**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-Q**





(Mark
      One)




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




For
      the Quarterly Period Ended **July
      31, 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,
      13,415,451 shares at September 2, 2008.








**ARGAN,
      INC. AND SUBSIDIARIES**


**INDEX**




**Page
                No.**PART
                I.
            FINANCIAL
                INFORMATION
            3Item
                1.
            Financial
                Statements (unaudited)
            3Condensed
                Consolidated Balance Sheets – July 31, 2008 and January 31,
                2008
            3Condensed
                Consolidated Statements of Operations for the Three and Six Months
                Ended
                July 31, 2008 and 2007
            4Condensed
                Consolidated Statements of Cash Flows for the Six Months Ended July
                31,
                2008 and 2007
            5Notes
                to Condensed Consolidated Financial Statements
            6Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operation
            18Item
                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
            29Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            30Item
                3.
            Defaults
                upon Senior Securities
            30Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            30Item
                5.
            Other
                Information
            30Item
                6.
            Exhibits
            30SIGNATURES
            
            31CERTIFICATIONS




-
          2 -


**ARGAN,
      INC. AND SUBSIDIARIES**


**Condensed
      Consolidated Balance Sheets**


**(unaudited)**





**July
                31,**
            
            **January
                31,****2008**
            
            **2008****ASSETS****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            104,001,000
            
            $
            66,827,000Escrowed
                cash
            
            
            10,312,000
            
            
            14,398,000Accounts
                receivable, net of allowance for doubtful accounts
            
            
            22,806,000
            
            
            30,481,000Inventories,
                net of reserve for obsolescence
            
            
            2,662,000
            
            
            2,808,000Current
                deferred tax assets
            
            
            1,120,000
            
            
            406,000Prepaid
                expenses and other current assets
            
            
            2,045,000
            
            
            1,330,000**TOTAL
                CURRENT ASSETS**
            
            
            142,946,000
            
            
            116,250,000Property
                and equipment, net of accumulated depreciation
            
            
            1,492,000
            
            
            2,892,000Goodwill
            
            
            19,416,000
            
            
            20,337,000Other
                intangible assets, net of accumulated amortization
            
            
            4,036,000
            
            
            5,296,000Investment
                in unconsolidated subsidiary
            
            
            435,000
            
            
            —Deferred
                tax assets
            
            
            1,478,000
            
            
            828,000Other
                assets
            
            
            192,000
            
            
            260,000**TOTAL
                ASSETS**
            
            $
            169,995,000
            
            $
            145,863,000**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****CURRENT
                LIABILITIES**Accounts
                payable
            
            $
            44,356,000
            
            $
            35,483,000Accrued
                expenses
            
            
            7,330,000
            
            
            9,370,000Billings
                in excess of cost and earnings
            
            
            41,988,000
            
            
            52,313,000Current
                portion of long-term debt
            
            
            2,548,000
            
            
            2,581,000**TOTAL
                CURRENT LIABILITIES**
            
            
            96,222,000
            
            
            99,747,000Long-term
                debt
            
            
            2,875,000
            
            
            4,134,000Other
                liabilities
            
            
            75,000
            
            
            116,000**TOTAL
                LIABILITIES**
            
            
            99,172,000
            
            
            103,997,000**COMMITMENTS
                AND CONTINGENCIES**(Note
                14)**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; 13,413,684 and 11,113,534 shares issued and13,410,451
                and 11,110,301 shares outstanding at 7/31/08 and 1/31/08,
                respectively
            
            
            2,011,000
            
            
            1,667,000Warrants
                outstanding
            
            
            790,000
            
            
            834,000Additional
                paid-in capital
            
            
            84,113,000
            
            
            57,861,000Accumulated
                other comprehensive loss
            
            
            (63,000
            )
            
            (107,000
            )Accumulated
                deficit
            
            
            (15,995,000
            )
            
            (18,356,000
            )Treasury
                stock, at cost; 3,233 shares at 7/31/08 and 1/31/08
            
            
            (33,000
            )
            
            (33,000
            )**TOTAL
                STOCKHOLDERS' EQUITY**
            
            
            70,823,000
            
            
            41,866,000**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            $
            169,995,000
            
            $
            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 July 31,**
            
            **Six
                Months Ended July 31,****2008**
            
            **2007**
            
            **2008**
            
            **2007****Net
                revenues**Power
                industry services
            
            $
            70,639,000
            
            $
            45,599,000
            
            $
            114,647,000
            
            $
            88,953,000Nutritional
                products
            
            
            2,226,000
            
            
            5,036,000
            
            
            4,625,000
            
            
            9,985,000Telecommunications
                infrastructure services
            
            
            2,233,000
            
            
            2,502,000
            
            
            4,232,000
            
            
            4,631,000Net
                revenues
            
            
            75,098,000
            
            
            53,137,000
            
            
            123,504,000
            
            
            103,569,000Cost
                of revenuesPower
                industry services
            
            
            63,108,000
            
            
            40,590,000
            
            
            101,684,000
            
            
            83,835,000Nutritional
                products
            
            
            2,395,000
            
            
            4,122,000
            
            
            4,718,000
            
            
            8,288,000Telecommunications
                infrastructure services
            
            
            1,875,000
            
            
            1,858,000
            
            
            3,649,000
            
            
            3,701,000Cost
                of revenues
            
            
            67,378,000
            
            
            46,570,000
            
            
            110,051,000
            
            
            95,824,000**Gross
                profit**
            
            
            7,720,000
            
            
            6,567,000
            
            
            13,453,000
            
            
            7,745,000Selling,
                general and administrative expenses
            
            
            4,016,000
            
            
            4,773,000
            
            
            8,027,000
            
            
            9,334,000Impairment
                losses of Vitarich Laboratories, Inc.
            
            
            1,946,000
            
            
            —
            
            
            1,946,000
            
            
            —**Income
                (loss) from operations**
            
            
            1,758,000
            
            
            1,794,000
            
            
            3,480,000
            
            
            (1,589,000
            )Interest
                expense
            
            
            (108,000
            )
            
            (185,000
            )
            
            (228,000
            )
            
            (378,000
            )Interest
                income
            
            
            432,000
            
            
            657,000
            
            
            936,000
            
            
            1,279,000Equity
                in the net loss of unconsolidated subsidiary
            
            
            (165,000
            )
            
            —
            
            
            (165,000
            )
            
            —**Income
                (loss) from operations before****income
                taxes**
            
            
            1,917,000
            
            
            2,266,000
            
            
            4,023,000
            
            
            (688,000
            )Income
                tax (expense) benefit
            
            
            (1,111,000
            )
            
            (932,000
            )
            
            (1,662,000
            )
            
            7,000**Net
                income (loss)**
            
            $
            806,000
            
            $
            1,334,000
            
            $
            2,361,000
            
            $
            (681,000
            )**Earnings
                per share:**Basic
            
            $
            0.07
            
            $
            0.12
            
            $
            0.21
            
            $
            (0.06
            )Diluted
            
            $
            0.07
            
            $
            0.12
            
            $
            0.20
            
            $
            (0.06
            )**Weighted
                average number of shares outstanding:**Basic
            
            
            11,860,000
            
            
            11,094,000
            
            
            11,493,000
            
            
            11,094,000Diluted
            
            
            12,226,000
            
            
            11,196,000
            
            
            11,854,000
            
            
            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)**





**Six
                Months Ended July 31,****2008**
            
            **2007****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                income (loss)
            
            $
            2,361,000
            
            $
            (681,000
            )Adjustments
                to reconcile net income (loss) to net cash provided by operating
                activities:Impairment
                losses
            
            
            1,946,000
            
            
            —Amortization
                of purchased intangibles
            
            
            1,174,000
            
            
            4,089,000Depreciation
                and other amortization
            
            
            683,000
            
            
            644,000Deferred
                income taxes
            
            
            (1,501,000
            )
            
            (1,411,000
            )Non-cash
                stock option compensation expense
            
            
            788,000
            
            
            100,000Equity
                in net loss of unconsolidated subsidiary
            
            
            165,000
            
            
            —Other
            
            
            274,000
            
            
            150,000Changes
                in operating assets and liabilities:Escrowed
                cash
            
            
            4,086,000
            
            
            (3,000
            )Accounts
                receivable, net
            
            
            7,737,000
            
            
            (7,270,000
            )Estimated
                earnings in excess of billings
            
            
            (56,000
            )
            
            8,084,000Inventories,
                net
            
            
            (25,000
            )
            
            (147,000
            )Prepaid
                expenses and other assets
            
            
            (715,000
            )
            
            (869,000
            )Accounts
                payable and accrued expenses
            
            
            9,115,000
            
            
            (10,233,000
            )Billings
                in excess of cost and earnings
            
            
            (10,325,000
            )
            
            30,518,000Other
            
            
            (1,000
            )
            
            4,000Net
                cash provided by operating activities
            
            
            15,706,000
            
            
            22,975,000**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Payment
                of contingent acquisition price
            
            
            (2,000,000
            )
            
            —Investment
                in unconsolidated subsidiary
            
            
            (600,000
            )
            
            —Purchases
                of property and equipment, net
            
            
            (259,000
            )
            
            (206,000
            )Proceeds
                from sale of investments
            
            
            —
            
            
            2,272,000Net
                cash (used in) provided by investing activities
            
            
            (2,859,000
            )
            
            2,066,000**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Net
                proceeds from the private placement sale of common stock
            
            
            24,982,000
            
            
            —Proceeds
                from the exercise of stock options and warrants
            
            
            637,000
            
            
            —Principal
                payments on long-term debt
            
            
            (1,292,000
            )
            
            (1,294,000
            )Net
                cash provided by (used in) financing activities
            
            
            24,327,000
            
            
            (1,294,000
            )**NET
                INCREASE IN CASH AND CASH EQUIVALENTS**
            
            
            37,174,000
            
            
            23,747,000**CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD**
            
            
            66,827,000
            
            
            25,393,000**CASH
                AND CASH EQUIVALENTS, END OF PERIOD**
            
            $
            104,001,000
            
            $
            49,140,000**SUPPLEMENTAL
                CASH FLOW INFORMATION:**Cash
                paid for interest and income taxes as follows:Interest
            
            $
            228,000
            
            $
            729,000Income
                taxes
            
            $
            3,390,000
            
            $
            2,700,000Non-cash
                investing and financing activities are as follows:Net
                (increase) decrease in the fair value of interest rate
                swaps
            
            $
            (44
                ,000
            )
            $
            9,000




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


-
          5 -




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


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**JULY
      31, 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.





In
      June
      2008, the Company announced that GPS entered into a business partnership with
      Invenergy Wind Management LLC, for the design and construction of wind farms
      located in the United States and Canada. The partners each own 50% of a new
      company, Gemma Renewable Power, LLC (“GRP”). The Company expects that GRP will
      provide engineering, procurement and construction services for new wind farms
      generating 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 also plans to offer ongoing
      maintenance services to the wind farms.





**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. As discussed in Note 7, the Company accounts for its investment
      in GRP using the equity method.





The
      condensed consolidated balance sheet as of July 31, 2008, the condensed
      consolidated statements of operations for the three and six months ended July
      31, 2008 and 2007, and the condensed consolidated statements of cash flows
      for
      the six months ended July 31, 2008 and 2007 are unaudited. The condensed
      consolidated balance sheet as of January 31, 2008 has been derived from audited
      financial statements. Certain comparative amounts have been reclassified to
      conform with the presentation in the condensed consolidated financial statements
      for the current periods. 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 July 31, 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 U.S. 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.


-
          6 -


**Recently
      Issued Accounting Pronouncements**





In
      May
      2008, the Financial Accounting Standards Board (the “FASB”) issued Statement of
      Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles”. This statement identifies the sources of accounting
      principles and the framework for selecting the principles used in the
      preparation of financial statements of nongovernmental entities that are
      presented in conformity with U.S. GAAP (the “GAAP Hierarchy”) and mandates that
      the GAAP Hierarchy reside in the accounting literature as opposed to the audit
      literature. This pronouncement will become effective 60 days following approval
      by the SEC. The Company does not believe this pronouncement will impact its
      consolidated financial statements.





In
      April
      2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, “Determination of
      the Useful Life of Intangible Assets.” This FSP amends the factors that should
      be considered in developing renewal or extension assumptions used to determine
      the useful life of a recognized intangible asset under Statement of Financial
      Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”
(“SFAS No. 142”) and intends to improve the consistency between the useful life
      of a recognized intangible asset under SFAS No. 142 and the period of expected
      cash flows used to measure the fair value of the asset under FASB Statement
      of
      Financial Accounting Standards No. 141R (see description below) and other
      U.S. generally accepted accounting principles. This FSP is effective for the
      Company’s interim and annual financial statements beginning in the fiscal year
      ending January 31, 2010. The Company does not expect the adoption of this FSP
      to
      have a material impact on its consolidated financial statements.





In
      March
      2008, 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.





In
      December 2007, the FASB issued Statement of Financial Accounting Standards
      No. 141R, “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R
      replaces SFAS No. 141 and provides greater consistency in the accounting and
      financial reporting of business combinations. SFAS No. 141R 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. SFAS No. 141(R) will be
      effective for the Company 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 by the Company 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 the Company
      on
      February 1, 2009, and its adoption would not affect the Company’s 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 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.


-
          7 -





**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.





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 were included in the condensed consolidated
      balance sheets at July 31, 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 14).





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 of the current fiscal year.





**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 included
      in
      the condensed consolidated balance sheets at July 31, 2008 and January 31,
      2008
      were $298,000 and $242,000, respectively, and 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 July 31, 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 July 31,
      2008 and January 31, 2008 were $36,000 and $70,000, respectively. The Company
      incurred bad debt expense of $58,000 for the six months ended July 31, 2007,
      and
      had bad debt recoveries of $91,000, $17,000 and $6,000 for the three months
      ended July 31, 2008 and 2007, and the six months ended July 31, 2008,
      respectively. These amounts were reflected in selling, general and
      administrative expenses in the accompanying condensed consolidated statements
      of
      operations.





**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 were approximately $103,000 and $56,000,
      respectively, during the three months ended July 31, 2008 and 2007, and were
      approximately $171,000 and $92,000, respectively, during the six months ended
      July 31, 2008 and 2007.


-
          8 -





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





**July
                31,**
              **2008**
            
            **January
                31,**
              **2008**Raw
                materials
            
            $
            2,755,000
            
            $
            2,846,000Work-in
                process
            
            
            37,000
            
            
            43,000Finished
                goods
            
            
            150,000
            
            
            144,000Less:
                reserves
            
            
            (280,000
            )
            
            (225,000
            )Inventories,
                net
            
            $
            2,662,000
            
            $
            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, were approximately $308,000
      and $280,000, respectively, for the three months ended July 31, 2008 and 2007,
      and were approximately $611,000 and $560,000, respectively, for the six months
      ended July 31, 2008 and 2007. The costs of maintenance and repairs (totaling
      approximately $138,000 and $247,000 for the three and six months ended July
      31,
      2008) are expensed as incurred. Such costs were approximately $138,000 and
      $258,000, respectively, for the three and six months ended July 31, 2007. 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. During the three months ended July 31,
      2008,
      the Company recorded an impairment loss in the amount of $939,000 related to
      the
      fixed assets of VLI as described in Note 6.





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





**July
                31,**
              **2008**
            
            **January
                31,**
              **2008**Leasehold
                improvements
            
            $
            829,000
            
            $
            1,051,000Machinery
                and equipment
            
            
            2,869,000
            
            
            3,778,000Trucks
                and other vehicles
            
            
            1,293,000
            
            
            1,263,0004,991,000
            
            
            6,092,000Less
                – accumulated depreciation
            
            
            (3,499,000
            )
            
            (3,200,000
            )Property
                and equipment, net
            
            $
            1,492,000
            
            $
            2,892,000





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




In
      connection with the acquisitions of GPS, VLI and SMC, the Company recorded
      goodwill and other purchased intangible assets including contractual and other
      customer relationships, proprietary formulas, non-compete agreements and trade
      names. In accordance with FASB Statement of Financial Accounting Standards
      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
      FASB Statement of Financial Accounting Standards No. 144, “Accounting for the
      Impairment or Disposal of Long-Lived Assets.”





During
      the three months ended July 31, 2008, VLI continued to report operating results
      that were below expected results. The loss of major customers and the reduction
      in the amounts of orders received from currently major customers have caused
      net
      revenues to continue to decline and this business to operate at a loss.
      Accordingly, during the current quarter, we conducted analyses in order to
      determine whether additional impairment losses have occurred related to the
      goodwill and the long-lived assets of VLI. The assessment analyses indicated
      that the carrying value of the business exceeded its fair value, that the
      carrying values of VLI’s long-lived assets were not recoverable and that the
      carrying values of the long-lived assets exceeded their corresponding fair
      values. As a result, VLI recorded impairment losses related to goodwill, other
      purchased intangible assets, and fixed assets in the amounts of $921,000,
      $86,000 and $939,000, respectively, that were included in the condensed
      consolidated statements of operations for the three and six months ended July
      31, 2008.


-
          9 -


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





**July
                31, 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
            
            $
            2,190,000
            
            $
            1,988
                ,000
            
            $
            202,000
            
            $
            379,000Customer
                relationships - GPS
            
            
            1-2
                years
            
            
            6,678,000
            
            
            6,678,000
            
            
            —
            
            
            904,000Proprietary
                formulas - VLI
            
            
            3
                years
            
            
            1,813,000
            
            
            1,813,000
            
            
            —
            
            
            —Non-compete
                agreements - GPS and VLI
            
            
            5
                years
            
            
            1,731,000
            
            
            1,365,000
            
            
            366,000
            
            
            424,000Trade
                name - GPS
            
            
            15
                years
            
            
            3,643,000
            
            
            399,000
            
            
            3,244,000
            
            
            3,365,000**Intangible
                assets not being amortized:**Trade
                name - SMC
            
            
            Indefinite
            
            
            224,000
            
            
            —
            
            
            224,000
            
            
            224,000**Total
                other intangible assets**
            
            
            
            
            $
            16,279,000
            
            $
            12,243,000
            
            $
            4,036,000
            
            $
            5,296,000**Goodwill**
            
            
            Indefinite
            
            $
            19,416,000
            
            $
            —
            
            $
            19,416,000
            
            $
            20,337,000





Amortization
      expense totaling $402,000 for the three months ended July 31, 2008, consisted
      of
      $313,000, $61,000 and $28,000 for contractual customer relationships, the trade
      name and non-compete agreements, respectively. Amortization expense totaling
      $2,025,000 for the three months ended July 31, 2007, consisted of $1,733,000,
      $116,000, $115,000 and $61,000 for contractual customer relationships,
      non-compete agreements, proprietary formulas and the trade name,
      respectively.





Amortization
      expense totaling $1,174,000 for the six months ended July 31, 2008, consisted
      of
      $995,000, $122,000 and $57,000 for contractual customer relationships, the
      trade
      name and non-compete agreements, respectively. Amortization expense totaling
      $4,089,000 for the six months ended July 31, 2007, consisted of $3,505,000,
      $232,000, $230,000 and $122,000 for contractual customer relationships,
      non-compete agreements, proprietary formulas, and the trade name,
      respectively.





**NOTE
      7 – INVESTMENT IN UNCONSOLIDATED SUBSIDIARY**





In
      June
      2008, the Company announced that GPS had entered into a business partnership
      with Invenergy Wind Management LLC for the design and construction of
      wind-energy farms located in the United States and Canada. The business partners
      each own 50% of a new company, Gemma Renewable Power, LLC (“GRP”). The Company
      expects that GRP will provide engineering, procurement and construction services
      for new wind farms generating electrical power including the design and
      construction of roads, foundations, and electrical collection systems, as well
      as the erection of towers, turbines and blades. It is anticipated that the
      new
      venture shall also assist with some of the ongoing maintenance of the wind
      farms. In connection with the formation of GRP, each partner made cash
      investments totaling $600,000 during the current quarter. Pursuant to the
      formation agreement, each partner is obligated to make additional cash
      contributions of $2.4 million by September 15, 2008.





The
      Company accounts for its investment in GRP using the equity method. Under this
      method, the Company records its proportionate share of GRP’s net income or loss
      based on the most recent available quarterly financial statements. As GRP
      follows a calendar year basis of financial reporting, the Company’s results of
      operations for the three and six months ended July 31, 2008 included the
      Company’s share of GRP's net loss from the date of formation (May 27, 2008)
      through June 30, 2008; the Company’s share of the net loss for this period was
      approximately $165,000. The net investment in GRP was included in the Company’s
      condensed consolidated balance sheet at July 31, 2008 in the amount of
      $435,000.





During
      the start-up period of this business and under an agreement with GRP, GPS is
      incurring certain reimbursable costs on behalf of GRP. In addition, GPS provides
      certain administrative and accounting services for GRP. The amount of such
      reimbursable costs in the three months ended July 31, 2008 was approximately
      $539,000. At July 31, 2008, the unpaid portion of this amount, approximately
      $141,000, was included in prepaid expenses and other current assets in the
      condensed consolidated balance sheet.


-
          10 -





**NOTE
      8 - 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
      (2.46% at July 31, 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 $542,000 and
      $4,833,000, respectively, as of July 31, 2008; no borrowed amounts were
      outstanding under the revolving loan as of July 31, 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 July 31, 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 July 31, 2008 and January 31,
      2008, the Company’s consolidated balance sheets included liabilities in the
      amounts of $63,000 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.





Total
      interest expense amounts related to the VLI and GPS loans were $106,000 and
      $180,000 for the three months ended July 31, 2008 and 2007, respectively, and
      were $225,000 and $368,000 for the six months ended July 31, 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
      the bonding facility provided to GPS.





**NOTE
      9 – PRIVATE PLACEMENT OF COMMON STOCK**





In
      July
      2008, the Company completed a private placement sale of 2.2 million shares
      of
      common stock to investors at a price of $12.00 per share that provided net
      proceeds of approximately $25 million. It is expected that the proceeds will
      provide resources to support GPS’s cash requirements relating to the new
      wind-power energy subsidiary described in Note 7 and will make available
      additional collateral to support the bonding requirements associated with future
      energy plant construction projects.





Allen
      & Company LLC (“Allen”) served as placement agent for the stock offering and
      was paid a fee of approximately $1.3 million for their services by the Company.
      One of the members of our Board of Directors is a managing director of Allen.





**NOTE
      10 - 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 1,150,000 shares of the
      Company’s common stock, including 500,000 shares that were authorized for award
      at the Company’s Annual Meeting for Stockholders held in June
      2008.


-
          11 -





A
      summary
      of stock option activity under the Option Plan during the six months ended
      July
      31, 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
            
            
            120,000
            
            $
            12.05Exercised
            
            
            (88,000
            )
            $
            6.14Forfeited
                or expired
            
            
            (1,000
            )
            $
            7.87Outstanding,
                July 31, 2008
            
            
            457,000
            
            $
            7.62
            
            
            7.6
            
            $
            4.35Exercisable,
                July 31, 2008
            
            
            232,000
            
            $
            4.19
            
            
            6.2
            
            $
            2.40Exercisable,
                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 six months ended July 31, 2008 was $6.68.





Compensation
      expense amounts relating to vesting stock options were $391,000 and $86,000,
      respectively, in the three months ended July 31, 2008 and 2007 and were $788,000
      and $100,000, respectively, in the six months ended July 31, 2008 and 2007.
      At
      July 31, 2008, there was $625,000 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 June
      2009. The total intrinsic value of the stock options exercised during the six
      months ended July 31, 2008 was approximately $798,000. The aggregate intrinsic
      value amount for exercisable stock options at July 31, 2008 was approximately
      $2,851,000.





The
      fair
      value of each stock option granted in the six months ended July 31, 2008 was
      estimated on the date of award using the Black-Scholes option-pricing model
      based on the following weighted average assumptions.


**Six Months**
                **Ended July 31,**
                **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 214,000 shares of the
      Company’s common stock as of July 31, 2008, 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 also 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 issued warrants of $849,000 was recognized
      as offering costs. All warrants are exercisable and expire in April
      2013.




At
      July
      31, 2008, there were 1,257,000 shares of the Company’s common stock available
      for issuance upon the exercise of stock options and warrants, including 587,000
      shares of the Company’s common stock available for award under the Option
      Plan.




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




Basic
      income per share amounts for the three and six months ended July 31, 2008,
      and
      the three months ended July 31, 2007, were computed by dividing net income
      by
      the weighted average number of common shares outstanding for the respective
      period. Diluted income per share was computed by dividing net income by the
      weighted average number of common shares outstanding during the period plus
      366,000, 361,000 and 102,000 shares representing the total dilutive effects
      of
      outstanding stock options and warrants for the three and six months ended July
      31, 2008, and the three months ended July 31, 2007, respectively.


-
          12 -




Basic
      loss per share for the six months ended July 31, 2007 was calculated by dividing
      the net loss for the period 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
      12 - INCOME TAXES**




The
      Company’s income tax (expense) benefit for the six months ended July 31, 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 six
      months ended July 31, 2008, the unfavorable tax effect of permanent items
      relates primarily to the impairment loss recorded in the current year related
      to
      the goodwill of VLI. This impairment loss is not deductible for income tax
      reporting purposes.





**2008**
            
            **2007**Computed
                expected income tax (expense) benefit
            
            $
            (1,368,000
            )
            $
            234,000State
                income taxes, net
            
            
            (150,000
            )
            
            (203,000
            )Permanent
                differences
            
            
            (144,000
            )
            
            (24,000
            )$
            (1,662,000
            )
            $
            7,000





As
      of
      July 31, 2008 and January 31, 2008, accrued expenses included income tax amounts
      currently payable of approximately $498,000 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.





**NOTE
      13 - TERMINATED CONSTRUCTION CONTRACT**




Under
      the
      terms of an amended agreement with a customer covering the engineering,
      procurement and construction of an ethanol production facility (the “EPC
      Agreement”), March 19, 2008 was the deadline for the customer to obtain
      financing for the completion of the project. Financing was not obtained and
      the
      EPC Agreement was terminated. 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 July 31, 2008 and January 31, 2008, the Company’s
      consolidated 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 July 31, 2008, GPS
      does
      not anticipate any losses to arise from the resolution of this EPC Agreement.
      No
      net revenues were recorded in the six months ended July 31, 2008 related to
      this
      project.





**NOTE
      14 - 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.


-
          13
          -




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 and oral arguments occurred on June 3, 2008. On
      August
      25, 2008, the Ninth Circuit Court of Appeals reversed the summary judgment
      decision and remanded the case back to the District Court.




The
      Company has reviewed WFC’s claims and continues to believe that they are without
      merit. The Company intends to continue vigorously defending this litigation. 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. The Company’s condensed consolidated
      balance sheet at July 31, 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 the completion of this litigation.




**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 July 31,
      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 July 31, 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.





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
      15 - 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 prior year expense amount under
      this arrangement of $45,000 was recorded in the quarter ended April 30,
      2007.


-
          14
          -




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 prior year net revenues related to this entity through
      the aforementioned termination in March 2007 which were recorded in the quarter
      ended April 30, 2007; this amount was collected.





**NOTE
      16 - 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 and six months
      ended July 31, 2008 and 2007, except for total assets and goodwill which amounts
      are presented as of those dates:





**Three
                Months Ended July 31, 2008**
            
            **Power Industry**
              **Services**
            
            **Nutritional**
              **Products**
            
            **Telecom**
              **Infrastructure**
              **Services**
            
            **Other**
            
            **Consolidated**Net revenues
            
            $
            70,639,000
            
            $
            2,226,000
            
            $
            2,233,000
            
            
            —
            
            $
            75,098,000Cost
                of revenues
            
            
            63,108,000
            
            
            2,395,000
            
            
            1,875,000
            
            
            —
            
            
            67,378,000Gross
                profit
            
            
            7,531,000
            
            
            (169,000
            )
            
            358,000
            
            
            —
            
            
            7,720,000Selling,
                general and administrative expenses
            
            
            1,579,000
            
            
            799,000
            
            
            408,000
            
            
            1,230,000
            
            
            4,016,000Impairment
                losses of VLI
            
            
            —
            
            
            1,946,000
            
            
            —
            
            
            —
            
            
            1,946,000Income
                (loss) from operations
            
            
            5,952,000
            
            
            (2,914,000
            )
            
            (50,000
            )
            
            (1,230,000
            )
            
            1,758,000Interest
                expense
            
            
            (92,000
            )
            
            (16,000
            )
            
            —
            
            
            —
            
            
            (108,000
            )Interest
                income
            
            
            390,000
            
            
            —
            
            
            —
            
            
            42,000
            
            
            432,000Equity
                in the net loss of unconsolidated subsidiary
            
            
            (165,000
            )
            
            —
            
            
            —
            
            
            —
            
            
            (165,000
            )Income
                (loss) before income taxes
            
            $
            6,085,000
            
            $
            (2,930,000
            )
            $
            (50,000
            )
            $
            (1,188,000
            )
            
            1,917,000Income
                tax expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,111,000
            )Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            806,000Amortization
                of purchased intangibles
            
            $
            355,000
            
            $
            21,000
            
            $
            26,000
            
            $
            —
            
            $
            402,000Depreciation
                and other amortization
            
            $
            51,000
            
            $
            149,000
            
            $
            141,000
            
            $
            3,000
            
            $
            344,000Goodwill
            
            $
            18,476,000
            
            $
            —
            
            $
            940,000
            
            $
            —
            
            $
            19,416,000Total
                assets
            
            $
            130,399,000
            
            $
            4,980,000
            
            $
            4,243,000
            
            $
            30,373,000
            
            $
            169,995,000Fixed
                asset additions
            
            $
            40,000
            
            $
            75,000
            
            $
            31,000
            
            $
            —
            
            $
            146,000





-
          15
          -





**Three
                Months Ended July 31, 2007**
            
            **Power Industry**
              **Services**
            
            **Nutritional**
              **Products**
            
            **Telecom**
              **Infrastructure**
              **Services**
            
            **Other**
            
            **Consolidated**Net revenues
            
            $
            45,599,000
            
            $
            5,036,000
            
            $
            2,502,000
            
            $
            —
            
            $
            53,137,000Cost
                of revenues
            
            
            40,590,000
            
            
            4,122,000
            
            
            1,858,000
            
            
            —
            
            
            46,570,000Gross
                profit
            
            
            5,009,000
            
            
            914,000
            
            
            644,000
            
            
            —
            
            
            6,567,000Selling,
                general and administrative expenses
            
            
            2,553,000
            
            
            1,015,000
            
            
            340,000
            
            
            865,000
            
            
            4,773,000Income
                (loss) from operations
            
            
            2,456,000
            
            
            (101,000
            )
            
            304,000
            
            
            (865,000
            )
            
            1,794,000Interest
                expense
            
            
            (155,000
            )
            
            (30,000
            )
            
            —
            
            
            —
            
            
            (185,000
            )Interest
                income
            
            
            657,000
            
            
            —
            
            
            —
            
            
            —
            
            
            657,000Income
                (loss) before income taxes
            
            $
            2,958,000
            
            $
            (131,000
            )
            $
            304,000
            
            $
            (865,000
            )
            
            2,266,000Income
                tax expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (932,000
            )Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,334,000Amortization
                of purchased intangibles
            
            $
            1,695,000
            
            $
            304,000
            
            $
            26,000
            
            $
            —
            
            $
            2,025,000Depreciation
                and other amortization
            
            $
            41,000
            
            $
            149,000
            
            $
            126,000
            
            $
            4,000
            
            $
            320,000Goodwill
            
            $
            16,476,000
            
            $
            6,565,000
            
            $
            940,000
            
            $
            —
            
            $
            23,981,000Total
                assets
            
            $
            116,531,000
            
            $
            14,850,000
            
            $
            4,484,000
            
            $
            2,689,000
            
            $
            138,554,000Fixed
                asset additions
            
            $
            —
            
            $
            39,000
            
            $
            85,000
            
            $
            —
            
            $
            124,000





**Six
                Months Ended July 31, 2008**
            
            **Power Industry**
              **Services**
            
            **Nutritional**
              **Products**
            
            **Telecom**
              **Infrastructure**
              **Services**
            
            **Other**
            
            **Consolidated**Net revenues
            
            $
            114,647,000
            
            $
            4,625,000
            
            $
            4,232,000
            
            
            —
            
            $
            123,504,000Cost
                of revenues
            
            
            101,684,000
            
            
            4,718,000
            
            
            3,649,000
            
            
            —
            
            
            110,051,000Gross
                profit
            
            
            12,963,000
            
            
            (93,000
            )
            
            583,000
            
            
            —
            
            
            13,453,000Selling,
                general and administrative expenses
            
            
            3,420,000
            
            
            1,515,000
            
            
            751,000
            
            
            2,341,000
            
            
            8,027,000Impairment
                losses of VLI
            
            
            —
            
            
            1,946,000
            
            
            —
            
            
            —
            
            
            1,946,000Income
                (loss) from operations
            
            
            9,543,000
            
            
            (3,554,000
            )
            
            (168,000
            )
            
            (2,341,000
            )
            
            3,480,000Interest
                expense
            
            
            (195,000
            )
            
            (33,000
            )
            
            —
            
            
            —
            
            
            (228,000
            )Interest
                income
            
            
            894,000
            
            
            —
            
            
            —
            
            
            42,000
            
            
            936,000Equity
                in the net loss of unconsolidated subsidiary
            
            
            (165,000
            )
            
            —
            
            
            —
            
            
            —
            
            
            (165,000
            )Income
                (loss) before income taxes
            
            $
            10,077,000
            
            $
            (3,587,000
            )
            $
            (168,000
            )
            $
            (2,299,000
            )
            
            4,023,000Income
                tax expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,662,000
            )Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            2,361,000Amortization
                of purchased intangibles
            
            $
            1,079,000
            
            $
            43,000
            
            $
            52,000
            
            $
            —
            
            $
            1,174,000Depreciation
                and other amortization
            
            $
            99,000
            
            $
            297,000
            
            $
            283,000
            
            $
            4,000
            
            $
            683,000Fixed
                asset additions
            
            $
            89,000
            
            $
            131,000
            
            $
            44,000
            
            $
            —
            
            $
            264,000




-
          16
          -





**Six
                Months Ended July 31, 2007**
            
            **Power Industry**
              **Services**
            
            **Nutritional**
              **Products**
            
            **Telecom**
              **Infrastructure**
              **Services**
            
            **Other**
            
            **Consolidated**Net revenues
            
            $
            88,953,000
            
            $
            9,985,000
            
            $
            4,631,000
            
            
            —
            
            $
            103,569,000Cost
                of revenues
            
            
            83,835,000
            
            
            8,288,000
            
            
            3,701,000
            
            
            —
            
            
            95,824,000Gross
                profit
            
            
            5,118,000
            
            
            1,697,000
            
            
            930,000
            
            
            —
            
            
            7,745,000Selling,
                general and administrative expenses
            
            
            5,105,000
            
            
            2,185,000
            
            
            698,000
            
            
            1,346,000
            
            
            9,334,000Income
                (loss) from operations
            
            
            13,000
            
            
            (488,000
            )
            
            232,000
            
            
            (1,346,000
            )
            
            (1,589,000
            )Interest
                expense
            
            
            (316,000
            )
            
            (61,000
            )
            
            —
            
            
            (1,000
            )
            
            (378,000
            )Interest
                income
            
            
            1,266,000
            
            
            —
            
            
            10,000
            
            
            3,000
            
            
            1,279,000Income
                (loss) before income taxes
            
            $
            963,000
            
            $
            (549,000
            )
            $
            242,000
            
            $
            (1,344,000
            )
            
            (688,000
            )Income
                tax benefit
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            7,000Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (681,000
            )Amortization
                of purchased intangibles
            
            $
            3,428,000
            
            $
            609,000
            
            $
            52,000
            
            $
            —
            
            $
            4,089,000Depreciation
                and other amortization
            
            $
            94,000
            
            $
            293,000
            
            $
            249,000
            
            $
            8,000
            
            $
            644,000Fixed
                asset additions
            
            $
            4,000
            
            $
            124,000
            
            $
            96,000
            
            $
            —
            
            $
            224,000





During
      the three and six months ended July 31, 2008, the majority of the Company’s net
      revenues related to engineering, procurement and construction services provided
      by GPS to the power industry. Total net revenues from power industry services
      accounted for approximately 94% and 93% of consolidated net revenues for the
      periods, respectively. The Company’s most significant current year customer
      relationships included two power industry service customers which accounted
      for
      approximately 52% and 42%, respectively, of consolidated net revenues for the
      current quarter, and approximately 43% and 49%, respectively, of consolidated
      net revenues year to date. VLI, which provides nutritional and whole-food
      supplements as well as personal care products to customers in the global
      nutrition industry, accounted for approximately 3% and 4% of consolidated net
      revenues for the three and six months ended July 31, 2008. SMC, which provides
      infrastructure services to telecommunications and utility customers as well
      as
      to the federal government, accounted for approximately 3% of consolidated net
      revenues for both the three and six month periods ended July 31,
      2008.





For
      both
      the three and six months ended July 31, 2007, net revenues from power industry
      services accounted for approximately 86% of consolidated net revenues. The
      Company’s most significant customer relationships during this period included
      four power industry service customers, which accounted for approximately 27%,
      22%, 22% and 8%, respectively, of consolidated net revenues for the three months
      ended July 31, 2007, and approximately 27%, 19%, 19% and 13%, respectively,
      of
      consolidated net revenues for the six months ended July 31, 2007. VLI and SMC
      accounted for approximately 10% and 5%, respectively, of consolidated net
      revenues for the three months ended July 31, 2007, and approximately 10% and
      5%,
      respectively, of consolidated net revenues for the six months ended July 31,
      2007.


**NOTE
        17 - SUBSEQUENT EVENT**
  On
        September 4, 2008, one of the major subcontractors on the terminated
        construction contract discussed in Note 13 filed a third-party complaint
        against
        GPS in the United States District Court for the Eastern District of Virginia
        seeking payment of certain amounts for equipment plus interest. GPS believes
        that the condensed consolidated balance sheet at July 31, 2008 includes all
        amounts owed under the subcontractor agreement and intends to vigorously
        defend
        this lawsuit.


-
          17
          -





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




The
      following discussion summarizes the financial position of Argan, Inc. and its
      subsidiaries as of July 31, 2008, and the results of operations for the three
      and six months ended July 31, 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, net revenues, 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 obsolescence, goodwill and other intangible assets
      with indefinite lives, long lived assets, contingent obligations, and deferred
      taxes. Actual results could differ from these estimates.





**New
      Accounting Pronouncements**





In
      May
      2008, the Financial Accounting Standards Board (the “FASB”) issued Statement of
      Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles.” This statement identifies the sources of accounting
      principles and the framework for selecting the principles used in the
      preparation of financial statements of nongovernmental entities that are
      presented in conformity with U.S. GAAP (the “GAAP Hierarchy”) and mandates that
      the GAAP Hierarchy reside in the accounting literature as opposed to the audit
      literature. This pronouncement will become effective 60 days following approval
      by the SEC. We do not believe this pronouncement will impact our consolidated
      financial statements .


-
          18
          -




In
      April
      2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, “Determination of
      the Useful Life of Intangible Assets.” This FSP amends the factors that should
      be considered in developing renewal or extension assumptions used to determine
      the useful life of a recognized intangible asset under FASB Statement of
      Financial Accounting Standards No. 142, “Goodwill and Other Intangible
      Assets.” (“SFAS No. 142”) and intends to improve the consistency between the
      useful life of a recognized intangible asset under SFAS No. 142 and the period
      of expected cash flows used to measure the fair value of the asset under FASB
      Statement of Financial Accounting Standards No. 141R (see description
      below) and other U.S. generally accepted accounting principles. This FSP is
      effective for our interim and annual financial statements beginning in the
      fiscal year commencing February 1, 2009. We do not expect the adoption of this
      FSP to have a material impact on our consolidated financial
      statements.





In
      March
      2008, 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.





In
      December 2007, the FASB issued Statement of Financial Accounting Standards
      No. 141R, “Business Combinations” (“SFAS No. 141R”) which replaces SFAS No.
      141 and provides greater consistency in the accounting and financial reporting
      of business combinations. SFAS No. 141R 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 No. 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.** In
      May
      2008, the Company announced that GPS signed an engineering, procurement and
      construction agreement with Pacific Gas & Electric Company (“PG&E”) in
      the amount of $336 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.


-
          19
          -




In
      July
      2008, the Company announced that GPS signed an engineering, procurement and
      construction agreement and received a limited notice to proceed from Competitive
      Power Ventures Inc. (“CPV”) to design and build the Sentinel Power Project. This
      project, valued at $211 million, consists of eight simple cycle gas-fired
      peaking plants with a total power rating of 800 megawatts to be located in
      southern California. The first phase of the project, including the construction
      of five units, is expected to be completed in the summer of 2010. The second
      phase includes the construction of the remaining three units and is expected
      to
      be completed in the spring of 2011. CPV has a power supply agreement with
      Southern California Edison covering five of the units.





The
      addition of these contracts increased our energy-plant construction contract
      backlog to approximately $530 million at July 31, 2008. The construction
      contract backlog of GPS was $122 million at January 31, 2008.





Under
      the
      terms of an amended agreement with a customer covering the engineering,
      procurement and construction of an ethanol production facility (the “EPC
      Agreement”), March 19, 2008 was the deadline for the customer to obtain
      financing for the completion of the project. Financing was not obtained and
      the
      EPC Agreement was terminated. 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 July 31, 2008 and January 31, 2008, our condensed
      consolidated 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 July 31, 2008, GPS
      does
      not anticipate any losses to arise from the resolution of this EPC Agreement.
      No
      net revenues were recorded in the six months ended July 31, 2008 related to
      this
      project.





**Investment
      in Unconsolidated Subsidiary.** In
      June
      2008, the Company announced that GPS had entered into a business partnership
      with Invenergy Wind Management LLC, for the design and construction of wind
      farms located in the United States and Canada. The business partners each own
      50% of a new company, Gemma Renewable Power, LLC (“GRP”). The Company expects
      that GRP will provide engineering, procurement and construction services for
      new
      wind farms generating electrical power including the design and construction
      of
      roads, foundations, and electrical collection systems, as well as the erection
      of towers, turbines and blades. It is expected that GRP will also assist with
      some of the ongoing servicing of the wind farms. During the start-up phase
      of
      this new business and pursuant to the formation document, GPS has contributed
      $600,000 cash to GRP. In accordance with the equity method of accounting for
      unconsolidated subsidiaries, the condensed consolidated statements of operations
      for the three and six months ended July 31, 2008 include our share of the net
      loss incurred to date by GRP in the amount of approximately $165,000.





**Performance
      of VLI.** VLI
      continued to report operating results that were below expected results. The
      loss
      of major customers and the reduction in the amounts of orders received from
      currently major customers have caused net revenues to continue to decline and
      this business to operate at a loss. VLI is actively pursuing opportunities
      to
      expand the volume of business related to current customers and secure business
      from new customers. However, there is no assurance that business will improve.
      Accordingly, during the current quarter, we conducted analyses in order to
      determine whether additional impairment losses have occurred related to the
      goodwill and the long-lived assets of VLI. The assessment analyses indicated
      that the carrying value of the business exceeded its fair value, that the
      carrying values of VLI’s long-lived assets were not recoverable and that the
      carrying values of the long-lived assets exceeded their corresponding fair
      values. As a result, VLI recorded impairment losses related to goodwill, other
      purchased intangible assets, and fixed assets in the amounts of $921,000,
      $86,000 and $939,000, respectively, that were included in the condensed
      consolidated statements of operations for the three and six months ended July
      31, 2008. These adjustments eliminated the remaining carrying value of VLI’s
      goodwill and reduced the carrying values of VLI’s other purchased intangible
      assets and fixed assets to approximately $8,000 and $135,000, respectively.





**Legal
      Matters.** As
      described in Item 1 of Part II of this Form 10-Q and in Note 14 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.


-
          20
          -




As
      described in Item 1 of Part II of this Form 10-Q and in Note 14 to the condensed
      consolidated financial statements, in March 2007, the United States District
      Court for the Central District of California granted our motion for summary
      judgment, thereby dismissing the civil action brought by Western Filter
      Corporation (“WFC”) relating to WFC’s purchase of the capital stock of Puroflow
      Incorporated (“Puroflow”), formerly our wholly-owned subsidiary. WFC appealed
      the District Court’s decision. On August 25, 2008, the Ninth Circuit Court of
      Appeals reversed the summary judgment decision and remanded the case back to
      the
      District Court. We continue to believe that WFC’s claims are without merit and
      intend to continue to defend this litigation vigously. 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. The Company’s condensed consolidated balance sheet at
      July 31, 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 the completion of this litigation.





**Comparison
      of the Results of Operations for the Three Months Ended July 31, 2008 and
      2007**





The
      following schedule compares the results of our operations for the three months
      ended July 31, 2008 and 2007. Except where noted, the percentage amounts
      represent the percentage of net revenues for the corresponding
      period.




**Three Months Ended July 31,****2008**
            
            **2007**Net
                revenuesPower
                industry services
            
            $
            70,639,000
            
            
            94.1
            %
            $
            45,599,000
            
            
            85.8
            %Nutritional
                products
            
            
            2,226,000
            
            
            2.9
            %
            
            5,036,000
            
            
            9.5
            %Telecommunications
                infrastructure services
            
            
            2,233,000
            
            
            3.0
            %
            
            2,502,000
            
            
            4.7
            %Net
                revenues
            
            
            75,098,000
            
            
            100.0
            %
            
            53,137,000
            
            
            100.0
            %Cost
                of revenues **Power
                industry services
            
            
            63,108,000
            
            
            89.3
            %
            
            40,590,000
            
            
            89.0
            %Nutritional
                products
            
            
            2,395,000
            
            
            107.6
            %
            
            4,122,000
            
            
            81.9
            %Telecommunications
                infrastructure services
            
            
            1,875,000
            
            
            84.0
            %
            
            1,858,000
            
            
            74.3
            %Cost
                of revenues
            
            
            67,378,000
            
            
            89.7
            %
            
            46,570,000
            
            
            87.6
            %Gross
                profit
            
            
            7,720,000
            
            
            10.3
            %
            
            6,567,000
            
            
            12.4
            %Selling,
                general and administrative expenses
            
            
            4,016,000
            
            
            5.4
            %
            
            4,773,000
            
            
            9.0
            %Impairment
                losses of VLI
            
            
            1,946,000
            
            
            2.6
            %
            
            —
            
            
            —
            %Income
                from operations
            
            
            1,758,000
            
            
            2.3
            %
            
            1,794,000
            
            
            3.4
            %Interest
                expense
            
            
            (108,000
            )
            
            *
            
            
            (185,000
            )
            
            *Interest
                income
            
            
            432,000
            
            
            *
            
            
            657,000
            
            
            1.2
            %Equity
                in the net loss of unconsolidated subsidiary
            
            
            (165,000
            )
            
            *
            
            
            —
            
            
            —
            %Income
                from operations before income taxes
            
            
            1,917,000
            
            
            2.6
            %
            
            2,266,000
            
            
            4.3
            %Income
                tax expense
            
            
            (1,111,000
            )
            
            (1.5
            )%
            
            (932,000
            )
            
            (1.8
            )%Net
                income
            
            $
            806,000
            
            
            1.1
            %
            $
            1,334,000
            
            
            2.5
            %




*
      Less
      than 1%.




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





The
      following analysis provides information as to the results of our operations
      for
      the three month periods ended July 31, 2008 and 2007. As analyzed below, we
      reported net income of $806,000 for the three months ended July 31, 2008, or
      $0.07 per diluted share. For the three months ended July 31, 2007, we reported
      net income of $1.3 million, or $0.12 per diluted share.





**Net
      Revenues** **.**  Net
      revenues increased by approximately 41.3% in the three months ended July 31,
      2008 compared with the three months ended July 31, 2007 due to an increase
      in
      the net revenues of GPS, partially offset by a 55.8% reduction in the net
      revenues of VLI and 10.8% reduction in the net revenues of SMC.





The
      business of GPS represented 94.1% of consolidated net revenues for the quarter
      ended July 31, 2008. This business represented 85.8% of consolidated net
      revenues for the quarter ended July 31, 2007. The two significant customers
      of
      the power industry services business for the current quarter represented
      approximately 55.1% and 44.6% of the net revenues of this business segment
      for
      the current quarter, respectively, and represented approximately 51.8% and
      42.1%
      of our consolidated net revenues for the current quarter, respectively. The
      net
      revenues were boosted in the current quarter by the effect of equipment
      purchases occurring during the early portion of the power plant project.


-
          21
          -




The
      four
      significant customers of the power industry services business for the quarter
      ended July 31, 2007 represented approximately 91.7% of its net revenues for
      the
      quarter ended July 31, 2007. The net revenues for these four customers
      represented approximately 26.7%, 22.3%, 21.5% and 8.2% of the Company’s
      consolidated net revenues for the three months ended July 31, 2007,
      respectively.





The
      net
      revenues from the sale of nutritional products by VLI were $2.2 million for
      the
      three months ended July 31, 2008, and represented 2.9% of consolidated net
      revenues. The net revenues from the sale of nutritional products were $5.0
      million for the three months ended July 31, 2007. This amount represented 9.5%
      of consolidated net revenues for the prior-year period. The decrease in the
      net
      revenues of nutritional products of $2.8 million, or 55.8%, primarily was due
      to
      the loss of several customers and declines in the sales of products to most
      of
      VLI’s largest current customers.




Net
      revenues of the telecommunications infrastructure services of SMC were $2.2
      million for the three months ended July 31, 2008 compared to $2.5 million for
      the three months ended July 31, 2007, representing a decrease in the net
      revenues of SMC of approximately 10.8%. The net revenues of this business
      segment for the three months ended July 31, 2008 and 2007 were 3.0% and 4.7%
      of
      consolidated net revenues for the corresponding periods, respectively. Net
      revenues related to inside premises customers increased by approximately 59.9%
      for the three months ended July 31, 2008 compared with the corresponding three
      months of the prior year. However, this strong performance was more than offset
      by a reduction in the net revenues related to outside plant jobs. Although
      SMC
      signed a new two-year contract with Verizon during the current quarter and
      net
      revenues related to this customer increased compared to the first quarter,
      the
      level of business from this customer has declined substantially between years.
      The uncertain contract situation and Verizon’s focus on its new FIOS
      transmission technology have adversely affected our business. Work performed
      for
      SMC’s other large outside plant customer also decreased between years.





**Cost
      of Revenues.** The cost
      of revenues for the power industry services business of GPS increased in the
      three months ended July 31, 2008 to $63.1 million from $40.6 million in the
      three months ended July 31, 2007. The cost of revenues as a percentage of
      corresponding net revenues remained constant between years; the percentage
      was
      89.3% in the current quarter compared with 89.0% in the second quarter of last
      year. The portion of the loss on one significant project that was recorded
      in
      last year’s second quarter was offset by the favorable profit performance of
      other large projects during the period.





Although
      the cost of revenues for the nutritional products business of VLI decreased
      in
      the three-month period ended July 31, 2008 to $2.4 million from $4.1 million
      in
      the three months ended July 31, 2007, the cost of revenues percentage increased
      to 107.6% of net revenues in the current quarter from a percentage of 81.9%
      in
      the corresponding quarter of the prior year. On an overall basis, raw material
      costs as a percentage of net revenues increased between quarters due primarily
      to product pricing pressure from customers and a $103,000 charge for inventory
      obsolescence recorded in the current quarter. 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
      revenues.





Cost
      of
      revenues for the telecommunication infrastructure services business of SMC
      increased by $17,000, or approximately 1.0%, in the current quarter compared
      with the same quarter a year ago, but increased as a percentage of corresponding
      net revenues to 84.0% in the current quarter from 74.3% in the first quarter
      last year.





Primarily
      as a result of the improvement in the performance of GPS, our overall gross
      profit increased to $7.7 million for the three months ended July 31, 2008 from
      $6.6 million for the three months ended July 31, 2007. However, our gross profit
      percentage declined to 10.3% for the current quarter from a percentage of 12.4%
      in the corresponding period of the prior year due to the profitability declines
      experienced by VLI and SMC during the current quarter.





**Selling,
      General and Administrative Expenses.** These
      costs decreased to $4.0 million for the three months ended July 31, 2008 from
      $4.8 million for the three months ended July 31, 2007, a reduction of
      approximately $757,000, or 15.9%.




Amortization
      expense related to purchased intangible assets decreased by approximately $1.6
      million in the current quarter compared with the second quarter of last year
      as
      the amortization expense related to contractual and other customer relationships
      decreased between quarters by approximately $1.4 million. 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 were increases in other selling, general
      and
      administrative expenses at each company, most significantly salary expense
      at
      GPS and corporate legal expenses.


-
          22
          -




**Impairment
      Losses.** During
      the current quarter and as described above, VLI recorded impairment losses
      related to goodwill, other purchased intangible assets, and fixed assets in
      the
      amounts of $921,000, $86,000 and $939,000, respectively.





**Interest
      Income and Expense.** We
      reported interest income of $432,000 for the three months ended July 31, 2008
      compared to interest income of $657,000 for the three months ended July 31,
      2007. During the current year, our cash balances have been invested in liquid
      money-market type collective funds. Although favorable cash flow from operations
      during the past fifteen months and the proceeds of the private placement sale
      of
      our common stock in the current quarter have increased the balance of our cash
      and cash equivalents, investment returns have declined as short-term interest
      rates have dropped substantially over the last year. Interest expense declined
      to $108,000 in the current quarter from $185,000 in the comparable quarter
      of
      the prior year due to 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 $5.4 million at July 31,
      2008
      from approximately $8.0 million at July 31, 2007.





**Income
      Tax Expense and Benefit.** For the
      three months ended July 31, 2008, we incurred income tax expense of $1.1 million
      reflecting an effective income tax rate of 58.0%. The effective tax rate for
      the
      current quarter differs from the expected federal income tax rate of 34% due
      primarily to the effect of the impairment loss recorded in the current quarter
      related to the goodwill of VLI. This loss is not deductible for income tax
      reporting purposes. It was treated as a discreet item in the determination
      of
      the current year effective income tax rate. In addition, we established a
      valuation allowance during the current quarter related to the deferred state
      taxes of VLI in the amount of $57,000.




**Comparison
      of the Results of Operations for the Six Months Ended July 31, 2008 and
      2007**





The
      following schedule compares the results of our operations for the six months
      ended July 31, 2008 and 2007. Except where noted, the percentage amounts
      represent the percentage of net revenues for the corresponding
      period.




**Six Months Ended July 31,****2008**
            
            **2007**Net
                revenuesPower
                industry services
            
            $
            114,647,000
            
            
            92.8
            %
            $
            88,953,000
            
            
            85.9
            %Nutritional
                products
            
            
            4,625,000
            
            
            3.8
            %
            
            9,985,000
            
            
            9.6
            %Telecommunications
                infrastructure services
            
            
            4,232,000
            
            
            3.4
            %
            
            4,631,000
            
            
            4.5
            %Net
                revenues
            
            
            123,504,000
            
            
            100.0
            %
            
            103,569,000
            
            
            100.0
            %Cost
                of revenues **Power
                industry services
            
            
            101,684,000
            
            
            88.7
            %
            
            83,835,000
            
            
            94.2
            %Nutritional
                products
            
            
            4,718,000
            
            
            102.0
            %
            
            8,288,000
            
            
            83.0
            %Telecommunications
                infrastructure services
            
            
            3,649,000
            
            
            86.2
            %
            
            3,701,000
            
            
            79.9
            %Cost
                of revenues
            
            
            110,051,000
            
            
            89.1
            %
            
            95,824,000
            
            
            92.5
            %Gross
                profit
            
            
            13,453,000
            
            
            10.9
            %
            
            7,745,000
            
            
            7.5
            %Selling,
                general and administrative expenses
            
            
            8,027,000
            
            
            6.5
            %
            
            9,334,000
            
            
            9.0
            %Impairment
                losses of VLI
            
            
            1,946,000
            
            
            1.6
            %
            
            —
            
            
            —
            %Income
                (loss) from operations
            
            
            3,480,000
            
            
            2.8
            %
            
            (1,589,000
            )
            
            (1.5
            )%Interest
                expense
            
            
            (228,000
            )
            
            *
            
            
            (378,000
            )
            
            *Interest
                income
            
            
            936,000
            
            
            *
            
            
            1,279,000
            
            
            1.2
            %Equity
                in the net loss of unconsolidated subsidiary
            
            
            (165,000
            )
            
            *
            
            
            —
            
            
            —
            %Income
                (loss) from operations before income taxes
            
            
            4,023,000
            
            
            3.2
            %
            
            (688,000
            )
            
            *Income
                tax (expense) benefit
            
            
            (1,662,000
            )
            
            (1.3
            )%
            
            7,000
            
            
            *Net
                income (loss)
            
            $
            2,361,000
            
            
            1.9
            %
            $
            (681,000
            )
            
            *





*
      Less
      than 1%.




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





The
      following analysis provides information as to the results of our operations
      for
      the six month periods ended July 31, 2008 and 2007. As analyzed below, we
      reported net income of $2.4 million for the six months ended July 31, 2008,
      or
      $0.20 per diluted share. For the six months ended July 31, 2007, we reported
      a
      net loss of $681,000, or $(0.06) per share.


-
          23
          -




**Net
      Revenues** **.**  Our
      consolidated net revenues increased by approximately 19.2% in the six months
      ended July 31, 2008 compared with the six months ended July 31, 2007 due to
      a
      28.9% increase in the net revenues of GPS, partially offset by a 53.7% reduction
      in the net revenues of VLI and 8.6% reduction in the net revenues of
      SMC.





The
      business of GPS represented 92.8% of consolidated net revenues for the six
      months ended July 31, 2008. This business represented 85.9% of consolidated
      net
      revenues for the quarter ended July 31, 2007. The net revenues related to two
      customers represented approximately 52.8% and 46.8% of the net revenues of
      this
      business segment for the current year period, respectively, and represented
      approximately 49.0% and 43.4% of our consolidated net revenues for the current
      year period, respectively.




The
      power
      industry services business had four significant customers in the six-month
      period ended July 31, 2007. In total, GPS recognized approximately 89.7% of
      its
      net revenues for the prior year period under contracts with these customers.
      The
      net revenues for these four customers represented approximately 26.6%, 19.1%,
      18.2% and 12.6% of the Company’s consolidated net revenues for the six months
      ended July 31, 2007, respectively.





Net
      revenues from the sale of nutritional products by VLI were $4.6 million for
      the
      six months ended July 31, 2008, and represented 3.8% of consolidated net
      revenues. Net revenues from the sale of nutritional products were $10.0 million
      for the six months ended July 31, 2007. This amount represented 9.6% of
      consolidated net revenues for the prior year period. The decrease in the net
      revenues of nutritional products between years was approximately $5.4 million,
      or 53.7%.




Net
      revenues of the telecommunications infrastructure services of SMC were $4.2
      million for the six months ended July 31, 2008 compared to $4.6 million for
      the
      six months ended July 31, 2007, representing a decrease in the net revenues
      of
      SMC of approximately 8.6%. The net revenues of this business segment for the
      six
      months ended July 31, 2008 and 2007 were 3.4% and 4.5% of consolidated net
      revenues for the corresponding periods, respectively. Net revenues related
      to
      inside premises customers increased by approximately 51.5% for the six months
      ended July 31, 2008 compared with the corresponding six months of the prior
      year. However, like for the current quarter, this strong performance was more
      than offset by a reduction in the net revenues related to outside plant jobs.
      The net revenues of the largest customers of this business have declined between
      years.





**Cost
      of Revenues.** The cost
      of revenues for the power industry services business of GPS increased in the
      six
      months ended July 31, 2008 to $101.7 million from $83.8 million in the six
      months ended July 31, 2007. The cost of revenues as a percentage of
      corresponding net revenues declined between the periods. The percentage was
      88.7% in the current year period compared with 94.2% in the prior year period
      which reflected a substantial loss on one significant project that was recorded
      last year.





Although
      the cost of revenues for the nutritional products business of VLI decreased
      in
      the six-month period ended July 31, 2008 to $4.7 million from $8.3 million
      in
      the six months ended July 31, 2007, the cost of revenues percentage increased
      to
      102.0% of net revenues in the current quarter from a percentage of 83.0% in
      the
      corresponding period of the prior year as declining sales and competitive
      product pricing pressures continued to squeeze gross margins and increased
      the
      recurring cost of excess production capacity.





The
      cost
      of revenues for the telecommunication infrastructure services business of SMC
      declined by $52,000, or approximately 1.4%, in the current year period compared
      with the corresponding period a year ago, but increased as a percentage of
      corresponding net revenues to 86.2% in the current period from 79.9% in the
      comparable period last year. On an overall basis, direct labor and related
      costs
      have been reduced between the periods. Despite the increased inside plant work
      requiring an increase in the use of subcontractors and an increase in job
      material and supply costs, the profitability of the inside plant work has
      improved between the periods. On the other hand, the effect of reduced net
      revenue and competitive pricing pressures have decreased the profitability
      of
      the outside plant work between the periods.





Primarily
      as a result of the improvement in the performance of GPS, our overall gross
      profit increased to $13.5 million for the six months ended July 31, 2008 from
      $7.7 million for the six months ended July 31, 2007, and our gross profit
      percentage increased to 10.9% for the current year period from a percentage
      of
      7.5% in the corresponding period of the prior year.





**Selling,
      General and Administrative Expenses.** These
      costs decreased to $8.0 million for the six months ended July 31, 2008 from
      $9.3
      million for the six months ended July 31, 2007, a reduction of $1.3 million,
      or
      14.0%.




Amortization
      expense related to purchased intangible assets decreased by approximately $2.9
      million in the current year period compared with the corresponding period of
      last year as the amortization expense related to contractual and other customer
      relationships decreased between quarters by approximately $2.5 million. As
      also
      reflected in the current quarter operating results, most of this decrease was
      scheduled and attributable to backlog for construction contracts completed
      by
      GPS last year, 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 in the current period were an increase in stock
      compensation expense of $688,000 and an increase in salary expense at GPS of
      $272,000.


-
          24
          -




**Impairment
        Losses.** The
        statement of operations for the six months ended July 31, 2008 included the
        VLI
        impairment losses related to goodwill, other purchased intangible assets,
        and
        fixed assets in the total amount of approximately $1,946,000. No impairment
        losses were recorded in the comparable prior year period.
 
 **Interest
        Income and Expense.** We
        reported interest income of $936,000 for the six months ended July 31, 2008
        compared to interest income of $1,279,000 for the six months ended July 31,
        2007, reflecting the decline in short-term investment returns over the last
        year. Interest expense declined to $228,000 in the current year period from
        $378,000 in the comparable period of the prior year due to the overall reduction
        in the level of debt between periods.
 
 **Income
        Tax Expense and Benefit.** For the
        six months ended July 31, 2008, we incurred income tax expense of $1.7 million
        reflecting an effective income tax rate of 41.3%. The effective tax rate
        for the
        current quarter differs from the expected federal income tax rate of 34%
        due
        primarily to the effect of the impairment loss recorded in the current year
        related to the goodwill of VLI. This loss is not deductible for income tax
        reporting purposes. It was treated as a discreet item in the determination
        of
        the current year effective income tax rate. In addition, we established a
        valuation allowance during the current quarter related to the deferred state
        taxes of VLI in the amount of $57,000. These unfavorable effects of these
        factors were offset partially in the current period by the favorable effect
        of
        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 current
        year
        change in state income tax rates applied to our deferred tax items.
 
 **Liquidity
        and Capital Resources as of July 31, 2008**
  Cash
        and
        cash equivalents have increased during the current year by approximately
        $37.2
        million to approximately $104.0 million as of July 31, 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 year
        from approximately $16.5 million as of January 31, 2008 to approximately
        $46.7
        million as of July 31, 2008. During the current year, we also reached agreement
        with the bank extending the availability of the revolving line of credit
        to May
        2010.
  Net
        cash
        provided by operations for the six months ended July 31, 2008 was approximately
        $15.7 million.  We
        reported net income of approximately $2.4 million and our net non-cash expenses
        were approximately $3.5 million including impairment losses and the amortization
        of purchased intangible assets. Cash was also provided by a decrease in accounts
        receivable of $7.7 million and an increase in accounts payable and accrued
        expenses of $9.1 million. 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 year
        in
        connection with the increase in billings in excess of contract revenues in
        the
        amount of $10.3 million.
 
 For
        the
        six months ended July 31, 2007, despite a net loss of $681,000, net cash
        provided by operations was $23.0 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 $38.6 million in cash in the six
        months ended July 31, 2007. On the other hand, cash was used to reduce accounts
        payable and accrued expenses by $10.2 million and in connection with the
        increase in billed accounts receivable of $7.3 million. The net amount of
        non-cash expenses in the prior year period, including the amortization of
        purchased intangible assets, was approximately $3.6 million.
 
 During
        the six months ended July 31, 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
        capital contribution of $600,000 to GRP made in connection with the formation
        and start-up of this unconsolidated subsidiary. We have also purchased equipment
        for a net cost of $259,000 during the current year. Last year, net cash of
        approximately $2.1 million was provided by investing activities as the sale
        of
        investments and equipment provided cash proceeds of $2.3 million but we used
        $206,000, net, in the purchase of new equipment.
 
 Net
        cash
        of approximately $24.3 million was provided by financing activities during
        the
        six months ended July 31, 2008. We completed the private placement sale of
        2.2
        million shares of our common stock in July 2008, providing net cash proceeds
        of
        $25.0 million, and issued approximately 100,000 shares of our common stock
        in
        connection with the exercise of stock options and warrants, providing net
        cash
        proceeds of approximately $637,000. We used cash to make debt principal payments
        of $1.3 million.
  -
            25
            -
 
 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.
 
 During
        the current year, we demonstrated an ability to acquire growth capital despite
        soft capital markets as we raised approximately $25.0 million in net cash
        proceeds from the private placement sale of 2.2 million shares of our common
        stock at a price of $12 per share. We will use these proceeds to maintain
        an
        increased level of working capital liquidity in support of the growth of
        GPS,
        particularly to meet the increasing liquidity requirements of construction
        bond
        providers as the size of our construction contracts increases.
 
 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. Despite our success
        in
        completing the private placement transaction in July 2008, there can be no
        assurance that such future 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
        six
        months ended July 31, 2008 and 2007:
  **Six
                  Months Ended July 31,****2008**
              
              **2007**Net
                  income (loss), as reported
              
              $
              2,361,000
              
              $
              (681,000
              )Impairment
                  losses of VLI
              
              
              1,946,000
              
              
              —Amortization
                  of purchased intangible assets
              
              
              1,174,000
              
              
              4,089,000Stock
                  option compensation expense
              
              
              788,000
              
              
              100,000Depreciation
                  and other amortization
              
              
              683,000
              
              
              644,000Interest
                  expense
              
              
              228,000
              
              
              378,000Income
                  tax expense (benefit)
              
              
              1,662,000
              
              
              (7,000
              )EBITDA
              
              $
              8,842,000
              
              $
              4,523,000
 
 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, reconciliations between the Company's GAAP and non-GAAP
        financial results for the six months ended July 31, 2008 and 2007 are provided
        above and investors are advised to carefully review and consider this
        information as well as the GAAP financial results that are disclosed in our
        SEC
        filings.
  -
            26
            -
  **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**
  Not
        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 July 31, 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 July
        31,
        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 July 31, 2008 that has materially affected, or is reasonably likely
        to
        materially affect, our internal control over financial
        reporting.
  -
            27
            -
  **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 and oral arguments occurred on June 3, 2008. On August
        25, 2008, the Ninth Circuit Court of Appeals reversed the summary judgment
        decision and remanded the case back to the District Court. The Company has
        reviewed WFC’s claims and continues to believe that they are without merit. The
        Company intends to continue vigorously defending 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.
 
 -
            28
            -
  **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 that are 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.
 
 In
        addition, we note the following risks related to our power industry services
        business that provided approximately 93% of consolidated net revenues for
        the
        six months ended July 31, 2008.
 
 **Interruption
        of power plant construction projects could adversely affect future results
        of
        operations.**
  At
        any
        time, GPS has a limited number of construction contracts. Should any unexpected
        suspension, termination or delay of the work under such contracts occur,
        our
        results of operations may be materially and adversely affected.
  **Investment
        in the wind energy farm business partnership may occur without expected
        returns.**
  In
        June
        2008, we announced that GPS had formed a 50%-owned unconsolidated subsidiary
        company with lnvenergy Wind Management LLC for the design and construction
        of
        wind energy farms. We expect that the new company, Gemma Renewable Power,
        LLC
        (“GRP”) will annually provide engineering, procurement and construction services
        for new wind energy farms generating more than an estimated 300 megawatts
        of
        electrical power. Should the future construction and other related services
        of
        GRP be at lower revenue levels than expected, or should GRP fail to profitably
        execute the projects that it may obtain, GPS may fail to receive returns
        from
        GRP as anticipated which may adversely affect our future results of our
        operations.
  **Resolution
        of the terminated construction contract may require cash payments by
        us.**
  Under
        the
        terms of an amended agreement with a customer covering the engineering,
        procurement and construction of an ethanol production facility (the “EPC
        Agreement”), March 19, 2008 was the deadline for the customer to obtain
        financing for the completion of the project. Financing was not obtained and
        the
        EPC Agreement was terminated. 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 July 31, 2008 and January 31, 2008, our condensed
        consolidated balance sheets included assets and liabilities related to the
        terminated construction contract. We expect that these assets will be realized
        and the liabilities extinguished. Although GPS does not anticipate any losses
        to
        arise from the resolution of this EPC Agreement, cash may be required to
        make
        payment on accounts payable to project subcontractors that are included in
        the
        condensed consolidated balance sheet at July 31, 2008 in advance of our receipt
        of any additional cash payments on outstanding accounts receivable from the
        customer.
  **Our
        dependence on large construction contracts may result in uneven quarterly
        financial results.**
  Our
        power
        industry service activities in any one fiscal quarter are typically concentrated
        on a few large construction projects for which we use the
        percentage-of-completion method to determine contract revenues. To a substantial
        extent, construction contract revenues are recognized as services are provided
        based on the amount of costs incurred. As the timing of equipment purchases,
        subcontractor services and other contract events may not be evenly distributed
        over the lives of our contracts, the amount of total contract costs may vary
        from quarter to quarter, creating uneven amounts of quarterly contract revenues.
        In addition, the timing of contract commencements and completions may exacerbate
        the uneven pattern.
  As
        a
        result of the foregoing, future amounts of consolidated net revenues, cash
        flow
        from operations, net income and earnings per share reported on a quarterly
        basis
        may vary in an uneven pattern and may not be indicative of the operating
        results
        expected for any other quarter or for an entire fiscal year, thus rendering
        consecutive quarter comparisons of our consolidated operating results a less
        meaningful way to assess the growth of our business.
 
 Before
        investing in our securities, please consider the risks summarized in this
        Item
        1A 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.
 
 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* .
  -
            29
            -
 
 Our
        2008
        Annual Report, under Item 1A entitled “Risk Factors,” included an expanded
        discussion of our risk factors. There have been no material revisions to
        the
        risk factors that were described therein other than those described above.
 
 **ITEM
        2.**  **UNREGISTERED
        SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**
  On
        Form
        8-K filed with the Securities and Exchange Commission (the “SEC”) on July 7,
        2008, the Company described the completion of a private placement sale of
        2.2
        million shares of its common stock. The Company’s registration statement on Form
        S-3 covering the resale of these shares by the selling stockholders identified
        therein, filed with the SEC on July 16, 2008, was declared effective on July
        24,
        2008.
 
 **ITEM
        3.**  **DEFAULTS
        UPON SENIOR SECURITIES**
 
 None.
 
 **ITEM
        4.**  **SUBMISSION
        OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 The
        Company held its 2008 Annual Meeting of Stockholders in New York City on
        June
        18, 2008 (the “Annual Meeting”). The following sets forth the matters submitted
        to a vote of the Company’s stockholders at the Annual Meeting.
  1.
              Seven
                  members were elected to the Board of Directors, each to serve until
                  the
                  next annual meeting of the Company and until their respective successors
                  have been elected to the Board of Directors and qualified. The
                  following
                  seven individuals were elected to the Board of Directors by the
                  stockholders of the Company:
  Rainer
        H.
        Bosselmann, DeSoto S. Jordan, William F. Leimkuhler, Daniel A. Levinson,
        W. G.
        Champion Mitchell, James W. Quinn and Henry A. Crumpton.
  Messrs.
        Bosselmann, Levinson and Crumpton were elected with the affirmative vote
        of
        7,328,437 shares of common stock, with 19,162 shares of common stock withheld;
        Mr. Mitchell was elected with an affirmative vote of 7,328,337 shares of
        common
        stock, with 19,262 shares of common stock withheld; and Messrs. Jordan,
        Leimhuhler and Quinn were elected with the affirmative vote of 7,327,951
        shares
        of common stock, with 19,648 shares of common stock withheld
  2.
              The
                  stockholders of the Company approved the amendment to the 2001
                  Stock
                  Option Plan to increase the number of shares of common stock reserved
                  for
                  issuance from 650,000 shares to 1,150,000 shares with an affirmative
                  vote
                  of 5,028,595 shares of common stock. Votes representing 88,147
                  shares of
                  common stock were cast against the proposal and there were 631
                  abstaining
                  votes.
  3.
              The
                  stockholders of the Company ratified the appointment of Grant Thornton
                  LLP
                  as our independent registered public accounting firm for the fiscal
                  year
                  ending January 31, 2009 with an affirmative vote of 7,347,166 shares
                  of
                  common stock. Votes representing 122 shares of common stock were
                  cast
                  against the proposal and there were 311 abstaining
                  votes
 
 **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
  -
            30
            -
  **SIGNATURES**
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned,
        thereunto, duly authorized.
 
 **ARGAN,
                  INC.**September
                  11, 2008
              By:
              /s/ Rainer
                  H. BosselmannRainer
                  H. Bosselmann
                Chairman
                  of the Board and Chief Executive
                  Officer
  September
                  11, 2008
              By:
              /s/ Arthur
                  F. TrudelArthur
                  F. Trudel
                Senior
                  Vice President, Chief Financial Officerand
                  Secretary
 
 -
            31
            -