##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended October 31, 2009
 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 201, Rockville Maryland 20850
 (301) 315-0027  (Registrants Telephone Number, Including Area Code)
 (Former Name, Former Address and Former Fiscal Year,
  þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ




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##### 



ARGAN, INC. AND SUBSIDIARIES
INDEX
 Page No.PART I. FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets  October 31, 2009 and January 31, 2009
    
    
    3Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
October 31, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October
31, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27PART II. OTHER INFORMATION
    
    
    28Item 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3. Defaults in Senior Securities
    
    
    28Item 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 5. Other Information
    
    
    29Item 6. Exhibits
    
    
    29SIGNATURES
    
    
    29Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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ARGAN, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
 October 31,
    
    
    January 31,2009
    
    
    2009(Unaudited)
    
    
    (Note 1)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    52,988,000
    
    
    $
    74,666,000Escrowed cash
    
    
    5,002,000
    
    
    
    10,000,000Accounts receivable, net of allowance for doubtful accounts
    
    
    3,956,000
    
    
    
    12,986,000Costs and estimated earnings in excess of billings
    
    
    29,122,000
    
    
    
    6,325,000Inventories, net of reserve for obsolescence
    
    
    2,593,000
    
    
    
    1,347,000Current deferred tax assets
    
    
    1,928,000
    
    
    
    1,660,000Prepaid expenses and other current assets
    
    
    690,000
    
    
    
    768,000TOTAL CURRENT ASSETS
    
    
    96,279,000
    
    
    
    107,752,000Property and equipment, net of accumulated depreciation
    
    
    1,032,000
    
    
    
    1,214,000Goodwill
    
    
    18,476,000
    
    
    
    18,476,000Intangible assets, net of accumulated amortization
    
    
    3,389,000
    
    
    
    3,655,000Investment in unconsolidated subsidiary
    
    
    3,449,000
    
    
    
    2,107,000Deferred tax assets
    
    
    1,802,000
    
    
    
    1,743,000Other assets
    
    
    100,000
    
    
    
    217,000TOTAL ASSETS
    
    $
    124,527,000
    
    
    $
    135,164,000LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    23,295,000
    
    
    $
    31,808,000Accrued expenses
    
    
    9,094,000
    
    
    
    14,992,000Billings in excess of costs and estimated earnings
    
    
    1,001,000
    
    
    
    5,102,000Current portion of long-term debt
    
    
    2,000,000
    
    
    
    2,301,000TOTAL CURRENT LIABILITIES
    
    
    35,390,000
    
    
    
    54,203,000Long-term debt
    
    
    333,000
    
    
    
    1,833,000Other liabilities
    
    
    31,000
    
    
    
    22,000TOTAL LIABILITIES
    
    
    35,754,000
    
    
    
    56,058,000COMMITMENTS AND CONTINGENCIES(Note 14)STOCKHOLDERS EQUITYPreferred stock, par value $0.10 per share; 500,000 shares authorized;
no shares issued and outstanding
    
    
    
    
    
    
    Common stock, par value $0.15 per share; 30,000,000 shares authorized;
13,586,560 and 13,437,684 shares issued at 10/31/09 and 1/31/09, and
13,583,327 and 13,434,451 shares outstanding at 10/31/09 and
1/31/09, respectively
    
    
    2,037,000
    
    
    
    2,015,000Warrants outstanding
    
    
    613,000
    
    
    
    738,000Additional paid-in capital
    
    
    86,888,000
    
    
    
    84,786,000Accumulated other comprehensive loss
    
    
    (10,000
    )
    
    
    (63,000
    )Accumulated deficit
    
    
    (722,000
    )
    
    
    (8,337,000
    )Treasury stock, at cost; 3,233 shares at 10/31/09 and 1/31/09
    
    
    (33,000
    )
    
    
    (33,000
    )TOTAL STOCKHOLDERS EQUITY
    
    
    88,773,000
    
    
    
    79,106,000TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    124,527,000
    
    
    $
    135,164,000
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ARGAN, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Operations  (Unaudited)
 Three Months Ended October 31,
    
    
    Nine Months Ended October 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Net revenuesPower industry services
    
    $
    54,164,000
    
    
    $
    36,387,000
    
    
    $
    172,003,000
    
    
    $
    151,034,000Nutritional products
    
    
    4,266,000
    
    
    
    2,662,000
    
    
    
    10,536,000
    
    
    
    7,287,000Telecommunications infrastructure services
    
    
    2,237,000
    
    
    
    2,338,000
    
    
    
    6,693,000
    
    
    
    6,570,000Net revenues
    
    
    60,667,000
    
    
    
    41,387,000
    
    
    
    189,232,000
    
    
    
    164,891,000Cost of revenuesPower industry services
    
    
    48,378,000
    
    
    
    29,742,000
    
    
    
    153,465,000
    
    
    
    131,425,000Nutritional products
    
    
    3,715,000
    
    
    
    2,983,000
    
    
    
    9,435,000
    
    
    
    7,701,000Telecommunications infrastructure services
    
    
    1,727,000
    
    
    
    1,824,000
    
    
    
    5,102,000
    
    
    
    5,474,000Cost of revenues
    
    
    53,820,000
    
    
    
    34,549,000
    
    
    
    168,002,000
    
    
    
    144,600,000Gross profit
    
    
    6,847,000
    
    
    
    6,838,000
    
    
    
    21,230,000
    
    
    
    20,291,000Selling, general and administrative expenses
    
    
    4,015,000
    
    
    
    3,090,000
    
    
    
    10,417,000
    
    
    
    11,118,000Impairment losses of Vitarich Laboratories, Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,946,000Income from operations
    
    
    2,832,000
    
    
    
    3,748,000
    
    
    
    10,813,000
    
    
    
    7,227,000Interest expense
    
    
    (41,000
    )
    
    
    (108,000
    )
    
    
    (155,000
    )
    
    
    (336,000
    )Investment income
    
    
    15,000
    
    
    
    609,000
    
    
    
    89,000
    
    
    
    1,545,000Equity in the earnings (loss) of unconsolidated
subsidiary
    
    
    325,000
    
    
    
    (195,000
    )
    
    
    1,343,000
    
    
    
    (359,000
    )Income from operations before income taxes
    
    
    3,131,000
    
    
    
    4,054,000
    
    
    
    12,090,000
    
    
    
    8,077,000Income tax expense
    
    
    (1,167,000
    )
    
    
    (1,430,000
    )
    
    
    (4,475,000
    )
    
    
    (3,092,000
    )Net income
    
    $
    1,964,000
    
    
    $
    2,624,000
    
    
    $
    7,615,000
    
    
    $
    4,985,000Earnings per share:Basic
    
    $
    0.14
    
    
    $
    0.20
    
    
    $
    0.56
    
    
    $
    0.41Diluted
    
    $
    0.14
    
    
    $
    0.19
    
    
    $
    0.55
    
    
    $
    0.40Weighted average number of shares outstanding:Basic
    
    
    13,579,000
    
    
    
    13,414,000
    
    
    
    13,506,000
    
    
    
    12,138,000Diluted
    
    
    13,763,000
    
    
    
    13,730,000
    
    
    
    13,765,000
    
    
    
    12,480,000
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ARGAN, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows  (Unaudited)
 Nine Months Ended October 31,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    7,615,000
    
    
    $
    4,985,000Adjustments to reconcile net income to net cash (used in) provided by
operating activities:Equity in the (earnings) loss of the unconsolidated subsidiary
    
    
    (1,343,000
    )
    
    
    359,000Deferred income tax benefit
    
    
    (287,000
    )
    
    
    (1,895,000
    )Stock option compensation expense
    
    
    864,000
    
    
    
    848,000Amortization of purchased intangibles
    
    
    267,000
    
    
    
    1,289,000Depreciation and other amortization
    
    
    459,000
    
    
    
    842,000Provision for bad debts
    
    
    155,000
    
    
    
    1,000Provision for (recovery of) inventory obsolescence
    
    
    (70,000
    )
    
    
    812,000Impairment losses
    
    
    
    
    
    
    1,946,000Other
    
    
    (50,000
    )
    
    
    103,000Changes in operating assets and liabilities:Escrowed cash
    
    
    4,998,000
    
    
    
    4,074,000Accounts receivable
    
    
    8,875,000
    
    
    
    4,820,000Costs and estimated earnings in excess of billings
    
    
    (22,797,000
    )
    
    
    25,000Inventories
    
    
    (1,176,000
    )
    
    
    (537,000
    )Prepaid expenses and other assets
    
    
    85,000
    
    
    
    (56,000
    )Accounts payable and accrued expenses
    
    
    (14,000,000
    )
    
    
    (3,784,000
    )Billings in excess of costs and estimated earnings
    
    
    (4,101,000
    )
    
    
    (7,537,000
    )Other
    
    
    9,000
    
    
    
    8,000Net cash (used in) provided by operating activities
    
    
    (20,497,000
    )
    
    
    6,303,000CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (172,000
    )
    
    
    (313,000
    )Proceeds from sale of property and equipment
    
    
    54,000
    
    
    
    97,000Payment of contingent acquisition price
    
    
    
    
    
    
    (2,000,000
    )Investment in unconsolidated subsidiary
    
    
    1,000
    
    
    
    (1,600,000
    )Net cash used in investing activities
    
    
    (117,000
    )
    
    
    (3,816,000
    )CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments on long-term debt
    
    
    (1,801,000
    )
    
    
    (1,939,000
    )Net proceeds from the exercise of stock options and warrants
    
    
    737,000
    
    
    
    786,000Net proceeds from the sale of common stock
    
    
    
    
    
    
    24,982,000Net cash (used in) provided by financing activities
    
    
    (1,064,000
    )
    
    
    23,829,000NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (21,678,000
    )
    
    
    26,316,000CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    74,666,000
    
    
    
    66,827,000CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    52,988,000
    
    
    $
    93,143,000SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for interest and income taxes:Interest
    
    $
    155,000
    
    
    $
    336,000Income taxes
    
    $
    6,701,000
    
    
    $
    5,192,000Non-cash investing and financing activities:Net increase in the fair value of interest rate swaps
    
    $
    53,000
    
    
    $
    48,000
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ARGAN, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  OCTOBER 31, 2009  (Unaudited)
 NOTE 1  DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
 Description of the Business
  Basis of Presentation
    Letter of Intent with UNAMSCO
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NOTE 2  ADOPTED AND OTHER RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Accounting Pronouncements Adopted During the Three Months Ended October 31, 2009
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles FASB Accounting Standards Codification Generally Accepted Accounting
Standards The Hierarchy of
Generally Accepted Accounting Principles
 Recently Issued Accounting Pronouncements That Have Not Been Adopted
 Multiple-Deliverable Revenue Arrangements  a consensus of the
FASB Emerging Issues Task Force Certain Arrangements That Include Software
Elements  a consensus of the FASB Emerging Issues Task Force
 Amendments to
FASB Interpretation No. 46(R) Consolidation of Variable Interest Entities
 Accounting
for Transfers of Financial Assets  an amendment of FASB Statement No. 140 Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
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NOTE 3  CASH, CASH EQUIVALENTS AND ESCROWED CASH
    NOTE 4  ACCOUNTS RECEIVABLE; COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS
   NOTE 5  INVENTORIES
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October 31,
    
    
    January 31,2009
    
    
    2009Raw materials
    
    $
    3,785,000
    
    
    $
    2,748,000Work-in process
    
    
    46,000
    
    
    
    118,000Finished goods
    
    
    212,000
    
    
    
    171,0004,043,000
    
    
    
    3,037,000Less  reserves
    
    
    (1,450,000
    )
    
    
    (1,690,000
    )Inventories, net
    
    $
    2,593,000
    
    
    $
    1,347,000
 NOTE 6  PROPERTY AND EQUIPMENT
    October 31,
    
    
    January 31,2009
    
    
    2009Leasehold improvements
    
    $
    806,000
    
    
    $
    829,000Machinery and equipment
    
    
    2,788,000
    
    
    
    2,738,000Trucks and other vehicles
    
    
    1,336,000
    
    
    
    1,263,0004,930,000
    
    
    
    4,830,000Less  accumulated depreciation
    
    
    (3,898,000
    )
    
    
    (3,616,000
    )Property and equipment, net
    
    $
    1,032,000
    
    
    $
    1,214,000
 NOTE 7   INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
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NOTE 8  INTANGIBLE ASSETS
  October 31, 2009Estimated
    
    Gross
    
    
    
    
    
    
    
    
    
    
    January 31,Useful
    
    Carrying
    
    
    Accumulated
    
    
    Net
    
    
    2009Life
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Net AmountIntangible assets
being amortized:Non-compete agreements
 GPS and VLI
    
    5 years
    
    $
    1,731,000
    
    
    $
    1,506,000
    
    
    $
    225,000
    
    
    $
    309,000Trade name  GPS
    
    15 years
    
    
    3,643,000
    
    
    
    703,000
    
    
    
    2,940,000
    
    
    
    3,122,000Intangible asset not
being amortized:Trade name  SMC
    
    Indefinite
    
    
    224,000
    
    
    
    
    
    
    
    224,000
    
    
    
    224,000Total intangible assets
    
    
    
    $
    5,598,000
    
    
    $
    2,209,000
    
    
    $
    3,389,000
    
    
    $
    3,655,000Goodwill
    
    Indefinite
    
    $
    18,476,000
    
    
    $
    
    
    
    $
    18,476,000
    
    
    $
    18,476,000
    NOTE 9  DEBT
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NOTE 10  PRIVATE PLACEMENT OF COMMON STOCK
  NOTE 11  STOCK-BASED COMPENSATION
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Weighted-Weighted-
    
    
    Average
    
    
    Weighted-Average
    
    
    Remaining
    
    
    AverageExercise
    
    
    Contract
    
    
    FairOptions
    
    Shares
    
    
    Price
    
    
    Term (Years)
    
    
    ValueOutstanding, January 31, 2009
    
    
    512,000
    
    
    $
    8.31
    
    
    
    6.48
    
    
    $
    4.34Granted
    
    
    82,000
    
    
    $
    12.93Forfeited
    
    
    (18,000
    )
    
    $
    10.06Exercised
    
    
    (115,000
    )
    
    $
    4.12Outstanding, October 31, 2009
    
    
    461,000
    
    
    $
    10.12
    
    
    
    6.45
    
    
    $
    5.33Exercisable, October 31, 2009
    
    
    349,000
    
    
    $
    9.41
    
    
    
    6.03
    
    
    $
    4.91Exercisable, January 31, 2009
    
    
    277,000
    
    
    $
    5.22
    
    
    
    6.08
    
    
    $
    2.95
 
 Weighted-AverageShares
    
    
    Fair 
ValueNonvested, January 31, 2009
    
    
    235,000
    
    
    $
    5.96Granted
    
    
    82,000
    
    
    $
    7.36Vested
    
    
    (205,000
    )
    
    $
    6.15Nonvested, October 31, 2009
    
    
    112,000
    
    
    $
    6.64
  
 Nine Months EndedOctober 31,2009Dividend yield
    
    
    Expected volatility
    
    
    63.11
    %Risk-free interest rate
    
    
    3.03
    %Expected life in years
    
    
    5.35
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NOTE 12  INCOME TAXES
  Nine Months
    
    
    Nine MonthsEnded October 31,
    
    
    Ended October 31,2009
    
    
    2008Computed expected income tax expense
    
    $
    4,111,000
    
    
    $
    2,746,000State income taxes, net
    
    
    563,000
    
    
    
    179,000Permanent differences, net
    
    
    (199,000
    )
    
    
    167,000$
    4,475,000
    
    
    $
    3,092,000
   NOTE 13  NET INCOME PER SHARE
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NOTE 14  LEGAL CONTINGENCIES
  Kevin Thomas Litigation
    Tampa Bay Nutraceutical Company
  NOTE 15  SEGMENT REPORTING AND MAJOR CUSTOMERS
   - 14 -




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TelecomPower Industry
    
    
    Nutritional
    
    
    InfrastructureThree Months Ended October 31, 2009
    
    Services
    
    
    Products
    
    
    Services
    
    
    Other
    
    
    ConsolidatedNet revenues
    
    $
    54,164,000
    
    
    $
    4,266,000
    
    
    $
    2,237,000
    
    
    $
    
    
    
    $
    60,667,000Cost of revenues
    
    
    48,378,000
    
    
    
    3,715,000
    
    
    
    1,727,000
    
    
    
    
    
    
    
    53,820,000Gross profit
    
    
    5,786,000
    
    
    
    551,000
    
    
    
    510,000
    
    
    
    
    
    
    
    6,847,000Selling, general and administrative
expenses
    
    
    2,092,000
    
    
    
    577,000
    
    
    
    371,000
    
    
    
    975,000
    
    
    
    4,015,000Income (loss) from operations
    
    
    3,694,000
    
    
    
    (26,000
    )
    
    
    139,000
    
    
    
    (975,000
    )
    
    
    2,832,000Interest expense
    
    
    (40,000
    )
    
    
    (1,000
    )
    
    
    
    
    
    
    
    
    
    
    (41,000
    )Investment income
    
    
    11,000
    
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    15,000Equity in the earnings of the
unconsolidated subsidiary
    
    
    325,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    325,000Income (loss) before income taxes
    
    $
    3,990,000
    
    
    $
    (27,000
    )
    
    $
    139,000
    
    
    $
    (971,000
    )
    
    
    3,131,000Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,167,000
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,964,000Amortization of purchased intangibles
    
    $
    87,000
    
    
    $
    1,000
    
    
    $
    
    
    
    $
    
    
    
    $
    88,000Depreciation and other amortization
    
    $
    48,000
    
    
    $
    
    
    
    $
    115,000
    
    
    $
    
    
    
    $
    163,000Fixed asset additions
    
    $
    5,000
    
    
    $
    
    
    
    $
    84,000
    
    
    $
    
    
    
    $
    89,000Goodwill
    
    $
    18,476,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    18,476,000Total assets
    
    $
    79,240,000
    
    
    $
    6,321,000
    
    
    $
    2,937,000
    
    
    $
    36,029,000
    
    
    $
    124,527,000
 TelecomPower Industry
    
    
    Nutritional
    
    
    InfrastructureThree Months Ended October 31, 2008
    
    Services
    
    
    Products
    
    
    Services
    
    
    Other
    
    
    ConsolidatedNet revenues
    
    $
    36,387,000
    
    
    $
    2,662,000
    
    
    $
    2,338,000
    
    
    $
    
    
    
    $
    41,387,000Cost of revenues
    
    
    29,742,000
    
    
    
    2,983,000
    
    
    
    1,824,000
    
    
    
    
    
    
    
    34,549,000Gross profit
    
    
    6,645,000
    
    
    
    (321,000
    )
    
    
    514,000
    
    
    
    
    
    
    
    6,838,000Selling, general and administrative
expenses
    
    
    933,000
    
    
    
    582,000
    
    
    
    393,000
    
    
    
    1,182,000
    
    
    
    3,090,000Income (loss) from operations
    
    
    5,712,000
    
    
    
    (903,000
    )
    
    
    121,000
    
    
    
    (1,182,000
    )
    
    
    3,748,000Interest expense
    
    
    (89,000
    )
    
    
    (13,000
    )
    
    
    
    
    
    
    (6,000
    )
    
    
    (108,000
    )Investment income
    
    
    480,000
    
    
    
    
    
    
    
    
    
    
    
    129,000
    
    
    
    609,000Equity in the loss of the
unconsolidated subsidiary
    
    
    (195,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (195,000
    )Income (loss) before income taxes
    
    $
    5,908,000
    
    
    $
    (916,000
    )
    
    $
    121,000
    
    
    $
    (1,059,000
    )
    
    
    4,054,000Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,430,000
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,624,000Amortization of purchased intangibles
    
    $
    87,000
    
    
    $
    2,000
    
    
    $
    26,000
    
    
    $
    
    
    
    $
    115,000Depreciation and other amortization
    
    $
    53,000
    
    
    $
    
    
    
    $
    103,000
    
    
    $
    3,000
    
    
    $
    159,000Fixed asset additions
    
    $
    24,000
    
    
    $
    
    
    
    $
    25,000
    
    
    $
    
    
    
    $
    49,000Goodwill
    
    $
    18,476,000
    
    
    $
    
    
    
    $
    940,000
    
    
    $
    
    
    
    $
    19,416,000Total assets
    
    $
    93,054,000
    
    
    $
    4,915,000
    
    
    $
    3,960,000
    
    
    $
    38,139,000
    
    
    $
    140,068,000
  - 15 -




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##### Table of Contents



TelecomPower Industry
    
    
    Nutritional
    
    
    InfrastructureNine Months Ended October 31, 2009
    
    Services
    
    
    Products
    
    
    Services
    
    
    Other
    
    
    ConsolidatedNet revenues
    
    $
    172,003,000
    
    
    $
    10,536,000
    
    
    $
    6,693,000
    
    
    $
    
    
    
    $
    189,232,000Cost of revenues
    
    
    153,465,000
    
    
    
    9,435,000
    
    
    
    5,102,000
    
    
    
    
    
    
    
    168,002,000Gross profit
    
    
    18,538,000
    
    
    
    1,101,000
    
    
    
    1,591,000
    
    
    
    
    
    
    
    21,230,000Selling, general and administrative
expenses
    
    
    4,361,000
    
    
    
    1,852,000
    
    
    
    1,223,000
    
    
    
    2,981,000
    
    
    
    10,417,000Income (loss) from operations
    
    
    14,177,000
    
    
    
    (751,000
    )
    
    
    368,000
    
    
    
    (2,981,000
    )
    
    
    10,813,000Interest expense
    
    
    (144,000
    )
    
    
    (11,000
    )
    
    
    
    
    
    
    
    
    
    
    (155,000
    )Investment income
    
    
    68,000
    
    
    
    
    
    
    
    
    
    
    
    21,000
    
    
    
    89,000Equity in the earnings of the
unconsolidated subsidiary
    
    
    1,343,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,343,000Income (loss) before income taxes
    
    $
    15,444,000
    
    
    $
    (762,000
    )
    
    $
    368,000
    
    
    $
    (2,960,000
    )
    
    
    12,090,000Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,475,000
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,615,000Amortization of purchased intangibles
    
    $
    263,000
    
    
    $
    4,000
    
    
    $
    
    
    
    $
    
    
    
    $
    267,000Depreciation and other amortization
    
    $
    143,000
    
    
    $
    
    
    
    $
    311,000
    
    
    $
    5,000
    
    
    $
    459,000Fixed asset additions
    
    $
    14,000
    
    
    $
    
    
    
    $
    147,000
    
    
    $
    11,000
    
    
    $
    172,000
 TelecomPower Industry
    
    
    Nutritional
    
    
    InfrastructureNine Months Ended October 31, 2008
    
    Services
    
    
    Products
    
    
    Services
    
    
    Other
    
    
    ConsolidatedNet revenues
    
    $
    151,034,000
    
    
    $
    7,287,000
    
    
    $
    6,570,000
    
    
    $
    
    
    
    $
    164,891,000Cost of revenues
    
    
    131,425,000
    
    
    
    7,701,000
    
    
    
    5,474,000
    
    
    
    
    
    
    
    144,600,000Gross profit
    
    
    19,609,000
    
    
    
    (414,000
    )
    
    
    1,096,000
    
    
    
    
    
    
    
    20,291,000Selling, general and administrative
expenses
    
    
    4,354,000
    
    
    
    2,097,000
    
    
    
    1,143,000
    
    
    
    3,524,000
    
    
    
    11,118,000Impairment losses of VLI
    
    
    
    
    
    
    1,946,000
    
    
    
    
    
    
    
    
    
    
    
    1,946,000Income (loss) from operations
    
    
    15,255,000
    
    
    
    (4,457,000
    )
    
    
    (47,000
    )
    
    
    (3,524,000
    )
    
    
    7,227,000Interest expense
    
    
    (283,000
    )
    
    
    (47,000
    )
    
    
    
    
    
    
    (6,000
    )
    
    
    (336,000
    )Investment income
    
    
    1,374,000
    
    
    
    
    
    
    
    
    
    
    
    171,000
    
    
    
    1,545,000Equity in the loss of unconsolidated
subsidiary
    
    
    (359,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (359,000
    )Income (loss) before income taxes
    
    $
    15,987,000
    
    
    $
    (4,504,000
    )
    
    $
    (47,000
    )
    
    $
    (3,359,000
    )
    
    
    8,077,000Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,092,000
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,985,000Amortization of purchased intangibles
    
    $
    1,166,000
    
    
    $
    45,000
    
    
    $
    78,000
    
    
    $
    
    
    
    $
    1,289,000Depreciation and other amortization
    
    $
    152,000
    
    
    $
    297,000
    
    
    $
    386,000
    
    
    $
    7,000
    
    
    $
    842,000Fixed asset additions
    
    $
    113,000
    
    
    $
    131,000
    
    
    $
    69,000
    
    
    $
    
    
    
    $
    313,000
     - 16 -




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##### Table of Contents



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




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- 18 -




---



##### Table of Contents



Letter of Intent with UNAMSCO
  Comparison of the Results of Operations for the Three Months Ended October 31, 2009 and
2008
  Three Months Ended October 31,2009
    
    
    2008Net revenuesPower industry services
    
    $
    54,164,000
    
    
    
    89.3
    %
    
    $
    36,387,000
    
    
    
    87.9
    %Nutritional products
    
    
    4,266,000
    
    
    
    7.0
    %
    
    
    2,662,000
    
    
    
    6.4
    %Telecommunications infrastructure services
    
    
    2,237,000
    
    
    
    3.7
    %
    
    
    2,338,000
    
    
    
    5.7
    %Net revenues
    
    
    60,667,000
    
    
    
    100.0
    %
    
    
    41,387,000
    
    
    
    100.0
    %Cost of revenues **Power industry services
    
    
    48,378,000
    
    
    
    89.3
    %
    
    
    29,742,000
    
    
    
    81.7
    %Nutritional products
    
    
    3,715,000
    
    
    
    87.1
    %
    
    
    2,983,000
    
    
    
    112.1
    %Telecommunications infrastructure services
    
    
    1,727,000
    
    
    
    77.2
    %
    
    
    1,824,000
    
    
    
    78.0
    %Cost of revenues
    
    
    53,820,000
    
    
    
    88.7
    %
    
    
    34,549,000
    
    
    
    83.5
    %Gross profit
    
    
    6,847,000
    
    
    
    11.3
    %
    
    
    6,838,000
    
    
    
    16.5
    %Selling, general and administrative expenses
    
    
    4,015,000
    
    
    
    6.6
    %
    
    
    3,090,000
    
    
    
    7.5
    %Income from operations
    
    
    2,832,000
    
    
    
    4.7
    %
    
    
    3,748,000
    
    
    
    9.0
    %Interest expense
    
    
    (41,000
    )
    
    
    *
    
    
    
    (108,000
    )
    
    
    *Investment income
    
    
    15,000
    
    
    
    *
    
    
    
    609,000
    
    
    
    1.5
    %Equity in the earnings (loss) of the
unconsolidated subsidiary
    
    
    325,000
    
    
    
    *
    
    
    
    (195,000
    )
    
    
    *Income from operations before income taxes
    
    
    3,131,000
    
    
    
    5.1
    %
    
    
    4,054,000
    
    
    
    9.8
    %Income tax expense
    
    
    (1,167,000
    )
    
    
    (1.9
    )%
    
    
    (1,430,000
    )
    
    
    (3.5
    )%Net income
    
    $
    1,964,000
    
    
    
    3.2
    %
    
    $
    2,624,000
    
    
    
    6.3
    %
 *
    
    Less than 1%.**
    
    The cost of revenues percentage amounts represent the percentage of net revenues of
the applicable segment.  - 19 -




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##### Table of Contents



Net Revenues
 Power Industry Services
   Nutritional Products
   Telecommunications Infrastructure Services
    - 20 -




---



##### Table of Contents



Cost of Revenues
      Selling, General and Administrative Expenses
  Other Income and Expense
    - 21 -




---



##### Table of Contents



Income Tax Expense
  Comparison of the Results of Operations for the Nine Months Ended October 31, 2009 and 2008
  Nine Months Ended October 31,2009
    
    
    2008Net revenuesPower industry services
    
    $
    172,003,000
    
    
    
    90.9
    %
    
    $
    151,034,000
    
    
    
    91.6
    %Nutritional products
    
    
    10,536,000
    
    
    
    5.6
    %
    
    
    7,287,000
    
    
    
    4.4
    %Telecommunications infrastructure services
    
    
    6,693,000
    
    
    
    3.5
    %
    
    
    6,570,000
    
    
    
    4.0
    %Net revenues
    
    
    189,232,000
    
    
    
    100.0
    %
    
    
    164,891,000
    
    
    
    100.0
    %Cost of revenues **Power industry services
    
    
    153,465,000
    
    
    
    89.2
    %
    
    
    131,425,000
    
    
    
    87.0
    %Nutritional products
    
    
    9,435,000
    
    
    
    89.6
    %
    
    
    7,701,000
    
    
    
    105.7
    %Telecommunications infrastructure services
    
    
    5,102,000
    
    
    
    76.2
    %
    
    
    5,474,000
    
    
    
    83.3
    %Cost of revenues
    
    
    168,002,000
    
    
    
    88.8
    %
    
    
    144,600,000
    
    
    
    87.7
    %Gross profit
    
    
    21,230,000
    
    
    
    11.2
    %
    
    
    20,291,000
    
    
    
    12.3
    %Selling, general and administrative expenses
    
    
    10,417,000
    
    
    
    5.5
    %
    
    
    11,118,000
    
    
    
    6.7
    %Impairment losses of VLI
    
    
    
    
    
    
    
    
    
    
    1,946,000
    
    
    
    1.2
    %Income from operations
    
    
    10,813,000
    
    
    
    5.7
    %
    
    
    7,227,000
    
    
    
    4.4
    %Interest expense
    
    
    (155,000
    )
    
    
    *
    
    
    
    (336,000
    )
    
    
    *Investment income
    
    
    89,000
    
    
    
    *
    
    
    
    1,545,000
    
    
    
    1.0
    %Equity in the earnings (loss) of the
unconsolidated subsidiary
    
    
    1,343,000
    
    
    
    *
    
    
    
    (359,000
    )
    
    
    *Income from operations before income taxes
    
    
    12,090,000
    
    
    
    6.4
    %
    
    
    8,077,000
    
    
    
    4.9
    %Income tax expense
    
    
    (4,475,000
    )
    
    
    (2.4
    )%
    
    
    (3,092,000
    )
    
    
    (1.9
    )%Net income
    
    $
    7,615,000
    
    
    
    4.0
    %
    
    $
    4,985,000
    
    
    
    3.0
    %
 *
    
    Less than 1%.**
    
    The cost of revenues percentage amounts represent the percentage of net revenues of
the applicable segment. Net Revenues
 Power Industry Services
    - 22 -




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##### Table of Contents



Nutritional Products
  Telecommunications Infrastructure Services
  Cost of Revenues
    Selling, General and Administrative Expenses
   - 23 -




---



##### Table of Contents



Other Income and Expense
  Income Tax Expense
   Liquidity and Capital Resources as of October 31, 2009
    - 24 -




---



##### Table of Contents



Off-Balance Sheet Arrangements
     - 25 -




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##### Table of Contents



Earnings before Interest, Taxes, Depreciation and Amortization (Non-GAAP Measurement)
  Three Months Ended October 31,2009
    
    
    2008Net income, as reported
    
    $
    1,964,000
    
    
    $
    2,624,000Interest expense
    
    
    41,000
    
    
    
    108,000Income tax expense
    
    
    1,167,000
    
    
    
    1,430,000Amortization of purchased intangible assets
    
    
    88,000
    
    
    
    115,000Depreciation and other amortization
    
    
    163,000
    
    
    
    159,000EBITDA
    
    $
    3,423,000
    
    
    $
    4,436,000
 Nine Months Ended October 31,2009
    
    
    2008Net income, as reported
    
    $
    7,615,000
    
    
    $
    4,985,000Interest expense
    
    
    155,000
    
    
    
    336,000Income tax expense
    
    
    4,475,000
    
    
    
    3,092,000Amortization of purchased intangible assets
    
    
    267,000
    
    
    
    1,289,000Depreciation and other amortization
    
    
    459,000
    
    
    
    842,000EBITDA
    
    $
    12,971,000
    
    
    $
    10,544,000
  Reconciliations of EBITDANine Months Ended October 31,2009
    
    
    2008EBITDA
    
    $
    12,971,000
    
    
    $
    10,544,000Current income tax expense
    
    
    (4,762,000
    )
    
    
    (4,987,000
    )Interest expense
    
    
    (155,000
    )
    
    
    (336,000
    )Impairment losses
    
    
    
    
    
    
    1,946,000Non-cash stock option compensation expense
    
    
    864,000
    
    
    
    848,000Equity in the (earnings) loss of the unconsolidated subsidiary
    
    
    (1,343,000
    )
    
    
    359,000Decrease in escrowed cash
    
    
    4,998,000
    
    
    
    4,074,000Decrease in accounts receivable, net
    
    
    8,875,000
    
    
    
    4,820,000Increase in inventories, net
    
    
    (1,176,000
    )
    
    
    (537,000
    )Decrease in accounts payable and accrued expenses
    
    
    (14,000,000
    )
    
    
    (3,784,000
    )Change related to the timing of scheduled billings
    
    
    (26,898,000
    )
    
    
    (7,512,000
    )Other, net
    
    
    129,000
    
    
    
    868,000Net cash (used in) provided by operations
    
    $
    (20,497,000
    )
    
    $
    6,303,000
  - 26 -




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##### Table of Contents



Critical Accounting Policies
   Adopted and Other Recently Issued Accounting Pronouncements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
 Changes in internal controls over financial reporting.
  - 27 -




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
   www.arganinc.com
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS IN SENIOR SECURITIES
   - 28 -




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 Exhibit No.
    
    TitleExhibit 31.1
    
    Certification of Chief Executive Officer, pursuant to Rule 13a-14(c) under
the Securities Exchange Act of 1934Exhibit 31.2
    
    Certification of Chief Financial Officer, pursuant to Rule 13a-14(c) under
the Securities Exchange Act of 1934Exhibit 32.1
    
    Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350Exhibit 32.2
    
    Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350
 
 SIGNATURES
  ARGAN, INC.December 8, 2009
    By:
    /s/ Rainer H. BosselmannRainer H. BosselmannChairman of the Board and Chief Executive OfficerDecember 8, 2009
    By:
    /s/ Arthur F. TrudelArthur F. TrudelSenior Vice President, Chief Financial Officer and 
Secretary  - 29 -