**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 **April
      30, 2008**




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 Maryland
                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, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act (check one):




Large accelerated filer
            o
            
            Accelerated filer
            o
            
            Non-accelerated filer
            o
            
            Smaller reporting company
            þ




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





Indicate
      the number of shares outstanding of each of the Registrant’s classes of common
      stock, as of the latest practicable date: Common Stock, $0.15 par value,
      11,125,026 shares at June 2, 2008.









**ARGAN,
      INC. AND SUBSIDIARIES**


**INDEX**




**Page
                No.**PART
                I.
            
            FINANCIAL
                INFORMATION
            
            3Item
                1.
            
            Financial
                Statements (unaudited)
            
            3Condensed
                Consolidated Balance Sheets - April 30, 2008 and January 31,
                2008
            
            3Condensed
                Consolidated Statements of Operations for the Three Months Ended
                April 30,
                2008 and 2007
            
            4Condensed
                Consolidated Statements of Cash Flows for the Three Months Ended
                April 30,
                2008 and 2007
            
            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
            
            21Item
                4.
            
            Controls
                and Procedures
            
            21PART
                II.
            
            OTHER
                INFORMATION
            
            22Item
                1.
            
            Legal
                Proceedings
            
            22Item
                1A.
            
            Risk
                Factors
            
            22Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            23Item
                3.
            
            Defaults
                upon Senior Securities
            
            23Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            23Item
                5.
            
            Other
                Information
            
            23Item
                6.
            
            Exhibits
            
            23SIGNATURES
            
            
            
            24


CERTIFICATIONS





-
          2
          -


**ARGAN,
      INC. AND SUBSIDIARIES**


**Condensed
      Consolidated Balance Sheets**


**(unaudited)**


**April
                30,**
            
            **January
                31,****ASSETS**
            
            **2008**
            
            **2008****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            66,645,000
            
            $
            66,827,000Escrowed
                cash
            
            
            10,315,000
            
            
            14,398,000Accounts
                receivable, net of allowance for doubtful accounts
            
            
            31,053,000
            
            
            30,239,000Estimated
                earnings in excess of billings
            
            
            329,000
            
            
            242,000Inventories,
                net of reserve for obsolescence
            
            
            2,921,000
            
            
            2,808,000Current
                deferred tax assets
            
            
            913,000
            
            
            406,000Prepaid
                expenses and other current assets
            
            
            1,419,000
            
            
            1,330,000**TOTAL
                CURRENT ASSETS**
            
            
            113,595,000
            
            
            116,250,000Property
                and equipment, net of accumulated depreciation
            
            
            2,706,000
            
            
            2,892,000Goodwill,
                net of impairment losses
            
            
            20,337,000
            
            
            20,337,000Other
                intangible assets, net of accumulated amortization
            
            
            4,524,000
            
            
            5,296,000Deferred
                tax assets
            
            
            1,372,000
            
            
            828,000Other
                assets
            
            
            230,000
            
            
            260,000**TOTAL
                ASSETS**
            
            $
            142,764,000
            
            $
            145,863,000**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****CURRENT
                LIABILITIES**Accounts
                payable
            
            $
            34,687,000
            
            $
            35,483,000Accrued
                expenses
            
            
            6,782,000
            
            
            9,370,000Billings
                in excess of cost and earnings
            
            
            51,217,000
            
            
            52,313,000Current
                portion of long-term debt
            
            
            2,566,000
            
            
            2,581,000**TOTAL
                CURRENT LIABILITIES**
            
            
            95,252,000
            
            
            99,747,000Long-term
                debt
            
            
            3,503,000
            
            
            4,134,000Other
                liabilities
            
            
            93,000
            
            
            116,000**TOTAL
                LIABILITIES**
            
            
            98,848,000
            
            
            103,997,000**COMMITMENTS
                AND CONTINGENCIES**(Note
                12)**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; 11,123,259 and 11,113,534 shares issued and11,120,026
                and 11,110,301 shares outstanding at 4/30/08 and 1/31/08,
                respectively
            
            
            1,668,000
            
            
            1,667,000Warrants
                outstanding
            
            
            834,000
            
            
            834,000Additional
                paid-in capital
            
            
            58,331,000
            
            
            57,861,000Accumulated
                other comprehensive loss
            
            
            (83,000
            )
            
            (107,000
            )Accumulated
                deficit
            
            
            (16,801,000
            )
            
            (18,356,000
            )Treasury
                stock at cost; 3,233 shares at 4/30/08 and 1/31/08
            
            
            (33,000
            )
            
            (33,000
            )**TOTAL
                STOCKHOLDERS' EQUITY**
            
            
            43,916,000
            
            
            41,866,000**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            $
            142,764,000
            
            $
            145,863,000








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




-
          3
          -




**ARGAN,
      INC. AND SUBSIDIARIES**


**Condensed
      Consolidated Statements of Operations**


**(unaudited)**




**Three
                Months Ended April 30,****2008**
            
            **2007****Net
                sales**Power
                industry services
            
            $
            44,008,000
            
            $
            43,354,000Nutritional
                products
            
            
            2,399,000
            
            
            4,949,000Telecommunications
                infrastructure services
            
            
            1,999,000
            
            
            2,129,000Net
                sales
            
            
            48,406,000
            
            
            50,432,000Cost
                of salesPower
                industry services
            
            
            38,576,000
            
            
            43,245,000Nutritional
                products
            
            
            2,323,000
            
            
            4,166,000Telecommunications
                infrastructure services
            
            
            1,774,000
            
            
            1,843,00042,673,000
            
            
            49,254,000**Gross
                profit**
            
            
            5,733,000
            
            
            1,178,000Selling,
                general and administrative expenses
            
            
            4,011,000
            
            
            4,561,000Income
                (loss) from operations
            
            
            1,722,000
            
            
            (3,383,000
            )Interest
                expense
            
            
            (120,000
            )
            
            (204,000
            )Interest
                income
            
            
            504,000
            
            
            633,000Income
                (loss) from operations before income taxes
            
            
            2,106,000
            
            
            (2,954,000
            )Income
                tax (expense) benefit
            
            
            (551,000
            )
            
            939,000**Net
                income (loss)**
            
            $
            1,555,000
            
            $
            (2,015,000
            )**Earnings
                per share:**Basic
                net income (loss) per share
            
            $
            0.14
            
            $
            (0.18
            )Diluted
                net income (loss) per share
            
            $
            0.14
            
            $
            (0.18
            )**Weighted
                average number of shares outstanding:**Basic
            
            
            11,118,000
            
            
            11,094,000Diluted
            
            
            11,429,000
            
            
            11,094,000







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




-
          4
          -




**ARGAN,
      INC. AND SUBSIDIARIES**


**Condensed
      Consolidated Statements of Cash Flows**


**(unaudited)**





**Three
                Months Ended April 30,****CASH
                FLOWS FROM OPERATING ACTIVITIES:**
            
            **2008**
            
            **2007**Net
                income (loss)
            
            $
            1,555,000
            
            $
            (2,015,000
            )Adjustments
                to reconcile net income (loss) to net cash provided by operating
                activities:Amortization
                of purchased intangibles
            
            
            772,000
            
            
            2,064,000Depreciation
                and other amortization
            
            
            339,000
            
            
            324,000Deferred
                income taxes
            
            
            (1,051,000
            )
            
            (1,048,000
            )Non-cash
                stock option compensation expense
            
            
            397,000
            
            
            14,000Provision
                for losses on accounts receivable
            
            
            85,000
            
            
            76,000Provision
                for inventory obsolescence
            
            
            68,000
            
            
            36,000Changes
                in operating assets and liabilities:Escrowed
                cash
            
            
            4,083,000
            
            
            (165,000
            )Accounts
                receivable
            
            
            (899,000
            )
            
            (312,000
            )Estimated
                earnings in excess of billings
            
            
            (87,000
            )
            
            7,867,000Inventories
            
            
            (181,000
            )
            
            (289,000
            )Prepaid
                expenses and other assets
            
            
            (95,000
            )
            
            (375,000
            )Accounts
                payable and accrued expenses
            
            
            (1,384,000
            )
            
            (814,000
            )Billings
                in excess of cost and earnings
            
            
            (1,096,000
            )
            
            2,064,000Other
            
            
            5,000
            
            
            (7,000
            )Net
                cash provided by operating activities
            
            
            2,511,000
            
            
            7,420,000**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Payment
                of contingent acquisition price (Note 2)
            
            
            (2,000,000
            )
            
            --Purchases
                of property and equipment
            
            
            (117,000
            )
            
            (100,000
            )Proceeds
                from sale of investments
            
            
            --
            
            
            575,000Proceeds
                from sale of property and equipment
            
            
            --
            
            
            1,000Net
                cash (used in) provided by investing activities
            
            
            (2,117,000
            )
            
            476,000**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Net
                proceeds from the exercise of stock options and warrants
            
            
            70,000
            
            
            --Principal
                payments on long-term debt
            
            
            (646,000
            )
            
            (2,761,000
            )Proceeds
                from long-term debt
            
            
            --
            
            
            2,112,000Net
                cash used in financing activities
            
            
            (576,000
            )
            
            (649,000
            )**NET
                (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS**
            
            
            (182,000
            )
            
            7,247,000**CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD**
            
            
            66,827,000
            
            
            25,393,000**CASH
                AND CASH EQUIVALENTS, END OF PERIOD**
            
            $
            66,645,000
            
            $
            32,640,000**SUPPLEMENTAL
                CASH FLOW INFORMATION:**Cash
                paid for interest and income taxes as follows:Interest
            
            $
            120,000
            
            $
            204,000Income
                taxes
            
            $
            1,430,000
            
            $
            1,131,000Non-cash
                investing and financing activities are as follows:Net
                increase (decrease) in the fair value of interest rate
                swaps
            
            $
            24,000
            
            $
            (17,000
            )








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




-
          5
          -


**ARGAN,
      INC.** **AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**APRIL
      30, 2008**


**(unaudited)**





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




**Organization**




Argan,
      Inc. (“Argan”) conducts its operations through its wholly-owned subsidiaries,
      Gemma Power Systems, LLC and affiliates (“GPS”) which were 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. Argan and
      its consolidated wholly-owned subsidiaries are hereinafter referred to as the
      “Company.” Through GPS, the Company provides a full range of development,
      consulting, engineering, procurement, construction, commissioning, operating
      and
      maintenance services to the power generation 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, installation and maintenance primarily to the federal
      government, telecommunications and broadband service providers, and electric
      utilities in the Mid-Atlantic region. Each of the wholly-owned subsidiaries
      represents a separate reportable segment.





**Basis
      of Presentation**




The
      condensed consolidated financial statements include the accounts of Argan and
      its wholly-owned subsidiaries. The Company’s fiscal year ends on January 31. The
      results of companies acquired during a reporting period are included in the
      consolidated financial statements from the effective date of the acquisition.
      All significant inter-company balances and transactions have been eliminated
      in
      consolidation. Certain comparative amounts have been reclassified to conform
      with the presentation in the current year condensed consolidated financial
      statements.





The
      condensed consolidated balance sheet as of April 30, 2008, the condensed
      consolidated statements of operations for the three months ended April 30,
      2008
      and 2007, and the condensed consolidated statements of cash flows for the three
      months ended April 30, 2008 and 2007 are unaudited. The condensed consolidated
      balance sheet as of January 31, 2008 has been derived from audited financial
      statements. In the opinion of management, the accompanying condensed
      consolidated 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 April 30, 2008 and the results of its operations
      and its cash flows for the interim periods presented. 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.





These
      condensed consolidated financial statements have been prepared pursuant to
      the
      rules and regulations of the Securities and Exchange Commission (the “SEC”).
      Certain information and note disclosures normally included in annual financial
      statements prepared in accordance with US GAAP have been condensed or omitted
      pursuant to those rules and regulations, although the Company believes that
      the
      disclosures made are adequate to make the information not misleading. The
      accompanying condensed consolidated financial statements and notes should be
      read in conjunction with the consolidated financial statements, the notes
      thereto, and the independent registered public accounting firm’s report thereon
      that are included in the Company’s Annual Report on Form 10-K filed with the SEC
      for the fiscal year ended January 31, 2008.





**Recently
      Issued Accounting Pronouncements**





In
      March
      2008, the Financial Accounting Standards Board (the “FASB”) issued Statement of
      Financial Accounting Standards No. 161, “Disclosures about Derivative
      Instruments and Hedging Activities - An Amendment of FASB Statement No. 133.”
This new standard requires enhanced disclosures about an entity’s derivative and
      hedging activities with the intent of improving the transparency of financing
      reporting as the use and complexity of derivative instruments and hedging
      activities have increased significantly over the past several years. Currently,
      the Company uses interest rate swap agreements to hedge the risks related to
      the
      variable interest paid on its term loans. The current effects of the Company’s
      hedging activities are not significant to its consolidated financial statements.
      However, the new standard will require the Company to provide an enhanced
      understanding of 1) how and why it uses derivative instruments, 2) how it
      accounts for derivative instruments and the related hedged items, and 3) how
      derivatives and related hedged items affect its financial position, financial
      performance and cash flows. Adoption of this new accounting standard will first
      be required for the Company’s consolidated financial statements covering the
      quarter ending April 30, 2009.


-
          6
          -


In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      159, “The Fair Value Option for Financial Assets and Financial Liabilities.”
This standard permits companies to measure many financial instruments and
      certain other items at fair value at specified election dates. The provisions
      of
      this new standard were effective for the Company beginning February 1, 2008
      and
      did not have a significant impact on the consolidated financial
      statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      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. Certain provisions of
      this standard relating to financial assets and financial liabilities were also
      effective for the Company beginning February 1, 2008; they did not have a
      significant impact on the consolidated financial statements. Adoption of the
      other provisions of this new standard relating primarily to nonfinancial assets
      and nonfinancial liabilities will first be required for the Company’s
      consolidated financial statements covering the quarter ending April 30, 2009.
      The significant nonfinancial items included in the Company’s consolidated
      balance sheet include property and equipment, goodwill and other purchased
      intangible assets. Adoption of the new provisions is not expected to have a
      significant impact on the Company’s consolidated financial
      statements.





**NOTE
      2 - CASH, CASH EQUIVALENTS AND ESCROWED CASH**





The
      Company considers all liquid investments with original maturities of three
      months or less at the time of purchase to be cash equivalents. The Company
      holds
      cash on deposit at banks in excess of federally insured limits. However, due
      to
      a belief in the financial strength of the financial institutions, primarily
      Bank
      of America (the “Bank”), management does not believe that the risk associated
      with keeping deposits in excess of federal deposit limits represents a material
      risk currently.





Pursuant
      to the GPS acquisition agreement, the Company deposited $12.0 million into
      an
      escrow account with the Bank. Of this amount, $10.0 million secures a letter
      of
      credit that was issued in support of a bonding commitment. The remaining amount
      of $2.0 million was set aside for the payment of up to $2.0 million of
      additional purchase price in the event that GPS would meet certain financial
      objectives in 2007. As the earnings before interest, taxes, depreciation and
      amortization (“EBITDA”) of GPS for the twelve months ended December 31, 2007, as
      defined in the acquisition agreement, exceeded the required amount of $12.0
      million, the $2.0 million in additional purchase price was paid to the former
      owners of GPS in March 2008. The obligation to pay the former owners was
      included in accrued liabilities in the accompanying condensed consolidated
      balance sheet at January 31, 2008.





For
      certain construction projects, cash may be held in escrow as a substitute for
      retainage. Cash held in escrow for retainage at January 31, 2008 in the amount
      of approximately $2.1 million related to a completed project was released and
      paid to the Company in the first quarter. In 2003, Argan completed the sale
      of
      Puroflow Incorporated, a wholly-owned subsidiary, to Western Filter Corporation
      (“WFC”). Proceeds in the amount of $300,000 are currently being held in escrow,
      and are included in the condensed consolidated balance sheets at April 30,
      2008
      and January 31, 2008, to indemnify WFC from any damages resulting from any
      breach of representations and warranties under the stock purchase agreement
      (see
      Note 12).





**NOTE
      3 - ACCOUNTS RECEIVABLE AND ESTIMATED EARNINGS IN EXCESS OF
      BILLINGS**





Accounts
      receivable and estimated earnings in excess of billings represent amounts due
      from customers for services rendered or products delivered. The timing of
      billing to customers under construction-type contracts varies based on
      individual contracts and often differs from the period in which revenue is
      recognized. The amounts of estimated earnings in excess of billings at April
      30,
      2008 and January 31, 2008 were expected to be billed and collected in the normal
      course of business. Retainages included in accounts receivable represent amounts
      withheld by construction customers until a defined phase of a contract or
      project has been completed and accepted by the customer. Retainage amounts
      included in accounts receivable were approximately $3.0 million and $5.6 million
      at April 30, 2008 and January 31, 2008, respectively. The length of retainage
      periods may vary, but they are typically between six months and two
      years.





The
      Company conducts business and may extend credit to customers based on an
      evaluation of the customers’ financial condition, generally without requiring
      collateral. Exposure to losses on accounts receivable is expected to vary by
      customer due to the different financial condition of each customer. The Company
      monitors its exposure to credit losses and maintains allowances for anticipated
      losses considered necessary under the circumstances based on historical
      experience with uncollected accounts and a review of its current accounts
      receivable. The Company’s allowance for doubtful accounts amounts at April 30,
      2008 and January 31, 2008 were $158,000 and $70,000, respectively. Bad debt
      expense amounts for the three months ended April 30, 2008 and 2007 were $85,000
      and $76,000, respectively, and were included in selling, general and
      administrative expenses in the accompanying condensed consolidated statements
      of
      operations.


-
          7
          -


**NOTE
      4 - INVENTORIES**





Inventories
      are stated at the lower of cost or market (i.e., net realizable value). Cost
      is
      determined on the first-in first-out (FIFO) method and includes material, labor
      and overhead costs. Fixed overhead is allocated to inventory based on the normal
      capacity of the Company’s production facilities. Any costs related to idle
      facilities, excess spoilage, excess freight or re-handling are expensed
      currently as period costs. Appropriate consideration is given to obsolescence,
      excessive inventory levels, product deterioration and other factors (i.e. -
      lot
      expiration dates, the ability to recertify or test for extended expiration
      dates, the number of products that can be produced using the available raw
      materials and the market acceptance or regulatory issues surrounding certain
      materials) in evaluating net realizable value. The Company’s provision amounts
      expensed for inventory obsolescence during the three months ended April 30,
      2008
      and 2007 were approximately $68,000 and $36,000, respectively.





Inventories
      consisted of the following amounts at April 30, 2008 and January 31,
      2008:





**April
                30,**
              **2008**
            
            **January
                31,**
              **2008**Raw
                materials
            
            $
            2,842,000
            
            $
            2,846,000Work-in
                process
            
            
            138,000
            
            
            43,000Finished
                goods
            
            
            201,000
            
            
            144,000Less:
                reserves
            
            
            (260,000
            )
            
            (225,000
            )Inventories,
                net
            
            $
            2,921,000
            
            $
            2,808,000




**NOTE
      5 - PROPERTY AND EQUIPMENT**





Property
      and equipment are stated at cost. Depreciation is determined using the
      straight-line method over the estimated useful lives of the assets, which are
      generally from five to twenty years. Leasehold improvements are amortized on
      a
      straight-line basis over the estimated useful life of the related asset or
      the
      lease term, whichever is shorter. Depreciation expense amounts for property
      and
      equipment, including assets under capital leases, for the three months ended
      April 30, 2008 and 2007 were approximately $303,000 and $282,000, respectively.
      The costs of maintenance and repairs (totaling approximately $75,000 and $68,000
      for the three months ended April 30, 2008 and 2007, respectively) were expensed
      as incurred. Major improvements are capitalized. When assets are sold or
      retired, the cost and related accumulated depreciation are removed from the
      accounts and the resulting gain or loss is included in income.





Property
      and equipment at April 30, 2008 and January 31, 2008 consisted of the
      following:





**April
                30,**
              **2008**
            
            **January
                31,**
              **2008**Leasehold
                improvements
            
            $
            1,063,000
            
            $
            1,051,000Machinery
                and equipment
            
            
            3,853,000
            
            
            3,778,000Trucks
                and other vehicles
            
            
            1,292,000
            
            
            1,263,0006,208,000
            
            
            6,092,000Less
                - accumulated depreciation
            
            
            (3,502,000
            )
            
            (3,200,000
            )Property
                and equipment, net
            
            $
            2,706,000
            
            $
            2,892,000





**NOTE
      6 - INTANGIBLE ASSETS**  ****




In
      connection with the acquisitions of GPS, VLI and SMC, the Company recorded
      substantial amounts of goodwill and other purchased intangible assets including
      contractual and other customer relationships, proprietary formulas, non-compete
      agreements and trade names. In accordance with Statement of Financial Accounting
      Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets,” the Company
      reviews for impairment, at least annually, the carrying values of goodwill
      and
      other purchased intangible assets deemed to have an indefinite life. The Company
      tests for impairment of goodwill and these other intangible assets more
      frequently if events or changes in circumstances indicate that the asset value
      might be impaired. Long-lived assets, including purchased intangible assets
      deemed to have finite lives, are reviewed for impairment whenever events or
      changes in circumstances indicate that the carrying amount should be assessed
      pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of
      Long-Lived Assets.”


-
          8
          -


The
      Company’s intangible assets consisted of the following at April 30, 2008 and
      January 31, 2008:





**April
                30, 2008****Estimated
                Useful Life**
            
            **Gross
                Carrying Amount**
            
            **Accumulated
                Amortization**
            
            **Net**
              **Amount**
            
            **January
                31, 2008**
              **Net
                Amount****Intangible
                assets being amortized:**Contractual
                customerrelationships
                - VLI and SMC
            
            
            5-7
                years
            
            $
            2,276,000
            
            $
            1,942,000
            
            $
            334,000
            
            $
            379,000Customer
                relationships - GPS
            
            
            1-2
                years
            
            
            6,678,000
            
            
            6,411,000
            
            
            267,000
            
            
            904,000Proprietary
                formulas - VLI
            
            
            3
                years
            
            
            1,813,000
            
            
            1,813,000
            
            
            --
            
            
            --Non-compete
                agreements - GPS and VLI
            
            
            5
                years
            
            
            1,731,000
            
            
            1,336,000
            
            
            395,000
            
            
            424,000Trade
                name - GPS
            
            
            15
                years
            
            
            3,643,000
            
            
            339,000
            
            
            3,304,000
            
            
            3,365,000**Intangible
                assets not being amortized:**Trade
                name - SMC
            
            
            Indefinite
            
            
            224,000
            
            
            --
            
            
            224,000
            
            
            224,000**Total
                other intangible assets**
            
            
            
            
            $
            16,365,000
            
            $
            11,841,000
            
            $
            4,524,000
            
            $
            5,296,000**Goodwill**
            
            
            Indefinite
            
            $
            20,337,000
            
            $
            --
            
            $
            20,337,000
            
            $
            20,337,000





Amortization
      expense totaling $772,000 for the three months ended April 30, 2008, consisted
      of $683,000, $28,000 and $61,000 for contractual customer relationships,
      non-compete agreements and the trade name, respectively. Amortization expense
      totaling $2,064,000 for the three months ended April 30, 2007, consisted of
      $1,772,000, $115,000, $116,000 and $61,000 for contractual customer
      relationships, proprietary formulas, non-compete agreements and the trade name,
      respectively.





**NOTE
      7 - DEBT**




The
      Company has financing arrangements with the Bank including an amended 3-year
      term loan for VLI in the amount of $1.4 million which bears interest at LIBOR
      (2.8625% at April 30, 2008) plus 3.25%; a 4-year term loan in the amount of
      $8.0
      million which bears interest at LIBOR plus 3.25%, the proceeds from which were
      used to acquire GPS; and a revolving loan with a maximum borrowing amount of
      $4.25 million available until May 31, 2010, with interest at LIBOR plus 3.25%.
      The outstanding principal amounts of the VLI and GPS loans were $667,000 and
      $5,333,000, respectively, as of April 30, 2008; no borrowed amounts were
      outstanding under the revolving loan as of April 30, 2008.




The
      financing arrangements with the Bank require compliance with certain financial
      covenants at the Company’s fiscal year end and at each of the Company’s fiscal
      quarter ends (using a rolling 12-month period), including requirements that
      the
      ratio of total funded debt to EBITDA not exceed 2 to 1, that the fixed charge
      coverage ratio be not less than 1.25 to 1, and that the ratio of senior funded
      debt to EBITDA not exceed 1.50 to 1. 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 arrangements contain an acceleration clause which allows the Bank
      to
      declare amounts outstanding under the financing arrangements due and payable
      if
      it determines in good faith that a material adverse change has occurred in
      the
      financial condition of the Company or any of its subsidiaries. The Company
      believes that it will continue to comply with its financial covenants under
      the
      financing arrangements. 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 acceleration clause referred to above, the Company would
      seek to modify its financing arrangements, but there can be no assurance that
      the Bank would not exercise its rights and remedies under the financing
      arrangements including accelerating payments of all outstanding senior debt
      due
      and payable. At April 30, 2008 and January 31, 2008, the Company was in
      compliance with the covenants of its amended financing
      arrangements.





During
      the year ended January 31, 2007, the Company entered into interest rate swap
      agreements as cash flow hedges related to the VLI and GPS loans with a total
      initial notional amount of $5,125,000 and terms of three years. Under the swap
      agreements, the Company receives a floating rate based on the LIBOR interest
      rate and pays fixed rates; the Company’s weighted-average fixed rate related to
      its interest rate swap agreements is 5.22%. At April 30, 2008 and January 31,
      2008, the Company’s balance sheets included liabilities in the amounts of
      $83,000 and $107,000, respectively, in order to recognize the fair value of
      the
      interest rate swaps; these amounts were included in other long-term liabilities
      in the accompanying condensed consolidated balance sheets.


-
          9
          -


Interest
      expense related to the VLI and GPS loans was $119,000 and $197,000 for the
      three
      months ended April 30, 2008 and 2007, respectively.





The
      Company may obtain standby letters of credit from the Bank in the ordinary
      course of business in amounts not to exceed $10.0 million in the aggregate.
      On
      December 11, 2006, the Company pledged $10.0 million in cash to the Bank in
      order to secure a standby letter of credit that was issued by the Bank for
      the
      benefit of Travelers Casualty and Surety Company of America in connection with
      its providing a $200.0 million bonding facility to GPS.





**NOTE
      8 - TERMINATED CONSTRUCTION CONTRACT**


At
        January 31, 2008, GPS had a construction project which was in suspension
        pending
        the efforts of the customer to obtain financing to complete the construction
        of
        an ethanol facility. Under the terms of the amended engineering, procurement
        and
        construction agreement with the customer (the “EPC Agreement”), March 19, 2008
        was the deadline for the customer to obtain financing for the project. If
        such
        financing was not obtained, GPS would be allowed to terminate the EPC Agreement
        at that time. GPS has served termination notice but the customer has not
        acknowledged the termination or released the construction bond. GPS continues
        to
        cooperate with the customer in its efforts to obtain financing. GPS is uncertain
        as to the ultimate resolution of this matter. As of
        April 30, 2008 and January 31, 2008, the Company’s balance sheets included
        assets and liabilities related to the terminated construction contract. The
        Company has classified these assets and liabilities as current assets and
        current liabilities in the accompanying condensed consolidated balance sheets
        due to the expectation that the assets will be realized and the liabilities
        will
        be extinguished. Although
        cash may be required to make payment on accounts payable to project
        subcontractors that are included in the condensed consolidated balance sheet
        at
        April 30, 2008, GPS does not anticipate any losses to arise from the resolution
        of this EPC Agreement.






**NOTE
      9 - STOCK-BASED COMPENSATION**




The
      Company has a stock option plan which was established in August 2001 (the
“Option Plan”). Under the Option Plan, the Company’s Board of Directors may
      grant stock options to officers, directors and key employees. Stock options
      granted may be incentive stock options or nonqualified stock options. Currently,
      the Company is authorized to grant options for up to 650,000 shares of the
      Company’s common stock.





A
      summary
      of stock option activity under the Option Plan during the three months ended
      April 30, 2008 is presented below:





**Options**
            
            **Shares**
            
            **Weighted-**
              **Average
                Exercise**
              **Price**
            
            **Weighted-**
              **Average**
              **Remaining**
              **Contract
                Term (Years)**
            
            **Weighted-**
              **Average
                Fair**
              **Value**Outstanding,
                January 31, 2008
            
            
            426,000
            
            $
            6.07Granted
            
            
            110,000
            
            $
            11.90Exercised
            
            
            (6,000
            )
            $
            6.85Forfeited
                or expired
            
            
            (1,000
            )
            $
            7.86Outstanding,
                April 30, 2008
            
            
            529,000
            
            $
            7.28
            
            
            7.3
            
            $
            4.23Exercisable,
                April 30, 2008
            
            
            229,000
            
            $
            4.09
            
            
            6.7
            
            $
            2.16Exercisable,
                January 31, 2008
            
            
            235,000
            
            $
            4.16
            
            
            6.9
            
            $
            2.19




The
      weighted-average grant date fair value amount per share for stock options
      awarded during the three months ended April 30, 2008 was $6.60.





Compensation
      expense amounts recorded in the three months ended April 30, 2008 and 2007
      were
      $397,000 and $14,000, respectively. At April 30, 2008, there was $940,000
      unrecognized compensation cost related to stock options granted under the Option
      Plan. The end of the period over which the compensation expense for these awards
      is expected to be recognized is April 2009. The total intrinsic value of the
      stock options exercised during the three months ended April 30, 2008 was
      approximately $25,000. The aggregate intrinsic value amount for exercisable
      stock options at January 31, 2008 was $1,929,000.


-
          10
          -


The
      fair
      value of each stock option granted in the three months ended April 30, 2008
      was
      estimated on the date of award using the Black-Scholes option-pricing model
      based on the following weighted average assumptions. No stock options were
      granted in the three months ended April 30, 2007.





**Three
                Months**
              **Ended
                April 30, 2008**Dividend
                yield
            
            --Expected
                volatility
            
            61%Risk-free
                interest rate
            
            4.00%Expected
                life in years
            
            5





The
      Company also has outstanding warrants to purchase 222,000 shares of the
      Company’s common stock, exercisable at a per share price of $7.75 that were
      issued in connection with the Company’s private placement in April 2003 to three
      individuals who became the executive officers of the Company upon completion
      of
      the offering and to an investment advisory firm. A director of the Company
      is
      the chief executive officer of the investment advisory firm. The fair value
      of
      the warrants of $849,000 was recognized as offering costs. All warrants are
      exercisable and expire in April 2013.




At
      April
      30, 2008, there were 848,000 shares of the Company’s common stock available for
      issuance upon the exercise of stock options and warrants, including 96,000
      shares of the Company’s common stock available for award under the Option
      Plan.




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




Basic
      income per share for the three months ended April 30, 2008 was computed by
      dividing net income by the weighted average number of common shares outstanding
      for the period. Diluted income per share was computed by dividing net income
      by
      the weighted average number of common shares outstanding during the quarter
      plus
      311,000 shares representing the total dilutive effect of outstanding stock
      options and warrants.





Basic
      loss per share for the three months ended April 30, 2007 was calculated by
      dividing the net loss for the quarter by the weighted average number of common
      shares outstanding for the applicable period. Common stock equivalents,
      including stock options and warrants, were not considered because the effect
      of
      their inclusion would be anti-dilutive.





**NOTE
      11 - INCOME TAXES**




The
      Company’s income tax (expense) benefit for the three months ended April 30, 2008
      and 2007 differs from the expected income tax (expense) benefit computed by
      applying the U.S. Federal corporate income tax rate of 34% to the income (loss)
      from operations before income taxes as shown in the table below. For the three
      months ended April 30, 2008, the favorable tax benefit of permanent items
      relates primarily to the domestic manufacturing deduction to be taken for income
      tax reporting purposes.





**2008**
            
            **2007**Computed
                expected income tax (expense) benefit
            
            $
            (716,000
            )
            $
            1,004,000State
                income taxes, net
            
            
            95,000
            
            
            (47,000
            )Permanent
                differences
            
            
            70,000
            
            
            (18,000
            )$
            (551,000
            )
            $
            939,000





As
      of
      April 30, 2008 and January 31, 2008, accrued expenses included income tax
      amounts currently payable of approximately $1,174,000 and $1,003,000,
      respectively.





The
      Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes - an interpretation of SFAS 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 SFAS
      No. 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 de-recognition, classification, interest and penalties,
      accounting in interim periods, disclosure and transition. There was no material
      effect on the Company’s consolidated financial statements as a result of
      adopting this standard.


-
          11
          -


**NOTE
      12 - LEGAL CONTINGENCIES**





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 current claims and proceedings will have a material
      effect on the Company’s consolidated financial statements other than the matters
      discussed below.





**Western
      Filter Corporation Litigation**





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. The Company and its officers deny that
      any
      breach of contract or that any misrepresentations or negligence occurred on
      their part.




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 appealed the District Court’s decision. The parties filed
      their appellate briefs with oral arguments scheduled for June 3, 2008. The
      Company intends to continue vigorously to defend the appeal of this
      litigation.




Although
      the Company has reviewed WFC’s claims and believes that they are without merit,
      the Company’s condensed consolidated balance sheet at April 30, 2008 included an
      amount reflecting the Company’s estimate of the remaining amount of legal fees
      that it expects to be billed in connection with this matter. It is possible,
      however, that the ultimate resolution of the WFC litigation could result in
      a
      material adverse effect on the results of operations of the Company for a
      particular future reporting period.




**Kevin
      Thomas Litigation**





On
      August
      27, 2007, Kevin Thomas, the former owner of VLI, filed a lawsuit against the
      Company, VLI and the Company’s Chief Executive Officer (the “CEO”) in the
      Circuit Court of Florida for Collier County. The Company acquired VLI by way
      of
      merger on August 31, 2004. Mr. Thomas alleges that the Company, VLI and the
      CEO
      breached various agreements regarding his compensation and employment package
      that arose from the acquisition of VLI. Mr. Thomas has alleged contractual
      and
      tort-based claims arising from his compensation and employment agreements and
      seeks rescission of his covenant not to compete against VLI. The Company, VLI
      and the CEO deny that any breach of contract or tortious conduct occurred on
      their part. The Company and VLI have also asserted four counterclaims against
      Mr. Thomas for breach of the merger agreement, breach of his employment
      agreement, breach of fiduciary duty and tortious interference with contractual
      relations because Mr. Thomas violated his non-solicitation, confidentiality
      and
      non-compete obligations after he left VLI. The Company intends to vigorously
      defend this lawsuit and prosecute its counterclaims.




Although
      the Company has reviewed the claims of Mr. Thomas and believes that they are
      without merit, the Company’s condensed consolidated balance sheet at April 30,
      2008 included an amount in accrued expenses reflecting the Company’s estimate of
      the amount of future legal fees that it expects to be billed in connection
      with
      this matter. It is possible however, that the ultimate resolution of the
      litigation with Mr. Thomas could result in a material adverse effect on the
      results of operations of the Company for a particular future reporting
      period.





On
      March
      4, 2008, Vitarich Farms, Inc. (“VFI”) filed a lawsuit against VLI and its
      current president in the Circuit Court of Florida for Collier County. VFI,
      which
      is owned by Kevin Thomas, supplied VLI with certain organic raw materials used
      in the manufacture of VLI products. VFI has asserted a breach of contract claim
      against VLI and alleges that VLI breached a supply agreement with VFI by
      acquiring the organic products from a different supplier. VFI also asserted
      a
      claim for defamation against VLI’s president alleging that he made false
      statements regarding VFI’s organic certification to one of VLI's customers. VLI
      and its president filed their Answer and Affirmative Defenses on May 8, 2008.
      VLI and its president deny that VLI breached any contract or that its president
      defamed VFI. The defendants intend to continue to vigorously defend this
      lawsuit. The Company’s condensed consolidated balance sheet at April 30, 2008
      included an amount in accrued expenses reflecting the Company’s estimate of the
      amount of future legal fees that it expects to be billed in connection with
      this
      matter.


-
          12
          -


On
      March
      4, 2008, Mr. Thomas filed a lawsuit against VLI's president in the Circuit
      Court
      of Florida for Collier County. Mr. Thomas has filed this new lawsuit against
      VLI’s president for defamation. Mr. Thomas alleges that VLI’s president made
      false statements to third-parties regarding Mr. Thomas' conduct that is the
      subject of counterclaims by the Company and VLI in the litigation matter
      discussed above and that these statements have caused him damage to his business
      reputation. VLI’s president filed his answer with the court on May 8, 2008.
      VLI’s president denies that he defamed Mr. Thomas and intends to continue to
      vigorously defend this lawsuit.





**NOTE
      13 - RELATED PARTY TRANSACTIONS**




The
      Company leased 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 employment termination, were
      considered related party expenses. The total expense amount under this
      arrangement was approximately $45,000 for the three months ended April 30,
      2007.




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.
      Last year, VLI made $47,000 in purchases under the supply agreement through
      March 2007, the date on which the former officer and shareholder of VLI was
      terminated.




The
      Company also sold its products in the normal course of business to an entity
      in
      which the former shareholder of VLI had an ownership interest. VLI had
      approximately $117,000 in sales to this entity through the aforementioned
      termination in March 2007; this amount was collected.





**NOTE
      14 - SEGMENT REPORTING AND MAJOR CUSTOMERS**




The
      Company’s three reportable segments are power industry services, nutritional
      products and telecommunications infrastructure services. The Company conducts
      these operations through its wholly owned subsidiaries - GPS, VLI and SMC,
      respectively. 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, technologies and services.  The
      following business segment information is presented for the three months ended
      April 30, 2008 and 2007, except for total assets and goodwill which amounts
      are
      presented as of those dates:


**Three
                Months Ended April 30, 2008**
            
            **Power
                Industry Services**
            
            **Nutritional**
              **Products**
            
            **Telecom**
              **Infrastructure**
              **Services**
            
            **Other**
            
            **Consolidated**Net
                sales
            
            $
            44,008,000
            
            $
            2,399,000
            
            $
            1,999,000
            
            $
            --
            
            $
            48,406,000Cost
                of sales
            
            
            38,576,000
            
            
            2,323,000
            
            
            1,774,000
            
            
            --
            
            
            42,673,000Gross
                profit
            
            
            5,432,000
            
            
            76,000
            
            
            225,000
            
            
            --
            
            
            5,733,000Selling,
                general and administrative expenses
            
            
            1,842,000
            
            
            715,000
            
            
            343,000
            
            
            1,111,000
            
            
            4,011,000Income
                (loss) from operations
            
            
            3,590,000
            
            
            (639,000
            )
            
            (118,000
            )
            
            (1,111,000
            )
            
            1,722,000Interest
                expense
            
            
            (102,000
            )
            
            (18,000
            )
            
            --
            
            
            --
            
            
            (120,000
            )Interest
                income
            
            
            504,000
            
            
            --
            
            
            --
            
            
            --
            
            
            504,000Income
                (loss) before income taxes
            
            $
            3,992,000
            
            $
            (657,000
            )
            $
            (118,000
            )
            $
            (1,111,000
            )
            
            2,106,000Income
                tax expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (551,000
            )Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,555,000Amortization
                of purchased intangibles
            
            $
            724,000
            
            $
            22,000
            
            $
            26,000
            
            $
            --
            
            $
            772,000Depreciation
                and other amortization
            
            $
            48,000
            
            $
            148,000
            
            $
            142,000
            
            $
            1,000
            
            $
            339,000Goodwill
            
            $
            18,476,000
            
            $
            921,000
            
            $
            940,000
            
            $
            --
            
            $
            20,337,000Total
                assets
            
            $
            116,926,000
            
            $
            7,378,000
            
            $
            4,249,000
            
            $
            14,211,000
            
            $
            142,764,000Fixed
                asset additions
            
            $
            49,000
            
            $
            56,000
            
            $
            12,000
            
            $
            --
            
            $
            117,000


-
          13
          -


**Three
                Months Ended April 30, 2007**
            
            **Power
                Industry Services**
            
            **Nutritional**
              **Products**
            
            **Telecom**
              **Infrastructure**
              **Services**
            
            **Other**
            
            **Consolidated**Net
                sales
            
            $
            43,354,000
            
            $
            4,949,000
            
            $
            2,129,000
            
            $
            --
            
            $
            50,432,000Cost
                of sales
            
            
            43,245,000
            
            
            4,166,000
            
            
            1,843,000
            
            
            --
            
            
            49,254,000Gross
                profit
            
            
            109,000
            
            
            783,000
            
            
            286,000
            
            
            --
            
            
            1,178,000Selling,
                general and administrative expenses
            
            
            2,552,000
            
            
            1,170,000
            
            
            358,000
            
            
            481,000
            
            
            4,561,000Loss
                from operations
            
            
            (2,443,000
            )
            
            (387,000
            )
            
            (72,000
            )
            
            (481,000
            )
            
            (3,383,000
            )Interest
                expense
            
            
            (167,000
            )
            
            (35,000
            )
            
            (2,000
            )
            
            --
            
            
            (204,000
            )Interest
                income
            
            
            626,000
            
            
            --
            
            
            --
            
            
            7,000
            
            
            633,000Loss
                before income taxes
            
            $
            (1,984,000
            )
            $
            (422,000
            )
            $
            (74,000
            )
            $
            (474,000
            )
            
            (2,954,000
            )Income
                tax benefit
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            939,000Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (2,015,000
            )Amortization
                of purchased intangibles
            
            $
            1,733,000
            
            $
            305,000
            
            $
            26,000
            
            $
            --
            
            $
            2,064,000Depreciation
                and other amortization
            
            $
            53,000
            
            $
            144,000
            
            $
            123,000
            
            $
            4,000
            
            $
            324,000Goodwill
            
            $
            16,476,000
            
            $
            6,565,000
            
            $
            940,000
            
            $
            --
            
            $
            23,981,000Total
                assets
            
            $
            97,684,000
            
            $
            15,995,000
            
            $
            4,246,000
            
            $
            1,705,000
            
            $
            119,630,000Fixed
                asset additions
            
            $
            4,000
            
            $
            85,000
            
            $
            11,000
            
            $
            --
            
            $
            100,000





During
      the three months ended April 30, 2008, the majority of the Company’s net sales
      related to engineering, procurement and construction services provided by GPS
      to
      the power industry. Total net sales from power industry services accounted
      for
      approximately 91% of consolidated net sales for the period. The Company’s most
      significant current year customer relationships included two power industry
      service customers, Renewable Bio-Fuels Port Neches LLC (“RBF”) and Pacific Gas
& Electric Company, which accounted for approximately 60% and 31%,
      respectively, of consolidated net sales for the current quarter. VLI, which
      provides nutritional and whole-food supplements as well as personal care
      products to customers in the global nutrition industry, accounted for
      approximately 5% of consolidated net sales for the three months ended April
      30,
      2008. SMC, which provides infrastructure services to telecommunications and
      utility customers as well as to the federal government, accounted for
      approximately 4% of consolidated net sales for the three months ended April
      30,
      2008.





For
      the
      three months ended April 30, 2007, net sales from power industry services
      accounted for approximately 86% of consolidated net sales. The Company’s most
      significant customer relationships during this period included five power
      industry service customers, Green Earth Fuels of Houston LLC; RBF; Altra
      Nebraska, LLC; the Connecticut Municipal Electrical Energy Cooperative and
      Roseville Energy Park, which accounted for approximately 27%, 17%, 17%, 14%
      and
      10%, respectively, of consolidated net sales for the three months ended April
      30, 2007. VLI and SMC accounted for approximately 10% and 4%, respectively,
      of
      consolidated net sales for the three months ended April 30, 2007.





**NOTE
      15 - SUBSEQUENT EVENTS**





On
      May
      22, 2008, the Company announced that GPS signed an engineering, procurement
      and
      construction agreement with Pacific Gas & Electric Company (“PG&E”) in
      the amount of $340 million for the design and construction of a natural
      gas-fired power plant in Colusa, California. The Colusa facility will be a
      640
      megawatt combined cycle facility and construction is expected to be completed
      during the summer of 2010. GPS commenced activity on this project in the fourth
      quarter ended January 31, 2008 under an interim notice to proceed that it
      received from PG&E in December 2007.




On
      June
      5, 2008, the Company announced that its wholly-owned subsidiary, Gemma Power
      Systems, LLC, has entered into a business partnership with Invenergy Wind
      Management LLC, for the design and construction of wind farms located from
      the
      mid-western region of the United States into Canada. The partners will each
      own
      50% of a new company, Gemma Renewable Power, LLC (“GRP”). The Company expects
      that GRP will annually provide engineering, procurement and construction
      services for new wind farms generating more than an estimated 300 megawatts
      of
      electrical power including the design and construction of roads, foundations,
      and electrical collection systems, as well as the erection of towers, turbines
      and blades. The new venture shall also assist with some of the ongoing servicing
      of the wind farms.


-
          14
          -




**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 April 30, 2008, and the results of operations for the three
      months ended April 30, 2008 and 2007, 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 included
      in our Annual Report on Form 10-K for the fiscal year ended January 31, 2008
      that was filed with the Securities and Exchange Commission on April 24, 2008
      (the “2008 Annual Report”).





**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 Item 2
      and
      elsewhere 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
      described in Item 1A of our 2008 Annual Report and Item 1A in Part II of this
      Quarterly Report on Form 10-Q. 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.





**Introduction**





Argan,
      Inc. (the “Company,” “we,” “us,” or “our”) conducts operations through our
      wholly-owned subsidiaries, Gemma Power Systems, LLC and affiliates (“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, operations
      and maintenance services to the power generation market for a wide range of
      customers including public utilities, independent power project owners,
      municipalities, public institutions and private industry. Through VLI, we
      develop, manufacture and distribute premium nutritional products. 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. Each of the wholly-owned subsidiaries represents a separate
      reportable segment - power industry services, nutritional products and
      telecommunications infrastructure services, respectively.





The
      preparation of consolidated financial statements in conformity with accounting
      principles generally accepted in the United States of America requires us to
      make use of estimates and assumptions that affect the reported amount of assets
      and liabilities, revenue, expenses, and certain financial statement disclosures.
      We believe that the estimates, judgments and assumptions upon which we rely
      are
      reasonable based upon information available to us at the time that these
      estimates, judgments and assumptions are made. Estimates are used for, but
      not
      limited to, the Company’s accounting for revenue recognition, allowance for
      doubtful accounts, inventory valuation, long lived assets including goodwill
      and
      intangible assets, contingent obligations, and deferred taxes. Actual results
      could differ from these estimates.





**New
      Accounting Pronouncements**





In
      March
      2008, the Financial Accounting Standards Board (the “FASB”) issued Statement of
      Financial Accounting Standards No. 161, “Disclosures about Derivative
      Instruments and Hedging Activities - An Amendment of FASB Statement No. 133.”
This new standard requires enhanced disclosures about an entity’s derivative and
      hedging activities with the intent of improving the transparency of financing
      reporting as the use and complexity of derivative instruments and hedging
      activities have increased significantly over the past several years. Currently,
      we use interest rate swap agreements to hedge the risks related to the variable
      interest paid on our term loans. The current effects of our hedging activities
      are not significant to our consolidated financial statements. However, the
      new
      standard will require us to provide an enhanced understanding of 1) how and
      why
      we use derivative instruments, 2) how we account for derivative instruments
      and
      the related hedged items, and 3) how derivatives and related hedged items affect
      our financial position, financial performance and cash flows. Adoption of this
      new accounting standard will first be required for our consolidated financial
      statements covering the quarter ending April 30, 2009.


-
          15
          -


In
      December 2007, the FASB issued Statement of Financial Accounting Standards
      No. 141(R), “Business Combinations” (“SFAS No. 141(R)”). SFAS
      No. 141(R) replaces SFAS No. 141 and provides greater consistency in the
      accounting and financial reporting of business combinations. SFAS
      No. 141(R) requires the acquiring entity in a business combination to
      recognize all assets acquired and liabilities assumed in the transaction,
      establishes the acquisition-date fair value as the measurement objective for
      all
      assets acquired and liabilities assumed, establishes principles and requirements
      for how an acquirer recognizes and measures any non-controlling interest in
      the
      acquiree and the goodwill acquired, and requires the acquirer to disclose the
      nature and financial effect of the business combination. Among other changes,
      this statement also requires that “negative goodwill” be recognized in earnings
      as a gain attributable to the acquisition, that acquisition-related costs are
      to
      be recognized separately from the acquisition and expensed as incurred and
      that
      any deferred tax benefits resulted in a business combination are recognized
      in
      income from continuing operations in the period of the combination. For us,
      SFAS 141R will be effective for business combinations occurring subsequent
      to January 31, 2009. The accounting for future acquisitions, if any, may be
      affected by certain new requirements of this pronouncement that will be
      evaluated at that time.





In
      December 2007, the FASB also issued Statement of Financial Accounting Standards
      No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” that
      establishes accounting and reporting standards for minority interests in
      consolidated subsidiaries. This standard will be effective for us on February
      1,
      2009, and its adoption would not affect our current consolidated financial
      statements.





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      159, “The Fair Value Option for Financial Assets and Financial Liabilities.”
This standard permits companies to measure many financial instruments and
      certain other items at fair value at specified election dates. The provisions
      of
      this new standard were effective for us beginning February 1, 2008 and did
      not
      have a significant impact on the consolidated financial statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standard
      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. Certain provisions of
      this standard relating to financial assets and financial liabilities were also
      effective for us beginning February 1, 2008; they did not have a significant
      impact on the consolidated financial statements. Adoption of the other
      provisions of this new standard relating primarily to nonfinancial assets and
      nonfinancial liabilities will first be required for our consolidated financial
      statements covering the quarter ending April 30, 2009. The significant
      nonfinancial items included in our consolidated balance sheet include property
      and equipment, goodwill and other purchased intangible assets. Adoption of
      the
      new provisions is not expected to have a significant impact on our consolidated
      financial statements.





**Recent
      Events**





**Construction
      Projects and Backlog.** As
      a
      result of construction work performed during the current quarter pursuant to
      its
      existing contracts and the termination of the ethanol plant construction project
      in March 2008 that is discussed below, the construction contract backlog of GPS
      declined from $122 million at January 31, 2008 to $47 million at April 30,
      2008.
      However, on May 22, 2008, the Company announced that GPS signed an engineering,
      procurement and construction agreement with Pacific Gas & Electric Company
      (“PG&E”) in the amount of $340 million for the design and construction of a
      natural gas-fired power plant in Colusa, California. This energy plant will
      be a
      640 megawatt combined cycle facility and construction is expected to be
      completed in the summer of 2010. GPS commenced activity on this project in
      the
      fourth quarter ended January 31, 2008 under an interim notice to proceed that
      it
      received from PG&E in December 2007.


For
        a
        substantial portion of the current quarter, SMC operated without a contract
        renewal with Verizon and continued to perform services for Verizon at a reduced
        level of activity while it attempted to work with local Verizon management
        in
        negotiating a contract renewal. In April 2008, SMC received an extension
        of the
        expiring contract until June 30, 2008. Verizon has been a customer of SMC
        for
        more than twenty years and SMC continues to negotiate with Verizon to extend
        the
        expiring contract beyond June 30, 2008. SMC recognized net sales of $197,000 relating
        to Verizon during
        the current quarter, or approximately 10% of its total net sales. This amount
        represents a decline in net sales of approximately 69% from the corresponding
        quarter of the prior year. For the quarter ended April 30, 2007, the amount
        of
        net sales related to Verizon was $627,000, or 29% of SMC’s total net sales for
        the quarter.




-
          16
          -


At
        January 31, 2008, GPS had a construction project which was in suspension
        pending
        the efforts of the customer to obtain financing in order to complete the
        construction of an ethanol facility. The customer was not successful in securing
        the necessary financing by the date in the current quarter that was agreed
        to by
        the parties. GPS has served notice of contract termination but the customer
        has
        not acknowledged the termination or released the construction bond. GPS
        continues to cooperate with the customer in its efforts to obtain financing.
        GPS
        is uncertain as to the ultimate resolution of this matter. As of
        April 30, 2008 and January 31, 2008, our balance sheets included assets and
        liabilities related to the terminated construction contract. We have classified
        these assets and liabilities as current assets and current liabilities in
        the
        accompanying condensed consolidated balance sheets due to the expectation
        that
        the assets will be realized and the liabilities will be extinguished. Although
        cash may be required to make payment on accounts payable to project
        subcontractors that are included in the condensed consolidated balance sheet
        at
        April 30, 2008, GPS does not anticipate any losses to arise from the resolution
        of this agreement. No additional net sales related to this contract were
        recorded by GPS during the quarter ended April 30, 2008.





**Performance
      of VLI.** VLI
      continues to report operating results that are below expected results. The
      loss
      of major customers and the reduction in the amounts of orders received from
      currently major customers have caused net sales to continue to decline. Despite
      cost reductions, the operating loss of VLI for the current quarter was $639,000.
      The EBITDA loss of VLI for the current quarter was approximately $470,000.
      VLI
      is actively pursuing opportunities to expand the volume of business related
      to
      current customers and secure business from new customers. The revenues for
      the
      remainder of the current fiscal year are forecasted to improve slightly over
      the
      current quarter run rate. However, there is no assurance that business will
      actually improve.





**Legal
      Matters.** As
      described in Note 12 to the condensed consolidated financial statements,
      Vitarich Farms, Inc. (“VFI”) filed a lawsuit against VLI and its current
      president in March 2008. VFI, which is owned by Kevin Thomas, the former owner
      of VLI, supplied VLI with certain organic raw materials used in the manufacture
      of VLI's products. VFI has asserted a breach of contract claim against VLI
      and
      alleges that VLI breached a supply agreement with VFI by acquiring the organic
      products from a different supplier. VFI also asserted a claim for defamation
      against VLI’s president alleging that he made false statements regarding VFI’s
      organic certification to one of VLI's customers. In March 2008, Mr. Thomas
      filed
      a lawsuit against VLI's president for defamation. The Company, VLI and VLI’s
      president deny all of the new allegations and intend to vigorously defend these
      lawsuits. However, the amount of costs expected to be incurred in connection
      with VLI legal matters increased during the current quarter. Accordingly, we
      recorded a charge to operating results of $86,000 in the quarter for the
      additional legal costs.





**Comparison
      of the Results of Operations for the Three Months Ended April 30, 2008 and
      2007**





The
      following schedule compares the results of our operations for the three months
      ended April 30, 2008 and 2007. Except where noted, the percentage amounts
      represent the percentage of net sales for the corresponding period.






**Three
                Months Ended April 30,****2008**
            
            **2007**Net
                salesPower
                industry services
            
            $
            44,008,000
            
            
            90.9
            %
            $
            43,354,000
            
            
            86.0
            %Nutritional
                products
            
            
            2,399,000
            
            
            5.0
            %
            
            4,949,000
            
            
            9.8
            %Telecommunications
                infrastructure services
            
            
            1,999,000
            
            
            4.1
            %
            
            2,129,000
            
            
            4.2
            %Net
                sales
            
            
            48,406,000
            
            
            100.0
            %
            
            50,432,000
            
            
            100.0
            %Cost
                of sales **Power
                industry services
            
            
            38,576,000
            
            
            87.7
            %
            
            43,245,000
            
            
            99.7
            %Nutritional
                products
            
            
            2,323,000
            
            
            96.8
            %
            
            4,166,000
            
            
            84.2
            %Telecommunications
                infrastructure services
            
            
            1,774,000
            
            
            88.7
            %
            
            1,843,000
            
            
            86.6
            %Cost
                of sales
            
            
            42,673,000
            
            
            88.2
            %
            
            49,254,000
            
            
            97.7
            %Gross
                profit
            
            
            5,733,000
            
            
            11.8
            %
            
            1,178,000
            
            
            2.3
            %Selling,
                general and administrative expenses
            
            
            4,011,000
            
            
            8.3
            %
            
            4,561,000
            
            
            9.0
            %Income
                (loss) from operations
            
            
            1,722,000
            
            
            3.5
            %
            
            (3,383,000
            )
            
            (6.7
            )%Interest
                expense
            
            
            (120,000
            )
            
            *
            
            
            (204,000
            )
            
            *Interest
                income
            
            
            504,000
            
            
            1.0
            %
            
            633,000
            
            
            1.3
            %Income
                (loss) from operations beforeincome
                taxes
            
            
            2,106,000
            
            
            4.3
            %
            
            (2,954,000
            )
            
            (5.9
            )%Income
                tax (expense) benefit
            
            
            (551,000
            )
            
            (1.1
            )%
            
            939,000
            
            
            1.9
            %Net
                income (loss)
            
            $
            1,555,000
            
            
            3.2
            %
            $
            (2,015,000
            )
            
            (4.0
            )%


* Less
      than 1%.




**
      The
      cost of sales percentage amounts represent the percentage of net sales of the
      applicable segment.


-
          17
          -


The
      following analysis provides information as to the results of our operations
      for
      the three month periods ended April 30, 2008 and 2007. As analyzed below, we
      reported net income of $1,555,000 for the three months ended April 30, 2008,
      or
      $0.14 per diluted share. For the three months ended April 30, 2007, we incurred
      a net loss of $2,015,000, or $(0.18) per share.





**Net
      Sales** **.**  Net
      sales
      decreased by approximately 4.0% in the three months ended April 30, 2008
      compared with the three months ended April 30, 2007 due to declines in the
      net
      sales of VLI and SMC partially offset by a 1.5% increase in the net sales of
      GPS.





The
      business of GPS represented 90.9% of consolidated net sales for the quarter
      ended April 30, 2008. This business represented 86.0% of consolidated net sales
      for the quarter ended April 30, 2007. The most significant customers of the
      power industry services business for the quarter ended April 30, 2008 were
      Renewable Bio-Fuels Port Neches LLC (“RBF”) and PG&E. The net sales for
      these two customers represented approximately 66.0% and 33.5% of the net sales
      of this business segment for the quarter ended April 30, 2008, and represented
      approximately 60.0% and 30.5% of our consolidated net sales for the current
      quarter, respectively. GPS is constructing two biofuels production facilities
      for RBF.




The
      most
      significant customers of the power industry services business for the quarter
      ended April 30, 2007 were Green Earth Fuels of Houston LLC, RBF, Altra Nebraska,
      LLC, the Connecticut Municipal Electrical Energy Cooperative and Roseville
      Energy Park. These projects represented the construction of an ethanol
      production facility, biofuels production facilities, a traditional gas-fired
      power plant and an electricity peaking facility. In total, GPS recognized
      approximately 84.7% of its net sales for the quarter ended April 30, 2007 under
      contracts with these customers. The net sales for these five customers
      represented approximately 26.5%, 17.3%, 16.6%, 14.3% and 10.0% of the Company’s
      consolidated net sales for the three months ended April 30, 2007, respectively.





Net
      sales
      of nutritional products were $2.4 million for the three months ended April
      30,
      2008, and represented 5.0% of consolidated net sales. Net sales of nutritional
      products were $4.9 million for the three months ended April 30, 2007. This
      amount represented 9.8% of consolidated net sales for the prior-year period. The
      decrease in net sales of nutritional products of $2.5 million, or 52%, primarily
      was due to the loss of several customers and declines in the sales of products
      to four of VLI’s five largest current customers.




Net
      sales
      of telecommunications infrastructure services were $2.0 million for the three
      months ended April 30, 2008 compared to $2.1 million for the three months ended
      April 30, 2007, representing a decrease in the net sales of telecommunications
      infrastructure services of approximately 6.1%. The net sales of
      telecommunications infrastructure services for the three months ended April
      30,
      2008 and 2007 were 4.1% and 4.2% of consolidated net sales for the corresponding
      periods, respectively. The reduction in the amount of work being conducted
      for
      Verizon has adversely affected the level of our business between years as
      described above. Substantially offsetting the significant decline in the Verizon
      business, net sales related to inside premises customers, including EDS,
      increased by approximately 42.5% for the three months ended April 30, 2008
      compared with the corresponding three months of the prior year.





**Cost
      of Sales.** The cost
      of sales for the power industry services business of GPS decreased in the three
      months ended April 30, 2008 to $38.6 million from $43.2 million in the three
      months ended April 30, 2007, and the cost of sales as a percentage of
      corresponding net sales declined to 87.7% in the current quarter from 99.7%
      in
      first quarter of last year. These improvements were due primarily to the
      completion of the Roseville Energy Park project by the end of last
      year.  Beginning
      in the first quarter of last year, the Company experienced an unexpected
      increase in costs related to this contract that was substantially completed
      as
      of January 31, 2008. Unexpected costs included labor productivity being below
      expectations and previous experience, labor rate increases due to overtime
      requirements to meet the completion date, equipment defects and engineering
      issues resulting in considerable rework and additional materials. The Company
      incurred a total loss of approximately $10,768,000 on this contract (all of
      which was recorded last year), including $5,145,000 that was recorded in the
      three months ended April 30, 2007.





Although
      the cost of sales for the nutritional products business of VLI decreased in
      the
      three month period ended April 30, 2008 to $2.3 million from $4.2 million in
      the
      three months ended April 30, 2007, the reduction in net sales between quarters
      increased the cost of sales percentage to 96.8% of net sales in the current
      quarter from a percentage of 84.2% in the corresponding quarter of the prior
      year. On an overall basis, raw material costs as a percentage of net sales
      have
      been maintained between quarters at a similar level. Direct labor and related
      manufacturing overhead costs have been reduced between quarters. However, the
      reductions have not occurred in proportion to the reduction in net
      sales.





Cost
      of
      sales for the telecommunication infrastructure services business of SMC
      decreased by $69,000, or approximately 3.7%, in the current quarter compared
      with the same quarter a year ago, but increased slightly as a percentage of
      corresponding net sales to 88.7% in the current quarter from 86.6% in the first
      quarter last year.


-
          18
          -


As
      a
      result of the improvement in the performance of GPS offset partially by the
      reduced profitability of the net sales of VLI, our overall gross profit
      increased to $5.7 million for the three months ended April 30, 2008 from $1.2
      million for the three months ended April 30, 2007 and our gross profit
      percentage improved to 11.8% for the current quarter from a percentage of 2.3%
      in the corresponding period of the prior year.





**Selling,
      General and Administrative Expenses.** These
      costs decreased to $4,011,000 for the three months ended April 30, 2008 from
      $4,561,000 for the three months ended April 30, 2007, a reduction of $550,000,
      or 12.1%.




Amortization
      expense related to purchased intangible assets decreased by approximately
      $1,292,000 in the current quarter compared with the first quarter of last year
      as the amortization expense related to contractual and other customer
      relationships decreased between quarters by approximately $1,089,000. Most
      of
      this decrease was scheduled and attributable to backlog for construction
      contracts completed by GPS last year. In addition, the impairment losses
      recorded by VLI last year served to reduce its amortization expense related
      to
      customer relationships and the noncompete agreement prospectively, and the
      amortization of propriety formulas was completed last year.





Partially
      offsetting the favorable effects of the amortization expense reductions was
      an
      increase in corporate general and administrative expenses in the amount of
      $630,000 in the three months ended April 30, 2008 from the first quarter of
      last
      year due to increased stock option compensation expense, increased litigation
      costs, and increased other professional fees including tax accounting and SOX
      internal control-related compliance fees. Stock option compensation expense
      increased to $397,000 for the three months ended April 30, 2008 from $14,000
      in
      the three months ended April 30, 2007 due to stock options granted to employees
      at GPS, new employees and our senior executives during the last year, and an
      increasing stock price.





**Interest
      Income and Expense.** We
      reported interest income of $504,000 for the three months ended April 30, 2008
      compared to interest income of $633,000 for the three months ended April 30,
      2007. During the current year, our cash balances are invested in liquid
      money-market type collective funds. Although favorable cash flow from operations
      during the past twelve months has been a primary reason for a large increase
      in
      the balance of our cash and cash equivalents, investment returns have declined
      as short-term interest rates have dropped substantially over the last year.
      Lower interest rates have contributed to the favorable reduction in interest
      expense to $120,000 for the current quarter from $204,000 in the corresponding
      quarter of last year as well as the overall reduction in the level of debt
      between quarters. Debt payments have reduced the total balance of debt
      (including current and noncurrent portions) to approximately $6.1 million at
      April 30, 2008 from approximately $8.7 million at April 30, 2007.





**Income
      Tax Expense and Benefit.** For the
      three months ended April 30, 2008, we incurred income tax expense of $551,000
      reflecting an effective income tax rate of 26.2%. The effective tax rate for
      the
      current quarter differs from the expected federal income tax rate of 34% due
      primarily to the domestic manufacturing deduction, which is treated as a
      permanent difference for income tax accounting purposes, and a credit to the
      deferred tax provision in the approximate amount of $116,000 reflecting the
      effect of the change in state rate rates applied to our deferred tax items.
      For
      the three months ended April 30, 2007, the income tax benefit recorded against
      the net loss was $939,000, reflecting an effective interest rate of
      31.8%.





**Liquidity
      and Capital Resources as of April 30, 2008**




Cash
      and
      cash equivalents were approximately $66.6 million as of April 30, 2008 compared
      to $66.8 million as of January 31, 2008. We also have an available balance
      of
      $4.3 million under our revolving line of credit financing arrangement with
      our
      bank. The Company’s consolidated working capital increased during the current
      quarter from approximately $16.5 million as of January 31, 2008 to approximately
      $18.3 million as of April 30, 2008. During the three months ended April 30,
      2008, we reached agreement with the bank extending the availability of the
      revolving line of credit to May 2010.




Net
      cash
      provided by operations for the three months ended April 30, 2008 was
      approximately $2,511,000. For the three months ended April 30, 2007, despite
      a
      net loss of $2.0 million, net cash provided by operations was $7.4 million.
      In
      the prior year, a reduction in unbilled contract receivables and an increase
      in
      billings in excess of contract revenues combined to provide approximately $9.9
      million in cash in the three months ended April 30, 2007. In addition, the
      net
      amount of non-cash expenses in the period, including the amortization of
      purchased intangible assets, was approximately $1.5 million.




For
      the
      three months ended April 30, 2008, we reported net income of approximately
      $1.6
      million and our net non-cash expenses were approximately $610,000. In addition,
      cash in the amount of $4.1 million was released from escrow accounts as
      described in Note 2 to the condensed consolidated financial statements. Cash
      was
      used during the current quarter to reduce accounts payable and accrued expenses
      by $1.4 million, primarily at GPS. Cash of approximately $1.3 million was used
      during the current quarter in connection with increases in accounts receivable,
      earnings in excess of billings, inventories and prepaid expenses and other
      assets. In addition, billings in excess of contract revenues declined by $1.1
      million during the current quarter.


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          19
          -


During
      the three months ended April 30, 2008, investing activities consisted of the
      payment of $2,000,000 in contingent acquisition price to the former owners
      of
      GPS (see Note 2 to the condensed consolidated financial statements) and the
      purchase of equipment for $117,000. Last year, net cash of $476,000 was provided
      by investing activities as the sale of investments and equipment provided cash
      proceeds of $576,000 and we used $100,000 in the purchase of new
      equipment.





Net
      cash
      of $576,000 was used in financing activities during the three months ended
      April
      30, 2008 as we made debt principal payments of $646,000 but received cash
      proceeds of $70,000 in connection with the sale of common stock pursuant to
      the
      exercise of stock options and warrants.





The
      financing arrangements with our bank provide for the measurement at our fiscal
      year-end and at each of our fiscal quarter-ends (using a rolling 12-month
      period) of certain financial covenants, determined on a consolidated basis,
      including requirements that the ratio of total funded debt to EBITDA not exceed
      2 to 1, that the ratio of senior funded debt to EBITDA not exceed 1.50 to 1,
      and
      that the fixed charge coverage ratio not be less than 1.25 to 1. At
      the end of the fiscal year and at the end of the most recent fiscal
      quarter, the Company was in compliance with each of these financial
      covenants. The
      Bank’s consent is 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 an acceleration clause which allows
      the
      bank to declare amounts outstanding under the financing arrangements due and
      payable if it determines in good faith that a material adverse change has
      occurred in the financial condition of any of our companies. We believe that
      the
      Company 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 acceleration clause referred to above, we would seek to modify the financing
      arrangement, but there can be no assurance that the bank would not exercise
      its
      rights and remedies under the financing arrangement including accelerating
      payment of all outstanding senior debt due and payable.





We
      believe that cash on hand, cash generated from the Company’s future operations
      and funds available under the Company’s line of credit will be adequate to meet
      our future operating cash needs. Any future acquisition, or other significant
      unplanned cost or cash requirement may require us to raise additional funds
      through the issuance of debt and/or equity securities. There can be no assurance
      that such financing will be available on terms acceptable to us, 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 our calculations of EBITDA for the three
      months ended April 30, 2008 and 2007:




**Three
                Months Ended April 30,****2008**
            
            **2007**Net
                income (loss), as reported
            
            $
            1,555,000
            
            $
            (2,015,000
            )Interest
                expense
            
            
            120,000
            
            
            204,000Income
                tax expense (benefit)
            
            
            551,000
            
            
            (939,000
            )Amortization
                of purchased intangible assets
            
            
            772,000
            
            
            2,064,000Depreciation
                and other amortization
            
            
            339,000
            
            
            324,000Stock
                option compensation expense
            
            
            397,000
            
            
            14,000EBITDA
            
            $
            3,734,000
            
            $
            (348,000
            )





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 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.


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          20
          -


**Seasonality**




The
      Company's telecommunications infrastructure service operations may 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
      may
      be 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.





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




Nor
      required for a smaller reporting company.





**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) or 15d-15(e) under the Exchange Act)
      as of April 30, 2008. 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 April
      30, 2008, 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 over financial reporting.** No
      change in our internal control over financial reporting (as defined in Rules
      13a-15 or 15d-15 under the Exchange Act) occurred during the fiscal quarter
      ended April 30, 2008 that has materially affected, or is reasonably likely
      to
      materially affect, our internal control over financial reporting.




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          21
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**PART
      II**




**OTHER
      INFORMATION**





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




1)
            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. The Company
                and its
                officers deny that any breach of contract or that any misrepresentations
                or negligence occurred on their
                part.





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 appealed the District Court’s decision. The parties filed
      their appellate briefs with oral arguments scheduled for June 3, 2008. The
      Company intends to continue to defend vigorously the appeal of this
      litigation.




2)
            On
                August 27, 2007, Kevin Thomas, the former owner of VLI, filed a lawsuit
                against the Company, VLI and the Company’s Chief Executive Officer (the
                “CEO”) in the Circuit Court of Florida for Collier County. The Company
                acquired VLI by way of merger on August 31, 2004. Mr. Thomas alleges
                that
                the Company, VLI and the CEO breached various agreements regarding
                his
                compensation and employment package that arose from the acquisition
                of
                VLI. Mr. Thomas has alleged contractual and tort-based claims arising
                from
                his compensation and employment agreements and seeks rescission of
                his
                covenant not to compete against VLI. The Company, VLI and the CEO
                deny
                that any breach of contract or tortious conduct occurred on their
                part.
                The Company and VLI have also asserted four counterclaims against
                Mr.
                Thomas for breach of the merger agreement, breach of his employment
                contract, breach of fiduciary duty and tortious interference with
                contractual relations for the violation of his non-solicitation,
                confidentiality and non-compete obligations after he left VLI (the
“VLI
                Merger Litigation”). The Company intends to vigorously defend this lawsuit
                and prosecute its counterclaims.




3)
            On
                March 4, 2008, Vitarich Farms, Inc. (“VFI”) filed a lawsuit against VLI
                and its current president in the Circuit Court of Florida for Collier
                County. VFI, which is owned by Kevin Thomas, supplied VLI with certain
                organic raw materials used in the manufacture of VLI products. VFI
                has
                asserted a breach of contract claim against VLI and alleges that
                VLI
                breached a supply agreement with VFI by acquiring the organic products
                from a different supplier. VFI also asserted a claim for defamation
                against VLI’s president alleging that he made false statements regarding
                VFI’s organic certification to one of VLI's customers. VLI and its
                president filed their Answer and Affirmative Defenses on May 8, 2008.
                VLI
                and its president deny that VLI breached any contract or that its
                president defamed VFI. The defendants intend to continue to vigorously
                defend this lawsuit.





4)
            On
                March 4, 2008, Mr. Thomas filed a lawsuit against VLI's president
                in the
                Circuit Court of Florida for Collier County. Mr. Thomas has filed
                this new
                lawsuit against VLI’s president for defamation. Mr. Thomas alleges that
                VLI’s president made false statements to third-parties regarding Mr.
                Thomas' conduct that is the subject of counterclaims by the Company
                and
                VLI in the VLI Merger Litigation discussed above and that these statements
                have caused damage to his business reputation. VLI’s president filed his
                answer with the court on May 8, 2008 denying that he defamed Mr.
                Thomas.
                He intends to continue to vigorously defend this
                lawsuit.





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





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




Investing
      in our securities involves a high degree of risk. Our business, financial
      position and future results of operations may be impacted in a materially
      adverse manner by risks associated with the execution of our strategic plan
      and
      the creation of a profitable and cash-flow positive business, our ability to
      obtain capital or to obtain capital on terms acceptable to us, the successful
      integration of acquired companies into our consolidated operations, our ability
      to successfully manage diverse operations remotely located, our ability to
      successfully compete in highly competitive industries, the successful resolution
      of ongoing litigation, our dependence upon key managers and employees and our
      ability to retain them, and potential fluctuations in quarterly operating
      results, among other risks. Before investing in our securities, please consider
      the risks summarized in this paragraph and those risks described in our Annual
      Report on Form 10-K for the year ended January 31, 2008 (our “2008 Annual
      Report”). 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 any 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.


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          22
          -





Our
      future results may also be impacted by other risk factors listed from time
      to
      time in our future filings with the SEC, including, but not limited to, our
      Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Annual Reports
      on Form 10-K. These documents are available free of charge from the SEC or
      from
      our corporate headquarters. Access to these documents is also available on
      our
      website. For more information about us and the announcements we make from time
      to time, you may visit our website at *www.arganinc.com* .





Our
      2008
      Annual Report, under Item 1A entitled “Risk Factors” includes an expanded
      discussion of our risk factors. There have been no material revisions to the
      risk factors that are described therein.





**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**




None





**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




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          23
          -







**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.**June
                12, 2008
            By:
            /s/ Rainer
                BosselmannRainer
                Bosselmann
              Chairman
                of the Board and Chief Executive Officer




June
                12, 2008
            By:
            /s/ Arthur
                F.
                TrudelArthur
                F. Trudel
              Senior
                Vice President, Chief Financial Officer
              and
                Secretary




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