UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the Quarterly Period Ended ~~October 31, 2010~~April 30, 2011


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

For the Transition Period from to

Commission File Number 001-31756

Argan, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		13-1947195

(State or Other Jurisdiction of Incorporation)		(I.R.S. Employer Identification No.)

One Church Street, Suite 201, Rockville, Maryland 20850
(Address of Principal Executive Offices) (Zip Code)

(301) 315-0027

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year,

if Changed since Last Report)

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

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yeso Noo

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


Large accelerated filero		Accelerated filerþo		Non-accelerated filero		Smaller reporting companyoþ

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

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable ~~date.~~date:

Common ~~Stock,~~stock, $0.15 par value, ~~13,596,494~~13,601,994 shares at ~~December 3, 2010.~~June 8, 2011

ARGAN, INC. AND SUBSIDIARIES

~~Condensed Consolidated Balance Sheets~~CONDENSED CONSOLIDATED BALANCE SHEETS


	October 31,			January 31,
	2010			2010			April 30, 2011			January 31, 2011
	(Unaudited)			(Note 1)			(Unaudited)			(Note 1)
ASSETS
CURRENT ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	76,420,000		$	66,009,000		$	78,906,000		$	83,292,000
Restricted cash		1,620,000			5,002,000			—			1,243,000
Accounts receivable, net of allowance for doubtful accounts		22,684,000			4,979,000			5,712,000			13,099,000
Costs and estimated earnings in excess of billings		4,902,000			12,931,000			421,000			1,443,000
Inventories, net of reserve for obsolescence		1,130,000			2,010,000
Current deferred tax assets		2,223,000			1,603,000
Deferred income tax assets								417,000			91,000
Prepaid expenses and other current assets		683,000			2,697,000			1,364,000			520,000
Assets held for sale								780,000			6,354,000

TOTAL CURRENT ASSETS		109,662,000			95,231,000			87,600,000			106,042,000
Property and equipment, net of accumulated depreciation		1,596,000			1,540,000			1,370,000			1,478,000
Goodwill		18,476,000			18,476,000			18,476,000			18,476,000
Intangible assets, net of accumulated amortization		2,996,000			3,258,000
Deferred tax assets		1,506,000			1,628,000
Intangible assets, net of accumulated amortization and impairment losses								2,821,000			2,908,000
Deferred income tax assets								995,000			999,000
Other assets		59,000			140,000			20,000			14,000
Assets held for sale								226,000			625,000

TOTAL ASSETS	$	134,295,000		$	120,273,000		$	111,508,000		$	130,542,000


LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES

CURRENT LIABILITIES:
Accounts payable	$	12,672,000		$	17,906,000		$	5,513,000		$	8,555,000
Accrued expenses		9,700,000			10,254,000			4,878,000			13,035,000
Billings in excess of costs and estimated earnings		15,112,000			1,874,000			2,566,000			9,916,000
Current portion of long-term debt		333,000			1,833,000
Liabilities related to assets held for sale								43,000			1,362,000

TOTAL CURRENT LIABILITIES		37,817,000			31,867,000			13,000,000			32,868,000
Other liabilities		33,000			38,000			28,000			29,000

TOTAL LIABILITIES		37,850,000			31,905,000			13,028,000			32,897,000


COMMITMENTS AND CONTINGENCIES(Note 12)

STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.10 per share; 500,000 shares authorized; no shares issued and outstanding		—			—
Common stock, par value $0.15 per share; 30,000,000 shares authorized; 13,599,727 and 13,585,727 shares issued at 10/31/10 and 1/31/10, and 13,596,494 and 13,582,494 shares outstanding at 10/31/10 and 1/31/10, respectively		2,040,000			2,038,000
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; 13,605,227 and 13,602,227 shares issued at April 30 and January 31, 2011, and 13,601,994 and 13,598,994 shares outstanding at April 30 and January 31, 2011								2,041,000			2,040,000
Warrants outstanding		601,000			613,000			601,000			601,000
Additional paid-in capital		88,276,000			87,048,000			88,789,000			88,561,000
Retained earnings (deficit)		5,561,000			(1,298,000	)
Treasury stock, at cost; 3,233 shares at 10/31/10 and 1/31/10		(33,000	)		(33,000	)
Retained earnings								7,082,000			6,476,000
Treasury stock, at cost — 3,233 shares at April 30 and January 31, 2011								(33,000	)		(33,000	)

TOTAL STOCKHOLDERS’ EQUITY		96,445,000			88,368,000			98,480,000			97,645,000

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	134,295,000		$	120,273,000		$	111,508,000		$	130,542,000

ARGAN, INC. AND SUBSIDIARIES

~~Condensed Consolidated Statements of Operations~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


														Three Months Ended April 30,
	Three Months Ended October 31,						Nine Months Ended October 31,							2011			2010
	2010			2009			2010			2009
Net revenues
Power industry services	$	42,706,000		$	54,164,000		$	144,475,000		$	172,003,000			$	14,019,000		$	51,396,000
Nutritional products		2,931,000			4,266,000			7,817,000			10,536,000
Telecommunications infrastructure services		2,523,000			2,237,000			6,308,000			6,693,000				1,974,000			1,838,000

Net revenues		48,160,000			60,667,000			158,600,000			189,232,000				15,993,000			53,234,000

Cost of revenues
Power industry services		35,999,000			48,378,000			122,568,000			153,465,000				10,481,000			44,667,000
Nutritional products		3,139,000			3,715,000			8,213,000			9,435,000
Telecommunications infrastructure services		1,850,000			1,727,000			5,281,000			5,102,000				1,614,000			1,793,000

Cost of revenues		40,988,000			53,820,000			136,062,000			168,002,000				12,095,000			46,460,000

Gross profit		7,172,000			6,847,000			22,538,000			21,230,000				3,898,000			6,774,000

Selling, general and administrative expenses		4,346,000			4,015,000			11,285,000			10,417,000				2,759,000			3,034,000

Income from operations		2,826,000			2,832,000			11,253,000			10,813,000
															1,139,000			3,740,000
Interest expense		(7,000	)		(41,000	)		(32,000	)		(155,000	)			—			(14,000	)
Investment income		29,000			15,000			61,000			89,000				22,000			12,000
Equity in the earnings of the unconsolidated subsidiary		—			325,000			—			1,343,000

Income before income taxes		2,848,000			3,131,000			11,282,000			12,090,000
Income from continuing operations before income taxes															1,161,000			3,738,000
Income tax expense		1,313,000			1,167,000			4,423,000			4,475,000				416,000			1,383,000

Income from continuing operations															745,000			2,355,000

Discontinued operations
Loss on discontinued operations (including gain on disposal of $152,000 in 2011)															(65,000	)		(526,000	)
Income tax (expense) benefit															(74,000	)		194,000

Loss on discontinued operations															(139,000	)		(332,000	)

Net income	$	1,535,000		$	1,964,000		$	6,859,000		$	7,615,000			$	606,000		$	2,023,000


Earnings per share:
Continuing operations
Basic	$	0.11		$	0.14		$	0.50		$	0.56			$	0.05		$	0.17

Diluted	$	0.11		$	0.14		$	0.50		$	0.55		��	$	0.05		$	0.17


Discontinued operations
Basic														$	(0.01	)	$	(0.02	)

Diluted														$	(0.01	)	$	(0.02	)


Net income
Basic														$	0.04		$	0.15

Diluted														$	0.04		$	0.15


Weighted average number of shares outstanding:
Basic		13,596,000			13,579,000			13,591,000			13,506,000				13,601,000			13,584,000

Diluted		13,669,000			13,763,000			13,714,000			13,765,000				13,679,000			13,790,000

ARGAN, INC. AND SUBSIDIARIES

~~Condensed Consolidated Statements of Cash Flows~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended October 31,						Three Months Ended April 30,
	2010			2009			2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,859,000		$	7,615,000		$	606,000		$	2,023,000
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Deferred income tax benefit		(498,000	)		(287,000	)
Removal of loss on discontinued operations								139,000			332,000

Income from continuing operations								745,000			2,355,000
Adjustments to reconcile income from continuing operations to net cash used in continuing operating activities:
Deferred income tax expense								14,000			355,000
Stock option compensation expense		1,112,000			864,000			211,000			320,000
Amortization of purchased intangibles		262,000			267,000			87,000			87,000
Depreciation and other amortization		508,000			459,000			117,000			168,000
Equity in the earnings of the unconsolidated subsidiary		—			(1,343,000	)
Other		504,000			35,000
Changes in operating assets and liabilities:
Restricted cash		3,382,000			4,998,000			1,243,000			—
Accounts receivable		(17,851,000	)		8,875,000			7,387,000			(9,053,000	)
Costs and estimated earnings in excess of billings		8,029,000			(22,797,000	)		1,022,000			766,000
Inventories		511,000			(1,176,000	)
Prepaid expenses and other assets		2,018,000			85,000			(850,000	)		972,000
Accounts payable and accrued expenses		(5,785,000	)		(14,000,000	)		(8,155,000	)		(985,000	)
Billings in excess of costs and estimated earnings		13,238,000			(4,101,000	)		(7,350,000	)		2,557,000
Other		(5,000	)		9,000

Net cash provided by (used in) operating activities		12,284,000			(20,497,000	)
Net cash used in continuing operating activities								(5,529,000	)		(2,458,000	)
Net cash (used in) provided by discontinued operating activities								(235,000	)		199,000

Net cash used in operating activities								(5,764,000	)		(2,259,000	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(488,000	)		(172,000	)
Proceeds from sale of property and equipment		12,000			55,000
Purchases of property and equipment, net								(9,000	)		(160,000	)

Net cash used in investing activities		(476,000	)		(117,000	)
Net cash used in investing activities of continuing operations								(9,000	)		(160,000	)
Net cash provided by investing activities of discontinued operations								1,369,000			—

Net cash provided by (used in) investing activities								1,360,000			(160,000	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the exercise of stock options and warrants		103,000			737,000			18,000			35,000
Principal payments on long-term debt		(1,500,000	)		(1,801,000	)		—			(500,000	)

Net cash used in financing activities		(1,397,000	)		(1,064,000	)
Net cash provided by (used in) financing activities of continuing operations								18,000			(465,000	)
Net cash provided by financing activities of discontinued operations								—			—

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		10,411,000			(21,678,000	)
Net cash provided by (used in) financing activities								18,000			(465,000	)

NET DECREASE IN CASH AND CASH EQUIVALENTS								(4,386,000	)		(2,884,000	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		66,009,000			74,666,000			83,292,000			66,153,000


CASH AND CASH EQUIVALENTS, END OF PERIOD	$	76,420,000		$	52,988,000		$	78,906,000		$	63,269,000


SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest and income taxes:
Interest	$	32,000		$	155,000		$	—		$	14,000

Income taxes	$	1,275,000		$	6,701,000		$	2,227,000		$	62,000

ARGAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~OCTOBER 31, 2010~~APRIL 30, 2011

(Unaudited)

NOTE 1 — DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Description of the Business

Argan, Inc. (“Argan”) conducts ~~its~~continuing operations through its wholly owned subsidiaries, Gemma Power Systems, LLC and affiliates (“GPS”), which provide the substantial portion of consolidated net revenues, ~~Vitarich Laboratories, Inc. (“VLI”)~~ and Southern Maryland Cable, Inc. (“SMC”). Argan and ~~its~~these consolidated ~~wholly owned~~ subsidiaries are hereinafter referred to as the “Company.” Through GPS, the Company provides a full range of engineering, procurement, construction, commissioning, maintenance and consulting services to the power generation and renewable energy markets for a wide range of customers including public utilities and independent power project owners. Through ~~VLI, the Company develops and manufactures premium nutritional supplements, whole-food dietary supplements and personal care products. Through~~ SMC, ~~and in the Mid-Atlantic region primarily,~~ the Company provides telecommunications infrastructure services including project management, construction, installation and maintenance to commercial, local government and federal government ~~customers.~~customers primarily in the Mid-Atlantic region. Each of the wholly-owned subsidiaries represents a separate reportable segment.

~~In June 2008, GPS entered into a business partnership with a renewable energy company for~~ Argan also conducted discontinued operations during the ~~design~~three months ended April 30, 2011 and ~~construction of wind-energy farms. Originally,~~2010 that are discussed in Note 2 to the partners each owned 50% of the company, Gemma Renewable Power, LLC (“GRP”). In December 2009, the Company acquired its former partner’s ownership and GRP became a wholly-owned subsidiary of GPS (see ~~Note 6).~~accompanying condensed consolidated financial statements.

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Argan and its wholly owned subsidiaries. The Company’s fiscal year ends on January 31. All significant inter-company balances and transactions have been eliminated in consolidation. ~~The Company evaluated subsequent events for adjustment to or disclosure in these condensed consolidated financial statements through the date of their issuance.~~

The condensed consolidated balance sheet as of ~~October 31, 2010,~~April 30, 2011, the condensed consolidated statements of operations for the three ~~and nine~~ months ended ~~October 31,~~April 30, 2011 and 2010, ~~and 2009,~~ and the condensed consolidated statements of cash flows for the ~~nine~~three months ended ~~October 31,~~April 30, 2011 and 2010 ~~and 2009~~ are unaudited. The condensed consolidated balance sheet as of January 31, ~~2010~~2011 has been derived from audited financial statements. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, which are of a normal and recurring nature, considered necessary to present fairly the financial position of the Company as of ~~October 31, 2010~~April 30, 2011 and the results of its operations and its cash flows for the interim periods presented. The results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.

These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The accompanying condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements, the notes thereto (including the summary of significant accounting policies), and the independent registered public accounting firm’s report thereon that are included in the Company’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended January 31, ~~2010~~2011 on April 14, ~~2010.~~2011.

Fair Values

The provisions of ASC 820,Fair Value Measurements and Disclosures, apply to all assets and liabilities that are being measured and reported on a fair value basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. The requirements prescribe a fair value hierarchy that has three levels of inputs, both observable and unobservable, with use of the lowest possible level of input to determine fair value. Level 1 inputs include quoted market prices in an active market or the price of an identical asset or liability. Level 2 inputs are market data other than Level 1 inputs that are observable either directly or indirectly including quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data.

- 6 -

~~Codification~~The carrying value amounts of ~~Generally Accepted Accounting Principles in~~ the ~~United States~~Company’s cash and cash equivalents, restricted cash, accounts receivable, accounts payable and other current liabilities are reasonable estimates of ~~America (“US GAAP”)~~their fair values due to the short-term nature of these instruments. The fair value of business segments (as needed for purposes of determining indications of impairment to the carrying value of goodwill) is determined using an average of valuations based on market multiples and discounted cash flows, and consideration of our market capitalization.

~~On June 30, 2009, the Financial~~New disclosures and clarifications of existing disclosures required by Accounting Standards ~~Board (the “FASB”) issued Statement of Financial Accounting Standards~~Update No. ~~168,~~2010-06,~~The FASB~~Fair Value Measurements and Disclosures, which provided amendments to Accounting Standards Codification subtopic 820-10,Fair Value Measurements and Disclosures — Overall Subtopic,became effective for the ~~Hierarchy of Generally Accepted Accounting Principles(“SFAS No. 168”) in order to establish the~~~~FASB Accounting Standards Codification~~~~(the “Codification” or “ASC”), which officially launched July~~Company’s interim and annual reporting periods beginning February 1, ~~2009, as the sole source of authoritative generally accepted accounting principles in the United States of America for nongovernmental entities,~~2010, except for ~~guidance issued by~~certain Level 3 activity disclosures. A disaggregation requirement for the ~~SEC. SFAS No. 168, which was primarily codified into ASC Topic 105,~~~~Generally Accepted Accounting Standards~~~~, replaced the four-tiered US GAAP hierarchy described in SFAS No. 162,~~~~The Hierarchy~~reconciliation disclosure of ~~Generally Accepted Accounting Principles~~, with a two-level hierarchy consisting only of authoritative and non-authoritative guidance. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the CodificationLevel 3 measurements became ~~non-authoritative. As~~effective for the Company ~~adopted SFAS No. 168 last year, all relevant references to authoritative literature reflect the newly adopted Codification.~~

~~New Accounting Standards~~

~~In January 2010, the FASB issued Accounting Standards Update No. 2010-06,~~~~Fair Value Measurements and Disclosures~~~~, which provides amendments to ASC 820-10 (~~~~Fair Value Measurements and Disclosures – Overall Subtopic~~) of the Codification (the “Fair Value Update”). The Fair Value Update requires improved disclosures about fair value measurements. Separate disclosures are required of the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements along with description of the reasons for the transfers. Disclosure of activity in Level 3 fair value measurements is required to be made on a gross basis rather than as one net number. The Fair Value Update also requires: (1) fair value measurement disclosures for each class of assets and liabilities, and (2) disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements, which are required for fair value measurements that fall into either Level 2 or Level 3.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. Current accounting guidance prescribes a fair value hierarchy that has three levels of inputs, both observable and unobservable, with use of the lowest possible level of input to determine fair value. Level 1 inputs include quoted market prices in an active market or the price of an identical asset or liability. Level 2 inputs are market data other than Level 1 inputs that are observable either directly or indirectly including quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data.

The new disclosures and clarifications of existing disclosures required by the Fair Value Update became effective for the Company’s interim and annual reporting periods beginning February 1, 2010, except for the Level 3 activity disclosures, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Because these are enhanced disclosure requirements, there has been no impact on the Company’s results of operations or financial position. In addition, the enhanced disclosure requirements haveon February 1, 2011. This enhanced disclosure requirement did not materially ~~affected the Company’s financial reporting.~~

~~In July 2010, the FASB issued Accounting Standards Update No. 2010-20,~~~~Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses~~, which requires enhanced disclosures about credit risk exposure in financial statements issued by public entities on or after December 15, 2010 (“the “Credit Risk Update”). The Company’s accounts receivable substantially consist of trade receivables with short payment terms which are specifically excluded from the definition of financing receivables. Accordingly, the disclosure requirements of the Credit Risk Update are not expected to affect the Company’s condensed consolidated financial statements.

NOTE 2 — DISPOSITION OF DISCONTINUED OPERATIONS

On March 11, 2011, Vitarich Laboratories, Inc. (“VLI”), a wholly owned subsidiary representing the Company’s nutritional products business segment, completed the sale of substantially all of its assets (the “Asset Sale”) to NBTY Florida, Inc. (“NBTY”). The Asset Sale was consummated for an aggregate cash purchase price of up to $3,100,000 and the assumption by NBTY of certain trade payables and accrued expenses of VLI. NBTY also assumed the remaining minimum lease obligations related to VLI’s office, warehouse and manufacturing facilities which totaled approximately $400,000 as of the sale date. Of the cash purchase price, $800,000 was paid at closing and the remaining $2,300,000 was placed into escrow. VLI will be paid from the escrow amount (i) the cost of all pre-closing inventory sold, used or consumed within nine months of the closing, and (ii) the amounts of all pre-closing accounts receivable of VLI that are collected by September 30, 2011. After September 30, 2011, all uncollected accounts receivable will be transferred back to VLI at no cost. At the end of nine months of the closing, all money still held in the escrow account will be returned to NBTY. In April 2011, VLI received cash proceeds from the escrow account in the amount of $603,000 relating primarily to the collection of accounts receivable. Amounts received from the escrow account are recorded as proceeds upon receipt.

The financial results of this business have been presented as discontinued operations in the accompanying condensed consolidated financial statements. The net revenues of the discontinued operations for the three months ended April 30, 2011 and 2010 were $1.5 million and $2.7 million, respectively. Including the gain recorded in connection with the disposition in the amount of $152,000, the Company incurred a loss on discontinued operations in the amount of $139,000 for the three months ended April 30, 201l. For the three months ended April 30, 2010, the Company incurred a loss from discontinued operations of $332,000.

Assets and liabilities of the discontinued operations classified as held for sale as of April 30 and January 31, 2011 included the following amounts:


	April 30,		January 31,
	2011		2011
Accounts receivable, net	$	—	$	1,197,000
Inventories, net		—		1,086,000
Refundable income taxes		—		3,044,000
Deferred tax and other assets		780,000		1,027,000

Total current assets		780,000		6,354,000

Property, machinery and equipment		—		—
Deferred tax and other assets		226,000		625,000

Total noncurrent assets		226,000		625,000

Total assets held for sale	$	1,006,000	$	6,979,000


Accounts payable	$	33,000	$	906,000
Accrued expenses		10,000		456,000

Total current liabilities		43,000		1,362,000
Total noncurrent liabilities		—		—

Total liabilities related to assets held for sale	$	43,000	$	1,362,000

- 7 -

~~Pursuant to~~2011. During the ~~agreement covering~~quarter ended April 30, 2011, GPS completed the ~~acquisition of GPS,~~project and the ~~Company maintained $5.0 million~~funds in ~~an escrow~~this account with the Bank which secured a letter of credit that was issued in support of a bonding commitment. In June 2010, the letter of credit was terminated as the bonding company eliminated the requirement. Accordingly, approximately $5.0 million waswere released from ~~the escrow account during the second quarter.~~

For certain construction projects, cash may be held in escrow as a substitute for retentions. However, no amount of cash related to construction projects was held in escrow as of October 31, 2010 or January 31, 2010.restriction.

NOTE 34 — ACCOUNTS RECEIVABLE; COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS

~~Both accounts receivable and costs and estimated earnings in excess of billings represent amounts due from customers for services rendered or products delivered.~~ The timing of billings to customers under construction-type contracts varies based on individual contracts and often differs from the periods in which net revenues are recognized. The ~~amount~~amounts of costs and estimated earnings in excess of billings ~~at October 31, 2010 was approximately $4.9 million; this amount is~~are expected to be billed and collected in the normal course of business. The comparable amount of costs and estimated earnings in excess of billings at January 31, 2010 was $12.9 million. Certain amounts included in accounts receivable represent funds retained by a construction customer until a defined phase of a contract or project has been completed by the Company and accepted by the customer. The amounts of ~~such funds~~construction contract retainages included in accounts receivable at ~~October 31, 2010~~April 30, 2011 and January 31, ~~2010~~2011 were approximately ~~$2,644,000~~$4.2 million and ~~$260,000,~~$3.9 million, respectively. The lengths of retention periods may vary, but for material amounts they typically range between nine months and two years.

The Company conducts business with and may extend credit to a customer based on an evaluation of the customer’s financial condition, generally without requiring collateral. Exposure to losses on accounts receivable is expected to differ by customer due to the varying financial condition of each customer. The Company monitors its exposure to credit losses and maintains an allowance for anticipated losses considered necessary under the circumstances based on historical experience with uncollected accounts and a review of its currently outstanding accounts receivable. The allowance for doubtful accounts at ~~October 31, 2010~~both April 30, 2011 and January 31, 2011 was $5.5 million. In fiscal year 2010, ~~totaled $5.9 million and $5.8 million, respectively. Last year,~~ a substantial portion of the accounts receivable from the owner of a partially completed construction project was written down against the allowance, without any effect on ~~the statement of operations for the prior year,~~income, to $5.5 million, the amount of the net proceeds remaining from a public auction of the facility. As the amount that the Company may ultimately receive in a distribution of the auction proceeds, if any, is not known at this time, the remaining account receivable amount was fully ~~reserved in the allowance for doubtful accounts at October 31, 2010 and January 31, 2010.~~

reserved. The amounts of the provision for accounts receivable losses ~~were $42,000 and $30,000~~ for the three months ended ~~October 31, 2010~~April 30, 2011 and ~~2009, respectively, and were $146,000 and $155,000 for the nine months ended October 31, 2010 and 2009, respectively.~~

~~NOTE 4 — INVENTORIES~~

Inventories are stated at the lower of cost or market (i.e., net realizable value). Cost is determined on the first-in first-out (FIFO) method and includes material, labor and overhead costs. Fixed overhead is allocated to inventory based on the normal capacity of the Company’s production facilities. Any costs related to idle facilities, excess spoilage, excessive freight charges or re-handling costs are expensed currently as period costs. Appropriate consideration is given to obsolescence, excessive inventory levels, product deterioration and other factors in evaluating net realizable value.

In connection with the production of products pursuant to customer purchase orders received by VLI, the Company consumes small quantities of a certain raw material, the cost of which is fully reserved. Accordingly, the Company reversed a portion of its reserve for overstocked and obsolete inventory related to this item that reduced the cost of revenues of VLI by $33,000 and $166,000, respectively, for the three and nine months ended October 31, 2009. For the three and nine months ended October 31, 2010, the amounts of such reserve reversals related to consumption were $7,000 and $48,000, respectively. The Company will continue to monitor the status of customer relationships covering this raw material, including the volume of actual and expected purchase orders, and may reverse additional reserve amounts in future quarters as quantities of the raw material are consumed in production or the probability of significant future customer orders materializes. The amount of inventory reserve related to this raw material at October 31, 2010 was approximately $1.1 million.

~~Excluding the effects of the reserve reversals described in the preceding paragraph, the amounts expensed for obsolescence during the three and nine months ended October 31,~~ 2010 were approximately $292,000 and $416,000, respectively, and the amounts expensed for inventory obsolescence during the three and nine months ended October 31, 2009 were approximately $37,000 and $96,000, respectively.

~~- 8 -~~

~~Inventories consisted of the following amounts at October 31, 2010 and January 31, 2010:~~

October 31, January 31,
2010 2010
Raw materials $ 2,981,000 $ 3,586,000
Work-in process 15,000 54,000
Finished goods 269,000 270,000

3,265,000 3,910,000
Less: reserves (2,135,000 ) (1,900,000 )

Inventories, net $ 1,130,000 $ 2,010,000

not material.

NOTE 5 — PROPERTY AND EQUIPMENT

Property and equipment ~~amounts are stated~~ at ~~cost. Depreciation is determined using the straight-line method over the estimated useful lives~~April 30, 2011 and January 31, 2011 consisted of the assets, which are generally from five to twenty years. Leasehold improvements are amortized on a straight-line basis over the estimated useful life of the related asset or the lease term, whichever is shorter. following:


	April 30,			January 31,
	2011			2011
Leasehold improvements	$	208,000		$	208,000
Machinery and equipment		2,520,000			2,511,000
Trucks and other vehicles		1,738,000			1,738,000

		4,466,000			4,457,000
Less — accumulated depreciation		(3,096,000	)		(2,979,000	)

Property and equipment, net	$	1,370,000		$	1,478,000

Depreciation expense ~~amounts~~related to continuing operations for property and equipment ~~were $133,000~~was $117,000 and ~~$127,000~~$145,000 for the three months ended ~~October 31,~~April 30, 2011 and 2010, ~~and 2009, respectively, and were $431,000 and $350,000 for the nine months ended October 31, 2010 and 2009,~~ respectively.

The costs of maintenance and repairs ~~which~~for continuing operations totaled ~~$161,000~~$53,000 and ~~$157,000~~$138,000 for the three months ended ~~October 31,~~April 30, 2011 and 2010, and 2009, respectively, and $529,000 and $439,000 for the nine months ended October 31, 2010 and 2009, respectively, are expensed as incurred. Major improvements are capitalized. When an asset is sold or retired, the amounts of the associated cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in income. The Company recorded an impairment loss related to the fixed assets of VLI in the year ended January 31, 2009. Since then, the costs of fixed asset purchases at VLI have been expensed. Such costs amounted to $10,000 and $159,000 for the three months ended October 31, 2010 and 2009, respectively, and $51,000 and $249,000 for the nine months ended October 31, 2010 and 2009, respectively.

~~Property and equipment at October 31, 2010 and January 31, 2010 consisted of the following:~~

October 31, January 31,
2010 2010
Leasehold improvements $ 806,000 $ 806,000
Machinery and equipment 3,442,000 2,990,000
Trucks and other vehicles 1,737,000 1,769,000

5,985,000 5,565,000
Less — accumulated depreciation (4,389,000 ) (4,025,000 )

Property and equipment, net $ 1,596,000 $ 1,540,000

The Company also uses equipment and occupies facilities under non-cancelable operating leases and other rental agreements. It incurred total rent expense for continuing operations in the amounts of ~~$1.6 million~~$131,000 and ~~$1.9 million~~$2,121,000 for the three months ended ~~October 31,~~April 30, 2011 and 2010, ~~and 2009, respectively, and $5.6 million and $4.6 million for the nine months ended October 31, 2010 and 2009,~~ respectively.

~~NOTE 6 — ACQUISITION OF GEMMA RENEWABLE POWER, LLC~~

In June 2008, GPS entered into a business partnership with a firm that develops and operates wind-energy farms for the purpose of designing and constructing such power-generation facilities. The business partners each owned 50% of the company, GRP.

On December 17, 2009, the Company acquired the other 50% ownership interest in GRP. The acquisition was completed pursuant to the terms and conditions of a purchase and sale agreement (the “Purchase Agreement”), and GRP became a wholly-owned subsidiary of GPS. The purchase price was $3,183,000, a portion of which in the amount of $1,583,000 was paid in January 2010 upon the award to GRP by the developer of an initial construction project. The remaining portion of the purchase price was included in accrued liabilities at October 31, 2010 and January 31, 2010. This amount is to become due upon the satisfaction of certain conditions related to the award to GRP of a second wind farm construction project as set forth in the Purchase Agreement.

- 98 -

Subsequent to the end of the current quarter, GRP signed a contract for the design and construction of a 200 megawatt wind energy project in Henry County, Illinois, including the installation of up to one hundred thirty-four (134) wind turbines with a planned completion date of late 2011. As a result and pursuant to the terms of the Purchase Agreement, the Company expects that this award will lead to the payment of the remaining portion of the purchase price.

The following unaudited consolidated pro forma information assumes that the acquisition had occurred on June 3, 2008, the formation date of GRP. The unaudited consolidated pro forma information, as presented below, is not indicative of the results that would have been obtained had the transaction occurred on June 3, 2008, nor is it indicative of the Company’s future results.

Three Months Nine Months
Ended October 31, Ended October 31,
2009 2009
Pro forma consolidated net revenues $ 72,001,000 $ 219,545,000

Pro forma consolidated net income $ 2,178,000 $ 8,501,000

Pro forma net income per share:
Basic $ 0.16 $ 0.63
Diluted $ 0.16 $ 0.62

~~The Company’s share of the earnings of GRP was approximately $325,000 and $1,343,000 for the three and nine months ended October 31, 2009, respectively.~~

Under an agreement between the parties, GPS provided support to GRP, including certain administrative and accounting services. The total amounts of reimbursable costs incurred by GPS for these services in the three and nine months ended October 31, 2009 were approximately $309,000 and $894,000, respectively.

NOTE 76 — INTANGIBLE ASSETS

In connection with the acquisitions of GPS, VLI and SMC, the Company recorded substantial amounts of goodwill and other purchased intangible assets including contractual and other customer relationships, non-compete agreements and trade names. The Company’s intangible assets consisted of the following amounts at ~~October 31, 2010~~April 30, 2011 and January 31, ~~2010:~~2011:


		October 31, 2010						January 31,			April 30, 2011						January 31,
	Estimated	Gross						2010		Estimated	Gross						2011
	Useful	Carrying		Accumulated		Net		Net		Useful	Carrying		Accumulated		Net		Net
	Life	Amount		Amortization		Amount		Amount		Life	Amount		Amortization		Amount		Amount
Intangible assets being amortized:
Non-compete agreements — GPS	5 years	$	534,000	$	416,000	$	118,000	$	198,000	5 years	$	534,000	$	469,000	$	65,000	$	91,000
Trade name — GPS	15 years		3,643,000		946,000		2,697,000		2,879,000	15 years		3,643,000		1,068,000		2,575,000		2,636,000

Intangible asset not being amortized:
Trade name — SMC	Indefinite		181,000		—		181,000		181,000	Indefinite		181,000		—		181,000		181,000

Total intangible assets		$	4,358,000	$	1,362,000	$	2,996,000	$	3,258,000		$	4,358,000	$	1,537,000	$	2,821,000	$	2,908,000


Goodwill	Indefinite	$	18,476,000	$	—	$	18,476,000	$	18,476,000
Goodwill — GPS										Indefinite	$	18,476,000	$	—	$	18,476,000	$	18,476,000

NOTE 8 — ~~DEBT~~FINANCING ARRANGEMENTS

The Company has financing arrangements with the Bank covering a 4-year amortizing term loan with an original amount of $8.0 million which bears interest at LIBOR plus 3.25% (3.51% at October 31, 2010), the proceeds from which were used to acquire GPS, andBank. The financing arrangements, as amended, provide a revolving loan with a maximum borrowing amount of $4.25 ~~million. The outstanding principal amount of the GPS loan~~million that is available until May 31, 2013, with the Bank was approximately $333,000 as of October 31, 2010. No borrowed amounts were outstanding under the revolving loan as of October 31, 2010. The Company retired a term loan with the Bank related to VLI in the third quarter of last year with the payment of the final monthly installment. The total interest expense amounts related to the VLI and GPS term loans were $7,000 and $41,000 for the three months ended October 31, 2010 and 2009, respectively, and were $32,000 and $155,000 for the nine months ended October 31, 2010 and 2009, respectively. The Companyat LIBOR plus 2.25%. We may ~~also~~ obtain standby letters of credit from the Bank for use in the ordinary course of business ~~in amounts~~ not to exceed $10.0 ~~million~~million. The amended financing arrangements also covered a term loan in the ~~aggregate. In~~amount of $8.0 million, with interest at LIBOR plus 3.25%, that was repaid during the year ended January 31, 2011. We used the funds borrowed from the Bank in the acquisition of GPS. Interest expense related to this term loan was $14,000 for the three months ended April ~~2010,~~30, 2010.

The Bank requires that the Company and the Bank executed an amendment to the financing arrangements that extended the availability date of the revolving loan until May 31, 2011 and reduced the associated interest rate to LIBOR plus 2.25%. The carrying value amount of the Company’s GPS term loan approximates its fair value because the applicable interest rate is variable.

~~The financing arrangements with the Bank require compliance~~comply with certain financial covenants at ~~the Company’s~~its fiscal ~~year end~~year-end and at each of ~~the Company’s~~its fiscal ~~quarter ends~~quarter-ends (using a rolling 12-month period), including ~~requirements~~covenants that (1) the ratio of total funded debt to EBITDA not exceed 2 to 1, ~~that~~(2) the fixed charge coverage ratio be not less than 1.25 to 1, and ~~that~~(3) the ratio of senior funded debt to EBITDA not exceed 1.50 to 1. The Bank’s consent ~~continues to be~~is required for acquisitions and divestitures. The Company has pledged the majority of its 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~~borrowed amounts 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~~Management believes that itthe Company 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~~management would seek to modify ~~its~~the financing arrangements. However, there can be no assurance that the Bank would not exercise its rights and remedies under the financing arrangements including accelerating ~~payments~~the payment of ~~all~~any outstanding senior ~~debt amounts due and payable.~~debt. At ~~October 31, 2010~~April 30, 2011 and January 31, ~~2010,~~2011, the Company was in compliance with the financial covenants of its amended financing arrangements.

- 9 -

For the ~~nine~~three months ended ~~October 31,~~April 30, 2010, ~~and 2009,~~ the favorable tax effects of permanent differences relate primarily to the tax ~~benefits~~benefit of the domestic manufacturing deductions for each year. The benefit amounts were offset by unfavorable federal income tax return true-up adjustments in the amounts of approximately $148,000 and $213,000 made in the current and prior years, respectively. Income tax expensededuction for the ~~nine months ended October 31, 2009 also reflected the favorable effect~~period.

As of ~~state tax true-up adjustments~~April 30, 2011, prepaid expenses and other assets included prepaid income taxes related to continuing operations in the amount of ~~$108,000.~~

~~As of October 31, 2010, accrued expenses included accrued income taxes payable in the approximate amount of $1.4 million.~~approximately $724,000. As of January 31, ~~2010, other current assets~~2011, accrued expenses included ~~net refundable~~ income ~~taxes~~tax amounts payable related to continuing operations of ~~$2.0 million.~~approximately $4,359,000. The Company’s consolidated balance sheets as of ~~October 31, 2010~~April 30 and January 31, ~~2010~~2011 included net deferred tax assets related to continuing operations in the amounts of ~~$3.7 million~~$1,412,000 and ~~$3.2 million,~~$1,090,000, respectively, resulting from future deductible temporary differences. The ~~Company maintains a valuation allowance~~Company’s ability to realize its deferred tax assets depends primarily upon the generation of sufficient future taxable income to allow for the ~~state portion~~utilization of the Company’s deductible temporary differences and tax planning strategies. If such estimates and assumptions change in the future, the Company may be required to record additional valuation allowances against some or all of the deferred tax assets resulting in additional income tax expense in the consolidated statement of ~~VLI which amounted to $368,000 and $272,000 at October 31, 2010 and January 31, 2010, respectively.~~operations. At this time, based substantially on the strong earnings performance of the Company’s power industry services business segment, management believes that it is more likely than not that the Company will realize benefit for its deferred tax ~~assets except for the state portion of the aforementioned deferred tax assets of VLI.~~assets.

The Company is subject to income taxes in the United States of America and in 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 federal, state and local income tax examinations by tax authorities for its fiscal years ended on or before January 31, 2007.

NOTE 11 — ~~NET~~ INCOME (LOSS) PER SHARE

Basic income (loss) per share amounts for the ~~interim periods presented herein~~three months ended April 30, 2011 and 2010 were computed by dividing ~~net~~ income (loss) by the weighted average number of shares of common ~~shares~~stock that were outstanding ~~for~~during the ~~respective~~applicable period.

Diluted income per share amounts for the three months ended ~~October 31,~~April 30, 2011 and 2010 ~~and 2009~~ were computed by dividing ~~net~~the income ~~for the respective period~~amounts by the ~~corresponding~~ weighted average number of outstanding common shares for the applicable period plus ~~72,000~~78,000 shares and ~~184,000~~206,000 shares representing the total dilutive effects of outstanding stock options and warrants during the periods, respectively. The diluted weighted average number of shares outstanding for the three months ended ~~October 31,~~April 30, 2011 and 2010 ~~and 2009~~ excluded the effects of options to purchase approximately ~~526,000~~615,000 and ~~73,000~~148,000 shares of common stock, respectively, because such anti-dilutive common stock equivalents ~~have~~had exercise prices that were in excess of the average market price of the Company’s common stock during the ~~periods, or would be anti-dilutive.~~

applicable period. Diluted ~~income~~loss per share amounts for the ~~nine~~three months ended ~~October 31,~~April 30, 2011 and 2010 ~~and 2009~~ were computed by dividing ~~net income for~~ the ~~respective period~~loss amounts by the ~~corresponding~~ weighted average number of outstanding common shares ~~plus 123,000 shares and 259,000 shares representing~~for the ~~total dilutive~~applicable period. The effects of outstanding ~~stock~~ options and warrants ~~during the periods, respectively. The diluted weighted average number of shares outstanding for the nine months ended October 31, 2010 and 2009 excluded options~~ to purchase ~~approximately 476,000 and 73,000~~ shares of common stock ~~respectively, because such~~were not reflected in the computations as the losses made these common stock equivalents ~~have exercise prices that were in excess of~~anti-dilutive for the ~~average market price of the Company’s common stock during the periods, or would be anti-dilutive.~~periods.

- 11 -

NOTE 12 — LEGAL CONTINGENCIES

In the normal course of business, the Company has pending claims and legal proceedings. It is the opinion of the Company’s management, based on information available at this time, that none of the current claims and proceedings ~~will~~may have a material effect on the Company’s condensed consolidated financial statements other than the matters discussed below. The material amounts of any legal fees expected to be incurred in connection with these matters are accrued when such amounts are estimable.

~~Delta-T~~Altra Matters

GPS was the contractor for engineering, procurement and construction services related to an anhydrous ethanol plant in Carleton, Nebraska (the “Project”). The Project owner was ALTRA Nebraska, LLC (“Altra”). In November 2007, GPS and Altra agreed to a suspension of the Project while Altra sought to obtain financing to complete the Project. By March 2008, financing had not been arranged which terminated the construction contract prior to completion of the Project. In March 2008, GPS filed a mechanic’s lien against the Project in the approximate amount of $23.8 million, which amount ~~also~~ included all sums owed to the subcontractors/suppliers of GPS and their subcontractors/suppliers. Several other claimants have also filed mechanic’s liens against the Project. In August 2009, Altra filed for bankruptcy protection. Proceedings resulted in a court-ordered liquidation of Altra’s assets. The incomplete plant was sold at auction in October 2009. Remaining net proceeds of approximately $5.5 million are being held by the ~~bankruptcy~~ court and have not been distributed to Altra’s creditors. The court has separated the lien action into two phases relating to the priority of the claims first and the validity and amount of each party’s lien claim second. The court has scheduled the trial relating to the first phase for July 2011.

~~- 13 -~~

Delta-T Corporation (“Delta-T”) was a major subcontractor to GPS on the Project. In January 2009, GPS and Delta-T executed a Project ~~Close Out~~Close-Out Agreement (the ~~“Close Out”~~“Close-Out”) which settled all contract claims between the parties and included a settlement payment in the amount of $3.5 million that GPS made to Delta-T. In the ~~Close Out,~~Close-Out, Delta-T also agreed to prosecute any lien claims against Altra, to assign to GPS the first $3.5 million of any resulting proceeds and to indemnify and defend any claims against GPS related to the Project. In addition, GPS received a guarantee from Delta-T’s parent company in support of the indemnification commitment.

In April 2009, one of the subcontractors to Delta-T received an arbitration award in its favor against Delta-T in the amount of approximately $6.8 million, including approximately $662,000 in interest and $2.3 million identified in the award as amounts applied to other projects (the “Judgment Award”). In April 2009, the subcontractor also filed suit in the District Court of Thayer County, Nebraska, in order to recover its claimed amount of $3.6 million unpaid by Delta-T on the Altra project from a payment bond issued to Altra on behalf of GPS. In December 2009, the Judgment Award was confirmed in federal district court in Florida. In February 2010, the subcontractor amended the amount of its complaint filed in the ~~suit in~~ Nebraska ~~was amended by~~court against the ~~subcontractor~~payment bond to $6.8 million, plus interest, to match the amount of the Judgment Award. Delta-T has not paid or satisfied any portion of the ~~award. Management understands that Delta-T~~award and it has abandoned its defense of the surety company. The parties are currently engaged in the discovery phase of this litigation.

The Company intends to vigorously pursue its lien claim against the Altra project as well as to defend this matter for the surety company, to investigate the inclusion of the $2.3 million applied to other projects in the Judgment Award, to demand that Delta-T satisfy its obligations under the Close Out, and/or to enforce the guarantee provided to GPS by Delta-T’s parent company. ~~Assurance~~Due to the early stages of these legal proceedings, assurance cannot be provided by the Company that it will be successful in these efforts. It is reasonably possible that resolution of the matters discussed above could result in a loss with a material negative effect on the Company’s consolidated operating results in a future reporting period. However, at this time, management cannot make an estimate of the amount or range of loss, if any, related to these matters. No provision for loss has been recorded in the condensed consolidated financial statements as of ~~October 31, 2010~~April 30, 2011 related to these matters. If new facts become known in the future indicating that it is probable that a loss has been incurred by GPS and the amount of loss can be reasonably estimated by GPS, the impact of the change will be reflected in the consolidated financial statements at that time.

Tampa Bay Nutraceutical Company

On or about September 19, 2007, Tampa Bay Nutraceutical Company, Inc. (“Tampa Bay”) filed a civil action in the Circuit Court of Florida for Collier County against VLI. The current causes of action relate to an order for product issued by Tampa Bay to VLI in June 2007 and sound in (1) breach of contract; (2) promissory estoppel; (3) fraudulent misrepresentation; (4) negligent misrepresentation; (5) breach of express warranty; (6) breach of implied warranty of merchantability; (7) breach of implied warranty of fitness for a particular purpose; and (8) non-conforming goods. Tampa Bay alleges compensatory damages in excess of $42 million. Depositions are ongoing.

- 12 -

NOTE 13 — ~~SEGMENT REPORTING AND~~ MAJOR CUSTOMERS

~~The~~During the three months ended April 30, 2011 and 2010, the majority of the Company’s ~~three reportable segments are~~net revenues from continuing operations related to engineering, procurement and construction services that were provided by GPS to the power industry. Net revenues from power industry services ~~nutritional products~~accounted for approximately 88% and 97% of consolidated net revenues from continuing operations for the three months ended April 30, 2011 and 2010, respectively. SMC, which provides infrastructure services to telecommunications and utility customers as well as to the federal government, accounted for approximately 12% and 3% of consolidated net revenues from continuing operations for the periods, respectively.

The Company’s significant customer relationships during the current quarter included two power industry service customers which accounted for approximately 64% and 14%, respectively, of consolidated net revenues from continuing operations for the period. The Company’s significant customer relationships for the three months ended April 30, 2010 also included two power industry service customers which accounted for approximately 71% and 25% of consolidated net revenues from continuing operations, respectively.

NOTE 14 — SEGMENT REPORTING

The Company’s reportable segments, power industry services and telecommunications infrastructure services. 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 in assessing performance. The Company’s reportable segmentsservices, are organized in separate business units with different management teams, customers, technologies and services. The business operations of each segment are conducted primarily by the Company’s ~~wholly owned~~wholly-owned subsidiaries –— GPS ~~VLI~~ and SMC, respectively.

Presented below are summarized operating results and certain financial position data of the Company’s reportable continuing business segments for the three months ended April 30, 2011. The “Other” column includes the Company’s corporate and unallocated expenses. ~~Presented below are the summarized operating results of the business segments for the three months ended October 31, 2010, and certain financial position data as of October 31, 2010:~~

Telecom
Power Industry Nutritional Infrastructure
Three Months Ended October 31, 2010 Services Products Services Other Consolidated
Net revenues $ 42,706,000 $ 2,931,000 $ 2,523,000 $ — $ 48,160,000
Cost of revenues 35,999,000 3,139,000 1,850,000 — 40,988,000

Gross profit 6,707,000 (208,000 ) 673,000 — 7,172,000
Selling, general and administrative expenses 1,804,000 1,225,000 327,000 990,000 4,346,000

Income (loss) from operations 4,903,000 (1,433,000 ) 346,000 (990,000 ) 2,826,000
Interest expense (7,000 ) — — — (7,000 )
Investment income 19,000 — — 10,000 29,000

Income (loss) before income taxes $ 4,915,000 $ (1,433,000 ) $ 346,000 $ (980,000 ) 2,848,000

Income tax expense 1,313,000

Net income $ 1,535,000

Amortization of purchased intangibles $ 88,000 $ — $ — $ — $ 88,000

Depreciation and other amortization $ 64,000 $ — $ 78,000 $ 1,000 $ 143,000

Fixed asset additions $ — $ — $ 214,000 $ 2,000 $ 216,000

Goodwill $ 18,476,000 $ — $ — $ — $ 18,476,000

Total assets $ 97,538,000 $ 4,264,000 $ 3,243,000 $ 29,250,000 $ 134,295,000

~~Presented below are the summarized operating results of the business segments for the three months ended October 31, 2009, and certain financial position data as of October 31, 2009:~~


							Telecom										Telecom
	Power Industry			Nutritional			Infrastructure								Power Industry		Infrastructure
Three Months Ended October 31, 2009	Services			Products			Services		Other			Consolidated
Three Months Ended April 30, 2011															Services		Services			Other			Consolidated
Net revenues	$	54,164,000		$	4,266,000		$	2,237,000	$	—		$	60,667,000		$	14,019,000	$	1,974,000		$	—		$	15,993,000
Cost of revenues		48,378,000			3,715,000			1,727,000		—			53,820,000			10,481,000		1,614,000			—			12,095,000

Gross profit		5,786,000			551,000			510,000		—			6,847,000			3,538,000		360,000			—			3,898,000
Selling, general and administrative expenses		2,092,000			577,000			371,000		975,000			4,015,000			1,413,000		397,000			949,000			2,759,000

Income (loss) from operations		3,694,000			(26,000	)		139,000		(975,000	)		2,832,000			2,125,000		(37,000	)		(949,000	)		1,139,000
Interest expense		(40,000	)		(1,000	)		—		—			(41,000	)
Investment income		11,000			—			—		4,000			15,000			15,000		—			7,000			22,000
Equity in the earnings of the unconsolidated subsidiary		325,000			—			—		—			325,000

Income (loss) before income taxes	$	3,990,000		$	(27,000	)	$	139,000	$	(971,000	)		3,131,000		$	2,140,000	$	(37,000	)	$	(942,000	)		1,161,000

Income tax expense													1,167,000											416,000

Net income												$	1,964,000
Income from continuing operations																							$	745,000


Amortization of purchased intangibles	$	87,000		$	1,000		$	—	$	—		$	88,000		$	87,000	$	—		$	—		$	87,000

Depreciation and other amortization	$	48,000		$	—		$	115,000	$	—		$	163,000		$	49,000	$	67,000		$	1,000		$	117,000

Fixed asset additions	$	5,000		$	—		$	84,000	$	—		$	89,000		$	—	$	5,000		$	4,000		$	9,000

Goodwill	$	18,476,000		$	—		$	—	$	—		$	18,476,000		$	18,476,000	$	—		$	—		$	18,476,000

Total assets	$	79,240,000		$	6,321,000		$	2,937,000	$	36,029,000		$	124,527,000		$	80,839,000	$	2,255,000		$	27,408,000		$	110,502,000

Presented below are ~~the~~ summarized operating results and certain financial position data of the Company’s reportable continuing business segments for the ~~nine~~three months ended ~~October 31, 2010:~~

Telecom
Power Industry Nutritional Infrastructure
Nine Months Ended October 31, 2010 Services Products Services Other Consolidated
Net revenues $ 144,475,000 $ 7,817,000 $ 6,308,000 $ — $ 158,600,000
Cost of revenues 122,568,000 8,213,000 5,281,000 — 136,062,000

Gross profit 21,907,000 (396,000 ) 1,027,000 — 22,538,000
Selling, general and administrative expenses 4,569,000 2,526,000 1,198,000 2,992,000 11,285,000

Income (loss) from operations 17,338,000 (2,922,000 ) (171,000 ) (2,992,000 ) 11,253,000
Interest expense (32,000 ) — — — (32,000 )
Investment income 41,000 — — 20,000 61,000

Income (loss) before income taxes $ 17,347,000 $ (2,922,000 ) $ (171,000 ) $ (2,972,000 ) 11,282,000

Income tax expense 4,423,000

Net income $ 6,859,000

Amortization of purchased intangibles $ 262,000 $ — $ — $ — $ 262,000

Depreciation and other amortization $ 229,000 $ — $ 276,000 $ 3,000 $ 508,000

Fixed asset additions $ 243,000 $ — $ 243,000 $ 2,000 $ 488,000

~~Presented below are~~April 30, 2010. As above, the ~~summarized operating results of the business segments for the nine months ended October 31, 2009:~~

Telecom
Power Industry Nutritional Infrastructure
Nine Months Ended October 31, 2009 Services Products Services Other Consolidated
Net revenues $ 172,003,000 $ 10,536,000 $ 6,693,000 $ — $ 189,232,000
Cost of revenues 153,465,000 9,435,000 5,102,000 — 168,002,000

Gross profit 18,538,000 1,101,000 1,591,000 — 21,230,000
Selling, general and administrative expenses 4,361,000 1,852,000 1,223,000 2,981,000 10,417,000

Income (loss) from operations 14,177,000 (751,000 ) 368,000 (2,981,000 ) 10,813,000
Interest expense (144,000 ) (11,000 ) — — (155,000 )
Investment income 68,000 — — 21,000 89,000
Equity in the earnings of the unconsolidated subsidiary 1,343,000 — — — 1,343,000

Income (loss) before income taxes $ 15,444,000 $ (762,000 ) $ 368,000 $ (2,960,000 ) 12,090,000

Income tax expense 4,475,000

Net income $ 7,615,000

Amortization of purchased intangibles $ 263,000 $ 4,000 $ — $ — $ 267,000

Depreciation and other amortization $ 143,000 $ — $ 311,000 $ 5,000 $ 459,000

Fixed asset additions $ 14,000 $ — $ 147,000 $ 11,000 $ 172,000

~~During the three and nine months ended October 31, 2010, the majority of~~“Other” column includes the Company’s ~~net revenues related to engineering, procurement~~corporate and construction services that were provided by GPS to power industry customers. Net revenues from power industry services accounted for approximately 89% and 91% of consolidated net revenues for the three and nine months ended October 31, 2010, respectively. The Company’s significant current year customer relationships included two power industry service customers that accounted for approximately 44% and 38% of consolidated net revenues for the current quarter, and three customers that accounted for approximately 59%, 13% and 19% of consolidated net revenues for the nine-month period ended October 31, 2010.unallocated expenses.

Net revenues from power industry services accounted for approximately 89% and 91% of consolidated net revenues for the three and nine months ended October 31, 2009, respectively. The Company’s most significant prior year customer relationship was a power industry service customer that accounted for approximately 88% of consolidated net revenues for both the three and nine month periods ended October 31, 2009.


				Telecom
	Power Industry			Infrastructure
Three Months Ended April 30, 2010	Services			Services			Other			Consolidated
Net revenues	$	51,396,000		$	1,838,000		$	—		$	53,234,000
Cost of revenues		44,667,000			1,793,000			—			46,460,000

Gross profit		6,729,000			45,000			—			6,774,000
Selling, general and administrative expenses		1,445,000			501,000			1,088,000			3,034,000

Income (loss) from operations		5,284,000			(456,000	)		(1,088,000	)		3,740,000
Interest expense		(14,000	)		—			—			(14,000	)
Investment income		9,000			—			3,000			12,000

Income (loss) before income taxes	$	5,279,000		$	(456,000	)	$	(1,085,000	)		3,738,000

Income tax expense											1,383,000

Income from continuing operations										$	2,355,000


Amortization of purchased intangibles	$	87,000		$	—		$	—		$	87,000

Depreciation and other amortization	$	67,000		$	100,000		$	1,000		$	168,000

Fixed asset additions	$	141,000		$	22,000		$	—		$	163,000

Goodwill	$	18,476,000		$	—		$	—		$	18,476,000

Total assets	$	84,883,000		$	2,388,000		$	30,560,000		$	117,831,000

- 1614 -

~~NOTE 14 — SUPPLEMENTAL FINANCIAL INFORMATION~~

Certain sales-type taxes that are assessed by government authorities and collected from customers are included in cost of revenues. Accordingly, these amounts are considered contract costs in the performance of percentage-of-completion calculations and the determination of net revenues. The amounts of such costs were $86,000 and $1,705,000 for the three months ended October 31, 2010 and 2009, respectively, and $433,000 and $6,507,000 for the nine months ended October 31, 2010 and 2009, respectively.

Accrued liabilities as of October 31, 2010 included accrued incentive cash compensation, accrued purchase price for GRP, and accrued payroll and other related costs in the amounts of $1,727,000, $1,600,000 and $948,000, respectively. As of January 31, 2010, accrued liabilities included comparable amounts of $2,519,000, $1,600,000 and $1,649,000, respectively.


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 (the “Company,” “we,” “us,” or “our”) as of ~~October 31, 2010,~~April 30, 2011, and the results of operations for the three ~~and nine~~ months ended ~~October 31,~~April 30, 2011 and 2010, ~~and 2009,~~ and should be read in conjunction with (i) the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and (ii) the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2010~~2011 that was filed with the Securities and Exchange Commission on April 14, ~~2010~~2011 (the ~~“2010~~“2011 Annual Report”).

Cautionary Statement Regarding Forward Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. We have made statements in this Item 2 and elsewhere in this Quarterly Report on Form 10-Q that may constitute “forward-looking statements.” The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could,” or other similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future net revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. These forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions. They are subject to change based upon various factors including, but not limited to, the risks and uncertainties described in Item 1A of Part II of this Quarterly Report on Form 10-Q and Item 1A of Part I of our ~~2010~~2011 Annual Report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in 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.

Business ~~Summary~~Description

~~Argan, Inc. (“Argan”) conducts~~We conduct continuing operations through our ~~wholly-owned~~wholly owned subsidiaries, Gemma Power Systems, LLC and affiliates (“GPS”)~~, Vitarich Laboratories, Inc. (“VLI”),~~ that we acquired in December 2006 and Southern Maryland Cable, Inc. (“SMC”). that we acquired in July 2003. Through GPS, we provide a full range of development, consulting, engineering, procurement, construction, commissioning, operations and maintenance services to the power generation and renewable energy markets for a wide range of customers including public utilities, independent power project owners, municipalities, public institutions and private industry. Through ~~VLI, we develop, manufacture and distribute premium nutritional products. Through~~ SMC, ~~and in the Mid-Atlantic region primarily,~~ we provide telecommunications infrastructure services including project management, construction ~~installation~~ and maintenance to ~~commercial, local government and~~the federal government, ~~customers.~~telecommunications and broadband service providers as well as electric utilities. Each of the ~~wholly-owned~~wholly owned subsidiaries represents a separate reportable ~~segment;~~segment — power industry services ~~nutritional products~~ and telecommunications infrastructure services, respectively. Argan is a holding company with no operations other than its investments in GPS ~~VLI~~ and SMC. At ~~October 31, 2010,~~April 30, 2011, there were no restrictions with respect to inter-company payments from GPS ~~VLI and~~or SMC to Argan.

Overview and Outlook

For the three months ended ~~October 31, 2010~~April 30, 2011 (the ~~third~~first quarter of our fiscal year ~~2011)~~2012), consolidated net revenues from continuing operations were ~~$48.2~~$16.0 million which represented a decrease of ~~$12.5~~$37.2 million ~~or 20.6%,~~ from net revenues from continuing operations of ~~$60.7~~$53.2 million for the ~~third~~first quarter of last year. Income from continuing operations for the three months ended April 30, 2011 was $745,000, or $0.05 per diluted share. Income from continuing operations was $2.4 million, or $0.17 per diluted share, for the first quarter of last year. Net income for the three months ended ~~October 31, 2010~~April 30, 2011 was ~~$1.5 million,~~$606,000, or ~~$0.11~~$0.04 per diluted share. We reported net income of $2.0 million, or ~~$0.14~~$0.15 per diluted share, for the ~~third~~first quarter of last year. ~~For the nine months ended October 31, 2010,~~

The significant reduction in consolidated net revenues ~~were $158.6 million which represented a decrease of $30.6 million, or 16.2%,~~ from net revenues of $189.2 million for the nine months ended October 31, 2009. Net income for the nine months ended October 31, 2010 was $6.9 million, or $0.50 per diluted share. We reported net income of $7.6 million, or $0.55 per diluted share, for the corresponding period of last year.

~~- 17 -~~

~~We experienced declines in the net revenues of two of our three business units~~continuing operations for the three months ended October 31, 2010 compared with the three months ended October 31, 2009. The net revenues of the power industry services segment, which represented approximately 88.7% of our consolidated net revenues for the three months ended October 31, 2010, declined to $42.7 million for the current quarter from $54.2 million for the corresponding quarter of the prior year, a decrease of 21.2%. Despite an increase of 12.8% in the net revenues of the telecommunications infrastructure segment between quarters, the combined net revenues of the nutritional products and telecommunications infrastructure services businesses, which represented approximately 11.3% of our consolidated net revenues for the three months ended October 31, 2010, declined by 16.1% to $5.5 million for the current quarter compared with net revenues of $6.5 million for the third quarter last year.

~~The decrease in consolidated net revenues for the nine months ended October 31, 2010,~~April 30, 2011, compared with the net revenues from continuing operations for the corresponding period of last year, was due primarily to a decrease of ~~16.0%~~72.7% in the net revenues of the power industry services business, which represented ~~91.1%~~87.7% of consolidated net revenues for the current ~~period.~~quarter. The ~~combined~~ net revenues of the ~~nutritional products~~telecommunications infrastructure services business increased for the current quarter by 7.4% compared with the first quarter of last year. The current quarter represents a transition for us between major construction projects. As a result, the net revenues of our power industry services business for the current quarter were adversely impacted. During the current quarter, we completed the construction of a gas-fired power plant in Northern California; this major project represented our most significant construction activity for the last two fiscal years. Net revenues recognized on this project represented 56% and 92% of consolidated net revenues from continuing operations for the fiscal years ended January 31, 2011 and 2010, respectively. For the three months ended April 30, 2011 and 2010, net revenues related to this project were approximately 14% and 71% of consolidated net revenues from continuing operations, respectively. We are also nearing the end of the gas-fired power plant construction project in Middletown, Connecticut. This project, which represented approximately 64% of consolidated net revenues from continuing operations for the current quarter, should be completed in the second quarter of fiscal year 2012.

- 15 -

As of April 30, 2011, the value of our construction contract backlog was $293 million compared with a backlog value of $291 million as of January 31, 2011. Over 97% of our current backlog relates to two projects; the design and construction of a wind energy farm in Henry County, Illinois, and a gas-fired electricity peaking facility in Southern California. Substantial commencement of these projects, which should restore a substantial amount of net revenues over the latter three quarters of the current fiscal year, is expected to occur in the second quarter of fiscal year 2012. In May 2011, we received the anticipated full notice to proceed from the project owner in Southern California pursuant to which we will immediately commence substantial activity for the design and construction of an 800 MW, eight-unit simple cycle peaking power plant near Desert Hot Springs, California. The project owner has entered into a long term power supply agreement with Southern California Edison for the output of this facility. The project is scheduled to be completed during the summer of calendar year 2013.

Due to the decrease in the net revenues from continuing operations, gross profit declined by approximately $2.9 million between the quarters. However, our overall gross profit percentage improved to 24.4% for the current quarter from 12.7% for the first quarter last year due to profitability improvements by both the power industry and telecommunications infrastructure services ~~businesses also decreased for the current year-to-date period~~segments. We reduced selling, general and administrative expenses by ~~18.0%.~~

~~Income from operations for the three months ended October 31, 2010 and 2009 was $2.8 million for each period. The gross profit of the power industry services segment increased by $921,000,~~$275,000, or ~~15.9%~~9.1%, for the current quarter compared with the ~~third quarter last~~comparable expense amount for the prior year. ~~This increase was offset substantially by a decline in~~However, income from continuing operations for the profitability of the nutritional products businesses which together with an increase in selling, general and administrative expenses of $331,000 resulted in a decrease of $283,000 in income before income taxesthree months ended April 30, 2011 declined to ~~approximately $2.8~~$745,000 from $2.4 million for the three months ended ~~October 31, 2010 from approximately $3.1 million for the three months ended October 31, 2009.~~

Income from operations increased by $440,000 for the nine months ended October 31, 2010 to approximately $11.3 million from $10.8 million for the nine months ended October 31, 2009. The gross profit of the power industry services segment increased in the current period by $3.4 million compared with the corresponding period of last year. This increase was offset substantially by a sharp decline in the gross profit of the nutritional products business between the periods and an increase of $868,000 in selling, general and administrative expenses between the periods. As a result, income before income taxes decreased by $808,000 for the nine months ended October 31, 2010 to approximately $11.3 million from $12.1 million for the nine months ended October 31, 2009.

April 30, 2010. Cash and cash equivalents ~~increased~~decreased by ~~$10.4~~$4.4 million during the current ~~year~~quarter to ~~$76.4~~$78.9 million at October 31, 2010. Our operating activities provided $12.3 million of cash as we reported net income of $6.9 million for the nine months ended October 31, 2010. We used cash to reduce our debt by $1.5 million to a balance of $333,000 at October 31, 2010. This debt amount represented less than 1% of total stockholders’ equity and consolidated total assets as of October 31, 2010. We are scheduled to complete the repayment of this loan before year end. Although our businesses made capital expenditures totaling $488,000 in the nine-month period ended October 31, 2010, the balance of net fixed assets represented only 1.2% of consolidated total assets at October 31, 2010.

~~Our operating activities for the nine months ended October 31, 2009 used $20.5 million in cash,~~April 30, 2011 due primarily to ~~an $22.8~~the use of $5.5 million ~~increase~~cash in the balance of costs and estimated earnings in excess of billings and a $14.0 million decrease in the balance of accounts payable and accrued expenses. Last year, we reduced our long-term debt by $1.8 million to a balance of $2.3 million during the nine-month period ended October 31, 2009.

Primarily due to the completion of a substantial portion of the contract to construct a power generation facility in California, the contract backlog of GPS decreased to $253 million at October 31, 2010 from $300 million at January 31, 2010. During the second quarter of the current year, we signed a construction and start-up services contract, currently valued at approximately $54 million, for the construction of a 200 megawatt peaking power plant in Connecticut and received the related full notice-to-proceed. The completion of the project, which includes the installation of four gas turbines with ancillary equipment and systems, is expected to occur during the spring of 2011. Subsequent to the end of the current quarter, the Company announced that its wholly-owned subsidiary, Gemma Renewable Power, LLC (“GRP”), was awarded a contract by a wind-energy power project development firm for the design and construction of a 200 megawatt wind energy project in Henry County, Illinois, including one hundred thirty-four (134) wind turbines. GRP’s EPC contract is valued at approximately $51 million, pursuant to which it will provide the design and construction of roads, foundations, and electrical collection systems in addition to erecting towers, turbines, and blades. This project has a planned completion date of late 2011.

~~- 18 -~~

Substantial commencement of the project to construct an eight-unit simple cycle peaking power generation facility in Southern California, included in our backlog with a value of approximately $210 million at October 31, 2010, is expected to occur early in our next fiscal year. This project was awarded to us over two years ago. We continue discussions with the customer regarding the commencement of this project. Subsequent to the end of the current quarter, the California Energy Commission approved the construction of this power plant and the customer informed us of the signing of a power purchase agreement. Although our expectation is that we will be provided with notice to fully proceed on this project, we do not know when that will occur. Should construction work on this project not commence by early next fiscal year, our results of operations for next year and our financial condition may be adversely affected, perhaps in a material way. We have not received notice or any other information that would cause us to remove the value of this project from our backlog. This project represented approximately 83% of our total construction project backlog at October 31, 2010. We cannot provide assurances that the future net revenues associated with this project will ever be recognized.continuing operating activities.

Current economic conditions in our country ~~which~~ reflect ~~a weak recovery from last year’s recession~~ongoing weakness in employment, housing and, ~~continued disruptions in~~most recently, the ~~credit markets, are likely to adversely affect us through at least a large portion of next year, particularly if~~manufacturing sector. Stubbornly high unemployment, the depressed state of the housing industry and sluggish manufacturing activity have resulted in reduced construction ~~industry is prolonged or if~~spending. Affecting us more specifically, these factors have resulted in lower demand for energy which in turn has resulted in power plant operators experiencing less urgency to build new electricity-generating power plants. In addition, the ~~continuing government efforts to stabilize financial institutions, to restore order to credit markets, to stimulate spending and to reduce high unemployment are not effective. The current~~significant instability in the financial markets may ~~continue~~be continuing to make it difficult for certain of our customers, particularly for projects funded by private investment, to access the credit markets to obtain financing for new construction projects on satisfactory terms or at all. As a result, we may continue to encounter deferrals, delays and cancellations related to new construction projects in the future which could result in a decrease in the overall demand for our services. In addition, we may encounter requirements in the future to make investments in a new project as a condition of EPC contract award. The sharp reduction in the number of new commercial, industrial and infrastructure construction projects has created an extremely competitive bid environment. Many known competitors are reducing prices, willing to sacrifice margin in order to keep work crews busy. Other construction companies are entering our sector of the industry looking for new work at low margins. If we are unsuccessful in continuing to add projects to our backlog, our results of operations next year may be adversely affected and our financial condition may be weakened. These uncertain economic conditions are impairing our visibility to an unusual degree.

The ~~expected current year increase in momentum towards more environmentally friendly~~ power ~~generation facilities~~industry has not ~~occurred. Only a portion of~~recovered from the amount appropriated for energy projects in the federal economic stimulus program has been spent. The federal government has also failed to pass comprehensive energy legislation, including incentives for the retirement of existing coal burning power plants and caps on the volume of carbon emissions. This appears even less likely for the foreseeable future with the recent national election resulting in a change in the majority control of the U.S. House of Representatives and may restrict the expected demand for increased sources of renewable power. Although certain coal-fired power plants have been shut down, existing coal plants are proving to be a challenge to retrofit or replace. Coal prices are widely considered to be stable and certain states see the availability of inexpensive, coal-fired electricity as a key driver of economic growth. In addition, with the fate of renewable energy tax incentives unknown, potential energy project developers and investors are hesitant to make commitments related to new renewable energy generation facilities.

~~An effect of the recession was a two-year~~recessionary decline in the demand for power in the United States, the first time this occurred in more than a century. We are encouraged that the rebound of domestic industrial activity and the more extreme temperatures in certain parts of the country have caused a recovery in power consumption in the United States in the current year. However, asStates. As it will likely take at least several years for power consumption to reach 2007 peak levels, existing power plants will continue to operate with spare capacity to produce additional electricity. Despite the reductions in the demand for power, certain regions of the country continued to add power generation facilities over the last ~~two~~several years, wind energy facilities in particular. The combination of new electricity generation plants and excess power generation capacity elsewhere may obviate the need to build power plants during this power demand recovery period.

The expected increase in momentum towards more environmentally friendly power generation facilities has not occurred. For example, wind-powered electricity generation in our country increased during 2010 at a level less than 40% of the level of increase for 2009. The federal government has failed to pass comprehensive energy legislation, including incentives for the retirement of existing coal burning power plants and caps on the volume of carbon emissions. This appears even less likely for the foreseeable future with the 2010 national election resulting in a change in the majority control of the U.S. House of Representatives which does not now appear predisposed to provide government incentives for sources of renewable power. With the fate of renewable energy tax incentives unknown, potential energy project developers and investors are hesitant to make commitments related to new renewable energy generation facilities. Although certain coal-fired power plants have been shut down, existing coal plants are proving to be a challenge to retrofit or replace. Coal prices are widely considered to be stable and certain states see the availability of inexpensive, coal-fired electricity as a key driver of economic growth.

It is likely that this unfavorable energy construction environment will continue to limit the number of new energy plant construction opportunities that we will see through at least a major portion of the remaining current year. In addition, we believe that those new opportunities which do arise will result in fierce competition among bidders.

- 16 -

We continue to observe interest in gas-fired generation as electric utilities and independent power producers look to diversify their power generation options. We believe that the initiatives in many states to reduce emissions of carbon dioxide and other “greenhouse gases,” and utilities’ desire to fill demand for additional power prior to the completion of more sizeable or controversial projects, will stimulate demand for gas-fired power plants. The ~~ongoing~~ projects in Northern California and Connecticut, and the backlog peaking plant project referred to above, are all gas-fired electricity-generation plants. In addition, gas-fired generation of electricity has the potential to complement wind, solar and other alternative generation facilities because gas-fired facilities can be brought on-line quickly to smooth the inherently variable generation pattern of these alternative energy sources. We would also expect power producers to increase future capital spending on gas-fired power plants to take advantage of recent lower natural gas prices and the prospect that these prices may remain stable for some time because of gas field development projects in the United States, as well as potential liquefied natural gas imports. While it is unclear what the future impact of economic conditions might have on the timing or financing of future projects, we expect that gas-fired power plants will continue to be an important component of long-term power generation development in the United States and believe our capabilities and expertise will position us as a market leader for these projects.

~~In summary, it is uncertain what impacts the general economic conditions and the aftereffects of the financial/credit crisis in the United States may ultimately have on~~During this difficult time for our ~~business. We~~industry, we are focused on the effective and efficient completion of our current construction projects and the control of costs, which we expect to result in favorable profit and cash flow results for the remainder of the current year for us. Despite the intensely competitive business environment, we are committed to the rational pursuit of new construction projects. This approach may result in a low volume of new business bookings until the demand for new power generation facilities and the other construction industry sectors recover fully. In the meantime, we will conserve cash and strive to maintain an overall strong balance sheet.

WeAlthough the uncertain economic conditions do impair our forecasting visability to an unusual degree, we remain cautiously optimistic about our long-term growth opportunities. We are focused on expanding our position in the growing power markets where we expect investments to be made based on forecasts of increasing electricity demand covering decades into the future. We believe that our expectations are reasonable and that our future plans are based on reasonable assumptions. However, such forward-looking statements, by their nature, involve risks and uncertainties, and they should be considered in conjunction with the risk factors included elsewhere in this Quarterly Report on Form 10-Q and in the 2011 Annual Report.

Discontinued Operations

In December 2010, ~~Annual Report~~our Board of Directors approved management’s plan to dispose of the operations of the nutritional products line of business conducted by its wholly-owned subsidiary, Vitarich Laboratories, Inc. (“VLI”). Since 2006, VLI incurred operating results that were consistently below expected results. The loss of certain major customers and the reduction in the amounts of orders received from other large customers caused net revenues to decline and this business segment to report operating losses. The Board of Directors considered that, despite turnaround efforts, VLI incurred an operating loss of approximately $2.9 million for the nine months ended October 31, 2010. We reported operating losses for VLI of approximately $2.2 million, $6.9 million and $8.9 million for the fiscal years ended January 31, 2010, 2009 and 2008, respectively, including impairment losses related to the indefinite-lived and long-lived assets of approximately $2.0 million and $6.8 million for the fiscal years ended January 31, 2009 and 2008, respectively.

- 17 -

On March 11, 2011, we completed the sale of substantially all of the assets of VLI to NBTY Florida, Inc. The asset sale was consummated for an aggregate cash purchase price of up to $3,100,000 and the assumption by the purchaser of certain trade payables, accrued expenses and remaining obligations under VLI’s facility leases. Of the cash purchase price, $800,000 was paid at closing and the remaining $2,300,000 was placed into escrow. VLI will be paid from the escrow amount as purchased inventory is used in production or is sold and purchased accounts receivable are collected. At the end of nine months of the closing, all money still held in the escrow account will be returned to the purchaser. In April 2011, VLI received cash proceeds from the escrow account in the amount of $603,000 relating primarily to the collection of accounts receivable. Net of certain other costs and adjustments, we recorded net gain on ~~Form 10-K.~~the sale of assets, before income taxes, in the amount of approximately $152,000.

The assets and liabilities of VLI as of April 30 and January 31, 2011 are classified as held for sale and the financial results of VLI have been presented as discontinued operations in the accompanying condensed consolidated financial statements. The losses on discontinued operations for the three months ended April 30, 2011 and 2010 were $139,000 and $332,000, respectively. Cash used in the discontinued operations of VLI for the three months ended April 30, 2011 was $235,000. For the three months ended April 30, 2010, discontinued operations provided cash in the amount of $199,000.

Comparison of the Results of Operations for the Three Months Ended ~~October 31,~~April 30, 2011 and 2010 ~~and 2009~~

The following schedule compares the results of our operations for the three months ended ~~October 31, 2010~~April 30, 2011 and ~~2009.~~2010. Except where noted, the percentage amounts represent the percentage of net revenues from continuing operations for the corresponding quarter. As analyzed below the schedule, we reported net income of ~~$1.5 million~~$606,000 for the three months ended ~~October 31, 2010,~~April 30, 2011, or ~~$0.11~~$0.04 per diluted share. For the three months ended ~~October 31, 2009,~~April 30, 2010, we reported net income of approximately ~~$2.0 million,~~$2,023,000, or ~~$0.14~~$0.15 per diluted share.

Three Months Ended October 31,
2010 2009
Net revenues
Power industry services $ 42,706,000 88.7 % $ 54,164,000 89.3 %
Nutritional products 2,931,000 6.1 % 4,266,000 7.0 %
Telecommunications infrastructure services 2,523,000 5.2 % 2,237,000 3.7 %

Net revenues 48,160,000 100.0 % 60,667,000 100.0 %

Cost of revenues **
Power industry services 35,999,000 84.3 % 48,378,000 89.3 %
Nutritional products 3,139,000 107.1 % 3,715,000 87.1 %
Telecommunications infrastructure services 1,850,000 73.3 % 1,727,000 77.2 %

Cost of revenues 40,988,000 85.1 % 53,820,000 88.7 %

Gross profit 7,172,000 14.9 % 6,847,000 11.3 %
Selling, general and administrative expenses 4,346,000 9.0 % 4,015,000 6.6 %

Income from operations 2,826,000 5.9 % 2,832,000 4.7 %
Interest expense (7,000 ) * (41,000 ) *
Investment income 29,000 * 15,000 *
Equity in the earnings of the unconsolidated subsidiary — — 325,000 *

Income before income taxes 2,848,000 5.9 % 3,131,000 5.1 %
Income tax expense 1,313,000 2.7 % 1,167,000 1.9 %

Net income $ 1,535,000 3.2 % $ 1,964,000 3.2 %


*		~~Less than 1%.~~

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

~~- 20 -~~

~~Net Revenues~~

~~Power Industry Services~~

The net revenues of the power industry services business decreased by $11.5 million, or 21.2%, to $42.7 million for the three months ended October 31, 2010 compared with net revenues of $54.2 million for the corresponding period of the prior year. The net revenues of this business represented 88.7% of consolidated net revenues for the quarter ended October 31, 2010 and 89.3% of consolidated net revenues for the quarter ended October 31, 2009. Our energy-plant construction contract backlog was $253 million at October 31, 2010. The comparable construction contract backlog amount was $300 million at January 31, 2010.

The operating results of the power industry services segment for the current quarter reflected a decline in activity on this segment’s largest current project as it moved into the commissioning phase. Net revenues related to this project, a gas-fired power plant located in Northern California, represented 49.4% and 43.8% of power industry services net revenues and consolidated net revenues for the current quarter, respectively. A year ago, the net revenues related to this project represented 99.0% and 88.4% of segment net revenues and consolidated net revenues, respectively. During the current year, the construction contract for this project was amended and restated to ensure an orderly completion and timely commissioning of the plant. We expect to substantially complete the construction of this facility by the end of our current fiscal year. Initial construction activity on the new gas-fired peaking plant under construction in Connecticut also provided net revenues to the current quarter results, representing 42.4% and 37.6% of power industry services net revenues and consolidated net revenues for the current quarter, respectively.

~~Nutritional Products~~

The net revenues of the nutritional products business decreased by approximately $1.3 million, or 31.3%, to approximately $2.9 million for the three months ended October 31, 2010 compared with net revenues of approximately $4.3 million for the corresponding quarter of the prior year. The net revenues of this business represented 6.1% of consolidated net revenues for the quarter ended October 31, 2010. This business represented 7.0% of consolidated net revenues for the quarter ended October 31, 2009. Net revenues for the quarter a year ago were boosted by shipments of product ordered by a customer in anticipation of a severe flu season. Sales of product to this customer represented approximately 19.1% of this segment’s net revenues for the quarter ended October 31, 2009. However, the anticipated demand for this product did not occur and product remains in the customer’s inventory in sufficient quantities to eliminate the need for significant reorders. Last year, we also received significant purchase orders from a new start-up customer. This customer represented approximately 16.6% of product sales for VLI in last year’s third quarter. However disappointing actual sales results and start-up financing challenges experienced by the customer caused VLI to discontinue shipments. VLI did not make any shipments of product to this customer in the current quarter. After VLI’s biggest customer completed a product repackaging effort that interrupted the flow of purchase orders to us earlier in the current year, net revenues related to the sale of products to this customer increased by approximately 32.1% for the current quarter compared with the corresponding quarter last year.

VLI is primarily a contract manufacturer of nutritional products. The ability to quickly replace lost customers or to increase the product offerings sold to existing customers is hampered by the long sales cycle inherent in our type of business. The length of time between the beginning of contract negotiation and the first sale to a new customer could exceed six months including extended periods of product testing and acceptance. The value of unfilled sales orders that we believe to be firm at October 31, 2010 was $2.0 million compared with a value of $2.3 million at January 31, 2010.

~~Telecommunications Infrastructure Services~~

Although the telecommunications infrastructure services business of SMC is challenged by the depressed state of commercial and residential construction activity in the region, net revenues for the three months ended October 31, 2010 were increased to $2.5 million compared with net revenues of $2.2 million for the corresponding quarter of the prior year, representing a 12.8% increase between quarters. The net revenues of this business represented 5.2% of consolidated net revenues for the quarter ended October 31, 2010; up from 3.7% of consolidated net revenues for the quarter ended October 31, 2009.

Net revenues related to the performance of outside premises activities increased to approximately 51.2% of this segment’s business for the quarter ended October 31, 2010 from approximately 48.5% of this segment’s net revenues for the quarter ended October 31, 2009 due primarily to the amount of work performed under a new contract with a nearby local government for the installation of battery systems designed to provide prolonged power for traffic signals during electricity outages, including equipment purchases. SMC also experienced an increase in the number of work orders for maintenance and repair services issued by and completed pursuant to our arrangement with a local electricity cooperative. As a result and for the current quarter, this segment was able to overcome the effect of net revenues lost under a services contract with the regional telecommunications service provider that expired at the end of December 2009. This business represented approximately 16.0% of the net revenues of SMC for the three months ended October 31, 2009.

~~- 21 -~~

Net revenues related to the performance of inside premises cabling activities during the current quarter improved slightly due to an increase in services performed at nearby federal government offices and installations offset partially by a decrease in the amount of work performed for other inside premises customers.

Services provided to our outside plant customers normally includes trenchless directional boring and other underground services, aerial cabling services, and the installation of buried cable and wire communication and electric lines. The range of wiring services that we provide to our inside premises customers includes cable and data rack installation; equipment room and telecom closet design and build-out; raceway design and installation; and cable identification, testing, labeling and documentation.

~~Cost of Revenues~~

Due primarily to the decline in consolidated net revenues for the three months ended October 31, 2010 compared with the three months ended October 31, 2009, the consolidated cost of revenues also declined. These costs were $41.0 million and $53.8 million for the three months ended October 31, 2010 and 2009, respectively, representing a decrease of approximately $12.8 million between quarters, or 23.8%. The overall gross profit percentage for the current quarter improved to 14.9% from 11.3% for the corresponding quarter last year due primarily to the change in the mix of projects performed for power industry services customers during the current quarter as described above. The margin percentages associated with projects commenced in the current year, which together represented slightly in excess of 50% of this segment’s net revenues for the current quarter, are more favorable than the overall margin percentage experienced on the gas-fired power plant construction project located in Northern California which was the primary project underway last year.

The cost of revenues for the power industry services business of GPS decreased for the three months ended October 31, 2010 to $36.0 million from $48.4 million for the three months ended October 31, 2009. Moreover, the cost of revenues as a percentage of corresponding net revenues decreased to 84.3% for the current quarter from 89.3% for the third quarter last year. The decrease in this percentage in the current quarter was due primarily to the types of costs incurred on our largest construction project in the current quarter, as this project nears completion, and the gross profit on new projects with activities substantially impacting the current quarter.

The combined cost of revenues for the nutritional products and telecommunications infrastructure services segments, expressed as a percentage of corresponding combined net revenues, increased during the current quarter to 91.5% compared with a combined percentage of 83.7% for the corresponding quarter last year.

For VLI, the cost of revenues exceeded the amount of associated net revenues for the current quarter by $208,000 including unfavorable adjustments related to excess and obsolete raw materials that netted to approximately $285,000. In the third quarter last year, reflecting the consumption of raw materials that had been fully reserved in a prior year, VLI recorded unfavorable adjustments that netted to only $4,000. VLI’s gross profit was also unfavorably affected during the current quarter as VLI was able to reduce direct and indirect production wages by only 19.8% despite the 31.3% decline in net revenues for the current quarter compared with the third quarter last year.

For SMC, the cost of revenues increased by $123,000, or 7.1%, as net revenues increased by 12.8% between quarters reflecting improved profit performance on projects performed for both outside and inside premises customers.

~~Selling, General and Administrative Expenses~~

These costs increased by $331,000, or 8.2%, to approximately $4.3 million for the current quarter from approximately $4.0 million for the third quarter last year as professional services fees, including legal fees related to litigation of VLI, increased by $672,000 and the amount of compensation expense related to stock options increased by $117,000. Partially offsetting these increases, the amount of bonus expense was reduced by $458,000 for the current quarter compared with the third quarter last year.

~~Other Income and Expense~~

Included in these results for the third quarter last year was our share of the earnings of GRP, a 50% owned subsidiary at the time, of approximately $325,000. We acquired the remaining 50% ownership interest of this subsidiary in December 2009. Increased balances of cash and improved short-term interest rates caused investment income to increase to $29,000 for the current quarter compared with investment income of $15,000 earned in the third quarter last year. Interest expense decreased to $7,000 for the current quarter from $41,000 for the corresponding quarter of last year as the overall level of debt between the years was reduced and corresponding interest rate swap agreements expired in the later parts of last year. Payments have reduced the total balance of debt by $2.0 million over the last twelve months to approximately $333,000 at October 31, 2010.

~~- 22 -~~

~~Income Tax Expense~~

For the three months ended October 31, 2010, we incurred income tax expense of $1.3 million reflecting an estimated annual effective income tax rate of 38.9%. The actual effective tax rate of 46.1% for the current quarter differed from the expected federal income tax rate of 34% due primarily to the unfavorable effects of state income taxes and a federal income tax true-up adjustment in the amount of $148,000 offset partially by the favorable benefit of the domestic manufacturing deduction which is treated as a permanent difference for income tax accounting purposes. The federal income tax adjustment was treated as a discreet item in the determination of the income tax provision for the current quarter. For the three months ended October 31, 2009, we recorded income tax expense of $1.2 million reflecting an estimated effective annual income tax rate of 37.0%. The actual effective tax rate for the prior quarter of 37.3% differed from the expected federal income tax rate of 34% due primarily to the effect of state income tax expense offset partially by the favorable tax effects of permanent differences including the domestic manufacturing deduction and by favorable adjustments recorded in the prior year quarter related to state income tax true-up entries and state tax rate changes in the total amount of $148,000.

~~Comparison of the Results of Operations for the Nine Months Ended October 31, 2010 and 2009~~

The following schedule compares the results of our operations for the nine months ended October 31, 2010 and 2009. Except where noted, the percentage amounts represent the percentage of net revenues for the corresponding period. As analyzed below the schedule, we reported net income of $6.9 million for the nine months ended October 31, 2010, or $0.50 per diluted share. For the nine months ended October 31, 2009, we reported net income of $7.6 million, or $0.55 per diluted share.


	Nine Months Ended October 31,
	2010					2009					2011				2010
Net revenues
Power industry services	$	144,475,000		91.1	%	$	172,003,000		90.9	%	$	14,019,000	87.7	%	$	51,396,000		96.5	%
Nutritional products		7,817,000		4.9	%		10,536,000		5.6	%
Telecommunications infrastructure services		6,308,000		4.0	%		6,693,000		3.5	%		1,974,000	12.3	%		1,838,000		3.5	%

Net revenues		158,600,000		100.0	%		189,232,000		100.0	%		15,993,000	100.0	%		53,234,000		100.0	%

Cost of revenues **
Power industry services		122,568,000		84.8	%		153,465,000		89.2	%		10,481,000	74.8	%		44,667,000		86.9	%
Nutritional products		8,213,000		105.1	%		9,435,000		89.6	%
Telecommunications infrastructure services		5,281,000		83.7	%		5,102,000		76.2	%		1,614,000	81.8	%		1,793,000		97.6	%

Cost of revenues		136,062,000		85.8	%		168,002,000		88.8	%		12,095,000	75.6	%		46,460,000		87.3	%

Gross profit		22,538,000		14.2	%		21,230,000		11.2	%		3,898,000	24.4	%		6,774,000		12.7	%
Selling, general and administrative expenses		11,285,000		7.1	%		10,417,000		5.5	%		2,759,000	17.3	%		3,034,000		5.7	%

Income from operations		11,253,000		7.1	%		10,813,000		5.7	%
												1,139,000	7.1	%		3,740,000		7.0	%
Interest expense		(32,000	)	*			(155,000	)	*			—	*			(14,000	)	*
Investment income		61,000		*			89,000		*			22,000	*			12,000		*
Equity in the earnings of the unconsolidated subsidiary		—		*			1,343,000		*

Income before income taxes		11,282,000		7.1	%		12,090,000		6.4	%
Income from continuing operations before income taxes												1,161,000	7.3	%		3,738,000		7.0	%
Income tax expense		4,423,000		2.8	%		4,475,000		2.4	%		416,000	2.6	%		1,383,000		2.6	%

Income from continuing operations												745,000	4.7	%		2,355,000		4.4	%
Loss on discontinued operations												139,000	*			332,000		*

Net income	$	6,859,000		4.3	%	$	7,615,000		4.0	%	$	606,000	3.8	%	$	2,023,000		3.8	%

~~A substantial portion of the net revenues~~The operating results of the power industry services ~~business~~segment for the ~~nine months ended October 31, 2010 related to~~current quarter reflected the final activity on this segment’s major project for the last three ~~customers.~~years as it was completed in April 2011. Net revenues related to ~~our performance~~this project, a gas-fired power plant located in Northern California, represented 15.6% and 13.7% of ~~construction~~power industry services ~~for these customers represented approximately 64.8%, 20.4% and 14.5% of the~~ net revenues ~~of this business segment for the current period, respectively,~~ and ~~represented approximately 59.1%, 18.5% and 13.2% of our~~ consolidated net revenues from continuing operations for the ~~current period.~~

~~Despite~~three months ended April 30, 2011, respectively. In the ~~addition of new projects,~~corresponding period last year, the reduction in the amount of net revenues recorded on our largest construction project caused the total net revenues of the segment to decline between the periods as we approach the completion of this job. Accordingly, the current year net revenues reflected primarily the labor and related costs associated with the construction and commissioning phases of this project. Last year, net revenues were higher as the associated costs incurred during the earlier phases of this project included not only craft labor and subcontractor costs, but also the costs of a substantial amount of machinery and equipment. Last year, net revenues related to this project represented ~~96.5%~~73.6% and 71.1% of ~~the~~segment net revenues ~~of this business segment for the nine months ended October 31, 2009,~~ and ~~represented 87.7% of our~~ consolidated net revenues ~~for that period.~~

~~Nutritional Products~~

~~The net revenues of~~from continuing operations, respectively. Construction activities related to wind-energy farms also declined in the ~~nutritional products business decreased by $2.7 million, or 25.8%, to $7.8 million for the nine months ended October 31, 2010~~current quarter compared with ~~net revenues of $10.5 million for~~ the corresponding ~~period~~quarter of ~~the prior year. The net revenues~~last year, from 25.5% of this ~~business represented 4.9% of consolidated~~segment’s net revenues for the ~~nine~~three months ended ~~October 31, 2010. This business represented 5.6%~~April 30, 2010 to 3.0% of ~~consolidated~~this segment’s net revenues for the ~~nine~~three months ended ~~October 31, 2009. The decrease~~April 30, 2011. Construction activity on the gas-fired peaking plant under construction in Connecticut provided net revenues ~~between periods was primarily due to the termination~~representing 73.3% and 64.3% of ~~shipments to two start-up customers, including the one discussed above, and the significant decline in shipments of the flu-remedy product discussed above. These customers provided total~~power industry services net revenues ~~of approximately $3.4 million, or 33.2% of VLI’s~~and consolidated net revenues from continuing operations for the first nine months last year. In addition, one of VLI’s largest customers performed a product repackaging effort that interrupted the flow of purchase orders to VLI, representing the primary cause of a $464,000 reduction, or 21.3%, in net revenues related to this customer in the current year. VLI has increased its sales of products to the other three of this segment’s largest customers by a total of approximately $1.5 million, or approximately 49.4% of last year’s aggregate amount of net revenues related to these customers.quarter, respectively.

Telecommunications Infrastructure Services

~~The increase~~Due primarily to the decline in the net revenues ~~for~~of the ~~current quarter discussed above was not significant enough to overcome declines in net revenues experienced earlier this year. The~~power industry services business, the net revenues of the telecommunications infrastructure services business, expressed as a percentage of consolidated net revenues from continuing operations, increased to 12% for the ~~nine~~current quarter compared to 3% in the first quarter last year. The telecommunications infrastructure services business of SMC is challenged by the depressed state of commercial and residential construction activity in the mid-Atlantic region. However, the net revenues of this segment increased by approximately 7.4% between the quarters due to increased activity for outside premises customers. This segment’s net revenues for the three months ended ~~October 31, 2010~~April 30, 2011 were ~~$6.3~~$2.0 million compared with net revenues of ~~$6.7~~$1.8 million for the ~~corresponding period of the prior year. The net revenues of this business represented 4.0% and 3.5% of consolidated net revenues for the nine~~three months ended ~~October 31, 2010 and 2009, respectively. Inside~~April 30, 2010.

Net revenues related to the performance of outside premises ~~net revenues represented 52.6% and 52.8%~~activities increased to approximately 48.7% of this segment’s business for the ~~nine~~three months ended ~~October 31, 2010 and 2009, respectively. Outside premises customers represented 47.4% and 47.2%~~April 30, 2011 from approximately 43.6% of this segment’s ~~business for the current year and prior year periods, respectively. The lost business of SMC, which represented approximately 18.9% of SMC’s~~ net revenues for the ~~nine~~three months ended ~~October 31, 2009, was substantially offset~~April 30, 2010 due primarily to an increase in the amount of work performed under contract with its long-time local electricity cooperative customer. We experienced an increase in the number of work orders for maintenance and repair services issued by ~~increases in~~and completed pursuant to our master agreement with this customer.

SMC’s second largest customer had a prime contract with the federal government that expired last year. On a subcontractor basis for this customer, we perform inside services at various government installations throughout our region. Nonetheless, the amount of net revenues related to ~~other customers~~inside plant services held steady in the current quarter compared with the first quarter last year as the group was successful in identifying and winning new sources of ~~this segment as discussed above.~~work with several new customers.

Cost of Revenues

~~Our~~Due primarily to the decline in consolidated ~~gross profit increased to $22.5~~net revenues from continuing operations for the three months ended April 30, 2011 compared with the three months ended April 30, 2010, the corresponding consolidated cost of revenues also declined. These costs were $12.1 million and $46.5 million for the ~~nine~~three months ended ~~October 31,~~April 30, 2011 and 2010, ~~from $21.2 million for the nine months ended October 31, 2009 due to an improvement in~~respectively. However, the overall gross profit percentage ~~between the periods. The overall gross profit percentage was 14.2%~~ for the current ~~period compared with 11.2%~~quarter improved to 24.4% from 12.7% for the ~~corresponding period of the prior year.~~

The cost of revenues for the power industry services business of GPS decreased in the nine months ended October 31, 2010 to $122.6 million from $153.5 million for the nine months ended October 31, 2009, and the cost of revenues as a percentage of corresponding net revenues decreased to 84.8% for the current period from 89.2% for the corresponding period offirst quarter last ~~year. The decrease in this percentage for the current period was~~year due primarily to the ~~types~~recognition of ~~costs incurred on~~final incentive fees in connection with the ~~gas-fired~~completion of the major construction project in Northern California. The profit performance of the telecommunications infrastructure services segment also improved substantially in the current ~~year and the gross profit performance on new projects.~~

~~Although the cost of revenues~~quarter; results for the nutritional products business of VLI decreased in the nine-month period ended October 31, 2010 to $8.2 million from $9.4 million for the nine months ended October 31, 2009, the cost of revenues percentage increased to 105.1% of net revenues for the current period from 89.6% for the corresponding period of the prior year. VLI’s gross profit has been adversely affected by a change in the mix of products manufactured and sold during the current year. Despite a 25.8% decline in net revenues between the periods, VLI experienced increases totalingfirst quarter last year reflected losses recognized on three projects that totaled approximately $63,000 in the costs of labor associated with production, testing, maintenance and shipping activities. In addition, as discussed above and during the prior year, VLI reversed a portion of its reserve for overstocked and obsolete inventories thereby reducing the cost of revenues of VLI by $166,000 for the nine months ended October 31, 2009. VLI’s provision amount expensed for inventory obsolescence during the nine months ended October 31, 2010 was approximately $368,000.

~~- 24 -~~

SMC’s cost of revenues increased to approximately $5.3 million for the nine months ended October 31, 2010 from $5.1 million for the nine-month period ended October 31, 2009, despite a 5.8% reduction in net revenues between the periods. The cost of revenues percentages for the nine months ended October 31, 2010 and 2009 were 83.7% and 76.2%, respectively, with the deterioration caused primarily by losses recorded on two contracts in the total amount of $246,000.$149,000.

Selling, General and Administrative Expenses

~~The amount of selling, general and administrative expenses increased~~These costs decreased by ~~approximately $868,000,~~$275,000, or ~~8.3%~~9.1%, to ~~$11.3~~approximately $2.8 million for the ~~nine months ended October 31, 2010~~current quarter from ~~$10.4~~approximately $3.0 million for the ~~nine months ended October 31, 2009 due primarily to the following factors. Professional services fees, including legal fees related to the litigation~~first quarter last year reflecting a reduction in salaries and benefits costs of ~~VLI, increased by $516,000; salary~~$190,000 and ~~related payroll costs increased by approximately $279,000 due primarily to the consolidation of GRP for the current period; and~~a decrease in stock option compensation expense ~~related to stock options increased by $247,000. Partially offsetting these increases, the amount~~ of ~~bonus expense was reduced by $488,000 for the current period compared with the corresponding period of last year.~~

~~Other Income and Expense~~

Our share of the earnings of GRP for the nine months ended October 31, 2009 was approximately $1.3 million. We reported investment income of $61,000 for the nine months ended October 31, 2010 compared to investment income of $89,000 for the nine months ended October 31, 2009 as we have experienced overall lower rates of return on investments in the current year. Interest expense decreased to $32,000 for the current period from $155,000 for the corresponding period of last year as the overall level of debt between the periods was reduced.$109,000.

Income Tax Expense

For the ~~nine~~three months ended ~~October 31, 2010,~~April 30, 2011, we ~~recorded~~incurred income tax expense related to continuing operations of ~~$4.4 million~~$416,000 reflecting an estimated annual effective income tax rate of ~~38.9%. The actual effective tax rate of 39.2% for the nine months ended October 31, 2010~~35.9% which differed from the expected federal income tax rate of 34% due primarily to the unfavorable effects of state income ~~tax expense and the true-up adjustment made for federal income~~ taxes ~~during the current quarter as discussed above. These unfavorable effects were~~partially offset ~~partially~~ by the favorable ~~income tax~~ effect of ~~the domestic manufacturing deduction. The federal income tax adjustment was treated as a discreet item in the determination of the income tax provision for the current period.~~

permanent differences. For the ~~nine~~three months ended ~~October 31, 2009,~~April 30, 2010, we ~~recorded~~incurred income tax expense of ~~approximately $4.5~~$1.4 million related to continuing operations reflecting an effective estimated annual ~~effective~~ income tax rate of ~~37.0%. The actual effective income tax rate of 37.0% for the prior year period~~36.6% which differed from the expected federal income tax rate of 34% due primarily to the effect of state income tax expense ~~and an unfavorable true-up adjustment made for federal income taxes in the amount of $213,000~~ offset ~~partially~~substantially by the favorable ~~income~~ tax ~~effect~~effects of permanent differences including the domestic manufacturing ~~deduction and favorable state income tax rate change and true-up adjustments recorded in the prior year period in the total amount of $242,000.~~deduction.

- 19 -

Liquidity and Capital Resources as of ~~October 31, 2010~~April 30, 2011

The balance of cash and cash equivalents ~~was approximately $76.4~~decreased by $4.4 million during the current quarter to a balance of $78.9 million as of ~~October 31, 2010~~April 30, 2011 compared with a balance of ~~$66.0~~$83.3 million as of January 31, ~~2010, representing an increase of $10.4 million during~~2011. During the ~~current period. Our consolidated~~first quarter last year, cash and cash equivalents declined by $2.9 million. Consolidated working capital increased during the current ~~period~~quarter to ~~$71.8~~$74.6 million as of ~~October 31, 2010~~April 30, 2011 from approximately ~~$63.4~~$73.2 million as of January 31, ~~2010.~~2011. We also have an available balance of $4.25 million under our revolving line of credit financing arrangement with Bank of America (the “Bank”). ~~In March 2010,~~Subsequent to the end of the current quarter, the Bank agreed to extend the expiration date of the line of credit to May ~~2011.~~2013.

~~For the nine months ended October 31, 2010, net cash provided by operating activities was $12.3 million. We reported~~Despite reporting net income of ~~approximately $6.9 million~~$606,000 for the current ~~period. The amount~~quarter, we used $5.8 million cash in our operating activities, including $235,000 in the operating activities of ~~non-cash adjustments to net income for~~discontinued operations. With the ~~current period represented a net source~~wind-down of ~~cash of approximately $1.9 million, including stock compensation expense of $1,112,000~~the construction projects in Connecticut and ~~depreciation and total amortization of $770,000. During the current period, the increase~~Northern California, we experienced reductions in accounts receivable ~~represented a $17.9~~of $7.4 million, use of cash as construction activity increased for the peaking facility under construction in Connecticut. However, the allowable billings on this project have included amounts covering forecasted short-term costs resulting in an increase during the current year in billings in excess of actual costs and estimated earnings. This increase represents a source of cash in the amount of $13.2 million. The decrease in activity on the gas-fired power plant located in Northern California was the primary cause of the decreases in costs and estimated earnings in excess of billings ~~and accounts payable and accrued expenses which represented net cash amounts~~ of ~~$8.0~~$1.0 million, and $5.8 million provided by and used in operating activities during the current year, respectively. During the current period, we also reduced the amount of cash subject to restrictions as described in Note 2 to the condensed consolidated financial statements, providing net cash in the amount of ~~$3.4 million.~~

~~- 25 -~~

During the nine months ended October 31, 2009, our balance of cash and cash equivalents decreased by approximately $21.7 million. Last year, despite reporting net income of approximately $7.6 million for the first nine months, we used net cash of $20.5 million in operations. We experienced changes in the amounts of several operating asset and liability accounts that represented uses of cash due primarily to the timing of billings on the California power plant construction project as activity on this project increased during the period. An increase in the costs and estimated earnings in excess of billings and a decrease in billings in excess of costs and estimated earnings ~~represented uses~~in the amount of $7.4 million, and we paid-down accounts payable and accrued liabilities in the amount of $8.2 million. The completion of the construction project in Northern California resulted in the release of restrictions on the cash balance segregated for this project providing cash in the ~~amounts~~amount of ~~$22.8~~$1.2 million for the current quarter. The amount of non-cash adjustments to income from continuing operations for the current quarter represented a net source of cash of approximately $429,000, including primarily stock compensation expense of $211,000 and ~~$4.1~~amortization and depreciation of $204,000.

Although we reported net income of approximately $2.0 million ~~respectively.~~for the first quarter last year, we used net cash of $2.3 million in operations. During the prior quarter, the increase in accounts receivable represented a $9.1 million use of cash as activity increased on wind-energy projects. We also used cash ~~last year in~~during the ~~period~~prior quarter to make payments reducing the amount of accounts payable and accrued liabilities by ~~$14.0 million. Net cash amounts of $8.9 million and $5.0 million were provided by decreases~~$985,000. A reduction in the ~~balances~~amount of ~~accounts receivable~~costs and ~~restricted~~estimated earnings in excess of billings and an increase in the amount of billings in excess of costs and estimated earnings provided a total of approximately $3.3 million in cash ~~respectively. Non-cash~~during last year’s first quarter. The amount of non-cash adjustments to net income for the quarter represented a net ~~use~~source of cash of $930,000, including deferred tax expense of $355,000, stock compensation expense of $320,000 and depreciation and amortization of $255,000. Discontinued operations provided cash in the amount of ~~$5,000 last year, including~~$199,000 during the equity in the earnings of GRP in the amount of $1,343,000 and deferred income tax benefit of $287,000, offset substantially by stock compensation expense of $864,000 and depreciation and amortization in the total amount of $726,000.three months ended April 30, 2010.

During the ~~nine~~three months ended ~~October 31, 2010, we used~~April 30, 2011, net cash ~~in connection with~~was provided by investing and financing ~~and investing~~ activities in the amounts of ~~$1,397,000~~$1,360,000 and ~~$476,000,~~$18,000, respectively, due primarily to ~~principal payments made on our remaining term note with~~ the ~~Bank in~~receipt of cash proceeds from the ~~amount~~sale of ~~$1,500,000~~the assets of VLI and ~~purchases~~the exercise of ~~property plant and equipment in the amount of $488,000.~~stock options.

During the ~~nine~~three months ended ~~October 31, 2009,~~April 30, 2010, net cash was used in connection with financing ~~and investing~~ activities in the ~~amounts~~amount of ~~$1,064,000 and $117,000, respectively,~~$465,000 as we used cash to make principal payments on long-term debt totaling ~~$1,801,000~~$500,000, and ~~equipment purchases of $172,000, and~~we received cash proceeds from the exercise of stock warrants and options in the amount of ~~$737,000. Exercises of stock options and warrants have provided~~$35,000. Capital expenditures made during last year’s first quarter by continuing operations used $160,000 in net ~~cash proceeds of only $103,000 during the nine months ended October 31, 2010.~~cash.

The financing arrangements with the Bank provide for the measurement at our fiscal year-end and at each of our fiscal quarter-ends (using a rolling 12-month period) of certain financial covenants, determined on a consolidated basis, including requirements that the ratio of total funded debt to EBITDA (as defined) not exceed 2 to 1, that the ratio of senior funded debt to EBITDA (as defined) not exceed 1.50 to 1, and that the fixed charge coverage ratio not be less than 1.25 to 1. At ~~October 31, 2010~~April 30, 2011 and January 31, ~~2010,~~2011, we were in compliance with each of these financial covenants. The Bank’s consent is required for acquisitions and divestitures. We have pledged the majority of the Company’s assets to secure the financing arrangements. The amended financing arrangement contains an acceleration clause which allows the Bank to declare amounts outstanding under the financing arrangements due and payable if it determines in good faith that a material adverse change has occurred in the financial condition of any of our companies. We believe that the Company will continue to comply with its financial covenants under the financing arrangement. If the Company’s performance results in our noncompliance with any of the financial covenants, or if the Bank seeks to exercise its rights under the acceleration clause referred to above, we would seek to modify the financing arrangement, but there can be no assurance that the Bank would not exercise its rights and remedies under the financing arrangement including accelerating payment of all outstanding senior debt due and payable. We did receive the required consent from the Bank in order to complete the disposition of substantially all of the assets of VLI. Subsequent to April 30, 2011, we reached agreement with the Bank on a new amendment to the financing arrangements which extends the expiration date of the revolving line of credit to May 31, 2013 and permits investments or loans in amounts not to exceed $10 million under certain conditions.

- 20 -

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

We believe that Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) is a meaningful presentation that enables us to assess and compare our operating cash flow performance on a consistent basis by removing from our operating results the impacts of our capital structure, the effects of the accounting methods used to compute depreciation and amortization and the effects of operating in different income tax jurisdictions. Further, we believe that EBITDA is widely used by investors and analysts as a measure of performance.

As EBITDA is not a measure of performance calculated in accordance with generally accepted accounting principles in the United States (“US GAAP”), we do not believe that this measure should be considered in isolation from, or as a substitute for, the results of our operations presented in accordance with US GAAP that are included in our condensed consolidated financial statements. In addition, our EBITDA does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs.

The following table presents the determinations of EBITDA for continuing operations for the three months ended April 30, 2011 and 2010:


	2011		2010

Income from continuing operations, as reported	$	745,000	$	2,355,000
Interest expense		—		14,000
Income tax expense		416,000		1,383,000
Amortization of purchased intangible assets		87,000		87,000
Depreciation and other amortization		117,000		168,000


EBITDA	$	1,365,000	$	4,007,000

As we believe that our net cash flow from continuing operations is the most directly comparable performance measure determined in accordance with US GAAP, the following table reconciles the amounts of EBITDA for the applicable periods, as presented above, to the corresponding amounts of net cash flows used in continuing operating activities that are presented in our condensed consolidated statements of cash flows for the three months ended April 30, 2011 and 2010:


	2011			2010

EBITDA	$	1,365,000		$	4,007,000
Current income tax expense		(402,000	)		(1,028,000	)
Interest expense		—			(14,000	)
Non-cash stock option compensation expense		211,000			320,000
Decrease in restricted cash		1,243,000			—
Decrease (increase) in accounts receivable		7,387,000			(9,053,000	)
Change related to the timing of scheduled billings		(6,328,000	)		3,323,000
Decrease in accounts payable and accrued liabilities		(8,155,000	)		(985,000	)
Other, net		(850,000	)		972,000


Net cash used in continuing operations	$	(5,529,000	)	$	(2,458,000	)

Off-Balance Sheet Arrangements

We maintain a variety of commercial commitments that are generally made available to provide support for various commercial provisions in the engineering, procurement and construction contracts.

- 21 -

In the ordinary course of business, our customers may request that we obtain surety bonds in connection with construction contract performance obligations that are not required to be recorded in our consolidated balance sheets. We would be obligated to reimburse the issuer of our surety bonds for any payments made. Each of our commitments under performance bonds generally ends concurrently with the expiration of the related contractual obligation. ~~We utilize several providers~~If necessary, we may obtain standby letters of credit from the Bank in the ordinary course of business, not to ~~meet our insurance and surety needs.~~exceed $10.0 million. The financial crisis associated with ~~last year’s~~the recession has not disrupted our insurance or surety programs or limited our ability to access needed insurance or surety capacity. ~~As stated above, we~~We also have a line of credit committed by the Bank in the amount of $4.25 million for general purposes. ~~We may also obtain standby letters of credit from the Bank in the ordinary course of business in amounts not to exceed $10.0 million in the aggregate.~~

From time to time, we provide guarantees related to our services or work. If our services under a guaranteed project would be determined to have resulted in a material defect or other material deficiency, then we may be responsible for monetary damages or other legal remedies. When sufficient information about claims on guaranteed projects would be available and monetary damages or other costs or losses would be determined to be probable, we would record such guarantee losses.

~~Earnings before Interest, Taxes, Depreciation~~Inflation

Our monetary assets, consisting primarily of cash, cash equivalents and ~~Amortization (Non-GAAP Measurement)~~accounts receivables, and our non-monetary assets, consisting primarily of goodwill and other purchased intangible assets, are not affected significantly by inflation. We believe that replacement costs of equipment, furniture, and leasehold improvements will not materially affect our operations. However, the rate of inflation affects our costs and expenses, such as those for employee compensation and benefits and commodities used in construction projects, which may not be readily recoverable in the price of services offered by us.

Critical Accounting Policies

We ~~believe that Earnings before Interest, Taxes, Depreciation~~consider the accounting policies related to revenue recognition on long-term construction contracts; the valuation of goodwill, other indefinite-lived assets and ~~Amortization (“EBITDA”) is a meaningful presentation that enables us~~long-lived assets; the valuation of employee stock options; income tax reporting and the reporting of legal matters to ~~assess and compare our operating cash flow performance on a consistent basis by removing from our operating results~~be most critical to the ~~impacts~~understanding of our ~~capital structure,~~financial position and results of operations. Critical accounting policies are those related to the ~~effects~~areas where we have made what we consider to be particularly subjective or complex judgments in making estimates and where these estimates can significantly impact our financial results under different assumptions and conditions. These estimates, judgments, and assumptions affect the reported amounts of assets, liabilities and equity and disclosure of contingent assets and liabilities at the ~~accounting methods used to compute depreciation and amortization~~date of financial statements and the ~~effects~~reported amounts of ~~operating in different income tax jurisdictions. Further,~~net revenues and expenses during the reporting periods. We base our estimates on historical experience and various other assumptions that we believe ~~that EBITDA is widely used by investors and analysts as a measure of performance. The following tables present~~are reasonable under the ~~determinations of EBITDA for the three and nine months ended October 31, 2010 and 2009:~~

Three Months Ended October 31,
2010 2009
Net income, as reported $ 1,535,000 $ 1,964,000
Interest expense 7,000 41,000
Income tax expense 1,313,000 1,167,000
Amortization of purchased intangible assets 87,000 88,000
Depreciation and other amortization 144,000 163,000

EBITDA $ 3,086,000 $ 3,423,000

Nine Months Ended October 31,
2010 2009
Net income, as reported $ 6,859,000 $ 7,615,000
Interest expense 32,000 155,000
Income tax expense 4,423,000 4,475,000
Amortization of purchased intangible assets 262,000 267,000
Depreciation and other amortization 508,000 459,000

EBITDA $ 12,084,000 $ 12,971,000

As EBITDA is not a measure of performance calculated in accordance with generally accepted accounting principles in the United States (“ US GAAP”), we do not believe that this measure should be considered in isolation from, or as a substitute for,circumstances, the results of ~~our operations presented in accordance with US GAAP~~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.

A description of the Company’s significant accounting policies, including those discussed below, is included in Note 2 to the Consolidated Financial Statements included in Item 8 of the Company’s Annual Report on Form 10-K for the year ended January 31, 2011.

Revenue Recognition

We enter into construction contracts principally on the basis of competitive bids. The types of contracts may vary and include agreements under which net revenues are based on a fixed-price or cost-plus-fee basis. Net revenues from cost-plus-fee construction agreements are recognized on the basis of costs incurred during the period plus the fee earned, measured using the cost-to-cost method. Components of fee based on our ~~condensed consolidated financial statements.~~achievement of certain cost or schedule objectives are included when we believe it is probable that such amounts have been earned. Net revenues from fixed-price construction contracts are recognized on the percentage-of-completion method.The percentage-of-completion method measures the ratio of costs incurred and accrued to date for each contract to the estimated total costs for each contract at completion. This requires us to prepare on-going estimates of the costs to complete each contract as the project progresses. In ~~addition,~~preparing these estimates, we make significant judgments and assumptions concerning our ~~EBITDA does not necessarily represent funds available for discretionary use~~significant costs, including materials, labor and equipment, and we evaluate contingencies based on possible schedule variances, production delays or other productivity factors.

Actual costs may vary from the costs we estimate. Variations from estimated contract costs along with other risks inherent in fixed-price contracts may result in actual net revenues and gross profits differing from those we estimate and could result in losses on projects. If a current estimate of total contract cost indicates a loss on a contract, the projected loss is ~~not necessarily a measure~~recognized in full when determined, without regard to the percentage of ~~our ability to fund our cash needs.~~completion. We review the estimate of total cost on each significant contract monthly.

- 2722 -

We consider unapproved change orders to be contract variations on which we have customer approval for scope change, but not for price associated with that scope change. The costs associated with a scope change are expensed as incurred and included in the estimated amount of cost to complete the contract. We recognize net revenue equal to cost incurred on an unapproved change order when realization of price approval is probable and the estimated amount is equal to or greater than our cost related to the unapproved change order and the related margin when the change order is formally approved by the customer. Net revenue recognized on an unapproved change order is included in contract costs and estimated earnings in excess of billings in the consolidated balance sheet. Depending on the size of a particular project, variations from estimated project costs could have a significant impact on our operating results for any fiscal quarter or year. Changes to the total estimated contract cost of a fixed-price contract may affect the amount of profit or the extent of loss. We believe our exposure to losses on fixed price contracts is limited by management’s experience in estimating contract costs and in making early identification of unfavorable variances as work progresses.

Goodwill and Other Indefinite-Lived Intangible Assets

In connection with the acquisitions of GPS and SMC, we recorded substantial amounts of goodwill and other purchased intangible assets including contractual and other customer relationships, proprietary formulas, non-compete agreements and trade names. Other than goodwill, most of our purchased intangible assets were determined to have finite useful lives. At February 1, 2011, the beginning of our current fiscal year, the total carrying value of goodwill and the remaining purchased intangible asset with an indefinite life totaled approximately $18.7 million, which represented approximately 14% of consolidated total assets. This amount included $18.5 million in goodwill related to the acquisition of GPS.

The Company reviews for impairment, at least annually, the carrying values of goodwill and other purchased intangible assets deemed to have an indefinite life. The annual review performance date is November 1. We also perform tests for impairment of goodwill and other intangible assets with indefinite lives more frequently if events or changes in circumstances indicate that an asset value might be impaired.

As prescribed by current accounting guidance, we determine whether goodwill has been impaired or not using a two-step process of analysis. The first step of our goodwill impairment testing process is to identify a potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. We utilized the assistance of a professional appraisal firm in the determination of the fair value of Gemma as of November 1, 2010. A variety of alternative valuation approaches were considered. As a result of the analysis, we concluded that the market multiple and the discounted cash flow analysis approaches were the most appropriate valuation techniques for this exercise.

For the market multiple valuation, a fair value estimate for GPS was determined based on an evaluation of the market values of a selected number of reasonably similar publicly traded companies. A separate estimate was determined using a discounted cash flow analysis. Projected cash flows for GPS were developed based on its historical financial performance, a short-term projection of operating results based on the existing backlog of current business and the assumed addition of certain identified future projects, and published projected growth rates for the power construction industry. The projected cash flow amounts were discounted to present value based on rates of return which were determined considering prevalent rates of return, business risks for the industry and risks specifically related to GPS. A 50/50 weighting was applied to the results of the market multiple valuation and the discounted cash flow analysis of fair value in order to arrive at an average amount considered the fair value of GPS.

As a result of this valuation, we concluded that the fair value of the net assets of GPS substantially exceeded its carrying amount. Therefore, the goodwill of GPS was deemed not to be impaired, and the performance of step two of the impairment assessment process was not required. Using a discounted cash flow analysis, we determined that the fair value of our other indefinite-live asset, the trade name of SMC, exceeded the corresponding carrying value of $181,000 at November 1, 2010.

Long-Lived Assets

Our long-lived assets consist primarily of equipment used in our operations. Fixed assets are carried at cost and are depreciated over their estimated useful lives, ranging from five to twenty years, using the straight-line method for financial reporting purposes and accelerated methods for tax reporting purposes. The carrying value of certain long-lived assets is evaluated periodically whenever events or changes in circumstances indicate that the carrying amount of an asset or a group of assets may not be recoverable. If events and circumstances such as poor operating results of the applicable business segment indicate that the asset(s) should be reviewed for possible impairment, we use projections to assess whether future cash flows, including disposition, on a non-discounted basis related to the tested assets are likely to exceed the recorded carrying amount of the assets to determine if an impairment exists. If we identify a potential impairment, we will estimate the fair value of the assets through known market transactions of similar equipment and other valuation techniques, which could include the use of similar projections on a discounted basis. We will report a loss to the extent that the carrying value of the impaired assets exceeds their fair value.

- 23 -

Deferred Tax Assets

As of April 30 and January 31, 2011, our consolidated balance sheets included net deferred tax assets in the total amounts of $1.4 million and $1.1 million, respectively, resulting from our future deductible temporary differences. In assessing whether deferred tax assets may be realizable, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Our ability to realize our deferred tax assets depends primarily upon the generation of sufficient future taxable income to allow for the utilization of our deductible temporary differences and tax planning strategies. If such estimates and assumptions change in the future, we may be required to record valuation allowances against some or all of the deferred tax assets resulting in additional income tax expense in our consolidated statement of operations. At this time, we believe that the historically strong earnings performance of our power industry services business segment will continue during the periods in which the applicable temporary income tax differences become deductible. Accordingly, we believe that it is more likely than not that we will realize the benefit of our net deferred tax assets. The amounts of income from operations before income taxes for this business segment were $21.6 million and $16.5 million for the fiscal years ended January 31, 2011 and 2010, respectively.

Stock Options

We measure the cost of equity compensation to our employees and independent directors based on the estimated grant-date fair value of the awards and recognize the corresponding expense amounts over the vesting periods. Options to purchase 237,000 and 123,000 shares of our common stock were awarded during the years ended January 31, 2011 and 2010, respectively, with weighted average fair value per share amounts of $6.31 and $7.21, respectively. Options to purchase 72,000 shares of our common stock were awarded during the three months ended April 30, 2011 with a weighted average fair value per share amount of $4.04. The amounts of compensation expense recorded during the three months ended April 30, 2011 and 2010 related to vesting stock options were $211,000 and $320,000, respectively. We use the Black-Scholes option pricing model to compute the fair value of stock options. The Black-Scholes model requires the use of highly subjective assumptions in the computations which are disclosed in Note 9 to the accompanying condensed consolidated financial statements and include the risk-free interest rate, the expected volatility of the market price of our common stock and the expected life of the stock option. We use the “simplified method” in developing the estimates of the expected lives of stock options, as we believe that our ~~net cash flow from operations~~historical stock option exercise experience is insufficient to provide a reasonable basis upon which to estimate expected lives. Changes in these assumptions can cause significant fluctuations in the ~~most directly comparable performance measure determined~~fair value of stock option awards.

Legal Contingencies

As discussed in ~~accordance with US GAAP,~~Note 12 to the ~~following table reconciles~~accompanying condensed consolidated financial statements, we are involved in several legal matters where litigation has been initiated or claims have been made against us. We intend to vigorously defend ourselves in each case. At this time, we do not believe that a material loss is probable related to any of the current matters discussed therein. However, we do maintain accrued expense balances for the estimated amounts of ~~EBITDA for~~legal costs expected to be billed related to each matter. We review the ~~applicable periods, as presented above,~~status of each matter and assess the adequacy of the accrued expense balances at the end of each fiscal quarter, and make adjustments to the ~~corresponding amounts~~balances if necessary. Should our assessments of ~~net cash flows used in operating activities that are presented in our condensed consolidated statements~~the outcomes of ~~cash flows for the nine months ended October 31, 2010 and 2009.~~

Reconciliations of EBITDA
Nine Months Ended October 31,
2010 2009
EBITDA $ 12,084,000 $ 12,971,000
Current income tax expense (4,921,000 ) (4,762,000 )
Interest expense (32,000 ) (155,000 )
Stock option compensation expense 1,112,000 864,000
Equity in earnings of the unconsolidated subsidiary — (1,343,000 )
(Increase) decrease in accounts receivable, net (17,851,000 ) 8,875,000
Decrease in accounts payable and accrued expenses (5,785,000 ) (14,000,000 )
Changes related to the timing of scheduled billings 21,267,000 (26,898,000 )
Decrease in restricted cash 3,382,000 4,998,000
Other, net 3,028,000 (1,047,000 )

Net cash provided by (used in) operations $ 12,284,000 $ (20,497,000 )

~~Critical Accounting Policies~~

A description of our critical accounting policies is included in Item 7 of our 2010 Annual Report on Form 10-K. For the nine-month period ended October 31, 2010, there are no material changes to the discussion included therein.these legal matters change, significant losses or additional costs may be recorded.

Adopted and Other Recently Issued Accounting Pronouncements

Included in Note 1 to the accompanying condensed consolidated financial statements ~~included in Item 1 of Part I of this Quarterly Report on Form 10-Q are discussions~~is a discussion of accounting pronouncements adopted by us during the ~~nine~~three months ended ~~October 31, 2010~~April 30, 2011 that we consider relevant to our condensed consolidated financial ~~statements and~~statements. There are no recently issued accounting pronouncements that have not yet been ~~adopted.~~adopted that we consider material to our consolidated financial statements.

- 24 -

PART II

OTHER INFORMATION


ITEM 1.		LEGAL PROCEEDINGS

Included in Note 12 to the condensed consolidated financial statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q is a discussion of specific legal proceedings for the ~~nine-month~~three-month period ended ~~October 31, 2010.~~April 30, 2011.

In the normal course of business, the Company may have other pending claims and legal proceedings. It is our opinion, based on information available at this time, that any other current claim or proceeding will not have a material effect on our condensed consolidated financial statements.


ITEM 1A.		RISK FACTORS

Investing in our securities involves a high degree of risk. Our business, financial position and future results of operations may be impacted in a materially adverse manner by risks associated with the execution of our strategic plan and the creation of a profitable and cash-flow positive business in a period of weak recovery from a significant economic recession and major disruptions in the financial markets, our ability to obtain capital or to obtain capital on terms acceptable to us, the successful integration of acquired companies into our consolidated operations, our ability to successfully manage diverse operations remotely located, our ability to successfully compete in highly competitive industries, the successful resolution of ongoing litigation, our dependence upon key managers and employees and our ability to retain them, potential fluctuations in quarterly operating results and a series of risks associated with our power industry services business, among other risks. Before investing in our securities, please consider these and other risks more fully described in our Annual Report on Form 10-K for the year ended January 31, ~~2010.~~2011. There have been no material revisions to the risk factors that are described ~~therein except as described in the following paragraphs.~~therein. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in any forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

At January 31, 2010, we reported that our construction contract backlog was approximately $300 million including approximately $210 million related to a project to construct an eight-unit simple cycle peaking power generation facility in Southern California that was awarded to GPS by an energy investment firm in July 2008, over two years ago. We continue discussions with the customer regarding the commencement of this project. Subsequent to the end of the current quarter, the California Energy Commission approved the construction of this power plant and the customer informed us of the signing of a power purchase agreement. Although our expectation is that we will eventually be provided with notice to fully proceed on this project, we do not know when that will occur. Should construction work on this project not commence by early next fiscal year, our results of operations for next year and our financial condition may be adversely affected, perhaps in a material way. We have not received notice or any other information that would cause us to remove the value of this project from our backlog. This project represented approximately 83% of our total construction project backlog at October 31, 2010. We cannot provide assurance that the future net revenues associated with this project will ever be recognized.

In the Risk Factor section of our Form 10-K Annual Report for the year ended January 31, 2010, we included several specific risks relating to our nutritional products business including cautions about the segment’s intensive competitive environment and the importance of adding new customers to replace lost business. As presented in Note 13 to the condensed consolidated financial statements, the losses before income tax reported for the nutritional products business of VLI were $1,433,000 and $2,922,000 for the three and nine months ended October 31, 2010. The losses before income taxes of VLI for the fiscal years ended January 31, 2010, 2009 and 2008 were $2,161,000, $6,917,000 and $8,928,000, respectively. Associated with impairment losses recorded in these periods, the carrying values of the long-lived assets of VLI have been eliminated. In the current year, this business continues to operate in a competitive business environment characterized by very slender margins, to incur the costs of excess production capacity and to suffer from the costs of expensive litigation. In order to develop a recommendation to the Board of Directors regarding the future of this business, the Company’s management has been exploring alternatives including the possible sale of the customer relationships and the assets and the transfer of current liabilities and the remaining obligations of operating leases under which VLI occupies its facilities. A decision to dispose of this business could result in additional loss including recovered income tax benefits exceeding $1 million and the absorption of the remaining minimum lease payments of approximately $444,000. The Board of Directors has not made a decision regarding the future of the business. The management of VLI continues its efforts to develop additional business; VLI continues to fulfill the orders it receives from customers. However, until the operating results of this business are turned around or the business is disposed of, the operating losses of the nutritional products business are likely to continue.

~~- 29 -~~


	Page No.

PART I. FINANCIAL INFORMATION		3

Item 1. Financial Statements		3

Condensed Consolidated Balance Sheets ~~– October 31, 2010~~— April 30, 2011 and January 31, ~~2010~~2011		3

Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~October 31,~~April 30, 2011 and 2010 ~~and 2009~~		4

Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~October 31,~~April 30, 2011 and 2010 ~~and 2009~~		5

Notes to Condensed Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1715

Item 3. Quantitative and Qualitative Disclosures about Market Risk		2825

Item 4. Controls and Procedures		2825

PART II. OTHER INFORMATION		2925

Item 1. Legal Proceedings		2925

Item 1A. Risk Factors		2925

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3026

Item 3. Defaults in Senior Securities		3026

Item 4. [Removed and Reserved]		3026

Item 5. Other Information		3026

Item 6. Exhibits		3026

SIGNATURES		3126

CERTIFICATIONS

~~Exhibit 31.1~~EX-10.1
~~Exhibit 31.2~~EX-31.1
~~Exhibit 32.1~~EX-31.2
~~Exhibit 32.2~~EX-32.1
EX-32.2


						Weighted									Weighted
				Weighted		Average		Weighted					Weighted		Average		Weighted
				Average		Remaining		Average					Average		Remaining		Average
				Exercise		Contract		Fair					Exercise		Contract		Fair
Options	Shares			Price		Term (Years)		Value		Shares			Price		Term (Years)		Value
Outstanding, January 31, 2010		497,000		$	10.27		6.47	$	5.45
Outstanding, January 31, 2011											676,000		$	11.29		5.78	$	5.79
Granted		202,000		$	14.23						72,000		$	8.97
Forfeited		(30,000	)	$	11.84						(3,000	)	$	12.43
Exercised		(11,000	)	$	7.24						(3,000	)	$	5.90

Outstanding, October 31, 2010		658,000		$	11.46		5.73	$	5.84
Outstanding, April 30, 2011											742,000		$	11.09		5.63	$	5.63

Exercisable, October 31, 2010		415,000		$	10.02		5.79	$	5.39
Exercisable, April 30, 2011											610,000		$	11.56		5.38	$	5.92

Exercisable, January 31, 2010		374,000		$	9.44		5.65	$	4.87
Exercisable, January 31, 2011											439,000		$	10.12		5.90	$	5.51


				Weighted					Weighted
				Average					Average
	Shares			Fair Value		Shares			Fair Value
Nonvested, January 31, 2010		123,000		$	7.21
Nonvested, January 31, 2011							237,000		$	6.31
Granted		202,000		$	6.54		72,000		$	4.04
Vested		(82,000	)	$	7.36		(177,000	)	$	6.92

Nonvested, October 31, 2010		243,000		$	6.60
Nonvested, April 30, 2011							132,000		$	4.24


	~~Nine~~Three Months
	Ended ~~October 31,~~April 30,
	~~2010~~2011
Dividend yield		—
Expected volatility		~~62.58~~57.60	%
Risk-free interest rate		~~3.44~~3.42	%
Expected life in years		~~3.33~~3.69


Exhibit No.		Title

Exhibit: 10.1		Fifth Amendment to Second Amended and Restated Financing and Security Agreement, dated May 31, 2011, by and among Argan, Inc.; Southern Maryland Cable, Inc.; Gemma Power Systems, LLC; Gemma Power, Inc.; Gemma Power Systems California, Inc.; Gemma Power Hartford, LLC and Bank of America, N.A.
Exhibit: 31.1		Certification of Chief Executive Officer, pursuant to Rule 13a-14(c) under the Securities Exchange Act of 1934
Exhibit: 31.2		Certification of Chief Financial Officer, pursuant to Rule 13a-14(c) under the Securities Exchange Act of 1934
Exhibit: 32.1		Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350
Exhibit: 32.2		Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350


	Three Months		Nine Months
	Ended October 31,		Ended October 31,
	2009		2009
Pro forma consolidated net revenues	$	72,001,000	$	219,545,000

Pro forma consolidated net income	$	2,178,000	$	8,501,000

Pro forma net income per share:
Basic	$	0.16	$	0.63
Diluted	$	0.16	$	0.62


*		Less than 1%.

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


	Reconciliations of EBITDA
	Nine Months Ended October 31,
	2010			2009
EBITDA	$	12,084,000		$	12,971,000
Current income tax expense		(4,921,000	)		(4,762,000	)
Interest expense		(32,000	)		(155,000	)
Stock option compensation expense		1,112,000			864,000
Equity in earnings of the unconsolidated subsidiary		—			(1,343,000	)
(Increase) decrease in accounts receivable, net		(17,851,000	)		8,875,000
Decrease in accounts payable and accrued expenses		(5,785,000	)		(14,000,000	)
Changes related to the timing of scheduled billings		21,267,000			(26,898,000	)
Decrease in restricted cash		3,382,000			4,998,000
Other, net		3,028,000			(1,047,000	)

Net cash provided by (used in) operations	$	12,284,000		$	(20,497,000	)


ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


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


		ARGAN, INC.

	~~ARGAN, INC.~~ June 13, 2011
~~December 9, 2010~~ By:	~~By:~~	/s/ Rainer H. Bosselmann Rainer H. Bosselmann
		~~Rainer H. Bosselmann~~
		Chairman of the Board and Chief Executive Officer

~~December 9, 2010~~June 13, 2011		By:	/s/ Arthur F. Trudel Arthur F. Trudel
		~~Arthur F. Trudel~~
		Senior Vice President, Chief Financial Officer ~~and Secretary~~
			and Secretary


ITEM 4.		CONTROLS AND PROCEDURES