ARGAN INC - Audit Report / Information 2007

8-K/A 1 v063364_8ka.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): December 8, 2006

| ARGAN,
INC. |
| --- |
| (Exact
Name of Registrant as Specified in Its
Charter) |

Delaware	001-31756	13-1947195
(State
or other Jurisdiction of Incorporation)	(Commission
File Number)	(I.R.S.
Employer Identification No.)

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

Registrant’s telephone number, including area code: (301) 315-0027

| Not
Applicable |
| --- |
| (Former
Name or Former Address, if Changed Since Last
Report) |

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Explanatory Note

This Form 8-K/A is filed to amend the Form 8-K filed December 15, 2006 to include financial statements of businesses acquired and related pro forma financial information.

Item 9.01 Financial Statements and Exhibits

(a) Financial Statements of Businesses Acquired

Audited combined balance sheets of Gemma Power Systems, LLC and affiliates as of December 8, 2006, December 31, 2005 and 2004 and related combined statements of income and comprehensive income, changes in equity and cash flows for the 49 weeks ended December 8, 2006 and for the years ended December 31, 2005 and 2004.

Contents	Page
Gemma
Power Systems, LLC and Affiliates Combined Financial
Statements
- December 8, 2006 and Independent Auditors’ Report	3
Gemma
Power Systems, LLC and Affiliate Combined Financial
Statements
- December 31, 2005 and 2004 and Independent Auditors’
Report	14

GEMMA POWER SYSTEMS, LLC AND AFFILIATES

Combined Financial Statements

December 8, 2006

INDEPENDENT AUDITORS’ REPORT

To the Members and Boards of Directors

Gemma Power Systems, LLC and Affiliates

Glastonbury, Connecticut

We have audited the accompanying combined balance sheet of Gemma Power Systems, LLC and Affiliates as of December 8, 2006, and the related combined statements of income and comprehensive income, changes in equity, and cash flows for the 49 weeks then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Gemma Power Systems, LLC and Affiliates as of December 8, 2006, and the results of their operations and cash flows for the 49 weeks then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Kostin, Ruffkess & Company, LLC

Farmington, Connecticut

January 5, 2007

GEMMA POWER SYSTEMS, LLC AND AFFILIATES

Combined Balance Sheet

December 8, 2006

Assets
Current
assets:
Cash
and cash equivalents	$ 35,829,568
Cash
in escrow	2,691,887
Contract
receivables	8,955,043
Investments
available-for-sale	2,292,829
Costs
and estimated earnings in excess
of
billings on uncompleted contracts	1,117,618
Prepaid
expenses and other current assets	129,598
Total
current assets	51,016,543
Property
and equipment, net of
accumulated
depreciation and amortization	69,646
Other
assets	1,250
Total
assets	$ 51,087,439
Liabilities
and Equity
Current
liabilities:
Accounts
payable	$ 29,444,461
Accrued
expenses	1,253,063
Accrued
payroll and related items	526,376
Billings
in excess of costs and estimated
earnings
on uncompleted contracts	14,278,682
Total
current liabilities	45,502,582
Equity	5,584,857
Total
liabilities and equity	$ 51,087,439

The accompanying notes are an integral part of the combined financial statements

GEMMA POWER SYSTEMS, LLC AND AFFILIATES

Combined Statement of Income and Comprehensive Income

For the 49 Weeks Ended December 8, 2006

| Sales
revenues: — Project
income | $ 105,222,311 | |
| --- | --- | --- |
| Consulting
income | 569,081 | |
| Total
sales revenues | 105,791,392 | |
| Cost
of sales: | | |
| Project
costs | 97,939,862 | |
| Consulting
costs | 496,489 | |
| Total
cost of sales | 98,436,351 | |
| Gross
profit | 7,355,041 | |
| Operating
expenses | 2,497,767 | |
| Income
from operations | 4,857,274 | |
| Other
income (expense): | | |
| Interest
income | 996,644 | |
| Incentive
compensation | (627,000 | ) |
| Other
expenses - net | (104,931 | ) |
| Total
other income | 264,713 | |
| Net
income | 5,121,987 | |
| Other
comprehensive income: | | |
| Unrealized
holding gains arising during the period | 2,384 | |
| Comprehensive
income | $ 5,124,371 | |

The accompanying notes are an integral part of the combined financial statements

GEMMA POWER SYSTEMS, LLC AND AFFILIATES

Combined Statement of Cash Flows

For the 49 Weeks Ended December 8, 2006

| Cash
flows from operating activities: — Net
income | $ 5,121,987 | |
| --- | --- | --- |
| Adjustments
to reconcile net income to net cash provided by | | |
| operating
activities: | | |
| Depreciation
and amortization | 70,856 | |
| Realized
(gain) loss on sale of fixed assets | 4,694 | |
| (Increase)
decrease in: | | |
| Cash
in escrow | (2,002,406 | ) |
| Contract
receivables | (3,292,385 | ) |
| Costs
and estimated earnings in excess of | | |
| billings
on uncompleted contracts | (1,112,757 | ) |
| Prepaid
expenses and other current assets | (105,089 | ) |
| Increase
(decrease) in: | | |
| Accounts
payable | 22,223,544 | |
| Accrued
expenses | 555,452 | |
| Accrued
payroll and related items | 252,900 | |
| Billings
in excess of costs and estimated | | |
| earnings
on uncompleted contracts | 4,989,262 | |
| Cash
flows provided by operating activities | 26,706,058 | |
| Cash
flows from investing activities: | | |
| Purchase
of investments | (11,611,333 | ) |
| Proceeds
from sale of investments | 11,525,000 | |
| Acquisition
of property and equipment | (1,377 | ) |
| Proceeds
from sale of property and equipment | 18,059 | |
| Cash
flows used in investing activities | (69,651 | ) |
| Cash
flows from financing activities: | | |
| Distributions | (9,003,800 | ) |
| Contributions | 1,600,000 | |
| Issuance
of stock | 3,900 | |
| Cash
flows used in financing activities | (7,399,900 | ) |
| Net
increase in cash and cash equivalents | 19,236,507 | |
| Cash
and cash equivalents, beginning of period | 16,593,061 | |
| Cash
and cash equivalents, end of period | $ 35,829,568 | |

The accompanying notes are an integral part of the combined financial statements

GEMMA POWER SYSTEMS, LLC AND AFFILIATES

Combined Statement of Changes in Equity

For the 49 Weeks Ended December 8, 2006

| | Gemma
Power | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | Systems,
LLC | | | Systems
California, Inc. | | | Inc. | | | | |
| | Accumulated | | | | | | | | | | |
| | Other | | | | | | | | | Combined | |
| | Comprehensive | | | Common | | Retained | Common | | Retained | Total | |
| | Income | | Equity | Stock | | Earnings | Stock* | | Earnings | Equity | |
| Balance
at December 31, 2005 | $ (1,711 | ) | $ 6,950,429 | $ | 100 | $ 911,568 | $ | - | $ - | $ 7,860,386 | |
| Net
income | - | | 5,420,853 | | - | (301,502 | ) | - | 2,636 | 5,121,987 | |
| Comprehensive
income | 2,384 | | - | | - | - | | - | - | 2,384 | |
| Stock
issuance | - | | - | | - | - | | 3,900 | - | 3,900 | |
| Contributions | - | | 1,600,000 | | - | - | | - | - | 1,600,000 | |
| Distributions | - | | (9,003,800 | ) | - | - | | - | - | (9,003,800 | ) |
| Balance
at December 8, 2006 | $ 673 | | $ 4,967,482 | $ | 100 | $ 610,066 | $ | 3,900 | $ 2,636 | $ 5,584,857 | |

- Common stock, authorized 100 shares, no par value; issued and outstanding 100 shares

** - Common stock, authorized 20,000 shares, no par value; issued and outstanding 3,900 shares

The accompanying notes are an integral part of the combined financial statements

GEMMA POWER SYSTEMS, LLC AND AFFILIATES

Notes to the Combined Financial Statements

For the 49 Weeks Ended December 8, 2006

Note 1 - Summary of Significant Accounting Policies :

Principles of Combination

The combined financial statements of Gemma Power Systems, LLC and Affiliates include the accounts of Gemma Power Systems, LLC, its wholly owned subsidiary, Gemma Power Hartford, LLC, Gemma Power Systems California, Inc. and Gemma Power, Inc. These entities together are referred to as the “Company" in the accompanying notes. Significant intercompany accounts and transactions have been eliminated in combination. The members’ liability in the entities organized as limited liability companies is limited to the net assets of the respective entity.

Nature of Operations

Gemma Power Systems, LLC and Affiliates, located in Glastonbury, Connecticut, are engaged in the engineering and construction of biodiesel and ethanol production facilities and power energy systems. The Company also provides consulting, owner’s representative, operating, and maintenance services to the energy market.

The Company’s work is performed under cost-plus-fee contracts, fixed-price contracts, and time and materials contracts. The length of the Company’s contracts varies, but is typically between six months and two years.

Revenue Recognition

Revenues from fixed price construction contracts are recognized on the percentage of completion method, measured by the costs incurred to date to estimated total costs for each contract. Revenues from cost-plus-fee contracts are recognized on the basis of costs incurred during the period plus the fee earned, measured by the cost-to-cost method.

Project costs include both direct and indirect expenses related to contract performance. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.

Costs and estimated earnings in excess of billings on uncompleted contracts represent revenues recognized in excess of amounts billed. Billings in excess of costs and estimated earnings on uncompleted contracts represents billings in excess of revenues recognized.

Off Balance Sheet Risk

During the 49 weeks ended December 8, 2006, the Company had amounts in excess of $100,000 in a single bank. Amounts over $100,000 are not insured by the Federal Deposit Insurance Corporation. These balances fluctuate greatly during the year and can exceed this $100,000 limit. Management regularly monitors the financial institutions, together with its cash balances, and tries to keep this potential risk to a minimum.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

GEMMA POWER SYSTEMS, LLC AND AFFILIATES

Notes to the Combined Financial Statements

For the 49 Weeks Ended December 8, 2006

Note 1 - Summary of Significant Accounting Policies : (Continued)

Income Taxes

Gemma Power Systems, LLC and Gemma Power Hartford, LLC are treated as a partnership for income tax purposes. As such, income and deductions flow through to the members, who include their share of income and losses on their respective income tax returns. Gemma Power Systems California, Inc. and Gemma Power, Inc. have elected to be taxed under Subchapter-S of the Internal Revenue Code. As such, income and deductions flow through to the shareholders, who include their share of income and losses on their respective income tax returns. Accordingly, since the Company has no federal tax liability, a provision for federal income tax expense has not been made.

The Company is subject to income tax in certain states in which it operates. These statements include a provision of $76,080 for these state income taxes.

Cash and Cash Equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible to known cash amounts and have maturities of three months or less from the date of acquisition so as to minimize risks of value changes. Supplemental cash flow information includes state income taxes paid by the Company of $48,890 for the 49 weeks ended December 8, 2006.

Principles of Consolidation

The Company previously adopted Financial Accounting Standards Board Interpretation No. 46R (FIN No. 46R), Consolidation of Variable Interest Entities. The Company has evaluated its relationship with a related party (see Note 6 - Related Party Transactions) and has determined that, although the entity is a variable interest entity, it is not required to be consolidated in the Company’s financial statements pursuant to FIN No. 46R because the Company is not the primary beneficiary and has no exposure to loss as a result of its involvement with this entity.

Property and Equipment

Property and equipment are stated at cost. Major renewals and improvements are charged to the property accounts, while maintenance and repairs that do not improve or extend the life of the assets are expensed currently.

The Company follows the policy of providing for depreciation of property and equipment by charging against earnings amounts sufficient to amortize the cost of property on their estimated useful lives as follows:

| Computer
software | 3
years |
| --- | --- |
| Computer
equipment | 3-5
years |
| Office
equipment | 5-7
years |
| Furniture
and fixtures | 7
years |
| Automobiles | 5
years |
| Construction
equipment | 5-7
years |

Depreciation and amortization are provided on various methods over the estimated useful lives of the assets for financial statement purposes.

GEMMA POWER SYSTEMS, LLC AND AFFILIATES

Notes to the Combined Financial Statements

For the 49 Weeks Ended December 8, 2006

Note 2 - Cash in Escrow :

Cash in escrow is a restricted interest bearing account which substitutes for retainage held by the project owner on a certain job. The amounts will be released to the Company upon completion of the job. During the construction period, the Company will earn the interest on these funds.

Note 3 - Contract Receivables :

Billed:
Contracts
in progress	$ 7,704,600
Retainage	1,250,443
	$ 8,955,043

Balances billed but not paid by customers pursuant to retainage provisions in construction contracts are due upon completion of the contracts and acceptance by the owner.

Note 4 - Investments Available-for-Sale :

Investments are classified as available-for-sale according to the provisions of Financial Accounting Standards Board Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities". The cost of investments sold was based on specific identification at the time of sale. The summary of these investments is as follows:

		Fair	Unrealized — Holding	Proceeds — From	Realized
Description	Cost	Value	Gains	Sales	Gains
Municipal
bonds	$ 2,292,156	$ 2,292,829	$ 673	$ 11,525,000	$ -

| Maturity
of Debt | Within
1 Year | 1
- 5 Years | Over
5 Years | Total |
| --- | --- | --- | --- | --- |
| Municipal
bonds | $ 1,333,388 | $ 959,441 | $ - | $ 2,292,829 |

Note 5 - Costs and Estimated Earnings on Uncompleted Contracts :

| Costs
incurred on uncompleted contracts | $ | |
| --- | --- | --- |
| Estimated
earnings | 6,868,315 | |
| | 154,263,570 | |
| Less:
billings to date | 167,424,634 | |
| | $ (13,161,064 | ) |
| Included
in accompanying balance sheets under the following
captions: | | |
| Costs
and estimated earnings in excess of billings on uncompleted
contracts | $ 1,117,618 | |
| Billings
in excess of costs and estimated earnings on uncompleted
contracts | (14,278,682 | ) |
| | $ (13,161,064 | ) |

GEMMA POWER SYSTEMS, LLC AND AFFILIATES

Notes to the Combined Financial Statements

For the 49 Weeks Ended December 8, 2006

Note 6 - Related Party Transactions :

The Company's agreement with Gemma Development, Inc. for management services ended on December 8, 2006. The management fee paid for the 49 weeks ended December 8, 2006 was $975,000.

Note 7 - Property and Equipment :

Assets:
Computer
software	$ 40,114
Computer
equipment	289,178
Office
equipment	261,279
Furniture
and fixtures	65,858
Automobiles	141,546
Construction
equipment	64,337
	862,312
Accumulated
depreciation and amortization:
Computer
software	40,114
Computer
equipment	265,298
Office
equipment	236,255
Furniture
and fixtures	62,535
Automobiles	125,187
Construction
equipment	63,277
	792,666
Net
property and equipment	$ 69,646

Note 8 - Operating Leases :

The Company conducts its operations in Glastonbury, Connecticut. The Company’s Glastonbury facility is leased under an operating lease that expires on October 31, 2007. For the 49 weeks ended December 8, 2006, the Company incurred rental expenses of $117,630.

At December 8, 2006, the future minimum lease payments for the next year is $106,936.

Note 9 - Accounts Payable :

Accounts payable include amounts due to subcontractors which have been retained pending completion and customer acceptance of jobs. These amounts were $2,780,139 at December 8, 2006.

Note 10 - Surety Bonds :

The Company, as a condition for entering into some of its construction contracts, had outstanding surety bonds as of December 8, 2006.

GEMMA POWER SYSTEMS, LLC AND AFFILIATES

Notes to the Combined Financial Statements

For the 49 Weeks Ended December 8, 2006

Note 11 - Profit Sharing Plan :

The Company has a qualified profit sharing plan that covers substantially all eligible employees. Pursuant to Internal Revenue Code Section 401(k), employees may elect to defer a portion of their salary or wages. Contributions by the Company are discretionary. There was no Company contribution expense for the 49 weeks ended December 8, 2006.

Note 12 - Incentive Compensation :

The Company pays its employees incentive compensation based on project and Company performance. Incentive compensation incurred by the Company for the 49 weeks ended December 8, 2006 was $627,000.

Note 13 - Subsequent Events :

On December 8, 2006, the Company was purchased by Argan, Inc.

Note 14 - Backlog :

The backlog of gross revenue on work to be performed on signed contracts was $181,303,027 at December 8, 2006.

GEMMA POWER SYSTEMS, LLC AND AFFILIATE

Combined Financial Statements

December 31, 2005 and 2004

INDEPENDENT AUDITORS’ REPORT

To the Members and Board of Directors

Gemma Power Systems, LLC and Affiliate

Glastonbury, Connecticut

We have audited the accompanying combined balance sheets of Gemma Power Systems, LLC and Affiliate as of December 31, 2005 and 2004, and the related combined statements of income and comprehensive income, changes in equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Gemma Power Systems, LLC and Affiliate as of December 31, 2005 and 2004, and the results of their operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Kostin, Ruffkess & Company, LLC

Farmington, Connecticut

January 23, 2006

GEMMA POWER SYSTEMS, LLC AND AFFILIATE

Combined Balance Sheets

December 31, 2005 and 2004

	2005	2004
Assets
Current
assets:
Cash
and cash equivalents	$ 16,593,061	$ 5,764,499
Cash
in escrow	689,481	-
Contract
receivables	5,662,658	2,014,176
Investments
available-for-sale	2,204,112	2,471,493
Costs
and estimated earnings in excess
of
billings on uncompleted contracts	4,861	4,498
Prepaid
expenses and other current assets	24,509	69,885
Total
current assets	25,178,682	10,324,551
Property
and equipment, net of
accumulated
depreciation and amortization	161,878	252,764
Other
assets	1,250	5,070
Total
assets	$ 25,341,810	$ 10,582,385
Liabilities
and Equity
Current
liabilities:
Accounts
payable	$ 7,220,917	$ 1,313,367
Accrued
expenses	697,611	1,367,945
Accrued
payroll and related items	273,476	46,216
Billings
in excess of costs and estimated
earnings
on uncompleted contracts	9,289,420	1,219,481
Total
current liabilities	17,481,424	3,947,009
Equity	7,860,386	6,635,376
Total
liabilities and equity	$ 25,341,810	$ 10,582,385

The accompanying notes are an integral part of the combined financial statements

GEMMA POWER SYSTEMS, LLC AND AFFILIATE

Combined Statements of Income and Comprehensive Income

For the Years Ended December 31, 2005 and 2004

	2005
Sales
revenues:
Project
income	$ 48,311,858	$	18,902,714
Consulting
income	310,253		357,366
Total
sales revenues	48,622,111		19,260,080
Cost
of sales:
Project
costs	42,477,625		8,186,057
Consulting
costs	265,880		365,606
Total
cost of sales	42,743,505		8,551,663
Gross
profit	5,878,606		10,708,417
Operating
expenses	2,081,910		3,483,007
Income
from operations	3,796,696		7,225,410
Other
income (expense):
Interest
income	436,882		346,760
Incentive
compensation	(76,000	)	4,708,543
401(k)
Company contribution	(282,697	)	(8,538	)
Realized
gain (loss) on sale of investments	(7,254	)	71,315
Other
expenses - net	(15,346	)	(71,483	)
Total
other income	55,585		5,046,597
Net
income	3,852,281		12,272,007
Other
comprehensive loss:
Unrealized
holding losses:
Unrealized
holding losses arising during the period	(37,590	)	(150,293	)
Less:
reclassification adjustment for (gains) losses
included
in net income	7,254		(71,315	)
Other
comprehensive loss	(30,336	)	(221,608	)
Comprehensive
income	$ 3,821,945	$	12,050,399

The accompanying notes are an integral part of the combined financial statements

GEMMA POWER SYSTEMS, LLC AND AFFILIATE

Combined Statements of Cash Flows

For the Years Ended December 31, 2005 and 2004

	2005
Cash
flows from operating activities:
Net
income	$ 3,852,281	$	12,272,007
Adjustments
to reconcile net income to net cash provided by
operating
activities:
Depreciation
and amortization	131,383		175,135
Realized
(gain) loss on sale of investments available-for-sale	7,254		(71,315	)
Realized
(gain) loss on sale of fixed assets	(36,657	)	(1,835	)
(Increase)
decrease in:
Cash
in escrow	(689,481	)	-
Contract
receivables	(3,648,482	)	2,560,524
Costs
and estimated earnings in excess of
billings
on uncompleted contracts	(363	)	(4,498	)
Prepaid
expenses and other current assets	45,376		(51,931	)
Other
assets	3,820		-
Increase
(decrease) in:
Accounts
payable	5,907,550		(2,939,985	)
Accrued
expenses	(670,334	)	40,810
Accrued
payroll and related items	227,260		(5,581,873	)
Billings
in excess of costs and estimated
earnings
on uncompleted contracts	8,069,939		(3,919,288	)
Cash
flows provided by operating activities	13,199,546		2,477,751
Cash
flows from investing activities:
Purchase
of investments	(3,082,116	)	(324,210	)
Proceeds
from sale of investments	3,311,907		5,544,813
Acquisition
of property and equipment	(37,840	)	(43,222	)
Proceeds
from sale of property and equipment	34,000		28,042
Cash
flows provided by investing activities	225,951		5,205,423
Cash
flows used in financing activities:
Distributions	(2,596,935	)	(17,636,498	)
Net
increase (decrease) in cash and cash equivalents	10,828,562		(9,953,324	)
Cash
and cash equivalents, beginning of year	5,764,499		15,717,823
Cash
and cash equivalents, end of year	$ 16,593,061	$	5,764,499

The accompanying notes are an integral part of the combined financial statements

GEMMA POWER SYSTEMS, LLC AND AFFILIATE

Combined Statement of Changes in Equity

For the Years Ended December 31, 2005 and 2004

| | Gemma
Power | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | Systems,
LLC | | | Systems
California, Inc. | | | | | |
| | Accumulated | | | | | | | | |
| | Other | | | | | | Combined | | |
| | Comprehensive | | | Common | | Retained | Total | | |
| | Income | | Equity | Stock* | | Earnings | Equity | | |
| Balance
at | | | | | | | | | |
| December
31, 2003 | $ 250,233 | | $ 11,248,475 | $ | 100 | $ 722,667 | $ | 12,221,475 | |
| Net
income | - | | 12,271,292 | | - | 715 | | 12,272,007 | |
| Comprehensive
loss | (221,608 | ) | - | | - | - | | (221,608 | ) |
| Distributions | - | | (17,136,498 | ) | - | (500,000 | ) | (17,636,498 | ) |
| Balance
at | | | | | | | | | |
| December
31, 2004 | 28,625 | | 6,383,269 | | 100 | 223,382 | | 6,635,376 | |
| Net
income | - | | 3,164,095 | | - | 688,186 | | 3,852,281 | |
| Comprehensive
loss | (30,336 | ) | - | | - | - | | (30,336 | ) |
| Distributions | - | | (2,596,935 | ) | - | - | | (2,596,935 | ) |
| Balance
at | | | | | | | | | |
| December
31, 2005 | $ (1,711 | ) | $ 6,950,429 | $ | 100 | $ 911,568 | $ | 7,860,386 | |

- Common stock, authorized 100 shares, no par value; issued and outstanding 100 shares in both 2005 and 2004

The accompanying notes are an integral part of the combined financial statements

GEMMA POWER SYSTEMS, LLC AND AFFILIATE

Notes to the Combined Financial Statements

For the Years Ended December 31, 2005 and 2004

Note 1 - Summary of Significant Accounting Policies :

Principles of Combination

The combined financial statements of Gemma Power Systems, LLC and Affiliate include the accounts of Gemma Power Systems, LLC, its wholly owned subsidiary, Gemma Power Hartford, LLC, and Gemma Power Systems California, Inc. These entities together are referred to as the “Company" in the accompanying notes. Significant intercompany accounts and transactions have been eliminated in combination.

Nature of Operations

Gemma Power Systems, LLC and Affiliate, located in Glastonbury, Connecticut, is engaged in the engineering and construction of power energy systems. The Company also provides consulting, owner’s representative, operating, and maintenance services to the energy market.

The Company’s work is performed under cost-plus-fee contracts, fixed-price contracts, and time and materials contracts. These contracts are undertaken by the Company or in partnership with other contractors through joint ventures. The length of the Company’s contracts varies, but is typically between six months and two years.

Revenue Recognition

Off Balance Sheet Risk

During the years ended December 31, 2005 and 2004, the Company had amounts in excess of $100,000 in a single bank. Amounts over $100,000 are not insured by the Federal Deposit Insurance Corporation. These balances fluctuate greatly during the year and can exceed this $100,000 limit. Management regularly monitors the financial institutions, together with its cash balances, and tries to keep this potential risk to a minimum.

Use of Estimates

GEMMA POWER SYSTEMS, LLC AND AFFILIATE

Notes to the Combined Financial Statements

For the Years Ended December 31, 2005 and 2004

Note 1 - Summary of Significant Accounting Policies : (Continued)

Income Taxes

Gemma Power Systems, LLC and Gemma Power Hartford, LLC are treated as a partnership for income tax purposes. As such, income and deductions flow through to the members, who include their share of income and losses on their respective income tax returns. Gemma Power Systems California, Inc. has elected to be taxed under Subchapter-S of the Internal Revenue Code. As such, income and deductions flow through to the shareholders, who include their share of income and losses on their respective income tax returns. Accordingly, since the Company has no federal tax liability, a provision for federal income tax expense has not been made.

Gemma Power Systems, LLC is subject to an income tax in the state of California. These statements include a provision for this tax, which was $11,790 and $-0- in 2005 and 2004, respectively.

Gemma Power Systems California, Inc. is subject to a minimum income tax in the state of California. These statements include a provision for this tax, which was $10,480 and $772 in 2005 and 2004, respectively.

Cash and Cash Equivalents

Principles of Consolidation

During the year ended December 31, 2005, the Company adopted Financial Accounting Standards Board Interpretation No. 46R (FIN No. 46R), Consolidation of Variable Interest Entities. The Company has evaluated its relationship with a related party (see Note 6 - Related Party Transactions) and has determined that, although the entity is a variable interest entity, it is not required to be consolidated in the Company’s financial statements pursuant to FIN No. 46R because the Company is not the primary beneficiary.

Property and Equipment

Depreciation and amortization are provided on various methods over the estimated useful lives of the assets for financial statement purposes.

GEMMA POWER SYSTEMS, LLC AND AFFILIATE

Notes to the Combined Financial Statements

For the Years Ended December 31, 2005 and 2004

Note 2 - Cash in Escrow :

Cash in escrow is a restricted interest bearing account which substitutes for retainage held by the Project owner on a certain job. The amounts will be released to the Company upon completion of the job. During the construction period, the Company will earn the interest on these funds.

Note 3 - Contract Receivables :

	2005	2004
Billed:
Contracts
in progress	$ 4,825,523	$ 1,783,811
Completed
contracts	2,619	32,166
Retainage	834,516	198,199
	$ 5,662,658	$ 2,014,176

Balances billed but not paid by customers pursuant to retainage provisions in construction contracts are due upon completion of the contracts and acceptance by the owner.

Note 4 - Investments Available-for-Sale :

2005

		Fair	Unrealized — Holding		Proceeds — From	Realized
Description	Cost	Value	Losses		Sales	Losses
Municipal
bonds	$ 2,205,823	$ 2,204,112	$ (1,711	)	$ 3,311,907	$ (7,254	)

| Maturity
of Debt | Within
1 Year | 1
- 5 Years | Over
5 Years | Total |
| --- | --- | --- | --- | --- |
| Municipal
bonds | $ 853,811 | $ 1,350,301 | $ - | $ 2,204,112 |

2004

		Fair	Unrealized — Holding	Proceeds — From	Realized
Description	Cost	Value	Gains	Sales	Gains
Municipal
bonds	$ 2,442,868	$ 2,471,493	$ 28,625	$ 3,367,398	$ (6,100	)
Corporate
bonds	-	-	-	2,177,415	77,415
Total	$ 2,442,868	$ 2,471,493	$ 28,625	$ 5,544,813	$ 71,315

| Maturity
of Debt | Within
1 Year | 1
- 5 Years | Over
5 Years | Total |
| --- | --- | --- | --- | --- |
| Municipal
bonds | $ 722,518 | $ 1,748,975 | $ - | $ 2,471,493 |

GEMMA POWER SYSTEMS, LLC AND AFFILIATE

Notes to the Combined Financial Statements

For the Years Ended December 31, 2005 and 2004

Note 5 - Costs and Estimated Earnings on Uncompleted Contracts :

| Costs
incurred on uncompleted contracts | 2005 — $ 47,082,590 | | 2004 — $ 4,736,217 | |
| --- | --- | --- | --- | --- |
| Estimated
earnings | 2,954,270 | | 438,504 | |
| | 50,036,860 | | 5,174,721 | |
| Less:
billings to date | 59,321,419 | | 6,389,704 | |
| | $ (9,284,559 | ) | $ (1,214,983 | ) |
| Included
in accompanying balance sheets | | | | |
| under
the following captions: | | | | |
| Costs
and estimated earnings in excess of | | | | |
| billings
on uncompleted contracts | $ 4,861 | | $ 4,498 | |
| Billings
in excess of costs and estimated | | | | |
| earnings
on uncompleted contracts | (9,289,420 | ) | (1,219,481 | ) |
| | $ (9,284,559 | ) | $ (1,214,983 | ) |

Note 6 - Related Party Transactions :

The Company leases vehicles from Gemma Development, Inc., which is owned by the members of the Company. The leases between Gemma Power Systems and Gemma Development are on a month-to-month basis. For the years ended December 31, 2005 and 2004, lease expense was $16,812 and $22,999, respectively, which were paid to Gemma Development, Inc. with no amounts payable on December 31, 2005 and 2004.

In addition, the Company has an agreement with Gemma Development, Inc. for management services. The agreement has no expiration date; however, the management fee may be adjusted periodically. The management fee paid was $750,000 and $1,050,000 in 2005 and 2004, respectively.

GEMMA POWER SYSTEMS, LLC AND AFFILIATE

Notes to the Combined Financial Statements

For the Years Ended December 31, 2005 and 2004

Note 7 - Property and Equipment :

| | December
31, | December
31, |
| --- | --- | --- |
| | 2005 | 2004 |
| Assets: | | |
| Computer
software | $ 41,951 | $ 41,951 |
| Computer
equipment | 376,436 | 367,527 |
| Office
equipment | 291,103 | 291,103 |
| Furniture
and fixtures | 89,118 | 99,644 |
| Automobiles | 239,077 | 350,209 |
| Construction
equipment | 271,127 | 271,127 |
| | 1,308,812 | 1,421,561 |
| Accumulated
depreciation and amortization: | | |
| Computer
software | 41,951 | 41,951 |
| Computer
equipment | 334,110 | 305,133 |
| Office
equipment | 246,401 | 219,534 |
| Furniture
and fixtures | 77,310 | 79,846 |
| Automobiles | 203,737 | 316,241 |
| Construction
equipment | 243,425 | 206,092 |
| | 1,146,934 | 1,168,797 |
| Net
property and equipment | $ 161,878 | $ 252,764 |

Note 8 - Operating Leases :

The Company conducts its operations in Glastonbury, Connecticut. The Company’s Glastonbury facility is leased under an operating lease that expires on October 31, 2007. For the years ended December 31, 2005 and 2004, the Company incurred rental expenses of $201,086 and $280,221, respectively.

At December 31, 2005, the future minimum lease payments for the next two years are:

2006	128,324
2007	106,936

Note 9 - Accounts Payable :

Accounts payable include amounts due to subcontractors which have been retained pending completion and customer acceptance of jobs. These amounts were $1,509,977 and $117,538 at December 31, 2005 and 2004, respectively.

GEMMA POWER SYSTEMS, LLC AND AFFILIATE

Notes to the Combined Financial Statements

For the Years Ended December 31, 2005 and 2004

Note 10 - Line of Credit :

The Company established a revolving line of credit of $2,500,000 with a bank which expires May 31, 2007. The variable interest rate is the prime rate as established by the bank. The bank has the right of setoff. The loan is secured by substantially all of the assets of the Company. As of December 31, 2005 and 2004, the Company had no advances against the line of credit. In addition, there are two financial covenants with which the Company must be in compliance. As of December 31, 2005 and 2004, the Company was in compliance with these covenants.

Note 11 - Profit Sharing Plan :

The Company has a qualified profit sharing plan that covers substantially all eligible employees. Pursuant to Internal Revenue Code Section 401(k), employees may elect to defer a portion of their salary or wages. Contributions by the Company are discretionary. The Company’s contribution expense for the years ended December 31, 2005 and 2004 was $282,697 and $8,538, respectively.

Note 12 - Incentive Compensation :

The Company pays its employees incentive compensation based on project and Company performance. Incentive compensation incurred by the Company for the year ended December 31, 2005 was $76,000. During 2004, the Company did not pay and subsequently reversed $4,708,543 of the 2003 accrued incentive compensation.

Note 13 - Backlog :

The backlog of gross revenue on work to be performed on signed contracts was $77,257,465 and $29,055,065 at December 31, 2005 and 2004, respectively.

(b) Pro Forma Financial Information

Unaudited condensed pro forma combined statements of income for the fiscal year ended January 31, 2006 and for the nine months ended October 31, 2006. Unaudited condensed pro forma combined balance sheet as of October 31, 2006.

The accompanying unaudited condensed pro forma combined statements of income present the results of operations of AI and Gemma as if the acquisition of Gemma, the new bank financing of $8.0 million and the private offering of 2,853,335 shares, had occurred as of February 1, 2005. The pro forma information reflects the total consideration paid.

Gemma reports its results of operations using a calendar year end. In preparing the pro forma information, the Company utilized Gemma’s December 31, 2005 and September 30, 2006 results of operations in the unaudited condensed proforma combined statements for the year ended January 31, 2006 and the nine months ended October 31, 2006. AI used Gemma’s September 30, 2006 balance sheet in the unaudited condensed pro forma combined balance sheet as of October 31, 2006. No material events occurred subsequent to Gemma’s December 31, 2005 and September 30, 2006 financial reporting periods which would require adjustment to the Company’s unaudited condensed pro forma combined statements of income and unaudited condensed pro forma combined balance sheet. The pro forma data is not necessarily indicative of what the results would have been if the acquisition had occurred on the dates indicated.

ARGAN, INC.

Unaudited Condensed Pro Forma Combined

Statement of Income for the Year Ended January 31, 2006

| | AI
as | | | | | | | Consolidated | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | Reported
(c) | | Gemma
(D) | Adjustments | | | | Pro
Forma | |
| Net
sales | | | | | | | | | |
| Power
plant construction | $ - | | $ 48,622,000 | $ | - | | | $ 48,622,000 | |
| Nutraceutical
products | 17,702,000 | | - | | - | | | 17,702,000 | |
| Telecom
infrastructure services | 10,750,000 | | - | | - | | | 10,750,000 | |
| Net
Sales | 28,452,000 | | 48,622,000 | | - | | | 77,074,000 | |
| Cost
of sales | | | | | | | | | |
| Power
plant construction | - | | 42,744,000 | | - | | | 42,744,000 | |
| Nutraceutical
products | 13,842,000 | | - | | - | | | 13,842,000 | |
| Telecom
infrastructure services | 8,543,000 | | - | | - | | | 8,543,000 | |
| Gross
profit | 6,067,000 | | 5,878,000 | | - | | | 11,945,000 | |
| Selling,
general and administrative expenses | 7,469,000 | | 2,082,000 | | 716,400 | | (1) | 10,374,200 | |
| | | | | | 106,800 | | (2) | | |
| Impairment
loss | 6,497,000 | | - | | - | | | 6,497,000 | |
| Loss
(income) from operations | (7,899,000 | ) | 3,796,000 | | (823,200 | ) | | (4,926,200 | ) |
| Interest
expense and amortization of | | | | | | | | | |
| subordinated
debt issuance costs | 606,000 | | - | | 601,000 | | (5) | 1,207,000 | |
| Other
(income) expense, net | 1,925,000 | | (56,000 | ) | - | | | 1,869,000 | |
| Net
(loss) income from operations before income | | | | | | | | | |
| taxes
and other comprehensive income | (10,430,000 | ) | 3,852,000 | | (1,424,200 | ) | | (8,002,200 | ) |
| Income
tax benefit (expense) | 922,000 | | | | (945,628 | ) | (3) | (23,628 | ) |
| Net
(loss) income | $ (9,508,000 | ) | $ 3,852,000 | $ | (2,369,828 | ) | | $ (8,025,828 | ) |
| Other
comprehensive income (loss) | - | | (30,000 | ) | | | | (30,000 | ) |
| Comprehensive
(loss) income | $ (9,508,000 | ) | $ 3,822,000 | | | | | $ (8,055,828 | ) |
| Basic
and diluted loss per share | $ (2.76 | ) | | | | | (4) | $ (0.81 | ) |
| Weighted
average number of shares | | | | | | | | | |
| outstanding
- basic and diluted | 3,439,000 | | | | | | | 9,959,000 | |
| Other
Financial Information: | | | | | | | | | |
| EBITDA
(6) | $ (7,389,000 | ) | $ 3,983,000 | $ | - | | | $ (3,406,000 | ) |

Notes to unaudited condensed pro forma combined statement of Income.

(D) Gemma unaudited internally prepared results of operations are for the year ended December 31, 2005.

(1) To adjust for the amortization of the purchase accounting valuation of $3.6 million for trade name which is being amortized over 5 years.

(2) To adjust for the amortization of the purchase accounting valuation of $500,000 for non-compete agreement with the seller which is being amortized over the life of the five year contract.

(3) To reflect the tax impact, assuming an effective tax rate of 38.95%, arising from the change in pretax income from net pro forma adjustments and the tax status of the entity.

(4) Assumes 3,667,000 shares issued in connection with the acquisition of Gemma, plus 2,853,000 shares issued in the private placement simultaneous with the acquistion of Gemma, were outstanding for the entire period in calculating the consolidated pro forma basic and diluted earnings per share.

(5) To adjust for one year of interest expense related to the $8 million note acquired simultaneous with the acquisition of Gemma.

(6) We present EBITDA to provide investors with a supplemental measure of our operating performance.

The following table shows the calculation of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA):

| Net
income (loss) | $ | ) | $ | $ | $ | ) |
| --- | --- | --- | --- | --- | --- | --- |
| Interest
expense | 362,000 | | - | 601,000 | 963,000 | |
| Taxes | (922,000 | ) | - | 945,628 | 23,628 | |
| Depreciation
and amortization | 1,076,000 | | 131,000 | - | 1,207,000 | |
| Amortization
of intangible assets | 1,603,000 | | - | 823,200 | 2,426,200 | |
| EBITDA | $ (7,389,000 | ) | $ 3,983,000 | $ - | $ (3,406,000 | ) |

ARGAN, INC.

Unaudited Condensed Pro Forma Combined

Statement of Income for the Nine Months Ended October 31, 2006

| | AI
as — Reported
(c) | | Gemma
(D) | Adjustments | | | Consolidated — Pro
Forma | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Net
sales | | | | | | | | |
| Power
plant construction | $ - | | $ 74,784,676 | $ - | | | $ 74,784,676 | |
| Nutraceutical
products | 16,288,000 | | - | | | | 16,288,000 | |
| Telecom
infrastructure services | 10,843,000 | | - | | | | 10,843,000 | |
| Net
Sales | 27,131,000 | | 74,784,676 | - | | | 101,915,676 | |
| Cost
of sales | | | | | | | | |
| Power
plant construction | - | | 69,542,339 | | | | 69,542,339 | |
| Nutraceutical
products | 12,561,000 | | - | | | | 12,561,000 | |
| Telecom
infrastructure services | 8,507,000 | | - | | | | 8,507,000 | |
| Gross
profit | 6,063,000 | | 5,242,337 | - | | | 11,305,337 | |
| | | | | 747,000 | | (1) | | |
| | | | | 537,000 | | (2) | | |
| Selling,
general and administrative expenses | 6,134,000 | | 1,973,245 | 80,000 | | (3) | 9,471,245 | |
| Income
(loss) from operations | (71,000 | ) | 3,269,092 | (1,364,000 | ) | | 1,834,092 | |
| Interest
expense and amortization of | | | | | | | | |
| subordinated
debt issuance costs | 564,000 | | - | 466,000 | | (6) | 1,030,000 | |
| Other
(income) expense, net | (5,000 | ) | (119,296 | ) | | | (124,296 | ) |
| Net
income (loss) from operations before income | | | | | | | | |
| taxes
and other comprehensive income | (630,000 | ) | 3,388,388 | (1,830,000 | ) | | 928,388 | |
| Income
tax (expense) benefit | 202,000 | | | (606,992 | ) | (4) | (404,992 | ) |
| Net
income (loss) | $ (428,000 | ) | $ 3,388,388 | $ (2,436,992 | ) | | $ 523,396 | |
| Other
comprehensive income | - | | 235 | | | | 235 | |
| Comprehensive
income (loss) | $ (428,000 | ) | $ 3,388,623 | | | | $ 523,631 | |
| Basic
and diluted loss per share | $ (0.10 | ) | | | | (5) | $ 0.05 | |
| Weighted
average number of shares | | | | | | | | |
| outstanding
- basic and diluted | 4,312,000 | | | | | | 10,832,000 | |
| Other
Financial Information: | | | | | | | | |
| EBITDA
(7) | $ 1,721,000 | | $ 3,448,931 | $ - | | | $ 5,169,931 | |

Notes to unaudited condensed pro forma combined statement of Income.

(D) Gemma unaudited internally prepared results of operations are for the nine months ended September 30, 2006.

(1) To adjust for the amortization of the purchase accounting valuation of $7.0 million for customer relationships which is being amortized over the life of each contract.

(2) To adjust for the amortization of the purchase accounting valuation of $3.6 million for trade name which is being amortized over 5 years.

(3) To adjust for the amortization of the purchase accounting valuation of $500,000 for non-compete agreement with the seller which is being amortized over the life of the five year agreement.

(4) To reflect the tax impact, assuming an effective tax rate of 38.95%, arising from the change in pretax income from net pro forma adjustments and the tax status of the entity.

(5) Assumes 3,667,000 shares issued in connection with the acquisition of Gemma, plus 2,853,000 shares issued in the private placement simultaneous with the acquistion of Gemma, were outstanding for the entire period in calculating the consolidated pro forma basic and diluted earnings per share.

(6) To adjust for nine months of interest expense related to the $8 million note acquired simultaneous with the acquisition of Gemma.

(7) We present EBITDA to provide investors with a supplemental measure of our operating performance.

The following table shows the calculation of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA):

| Net
income (loss) | $ | ) | 3,388,388 | $ | $ |
| --- | --- | --- | --- | --- | --- |
| Interest
expense | 306,000 | | - | 466,000 | 772,000 |
| Taxes | (202,000 | ) | - | 606,992 | 404,992 |
| Depreciation
and amortization | 1,054,000 | | 60,543 | - | 1,114,543 |
| Amortization
of intangible assets | 991,000 | | - | 1,364,000 | 2,355,000 |
| EBITDA | $ 1,721,000 | $ | 3,448,931 | $ - | $ 5,169,931 |

ARGAN, INC.

Unaudited Condensed Pro Forma Combined

Balance Sheet as of October 31, 2006

| | AI
as — Reported
(E) | Gemma
(F) | | Pro
Forma — Adjustments | | | Consolidated — Pro
Forma | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ASSETS | | | | | | | | |
| CURRENT
ASSETS: | | | | | | | | |
| Cash
and cash equivalents | $ 233,000 | $ | 30,616,000 | $ (8,350,000 | ) | (1) | $ 29,199,000 | |
| | | | | 8,000,000 | | (2) | | |
| | | | | 10,700,000 | | (9) | | |
| | | | | (12,000,000 | ) | (10) | | |
| Cash
in escrow | 300,000 | | 2,690,000 | 12,000,000 | | (10) | 14,990,000 | |
| Accounts
receivable, net of allowance | | | | | | | | |
| for
doubtful accounts of $147,000 | 4,726,000 | | - | - | | | 4,726,000 | |
| Contract
receivable | - | | 10,505,000 | - | | | 10,505,000 | |
| Receivable
from affiliated entity | 139,000 | | - | - | | | 139,000 | |
| Investments
available for sale | - | | 1,720,000 | - | | | 1,720,000 | |
| Estimated
earnings in excess of billings | 705,000 | | 13,000 | - | | | 718,000 | |
| Inventories,
net of reserves of $63,000 | 2,202,000 | | - | - | | | 2,202,000 | |
| Prepaid
expenses and other current assets | 686,000 | | 37,000 | - | | | 723,000 | |
| TOTAL
CURRENT ASSETS | 8,991,000 | | 45,581,000 | 10,350,000 | | | 64,922,000 | |
| Property
and equipment, net of accumulated | | | | | | | | |
| depreciation
of $2,138,000 | 3,313,000 | | 80,000 | - | | | 3,393,000 | |
| Other
assets | 155,000 | | 1,000 | - | | | 156,000 | |
| Contractual
customer relationships, net | 1,517,000 | | - | 6,943,000 | | (4) | 8,460,000 | |
| Trade
name | 224,000 | | - | 3,582,000 | | (5) | 3,806,000 | |
| Proprietary
formulas, net | 382,000 | | - | - | | | 382,000 | |
| Non-compete
agreement, net | 1,020,000 | | - | 534,000 | | (6) | 1,554,000 | |
| Goodwill | 7,505,000 | | - | 12,475,000 | | (7) | 19,980,000 | |
| TOTAL
ASSETS | $ 23,107,000 | $ | 45,662,000 | $ 33,884,000 | | | $ 102,653,000 | |
| LIABILITIES
AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| CURRENT
LIABILITIES: | | | | | | | | |
| Accounts
payable | $ 3,223,000 | $ | 18,367,000 | $ - | | | $ 21,590,000 | |
| Due
to affiliates | 11,000 | | - | - | | | 11,000 | |
| Accrued
expenses | 2,470,000 | | 2,496,000 | 900,000 | | (1) | 6,066,000 | |
| | | | | 200,000 | | (3) | | |
| Billings
in excess of cost and earnings | 3,000 | | 14,452,000 | - | | | 14,455,000 | |
| Line
of credit | 1,288,000 | | - | - | | | 1,288,000 | |
| Current
portion of long-term debt | 591,000 | | - | 2,000,000 | | (2) | 2,591,000 | |
| TOTAL
CURRENT LIABILITIES | 7,586,000 | | 35,315,000 | 3,100,000 | | | 46,001,000 | |
| Deferred
income tax liability | 1,176,000 | | - | 4,264,000 | | (8) | 5,440,000 | |
| Other
liabilities | 19,000 | | - | - | | | 19,000 | |
| Long-term
debt | 1,028,000 | | - | 6,000,000 | | (2) | 7,028,000 | |
| TOTAL
LIABILITIES | 9,809,000 | | 35,315,000 | 13,364,000 | | | 58,488,000 | |
| STOCKHOLDERS'
EQUITY | | | | | | | | |
| Preferred
stock, par value $.10 per share; | | | | | | | | |
| 500,000
shares authorized; no shares issued and outstanding | - | | - | - | | | - | |
| Common
stock, par value $.15 per share; | | | | | | | | |
| 12,000,000
shares authorized; 4,577,243 shares | | | | 428,000 | | (9) | | |
| issued
and 4,574,010 shares outstanding | 686,000 | | - | 550,000 | | (1) | 1,664,000 | |
| Warrants
outstanding | 849,000 | | - | - | | | 849,000 | |
| Additional
paid-in capital | 27,269,000 | | - | 19,617,000 | | (1) | 57,158,000 | |
| | | | | 10,272,000 | | (9) | | |
| Accumulated
other comprehensive loss | (7,000 | ) | - | - | | | (7,000 | ) |
| Accumulated
deficit | (15,466,000 | ) | 10,347,000 | (10,347,000 | ) | (1) | (15,466,000 | ) |
| Treasury
stock at cost; 3,233 shares | (33,000 | ) | - | - | | | (33,000 | ) |
| TOTAL
STOCKHOLDERS' EQUITY | 13,298,000 | | 10,347,000 | 20,520,000 | | | 44,165,000 | |
| TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY | $ 23,107,000 | $ | 45,662,000 | $ 33,884,000 | | | $ 102,653,000 | |

Notes to unaudited condensed pro forma balance sheet.

(E) Report on Form 10-QSB filed on December 14, 2006

(F) Gemma's unaudited internally prepared balance sheet is as of September 30, 2006.

(1) To adjust for the purchase of Gemma using cash of $8,350,000, accrued expense of $900,000 for tax payments due to former owners of Gemma and 3,666,667 shares issued on December 8, 2006. The fair market value of Argan, Inc. common stock on the issue date was $5.50 per share.

(2) To adjust liability account for loan draw of $8,000,000 simultaneous with the Gemma purchase.

(3) To record estimated costs associated with legal, accounting and other fees incurred to consummate the acquisition of VLI.

(4) To adjust for the purchase accounting valuation of $7.0 million for customer relationships.

(5) To adjust for the purchase accounting valuation of $3.6 million for trade name.

(6) To adjust for the purchase accounting valuation of $500,000 for non-compete agreement.

(7) To adjust for the purchase accounting valuation of $12,474,000 for goodwill.

(8) To adjust for deferred tax liabilities related to the purchase accounting valuation of customer relationships, non-compete agreement and trade name.

(9) To adjust for the private placement of 2,853,333 shares at $3.75 per share with proceeds of $10,700,000.

(10) To transfer $12,000,000 into an escrow account for a contingency agreement and a collateral agreement relating to the purchase of Gemma.

SIGNATURES

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

| /s/
Rainer Bosselmann |
| --- |
| Rainer
Bosselmann |
| Chairman
of the Board and Chief
Executive Officer |

EXHIBIT INDEX

Exhibit No. Description

4.1 Stock Purchase Agreement dated as of December 8, 2006 by and among Argan, Inc. and the purchasers identified on Schedule A attached thereto. *

4.2 Stock Purchase Agreement dated as of December 8, 2006 by and between Argan, Inc. and Argan Investments LLC. *

4.3 Registration Rights Agreement dated as of December 8, 2006 by and between Argan, Inc. and Argan Investments LLC. *

4.4 Escrow Agreement dated as of December 8, 2006 by and among Argan, Inc., the purchasers identified on Schedule A attached thereto and Robinson & Cole LLP. *

4.5 Registration Rights Agreement dated as of December 8, 2006 by and among Argan, Inc., William F. Griffin, Jr. and Joel M. Canino. *

4.6 Escrow Agreement, dated as of December 8, 2006 by and among the Argan, Inc., William F. Griffin, Jr., Joel M. Canino, Michael Price and Curtin Law Roberson Dunigan & Salans, P.C *

10.1 Membership Interest Purchase Agreement, dated as of December 6, 2006, by and among, Argan, Inc., Gemma Power Systems, LLC, Gemma Power, Inc., Gemma Power Systems California, William F. Griffin, Jr. and Joel M. Canino. *

10.2 Stock Purchase Agreement, dated as of December 8, 2006, by and among Argan, Inc., Gemma Power Systems, LLC, Gemma Power, Inc., Gemma Power Systems California, William F. Griffin, Jr. and Joel M. Canino. *

10.3 Employment Agreement dated as of December 8, 2006 by and between Gemma Power Systems, LLC and Joel M. Canino. *

10.4 Employment Agreement dated as of December 8, 2006 by and between Gemma Power Systems, LLC and William M. Griffin, Jr. *

10.5 Second Amended and Restated Financing and Security Agreement dated December 11, 2006 by and among Argan, Inc., Southern Maryland Cable, Inc., Vitarich Laboratories, Inc., Gemma Power Systems, LLC, Gemma Power, Inc., Gemma Power Systems California, Gemma Power Hartford, LLC and Bank of America, N.A. *

10.6 Fourth Amended and Restated Revolving Credit Note dated December 11, 2006, issued by Argan, Inc., Southern Maryland Cable, Inc., Vitarich Laboratories, Inc., Gemma Power Systems, LLC, Gemma Power, Inc., Gemma Power Systems California and Gemma Power Hartford, LLC in favor of Bank of America, N.A. *

10.7 Amended and Restated 2006 Term Note dated December 11, 2006, issued by Argan, Inc., Southern Maryland Cable, Inc., Vitarich Laboratories, Inc., Gemma Power Systems, LLC, Gemma Power, Inc., Gemma Power Systems California and Gemma Power Hartford, LLC in favor of Bank of America, N.A. *

10.8 Acquisition Term Note dated December 11, 2006, issued by Argan, Inc., Southern Maryland Cable, Inc., Vitarich Laboratories, Inc., Gemma Power Systems, LLC, Gemma Power, Inc., Gemma Power Systems California and Gemma Power Hartford, LLC in favor of Bank of America, N.A. *

10.9 Pledge, Assignment and Security Agreement dated as of December 8, 006 by Argan, Inc. (on behalf of Southern Maryland Cable, Inc.) in favor of Bank of America, N.A. *

10.10 Pledge, Assignment and Security Agreement dated as of December 8, 2006 by Argan, Inc. (on behalf of Vitarich Laboratories, Inc.) in favor of Bank of America, N.A. *

10.11 Pledge, Assignment and Security Agreement dated as of December 8, 2006 by Argan, Inc. (on behalf of Gemma Power Systems, LLC) in favor of Bank of America, N.A.*

10.12 Pledge, Assignment and Security Agreement dated as of December 8, 2006 by Argan, Inc. (on behalf of Gemma Power, Inc.) in favor of Bank of America, N.A. *

10.13 Pledge, Assignment and Security Agreement dated as of December 8, 2006 by Argan, Inc. (on behalf of Gemma Power Systems California) in favor of Bank of America, N.A. *

10.14 Pledge, Assignment and Security Agreement dated as of December 8, 2006 by Gemma Power Systems, LLC (on behalf of Gemma Power Hartford, LLC) in favor of Bank of America, N.A. *

10.15 Pledge and Assignment Agreement dated as of December 8, 2006 by Argan, Inc. in favor of Bank of America, N.A. for the benefit of Travelers Casualty and Surety Company of America *

23.01 Consent of Independent Public Accounting Firm

Previously attached

AI assistant

ARGAN INC Audit Report / Information 2007

31210_rns_2007-01-26_99d917ba-0907-4955-a1b1-628ee885804b.zip

AI assistant

ARGAN INC — Audit Report / Information 2007

31210_rns_2007-01-26_99d917ba-0907-4955-a1b1-628ee885804b.zip

More from ARGAN INC

ARGAN INC Audit Report / Information 2007