measurement)
   Three Months Ended July 31,2010
    
    
    2009Net income, as reported
    
    $
    3,301,000
    
    
    $
    2,685,000Interest expense
    
    
    11,000
    
    
    
    52,000Income tax expense
    
    
    1,921,000
    
    
    
    1,463,000Amortization of purchased intangible assets
    
    
    88,000
    
    
    
    89,000Depreciation and other amortization
    
    
    196,000
    
    
    
    148,000EBITDA
    
    $
    5,517,000
    
    
    $
    4,437,000
 Six Months Ended July 31,2010
    
    
    2009Net income, as reported
    
    $
    5,324,000
    
    
    $
    5,652,000Interest expense
    
    
    25,000
    
    
    
    114,000Income tax expense
    
    
    3,110,000
    
    
    
    3,309,000Amortization of purchased intangible assets
    
    
    175,000
    
    
    
    178,000Depreciation and other amortization
    
    
    364,000
    
    
    
    295,000EBITDA
    
    $
    8,998,000
    
    
    $
    9,548,000
  - 26 -




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##### Table of Contents



Reconciliations of EBITDASix Months Ended July 31,2010
    
    
    2009EBITDA
    
    $
    8,998,000
    
    
    $
    9,548,000Current income tax expense
    
    
    (2,664,000
    )
    
    
    (2,934,000
    )Interest expense
    
    
    (25,000
    )
    
    
    (114,000
    )Stock option compensation expense
    
    
    708,000
    
    
    
    578,000Equity in earnings of the unconsolidated subsidiary
    
    
    
    
    
    
    (1,018,000
    )Increase in accounts receivable, net
    
    
    (8,820,000
    )
    
    
    (10,980,000
    )Decrease in accounts payable and accrued expenses
    
    
    (6,190,000
    )
    
    
    (8,219,000
    )Changes related to the timing of scheduled billings
    
    
    12,273,000
    
    
    
    (7,599,000
    )Decrease (increase) in restricted cash
    
    
    1,178,000
    
    
    
    (4,000
    )Other, net
    
    
    1,673,000
    
    
    
    (1,040,000
    )Net cash provided by (used in) operations
    
    $
    7,131,000
    
    
    $
    (21,782,000
    )
 Critical Accounting Policies
  Adopted and Other Recently Issued Accounting Pronouncements
  
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   - 27 -




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##### Table of Contents



ITEM 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
 Changes in internal controls over financial reporting.
 
 PART II
 OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
   
 ITEM 1A.
    
    RISK FACTORS
   www.arganinc.com
  - 28 -




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##### Table of Contents



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
 None
 
 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
  - 29 -




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##### Table of Contents



SIGNATURES
  ARGAN, INC.September 8, 2010
    By:
    /s/ Rainer H. BosselmannRainer H. BosselmannChairman of the Board and Chief Executive OfficerSeptember 8, 2010
    By:
    /s/ Arthur F. TrudelArthur F. TrudelSenior Vice President, Chief Financial Officer
and Secretary  - 30 -