**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





(Mark
      One)





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




For
      the
      Quarterly Period Ended **October
      31, 2007**




or




o
            
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT




**** For the
      Transition Period from  to




**** Commission File Number **001-31756**




**Argan,
                Inc.**(Exact
                Name of Registrant as Specified in Its
                Charter)





**Delaware**
            
            **13-1947195**(State
                or Other Jurisdiction of
              Incorporationor
                Organization)
            
            (I.R.S.
                Employer
              Identification
                No.)




**One
                Church Street, Suite 401, Rockville MD
                20850**(Address
                of Principal Executive Offices) (Zip
                Code)





**(301)
                315-0027**(Registrant’s
                Telephone Number, Including Area
                Code)





________________________________________________(Former
                Name, Former Address and Former Fiscal Year,
              if
                Changed since Last Report)





Indicate
      by check mark whether the Registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15 (d) of the Exchange Act of 1934 during the preceding
      12 months (or for such shorter period that the Registrant was required to file
      such reports), and (2) has been subject to such filing requirements for the
      past
      90 days.


Yes þ No o





Indicate
      by check mark whether the Registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check
      one):




Large
                accelerated filero
            Accelerated
                filero
            Non-accelerated
                filerþ





Indicate
      by check mark whether the Registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes o No þ





Indicate
      the number of shares outstanding of each of the Registrant’s classes of common
      stock, as of the latest practicable date: Common stock, $0.15 par value,
      11,104,012 shares at December 14, 2007.









**ARGAN,
      INC.**




**INDEX**




Page
                No.PART
                I.
            
            FINANCIAL
                INFORMATIONItem
                1.
            
            Financial
                Statements (unaudited)Condensed
                Consolidated Balance Sheets - October 31, 2007 and January 31,
                2007
            
            3Condensed
                Consolidated Statements of Operations for the Three and Nine Months
                Ended
                October 31, 2007 and 2006
            
            4Condensed
                Consolidated Statements of Cash Flows for the Nine Months Ended October
                31, 2007 and 2006
            
            5Notes
                to Condensed Consolidated Financial Statements
            
            6Item
                2.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operation
            
            14Item
                3.
            
            Quantitative
                and Qualitative Disclosures about Market Risk
            
            26Item
                4.
            
            Controls
                and Procedures
            
            26PART
                II.
            
            OTHER
                INFORMATION
            
            27Item
                1.
            
            Legal
                Proceedings
            
            27Item
                1a.
            
            Risk
                Factors
            
            27Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            27Item
                3.
            
            Defaults
                Upon Senior Securities
            
            27Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            27Item
                5.
            
            Other
                Information
            
            28Item
                6.
            
            Exhibits
            
            28SIGNATURES
            
            
            
            29





2


**ARGAN,
      INC.**


**Condensed
      Consolidated Balance Sheets**


**(unaudited)**




**October
                31,**
            
            **January
                31,****2007**
            
            **2007****ASSETS****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            75,268,000
            
            $
            25,393,000Accounts
                receivable, net of allowance for doubtful accounts of
                $80,000at
                10/31/2007 and $137,000 at 1/31/2007
            
            
            23,974,000
            
            
            23,030,000Investments
                available for sale
            
            
            5,000,000
            
            
            2,283,000Escrowed
                cash
            
            
            14,406,000
            
            
            15,031,000Estimated
                earnings in excess of billings
            
            
            630,000
            
            
            12,003,000Current
                deferred tax asset
            
            
            539,000
            
            
            -Inventories,
                net of reserves of $400,000 at 10/31/2007 and $104,000 at
                01/31/2007
            
            
            1,711,000
            
            
            2,387,000Prepaid
                expenses and other current assets
            
            
            2,194,000
            
            
            798,000**TOTAL
                CURRENT ASSETS**
            
            
            123,722,000
            
            
            80,925,000Property
                and equipment, net of accumulated depreciation of$3,037,000
                at 10/31/2007 and $2,379,000 at 1/31/2007
            
            
            2,807,000
            
            
            3,250,000Other
                assets
            
            
            197,000
            
            
            313,000Deferred
                tax asset
            
            
            385,000
            
            
            -Goodwill
            
            
            20,155,000
            
            
            23,981,000Other
                intangible assets, net
            
            
            6,531,000
            
            
            12,661,000**TOTAL
                ASSETS**
            
            $
            153,797,000
            
            $
            121,130,000**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****CURRENT
                LIABILITIES**Accounts
                payable
            
            $
            27,966,000
            
            $
            44,255,000Accrued
                expenses
            
            
            9,734,000
            
            
            5,873,000Estimated
                loss on uncompleted contracts
            
            
            68,000
            
            
            -Billings
                in excess of cost and earnings
            
            
            66,479,000
            
            
            15,705,000Current
                portion of long-term debt
            
            
            2,668,000
            
            
            2,586,000**TOTAL
                CURRENT LIABILITIES**
            
            
            106,915,000
            
            
            68,419,000Deferred
                income tax liability
            
            
            -
            
            
            1,471,000Other
                liabilities
            
            
            46,000
            
            
            14,000Long-term
                debt
            
            
            4,693,000
            
            
            6,715,000**TOTAL
                LIABILITIES**
            
            
            111,654,000
            
            
            76,619,000**STOCKHOLDERS'
                EQUITY**Preferred
                stock, par value $0.10 per share; 500,000 shares
                authorized;no
                shares issued and outstanding
            
            
            -
            
            
            -Common
                stock, par value $0.15 per share;30,000,000
                shares authorized; 11,107,245 and 11,097,245 shares issued and11,104,012
                and 11,094,012 shares outstanding at 10/31/2007 and 1/31/2007,
                respectively
            
            
            1,665,000
            
            
            1,664,000Warrants
                outstanding
            
            
            849,000
            
            
            849,000Additional
                paid-in capital
            
            
            57,492,000
            
            
            57,190,000Accumulated
                other comprehensive loss
            
            
            (39,000
            )
            
            (8,000
            )Accumulated
                deficit
            
            
            (17,791,000
            )
            
            (15,151,000
            )Treasury
                stock at cost; 3,233 shares at 10/31/2007 and 1/31/2007
            
            
            (33,000
            )
            
            (33,000
            )**TOTAL
                STOCKHOLDERS' EQUITY**
            
            
            42,143,000
            
            
            44,511,000**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            $
            153,797,000
            
            $
            121,130,000




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




3




**ARGAN,
      INC.**


**Condensed
      Consolidated Statements of Operations**


**(unaudited)**




**Three
                months ended**
              **October
                31,**
            
            **Nine
                months ended**
              **October
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Net
                salesPower
                industry services
            
            $
            42,017,000
            
            $
            -
            
            $
            130,970,000
            
            $
            -Nutraceutical
                products
            
            
            4,617,000
            
            
            5,248,000
            
            
            14,602,000
            
            
            16,288,000Telecom
                infrastructure services
            
            
            2,629,000
            
            
            4,361,000
            
            
            7,260,000
            
            
            10,843,000Net
                Sales
            
            
            49,263,000
            
            
            9,609,000
            
            
            152,832,000
            
            
            27,131,000Cost
                of salesPower
                industry services
            
            
            35,548,000
            
            
            -
            
            
            119,383,000
            
            
            -Nutraceutical
                products
            
            
            4,193,000
            
            
            4,235,000
            
            
            12,481,000
            
            
            12,561,000Telecom
                infrastructure services
            
            
            2,076,000
            
            
            3,506,000
            
            
            5,776,000
            
            
            8,507,000Gross
                profit
            
            
            7,446,000
            
            
            1,868,000
            
            
            15,192,000
            
            
            6,063,000Selling,
                general and administrative expenses
            
            
            4,381,000
            
            
            2,214,000
            
            
            13,715,000
            
            
            6,134,000Impairment
                of goodwill and other intangible assets
            
            
            4,666,000
            
            
            -
            
            
            4,666,000
            
            
            -Loss
                from operations
            
            
            (1,601,000
            )
            
            (346,000
            )
            
            (3,189,000
            )
            
            (71,000
            )Interest
                expense and amortization ofsubordinated
                debt issuance costs
            
            
            (171,000
            )
            
            (87,000
            )
            
            (550,000
            )
            
            (564,000
            )Interest
                income
            
            
            1,074,000
            
            
            2,000
            
            
            2,352,000
            
            
            5,000Loss
                from operations beforeincome
                taxes
            
            
            (698,000
            )
            
            (431,000
            )
            
            (1,387,000
            )
            
            (630,000
            )Income
                tax (expense) benefit
            
            
            (1,259,000
            )
            
            176,000
            
            
            (1,253,000
            )
            
            202,000Net
                loss
            
            $
            (1,957,000
            )
            $
            (255,000
            )
            $
            (2,640,000
            )
            $
            (428,000
            )Earnings
                per share:Basic
                and diluted loss per share
            
            $
            (0.18
            )
            $
            (0.06
            )
            $
            (0.24
            )
            $
            (0.10
            )Weighted
                average number of shares outstanding:Basic
                and diluted
            
            
            11,096,000
            
            
            4,574,000
            
            
            11,095,000
            
            
            4,312,000




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




4




**ARGAN,
      INC.**


**Condensed
      Consolidated Statements of Cash Flows**


**(unaudited)**





**Nine
                Months Ended**
              **October
                31,****2007**
            
            **2006****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                loss
            
            $
            (2,640,000
            )
            $
            (428,000
            )Adjustments
                to reconcile net loss to net cash provided by operating
                activities:Depreciation
                and other amortization
            
            
            968,000
            
            
            1,054,000Amortization
                of purchased intangibles
            
            
            5,290,000
            
            
            991,000Impairment
                of goodwill and other intangible assets
            
            
            4,666,000
            
            
            -Deferred
                income taxes
            
            
            (2,424,000
            )
            
            (491,000
            )Non-cash
                stock option compensation expense
            
            
            282,000
            
            
            185,000Provision
                for inventory obsolescence
            
            
            296,000
            
            
            (33,000
            )Provision
                for losses on accounts receivable
            
            
            50,000
            
            
            97,000Loss
                on disposal of assets
            
            
            69,000
            
            
            1,000Changes
                in operating assets and liabilities:Escrowed
                cash
            
            
            625,000
            
            
            -Accounts
                receivable, net
            
            
            (994,000
            )
            
            (1,472,000
            )Estimated
                earnings in excess of billings
            
            
            11,373,000
            
            
            (30,000
            )Inventories,
                net
            
            
            380,000
            
            
            1,241,000Prepaid
                expenses and other current assets
            
            
            (1,396,000
            )
            
            (343,000
            )Accounts
                payable and accrued expenses
            
            
            (12,428,000
            )
            
            687,000Billings
                in excess of cost and earnings
            
            
            50,774,000
            
            
            3,000Other
            
            
            86,000
            
            
            (108,000
            )Net
                cash provided by operating activities
            
            
            54,977,000
            
            
            1,354,000**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Purchases
                of investments
            
            
            (19,997,000
            )
            
            -Proceeds
                from sale of investments
            
            
            17,271,000
            
            
            -Purchases
                of property and equipment
            
            
            (507,000
            )
            
            (778,000
            )Proceeds
                from sale of property and equipment
            
            
            44,000
            
            
            15,000Net
                cash used in investing activities
            
            
            (3,189,000
            )
            
            (763,000
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Net
                proceeds from the exercise of stock options
            
            
            27,000
            
            
            -Net
                proceeds from the private offering of common stock
            
            
            -
            
            
            1,862,000Principal
                payments on long-term debt
            
            
            (1,940,000
            )
            
            (478,000
            )Proceeds
                from long-term debt
            
            
            -
            
            
            1,500,000Proceeds
                from line of credit
            
            
            -
            
            
            4,575,000Payments
                on line of credit
            
            
            -
            
            
            (4,530,000
            )Principal
                payments on subordinated note due to a related party
            
            
            -
            
            
            (3,292,000
            )Net
                cash used in financing activities
            
            
            (1,913,000
            )
            
            (363,000
            )**NET
                INCREASE IN CASH AND CASH EQUIVALENTS**
            
            
            49,875,000
            
            
            228,000**CASH
                AND CASH EQUIVALENTS AT BEGINNING OF PERIOD**
            
            
            25,393,000
            
            
            5,000**CASH
                AND CASH EQUIVALENTS AT END OF PERIOD**
            
            $
            75,268,000
            
            $
            233,000**SUPPLEMENTAL
                CASH FLOW INFORMATION:**Cash
                paid for interest and income taxes as follows:Interest
            
            $
            898,000
            
            $
            315,000Income
                taxes
            
            $
            3,117,000
            
            $
            14,000Non-cash
                investing and financing activities are as follows:Net
                increase in fair value of interest rate swaps
            
            $
            36,000
            
            $
            7,000




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




5




**ARGAN,
      INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(unaudited)**





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




***Business***




Argan,
      Inc. (AI or the Company) conducts its operations through its wholly owned
      subsidiaries, Gemma Power Systems, LLC and affiliates (GPS) which was acquired
      in December 2006, Vitarich Laboratories, Inc. (VLI) which was acquired in August
      2004, and Southern Maryland Cable, Inc. (SMC) which was acquired in July 2003.
      Through GPS, the Company provides a full range of development, consulting,
      engineering, procurement, construction, commissioning, operating and maintenance
      services to the power energy market for a wide range of customers including
      public utilities, independent power project owners, municipalities, public
      institutions and private industry. Through VLI, the Company develops,
      manufactures and distributes premium nutritional supplements, whole-food dietary
      supplements and personal care products. Through SMC, the Company provides
      telecommunications infrastructure services including project management,
      construction and maintenance to the Federal Government, telecommunications
      and
      broadband service providers, as well as to electric utilities primarily in
      the
      Mid-Atlantic region.





AI
      operates in three reportable segments.




***Basis
      of presentation***




The
      condensed consolidated balance sheet as of October 31, 2007, the condensed
      consolidated statements of operations for the three and nine months ended
      October 31, 2007 and 2006, and the condensed consolidated statements of cash
      flows for the nine months ended October 31, 2007 and 2006 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 October 31, 2007
      and
      the results of its operations and its cash flows for the interim 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, 2007, 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 (SEC). 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.




**NOTE
      2 - RECENT ACCOUNTING STANDARDS**




In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard (“FAS”) No. 141(R), “Business
      Combinations”. FAS No. 141(R) replaces FAS No. 141 and provides greater
      consistency in the accounting and financial reporting of business combinations.
      FAS No. 141(R) requires the acquiring entity in a business combination to
      recognize all assets acquired and liabilities assumed in the transaction,
      establishes the acquisition-date fair value as the measurement objective for
      all
      assets acquired and liabilities assumed, establishes principles and requirements
      for how an acquirer recognizes and measures any non-controlling interest in
      the
      acquiree and the goodwill acquired, and requires the acquirer to disclose the
      nature and financial effect of the business combination. Among other changes,
      this statement also required that “negative goodwill” be recognized in earnings
      as a gain attributable to the acquisition, that acquisition-related costs are
      to
      be recognized separately from the acquisition and expensed as incurred and
      that
      any deferred tax benefits resulted in a business combination are recognized
      in
      income from continuing operations in the period of the combination.
      FAS 141R is effective for business combinations for which the acquisition
      date is on or after the beginning of the first annual reporting period beginning
      on or after December 15, 2008. The Company will assess the impact that SFAS
      141R
      may have on its financial position and results of operations.





In
      February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities.” FAS No. 159 permits companies to measure many
      financial instruments and certain other items at fair value at specified
      election dates. The provisions of FAS No. 159 will be effective for the Company
      beginning February 1, 2008. The Company does not expect FAS No. 159 to have
      a
      significant impact on the consolidated financial statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standard
      No.
      157, “Fair Value Measurements.” This Standard defines fair value, establishes a
      framework for measuring fair value in generally accepted accounting principles
      and expands disclosures about fair value measurements. The Company plans to
      adopt FAS No. 157 on February 1, 2008, as required. The adoption of FAS No.
      157
      is not expected to have a material impact on the Company’s financial condition
      and results of operations.





6





**NOTE
      3 - ESTIMATED LOSS ON UNCOMPLETED CONTRACTS**




During
      the nine months ended October 31, 2007, the Company experienced an unexpected
      increase in costs related to one of the GPS contracts. Unexpected costs included
      labor productivity being below expectations and previous experience, labor
      rate
      increases due to overtime requirements to meet the completion date, equipment
      defects and engineering issues resulting in considerable rework and additional
      materials. The
      Company incurred a total loss of approximately $10,416,000 on this contract,
      including amounts recorded in the three and nine months ended October 31, 2007
      of $2,267,000 and $11,604,000, respectively.




**NOTE
      4 - 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
      consist of the following:




**October
                31,**
              **2007**
            
            **January
                31,**
              **2007**Raw
                materials
            
            $
            1,822,000
            
            $
            2,264,000Work-in
                process
            
            
            109,000
            
            
            100,000Finished
                goods
            
            
            180,000
            
            
            127,000Less:
                Reserves
            
            
            (400,000
            )
            
            (104,000
            )Inventories,
                net
            
            $
            1,711,000
            
            $
            2,387,000




**NOTE
      5 - INTANGIBLE ASSETS**  ****






The
      Company’s intangible assets consist of the following at October 31,
      2007:


**Estimated**
              **Useful
                Life**
            
            **Gross
                Carrying Amount**
            
            **Accumulated
                Amortization**
            
            **Net
                Carrying**
              **Amount**Intangible
                assets being amortized:Contractual
                customer
              relationships
                - VLI & SMC
            
            
            5-7
                years
            
            $
            2,341,000
            
            $
            1,841,000
            
            $
            500,000Customer
                relationships - GPS
            
            
            1-2
                years
            
            
            6,678,000
            
            
            5,068,000
            
            
            1,610,000Proprietary
                formulas - VLI
            
            
            3
                years
            
            
            1,813,000
            
            
            1,813,000
            
            
            —Non-compete
                agreements-
              GPS
                & VLI
            
            
            5
                years
            
            
            2,007,000
            
            
            1,236,000
            
            
            771,000Trade
                name - GPS
            
            
            15
                years
            
            
            3,643,000
            
            
            217,000
            
            
            3,426,000Intangible
                assets not being amortized:Trade
                name - SMC
            
            
            Indefinite
            
            
            224,000
            
            
            —
            
            
            224,000Total
                other intangible assets
            
            
            
            
            $
            16,706,000
            
            $
            10,175,000
            
            $
            6,531,000Goodwill
            
            
            Indefinite
            
            $
            20,155,000
            
            $
            —
            
            $
            20,155,000




Amortization
      expense totaling $1,201,000 for the three months ended October 31, 2007,
      consisted of $985,000, $38,000, $118,000 and $60,000 for contractual customer
      relationships, proprietary formulas, non-compete agreements and the trade name,
      respectively. Amortization expense totaling $331,000 for the three months ended
      October 31, 2006, consisted of $126,000, $115,000 and $90,000 for contractual
      customer relationships, proprietary formulas and non-compete agreements,
      respectively.





Amortization
      expense totaling $5,290,000 for the nine months ended October 31, 2007,
      consisted of $4,490,000, $268,000, $350,000 and $182,000 for contractual
      customer relationships, proprietary formulas, non-compete agreements and the
      trade name, respectively. Amortization expense totaling $991,000 for the nine
      months ended October 31, 2006, consisted of $377,000, $344,000 and $270,000
      for
      contractual customer relationships, proprietary formulas and non-compete
      agreements, respectively.





Due
      to
      VLI’s loss of key customer accounts, the continuing overall decline in the net
      sales of VLI, and the operating loss incurred by VLI for the quarter ended
      October 31, 2007, the Company conducted an analysis of the operations of VLI
      in
      order to identify any impairment in the carrying value of the goodwill related
      to this business. The unadjusted amount of goodwill related to VLI at October
      31, 2007 was approximately $6,565,000. In general, this business has reported
      operating results that are below expected results. Analyzing this business
      using
      both an income approach and a market approach suggested that the current fair
      value of this business was approximately $7.0 million. Based on the analysis,
      the Company recorded a goodwill impairment loss of $3,826,000 during the current
      quarter, thereby reducing the goodwill related VLI to an adjusted balance of
      approximately $2,739,000 as of October 31, 2007.




7





The
      loss
      of business also suggested that the carrying value of VLI’s long-lived
      intangible assets, non-contract customer relationships and non-compete
      agreements, may be impaired. The Company determined that the net unadjusted
      carrying values of these assets exceeded estimated amounts based on the
      undiscounted future cash flows attributable to these assets. Using fair values
      based on the estimated amounts of discounted cash flows, we recorded asset
      impairment losses in the amounts of $513,000 and $327,000, respectively, during
      the current quarter, thereby reducing the adjusted carrying values of these
      long-lived assets to approximately $220,000 and $333,000, respectively, as
      of
      October 31, 2007.





The
      total
      amount of the impairment of goodwill and other intangible assets, $4,666,000,
      is
      included in the condensed consolidated statements of operations for the three
      and nine months ended October 31, 2007.




**NOTE
      6 - RELATED PARTY TRANSACTIONS**




The
      Company leased administrative, manufacturing and warehouse facilities for VLI
      from an individual who was the former officer and shareholder of VLI. The lease
      costs through March 2007, the date of his employment termination, were
      considered related party expenses. SMC’s administrative and maintenance
      facilities were rented from a former officer through July 2006. The total
      expense amounts under these arrangements were $45,000 for the nine months ended
      October 31, 2007, and $68,000 and $208,000 for the three and nine months ended
      October 31, 2006, respectively.




The
      Company entered into a supply agreement with an entity owned by the former
      shareholder of VLI whereby the supplier committed to sell to the Company and
      the
      Company committed to purchase on an as-needed basis, certain organic products.
      VLI made $47,000 in purchases under the supply agreement through March 2007,
      the
      date that the former officer and shareholder of VLI was terminated and $23,000
      and $77,000 in purchases under the supply agreement for the three and nine
      months ended October 31, 2006, respectively.


The
        Company also sold its products in the normal course of business to an entity
        in
        which the former officer and owner of VLI had an ownership interest. VLI
        had
        approximately $117,000 in sales to this entity through the aforementioned
        termination in March 2007, and $118,000 and $405,000 in sales to this entity
        for
        the three and nine months ended October 31, 2006, respectively. At October
        31,
        2007 and January 31, 2007, the previously affiliated entity owed $182,000
        and
        $155,000 to VLI, respectively.




**NOTE
      7 - DEBT**




On
      December 11, 2006, Argan amended its financing arrangements with its bank.
      The
      amended financing arrangements include an amended 3-year term loan for VLI
      in
      the amount of $1.4 million with interest at LIBOR (4.75% at October 31, 2007)
      plus 3.25%; a new 4-year term loan that was used to acquire GPS in the amount
      of
      $8.0 million with interest at LIBOR plus 3.25%; and a revolving loan with a
      maximum amount of $4.25 million available until May 31, 2008, with interest
      at
      LIBOR plus 3.25%.




The
      financing arrangements provide for measurement at the Company’s fiscal year end
      and at each of the Company’s fiscal quarter ends (using a rolling 12-month
      period) of certain financial covenants including requirements that the ratio
      of
      total funded debt to EBITDA not exceed 2.25 to 1 for the year ending January
      31,
      2007 and not exceed 2 to 1 for future quarters, that the fixed charge coverage
      ratio be not less than 1.25 to 1, and that the ratio of senior funded debt
      to
      EBITDA not exceed 1.75 to 1 for the year ended January 31, 2007 and not exceed
      1.50 to 1 for future quarters. The bank’s consent continues to be required for
      acquisitions and divestitures. The Company continues to pledge the majority
      of
      the Company’s assets to secure the financing arrangements.




The
      amended financing arrangements contain an acceleration clause which allows
      the
      bank to declare amounts outstanding under the financing arrangements due and
      payable if it determines in good faith that a material adverse change has
      occurred in the financial condition of the Company or any of its subsidiaries.
      The Company believes that it will continue to comply with its financial
      covenants under the financing arrangements. If the Company’s performance does
      not result in compliance with any of its financial covenants, or if the bank
      seeks to exercise its rights under the acceleration clause referred to above,
      the Company would seek to modify its financing arrangements, but there can
      be no
      assurance that the bank would not exercise their rights and remedies under
      the
      financing arrangements including accelerating payments of all outstanding senior
      debt due and payable.




At
      October 31, 2007, the Company was in compliance with the covenants of its
      amended financing arrangements.




**NOTE
      8 - INCOME TAXES**




Despite
      reporting a loss from operations before income taxes of $1,387,000 for the
      nine
      months ended October 31, 2007, the Company recorded income tax expense of
      $1,253,000 for the period. For the current year, the Company is being adversely
      impacted by its inability to utilize certain current operating losses for state
      income tax reporting purposes. In addition, the current year goodwill impairment
      loss of $3,826,000 that is discussed in Note 5 is not deductible for income
      tax
      reporting purposes, and represents a permanent difference between financial
      and
      income tax reporting.  For
      the
      nine months ended October 31, 2006, the effective income tax benefit rate was
      32%.




8




The
      Company’s income tax (expense) benefit for the nine months ended October 31,
      2007 and 2006 differs from the expected income tax benefit computed by applying
      the U.S. Federal corporate income tax rate of 34% to the loss from operations
      before income taxes for the nine months ended October 31, 2007 and 2006 as
      shown
      in the table below.





**2007**
            
            **2006**Computed
                expected income tax benefit
            
            $
            471,000
            
            $
            214,000Increase
                (decrease) resulting from:State
                income taxes, net
            
            
            (386,000
            )
            
            (107,000
            )Permanent
                differences
            
            
            (1,338,000
            )
            
            95,000$
            (1,253,000
            )
            $
            202,000





The
      Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN
      48”), on February 1, 2007. FIN 48 clarifies the accounting for uncertainty in
      income taxes recognized in an enterprise’s financial statements in accordance
      with FASB Statement 109, “Accounting for Income Taxes,” and prescribes a
      recognition threshold and measurement process for financial statement
      recognition and measurement of tax positions taken or expected to be taken
      in a
      tax return. FIN 48 also provides guidance on derecognition, classification,
      interest and penalties, accounting in interim periods, disclosure and
      transition. The Company has concluded that there is no material effect as a
      result of adopting this standard.




The
      Company is subject to income taxes in the U.S. federal jurisdiction and various
      state jurisdictions. Tax regulations within each jurisdiction are subject to
      the
      interpretation of the related tax laws and regulations and require significant
      judgment to apply. With few exceptions, the Company is no longer subject to
      U.S.
      federal, state and local income tax examinations by tax authorities for the
      years before 2003.




**NOTE
      9 - STOCK BASED COMPENSATION**




The
      Company has a stock option plan which was established in August 2001 (the
“Plan”). Under the Plan, the Company’s Board of Directors may grant stock
      options to officers, directors and key employees. In June 2007, the shareholders
      of the Company voted to amend the Plan to authorize the grant of options for
      up
      to 650,000 shares of the Company’s common stock.




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 equal to the stock’s fair market value at the date of grant or at a 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.




The
      fair
      value of each stock option award is estimated on the date of grant using a
      Black-Scholes option-pricing model based on the following weighted average
      assumptions:


**Nine
                  Months Ended October 31,****2007**
              
              **2006**Dividend
                  yield
              
              
              —
              
              
              —Expected
                  volatility
              
              
              71
              %
              
              57
              %Risk-free
                  interest rate
              
              
              4.89
              %
              
              5.11
              %Expected
                  life in years
              
              
              5
              
              
              5
  9


A
      summary
      of stock option activity under the Plan during the nine months ended October
      31,
      2007 is presented below:





**Options**
            
            **Shares**
            
            **Weighted-**
              **Average
                Exercise**
              **Price**
            
            **Weighted-**
              **Average**
              **Remaining**
              **Contract
                Term (Years)**
            
            **Aggregate**
              **Intrinsic**
              **Value**Outstanding
                at January 31, 2007
            
            
            244,000
            
            $
            4.20Granted
            
            
            142,000
            
            $
            7.05Exercised
            
            
            (10,000
            )
            
            2.65Forfeited
                or expired
            
            
            (3,000
            )
            $
            6.32Outstanding
                at October 31, 2007
            
            
            373,000
            
            $
            5.30
            
            
            6.5
            
            $
            1,150,000Exercisable
                at October 31, 2007
            
            
            215,000
            
            $
            4.11
            
            
            7.4
            
            $
            397,000




The
      per
      share weighted average grant date fair values of options awarded during the
      nine
      months ended October 31, 2007 and 2006 were $4.90 and $1.34, respectively.
      At
      October 31, 2007, there was approximately $450,000 unrecognized compensation
      cost related to stock options granted under the Plan. The end of the period
      over
      which the compensation expense for these awards is expected to be recognized
      is
      October 2008.




A
      summary
      of the status of the Company’s nonvested shares as of October 31, 2007, and
      changes during the nine months then ended, is presented below:





**Shares**
            
            **Aggregate**
              **Intrinsic**
              **Value**Nonvested
                at January 31, 2007
            
            
            16,000Granted
            
            
            142,000Vested
            
            
            —Forfeited
            
            
            —Nonvested
                at October 31, 2007
            
            
            158,000
            
            $
            753,000




The
      fair
      value of nonvested shares is determined using the Black-Scholes option-pricing
      model based on the excess of the opening trading price of the Company’s shares
      on the grant date in excess of exercise price.




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
      October 31, 2007, there were 864,000 shares of the Company’s common stock
      available for issuance upon the exercise of stock options and warrants,
      including 261,000 shares of the Company’s common stock available for award under
      the Plan.




**NOTE
      10 - LOSS PER SHARE**




Basic
      and
      diluted net loss per share information is presented in accordance with SFAS
      No.
      128, “Earnings Per Share.” Basic loss per share is calculated by dividing the
      net loss by the weighted average number of common shares outstanding for the
      applicable period. Common stock equivalents, including stock options and
      warrants, are not considered because the effect of their inclusion would be
      anti-dilutive.





**NOTE
      11 - SEGMENT REPORTING**




The
      Company has three 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.




10




The
      Company’s three reportable segments are power industry services, telecom
      infrastructure services and nutraceutical products. The Company conducts its
      operations through its wholly owned subsidiaries - GPS, 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 Annual Report on Form 10-KSB for the fiscal year ended
      January 31, 2007.




The
      following information is for the three months ended October 31, 2007, except
      for
      total assets and goodwill which is as of October 31, 2007:




**Power
                Industry Services**
            
            **Nutraceutical**
              **Products**
            
            **Telecom**
              **Infrastructure**
              **Services**
            
            **Other**
            
            **Consolidated**Net
                sales
            
            $
            42,017,000
            
            $
            4,617,000
            
            $
            2,629,000
            
            
            —
            
            $
            49,263,000Cost
                of sales
            
            
            35,548,000
            
            
            4,193,000
            
            
            2,076,000
            
            
            —
            
            
            41,817,000Gross
                profit
            
            
            6,469,000
            
            
            424,000
            
            
            553,000
            
            
            —
            
            
            7,446,000Selling,
                general and administrative expenses
            
            
            1,892,000
            
            
            1,047,000
            
            
            346,000
            
            
            1,096,000
            
            
            4,381,000Impairment
                of goodwill and other intangible assets
            
            
            —
            
            
            4,666,000
            
            
            —
            
            
            —
            
            
            4,666,000Income
                (loss) from operations
            
            
            4,577,000
            
            
            (5,289,000
            )
            
            207,000
            
            
            (1,096,000
            )
            
            (1,601,000
            )Interest
                expense
            
            
            (145,000
            )
            
            (26,000
            )
            
            —
            
            
            —
            
            
            (171,000
            )Interest
                income
            
            
            1,067,000
            
            
            —
            
            
            —
            
            
            7,000
            
            
            1,074,000Income
                (loss) before income taxes
            
            $
            5,499,000
            
            $
            (5,315,000
            )
            $
            207,000
            
            $
            (1,089,000
            )
            
            (698,000
            )Income
                tax expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,259,000
            )Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (1,957,000
            )Depreciation
                and amortization
            
            $
            45,000
            
            $
            140,000
            
            $
            135,000
            
            $
            4,000
            
            $
            324,000Amortization
                of intangibles
            
            $
            947,000
            
            $
            228,000
            
            $
            26,000
            
            $
            —
            
            $
            1,201,000Goodwill
            
            $
            16,476,000
            
            $
            2,739,000
            
            $
            940,000
            
            $
            —
            
            $
            20,155,000Total
                assets
            
            $
            124,193,000
            
            $
            9,909,000
            
            $
            4,896,000
            
            $
            14,799,000
            
            $
            153,797,000Fixed
                asset additions
            
            $
            31,000
            
            $
            88,000
            
            $
            164,000
            
            $
            —
            
            $
            283,000




11




The
      following information is for the nine months ended October 31,
      2007:




**Power
                  Industry Services**
              
              **Nutraceutical**
                **Products**
              
              **Telecom**
                **Infrastructure**
                **Services**
              
              **Other**
              
              **Consolidated**Net
                  sales
              
              $
              130,970,000
              
              $
              14,602,000
              
              $
              7,260,000
              
              $
              —
              
              $
              152,832,000Cost
                  of sales
              
              
              119,383,000
              
              
              12,481,000
              
              
              5,776,000
              
              
              —
              
              
              137,640,000Gross
                  profit
              
              
              11,587,000
              
              
              2,121,000
              
              
              1,484,000
              
              
              —
              
              
              15,192,000Selling,
                  general and administrative expenses
              
              
              6,998,000
              
              
              3,231,000
              
              
              1,044,000
              
              
              2,442,000
              
              
              13,715,000Impairment
                  of goodwill and intangible assets
              
              
              —
              
              
              4,666,000
              
              
              —
              
              
              —
              
              
              4,666,000Income
                  (loss) from operations
              
              
              4,589,000
              
              
              (5,776,000
              )
              
              440,000
              
              
              (2,442,000
              )
              
              (3,189,000
              )Interest
                  expense
              
              
              (461,000
              )
              
              (88,000
              )
              
              (1,000
              )
              
              —
              
              
              (550,000
              )Interest
                  income
              
              
              2,343,000
              
              
              —
              
              
              —
              
              
              9,000
              
              
              2,352,000Income
                  (loss) before income taxes
              
              $
              6,471,000
              
              $
              (5,864,000
              )
              $
              439,000
              
              $
              (2,433,000
              )
              
              (1,387,000
              )Income
                  tax expense
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,253,000
              )Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (2,640,000
              )Depreciation
                  and amortization
              
              $
              139,000
              
              $
              434,000
              
              $
              383,000
              
              $
              12,000
              
              $
              968,000Amortization
                  of intangibles
              
              $
              4,375,000
              
              $
              837,000
              
              $
              78,000
              
              $
              —
              
              $
              5,290,000Fixed
                  asset additions
              
              $
              35,000
              
              $
              212,000
              
              $
              260,000
              
              $
              —
              
              $
              507,000




The
      following information is for the three months ended October 31, 2006, except
      for
      total assets and goodwill which is as of October 31, 2006:





**Nutraceutical**
              **Products**
            
            **Telecom**
              **Infrastructure**
              **Services**
            
            **Other**
            
            **Consolidated**Net
                sales
            
            $
            5,248,000
            
            $
            4,361,000
            
            $
            —
            
            $
            9,609,000Cost
                of sales
            
            
            4,235,000
            
            
            3,506,000
            
            
            —
            
            
            7,741,000Gross
                profit
            
            
            1,013,000
            
            
            855,000
            
            
            —
            
            
            1,868,000Selling,
                general and administrative expenses
            
            
            1,178,000
            
            
            411,000
            
            
            625,000
            
            
            2,214,000Income
                (loss) from operations
            
            
            (165,000
            )
            
            444,000
            
            
            (625,000
            )
            
            (346,000
            )Interest
                expense and amortization of subordinated debt issuance 
                costs
            
            
            (79,000
            )
            
            (12,000
            )
            
            4,000
            
            
            (87,000
            )Other
                income, net
            
            
            —
            
            
            2,000
            
            
            —
            
            
            2,000Income
                (loss) before income taxes
            
            $
            (244,000
            )
            $
            434,000
            
            $
            (621,000
            )
            
            (431,000
            )Income
                tax benefit
            
            
            
            
            
            
            
            
            
            
            
            176,000Net
                loss
            
            
            
            
            
            
            
            
            
            
            $
            (255,000
            )Depreciation
                and amortization
            
            $
            146,000
            
            $
            121,000
            
            $
            12,000
            
            $
            279,000Amortization
                of intangibles
            
            $
            305,000
            
            $
            26,000
            
            $
            —
            
            $
            331,000Goodwill
            
            $
            6,565,000
            
            $
            940,000
            
            $
            —
            
            $
            7,505,000Total
                assets
            
            $
            16,200,000
            
            $
            6,439,000
            
            $
            468,000
            
            $
            23,107,000Fixed
                asset additions
            
            $
            92,000
            
            $
            74,000
            
            $
            —
            
            $
            166,000




12




The
      following information is for the nine months ended October 31,
      2006:




**Nutraceutical**
              **Products**
            
            **Telecom**
              **Infrastructure**
              **Services**
            
            **Other**
            
            **Consolidated**Net
                sales
            
            $
            16,288,000
            
            $
            10,843,000
            
            $
            —
            
            $
            27,131,000Cost
                of sales
            
            
            12,561,000
            
            
            8,507,000
            
            
            —
            
            
            21,068,000Gross
                profit
            
            
            3,727,000
            
            
            2,336,000
            
            
            —
            
            
            6,063,000Selling,
                general and administrative expenses
            
            
            3,335,000
            
            
            1,249,000
            
            
            1,550,000
            
            
            6,134,000Income
                (loss) from operations
            
            
            392,000
            
            
            1,087,000
            
            
            (1,550,000
            )
            
            (71,000
            )Interest
                expense and amortization of subordinated debt issuance
                costs
            
            
            (287,000
            )
            
            (41,000
            )
            
            (236,000
            )
            
            (564,000
            )Other
                income, net
            
            
            —
            
            
            5,000
            
            
            —
            
            
            5,000Income
                (loss) before income taxes
            
            $
            105,000
            
            $
            1,051,000
            
            $
            (1,786,000
            )
            
            (630,000
            )Income
                tax benefit
            
            
            
            
            
            
            
            
            
            
            
            202,000Net
                loss
            
            
            
            
            
            
            
            
            
            
            $
            (428,000
            )Depreciation
                and amortization
            
            $
            419,000
            
            $
            351,000
            
            $
            284,000
            
            $
            1,054,000Amortization
                of intangibles
            
            $
            914,000
            
            $
            77,000
            
            $
            —
            
            $
            991,000Fixed
                asset additions
            
            $
            281,000
            
            $
            489,000
            
            $
            8,000
            
            $
            778,000




**NOTE
      12 - CONTINGENCIES**




On
      March
      22, 2005, WFC filed a civil action against the Company, and its executive
      officers. The suit was filed in the Superior Court of the State of California
      for the County of Los Angeles. WFC purchased the capital stock of the Company's
      wholly owned subsidiary, Puroflow Incorporated, pursuant to the terms of the
      Stock Purchase Agreement dated October 31, 2003. WFC alleged that the Company
      and its executive officers breached the Stock Purchase Agreement between WFC
      and
      the Company and engaged in misrepresentations and negligent conduct with respect
      to the Stock Purchase Agreement. WFC sought declaratory relief, compensatory
      and
      punitive damages in an amount to be proven at trial as well as the recovery
      of
      attorney's fees. This action was removed to the United States District Court
      for
      the Central District of California. The Company and its officers deny that
      any
      breach of contract or that any misrepresentations or negligence occurred on
      their part.




On
      March
      15, 2007, the District Court granted the Company and its executive officers'
      motion for summary judgment, thereby dismissing WFC's lawsuit against the
      Company and its executive officers in its entirety. WFC appealed the District
      Court’s decision. The parties have filed their appellate briefs and are waiting
      for a date to be scheduled for oral argument. The Company intends to vigorously
      defend the appeal and this litigation.




Although
      the Company has reviewed WFC’s claims and believes that they are without merit,
      the Company has recorded an accrual of approximately $56,000 and $286,000 at
      October 31, 2007 and January 31, 2007, respectfully, for subsequent legal
      services and estimated legal fees related to potential ongoing legal costs
      of
      the WFC litigation that it considers to be probable and that can be reasonably
      estimated. It is possible however, that the ultimate resolution of the WFC
      litigation could result in a material adverse effect on the results of
      operations of the Company for a particular future reporting period.




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




13




Although
      the Company has reviewed Thomas’ claims and believes that they are without
      merit, the Company has recorded an accrual of approximately $320,000 at October
      31, 2007 for subsequent legal services and estimated legal fees related to
      potential ongoing legal costs of the Thomas litigation that it considers to
      be
      probable and that can be reasonably estimated. It is possible however, that
      the
      ultimate resolution of the Thomas litigation could result in a material adverse
      effect on the results of operations of the Company for a particular future
      reporting period.





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 OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**




The
      following discussion summarizes the financial position of Argan, Inc. and its
      subsidiaries as of October 31, 2007, and the results of operations for the
      three
      and nine months ended October 31, 2007 and 2006, and should be read in
      conjunction with (i) the unaudited condensed consolidated financial
      statements and notes thereto included elsewhere in this Quarterly Report on
      Form
      10-Q and (ii) the consolidated financial statements and accompanying notes
      to our Annual Report on Form 10-KSB for the fiscal year ended January 31, 2007
      filed with the Securities and Exchange Commission on April 26,
      2007.





**Cautionary
      Statement Regarding Forward Looking Statements**




The
      Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for
      certain forward-looking statements. We have made statements in this Quarterly
      Report on Form 10-Q that may constitute “forward-looking statements”. The words
“believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,”
“would,” “could,” or other similar expressions are intended to identify
      forward-looking statements. These forward-looking statements are based on our
      current expectations and beliefs concerning future developments and their
      potential effects on us. There can be no assurance that future developments
      affecting us will be those that we anticipate. All comments concerning our
      expectations for future revenues and operating results are based on our
      forecasts for our existing operations and do not include the potential impact
      of
      any future acquisitions. These forward-looking statements involve significant
      risks and uncertainties (some of which are beyond our control) and assumptions.
      They are subject to change based upon various factors, including but not limited
      to the risks and uncertainties summarized below:





·
            
            cyclical
                changes in demand for our products and services;·
            
            cyclical
                nature of the individual markets in which our customers
                operate;·
            
            that
                the dollar amount of our backlog, as stated at any given time, is
                not
                indicative of our future earnings;·
            
            delays
                or difficulties related to our projects including additional costs,
                reductions in revenues or the payment of liquidateddamages;·
            
            the
                effect of our percentage-of-completion accounting
                policies;·
            
            changes
                in the estimates and assumptions we use to prepare our financial
                statements;·
            
            our
                ability to obtain surety bonds or other means of credit support for
                projects;·
            
            our
                ability to obtain waivers or amendments with our lenders or sureties,
                or
                to collateralize letters of credit or suretybonds
                upon non-compliance with covenants in our Credit Facility or surety
                indemnity agreements;·
            
            compliance
                with certain debt covenants, which as a result, may interfere with
                our
                ability to successfully execute ourbusiness
                plan;·
            
            our
                indebtedness, which could adversely affect our financial condition
                and
                impair our ability to fulfill our obligationsunder
                our financing arrangements;·
            
            various
                legal, regulatory and litigation risk including but not limited to,
                class
                action lawsuits, regulatory activitiesand
                associated periodic reviews of the SEC and Public Company Accounting
                Oversight Board;




·
            
            the
                nature of our contracts, particularly fixed-price
                contracts;·
            
            the
                failure to meet schedule or performance requirements of our
                contracts;




14




·
            
            our
                dependence on subcontractors;·
            
            possible
                cost escalation associated with our fixed-price
                contracts;·
            
            our
                ability to obtain new contracts for large-scale projects and the
                timing of
                the performance of these contracts;




·
            
            the
                effect of our reputation and financial exposure due to the failure
                of our
                partners to perform their contractual obligations;·
            
            delays
                and/or defaults in customer
                payments;




·
            
            potential
                professional liability, product liability, warranty and other potential
                claims, which may not be covered by
                insurance;




·
            
            the
                presence of competitors with greater financial resources and the
                impact of
                competitive products, servicesand
                pricing;·
            
            work
                stoppages and other labor problems;·
            
            our
                liquidity position;·
            
            a
                determination to write-off a significant amount of our intangible
                assets;·
            
            our
                ability to successfully identify, integrate and complete
                acquisitions;·
            
            our
                failure to attract and retain qualified personnel;·
            
            our
                ability to retain key members of our management;·
            
            our
                competitors’ ability to develop or otherwise acquire equivalent or
                superior technology;·
            
            general
                economic conditions;·
            
            future
                changes in accounting standards or interpretations;·
            
            inability
                to maintain an effective system of internal control, which could
                result in
                inaccurate reporting of our financialresults
                or an inability to prevent fraud;·
            
            provisions
                in our articles of incorporation and by-laws and rights agreement
                could
                make it more difficult to acquireus
                and may reduce the market price of our common stock;·
            
            changes
                in the U.S. economy and global markets as a result of terrorists’
                actions;·
            
            increases
                in employee-related costs and expenses including healthcare and other
                employee benefits such asunemployment
                insurance and workers’ compensation; and·
            
            our
                dependency on technology in our operations and the possible impact
                of
                system and information technologyinterruptions.





Should
      one or more of these risks or uncertainties materialize, or should any of our
      assumptions prove incorrect, actual results may vary in material respects from
      those projected in the forward-looking statements. We undertake no obligation
      to
      publicly update or revise any forward-looking statements, whether as a result
      of
      new information, future events or otherwise. For a more detailed discussion
      of
      some of the foregoing risk and uncertainties, see “Item 1 — Description of
      Business — Risk Factors” in our Annual Report on Form 10-KSB as filed with the
      Securities and Exchange Commission on April 26, 2007, as well as the other
      reports and registration statements filed by us with the SEC and under “Forward
      Looking Statements” on our website. These documents are available free of charge
      from the SEC or from our corporate headquarters. Our annual, quarterly, and
      current reports and amendments thereto, filed with the SEC are available on
      our
      website. For more information about us and the announcements we make from time
      to time, visit our website at *www.arganinc.com* .




15




**GENERAL**




Argan,
      Inc. (the “Company,” “we,” “us,” or “our”) conducts operations through our
      wholly owned subsidiaries, Gemma Power Systems, LLC and affiliates (“GPS”) that
      we acquired in December 2006, Vitarich Laboratories, Inc. (“VLI”) that we
      acquired in August 2004, and Southern Maryland Cable, Inc. (“SMC”) that we
      acquired in July 2003. Through GPS, we provide a full range of development,
      consulting, engineering, procurement, construction, commissioning, operations
      and maintenance services to the energy market for a wide range of customers
      including public utilities, independent power project owners, municipalities,
      public institutions and private industry. 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. Through VLI, we
      develop, manufacture and distribute premium nutritional products.





**CRITICAL
      ACCOUNTING POLICIES**




The
      preparation of our consolidated financial statements requires us to make
      estimates and judgments that affect the reported amounts of assets, liabilities
      and equity and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. These estimates, particularly estimates relating
      to
      revenue recognition, valuation of net deferred tax assets, valuation of goodwill
      and other purchased intangible assets, and litigation and contingencies, have
      a
      material impact on our financial statements and are discussed in detail
      throughout our analysis of the results of operations discussed
      below.




In
      addition to evaluating estimates relating to the items discussed above, we
      also
      consider other estimates and judgments, including, but not limited to, those
      related to our allowance for doubtful accounts, inventory valuation, and whether
      there has been an impairment to our long lived assets and intangibles. We base
      our estimates on historical experience and various other assumptions that we
      believe are reasonable under the circumstances, the results of which form the
      basis for making judgments about the carrying value of assets, liabilities
      and
      equity that are not readily apparent from other sources. Actual results and
      outcomes could differ from these estimates and assumptions.




As
      discussed in the Note 8 to the Condensed Consolidated Financial Statements,
      we
      have adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income
      Taxes” (“FIN 48”). Other than this change, there have been no significant
      changes to our critical accounting estimates during the nine months ended
      October 31, 2007.




For
      a
      more detailed explanation of the judgments made in these areas and a discussion
      of our accounting estimates and policies, refer to “Critical Accounting
      Policies” included in Item 6 and “Summary of Significant Accounting
      Policies” (Note 2) included in our Annual Report on Form 10-KSB for the year
      ended January 31, 2007.




**BACKLOG**




Backlog
      represents the total accumulation of new work awarded less the amount of revenue
      recognized to date on contracts at a specific point in time. We believe backlog
      is an indicator of future earnings potential. Although backlog reflects business
      that we consider to be firm, cancellations or reductions may occur and may
      reduce backlog and future revenue.




At
      October 31, 2007, the Company had entered into power industry service contracts
      for the construction of seven facilities, representing a total backlog of $166
      million compared to contracts of six facilities representing a total backlog
      of
      $171 million at January 31, 2007. Management anticipates these facilities will
      be completed at various dates through fiscal year 2009.





Subsequent
      to October 31, 2007, the Company received an interim notice to proceed on a
      project that it estimates will provide approximately $340 million in revenue
      over a two and one half (2 1/2) year period. The final notice to proceed is
      subject to the parties signing a definitive engineering, procurement and
      construction contract.




16


**CONSOLIDATED
      RESULTS OF OPERATIONS**





**Comparison
      of the Results of Operations for the three months ended October 31, 2007 and
      2006**





The
      following schedule compares the results of our operations for the three months
      ended October 31, 2007 and 2006. Except where noted, the percentage amounts
      represent the percentage of net sales for the corresponding period.




**Three
                Months Ended October 31,****2007**
            
            **2006**Net
                salesPower
                industry services
            
            $
            42,017,000
            
            
            85.3
            %
            $
            —
            
            
            —
            %Nutraceutical
                products
            
            
            4,617,000
            
            
            9.4
            %
            
            5,248,000
            
            
            54.6
            %Telecom
                infrastructure services
            
            
            2,629,000
            
            
            5.3
            %
            
            4,361,000
            
            
            45.4
            %Net
                sales
            
            
            49,263,000
            
            
            100.0
            %
            
            9,609,000
            
            
            100.0
            %Cost
                of sales **Power
                industry services
            
            
            35,548,000
            
            
            84.6
            %
            
            —
            
            
            —Nutraceutical
                products
            
            
            4,193,000
            
            
            90.8
            %
            
            4,235,000
            
            
            80.7
            %Telecom
                infrastructure services
            
            
            2,076,000
            
            
            79.0
            %
            
            3,506,000
            
            
            80.4
            %Cost
                of sales
            
            
            41,817,000
            
            
            84.9
            %
            
            7,741,000
            
            
            80.6
            %Gross
                profit
            
            
            7,446,000
            
            
            15.1
            %
            
            1,868,000
            
            
            19.4
            %Selling,
                general and administrative expenses
            
            
            4,381,000
            
            
            8.9
            %
            
            2,214,000
            
            
            23.0
            %Impairment
                of goodwill and intangible assets
            
            
            4,666,000
            
            
            9.5
            %
            
            —
            
            
            —Loss
                from operations
            
            
            (1,601,000
            )
            
            (3.3
            )%
            
            (346,000
            )
            
            (3.6
            )%Interest
                expense and amortization ofsubordinated
                debt issuance costs
            
            
            (171,000
            )
            
            *
            
            
            (87,000
            )
            
            (1.0
            )%Interest
                income
            
            
            1,074,000
            
            
            2.2
            %
            
            2,000
            
            
            *Loss
                from operations beforeincome
                taxes
            
            
            (698,000
            )
            
            (1.4
            )%
            
            (431,000
            )
            
            (4.5
            )%Income
                tax (expense) benefit
            
            
            (1,259,000
            )
            
            (2.6
            )%
            
            176,000
            
            
            1.8
            %Net
                loss
            
            $
            (1,957,000
            )
            $
            (4.0
            )%
            $
            (255,000
            )
            
            (2.7
            )%Earnings
                per share:Basic
                and diluted loss per share
            
            $
            (0.18
            )
            
            
            
            $
            (0.06
            )Weighted
                average number of shares:Basic
                and diluted
            
            
            11,096,000
            
            
            
            
            
            4,574,000




*
      Less
      than 1%.




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





The
      following analysis provides information as to the results of our operations
      for
      the three and nine month periods ended October 31, 2007 and 2006. In December
      2006, we completed the acquisition of GPS, a transaction that is significant
      to
      our financial statements. As the results of operations for the current year
      periods include the operating results of GPS, and the operating results of
      the
      corresponding periods of the prior year do not, a comparison of our current
      year
      results to pro forma prior-year results follows this analysis below. The pro
      forma results are presented as if the acquisition of GPS and certain related
      transactions occurred on February 1, 2006. The acquisition of GPS represented
      the establishment of our power industry services business segment.





**Net
      Sales**




Net
      revenues of power industry services were $42.0 million for the three months
      ended October 31, 2007, and represented 85.3% of consolidated net
      sales.





Net
      sales
      of nutraceutical products were $4.6 million for the three months ended October
      31, 2007, and represented 9.4% of consolidated net sales. Net sales of
      nutraceutical products were $5.2 million for the three months ended October
      31,
      2006. This amount represented 54.6% of consolidated net sales for the prior-year
      period. The decrease in net sales of nutraceutical products of $631,000, or
      12%,
      primarily was due to the loss of one of VLI’s largest customers, representing
      approximately 18% of this segment’s net sales in the prior-year quarter, and a
      reduced level of net sales to VLI’s largest customer. Despite an extremely
      competitive business environment, this business has added one significant
      customer this year, and expects to increase sales to existing customers in
      the
      upcoming fiscal year as it continues to expand its product offerings.




17





Net
      revenues of telecommunications infrastructure services were $2.6 million for
      the
      three months ended October 31, 2007 compared to $4.4 million for the three
      months ended October 31, 2006, representing a decrease in the net revenues
      of
      telecommunications infrastructure services of $1.8 million, or 40%. The net
      revenues of telecommunications services for the three months ended October
      31,
      2007 and 2006 were 5.3% and 45.4% of consolidated net sales for the
      corresponding period, respectively. The substantial portion of the 92% decline
      in inside premises revenue between years relates to a reduced level of
      service provided to SMC’s largest inside premises customer. A combination of
      increased competition and an overall reduction in the amount of work being
      conducted by the customer has adversely affected the level of our business
      between years. The net revenues related to services provided to SMC’s outside
      premises customers declined by approximately 7% compared to the net revenues
      of
      the corresponding prior-year quarter. We expect that this business, which
      continues to generate net income on a quarterly basis, will achieve revenue
      growth in the upcoming fiscal year.





**Cost
      of Sales**




For
      the
      three months ended October 31, 2007, the cost of revenues for power industry
      services was $35.5 million, or approximately 85% of net revenues. During the
      current fiscal year, the Company has experienced an unexpected increase in
      costs
      related to one of its GPS contracts. An additional loss of approximately $2.3
      million was incurred on this project during the current quarter, increasing
      the
      total expected loss on this contract to approximately $10.4 million. The total
      loss amount has been recorded in the accounts, and this project is now
      substantially complete. The profitable performance of services for the Company’s
      other GPS construction projects underway during the current quarter more than
      offset the current quarter loss related to the loss project.




For
      the
      three months ended October 31, 2007, cost of sales for nutraceutical products
      were $4.2 million, or 90.8% of corresponding net sales, compared to $4.2
      million, or 80.7% of corresponding net sales for the three months ended October
      31, 2006. Expressed as a percentage of net sales, VLI’s product packaging costs
      declined in the current quarter compared to the corresponding quarter of the
      prior year. However, substantially offsetting this favorable reduction was
      an
      increase in the cost of liquid product.  In
      addition,  the
      loss
      of the sales volume related to the VLI customers discussed above caused VLI
      to
      re-evaluate its inventory for additional obsolete quantities. As a result,
      the
      reserve for inventory obsolescence was increased by approximately $257,000
      during the quarter. The corresponding charge is included in the cost of sales
      of
      nutraceutical products for the three months ended October 31, 2007. The cost
      of
      sales of nutraceutical products for the current quarter also included a charge
      of approximately $160,000 representing the loss incurred in connection with
      settling a dispute with a customer related to defective
      product.





For
      the
      three months ended, October 31, 2007, the cost of revenues for
      telecommunications infrastructure services was approximately $2.1 million,
      or
      79.0% of corresponding net revenues, compared to $3.5 million for the three
      months ended October 31, 2006, or 80.4% of corresponding net revenues. SMC
      experienced a decrease in the percentage of cost of revenues due to higher
      gross
      margins on certain outside plant projects.





**Selling,
      General and Administrative Expenses**




For
      the
      three months ended October 31, 2007, selling, general and administrative
      expenses were approximately $4.4 million, or 8.9% of consolidated net sales,
      compared to approximately $2.2 million for the three months ended October 31,
      2006, or 23.0% of consolidated net sales. The increase of approximately $2.2
      million in expenses between the current and prior year quarters was due
      primarily to the addition of the selling, general and administrative costs
      of
      GPS. GPS was acquired in December 2006. Such costs for GPS in the current
      quarter were approximately $1.9 million, but they represented only 4.5% of
      the
      net revenues of GPS for the quarter. In addition, the inclusion of the net
      revenues of GPS in consolidated net sales for the current quarter was a primary
      cause of the decline in corporate general and administrative expenses, expressed
      as a percentage of the corresponding consolidated net sales, from approximately
      6.5% to approximately 2.2% between years. Corporate general and administrative
      expenses have increased substantially, from $625,000 for the three months ended
      October 31, 2006 to $1,096,000 for the three months ended October 31, 2007,
      due
      to increased litigation costs, increased other professional fees including
      audit, tax and SOX internal control-related compliance fees, and increased
      stock
      option compensation expense.





**Impairment
      Losses**





Due
      to
      VLI’s loss of key customer accounts, the continuing overall decline in the net
      sales of VLI, and the operating loss incurred by VLI for the current quarter,
      we
      conducted an analysis of the operations of VLI in order to identify any
      impairment in the carrying value of the goodwill related to this business.
      The
      unadjusted amount of goodwill related to VLI at October 31, 2007 was
      approximately $6,565,000. In general, this business has reported operating
      results that are below expected results. Analyzing this business using both
      an
      income approach and a market approach suggested that the current fair value
      of
      this business was approximately $7.0 million. Based on this analysis, we
      recorded a goodwill impairment loss of $3,826,000 during the current quarter,
      thereby reducing the goodwill related to VLI to an adjusted balance of
      approximately $2,739,000 as of October 31, 2007.




18





The
      loss
      of business also suggested that the carrying value of VLI’s long-lived
      intangible assets, non-contract customer relationships and non-compete
      agreements, may be impaired. In fact, we determined that the net unadjusted
      carrying values of these assets exceeded the estimated amounts of undiscounted
      future cash flows attributable to these assets. Using fair values based on
      the
      estimated amounts of discounted cash flows, we recorded asset impairment losses
      in the amounts of $513,000 and $327,000, respectively, during the current
      quarter, thereby reducing the adjusted carrying values of these long-lived
      assets to approximately $220,000 and $333,000, respectively, as of October
      31,
      2007.





**Interest
      Income and Expense**





We
      reported interest income of $1,074,000 for the three months ended October 31,
      2007 compared to interest income of $2,000 for the three months ended October
      31, 2006. Interest income increased due to an increase in interest and
      investment income from cash and cash equivalents and investments held for sale.
      We have acquired a significant amount of cash and investments held for sale
      with
      the acquisition of GPS in December 2006 and the favorable cash flow from the
      operations of GPS during the current fiscal year. The acquisition of GPS was
      partially financed with the proceeds of a bank loan with an original principal
      amount of $8.0 million. The consolidated condensed results of operations for
      the
      three months ended October 31, 2007 included the interest expense (based on
      LIBOR plus 3.25%) related to this loan of approximately $144,000.





**Income
      Tax Benefit (Expense)**




Despite
      reporting a loss from operations before income taxes of $698,000 for the three
      months ended October 31, 2007, we incurred income tax expense of $1,259,000
      for
      the period. For the current year, the Company is being adversely impacted by
      our
      inability to utilize certain current operating losses for state income tax
      reporting purposes. In addition, the current year goodwill impairment loss
      of
      $3,826,000 is not deductible for income tax reporting purposes, and represents
      a
      permanent difference between financial and income tax reporting.  For
      the
      three months ended October 31, 2006, the effective income tax benefit rate
      was
      32%.




19


**Comparison
      of the Results of Operations for the nine months ended October 31, 2007 and
      2006**





The
      following schedule compares the results of our operations for the nine months
      ended October 31, 2007 and 2006. Except where noted, the percentage amounts
      represent the percentage of net sales for the corresponding period.





**Nine
                Months Ended October 31,****2007**
            
            **2006**Net
                salesPower
                industry services
            
            $
            130,970,000
            
            
            85.7
            %
            $
            —
            
            
            —
            %Nutraceutical
                products
            
            
            14,602,000
            
            
            9.6
            %
            
            16,288,000
            
            
            60.0
            %Telecom
                infrastructure services
            
            
            7,260,000
            
            
            4.7
            %
            
            10,843,000
            
            
            40.0
            %Net
                sales
            
            
            152,832,000
            
            
            100.0
            %
            
            27,131,000
            
            
            100.0
            %Cost
                of sales **Power
                industry services
            
            
            119,383,000
            
            
            91.2
            %
            
            —
            
            
            —Nutraceutical
                products
            
            
            12,481,000
            
            
            85.5
            %
            
            12,561,000
            
            
            77.1
            %Telecom
                infrastructure services
            
            
            5,776,000
            
            
            79.6
            %
            
            8,507,000
            
            
            78.5
            %Cost
                of sales
            
            
            137,640,000
            
            
            90.1
            %
            
            21,068,000
            
            
            77.7
            %Gross
                profit
            
            
            15,192,000
            
            
            9.9
            %
            
            6,063,000
            
            
            22.3
            %Selling,
                general and administrative expenses
            
            
            13,715,000
            
            
            9.0
            %
            
            6,134,000
            
            
            22.6
            %Impairment
                of goodwill and intangible assets
            
            
            4,666,000
            
            
            3.0
            %
            
            —
            
            
            —Loss
                from operations
            
            
            (3,189,000
            )
            
            (2.1
            )%
            
            (71,000
            )
            
            *Interest
                expense and amortization ofsubordinated
                debt issuance costs
            
            
            (550,000
            )
            
            *
            
            
            (564,000
            )
            
            (2.1
            )%Interest
                income
            
            
            2,352,000
            
            
            1.5
            %
            
            5,000
            
            
            *Income
                (loss) from operations beforeincome
                taxes
            
            
            (1,387,000
            )
            
            (0.9
            )%
            
            (630,000
            )
            
            (2.3)
            %)Income
                tax (expense) benefit
            
            
            (1,253,000
            )
            
            (0.8
            )%
            
            202,000
            
            
            0.7
            %Net
                loss
            
            $
            (2,640,000
            )
            
            (1.7
            )%
            $
            (428,000
            )
            $
            (1.6
            )%Earnings
                per share:Basic
                and diluted loss per share
            
            $
            (0.24
            )
            
            
            
            $
            (0.10
            )Weighted
                average number of shares:Basic
                and diluted
            
            
            11,095,000
            
            
            
            
            
            4,312,000




*
      Less
      than 1%.





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




**Net
      Sales**




Net
      revenues of power industry services were approximately $131 million for the
      nine
      months ended October 31, 2007, and represented 85.7% of consolidated net sales
      for the period.





Net
      sales
      of nutraceutical products were approximately $14.6 million for the nine months
      ended October 31, 2007, representing 9.6% of consolidated net sales for the
      period, compared to net sales of nutraceutical products of approximately $16.3
      million for the nine months ended October 31, 2006, representing 60.0% of the
      prior-year period. The decrease in net sales of nutraceutical products of
      approximately $1.7 million, or 10%, is due primarily to decreases in sales
      to
      two of VLI’s largest customers which were offset in part by sales increases to
      two existing customers and one new customer.





The
      net
      revenues from telecommunications infrastructure services were approximately
      $7.3
      million for the nine months ended October 31, 2007 compared to net revenues
      of
      approximately $10.8 million for the nine months ended October 31, 2006,
      representing a decrease between periods of approximately $3.5 million, or 33%.
      The decrease is due primarily to decreased revenues for services provided to
      SMC’s three largest customers. The net revenues of telecommunications services
      for the nine months ended October 31, 2007 and 2006 were 4.7% and 40.0% of
      consolidated net sales for the corresponding period, respectively.




20





**Cost
      of Sales**




For
      the
      nine months ended October 31, 2007, the cost of revenues from power industry
      services was approximately $119.4 million, or 91.2% of corresponding net
      revenues, including a loss of approximately $11.6 million recorded in the
      current year related to a GPS project.




For
      the
      nine months ended October 31, 2007, the cost of sales for nutraceutical products
      was approximately $12.5 million, or 85.5% of corresponding net sales, compared
      to approximately $12.6 million for the nine months ended October 31, 2006,
      or
      77.1% of corresponding net sales, The gross profit percentage erosion
      experienced by VLI in the current year is due primarily to higher liquid product
      raw material costs and the unfavorable adjustments recorded in the current
      quarter for excess and obsolete inventory that are discussed above.





For
      the
      nine months ended October 31, 2007, the cost of revenues for telecommunications
      infrastructure services was approximately $5.8 million, or 79.6% of
      corresponding net revenues, compared to $8.5 million for the nine months ended
      October 31, 2006, or 78.5% of corresponding net revenues. SMC experienced an
      increase in its cost of revenues percentage due to lower margin on certain
      outside plant projects.





**Selling,
      General and Administrative Expenses**




For
      the
      nine months ended October 31, 2007, selling, general and administrative expenses
      were approximately $13.7 million, or 9.0% of consolidated net sales, compared
      to
      approximately $6.1 million for the nine months ended October 31, 2006, or 22.6%
      of consolidated net sales. These expenses increased by approximately $7.6
      million between years, including approximately $7.0 million of such costs
      incurred by GPS in the current year. In addition, corporate general and
      administrative costs have increased substantially between years due to increased
      litigation costs, increased other professional fees, including audit, tax and
      SOX internal control-related compliance fees, and increased stock option
      compensation expense.




**Impairment
      Losses**





As
      discussed above, we recorded impairment losses in the current quarter related
      to
      the goodwill and other intangible assets of VLI in the total amount of
      $4,666,000. Accordingly, the asset impairment amounts are included in the
      condensed consolidated statement of operations for the nine months ended October
      31, 2007.





**Interest
      Income and Expense**




We
      reported interest income of approximately $2.4 million for the nine months
      ended
      October 31, 2007 compared to interest income of $5,000 for the nine months
      ended
      October 31, 2006. Interest income increased primarily due to an increase in
      interest and investment income from cash and cash equivalents and investments
      held for sale. We have acquired a significant amount of cash and investments
      held for sale with the acquisition of GPS in December 2006 and the favorable
      cash flow from the operations of GPS during the current fiscal year. The
      acquisition of GPS was partially financed with the proceeds of a bank loan
      with
      an original principal amount of $8.0 million. The consolidated condensed results
      of operations for the nine months ended October 31, 2007 included the interest
      expense (based on LIBOR plus 3.25%) related to this loan of approximately
      $460,000.





**Income
      Tax Benefit (Expense)**





Despite
      reporting a loss from operations before income taxes of $1,387,000 for the
      nine
      months ended October 31, 2007, we incurred income tax expense of $1,253,000
      for
      the period. For the current year, the Company is being adversely impacted by
      our
      inability to utilize certain current operating losses for state income tax
      reporting purposes. In addition, the current year goodwill impairment loss
      of
      $3,826,000 is not deductible for income tax reporting purposes, and represents
      a
      permanent difference between financial and income tax reporting.  For
      the
      nine months ended October 31, 2006, the effective income tax benefit rate was
      32%.





The
      Company’s income tax (expense) benefit for the nine months ended October 31,
      2007 and 2006 differs from the expected income tax benefit computed by applying
      the U.S. Federal corporate income tax rate of 34% to the loss from operations
      before income taxes for the nine months ended October 31, 2007 and 2006 as
      shown
      in the table below.




21





**Nine
                Months Ended**
              **October
                31,****2007**
            
            **2006**Computed
                “expected” tax (expense) benefit
            
            $
            471,000
            
            $
            214,000Increase
                (decrease) resulting from:State
                income taxes, net
            
            
            (386,000
            )
            
            (107,000
            )Permanent
                differences
            
            
            (1,338,000
            )
            
            95,000$
            (1,253,000
            )
            $
            202,000





**CONSOLIDATED
      RESULTS OF OPERATIONS COMPARED TO PRO FORMA RESULTS**





The
      following analysis summarizes the results of our operations for three and nine
      months ended October 31, 2007 compared to unaudited pro forma results of
      operations for the corresponding periods of the prior year as if the acquisition
      of GPS and related transactions,
      including the new bank financing of $8.0 million and the private offering of
      2,853,335 shares, were completed on February 1, 2006.




The
      unaudited pro forma statement of operations does not purport to be indicative
      of
      the results that would have actually been obtained if the acquisition of GPS
      had
      occurred on February 1, 2006, or that may be obtained in the future. GPS
      previously reported its results of operations using a calendar year-end. No
      material events occurred subsequent to these reporting periods that would
      require adjustment to our unaudited pro forma statements of operations. The
      acquisition of GPS had no impact on the previously reported amounts for our
      nutraceutical products and telecom infrastructure services
      segments.





**Three
                Months Ended**
              **October
                31,**
            
            **Nine
                Months Ended**
              **October
                31,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Net
                salesPower
                industry services
            
            $
            42,017,000
            
            $
            37,158,000
            
            $
            130,970,000
            
            $
            74,785,000Nutraceutical
                products
            
            
            4,617,000
            
            
            5,248,000
            
            
            14,602,000
            
            
            16,288,000Telecom
                infrastructure services
            
            
            2,629,000
            
            
            4,361,000
            
            
            7,260,000
            
            
            10,843,000Net
                sales
            
            
            49,263,000
            
            
            46,767,000
            
            
            152,832,000
            
            
            101,916,000Cost
                of salesPower
                industry services
            
            
            35,548,000
            
            
            34,313,000
            
            
            119,383,000
            
            
            69,542,000Nutraceutical
                products
            
            
            4,193,000
            
            
            4,235,000
            
            
            12,481,000
            
            
            12,561,000Telecom
                infrastructure services
            
            
            2,076,000
            
            
            3,506,000
            
            
            5,776,000
            
            
            8,507,000Cost
                of sales
            
            
            41,817,000
            
            
            42,054,000
            
            
            137,640,000
            
            
            90,610,000Gross
                profit
            
            
            7,446,000
            
            
            4,713,000
            
            
            15,192,000
            
            
            11,306,000Selling
                and general and administrative expenses
            
            
            4,381,000
            
            
            4,102,000
            
            
            13,715,000
            
            
            9,471,000Impairment
                of goodwill and intangible assets
            
            
            4,666,000
            
            
            —
            
            
            4,666,000
            
            
            —Income
                (loss) from operations
            
            $
            (1,601,000
            )
            $
            611,000
            
            $
            (3,189,000
            )
            $
            1,835,000




**Comparison
      of the Unaudited Results of Operations for the three and nine months ended
      October 31, 2007 to the Unaudited Pro Forma Results of Operations for the three
      and nine months ended October 31, 2006**




**Net
      Sales**




The
      net
      revenues from power industry services were approximately $42.0 million for
      the
      three months ended October 31, 2007 compared with approximately $37.2 million
      of
      corresponding pro forma net revenues for the three months ended October 31,
      2006. For the nine months ended October 31, 2007, the net revenues from power
      industry services were approximately $131.0 million compared with corresponding
      pro forma net revenues of approximately $74.8 million for the nine months ended
      October 31, 2006. The net revenues from power industry services has increased
      between years primarily due to increased revenues from ongoing new projects
      started during the year ended January 31, 2007, including an ethanol facility,
      three bio-diesel projects and a peaking facility.




22


The
        reductions in the net sales of nutraceutical products and telecommunication
        infrastructure services between periods are discussed above.
  **Cost
        of Sales**




For
      the
      three months ended October 31, 2007, the cost of revenues for power industry
      services was approximately $35.5 million, or 84.6% of corresponding net
      revenues, compared to pro forma cost of revenues of approximately $34.3 million,
      or 92.3% of corresponding pro forma net revenues for the three months ended
      October 31, 2006. For the nine months ended October 31, 2007, the cost of
      revenues for power industry services was approximately $119.4 million, or 91.2%
      of corresponding net revenues, compared to pro forma cost of revenues of
      approximately $69.5 million, or 93.0% of corresponding pro forma net revenues
      for the nine months ended October 31, 2006. The increase in the level of
      construction activity by GPS is the reason for the increase in the cost of
      revenue amounts between years.  The
      profitable performance of services on the Company’s other GPS construction
      projects underway during the current fiscal year more than offset the losses
      of
      approximately $2.3 million and $11.6 million incurred on a GPS project in the
      three and nine months ended October 31, 2007, respectively..





The
      reductions in the cost of sales of nutraceutical products and telecommunication
      infrastructure services between periods are discussed above.





**Selling,
      General and Administrative Expenses**




For
      the
      three months ended October 31, 2007, selling, general and administrative
      expenses were approximately $4.4 million, or 8.9% of consolidated net sales,
      compared to the pro forma amount of approximately $4.1 million for the three
      months ended October 31, 2006, or 8.8% of consolidated pro forma net sales.





For
      the
      nine months ended October 31, 2007, selling, general and administrative expenses
      were approximately $13.7 million compared to a pro forma amount of approximately
      $9.5 million for the nine months ended October 31, 2006. The increase of
      approximately $4.2 million in expenses between years was due primarily to the
      increased level of business activity of GPS in the current year. In addition,
      corporate general and administrative costs have increased between years due
      to
      increased litigation costs, increased other professional fees, including audit,
      tax and SOX internal control-related compliance fees, and increased stock option
      compensation expense. Despite the increase, the amount of such costs expressed
      as a percentage of consolidated net sales for the corresponding period were
      9.0%
      and 9.3%, respectively.





**Impairment
      Losses**





As
      discussed above, we recorded impairment losses in the current quarter related
      to
      the goodwill and other intangible assets of VLI in the total amount of
      $4,666,000. Accordingly, the asset impairment amounts are included in the
      condensed consolidated statement of operations for the nine months ended October
      31, 2007.





**LIQUIDITY
      AND CAPITAL RESOURCES**




**Cash
      Position and Indebtedness**




Cash
      and
      cash equivalents were approximately $75.3 million as of October 31, 2007
      compared to $25.4 million as of January 31, 2007. We also have an available
      balance of $4.3 million under our revolving line of credit financing arrangement
      with our bank. The Company’s consolidated working capital has increased during
      the current year from approximately $12.5 million as of January 31, 2007 to
      approximately $16.8 million as of October 31, 2007.




Net
      cash
      provided by operations for the nine months ended October 31, 2007, was
      approximately $55.0 million compared with approximately $1.4 million of cash
      provided by operations for the nine months ended October 31, 2006.




The
      Company’s non-cash expenses increased during the nine months ended October 31,
      2007 compared to the nine months ended October 31, 2006. Although depreciation
      and amortization decreased by $86,000 to $968,000 for the nine months ended
      October 31, 2007 from $1,054,000 for the same period one year ago, the
      amortization of purchased intangibles increased by approximately $4.3 million
      to
      $5.3 million for the nine months ended October 31, 2007 from $991,000 for the
      nine months ended October 31 **,** 2006.
      Deferred income tax benefit increased to $2,424,000 for the nine months ended
      October 31, 2007 from a benefit of $491,000 for the corresponding period of
      the
      prior year. All of the aforementioned increases in non-cash expenses were
      primarily due to the acquisition of GPS. In addition, current year non-cash
      expenses include asset impairment losses of $4,666,000 related to the goodwill
      and other intangible assets of VLI.




During
      the nine months ended October 31, 2007, billings in excess of estimated earnings
      provided approximately $50.8 million in cash flow due primarily to an increase
      in cash collections as a result of a growth in operating activity. In addition,
      the Company reduced the amount of unbilled receivables during the current fiscal
      year by approximately $11.4 million. Cash was used to reduce the level of
      accounts payable and accrued expenses by approximately $12.4 million during
      the
      current year.




23





During
      the nine months ended October 31, 2007, net cash used in investing activities
      was approximately $3.2 million compared to net cash used in investing activities
      of $763,000 for the nine months ended October 31, 2006. Using cash provided
      by
      operations, the Company purchased investments during the current year, including
      approximately $19.8 million in auction rate bonds. During the current quarter,
      auction rate bonds in the amount of $14.8 million were sold.




For
      the
      nine months ended October 31, 2007, net cash used in financing activities was
      approximately $1.9 million compared to $363,000 used in financing activities
      for
      the nine months ended October 31, 2006. The increase is the result of principal
      payments on the bank debt drawn in December 2006 at the time of the GPS
      acquisition.  During
      the nine months ended October 31, 2006, the Company received proceeds of
      $1,862,000 from sale of its common stock that were used primarily to pay $1.8
      million in principal payments on a subordinated note due the former owner of
      VLI.





The
      financing arrangements provide for the measurement at the Company’s fiscal year
      end and at each of the Company’s fiscal quarter ends (using a rolling 12-month
      period) of certain financial covenants including requirements that the ratio
      of
      total funded debt to EBITDA not exceed 2 to 1, that the ratio of senior funded
      debt to EBITDA not exceed 1.50 to 1, and that the fixed charge coverage ratio
      not be less than 1.25 to 1. At
      the end of the fiscal year and at the end of the most recent fiscal
      quarter, the Company was in compliance with each of these financial
      covenants. The
      bank’s consent is required for acquisitions and divestitures. The Company
      continues to pledge the majority of the Company’s assets to secure the financing
      arrangements.




The
      amended financing arrangement contains an acceleration clause which allows
      the
      bank to declare amounts outstanding under the financing arrangements due and
      payable if it determines in good faith that a material adverse change has
      occurred in the financial condition of any of our companies. The Company
      believes that it will continue to comply with its financial covenants under
      the
      financing arrangement. If the Company’s performance does not result in
      compliance with any of its financial covenants, or if the bank seeks to exercise
      its rights under the acceleration clause referred to above, the Company would
      seek to modify its financing arrangement, but there can be no assurance that
      the
      bank would not exercise their rights and remedies under the financing
      arrangement including accelerating payment of all outstanding senior debt due
      and payable.





Management
      believes that cash on hand, cash generated from the Company’s future operations
      and funds available under the Company’s line of credit will be adequate to meet
      the Company’s future operating cash needs. Any future acquisition, or other
      significant unplanned cost or cash requirement may require the Company to raise
      additional funds through the issuance of debt and/or equity securities. There
      can be no assurance that such financing will be available on terms acceptable
      to
      the Company, or at all. If additional funds are raised by issuing equity
      securities, significant dilution to the existing stockholders may
      result.




**Earnings
      before Interest, Taxes, Depreciation and Amortization (Non-GAAP
      Measurement)**




We
      present Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
      to provide investors with a supplemental measure of our operating performance.
      The following table shows the reconciliation of EBITDA for the three and nine
      months ended October 31, 2007 and 2006 to our reported net losses for the
      corresponding periods:




**Three
                Months Ended**
              **October
                31,****2007**
            
            **2006**Net
                loss, as reported
            
            $
            (1,957,000
            )
            $
            (255,000
            )Interest
                expense and amortization of debt issuance costs
            
            
            171,000
            
            
            87,000Income
                tax expense (benefit)
            
            
            1,259,000
            
            
            (176,000
            )Depreciation
                and amortization
            
            
            324,000
            
            
            279,000Amortization
                of intangible assets
            
            
            1,201,000
            
            
            331,000Stock
                option compensation expense
            
            
            182,000
            
            
            105,000Impairment
                of goodwill and other intangible assets
            
            
            4,666,000
            
            
            -EBITDA
            
            $
            5,846,000
            
            $
            371,000





24





**Nine
                Months Ended**
              **October
                31,****2007**
            
            **2006**Net
                loss, as reported
            
            $
            (2,640,000
            )
            $
            (428,000
            )Interest
                expense and amortization of debt issuance costs
            
            
            550,000
            
            
            564,000Income
                tax expense (benefit)
            
            
            1,253,000
            
            
            (202,000
            )Depreciation
                and amortization
            
            
            968,000
            
            
            797,000Amortization
                of intangible assets
            
            
            5,290,000
            
            
            991,000Stock
                option compensation expense
            
            
            282,000
            
            
            185,000Impairment
                of goodwill and other intangible assets
            
            
            4,666,000
            
            
            -EBITDA
            
            $
            10,369,000
            
            $
            1,907,000




Management
      uses EBITDA, a non-GAAP financial measure, for planning purposes, including
      the
      preparation of operating budgets and to determine appropriate levels of
      operating and capital investments. We include in EBITDA non-cash impairment
      losses related to goodwill and other purchased intangible assets. Management
      believes that EBITDA provides additional insight for analysts and investors
      in
      evaluating the Company's financial and operational performance and in assisting
      investors in comparing the Company's financial performance to those of other
      companies in the Company's industry. However, EBITDA is not intended to be
      an
      alternative to financial measures prepared in accordance with GAAP and should
      not be considered in isolation from our GAAP results of operations. Pursuant
      to
      the requirements of SEC Regulation G, a detailed reconciliation between the
      Company's GAAP and non-GAAP financial results is provided above and investors
      are advised to carefully review and consider this information as well as the
      GAAP financial results that are disclosed in the Company's SEC
      filings.




**Customers**




During
      the three and nine months ended October 31, 2007, the majority of our revenues
      were provided by a broad range of engineering, procurement and construction
      services to the power industry. Total revenues from power industry services
      accounted for 85% and 86% of consolidated net sales for the three and nine
      months ended October 31, 2007. Certain of our more significant current year
      customer relationships include four power industry service customers, Altra
      Biofuels Nebraska, LLC; Renewable Bio-Fuels Port Neches LLC; Green Earth Fuels
      of Houston LLC; and the Connecticut Municipal Electrical Energy Cooperative
      (CMEEC), which accounted for 31%, 24%, 16% and 14% of consolidated net sales
      for
      the three months ended October 31, 2007, respectively. These customers accounted
      for 23%, 16%, 23% and 17% of consolidated net sales for the nine months ended
      October 31, 2007, respectively. VLI, which provides nutritional and whole-food
      supplements as well as personal care products to customers in the global
      nutrition industry, accounted for 9% and 10% of consolidated net sales for
      the
      three and nine months ended October 31, 2007, respectively. No customer at
      VLI
      contributed more than 3% to our revenues during either current year period.
      SMC,
      which provides infrastructure services to telecommunications and utility
      customers as well as to the Federal Government, accounted for approximately
      5%
      of net sales for both the three and nine months ended October 31,
      2007.





During
      the nine months ended October 31, 2006, we did not have revenues from the power
      industry. Revenues consisted of sales from the 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 EDS. Certain of
      our
      more significant customers during the nine months ended October 31, 2006 were
      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 17%, 13%, 7% and 4 of consolidated net sales
      during the three months ended October 31, 2006. VZ, SMECO and EDS accounted
      for
      approximately 11%, 10% and 13% of consolidated net sales during the nine months
      ended October 31, 2006. Combined TVC, RRC, VZ, SMECO, EDS, C and OPE accounted
      for approximately 80% of consolidated net sales during the nine months ended
      October 31, 2006.




**Contractual
      Obligations**





A
      key
      ingredient for certain VLI products is imported. Due to the long lead-time
      associated with this raw material, VLI typically issues large purchase orders
      that schedule product deliveries 3 to 6 months from the order date. In addition,
      VLI is required to make purchase deposits with the supplier that cover 25%
      to
      50% of the initial purchase order amount. At October 31, 2007 and January 31,
      2007, VLI had open purchase orders of this type in the approximate amounts
      of
      $2,274,000 and $282,000, respectively, and corresponding deposits in the
      approximate amounts of $1,179,000 and $199,000, respectively. The deposit
      amounts are included in prepaid assets and other current assets in the
      accompanying condensed consolidated balance sheets.




25





**Seasonality**




The
      Company's telecom infrastructure service operations may have seasonally weaker
      results in the first and fourth quarters of the year, and may produce stronger
      results in the second and third quarters. This seasonality may be due to the
      effect of winter weather on construction and outside plant activities as well
      as
      reduced daylight hours and customer budgetary constraints. Certain customers
      tend to complete budgeted capital expenditures before the end of the year,
      and
      postpone additional expenditures until the subsequent fiscal
      period.





**RECENT
      ACCOUNTING STANDARDS**




In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard (“FAS”) No. 141(R), “Business
      Combinations”. FAS No. 141(R) replaces FAS No. 141 and provides greater
      consistency in the accounting and financial reporting of business combinations.
      FAS No. 141(R) requires the acquiring entity in a business combination to
      recognize all assets acquired and liabilities assumed in the transaction,
      establishes the acquisition-date fair value as the measurement objective for
      all
      assets acquired and liabilities assumed, establishes principles and requirements
      for how an acquirer recognizes and measures any non-controlling interest in
      the
      acquiree and the goodwill acquired, and requires the acquirer to disclose the
      nature and financial effect of the business combination. Among other changes,
      this statement also required that “negative goodwill” be recognized in earnings
      as a gain attributable to the acquisition, that acquisition-related costs are
      to
      be recognized separately from the acquisition and expensed as incurred and
      that
      any deferred tax benefits resulted in a business combination are recognized
      in
      income from continuing operations in the period of the combination.
      FAS 141R is effective for business combinations for which the acquisition
      date is on or after the beginning of the first annual reporting period beginning
      on or after December 15, 2008. The Company will assess the impact that SFAS
      141R
      may have on its financial position and results of operations.





In
      February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities.” FAS No. 159 permits companies to measure many
      financial instruments and certain other items at fair value at specified
      election dates. The provisions of FAS No. 159 will be effective for the Company
      beginning February 1, 2008. The Company does not expect FAS No. 159 to have
      a
      significant impact on the consolidated financial statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standard
      No.
      157, “Fair Value Measurements.” This Standard defines fair value, establishes a
      framework for measuring fair value in generally accepted accounting principles
      and expands disclosures about fair value measurements. The Company plans to
      adopt FAS No. 157 on February 1, 2008, as required. The adoption of FAS No.
      157
      is not expected to have a material impact on the Company’s financial condition
      and results of operations.





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




We
      have
      not used any material derivative financial instruments during the three months
      ended October 31, 2007 and 2006. We are exposed to market risk for changes
      in
      interest rates for borrowings under the new financing arrangements as discussed
      above. Borrowings under the financing arrangement bear interest at LIBOR plus
      an
      additional margin and therefore are subject to fluctuations in interest
      rates.





**ITEM
      4. CONTROLS AND PROCEDURES**




**Evaluation
      of disclosure controls and procedures.** Our
      management, with the participation of our chief executive officer and chief
      financial officer, evaluated the effectiveness of our disclosure controls and
      procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
      Act)
      as of October 31, 2007. Management recognizes that any controls and procedures,
      no matter how well designed and operated, can provide only reasonable assurance
      of achieving their objectives, and management necessarily applies its judgment
      in evaluating the cost-benefit relationship of possible controls and procedures.
      Based on the evaluation of our disclosure controls and procedures as of October
      31, 2007, our chief executive officer and chief financial officer concluded
      that, as of such date, our disclosure controls and procedures were effective
      at
      the reasonable assurance level.




**Changes
      in internal controls.** No
      change in our internal control over financial reporting (as defined in Rules
      13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal
      quarter ended October 31, 2007 that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial
      reporting.




26




**PART
      II**




**OTHER
      INFORMATION**





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




On
      March
      22, 2005, WFC filed a civil action against the Company, and its executive
      officers. The suit was filed in the Superior Court of the State of California
      for the County of Los Angeles. WFC purchased the capital stock of the Company's
      wholly owned subsidiary, Puroflow Incorporated, pursuant to the terms of the
      Stock Purchase Agreement dated October 31, 2003. WFC alleged that the Company
      and its executive officers breached the Stock Purchase Agreement between WFC
      and
      the Company and engaged in misrepresentations and negligent conduct with respect
      to the Stock Purchase Agreement. WFC sought declaratory relief, compensatory
      and
      punitive damages in an amount to be proven at trial as well as the recovery
      of
      attorney's fees. This action was removed to the United States District Court
      for
      the Central District of California. The Company and its officers deny that
      any
      breach of contract or that any misrepresentations or negligence occurred on
      their part.




On
      March
      15, 2007, the District Court granted the Company and its executive officers'
      motion for summary judgment, thereby dismissing WFC's lawsuit against the
      Company and its executive officers in its entirety. WFC appealed the District
      Court’s decision. The parties have filed their appellate briefs and are waiting
      for a date to be scheduled for oral argument. We intend to vigorously defend
      the
      appeal and this litigation.




Although
      we have reviewed WFC’s claims and believe that they are without merit, we have
      recorded an accrual of approximately $56,000 and $286,000 at October 31, 2007
      and January 31, 2007, respectfully, for subsequent legal services and estimated
      legal fees related to potential ongoing legal costs of the WFC litigation that
      we consider to be probable and that can be reasonably estimated. It is possible
      however, that the ultimate resolution of the WFC litigation could result in
      a
      material adverse effect on our results of operations for a particular future
      reporting period.




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




Although
      we have reviewed Thomas’ claims and believe that they are without merit, we
      recorded an accrual of approximately $320,000 at October 31, 2007 for subsequent
      legal services and estimated legal fees related to potential ongoing legal
      costs
      of the Thomas litigation that we consider to be probable and that can be
      reasonably estimated. It is possible however, that the ultimate resolution
      of
      the Thomas litigation could result in a material adverse effect on our results
      of operations for a particular future reporting period.





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





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




Our
      Annual Report on Form 10-KSB for the year ended January 31, 2007, under Item
      1
      Description of Business, Risk Factors includes a detailed discussion of our
      risk
      factors. There have been no material revisions to the Risk Factors as filed
      in
      our Annual Report Form 10-KSB for the year ended January 31, 2007.





**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




27




**ITEM
      5.**  **OTHER
      INFORMATION**




None




**ITEM
      6.**  **EXHIBITS**





**Exhibit
                No.******
            
            ******Title**Exhibit:
                31.1
            
            Certification
                of Chief Executive Officer, pursuant to Rule 13a-14(c) under the
                Securities Exchange Act of 1934Exhibit:
                31.2
            
            Certification
                of Chief Financial Officer, pursuant to Rule 13a-14(c) under the
                Securities Exchange Act of 1934Exhibit:
                32.1
            
            Certification
                of Chief Executive Officer, pursuant to 18 U.S.C. Section
                1350Exhibit:
                32.2
            
            Certification
                of Chief Financial Officer, pursuant to 18 U.S.C. Section
                1350




28




**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned,
      thereunto, duly authorized.


**ARGAN,
                INC.**December
                17, 2007
            By:
            /s/ Rainer
                BosselmannRainer
                BosselmannChairman
                of the Board and
              Chief
                ExecutiveOfficer




December
                17, 2007
            By:
            /s/ Arthur
                F.
                TrudelArthur
                F. TrudelSenior
                Vice President, Chief Financial Officer
              and
                Secretary




29