UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

(Mark One)

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

                  For the quarterly period ended April 30, 2006
                                       or
|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934

             For the transition period from              to
                                            ------------    ------------

                        Commission File Number 001-31756

                                   Argan, Inc.
 -------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

                 Delaware                                 13-1947195
--------------------------------------------------------------------------------
(State or other jurisdiction of incorporation  (IRS Employer Identification No.)
             or organization)


                One Church Street, Suite 302, Rockville MD 20850
 -------------------------------------------------------------------------------
                    (Address of principal executive offices)

                                 (301) 315-0027
 -------------------------------------------------------------------------------
                           (Issuer's telephone number)

                                       N/A
 -------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15 (d) of the  Exchange  Act  during the past  twelve  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 |X| No |_|

Indicate by check mark whether the  Registrant is a shell company (as defined in
Rule 12b-2) of the Exchange Act). Yes |_| No |X|


Common Stock, par value $.15 per share, outstanding at June 8, 2006: 4,574,010.
--------------------------------------------------------------------------------

Transitional Small Business Disclosure Format (Check One):    Yes |_| No |X|


<PAGE>


                                   ARGAN, INC.


                                      INDEX


                                                                        Page No.

PART I. FINANCIAL INFORMATION.................................................3

Item 1. Financial Statements (unaudited)......................................3

Condensed Consolidated Balance Sheets - April 30, 2006 and January 31, 2006...3

Condensed Consolidated Statements of Operations for the Three Months
             Ended April 30, 2006 and 2005....................................4

Condensed Consolidated Statements of Cash Flows for the Three Months
            Ended April 30, 2006 and 2005.....................................5

Notes to Condensed Consolidated Financial Statements..........................6

Item 2. Management's Discussion and Analysis or Plan of Operation.............17

Item 3. Controls and Procedures...............................................28

PART II.  OTHER INFORMATION...................................................28

Item 1.  Legal Proceedings....................................................28

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds..........29

Item 3.  Defaults Upon Senior Securities......................................29

Item 4.  Submission of Matters to a Vote of Security Holders..................29

Item 5.  Other Information....................................................29

Item 6.  Exhibits.............................................................29

SIGNATURES....................................................................30


================================================================================


                                       2
<PAGE>


                         PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
                                   ARGAN, INC.
                      Condensed Consolidated Balance Sheets
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                         April 30,      January 31,
                                                                           2006             2006
                                                                       ============    ============
<S>                                                                    <C>             <C>
ASSETS
CURRENT ASSETS:
    Cash and cash equivalents                                          $     93,000    $      5,000
    Accounts receivable, net of allowance for doubtful accounts
         of $86,000 at 4/30/2006 and $50,000 at 1/31/2006                 4,390,000       3,351,000
    Receivable from affiliated entity                                       146,000         157,000
    Escrowed cash                                                           300,000         300,000
    Estimated earnings in excess of billings                                170,000         675,000
    Inventories, net of reserves of $83,000 at 4/30/2006 and $95,000
         at 1/31/06                                                       3,270,000       3,410,000
    Prepaid expenses and other current assets                               482,000         458,000
                                                                       ------------    ------------
TOTAL CURRENT ASSETS                                                      8,851,000       8,356,000
                                                                       ------------    ------------

Property and equipment, net of accumulated depreciation of
     $1,636,000 at 4/30/2006 and $1,418,000 at 1/31/2006                  3,349,000       3,324,000
Issuance cost for subordinated debt                                         129,000         257,000
Other assets                                                                 36,000          46,000
Contractual customer relationships, net                                   1,768,000       1,894,000
Trade name                                                                  224,000         224,000
Proprietary formulas, net                                                   611,000         726,000
Non-compete agreement, net                                                1,200,000       1,290,000
Goodwill                                                                  7,505,000       7,505,000
                                                                       ------------    ------------
TOTAL ASSETS                                                           $ 23,673,000    $ 23,622,000
                                                                       ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
    Accounts payable                                                   $  3,484,000    $  3,205,000
    Due to affiliates                                                          --           121,000
    Accrued expenses                                                      2,143,000       1,801,000
    Billings in excess of cost and earnings                                  31,000            --
    Deferred income tax liability                                            25,000          49,000
    Line of credit                                                          993,000       1,243,000
    Current portion of long-term debt                                       270,000         421,000
                                                                       ------------    ------------
TOTAL CURRENT LIABILITIES                                                 6,946,000       6,840,000
                                                                       ------------    ------------
Deferred income tax liability                                             1,603,000       1,618,000
Deferred rent                                                                12,000          10,000
Long-term debt                                                              152,000         176,000
Subordinated note due former owner of Vitarich Laboratories, Inc.         3,292,000       3,292,000
STOCKHOLDERS' EQUITY
   Preferred stock, par value $.10 per share -
              500,000 shares authorized- issued - none                         --              --
   Common stock, par value $.15 per share
              12,000,000 shares authorized -3,817,243 shares
              issued at 4/30/2006 and 1/31/2006 and  3,814,010
              shares outstanding at 4/30/2006 and 1/31/2006                 572,000         572,000
   Warrants outstanding                                                     849,000         849,000
   Additional paid-in capital                                            25,336,000      25,336,000
   Accumulated deficit                                                  (15,056,000)    (15,038,000)
   Treasury stock at cost: - 3,233 shares at 4/30/2006 and 1/31/2006        (33,000)        (33,000)
                                                                       ------------    ------------
TOTAL STOCKHOLDERS' EQUITY                                               11,668,000      11,686,000
                                                                       ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $ 23,673,000    $ 23,622,000
                                                                       ============    ============
</TABLE>


                              See Accompany Notes


                                       3
<PAGE>


                                   ARGAN, INC.
                 Condensed Consolidated Statements of Operations
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                   Three months ended April 30,
                                                                       2006           2005
                                                                    ===========    ===========
<S>                                                                 <C>            <C>
Net sales
     Nutraceutical products                                         $ 5,829,000    $ 4,728,000
     Telecom infrastructure services                                  3,133,000      2,428,000
                                                                    -----------    -----------
Net Sales                                                             8,962,000      7,156,000
Cost of sales
     Nutraceutical products                                           4,386,000      3,430,000
     Telecom infrastructure services                                  2,323,000      1,907,000
                                                                    -----------    -----------
 Gross profit                                                         2,253,000      1,819,000

Selling, general and administrative expenses                          1,976,000      1,840,000
                                                                    -----------    -----------
    Income (loss) from operations                                       277,000
                                                                                       (21,000)

Interest expense                                                        261,000         56,000
Other  income, net                                                        2,000         27,000
                                                                    -----------    -----------
    Income (loss) from operations before income taxes                    18,000
                                                                                       (50,000)
Income tax provision (benefit)                                           36,000
                                                                                       (28,000)
                                                                    -----------    -----------
Net loss                                                            $   (18,000)   $   (22,000)
                                                                    ===========    ===========
Basic and diluted loss per share                                           --      $     (0.01)
                                                                    ===========    ===========
Weighted average number of shares outstanding - basic and diluted     3,814,000      2,992,000
                                                                    ===========    ===========
</TABLE>

                              See Accompany Notes

                                       4
<PAGE>


                                   ARGAN, INC.
                 Condensed Consolidated Statements of Cash Flows
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                       Three Months Ended
                                                                                            April 30,
                                                                                      2006            2005
                                                                                   ===========    ===========
<S>                                                                                <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                           $   (18,000)   $   (22,000)
Adjustments to reconcile  net loss to net cash  provided by (used in)  operating
         activities:
    Depreciation and amortization                                                      376,000        195,000
      Amortization of purchase intangibles                                             331,000
                                                                                                      424,000
      Deferred income taxes                                                            (39,000)       (30,000)
      Unrealized gain on liability for derivative financial instruments                   --          (23,000)
      Gain on sale of property and equipment                                            (2,000)          --
Changes in operating assets and liabilities:
    Accounts receivable, net                                                        (1,039,000)      (800,000)
    Receivable from affiliated entity                                                   11,000        (22,000)
    Estimated earnings in excess of billings                                           505,000        (42,000)
    Inventories, net                                                                   140,000        312,000
    Prepaid expenses and other current assets                                          (24,000)       (58,000)
    Accounts payable and accrued expenses                                              620,000         60,000
    Billings in excess of estimated earnings                                            31,000          6,000
    Due to affiliates                                                                 (121,000)       (47,000)
    Other                                                                               12,000         23,000
                                                                                   -----------    -----------
        Net cash provided by (used in) operating activities                            783,000        (24,000)
                                                                                   -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property and equipment                                               (273,000)      (118,000)
    Proceeds from sale of property and equipment                                         3,000           --
                                                                                   -----------    -----------
         Net cash used in investing activities                                        (270,000)      (118,000)
                                                                                   -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from escrowed cash                                                           --          304,000
    Proceeds from line of credit                                                     1,605,000        600,000
    Proceeds from long-term debt                                                          --            8,000
    Payments on line of credit                                                      (1,855,000)      (598,000)
    Principal payments on long-term debt                                              (175,000)      (232,000)
                                                                                   -----------    -----------
        Net cash (used in) provided by  financing activities                          (425,000)        82,000
                                                                                   -----------    -----------

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                         5,000        167,000

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                    88,000        (60,000)
                                                                                   -----------    -----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                         $    93,000    $   107,000
                                                                                   ===========    ===========
</TABLE>

                              See Accompany Notes

                                       5
<PAGE>


                                   ARGAN, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 1- ORGANIZATION

NATURE OF OPERATIONS

Argan, Inc. ("AI" or the "Company")  conducts its operations  through its wholly
owned  subsidiaries  Vitarich  Laboratories,  Inc.  ("VLI") which it acquired in
August 2004 and Southern  Maryland Cable, Inc. ("SMC") which it acquired in July
2003.  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  and  maintenance to the
Federal Government,  telecommunications and broadband service providers, as well
as electric utilities primarily in the Mid-Atlantic region.

AI was  organized  as a Delaware  corporation  in May 1961 and  operates  in two
reportable segments. (See Note 9)

MANAGEMENT'S PLANS, LIQUIDITY AND BUSINESS RISKS

As of April 30, 2006, the Company had an  accumulated  deficit of $15.1 million.
At April 30, 2006,  the Company had $3.3 million  available  under its revolving
line of credit with the Bank of America,  N.A. (the Bank).  The Company operates
in two distinct and separate  reportable  segments.  The market for  nutritional
products  is highly  competitive  and the telecom  and  infrastructure  services
industry is fragmented,  but also very competitive.  The successful execution of
the Company's business plan is dependent upon the Company's ability to integrate
acquired businesses and their related assets into its operations, its ability to
increase  and retain its  customers,  the  ability to maintain  compliance  with
significant  government  regulation,  the  ability  to  attract  and  retain key
employees and the Company's  ability to manage its growth and  expansion,  among
other factors.

On May 4, 2006,  the Company  completed a private  offering of 760,000 shares of
common  stock at a price of $2.50  per  share  for  aggregate  proceeds  of $1.9
million.  The  Company  used $1.8  million of the  proceeds to pay down an equal
notional  amount  of the  subordinated  note due the  former  owner of VLI.  The
remainder of the proceeds was used for general corporate purposes.  (See Notes 5
and 7)

The Company's  line of credit was due to expire on May 31, 2006. On May 5, 2006,
the Company  renewed its line of credit with the Bank,  extending  the  maturity
date to May 31,  2007.  Concurrent  with the  renewal,  the Bank has  agreed  to
provide a new $1.5  million  term loan  facility  (New Term  Loan)  designed  to
refinance a portion of the existing  subordinated  note with the former owner of
VLI that had an outstanding balance of $3,292,000 at April 30, 2006. The Company
must be in compliance with its debt covenants to draw on the New Term Loan. (See
Note 6)

The  financing  arrangement  with the Bank  requires  the Company to comply with
certain financial  covenants.  At January 31, 2006, the Company failed to comply
with financial  covenants requiring that the ratio of debt to pro forma earnings
before  interest,  taxes,  depreciation and amortization not exceed 2.5 to 1 and
requiring a pro forma fixed  charge  coverage  ratio of not less than 1.25 to 1.
The Bank waived the failure for the  measurement  period ended January 31, 2006.
For future  measurement  periods,  the Bank revised the  definitions  of certain
components  of the  financial  covenants to  specifically  exclude the impact of
VLI's impairment loss at January 31, 2006.



                                       6
<PAGE>


The  subordinated  debt due the former owner of VLI was originally due on August
1, 2006. On May 5, 2006,  the Company  entered into an agreement with the former
owner of VLI to delay the  timing of the  payment  on the  subordinated  debt to
August 1, 2007.  The former  owner of VLI will be paid prior to this date if the
Company were to raise  additional  equity having an aggregate  purchase price of
more  than  $1  million.  The  Company  also  has  the  option  to  draw  on the
aforementioned New Term Loan to pay the former owner of VLI if the Company is in
compliance with their debt covenants. (See Note 6)

Management  believes that capital resources  available under its renewed line of
credit combined with cash generated from the Company's operations is adequate to
meet the Company's future operating cash needs. Accordingly,  the carrying value
of the assets and liabilities in the  accompanying  balance sheet do not reflect
any adjustments  should the Company be unable to meet its future  operating cash
needs in the ordinary course of business.  The Company continues to take various
actions  to  align  its cost  structure  to  appropriately  match  its  expected
revenues,  including  limiting its operating  expenditures  and  controlling its
capital expenditures. Any future acquisitions, other significant unplanned costs
or cash  requirements  may require the Company to raise additional funds through
the issuance of debt and equity securities.  There can be no assurance that such
financing  will be available on terms  acceptable to the Company,  or at all. If
additional funds are raised by issuing equity securities,  significant  dilution
to the existing stockholders may result.

NOTE  2 -  SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The condensed consolidated balance sheet as of April 30,
2006 and the condensed consolidated  statements of operations and cash flows for
the three months ended April 30, 2006 and 2005, respectively,  are unaudited. In
the opinion of management,  the accompanying  financial  statements  contain all
adjustments, which are of a normal and recurring nature, considered necessary to
present  fairly the  financial  position of the Company as of April 30, 2006 and
2005 and the  results  of its  operations  and its cash  flows  for the  periods
presented. The Company prepares its interim financial information using the same
accounting principles as it does for its annual financial statements.

These financial statements do not include all disclosures associated with annual
financial  statements and,  accordingly,  should be read in conjunction with the
footnotes contained in the Company's  consolidated  financial statements for the
year ended January 31, 2006,  together with the  independent  registered  public
accounting  firm's  report,  included  in the  Company's  Annual  Report on Form
10-KSB,  as filed with the  Securities and Exchange  Commission.  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.

Reclassifications - Certain amounts in the prior year financial  statements have
been reclassified to conform with the presentation in the current year financial
statements.

Inventories  -  Inventories  are  stated  at the  lower of cost or  market  (net
realizable value). Cost is determined on the first-in,  first-out (FIFO) method.
Appropriate consideration is given to obsolescence,  excessive inventory levels,
product deterioration, and other factors in evaluating net realizable value.

Inventories at April 30, 2006 consist of the following:


                       Raw materials      $ 2,930,000

                       Work-in process        278,000

                       Finished goods         145,000
                                          -----------

                                            3,353,000

                       Less:  Reserves        (83,000)
                                          -----------

                       Inventories, net   $ 3,270,000
                                          ===========



                                       7
<PAGE>


The Company entered into an agreement with one of its major  customers,  whereby
the customer made an advanced  payment to the Company for a significant  portion
of raw material at cost. The raw material is held at the Company's  premises and
is used in the production of product for the customer. The Company is accounting
for this as an inventory  financing  arrangement and recognizes revenue from the
sale of the raw material  when the finished  product is shipped to the customer.
At April 30, 2006, the Company had customer deposits and inventories  related to
this arrangement of $463,000.

Earnings Per Share - Income per share is computed by dividing net income  (loss)
by the weighted  average  number of common  shares  outstanding  for the period.
Dilutive earnings per share represent net income divided by the weighted average
number of  common  shares  outstanding  inclusive  of the  effects  of  dilutive
securities. Outstanding stock options and warrants for the purchase of shares of
common stock were not included in the weighted average shares outstanding during
the three  months  ended April 30, 2006 and 2005 because the market price of the
Company's common stock was significantly below the exercise prices for the stock
options and warrants and as such were antidilutive.

Seasonality - The  Company's  telecom  infrastructure  services  operations  are
expected to have  seasonally  weaker results in the first and fourth quarters of
our year,  and may produce  stronger  results in the second and third  quarters.
This  seasonality  is primarily  due to the effect of winter  weather on 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.

Stock  Option  Plans  -  Prior  to  February  1,  2006,  the  Company   measured
compensation  costs for stock based compensation plans using the intrinsic value
method of accounting as prescribed in Accounting Principles Board Opinion No. 25
"Accounting  for  Stock  Issued  to  Employees"   ("APB  No.  25")  and  related
interpretations.  In  electing  to  follow  APB No. 25 for  expense  recognition
purposes for the three  months  ended April 30,  2005,  the Company has provided
below the expanded  disclosures required under Statement of Financial Accounting
Standards No. 148 "Accounting for Stock Based Compensation" ("SFAS No. 148") for
stock-based   compensation  granted  including,  if  materially  different  from
reported  results,  disclosure  of pro forma net income and net income per share
had  compensation  expense relating to grants been measured under the fair value
recognition   provisions   of  SFAS  No.  123,   "Accounting   for   Stock-Based
Compensation"  ("SFAS No. 123"). All options issued and outstanding at April 30,
2005 had an exercise price greater than the market price of the Company's  stock
on the date of grant.  The fair value of the options granted have been estimated
at the  date  of  grant  using  a  Black-Scholes  option-pricing  model.  Option
valuation models require the use of subjective  assumptions and changes in these
assumptions can materially impact the fair value of the options.

The following table illustrates the effect on net loss and net loss per share if
the Company had applied the fair value recognition provisions of SFAS No. 123 to
options granted and unvested under the Plan for the three months ended April 30,
2005.  For  purposes  of this pro  forma  disclosure,  the value of  options  is
estimated  using a Black-Scholes  option-pricing  formula and amortized over the
options' vesting periods.



                                       8
<PAGE>

                              Pro Forma Disclosures
                    For the three months ended April 30, 2005


     Net loss, as reported                                       $(22,000)
     Add:  Stock based compensation recorded
              in the financial statements                            --
     Deduct:  Total stock-based employee compensation
             expense determined under fair value based methods     20,000
                                                                 --------
     Pro forma net loss                                          $(42,000)
                                                                 ========
     Basic and diluted per share:
     Basic and diluted - as reported                             $ ( 0.01)
                                                                 ========
     Basic and diluted - pro forma                               $ ( 0.01)
                                                                 ========



NOTE 3 - STOCK BASED COMPENSATION

At April 30, 2006, the Company has a stock option plan which was  established in
August 2001 (Plan).  Under the Plan, the Company's  Board of Directors may grant
stock options to officers,  directors and key employees. The Plan was amended in
April 2003 to authorize the grant of options for up to 250,000  shares of common
stock.

Prior to  February  1,  2006,  the  Company  accounted  for the Plan  under  the
recognition and measurement  provisions of Accounting  Principles  Board Opinion
No. 25  "Accounting  for Stock Issued to Employees  ("APB No. 25"),  and related
interpretations,  as permitted by Statements of Financial  Accounting  Standards
("SFAS") No. 123,  "Accounting for Stock Based Compensation ("SFAS No. 123"). No
stock-based  employee  compensation  cost was  recognized  in the  Statement  of
Operations  for the three months ended April 30,  2005,  as all options  granted
under the Plan had an exercise  price equal to or greater  than the market value
of the underlying common stock on the date of grant. Effective February 1, 2006,
the Company  adopted the fair value  recognition  provisions of SFAS No. 123(R),
"Share-Based  Payment"  (SFAS  No.  123(R)),   using  the   modified-prospective
transition method. Under that transition method, compensation cost recognized in
the three months ended April 30, 2006 includes:  (a)  compensation  cost for all
share-based  payments  granted  prior to, but not yet vested as of  February  1,
2006,  based on grant date fair value  estimated in accordance with the original
provisions  of SFAS  No.  123  and (b)  compensation  cost  for all  share-based
payments  granted on or subsequent to February 1, 2006,  based on the grant-date
fair value  estimated in  accordance  with the  provisions  of SFAS No.  123(R).
Results for prior periods have not been restated.

As a result of  adopting  SFAS No.  123(R) on February  1, 2006,  the  Company's
income  before  income  taxes for the three  months  ended April 30,  2006,  was
approximately  $11,000 lower than if it had continued to account for share based
compensation  under APB No. 25.  Basic and  diluted net income per share for the
three months ended April 30, 2006 would have been the same as if the Company had
not adopted SFAS No. 123(R).

Stock options granted may be "Incentive Stock Options" ("ISOs") or "Nonqualified
Stock  Options"  (NSOs").  ISOs  have an  exercise  price at least  equal to the
stock's  fair market  value at the date of grant,  a ten-year  term and vest and
become fully exercisable one year from the date of grant. NSOs may be granted at
an exercise  price other than the stock's fair market value at the date of grant
and have up to a  ten-year  term,  and  vest and  become  fully  exercisable  as
determined by the Board.



                                       9
<PAGE>


The fair value of each option  award is  estimated  on the date of grant using a
Black-Scholes  option-pricing  formula  that uses the  assumptions  noted in the
table and discussion that follows:


                                                 Three Months Ended April 30,
                                                    2006         2005(1)
                                               ==============   ==============
Dividend yield                                       --              --
Expected volatility                                  58%             --
Risk-free interest rate                             5.12%            --
Expected life in years                                5              --

(1) No options were granted during the three months ended April 30, 2005.


A summary of option activity under the Plan as of April 30, 2006, and changes in
the period then ended is presented below:

<TABLE>
<CAPTION>
                                                                                   Weighted-
                                                              Weighted-             Average
                                                               Average             Remaining          Aggregate
                                                              Exercise           Contract Term        Intrinsic
                                              Shares           Price                                   Value
                                            ----------      -------------        -------------     --------------
<S>                                             <C>         <C>                  <C>               <C>
Outstanding at beginning of period              73,000      $        7.84                --                  --
Granted                                         50,000      $        2.15                --                  --
Exercised                                         --
Forfeited or expired                              --
                                            ----------
Outstanding at end of period                   123,000      $        5.53               7.6        $      274,000
                                            ==========
Vested or expected to vest at end of           123,000      $        5.53               7.6        $      274,000
period
Exercisable at end of period                    58,000      $        7.86               6.4        $      186,000
</TABLE>


The weighted  average grant date fair value of options  granted during the three
months ended April 30, 2006 was $1.17.  No options were granted during the three
months ended April 30, 2005.

No options were exercised during the three months ended April 30, 2006 and 2005.
At April 30, 2006,  there was $61,000 of total  unrecognized  compensation  cost
related to stock  options  issued  under the Plan.  That cost is  expected to be
recognized  during the next six months which  represents  the vesting  period of
options granted during the six months ended April 30, 2006.

A summary of the status of the Company's  nonvested shares as of April 30, 2006,
and changes during the three months then ended, is present below:

                                                                Aggregate
                                                                Intrinsic
                                                   Shares         Value
                                                -------------  -----------
Nonvested at beginning of period                  16,000       $      1.95
Granted                                           50,000       $      1.17
Vested                                                --              --
Forfeited                                             --              --
                                                -------------  -------------
Nonvested at end of period                        66,000       $      1.35
                                                =============


                                       10
<PAGE>


The fair value of nonvested  shares is determined  based on the opening  trading
price of the Company's shares on the grant date. The weighted average grant date
fair value of shares  granted  during the three  months ended April 30, 2006 was
$1.17.  As  of  April  30,  2006,  there  was  $61,000  of  total   unrecognized
compensation  cost related to nonvested  share-based  compensation  arrangements
under the Plan. The cost is expected to be recognized  over the next six months.
No shares vested during the three months ended April 30, 2006.

In connection  with the Company's  private  placement in April 2003, the Company
issued warrants to purchase  shares of the Company's  common stock at a price of
$7.75 per share with a ten year term.  180,000 of the  warrants  were granted to
three  individuals  who  became  the  executive  officers  of the  Company  upon
completion  of the offering.  In addition,  MSR Advisors,  Inc.  (MSR)  received
warrants to purchase  50,000  shares of the Company's  stock.  A director of the
Company is the Chief Executive Officer of MSR. The fair value of the warrants of
$849,000 was recognized as offering costs. All warrants are exercisable.

At April 30,  2006,  there were  353,000  shares of the  Company's  common stock
reserved for issuance upon exercise of stock options and warrants.

NOTE 4- SUMMARY OF INTANGIBLE ASSETS

The Company's intangible assets consist of the following at April 30, 2006.

<TABLE>
<CAPTION>
                                        Gross                                     SMC                  VLI                 Net
                     Estimated         Carrying             Accumulated        Impairment          Impairment           Carrying
                    Useful Life         Amount               Amortization        Loss(1)             Loss(2)             Amount
                   --------------   --------------     -----------------    ---------------      ----------------   ----------------
<S>                <C>              <C>                <C>                  <C>
Goodwill           Indefinite       $14,055,000(3)               --              740,000(1)         5,810,000(2)    $    7,505,000
Contractual
Customer
Relationships      5-7 years          3,600,000              1,086,000           746,000(1)                --            1,768,000
Proprietary
Formulas           3 years            2,500,000              1,202,000              --                687,000(2)           611,000
Non-Compete
Agreement          5 years            1,800,000                600,000              --                     --            1,200,000
Trade Name         Indefinite           680,000                   --             456,000(1)                --              224,000
                                    --------------     -----------------    ---------------      ----------------   ----------------
                                    $22,635,000          $   2,888,000         1,942,000(1)      $  6,497,000(2)    $   11,308,000
                                    ==============     =================    ===============      ================   ================
</TABLE>

(1) During the twelve  months ended  January 31, 2005,  the Company  recorded an
impairment loss with respect to goodwill and intangibles at SMC.

(2) During the twelve  months ended  January 31, 2006,  the Company  recorded an
impairment loss with respect to goodwill and proprietary formulas at VLI.

(3) Amounts recorded as goodwill are not deductible for tax reporting purposes.

Amortization  expense  for the three  months  ended April 30,  2006,  aggregated
$126,000,   $115,000  and  $90,000  for  Contractual   Customer   Relationships,
Proprietary Formulas and Non-Compete Agreement, respectively.

NOTE 5 -  RELATED PARTY TRANSACTIONS

On May 4, 2006,  the Company  completed a private  offering of 760,000 shares of
common  stock at a price of $2.50  per  share  for  aggregate  proceeds  of $1.9
million.  The  Company  used $1.8  million of the  proceeds to pay down an equal
notional  amount  of the  subordinated  note  due  Kevin  Thomas  ("Thomas").The
remainder of the proceeds was used for general corporate purposes.

One of the investors,  MSRI SBIC,  L.P.,  which  acquired  240,000 shares in the
offering,  is  controlled  by Daniel  Levinson,  a director of the  Company.  In
addition,  James Quinn, a director of the Company acquired 40,000 shares for his
own account.

On January 28, 2005, the Company sold and issued to MSR I SBIC, L.P., a Delaware
limited partnership ("Investor"),  129,032 shares of common stock of the Company
pursuant  to  a  Subscription   Agreement   between  the  Company  and  Investor
("Subscription  Agreement").  These  Shares were  issued at a purchase  price of
$7.75 per share,  yielding  aggregate  proceeds of $999,998  (See Note 7). These
Shares were issued  pursuant to the  exemption  provided by Section  4(2) of the
Securities  Act of 1933,  as amended.  The Investor is an entity  controlled  by
Daniel Levinson, a director of the Company.

Pursuant to the Subscription  Agreement,  the Company agreed to issue additional
shares  of the  Company's  common  stock  to  Investor  in  accordance  with the
Subscription  Agreement  under  certain  conditions  upon the earlier of (i) the
Company's  issuance of  additional  shares of common  stock  having an aggregate
purchase  price of at least  $2,500,000,  at a price per share  less than  $7.75
subject to certain  exclusions,  or (ii) ninety percent of the average bid price
of the  Company's  common  stock for the thirty  days ended July 31, 2005 if the
price was less than  $7.75,  less the  129,032  shares  previously  issued.  The
Company  settled the liability  for issuance of additional  shares in a non-cash
transaction at July 31, 2005 with the issuance of 95,321 shares of the Company's
common stock.

The provision in the Subscription Agreement which allows the Investor to receive
additional  shares  under  certain  conditions  represents  a  derivative  under
Statement of Financial  Accounting  Standards No. 133 "Accounting for Derivative
Instruments  and Hedging  Activities."  Accordingly,  $139,000  of the  proceeds
received at issuance was accounted for as a liability for a derivative financial
instrument.   This  liability  relates  to  the  obligation  to  issue  Investor
additional shares under certain conditions.  The derivative financial instrument
was subject to  adjustment  for changes in fair value  subsequent  to  issuance.
During the three months ended April 30, 2005, the Company  recorded a fair value
adjustment of a $1,000 gain which is recorded in other income, net.

On January 31, 2005,  the Company  entered into a debt  subordination  agreement
with Thomas,  the former  owner of VLI,  for the cash portion of the  additional
consideration  the Company owes Thomas.  The  subordinated  debt had an original
maturity of August 1, 2006 and had an interest rate of 10%. On May 5, 2006,  the
Company  entered  into an  extension  with  Thomas of the  maturity  date of the
subordinated note to August 1, 2007.

On January 28, 2005, the Company entered into a Letter  Agreement with Thomas in
consideration for his agreement to delay the timing of the payment of contingent
cash  consideration  and  for  entering  into  a  Debt  Subordination  Agreement
(Subordination Agreement),  reconstituting such additional cash consideration as
subordinated debt. The Letter Agreement  includes certain  concessions to Thomas
allowing him to receive  additional  consideration  based on the market price of
the  Company's  common  stock.  The  concessions  provide  that in  addition  to
providing Thomas  additional shares if the Company issued additional shares at a
price less than $7.75, if the Company did not issue additional shares at a price
less than $7.75 per share,  then the Company  would issue  additional  shares to
Thomas based on the average closing price of the Company's  common stock for the
30 days  ended  July 31,  2005,  if the  price was  below  $7.75 per share  less
1,173,147 shares previously issued. These concessions allowing Thomas to receive
additional shares under certain  conditions  represent a freestanding  financial
instrument and were accounted for in accordance with EITF 00-19  "Accounting for
Derivative  Financial  Instruments  Indexed  to,  and  Potentially  Settled in a
Company's Own Stock."


                                       12
<PAGE>


At issuance,  $501,000 of the charge  related to the  liability  for  derivative
financial  instruments was recorded as deferred  issuance cost for  subordinated
debt  which  will be  amortized  over the  life of the  subordinated  debt.  The
amortization of the deferred loan issuance cost increases the Company's interest
expense  through  August 1, 2007, the maturity date of the note, and reduces net
income.  The  derivative  financial  instrument  was subject to  adjustment  for
changes in fair value  subsequent  to issuance.  The fair value  adjustment of a
$22,000  gain during the three  months  ended April 30, 2005 was  reflected as a
change in liability for the derivative financial  instruments and as a credit to
the  Company's  other  expenses or income and net loss.  The  liability  for the
derivative  financial  instrument  was settled as a non-cash  transaction by the
issuance of 535,052 shares of the Company's common stock on September 1, 2005.

The Company leases  administrative,  manufacturing and warehouse facilities from
individuals  who are  officers  of SMC and VLI.  The total  expense  under these
arrangements  was $76,000 and $69,000 for the three  months ended April 30, 2006
and 2005, respectively.

The Company has also 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.  VLI made $17,000 and $24,000 in purchases under the supply  agreement
during the three months ended April 30, 2006 and 2005, respectively.

The  Company  also sells its  products  in the normal  course of  business to an
entity in which  the  former  owner of VLI has an  ownership  interest.  VLI had
approximately  $129,000  and $149,000 in sales with this entity for three months
ended April 30, 2006 and 2005,  respectively.  At April 30, 2006, the affiliated
entity owed $146,000 to VLI.

NOTE 6 - DEBT

In May 2006,  the Company  agreed to amend the existing  financing  arrangements
with the Bank of America  (Bank).  Under this  arrangement,  the  Company  has a
revolving  line of credit of $4.25  million in maximum  availability  and a term
loan with an original balance of $1.2 million.  The May 2006 amendment  extended
the  expiration  of the  revolving  line of  credit to May 31,  2007.  Under the
amended financing arrangements,  amounts outstanding under the revolving line of
credit and the three year term note bear  interest at LIBOR plus 3.25% and 3.45%
respectively.  Availability  on a  monthly  basis  under the  revolving  line is
determined by reference to accounts  receivable and inventory on hand which meet
certain Bank criteria  (Borrowing Base). The aforementioned term note remains in
effect  and the final  monthly  scheduled  payment of $33,000 is due on July 31,
2006. As of April 30, 2006, the Company had $100,000  outstanding under the term
note.  At April 30, 2006,  the Company also had $993,000  outstanding  under the
revolving  line of credit at an  interest  rate of 8.2%  with  $3.3  million  of
additional availability under its Borrowing Base.

The amended  financing  arrangements  provides  for a new $1.5 million term loan
facility  (New Term Loan).  The proceeds of the New Term Loan are  designated to
refinance a portion of the existing  subordinated note with Thomas that at April
30, 2006 had an outstanding  balance of $3,292,000.  Advances under the New Term
Loan are subject to the Company being in compliance with its debt covenants with
the Bank. The New Term Loan will be repaid in thirty-six equal monthly principal
payments and bears interest at LIBOR plus 3.25%. If the Company draws on the New
Term Loan, the Company's  Borrowing Base will be reduced by $750,000 for maximum
availability under the revolving line of credit.

The financing  arrangements  provide for the measurement at the Company's fiscal
year end and at each of the Company's  fiscal quarter ends of certain  financial
covenants  including  requiring  that the  ratio of debt to pro  forma  earnings
before interest, taxes, depreciation and amortization (EBITDA) not exceed 2.5 to
1 (with the next  measurement  date on July 31, 2006) and  requiring a pro forma
fixed  charge  coverage  ratio  of not  less  than  1.25  to 1  (with  the  next
measurement date on July 31, 2006). The amended financings also require that the
Company meet minimum EBITDA  covenants  equal to or exceeding (on a rolling four
quarter basis) $1.2 million for July 31, 2006, $1.3 million for October 31, 2006
and $1.8  million  for  January  31,  2007 and for each  successive  quarter end
thereafter.  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.



                                       13
<PAGE>

The amended financing  arrangements  contains a subjective  acceleration  clause
which  allows  the Bank to  declare  amounts  outstanding  under  the  financing
arrangement  due and  payable if certain  material  adverse  changes  occur.  We
believe that we will continue to comply with our financial  covenants  under our
financing arrangement. If our performance does not result in compliance with any
of our  financial  covenants,  or if the Bank seeks to exercise its rights under
the subjective  acceleration  clause  referred to above, we would seek to modify
our financing arrangement, but there can be no assurance that the Bank would not
exercise  their rights and remedies  under our financing  arrangement  including
accelerating  payment of all outstanding  senior and  subordinated  debt due and
payable.

NOTE 7 - PRIVATE OFFERINGS OF COMMON STOCK

On May 4, 2006,  the Company  completed a private  offering of 760,000 shares of
common  stock at a price of $2.50  per  share  for  aggregate  proceeds  of $1.9
million.  The  Company  used $1.8  million of the  proceeds to pay down an equal
notional amount of the subordinated note due Kevin Thomas.  The remainder of the
proceeds was used for general corporate purposes.

One of the investors,  MSRI SBIC,  L.P.,  which  acquired  240,000 shares in the
offering,  is  controlled  by Daniel  Levinson,  a director of the  Company.  In
addition,  James Quinn, a director of the Company acquired 40,000 shares for his
own account.

On January 28, 2005, the Company sold and issued to MSR I SBIC, L.P., a Delaware
limited partnership ("Investor"),  129,032 shares of the Company's common stock,
pursuant  to  a  Subscription   Agreement   between  the  Company  and  Investor
("Subscription  Agreement").  These  shares were  issued at a purchase  price of
$7.75 per share,  yielding  aggregate  proceeds of  $999,998.  These shares were
issued pursuant to the exemption  provided by Section 4(2) of the Securities Act
of 1933, as amended.  The Investor is an entity controlled by Daniel Levinson, a
director of the Company.  (See Note 5) Pursuant to the  Subscription  Agreement,
the Company has agreed to issue additional  shares of the Company's common stock
to Investor in accordance with the Subscription Agreement based upon the earlier
of (i) the  Company's  issuance of  additional  shares of common stock having an
aggregate  purchase price of at least  $2,500,000 at a price per share less than
$7.75, or (ii) July 31, 2005. The additional shares of common stock to be issued
would equal the price paid by Investor  divided by the lower of (i) the weighted
average of all stock sold by the Company  prior to July 31, 2005 or; (ii) ninety
percent of the average bid price of the  Company's  common  stock for the thirty
days  ended July 31,  2005 if the price was less than  $7.75,  less the  129,032
shares  previously  issued.  The Company  settled the  liability for issuance of
additional  shares in a non-cash  transaction at July 31, 2005 with the issuance
of 95,321 shares of the Company's common stock.

The provision in the Subscription Agreement which allows the Investor to receive
additional  shares  under  certain  conditions  represents  a  derivative  under
Statement of Financial  Accounting  Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities." Accordingly,  at January 31, 2005, $139,000
of the  proceeds was  accounted  for as a liability  for a derivative  financial
instrument.   This  liability  related  to  the  obligation  to  issue  Investor
additional shares under certain conditions.  The derivative financial instrument
was subject to  adjustment  for changes in fair value  subsequent  to  issuance.
During the three months ended April 30, 2005, the Company  recorded a fair value
adjustment of a $1,000 gain which is recorded in other income, net.



                                       14
<PAGE>


NOTE 8 - INCOME TAXES

The Company had an effective  income tax rate of 200% for the three months ended
April 30, 2006 and an  effective  income tax  benefit  rate of 56% for the three
months ended April 30, 2005.  During the three months ended April 30, 2006,  the
Company's  effective  income  tax  rate  was  increased  by  the  impact  of the
amortization  of  issuance  cost for  subordinated  debt  which is  treated as a
permanent difference for income tax reporting purposes.  During the three months
ended April 30, 2005, the Company's income tax benefit rate was increased by the
impact of the fair value  adjustment  for liability for  derivative  instruments
which is a permanent difference for income tax reporting purposes.

NOTE 9 - SEGMENT REPORTING

The  Company has two  reportable  operating  segments.  Operating  segments  are
defined  as  components  of  an  enterprise   about  which  separate   financial
information  is  available  that is evaluated  regularly by the chief  operating
decision maker, or decision making group, in deciding how to allocate  resources
and assessing performance.

The  Company's  two operating  segments are  nutraceutical  products and telecom
infrastructure  services. The Company conducts its operations through its wholly
owned  subsidiaries  - VLI and SMC. 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,  technology  and  services.  The  respective
segments account for the respective  businesses using the accounting policies in
Note 2 to the  Company's  Form  10-KSB  and  Note 2 in this  filing.  Summarized
financial  information  concerning the Company's  operating segments is shown in
the following tables:

<TABLE>
<CAPTION>
                                                         For the Three Months
                                                         Ended April 30, 2006

                                                           Telecom
                                      Nutraceutical    Infrastructure
                                        Products         Services         Other     Consolidated
                                      -------------    --------------   ---------   ------------
<S>                                   <C>              <C>              <C>         <C>
Net sales                             $   5,829,000    $    3,133,000   $    --     $  8,962,000

Cost of sales                             4,386,000         2,323,000        --        6,709,000
                                      -------------    --------------   ---------   ------------
     Gross profit                         1,443,000           810,000        --        2,253,000

Selling, general and administrative
   expenses                               1,087,000           414,000     475,000      1,976,000
                                      -------------    --------------   ---------   ------------
Income (loss) from operations               356,000           396,000    (475,000)       277,000
Interest expense                            127,000            19,000     115,000        261,000
 Other income, net                             --               2,000        --            2,000
                                      -------------    --------------   ---------   ------------

Income (loss) before income taxes     $     229,000    $      379,000   $(590,000)        18,000
                                      = ===========    =  ===========   =========   ------------

Income tax provision                                                                      36,000
                                                                                    ------------

Net loss                                                                            $    (18,000)
                                                                                    ============
Depreciation and amortization         $     134,000    $      112,000   $ 130,000   $    376,000
                                      =============    ==============   =========   ============
Amortization of intangibles           $     305,000    $       26,000               $    331,000
                                      =============    ==============   =========   ============
Goodwill                              $   6,565,000    $      940,000        --     $  7,505,000
                                      =============    ==============   =========   ============
Total assets                          $  17,959,000    $    5,165,000   $ 549,000   $ 23,673,000
                                      =============    ==============   =========   ============
Fixed asset additions                 $      96,000    $      177,000        --     $    273,000
                                      =============    ==============   =========   ============
</TABLE>



                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                         For the Three Months
                                                         Ended April 30, 2006

                                                           Telecom
                                      Nutraceutical    Infrastructure
                                        Products         Services         Other     Consolidated
                                      -------------    --------------   ---------   ------------
<S>                                   <C>              <C>              <C>         <C>
Net sales                             $   4,728,000    $    2,428,000   $    --     $  7,156,000

Cost of sales                             3,430,000         1,907,000        --        5,337,000
                                      -------------    --------------   ---------   ------------
     Gross profit                         1,298,000           521,000        --        1,819,000

Selling, general and administrative
   expenses                               1,086,000           354,000     400,000      1,840,000
                                      -------------    --------------   ---------   ------------
Income (loss) from operations               212,000           167,000    (400,000)       (21,000)
Interest expense (income)                    58,000            11,000     (13,000)        56,000
 Other income, net                             --               2,000      25,000         27,000
                                      -------------    --------------   ---------   ------------

Income (loss) before income taxes     $     154,000    $      158,000   $(362,000)       (50,000)
                                      =============    ==============   =========   ============

Income tax benefit                                                                       (28,000)
                                                                                    ------------

Net loss                                                                            $    (22,000)
                                                                                    ============
Depreciation and amortization         $     77 ,000    $       98,000   $  20,000   $    195,000
                                      =============    ==============   =========   ============
Amortization of intangibles           $     399,000    $       25,000        --     $    424,000
                                      =============    ==============   =========   ============
Goodwill                              $  11,339,000    $      940,000        --     $ 12,279,000
                                      =============    ==============   =========   ============
Total assets                          $  23,817,000    $    5,204,000   $ 928,000   $ 29,949,000
                                      =============    ==============   =========   ============
Fixed asset additions                 $     106,000    $       12,000        --     $    118,000
                                      =============    ==============   =========   ============
</TABLE>

NOTE 10 - CONTINGENCIES

On September 17, 2004,  Western  Filter  Corporation  (WFC) notified the Company
that  WFC  believes  that  the  Company  breached  certain  representations  and
warranties  under the stock  purchase  agreement  dated  October 31, 2003 by and
between AI and WFC ("Stock Purchase  Agreement").  WFC asserts damages in excess
of the $300,000  escrow which is being held by a third party in connection  with
the Stock Purchase Agreement.

On March 22, 2005, WFC filed a complaint in Los Angeles  Superior Court alleging
the  Company  and its  executive  officers,  individually,  committed  breach of
contract,   intentional   misrepresentation,   concealment  and  non-disclosure,
negligent  misrepresentation and false promise. WFC seeks declaratory relief and
compensatory  and punitive damages in an amount to be proven at trial as well as
the recovery of attorney's fees.

Although the Company has reviewed  WFC's claim and believes  that  substantially
all of the claims are without merit, at April 30, 2006, the Company has recorded
an accrual  related to this matter of $360,000 for estimated  payments and legal
fees  related to the claims of WFC that it considers to be probable and that can
be  reasonably  estimated.  Although the ultimate  amount of liability  that may
result from this matter is not  ascertainable,  the  Company  believes  that any
amounts  exceeding the  aforementioned  accrual should not materially affect the
Company's  financial  condition.  It is  possible  however,  that  the  ultimate
resolution  of WFC's  claim  could  result in a material  adverse  effect on the
Company's results of operations for a particular  reporting period.  The Company
will vigorously contest WFC's claim.

                                       16
<PAGE>

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 the other current  claims and  proceedings
will have a material effect on the Company's consolidated financial statements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

This Form 10-QSB contains certain forward-looking  statements within the meaning
of Section 21E of the  Securities  Exchange Act of 1934,  as amended,  which are
intended  to be covered by the safe harbor  created  thereby.  These  statements
relate  to  future  events  or  our  future  financial  performance,   including
statements relating to our products,  customers,  suppliers, business prospects,
financings,  investments  and effects of  acquisitions.  In some cases,  forward
looking  statements  can be identified  by  terminology  such as "may,"  "will,"
"should,"  "expect,"  "anticipate,"  "intend,"  "plan,"  "believe,"  "estimate,"
"potential,"  or  "continue,"  the  negative of these terms or other  comparable
terminology.  These  statements  involve a number  of risks  and  uncertainties,
including  preliminary  information;  the effects of future  acquisitions and/or
investments;  competitive factors;  business and economic conditions  generally;
changes in government  regulations and policies, our dependence upon third-party
suppliers;   continued   acceptance   of  our   products  in  the   marketplace;
technological changes; and other risks and uncertainties that could cause actual
events or results to differ materially from any forward-looking statement.

GENERAL

Argan, Inc. (the "Company," "we," "us," or "our") conduct our operations through
our wholly  owned  subsidiaries,  Vitarich  Laboratories,  Inc.  ("VLI") that we
acquired  in August 2004 and  Southern  Maryland  Cable,  Inc.  ("SMC")  that we
acquired  in July 2003.  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.

RECENT EVENTS

Private Offering of Common Stock

On May 4, 2006,  the Company  completed a private  offering of 760,000 shares of
common  stock at a price of $2.50  per  share  for  aggregate  proceeds  of $1.9
million.  The  Company  used $1.8  million of the  proceeds to pay down an equal
notional amount of the subordinated note due Kevin Thomas.  The remainder of the
proceeds was used for general corporate purposes.

One of the investors,  MSRI SBIC,  L.P.,  which  acquired  240,000 shares in the
offering,  is  controlled  by Daniel  Levinson,  a director of the  Company.  In
addition,  James Quinn, a director of the Company acquired 40,000 shares for his
own account.

Subordination of Certain Debt

On January 31, 2005,  the Company  entered into a Debt  Subordination  Agreement
("Subordination  Agreement") with Kevin J. Thomas ("Thomas"),  Southern Maryland
Cable,  Inc., a wholly owned subsidiary of the Company ("SMC," and together with
the Company, the "Debtor") and Bank of America,  N.A. ("Lender") to reconstitute
as subordinated  debt certain  additional cash  consideration  ("Additional Cash
Consideration")  that Debtor will owe to Thomas in connection with the Agreement
and Plan of Merger dated  August 31, 2004 as amended,  by and among the Company,
AGAX/VLI  Acquisition  Corporation,  a subsidiary of the Company, VLI and Thomas
("Merger Agreement").



                                       17
<PAGE>


Pursuant  to the  Subordination  Agreement,  Debtor  and Thomas  have  agreed to
reconstitute  the Additional  Cash  Consideration  as  subordinated  debt and in
furtherance  thereof,  the Company has agreed to execute and deliver to Thomas a
Subordinated  Promissory  Note in an  amount  equal  to the  amount  that  would
otherwise  be due  Thomas as  Additional  Cash  Consideration  under the  Merger
Agreement.  Accordingly,  under the Subordination Agreement, Debtor subordinated
all of the Junior Debt (as such term is defined in the Subordination  Agreement)
to  the  full  extent  provided  in  the  Subordination  Agreement,  and  Thomas
transferred and assigned to Lender all of his rights,  title and interest in the
Junior  Debt and  appointed  Lender  as his  attorney-in-fact  for the  purposes
provided in the Subordination  Agreement for as long as any of the Superior Debt
(as such term is defined in the Subordination  Agreement)  remains  outstanding.
Except as otherwise provided in the Subordination  Agreement and until such time
that the  Superior  Debt is satisfied  in full,  Debtor  shall not,  among other
things, directly or indirectly, in any way, satisfy any part of the Junior Debt,
nor shall  Thomas,  among other  things,  enforce any part of the Junior Debt or
accept  payment  from Debtor or any other person for the Junior Debt or give any
subordination in respect of the Junior Debt.

The  subordinated  debt due the former owner of VLI was originally due on August
1, 2006. On May 5, 2006,  the Company  entered into an agreement with the former
owner of VLI to delay the  timing of the  payment  on the  subordinated  debt to
August 1, 2007.  The former  owner of VLI will be paid prior to this date if the
Company were to raise  additional  equity having an aggregate  purchase price of
more than $1 million.  The  Company  also has the option to draw on the New Term
Loan (as defined  below) to pay the former owner of VLI if we are in  compliance
with our debt covenants with the Bank of America, N.A.

Amendment of Financing Arrangements

In May 2006,  the Company  agreed to amend the existing  financing  arrangements
with the Bank of America, N.A. (Bank). Under this arrangement, the Company has a
revolving  line of credit of $4.25  million in maximum  availability  and a term
loan with an original balance of $1.2 million.  The May 2006 amendment  extended
the  expiration  of the  revolving  line of  credit to May 31,  2007.  Under the
amended financing arrangements,  amounts outstanding under the revolving line of
credit  and the  three-year  note bear  interest  at LIBOR  plus 3.25% and 3.45%
respectively.  Availability  on a  monthly  basis  under the  revolving  line is
determined by reference to accounts  receivable and inventory on hand which meet
certain Bank criteria  (Borrowing  Base).  The  aforementioned  three-year  note
remains in effect and the final monthly  scheduled  payment of $33,000 is due on
July 31, 2006. As of April 30, 2006, the Company had $100,000  outstanding under
the term note.  At April 30, 2006,  the Company  also had  $993,000  outstanding
under the revolving line of credit at an interest rate of 8.2% with $3.3 million
of additional availability under its Borrowing Base.

The amended  financing  arrangements  provides  for a new $1.5 million term loan
facility  (New Term Loan).  The proceeds of the New Term Loan are  designated to
refinance a portion of the existing  subordinated note with Kevin Thomas that at
April 30, 2006 had a current  outstanding  balance of $3,292,000 which is due on
August 1, 2007.  Advances  under the New Term Loan are  subject  to the  Company
being in compliance  with its debt  covenants  with the Bank.  The New Term Loan
will be repaid in thirty-six equal monthly principal payments and bears interest
at LIBOR plus 3.25%.  If the Company  draws on the New Term Loan,  the Company's
Borrowing  Base will be reduced by $750,000 for maximum  availability  under the
revolving line of credit.

The amended  financing  arrangements  provides  for the  measurement  of certain
financial  covenants including requiring the ratio of debt to pro forma earnings
before interest, taxes, depreciation and amortization (EBITDA) not to exceed 2.5
to 1 (with the next  measurement  date being July 31,  2006) and  requiring  pro
forma  fixed  charge  coverage  ratio  not less  than  1.25 to 1 (with  the next
measurement date being July 31, 2006). The amended  financings also require that
the Company meet minimum  EBITDA  covenants  equal to or exceeding (on a rolling
four quarter basis) $1.2 million for July 31, 2006, $1.3 million for October 31,
2006 and $1.8 million for January 31, 2007 and for each  successive  quarter end
thereafter.  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.


                                       18
<PAGE>


The amended  financing  arrangement  contains a subjective  acceleration  clause
which  allows  the Bank to  declare  amounts  outstanding  under  the  financing
arrangement  due and  payable if certain  material  adverse  changes  occur.  We
believe that we will continue to comply with our financial  covenants  under our
financing arrangement. If our performance does not result in compliance with any
of our  financial  covenants,  or if the Bank seeks to exercise its rights under
the subjective  acceleration  clause  referred to above, we would seek to modify
our financing arrangement, but there can be no assurance that the Bank would not
exercise  their rights and remedies  under our financing  arrangement  including
accelerating  payment of all outstanding  senior and  subordinated  debt due and
payable.

HOLDING COMPANY STRUCTURE

We intend to make additional acquisitions and/or investments.  We intend to have
more than one  industrial  focus and to  identify  those  companies  that are in
industries  with  significant  potential to grow  profitably both internally and
through  acquisitions.  We  expect  that  companies  acquired  in each of  these
industrial groups will be held in separate subsidiaries that will be operated in
a manner that best provides cashflow and value for the Company.

We are a holding  company with no operations  other than our  investments in VLI
and SMC. At April 30, 2006, there were no restrictions with respect to dividends
or other payments from VLI and SMC to the Company.

NUTRITIONAL PRODUCTS

We are dedicated to the research,  development,  manufacture and distribution of
premium  nutritional  supplements,  whole-food dietary  supplements and personal
care  products.  Several of these  products have garnered  honors  including the
National  Nutritional Foods Association's  prestigious Peoples Choice Awards for
best products of the year in its respective category.

We provide nutrient-dense,  super-food  concentrates,  vitamins and supplements.
Our customers  include  health food store chains,  mass  merchandisers,  network
marketing companies, pharmacies and major retailers.

We intend to enhance our position in the fast growing global nutrition  industry
through our innovative product development and research. We believe that we will
be able to expand our  distribution  channels by  providing  continuous  quality
assurance and by focusing on timely delivery of superior nutraceutical products.

We are focused on  efficiently  utilizing  the strong cash flow  potential  from
manufacturing   nutritional   products.   To  ensure  that  working  capital  is
effectively  allocated,  we closely  monitor our inventory  turns as well as the
number of days sales that we have in our accounts receivable.

TELECOM INFRASTRUCTURE SERVICES

We  currently  provide  inside  plant,  premise  wiring  services to the Federal
Government  and have  plans to expand  that  work to  commercial  customers  who
regularly   need  upgrades  in  their  premise  wiring  systems  to  accommodate
improvements in security, telecommunications and network capabilities.

We continue to participate in the expansion of the  telecommunications  industry
by working with various  telecommunications  providers. We are actively pursuing
contracts  with a wide  variety  of  telecommunications  providers.  We  provide
maintenance  and upgrade  services for their outside plant systems that increase
the capacity of existing infrastructure.  We also provide outside plant services
to  the  power  industry  by  providing  maintenance  and  upgrade  services  to
utilities.



                                       19
<PAGE>

We intend to emphasize our high quality  reputation,  outstanding  customer base
and highly  motivated  work  force in  competing  for  larger  and more  diverse
contracts.  We  believe  that our high  quality  and  well  maintained  fleet of
vehicles  and  construction   machinery  and  equipment  is  essential  to  meet
customers'  needs for high  quality and on-time  service.  We are  committed  to
invest in our repair and  maintenance  capabilities  to maintain the quality and
life of our  equipment.  Additionally,  we invest  annually in new  vehicles and
equipment.

Critical Accounting Policies

Management is required to make judgments,  assumptions and estimates that affect
the  amounts  reported  when  we  prepare   financial   statements  and  related
disclosures in conformity with generally accepted accounting principles.  Note 2
contained in the Company's  consolidated financial statements for the year ended
January 31, 2006  included in the  Company's  Annual  Report  contained  in Form
10-KSB,  as filed with the  Securities  and Exchange  Commission  describes  the
significant  accounting  policies  and methods  used in the  preparation  of our
consolidated  financial  statements.  Estimates are used for, but not limited to
our  accounting  for  revenue  recognition,  allowance  for  doubtful  accounts,
inventory valuation, long-lived assets and deferred income taxes. Actual results
could differ from these estimates.  The following critical  accounting  policies
are impacted  significantly by judgments,  assumptions and estimates used in the
preparation of our consolidated  financial statements.  If future conditions and
results are different than our assumptions and estimates,  materially  different
amounts could be reported.

Revenue Recognition

Vitarich Laboratories, Inc.

We manufacture  products for our customers  based on their orders.  We typically
ship the orders  immediately after production  keeping relatively little on-hand
as finished goods inventory.  We recognize  customer sales at the time title and
the risks and rewards of  ownership  passes to our  customer  which is generally
when orders are  shipped.  Sales are  recognized  on a net basis  which  reflect
reductions for certain  product  returns and  discounts.  Cost of goods sold and
finished  goods  inventory  sold include  materials  and direct labor as well as
other direct costs combine with allocations of indirect operational costs.

Southern Maryland Cable, Inc.

We generate revenue under various arrangements,  including contracts under which
revenue  is based on a fixed  price  basis  and on a time and  materials  basis.
Revenues  from time and  materials  contracts  are  recognized  when the related
service is  provided  to the  customer.  Revenues  from fixed  price  contracts,
including  a portion  of  estimated  profit,  are  recognized  as  services  are
provided,  based on costs incurred and estimated  total contract costs using the
percentage of completion method.

The timing of billing to customers  varies  based on  individual  contracts  and
often  differs  from the period of revenue  recognition.  Estimated  earnings in
excess of billings and billings in excess of estimated earnings totaled $170,000
and $31,000, respectively, at April 30, 2006.

Contract  costs are recorded  when  incurred and include  direct labor and other
direct costs combined with allocations of operational indirect costs. Management
periodically  reviews the costs incurred and revenue  recognized  from contracts
and adjusts recognized revenue to reflect current  expectations.  Provisions for
estimated  losses on incomplete  contracts are provided in full in the period in
which such losses become known.



                                       20
<PAGE>

Inventories

Inventories  are stated at the lower of cost or market (net  realizable  value).
Cost  is  determined  on  the  first-in  first-out  (FIFO)  method.  Appropriate
consideration  is given to obsolescence,  excessive  inventory  levels,  product
deterioration and other factors in evaluating net realizable value.

Impairment of Long-Lived Assets, Including Definite Lived Intangible Assets

Long-lived assets,  consisting primarily of property and equipment, are reviewed
for impairment  whenever  events or changes in  circumstances  indicate that the
carrying amount should be assessed pursuant to SFAS No. 144, "Accounting for the
Impairment  or  Disposal  of  Long-Lived   Assets."  We  determine  whether  any
impairment  exists by comparing the carrying value of these long-lived assets to
the  undiscounted  future  cash flows  expected  to result from the use of these
assets.  In the event we determine  that an impairment  exists,  a loss would be
recognized  based on the amount by which the  carrying  value  exceeds  the fair
value of the assets, which is generally determined by using quoted market prices
or valuation  techniques such as the discounted present value of expected future
cash flows, appraisals, or other pricing models as appropriate.

Goodwill and Other Indefinite Lived Intangible Assets

In connection with the  acquisitions of VLI and SMC, the Company has substantial
goodwill and intangible  assets including  contractual  customer  relationships,
proprietary formulas, non-compete agreements and trade names. In accordance with
SFAS 142  "Goodwill  and Other  Intangible  Assets,"  the  Company  reviews  for
impairment, at least annually,  goodwill and intangible assets deemed to have an
indefinite life.

Goodwill  impairment is determined using a two-step  process.  The first step of
the goodwill impairment test is to identify a potential  impairment by comparing
the fair value of a reporting unit with its carrying amount, including goodwill.
The estimates of fair value of a reporting unit, generally a Company's operating
segment,  is determined using various valuation  techniques,  with the principal
techniques being a discounted cash flow analysis and market multiple  valuation.
A discounted cash flow analysis requires making various judgmental  assumptions,
including  assumptions about future cash flows, growth rates and discount rates.
Developing  assumptions  for the  Company's  entrepreneurial  business  requires
significant  judgment and to a great extent relies on the  Company's  ability to
successfully determine trends with respect to customers, industry and regulatory
environment.  The  assumptions,  including  assumptions  about  future flows and
growth rates,  are based on the Company's  budget and business  plans as well as
industry  trends  with  respect  to  customers  and  other   manufacturers'  and
distributors' sales and margins.  The Company reviews trends for publicly traded
companies which either compete with the Company to provide services or the types
of  products  the Company  produces  or are users of the types of  services  and
products provided by the Company.  Changes in economic and operating  conditions
impacting  these  assumptions  could  result in  goodwill  impairment  in future
periods.  Discount  rate  assumptions  are  based  on the  Company's  subjective
assessment of the risk inherent in the respective  reporting units.  Risks which
the  Company  faces in its  business  include  the  public's  perception  of our
integrity and the safety and quality of our products and services.  In addition,
in the industries  that we operate we are subject to rapidly  changing  consumer
demands and preferences. The Company also operates in competitive industries. We
are not assured that  customers or potential  customers will regard our products
and services as sufficiently  distinguishable  from our competitors' product and
service  offerings.  If after  taking into  consideration  industry  and Company
trends, the fair value of a reporting unit exceeds its carrying amount, goodwill
of the  reporting  unit  is not  deemed  impaired  and  the  second  step of the
impairment  test is not  performed.  If the carrying  amount of a reporting unit
exceeds its fair value, the second step of the goodwill impairment test compares
the implied fair value of the reporting unit's goodwill with the carrying amount
of that  goodwill.  If the  carrying  amount of the  reporting  unit's  goodwill
exceeds  the  implied  fair  value  of  that  goodwill,  an  impairment  loss is
recognized in an amount equal to that excess. The implied fair value of goodwill
is  determined  in the same  manner as the amount of  goodwill  recognized  in a
business  combination.  Accordingly,  the fair  value of the  reporting  unit is
allocated  to all of the  assets and  liabilities  of that unit  (including  any
unrecognized  intangible assets) as if the reporting unit had been acquired in a
business  combination  and the fair value of the reporting unit was the purchase
price paid to acquire the reporting unit.



                                       21
<PAGE>

The Company will test for  impairment  of Goodwill and other  intangible  assets
more  frequently if events or changes in  circumstances  indicate that the asset
might be impaired.

Contractual Customer Relationships

Southern  Maryland  Cable,  Inc.  - The fair value of the  Contractual  Customer
Relationships  (CCR's) was  determined at the time of the  acquisition of SMC by
discounting  the cash flows  expected from SMC's  continued  relationships  with
three customers - General Dynamics Corp. (GD), Verizon  Communications  (VZ) and
Southern Maryland Electric Cooperative  (SMECO).  Expected cash flows were based
on historical  levels,  current and  anticipated  projects and general  economic
conditions.  In some cases,  the estimates of future cash flows reflect  periods
beyond those of the current contracts in place. While SMC's relationship with GD
is relatively  recent, SMC has performed work for VZ and SMECO for approximately
twenty years and ten years, respectively. The long-term relationship with VZ and
SMECO  affected  the  discount  rate used to discount  cost of capital and SMC's
asset mix. We are amortizing  the CCR's over a seven year weighted  average life
given the long standing relationships SMC has with Verizon and SMECO.

Vitarich  Laboratories,  Inc.  - The  fair  value  of the  Contractual  Customer
Relationships  at VLI (VCCR's) was determined at the time of the  acquisition of
VLI by identifying  long established  customer  relationships in which VLI has a
pattern of recurring  purchase and sales orders.  The Company estimated expected
cash flows  attributable to these existing customer  relationships  factoring in
market place assumptions regarding future contract renewals,  customer attrition
rates and forecasted  expenses to maintain the installed  customer  base.  These
cash flows were then discounted based on a rate that reflects the perceived risk
of the VCCR's,  the  Company's  estimated  weighted  average cost of capital and
VLI's asset mix. VLI has had a  relationship  of five years or more with most if
its currently significant  customers.  We are amortizing VCCR's over a five year
life based on our expectations of continued cash flows from these  relationships
and our history of maintaining relationships.

Trade Name

The fair value of the SMC trade name was estimated  using a  relief-from-royalty
methodology. We determined that the useful life of the trade name was indefinite
since it is expected to contribute  directly to future cash flows in perpetuity.
The Company has also considered the effects of demand and competition  including
its customer base. While SMC is not a nationally  recognized trade name, it is a
regionally  recognized name in the Mid-Atlantic  region, SMC's primary region of
operations.

We are using the  relief-from-royalty  method  described above to test the trade
name for impairment  annually on November 1 and on an interim basis if events or
changes in  circumstances  between annual tests indicate the trade name might be
impaired.

Proprietary Formulas

The Fair Value of the  Proprietary  Formulas (PFs) was determined at the time of
the  acquisition  of VLI by  discounting  the cash flows expected from developed
formulations based on relative  technology  contribution and estimates regarding
product  lifecycle and development  costs and time. The expected cash flows were
discounted  based on a rate that  reflects  the  perceived  risk of the PFs, the
estimated  weighted  average  cost  of  capital  and  VLI's  asset  mix.  We are
amortizing  the PFs over a three year life based on the  estimated  contributory
life of the proprietary  formulations  utilizing  estimated  historical  product
lifecycles and changes in technology.



                                       22
<PAGE>

Non-Compete Agreement

The fair value of the Non-Compete  Agreement (NCA) was determined at the time of
acquisition  of VLI by  discounting  the  estimated  reduction in the cash flows
expected if one key employee, the former sole shareholder of VLI, were to leave.
The key employee  signed a  non-compete  clause  prohibiting  the employee  from
competing  directly or indirectly  for five years.  The  estimated  reduced cash
flows were  discounted  based on a rate that reflects the perceived  risk of the
NCA, the estimated  weighted average cost of capital and VLI's asset mix. We are
amortizing the NCA over five years, the length of the non-compete agreement.

Derivative Financial Instruments

The Company  accounts for derivative  financial  instruments in accordance  with
Statement of Financial  Accounting  Standards  ("SFAS") No. 133  "Accounting for
Derivative  Instruments  and Hedging  Activities" and Emerging Issues Task Force
Issue No. 00-19,  "Accounting for Derivative  Financial  Instruments Indexed to,
and  Potentially  Settled in a Company's  Own Stock." The  derivative  financial
instruments  are  carried at fair value with  changes in fair value  recorded as
other expense, net. The determination of fair value for our derivative financial
instruments  is subject to the  volatility of our stock price as well as certain
underlying  assumptions  which  include the  probability  of raising  additional
capital.

Deferred Tax Assets and Liabilities

We account for income taxes under the asset and liability  method.  The approach
requires the recognition of deferred tax assets and liabilities for the expected
future tax  consequences of temporary  differences  between the carrying amounts
and the tax basis of assets and liabilities. Developing our provision for income
taxes  requires  significant  judgment and expertise in Federal and state income
tax laws,  regulations and strategies,  including the  determination of deferred
tax assets and liabilities and, if necessary,  any valuation allowances that may
be required for deferred tax assets.

Western Filter Corporation Litigation

On September 17, 2004, Western Filter  Corporation  ("WFC") notified the Company
that  WFC  believes  that  the  Company  breached  certain  representations  and
warranties  under the stock  purchase  agreement  dated  October 31, 2003 by and
between Argan, Inc. and WFC ("Stock Purchase Agreement"). WFC asserts damages in
excess of the $300,000 escrow which is being held by a third party in connection
with the Stock Purchase Agreement.

On March 22, 2005, WFC filed a complaint in Los Angeles  Superior Court alleging
the  Company  and its  executive  officers,  individually,  committed  breach of
contract,   intentional   misrepresentation,   concealment  and  non-disclosure,
negligent  misrepresentation and false promise. WFC seeks declaratory relief and
compensatory  and punitive damages in an amount to be proven at trial as well as
the recovery of attorneys' fees.

Although the Company has reviewed  WFC's claim and believes  that  substantially
all of the claims are  without  merit,  at April 30,  2006,  the  Company had an
accrual related to this matter of $360,000 for estimated payments and legal fees
related to the claims of WFC that it  considers  to be probable  and that can be
reasonably estimated.  Although the ultimate amount of liability that may result
from this matter is not  ascertainable,  the Company  believes  that any amounts
exceeding the aforementioned  accrual should not materially affect the Company's
financial condition.  It is possible,  however,  that the ultimate resolution of
WFC's claim could result in a material  adverse effect on the Company's  results
of operations for a particular  reporting  period.  The Company will  vigorously
contest WFC's claim.



                                       23
<PAGE>

Results of Operations  for the Three Months Ended April 30, 2006 Compared to the
Results of Operations for the Three Months ended April 30, 2005


                                                       Three Months Ended
                                                            April 30,

                                                       2006           2005
Statement of Operations
Net sales
   Nutraceutical products                           $ 5,829,000    $ 4,728,000
   Telecom infrastructure services                    3,133,000      2,428,000
                                                    -----------    -----------
Net Sales                                             8,962,000      7,156,000
                                                    -----------    -----------
Cost of sales
   Nutraceutical products                             4,386,000      3,430,000
   Telecom infrastructure services                    2,323,000      1,907,000
                                                    -----------    -----------
Gross profit                                          2,253,000      1,819,000
Selling general and administrative expenses           1,976,000      1,840,000
                                                    -----------    -----------
    Income (loss) from operations                       277,000        (21,000)
Interest expense                                        261,000         56,000
Other income, net                                         2,000         27,000
                                                    -----------    -----------
Income (loss) from operations before income taxes        18,000        (50,000)
Income tax provision (benefit)                           36,000        (28,000)
                                                    -----------    -----------
Net loss                                            $   (18,000)   $   (22,000)
                                                    ===========    ===========


Net sales

Net sales of  nutraceutical  products were $5,829,000 for the three months ended
April 30, 2006 compared to net sales of nutraceutical products of $4,728,000 for
the three  months ended April 30, 2005,  an increase of  $1,101,000  or 23%. The
increase in net sales of  nutraceutical  products was due primarily to increased
sales to several of our largest  customers,  TriVita  Corporation  (TVC) and Rob
Reiss Companies (RRC) as well as to two new customers.

Net sales of telecommunications  infrastructure services were $3,133,000 for the
three  months ended April 30, 2006  compared to net sales of  telecommunications
infrastructure services of $2,428,000 for the three months ended April 30, 2005,
an increase of $705,000 or 29%. The increase is due primarily to increased sales
to VZ, SMECO and Electronic Data Systems Corp. (EDS) which offset the decline in
business with GD whose contract with SMC was completed last year.

Cost of sales

For the three  months  ended  April 30,  2006,  cost of sales for  nutraceutical
products was $4,386,000, or 75% of net sales for nutraceutical products compared
to $3,430,000 or 73% of net sales of nutraceutical products for the three months
ended April 30,  2005.  VLI  experienced  a higher  percentage  of cost of sales
during  the  three  months  ended  April  30,  2006  due to  increased  costs of
non-nutritional materials whose cost was affected by the rise in oil prices. VLI
has begun to pass along price increases  during the three months ended April 30,
2006. In addition,  during the three months ended April 30, 2006, VLI outsourced
certain manufacturing  processes at higher costs which it had originally planned
to perform in-house at lower costs.



                                       24
<PAGE>

For the three months ended April 30, 2006, cost of sales for  telecommunications
infrastructure   services   were   $2,323,000   or   74%   of   net   sales   of
telecommunications  infrastructure services compared to $1,907,000 or 79% of net
sales of telecommunications  infrastructure  services.  SMC experienced improved
percentage  margin  performance  due primarily to more effective  utilization of
construction  personnel and equipment  assigned to VZ and SMECO as the net sales
to both customers increased.

Selling general and administrative expenses

Selling, general and administrative expenses were $1,976,000 or 22% of net sales
for the three months ended April 30, 2006  compared to  $1,840,000 or 26% of net
sales for the three months ended April 30,  2005,  an increase of $136,000.  SMC
increased its selling, general and administrative expenses by $60,000 due to the
hiring of additional sales support personnel. In addition, corporate expenses as
a percentage  of net sales  increased  from 6% to 7% due to increased  corporate
costs due to higher professional accounting services.

Interest Expense

We had an increase of interest  expense to $261,000  for the three  months ended
April 30,  2006 from  $56,000  for the three  months  ended  April 30,  2005 due
primarily  to  the  interest  expense  for  subordinated  debt  of  $82,000  and
amortization  of issuance  cost for the  subordinated  debt of $129,000  for the
three months ended April 30, 2006.

Other income, net

We had other  income,  net of $2,000 for the three  months  ended April 30, 2006
compared to other  income,  net of $27,000 for the three  months ended April 30,
2005.

Income tax (benefit) provision
The  Company's  effective  income tax rate was 200% for the three  months  ended
April 30, 2006 compared to a 56% effective income tax benefit rate for the three
months ended April 30, 2005.

During the three months ended April 30, 2006, the Company's effective income tax
rate was  increased  by the  impact of the  amortization  of  issuance  cost for
subordinated  debt  which is treated as a  permanent  difference  for income tax
reporting purposes.

For the three months ended April 30, 2005,  the Company's  effective  income tax
benefit  rate was  increased  by the  impact of the fair  value  adjustment  for
liability for derivative  financial  instruments which is a permanent difference
for income tax reporting purposes.

LIQUIDITY AND CAPITAL RESOURCES

Cash Position and Indebtedness

We had $1.9 million in working capital at April 30, 2006,  including  $93,000 of
cash and cash  equivalents.  In addition  we had $3.3  million  available  under
credit facilities.

Working  capital  increased  by $400,000 to $1.9  million at April 30, 2006 from
$1.5 million at January 31, 2006. Components of the Company's cash flow provided
by operations  during the three months ended April 30, 2006  contributed  to the
increase in working capital.  Estimated earnings in excess of billings decreased
by $505,000,  inventories  decreased by $140,000,  accounts  payable and accrued
expenses  increased  by $620,000  which was offset,  in part by the  increase in
accounts  receivable  of  $1,039,000.  The  Company had income  before  taxes of
$18,000  for the three  months  ended April 30,  2006.  The  Company's  non-cash
expenses  included in the determination of income before taxes included $331,000
for  amortization  of purchase  intangibles  and $376,000 for  depreciation  and
amortization.



                                       25
<PAGE>


Cash Flows

Net cash  provided by  operations  for the three months ended April 30, 2006 was
$783,000  compared with $24,000 of cash used in operations  for the three months
ended April 30, 2005 due to the improved  financial  performance of both SMC and
VLI. For the three months ended April 30, 2006,  SMC had income from  operations
of $396,000  compared to income from operations of $167,000 for the three months
ended  April 30,  2005.  Net sales  from VZ  increased  by  $830,000  due to SMC
reestablishing  a  contractual  relationship  with VZ which had been  previously
discontinued.  In July 2004, SMC lost a significantly  profitable  contract with
VZ. In September  2005, SMC commenced work on an underground  telecommunications
infrastructure  services contract with VZ which had been previously awarded to a
third  party  which did not  perform  to VZ's  satisfaction.  In  addition,  SMC
experienced  strong  revenue  growth from SMECO.  During the three  months ended
April 30, 2006,  VLI had income from  operations of $356,000  compared to income
from  operations  of $212,000 for the three  months  ended April 30,  2005.  VLI
experienced  strong revenue growth from two of its most  significant  customers,
TVC and RRC as well as from two new customers.

During the three months ended April 30, 2006,  accounts  receivable used cash of
$1,039,000.  Strong  revenue  performance  at both SMC and VLI  resulted  in the
substantial increase in accounts receivable. During the three months ended April
30,  2006,  estimated  earnings  in excess  of  billings,  inventories,  net and
accounts payable and accrued expenses  provided cash flow of $505,000,  $140,000
and  $620,000,  respectively.  Improved  processing  of invoices  reduced  SMC's
estimated  earnings in excess of billings.  VLI exercised  tighter controls over
inventory levels as it experienced  strong revenue growth.  Accounts payable and
accrued  expenses  increased  as SMC  experienced  substantial  increase in work
performed  by  subcontractors  which  resulted in increased  amounts  payable to
subcontractors  at  April  30,  2006.  Since  subcontractors  are  paid on terms
consistent  with SMC's  terms with its  customers,  subcontractors  are not paid
until invoices are paid by our customers which  contributes to a higher level of
accounts payable.

During  the three  months  ended  April 30,  2006,  net cash used for  investing
activities  was $270,000  compared to net cash used for investing  activities of
$118,000 for the three  months  ended April 30, 2005.  SMC paid for new drilling
equipment and trucks to respond to opportunities for additional customer work.

For the three months ended April 30, 2006, net cash used by financing activities
was $425,000  compared to cash  provided by financing  activities of $82,000 for
the three months ended April 30, 2005.  The change in net cash  provided  during
the three  months  ended April 30, 2005 to net cash used during the three months
ended April 30, 2006 is due to payments  made on the line of credit and the term
loan by the  Company  during the three  months  ended  April 30,  2006 from cash
provided by operating activities.  During the three months ended April 30, 2005,
the Bank of America,  N.A.  released  $304,000 in previously  escrowed  funds in
accordance  with the amended  financing  arrangements of April 2005 which offset
the net paydown of the Company's line of credit and long term debt.

In May 2006,  the Company  agreed to amend the existing  financing  arrangements
with the Bank of America, N.A. (Bank). Under this arrangement, the Company has a
revolving  line of credit of $4.25  million in maximum  availability  and a term
loan with an original balance of $1.2 million.  The May 2006 amendment  extended
the expiration of the revolving line of debt to May 31, 2007.  Under the amended
financing  arrangements,  amounts outstanding under the revolving line of credit
and  the  three-year   note  bear  interest  at  LIBOR  plus  3.25%  and  3.45%,
respectively.  Availability  on a  monthly  basis  under the  revolving  line is
determined by reference to accounts  receivable and inventory on hand which meet
certain Bank criteria  (Borrowing  Base).  The  aforementioned  three-year  note
remains in effect and the final monthly  scheduled  payment of $33,000 is due on
July 31, 2006. As of April 30, 2006, the Company had $100,000  outstanding under
the term note.  At April 30, 2006,  the Company  also had  $993,000  outstanding
under the revolving line of credit at an interest rate of 8.2% with $3.3 million
of additional availability under its Borrowing Base.



                                       26
<PAGE>

The amended  financing  arrangements  provides  for a new $1.5 million term loan
facility  (New Term Loan).  The proceeds of the New Term Loan are  designated to
refinance a portion of the existing subordinated note with Kevin Thomas that had
at April 30, 2006 an outstanding balance of $3,292,000 which is due on August 1,
2007.  Advances  under the New Term Loan are  subject  to the  Company  being in
compliance  with its debt  covenants  with the  Bank.  The New Term Loan will be
repaid in thirty-six equal monthly principal payments and bear interest at LIBOR
plus 3.25%.  If the Company draws on the New Term Loan, the Company's  Borrowing
Base will be reduced by $750,000 for maximum  availability  under the  revolving
line of credit.

The amended  financing  arrangements  provides  for the  measurement  of certain
financial  covenants including requiring the ratio of debt to pro forma earnings
before interest, taxes, depreciation and amortization (EBITDA) not to exceed 2.5
to 1 (with the next measurement period of July 31, 2006) and requiring pro forma
fixed charge  coverage ratio not less than 1.25 to 1 (with the next  measurement
period of July 31,  2006).  The amended  financing  arrangements  also provide a
requirement that the Company meet minimum EBITDA covenants equal to or exceeding
(on a rolling four quarter  basis) $1.2 million for July 31, 2006,  $1.3 million
for  October  31,  2006 and  $1.8  million  for  January  31,  2007 and for each
successive  quarter end  thereafter.  Bank 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  arrangement  contains a subjective  acceleration  clause
which  allows  the Bank to  declare  amounts  outstanding  under  the  financing
arrangement  due and  payable if certain  material  adverse  changes  occur.  We
believe that we will continue to comply with our financial  covenants  under our
financing arrangement. If our performance does not result in compliance with any
of our  financial  covenants,  or if the Bank seeks to exercise its rights under
the subjective  acceleration  clause  referred to above, we would seek to modify
our financing arrangement, but there can be no assurance that the Bank would not
exercise  their rights and remedies  under our financing  arrangement  including
accelerating  payment of all outstanding  senior and  subordinated  debt due and
payable.

At April 30,  2006,  the Company was in  compliance  with the  covenants  of its
amended financing arrangements.

Management  believes that cash generated from the Company's  operations combined
with capital resources available under its renewed line of credit is adequate to
meet the Company's future operating cash needs. Any future  acquisitions,  other
significant  unplanned  costs or cash  requirements  may  require the Company to
raise additional funds through the issuance of debt and equity securities. There
can be no assurance that such financing will be available on terms acceptable to
the  Company,  or at all.  If  additional  funds are  raised by  issuing  equity
securities, significant dilution to the existing stockholders may result.

Customers

During the three  months  ended  April 30,  2006,  we provided  nutritional  and
whole-food  supplements  as well as personal  care  products to customers in the
global  nutrition  industry and  services to  telecommunications  and  utilities
customers  as  well  as to the  Federal  Government,  through  a  contract  with
Electronic Data Systems Corp.  (EDS).  Certain of our more significant  customer
relationships  are with TriVita  Corporation  (TVC),  Rob Reiss Companies (RRC),
Verizon  Communications,  Inc. (VZ),  Southern Maryland  Electrical  Cooperative
(SMECO), EDS, CyberWize.com,  Inc. (C), and Orange Peel Enterprises, Inc. (OPE).
TVC, RRC, C and OPE are VLI customers. SMC's significant customers are VZ, SMECO
and EDS. TVC, RRC, C and OPE accounted for approximately  22%, 13%, 6% and 5% of
consolidated  net sales during the three months ended April 30, 2006.  VZ, SMECO
and EDS accounted for  approximately  11%, 11% and 6% of consolidated  net sales
during the three months ended April 30, 2006. Combined TVC, RRC, VZ, SMECO, EDS,
C and OPE accounted for  approximately  74% of consolidated net sales during the
three months ended April 30, 2006.



                                       27
<PAGE>

Seasonality

The Company's telecom  infrastructure  services  operations are expected to 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 is
primarily  due to the effect of winter  weather on 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.

IMPACT OF CHANGES IN ACCOUNTING STANDARDS



ITEM 3.   CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures

As of the end of the period covered by this report,  the Company  carried out an
evaluation,  under the supervision and with the  participation  of the Company's
management,  including Chief Executive Officer and Chief Financial  Officer,  of
the  effectiveness  of the  design and  operation  of the  Company's  disclosure
controls and procedures  (as defined in Rule 13a-15 of the  Securities  Exchange
Act of 1934).  Based on that evaluation,  our Chief Executive  Officer and Chief
Financial Officer have concluded that the Company's current disclosure  controls
and  procedures  are effective in timely  alerting them of material  information
relating to the Company  that is required to be  disclosed by the Company in the
reports it files or submits under the Securities Exchange Act of 1934.


(b) Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal
control over  financial  reporting,  as such term is defined in Rules  13a-15(f)
under  the  Securities  Exchange  Act of  1934  and for  the  assessment  of the
effectiveness of internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

There have been no changes in the  Company's  internal  control  over  financial
reporting  that  occurred  during the  quarter  ended  April 30,  2006 that have
materially affected, or are reasonably likely to materially affect the Company's
internal control over financial reporting.



                                     PART ll

                                OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

On September 17, 2004,  Western  Filter  Corporation  (WFC) notified the Company
that  WFC  believed  that  the  Company  breached  certain  representations  and
warranties  under the stock  purchase  agreement  dated  October 31, 2003 by and
between Argan, Inc. and WFC ("Stock Purchase Agreement"). WFC asserts damages in
excess of the $300,000 escrow which is being held by a third party in connection
with the Stock Purchase Agreement.



                                       28
<PAGE>

On March 22, 2005, WFC filed a complaint in Los Angeles  Superior Court alleging
the  Company  and its  executive  officers,  individually,  committed  breach of
contract,   intentional   misrepresentation,   concealment  and  non-disclosure,
negligent  misrepresentation and false promise. WFC seeks declaratory relief and
compensatory  and punitive damages in an amount to be proven at trial as well as
the recovery of attorneys' fees.

Although the Company has reviewed  WFC's claim and believes  that  substantially
all of the claims are without  merit,  as of April 30, 2006,  the Company had an
accrual  related to this matter of $360,000  for  estimated  payments  and legal
expenses  related to the claim of WFC that it  considers to be probable and that
can be reasonably estimated.  Although the ultimate amount of liability that may
result from this matter is not  ascertainable,  the  Company  believes  that any
amounts  exceeding the  aforementioned  accrual should not materially affect the
Company's  financial  condition.  It is  possible,  however,  that the  ultimate
resolution  of WFC's  claim  could  result in a material  adverse  effect on the
Company's results of operations for a particular  reporting period.  The Company
will vigorously contest WFC's claim.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

        None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

        None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None.

ITEM 5. OTHER INFORMATION

        None.

ITEM 6. EXHIBITS

        Exhibit No.     Title
        -----------     -----

        Exhibit: 31.1   Certification  of Chief Executive  Officer,  pursuant to
                        Rule 13a-14(c) under the Securities Exchange Act of 1934

        Exhibit: 31.2   Certification  of Chief Financial  Officer,  pursuant to
                        Rule 13a-14(c) under the Securities Exchange Act of 1934

        Exhibit: 32.1   Certification of Chief Executive Officer, pursuant to 18
                        U.S.C. Section 1350

        Exhibit: 32.2   Certification of Chief Financial Officer, pursuant to 18
                        U.S.C. Section 1350



                                       29
<PAGE>


                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be signed on its  behalf  by the  undersigned,  thereunto,  duly
authorized.



                                   ARGAN, INC.


June 13, 2006                      By:   /s/  Rainer Bosselmann
                                         ---------------------------------------
                                         Rainer Bosselmann
                                         Chairman of the Board and Chief
                                         Executive Officer





June 13, 2006                      By:   /s/  Arthur F. Trudel
                                         ---------------------------------------
                                         Arthur F. Trudel
                                         Chief Financial Officer




                                       30