x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT
|
Argan, Inc.
|
(Exact
Name of Registrant as Specified in Its
Charter)
|
Delaware
|
13-1947195
|
|
(State
or Other Jurisdiction of Incorporation
or
Organization)
|
(I.R.S.
Employer Identification
No.)
|
One Church Street, Suite 401, Rockville Maryland
20850
|
(Address
of Principal Executive Offices) (Zip
Code)
|
(301) 315-0027
|
(Registrant’s
Telephone Number, Including Area
Code)
|
____________________________________
|
(Former
Name, Former Address and Former Fiscal Year,
if
Changed since Last Report)
|
Page
No.
|
|||||
PART
I.
|
FINANCIAL
INFORMATION
|
3
|
|||
Item
1.
|
Financial
Statements (unaudited)
|
3
|
|||
Condensed
Consolidated Balance Sheets – October 31, 2008 and January 31,
2008
|
3
|
||||
Condensed
Consolidated Statements of Operations for the Three and Nine Months Ended
October 31, 2008 and 2007
|
4
|
||||
Condensed
Consolidated Statements of Cash Flows for the Nine Months Ended October
31, 2008 and 2007
|
5
|
||||
Notes
to Condensed Consolidated Financial Statements
|
6
|
||||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
|
18
|
|||
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
28
|
|||
Item
4.
|
Controls
and Procedures
|
28
|
|||
PART
II.
|
OTHER
INFORMATION
|
29
|
|||
Item
1.
|
Legal
Proceedings
|
29
|
|||
Item
1A.
|
Risk
Factors
|
30
|
|||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
31
|
|||
Item
3.
|
Defaults
upon Senior Securities
|
31
|
|||
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
31
|
|||
Item
5.
|
Other
Information
|
31
|
|||
Item
6.
|
Exhibits
|
31
|
|||
SIGNATURES
|
31
|
CERTIFICATIONS
|
October 31,
|
January 31,
|
|||||||
|
2008
(unaudited)
|
2008
(audited)
|
||||||
ASSETS | ||||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 93,143,000 | $ | 66,827,000 | ||||
Escrowed
cash
|
10,324,000 | 14,398,000 | ||||||
Accounts
receivable, net of allowance for doubtful accounts
|
3,420,000 | 30,481,000 | ||||||
Inventories,
net of reserve for obsolescence
|
2,533,000 | 2,808,000 | ||||||
Current
deferred tax assets
|
882,000 | 406,000 | ||||||
Prepaid
expenses and other current assets
|
1,383,000 | 1,330,000 | ||||||
TOTAL
CURRENT ASSETS
|
111,685,000 | 116,250,000 | ||||||
Property
and equipment, net of accumulated depreciation
|
1,331,000 | 2,892,000 | ||||||
Goodwill
|
19,416,000 | 20,337,000 | ||||||
Other
intangible assets, net of accumulated amortization
|
3,921,000 | 5,296,000 | ||||||
Investment
in unconsolidated subsidiary
|
1,241,000 | — | ||||||
Deferred
tax assets
|
2,321,000 | 828,000 | ||||||
Other
assets
|
153,000 | 260,000 | ||||||
TOTAL
ASSETS
|
$ | 140,068,000 | $ | 145,863,000 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$ | 29,853,000 | $ | 35,483,000 | ||||
Accrued
expenses
|
9,142,000 | 9,370,000 | ||||||
Billings
in excess of cost and earnings
|
22,557,000 | 52,313,000 | ||||||
Current
portion of long-term debt
|
2,526,000 | 2,581,000 | ||||||
TOTAL
CURRENT LIABILITIES
|
64,078,000 | 99,747,000 | ||||||
Long-term
debt
|
2,250,000 | 4,134,000 | ||||||
Other
liabilities
|
77,000 | 116,000 | ||||||
TOTAL
LIABILITIES
|
66,405,000 | 103,997,000 | ||||||
COMMITMENTS AND CONTINGENCIES
(Note 14)
|
||||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Preferred
stock, par value $0.10 per share; 500,000 shares
authorized;
|
||||||||
no
shares issued and outstanding
|
— | — | ||||||
Common
stock, par value $0.15 per share;
|
||||||||
30,000,000
shares authorized; 13,433,684 and 11,113,534 shares issued
and
|
||||||||
13,430,451
and 11,110,301 shares outstanding at 10/31/08 and 1/31/08,
respectively
|
2,014,000 | 1,667,000 | ||||||
Warrants
outstanding
|
753,000 | 834,000 | ||||||
Additional
paid-in capital
|
84,359,000 | 57,861,000 | ||||||
Accumulated
other comprehensive loss
|
(59,000 | ) | (107,000 | ) | ||||
Accumulated
deficit
|
(13,371,000 | ) | (18,356,000 | ) | ||||
Treasury
stock, at cost; 3,233 shares at 10/31/08 and 1/31/08
|
(33,000 | ) | (33,000 | ) | ||||
TOTAL
STOCKHOLDERS' EQUITY
|
73,663,000 | 41,866,000 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 140,068,000 | $ | 145,863,000 |
Three Months Ended
October 31,
|
Nine Months Ended
October 31,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Net
revenues
|
||||||||||||||||
Power
industry services
|
$ | 36,387,000 | $ | 42,017,000 | $ | 151,034,000 | $ | 130,970,000 | ||||||||
Nutritional
products
|
2,662,000 | 4,617,000 | 7,287,000 | 14,602,000 | ||||||||||||
Telecommunications
infrastructure services
|
2,338,000 | 2,629,000 | 6,570,000 | 7,260,000 | ||||||||||||
Net
revenues
|
41,387,000 | 49,263,000 | 164,891,000 | 152,832,000 | ||||||||||||
Cost
of revenues
|
||||||||||||||||
Power
industry services
|
29,742,000 | 35,548,000 | 131,425,000 | 119,383,000 | ||||||||||||
Nutritional
products
|
2,983,000 | 4,193,000 | 7,701,000 | 12,481,000 | ||||||||||||
Telecommunications
infrastructure services
|
1,824,000 | 2,076,000 | 5,474,000 | 5,776,000 | ||||||||||||
Cost
of revenues
|
34,549,000 | 41,817,000 | 144,600,000 | 137,640,000 | ||||||||||||
Gross
profit
|
6,838,000 | 7,446,000 | 20,291,000 | 15,192,000 | ||||||||||||
Selling,
general and administrative expenses
|
3,090,000 | 4,381,000 | 11,118,000 | 13,715,000 | ||||||||||||
Impairment
losses of Vitarich Laboratories, Inc.
|
— | 4,666,000 | 1,946,000 | 4,666,000 | ||||||||||||
Income
(loss) from operations
|
3,748,000 | (1,601,000 | ) | 7,227,000 | (3,189,000 | ) | ||||||||||
Interest
expense
|
(108,000 | ) | (171,000 | ) | (336,000 | ) | (550,000 | ) | ||||||||
Interest
income
|
609,000 | 1,074,000 | 1,545,000 | 2,352,000 | ||||||||||||
Equity
in the net loss of unconsolidated subsidiary
|
(195,000 | ) | — | (359,000 | ) | — | ||||||||||
Income
(loss) from operations before
|
||||||||||||||||
income
taxes
|
4,054,000 | (698,000 | ) | 8,077,000 | (1,387,000 | ) | ||||||||||
Income
tax expense
|
(1,430,000 | ) | (1,259,000 | ) | (3,092,000 | ) | (1,253,000 | ) | ||||||||
Net
income (loss)
|
$ | 2,624,000 | $ | (1,957,000 | ) | $ | 4,985,000 | $ | (2,640,000 | ) | ||||||
Earnings
per share:
|
||||||||||||||||
Basic
|
$ | 0.20 | $ | (0.18 | ) | $ | 0.41 | $ | (0.24 | ) | ||||||
Diluted
|
$ | 0.19 | $ | (0.18 | ) | $ | 0.40 | $ | (0.24 | ) | ||||||
Weighted
average number of shares outstanding:
|
||||||||||||||||
Basic
|
13,414,000 | 11,096,000 | 12,138,000 | 11,095,000 | ||||||||||||
Diluted
|
13,730,000 | 11,096,000 | 12,480,000 | 11,095,000 |
|
Nine Months Ended October 31,
|
|||||||
|
2008
|
2007
|
||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income (loss)
|
$ | 4,985,000 | $ | (2,640,000 | ) | |||
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
||||||||
Deferred
income taxes
|
(1,895,000 | ) | (2,424,000 | ) | ||||
Impairment
losses
|
1,946,000 | 4,666,000 | ||||||
Amortization
of purchased intangibles
|
1,289,000 | 5,290,000 | ||||||
Non-cash
stock option compensation expense
|
848,000 | 282,000 | ||||||
Depreciation
and other amortization
|
842,000 | 968,000 | ||||||
Provision
for inventory obsolescence
|
812,000 | 378,000 | ||||||
Equity
in net loss of unconsolidated subsidiary
|
359,000 | — | ||||||
Other
|
103,000 | 37,000 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Escrowed
cash
|
4,074,000 | 625,000 | ||||||
Accounts
receivable, net
|
4,820,000 | (994,000 | ) | |||||
Estimated
earnings in excess of billings
|
25,000 | 11,373,000 | ||||||
Inventories,
net
|
(537,000 | ) | 380,000 | |||||
Prepaid
expenses and other assets
|
(56,000 | ) | (1,396,000 | ) | ||||
Accounts
payable and accrued expenses
|
(3,784,000 | ) | (12,428,000 | ) | ||||
Billings
in excess of cost and earnings
|
(7,537,000 | ) | 50,774,000 | |||||
Other
|
9,000 | 86,000 | ||||||
Net
cash provided by operating activities
|
6,303,000 | 54,977,000 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Payment
of contingent acquisition price
|
(2,000,000 | ) | — | |||||
Investment
in unconsolidated subsidiary
|
(1,600,000 | ) | — | |||||
Purchases
of property and equipment, net
|
(216,000 | ) | (463,000 | ) | ||||
Purchases
of investments
|
— | (19,997,000 | ) | |||||
Proceeds
from sale of investments
|
— | 17,271,000 | ||||||
Net
cash used in investing activities
|
(3,816,000 | ) | (3,189,000 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Net
proceeds from the private placement sale of common stock
|
24,982,000 | — | ||||||
Principal
payments on long-term debt
|
(1,939,000 | ) | (1,940,000 | ) | ||||
Proceeds
from the exercise of stock options and warrants
|
786,000 | 27,000 | ||||||
Net
cash provided by (used in) financing activities
|
23,829,000 | (1,913,000 | ) | |||||
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
26,316,000 | 49,875,000 | ||||||
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
66,827,000 | 25,393,000 | ||||||
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$ | 93,143,000 | $ | 75,268,000 | ||||
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
||||||||
Cash
paid for interest and income taxes as follows:
|
||||||||
Interest
|
$ | 336,000 | $ | 898,000 | ||||
Income
taxes
|
$ | 5,192,000 | $ | 3,117,000 | ||||
Non-cash
transactions as follows:
|
||||||||
Net
(increase) decrease in the fair value of interest rate
swaps
|
$ | (48,000 | ) | $ | 36,000 | |||
Reductions
in accounts receivable and billings in excess of cost and
earnings
|
$ | 22,219,000 |
—
|
October 31,
2008
|
January 31,
2008
|
|||||||
Raw
materials
|
$ | 3,118,000 | $ | 2,846,000 | ||||
Work-in
process
|
175,000 | 43,000 | ||||||
Finished
goods
|
154,000 | 144,000 | ||||||
Less:
reserves
|
(914,000 | ) | (225,000 | ) | ||||
Inventories,
net
|
$ | 2,533,000 | $ | 2,808,000 |
October 31,
2008
|
January 31,
2008
|
|||||||
Leasehold
improvements
|
$ | 1,033,000 | $ | 1,051,000 | ||||
Machinery
and equipment
|
2,627,000 | 3,778,000 | ||||||
Trucks
and other vehicles
|
1,260,000 | 1,263,000 | ||||||
4,920,000 | 6,092,000 | |||||||
Less
– accumulated depreciation
|
(3,589,000 | ) | (3,200,000 | ) | ||||
Property
and equipment, net
|
$ | 1,331,000 | $ | 2,892,000 |
October 31, 2008
|
|||||||||||||||||
Estimated
Useful
Life
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Amount
|
January 31,
2008
Net Amount
|
|||||||||||||
Intangible
assets being amortized:
|
|||||||||||||||||
Contractual
customer relationships
- VLI and SMC
|
5-7
years
|
$ | 2,190,000 | $ | 2,014,000 | $ | 176,000 | $ | 379,000 | ||||||||
Customer
relationships - GPS
|
1-2
years
|
6,678,000 | 6,678,000 | — | 904,000 | ||||||||||||
Proprietary
formulas - VLI
|
3
years
|
1,813,000 | 1,813,000 | — | — | ||||||||||||
Non-compete
agreements - GPS and VLI
|
5
years
|
1,731,000 | 1,393,000 | 338,000 | 424,000 | ||||||||||||
Trade
name - GPS
|
15
years
|
3,643,000 | 460,000 | 3,183,000 | 3,365,000 | ||||||||||||
Intangible
assets not being amortized:
|
|||||||||||||||||
Trade
name - SMC
|
Indefinite
|
224,000 | — | 224,000 | 224,000 | ||||||||||||
Total
other intangible assets
|
$ | 16,279,000 | $ | 12,358,000 | $ | 3,921,000 | $ | 5,296,000 | |||||||||
Goodwill
|
Indefinite
|
$ | 19,416,000 | $ | — | $ | 19,416,000 | $ | 20,337,000 |
Options
|
Shares
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Remaining
Contract
Term (Years)
|
Weighted-
Average
Fair
Value
|
||||||||||||
Outstanding, January 31, 2008
|
426,000 | $ | 6.07 | |||||||||||||
Granted
|
205,000 | $ | 12.15 | |||||||||||||
Exercised
|
(98,000 | ) | $ | 6.35 | ||||||||||||
Forfeited
or expired
|
(51,000 | ) | $ | 10.13 | ||||||||||||
Outstanding,
October 31, 2008
|
482,000 | $ | 8.17 | 6.8 | $ | 4.56 | ||||||||||
Exercisable,
October 31, 2008
|
257,000 | $ | 4.76 | 6.1 | $ | 2.72 | ||||||||||
Exercisable,
January 31, 2008
|
235,000 | $ | 4.16 | 6.9 | $ | 2.19 |
Nine Months
Ended October
31, 2008
|
|
|||
Dividend yield
|
— | |||
Expected
volatility
|
61.22 | % | ||
Risk-free
interest rate
|
4.00 | % | ||
Expected
life in years
|
5 |
2008
|
2007
|
|||||||
Computed
expected income tax (expense) benefit
|
$ | (2,746,000 | ) | $ | 471,000 | |||
State
income taxes, net
|
(179,000 | ) | (386,000 | ) | ||||
Permanent
differences
|
(167,000 | ) | (1,338,000 | ) | ||||
$ | (3,092,000 | ) | $ | (1,253,000 | ) |
Three Months Ended October 31, 2008
|
Power Industry
Services
|
Nutritional
Products
|
Telecom
Infrastructure
Services
|
Other
|
Consolidated
|
|||||||||||||||
Net revenues
|
$ | 36,387,000 | $ | 2,662,000 | $ | 2,338,000 | $ | — | $ | 41,387,000 | ||||||||||
Cost
of revenues
|
29,742,000 | 2,983,000 | 1,824,000 | — | 34,549,000 | |||||||||||||||
Gross
profit
|
6,645,000 | (321,000 | ) | 514,000 | — | 6,838,000 | ||||||||||||||
Selling,
general and administrative expenses
|
933,000 | 582,000 | 393,000 | 1,182,000 | 3,090,000 | |||||||||||||||
Income
(loss) from operations
|
5,712,000 | (903,000 | ) | 121,000 | (1,182,000 | ) | 3,748,000 | |||||||||||||
Interest
expense
|
(89,000 | ) | (13,000 | ) | — | (6,000 | ) | (108,000 | ) | |||||||||||
Interest
income
|
480,000 | — | — | 129,000 | 609,000 | |||||||||||||||
Equity
in the net loss of unconsolidated subsidiary
|
(195,000 | ) | — | — | — | (195,000 | ) | |||||||||||||
Income
(loss) before income taxes
|
$ | 5,908,000 | $ | (916,000 | ) | $ | 121,000 | $ | (1,059,000 | ) | 4,054,000 | |||||||||
Income
tax expense
|
(1,430,000 | ) | ||||||||||||||||||
Net
income
|
$ | 2,624,000 | ||||||||||||||||||
Amortization
of purchased intangibles
|
$ | 87,000 | $ | 2,000 | $ | 26,000 | $ | — | $ | 115,000 | ||||||||||
Depreciation
and other amortization
|
$ | 53,000 | $ | — | $ | 103,000 | $ | 3,000 | $ | 159,000 | ||||||||||
Goodwill
|
$ | 18,476,000 | $ | — | $ | 940,000 | $ | — | $ | 19,416,000 | ||||||||||
Total
assets
|
$ | 93,054,000 | $ | 4,915,000 | $ | 3,960,000 | $ | 38,139,000 | $ | 140,068,000 | ||||||||||
Fixed
asset additions
|
$ | 24,000 | $ | — | $ | 25,000 | $ | — | $ | 49,000 |
Three Months Ended October 31, 2007
|
Power Industry
Services
|
Nutritional
Products
|
Telecom
Infrastructure
Services
|
Other
|
Consolidated
|
|||||||||||||||
Net revenues
|
$ | 42,017,000 | $ | 4,617,000 | $ | 2,629,000 | $ | — | $ | 49,263,000 | ||||||||||
Cost
of revenues
|
35,548,000 | 4,193,000 | 2,076,000 | — | 41,817,000 | |||||||||||||||
Gross
profit
|
6,469,000 | 424,000 | 553,000 | — | 7,446,000 | |||||||||||||||
Selling,
general and administrative expenses
|
1,892,000 | 1,047,000 | 346,000 | 1,096,000 | 4,381,000 | |||||||||||||||
Impairment
losses of VLI
|
— | 4,666,000 | — | — | 4,666,000 | |||||||||||||||
Income
(loss) from operations
|
4,577,000 | (5,289,000 | ) | 207,000 | (1,096,000 | ) | (1,601,000 | ) | ||||||||||||
Interest
expense
|
(145,000 | ) | (26,000 | ) | — | — | (171,000 | ) | ||||||||||||
Interest
income
|
1,067,000 | — | — | 7,000 | 1,074,000 | |||||||||||||||
Income
(loss) before income taxes
|
$ | 5,499,000 | $ | (5,315,000 | ) | $ | 207,000 | $ | (1,089,000 | ) | (698,000 | ) | ||||||||
Income
tax expense
|
(1,259,000 | ) | ||||||||||||||||||
Net
loss
|
$ | (1,957,000 | ) | |||||||||||||||||
Amortization
of purchased intangibles
|
$ | 947,000 | $ | 228,000 | $ | 26,000 | $ | — | $ | 1,201,000 | ||||||||||
Depreciation
and other amortization
|
$ | 45,000 | $ | 140,000 | $ | 135,000 | $ | 4,000 | $ | 324,000 | ||||||||||
Goodwill
|
$ | 16,476,000 | $ | 2,739,000 | $ | 940,000 | $ | — | $ | 20,155,000 | ||||||||||
Total
assets
|
$ | 124,193,000 | $ | 9,909,000 | $ | 4,896,000 | $ | 14,799,000 | $ | 153,797,000 | ||||||||||
Fixed
asset additions
|
$ | 31,000 | $ | 88,000 | $ | 164,000 | $ | — | $ | 283,000 |
Nine
Months Ended October 31, 2008
|
Power
Industry
Services |
Nutritional
Products
|
Telecom
Infrastructure
Services
|
Other
|
Consolidated
|
|||||||||||||||
Net
revenues
|
$ | 151,034,000 | $ | 7,287,000 | $ | 6,570,000 | $ | — | $ | 164,891,000 | ||||||||||
Cost
of revenues
|
131,425,000 | 7,701,000 | 5,474,000 | — | 144,600,000 | |||||||||||||||
Gross
profit
|
19,609,000 | (414,000 | ) | 1,096,000 | — | 20,291,000 | ||||||||||||||
Selling,
general and administrative expenses
|
4,354,000 | 2,097,000 | 1,143,000 | 3,524,000 | 11,118,000 | |||||||||||||||
Impairment
losses of VLI
|
— | 1,946,000 | — | — | 1,946,000 | |||||||||||||||
Income
(loss) from operations
|
15,255,000 | (4,457,000 | ) | (47,000 | ) | (3,524,000 | ) | 7,227,000 | ||||||||||||
Interest
expense
|
(283,000 | ) | (47,000 | ) | — | (6,000 | ) | (336,000 | ) | |||||||||||
Interest
income
|
1,374,000 | — | — | 171,000 | 1,545,000 | |||||||||||||||
Equity
in the net loss of unconsolidated subsidiary
|
(359,000 | ) | — | — | — | (359,000 | ) | |||||||||||||
Income
(loss) before income taxes
|
$ | 15,987,000 | $ | (4,504,000 | ) | $ | (47,000 | ) | $ | (3,359,000 | ) | 8,077,000 | ||||||||
Income
tax expense
|
(3,092,000 | ) | ||||||||||||||||||
Net
income
|
$ | 4,985,000 | ||||||||||||||||||
Amortization
of purchased intangibles
|
$ | 1,166,000 | $ | 45,000 | $ | 78,000 | $ | — | $ | 1,289,000 | ||||||||||
Depreciation
and other amortization
|
$ | 152,000 | $ | 297,000 | $ | 386,000 | $ | 7,000 | $ | 842,000 | ||||||||||
Fixed
asset additions
|
$ | 113,000 | $ | 131,000 | $ | 69,000 | $ | — | $ | 313,000 |
Nine Months Ended October 31, 2007
|
Power Industry
Services |
Nutritional
Products
|
Telecom
Infrastructure
Services
|
Other
|
Consolidated
|
|||||||||||||||
Net revenues
|
$ | 130,970,000 | $ | 14,602,000 | $ | 7,260,000 | $ | — | $ | 152,832,000 | ||||||||||
Cost
of revenues
|
119,383,000 | 12,481,000 | 5,776,000 | — | 137,640,000 | |||||||||||||||
Gross
profit
|
11,587,000 | 2,121,000 | 1,484,000 | — | 15,192,000 | |||||||||||||||
Selling,
general and administrative expenses
|
6,998,000 | 3,231,000 | 1,044,000 | 2,442,000 | 13,715,000 | |||||||||||||||
Impairment
losses of VLI
|
— | 4,666,000 | — | — | 4,666,000 | |||||||||||||||
Income
(loss) from operations
|
4,589,000 | (5,776,000 | ) | 440,000 | (2,442,000 | ) | (3,189,000 | ) | ||||||||||||
Interest
expense
|
(461,000 | ) | (88,000 | ) | (1,000 | ) | — | (550,000 | ) | |||||||||||
Interest
income
|
2,343,000 | — | — | 9,000 | 2,352,000 | |||||||||||||||
Income
(loss) before income taxes
|
$ | 6,471,000 | $ | (5,864,000 | ) | $ | 439,000 | $ | (2,433,000 | ) | (1,387,000 | ) | ||||||||
Income
tax expense
|
(1,253,000 | ) | ||||||||||||||||||
Net
loss
|
$ | (2,640,000 | ) | |||||||||||||||||
Amortization
of purchased intangibles
|
$ | 4,375,000 | $ | 837,000 | $ | 78,000 | $ | — | $ | 5,290,000 | ||||||||||
Depreciation
and other amortization
|
$ | 139,000 | $ | 434,000 | $ | 383,000 | $ | 12,000 | $ | 968,000 | ||||||||||
Fixed
asset additions
|
$ | 35,000 | $ | 212,000 | $ | 260,000 | $ | — | $ | 507,000 |
Three
Months Ended October 31,
|
||||||||||||||||
2008
|
2007
|
|||||||||||||||
Net
revenues
|
||||||||||||||||
Power
industry services
|
$ | 36,387,000 | 87.9 | % | $ | 42,017,000 | 85.3 | % | ||||||||
Nutritional
products
|
2,662,000 | 6.4 | % | 4,617,000 | 9.4 | % | ||||||||||
Telecommunications
infrastructure services
|
2,338,000 | 5.7 | % | 2,629,000 | 5.3 | % | ||||||||||
Net
revenues
|
41,387,000 | 100.0 | % | 49,263,000 | 100.0 | % | ||||||||||
Cost
of revenues **
|
||||||||||||||||
Power
industry services
|
29,742,000 | 81.7 | % | 35,548,000 | 84.6 | % | ||||||||||
Nutritional
products
|
2,983,000 | 112.1 | % | 4,193,000 | 90.8 | % | ||||||||||
Telecommunications
infrastructure services
|
1,824,000 | 78.0 | % | 2,076,000 | 79.0 | % | ||||||||||
Cost
of revenues
|
34,549,000 | 83.5 | % | 41,817,000 | 84.9 | % | ||||||||||
Gross
profit
|
6,838,000 | 16.5 | % | 7,446,000 | 15.1 | % | ||||||||||
Selling,
general and administrative expenses
|
3,090,000 | 7.5 | % | 4,381,000 | 8.9 | % | ||||||||||
Impairment
losses of VLI
|
— | — | % | 4,666,000 | 9.5 | % | ||||||||||
Income
(loss) from operations
|
3,748,000 | 9.1 | % | (1,601,000 | ) | (3.3 | )% | |||||||||
Interest
expense
|
(108,000 | ) | * | (171,000 | ) | * | ||||||||||
Interest
income
|
609,000 | 1.0 | 1,074,000 | 2.2 | % | |||||||||||
Equity
in the net loss of unconsolidated subsidiary
|
(195,000 | ) | * | — | — | % | ||||||||||
Income
(loss) from operations before income taxes
|
4,054,000 | 9.8 | % | (698,000 | ) | (1.4 | )% | |||||||||
Income
tax expense
|
(1,430,000 | ) | (3.5 | )% | (1,259,000 | ) | (2.6 | )% | ||||||||
Net
income (loss)
|
$ | 2,624,000 | 6.3 | % | $ | (1,957,000 | ) | (4.0 | )% |
Nine Months Ended October 31,
|
||||||||||||||||
2008
|
2007
|
|||||||||||||||
Net revenues
|
||||||||||||||||
Power
industry services
|
$ | 151,034,000 | 91.6 | % | $ | 130,970,000 | 85.7 | % | ||||||||
Nutritional
products
|
7,287,000 | 4.4 | % | 14,602,000 | 9.6 | % | ||||||||||
Telecommunications
infrastructure services
|
6,570,000 | 4.0 | % | 7,260,000 | 4.7 | % | ||||||||||
Net
revenues
|
164,891,000 | 100.0 | % | 152,832,000 | 100.0 | % | ||||||||||
Cost
of revenues **
|
||||||||||||||||
Power
industry services
|
131,425,000 | 87.0 | % | 119,383,000 | 91.2 | % | ||||||||||
Nutritional
products
|
7,701,000 | 105.7 | % | 12,481,000 | 85.5 | % | ||||||||||
Telecommunications
infrastructure services
|
5,474,000 | 83.3 | % | 5,776,000 | 79.6 | % | ||||||||||
Cost
of revenues
|
144,600,000 | 87.7 | % | 137,640,000 | 90.1 | % | ||||||||||
Gross
profit
|
20,291,000 | 12.3 | % | 15,192,000 | 9.9 | % | ||||||||||
Selling,
general and administrative expenses
|
11,118,000 | 6.7 | % | 13,715,000 | 9.0 | % | ||||||||||
Impairment
losses of VLI
|
1,946,000 | 1.2 | % | 4,666,000 | 3.0 | % | ||||||||||
Income
(loss) from operations
|
7,227,000 | 4.4 | % | (3,189,000 | ) | (2.1 | )% | |||||||||
Interest
expense
|
(336,000 | ) | * | (550,000 | ) | * | ||||||||||
Interest
income
|
1,545,000 | 1.0 | 2,352,000 | 1.5 | % | |||||||||||
Equity
in the net loss of unconsolidated subsidiary
|
(359,000 | ) | * | — | — | % | ||||||||||
Income
(loss) from operations before income taxes
|
8,077,000 | 4.9 | % | (1,387,000 | ) | * | ||||||||||
Income
tax expense
|
(3,092,000 | ) | (1.9 | )% | (1,253,000 | ) | * | |||||||||
Net
income (loss)
|
$ | 4,985,000 | 3.0 | % | $ | (2,640,000 | ) | (1.7 | )% |
Three Months Ended October 31,
|
||||||||
2008
|
2007
|
|||||||
Net
income (loss), as reported
|
$ | 2,624,000 | $ | (1,957,000 | ) | |||
Income
tax expense
|
1,430,000 | 1,259,000 | ||||||
Depreciation
and other amortization
|
159,000 | 324,000 | ||||||
Amortization
of purchased intangible assets
|
115,000 | 1,201,000 | ||||||
Interest
expense
|
108,000 | 171,000 | ||||||
Stock
option compensation expense
|
60,000 | 182,000 | ||||||
Impairment
losses of VLI
|
— | 4,666,000 | ||||||
EBITDA
|
$ | 4,496,000 | $ | 5,846,000 |
Nine Months Ended October 31,
|
||||||||
2008
|
2007
|
|||||||
Net
income (loss), as reported
|
$ | 4,985,000 | $ | (2,640,000 | ) | |||
Income
tax expense
|
3,092,000 | 1,253,000 | ||||||
Impairment
losses of VLI
|
1,946,000 | 4,666,000 | ||||||
Amortization
of purchased intangible assets
|
1,289,000 | 5,290,000 | ||||||
Stock
option compensation expense
|
848,000 | 282,000 | ||||||
Depreciation
and other amortization
|
842,000 | 968,000 | ||||||
Interest
expense
|
336,000 | 550,000 | ||||||
EBITDA
|
$ | 13,338,000 | $ | 10,369,000 |
1)
|
On
March 22, 2005, WFC filed a civil action against the Company and its
executive officers. The suit was filed in the Superior Court of the State
of California for the County of Los Angeles. WFC purchased the capital
stock of the Company's wholly-owned subsidiary, Puroflow Incorporated,
pursuant to the terms of the Stock Purchase Agreement dated October 31,
2003. WFC alleged that the Company and its executive officers breached the
Stock Purchase Agreement between WFC and the Company and engaged in
misrepresentations and negligent conduct with respect to the Stock
Purchase Agreement. WFC sought declaratory relief, compensatory and
punitive damages in an amount to be proven at trial as well as the
recovery of attorney's fees. This action was removed to the United States
District Court for the Central District of California. The Company and its
officers denied that any breach of contract or that any misrepresentations
or negligence occurred on their
part.
|
2)
|
On
August 27, 2007, Kevin Thomas, the former owner of VLI, filed a lawsuit
against the Company, VLI and the Company’s Chief Executive Officer (the
“CEO”) in the Circuit Court of Florida for Collier County. The Company
acquired VLI by way of merger on August 31, 2004. Mr. Thomas
alleges that the Company, VLI and the CEO breached various agreements
regarding his compensation and employment package that arose from the
acquisition of VLI. Mr. Thomas has alleged contractual and tort-based
claims arising from his compensation and employment agreements and seeks
rescission of his covenant not to compete against VLI. The
Company, VLI and the CEO deny that any breach of contract or tortious
conduct occurred on their part. The Company and VLI have also
asserted four counterclaims against Mr. Thomas for breach of the merger
agreement, breach of his employment contract, breach of fiduciary duty and
tortious interference with contractual relations for the violation of his
non-solicitation, confidentiality and non-compete obligations after he
left VLI (the “VLI Merger Litigation”). The Company intends to vigorously
defend this lawsuit and prosecute its
counterclaims.
|
3)
|
On
March 4, 2008, Vitarich Farms, Inc. (“VFI”) filed a lawsuit against VLI
and its current president in the Circuit Court of Florida for Collier
County. VFI, which is owned by Kevin Thomas, supplied VLI with certain
organic raw materials used in the manufacture of VLI products. VFI has
asserted a breach of contract claim against VLI and alleges that VLI
breached a supply agreement with VFI by acquiring the organic products
from a different supplier. VFI also asserted a claim for
defamation against VLI’s president alleging that he made false statements
regarding VFI’s organic certification to one of VLI's customers. VLI and
its president filed their Answer and Affirmative Defenses on May 8, 2008.
VLI and its president deny that VLI breached any contract or that its
president defamed VFI. The defendants intend to continue to vigorously
defend this lawsuit.
|
4)
|
On
March 4, 2008, Mr. Thomas filed a lawsuit against VLI's president in the
Circuit Court of Florida for Collier County. Mr. Thomas has
filed this new lawsuit against VLI’s president for
defamation. Mr. Thomas alleges that VLI’s president made false
statements to third-parties regarding Mr. Thomas' conduct that is the
subject of counterclaims by the Company and VLI in the VLI Merger
Litigation discussed above, and that these statements have caused damage
to his business reputation. VLI’s president filed his answer with the
court on May 8, 2008 denying that he defamed Mr. Thomas. He intends to
continue to vigorously defend this
lawsuit.
|
Exhibit No.
|
Title
|
|
Exhibit:
31.1
|
Certification
of Chief Executive Officer, pursuant to Rule 13a-14(c) under the
Securities Exchange Act of 1934
|
|
Exhibit:
31.2
|
Certification
of Chief Financial Officer, pursuant to Rule 13a-14(c) under the
Securities Exchange Act of 1934
|
|
Exhibit:
32.1
|
Certification
of Chief Executive Officer, pursuant to 18 U.S.C. Section
1350
|
|
Exhibit:
32.2
|
Certification
of Chief Financial Officer, pursuant to 18 U.S.C. Section
1350
|
ARGAN,
INC.
|
||
December
12, 2008
|
By:
|
/s/ Rainer H.
Bosselmann
|
Rainer
H. Bosselmann
|
||
Chairman
of the Board and Chief Executive
Officer
|
December
12, 2008
|
By:
|
/s/ Arthur F.
Trudel
|
Arthur
F. Trudel
|
||
Senior
Vice President, Chief Financial Officer and
Secretary
|