The following discussion summarizes the financial position of Argan, Inc. and its subsidiaries as of October 31, 2012, and the results of their operations for the three and nine months ended October 31, 2012 and 2011, 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, 2012 that was filed with the Securities and Exchange Commission on April 13, 2012 (the "2012 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. Our forward-looking statements, by their nature, 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 2012 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 Description

Argan, Inc. (the "Company," "we," "us," or "our") conducts continuing operations through its wholly owned subsidiaries, Gemma Power Systems, LLC and affiliates ("GPS") and Southern Maryland Cable, Inc. ("SMC"). 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. We have also determined that GPS is the primary beneficiary of two variable interest entities that were formed during the year ended January 31, 2012 for the purpose of developing a pair of gas-fired power plants. The combination of GPS and the variable interest entities represents our power industry services business segment. Through SMC, we provide telecommunications infrastructure services including project management, construction and maintenance to local governments, the federal government, telecommunications and broadband service providers as well as electric utilities. Argan, Inc. is a holding company with no operations other than its investments in GPS and SMC. At October 31, 2012, there were no restrictions with respect to inter-company payments from GPS or SMC to the holding company.

Overview

For the three months ended October 31, 2012 (the third quarter of our fiscal year 2013), consolidated net revenues from continuing operations were $74.5 million which represented an increase of $30.9 million from net revenues from continuing operations of $43.6 million for the third quarter of last year. Net income attributable to our stockholders for the three months ended October 31, 2012 was $6.1 million, or $0.43 per diluted share. We reported net income attributable to our stockholders of $2.0 million, or $0.15 per diluted share, for the three months ended October 31, 2011.

For the nine months ended October 31, 2012, consolidated net revenues from continuing operations were $220.8 million which represented a significant increase of $134.9 million from net revenues from continuing operations of $85.9 million for the comparable period last year. Net income attributable to our stockholders for the nine months ended October 31, 2012 was $16.7 million, or $1.19 per diluted share. We reported net income attributable to our stockholders of $4.7 million, or $0.34 per diluted share, for the nine months ended October 31, 2011. Due to income from continuing operations in the amount of $16.2 million and favorable changes in working capital accounts, our balance of cash and cash equivalents increased by $39.5 million to $196.1 million during the nine month period ended October 31, 2012.

Our strong operating results for the three and nine months ended October 31, 2012, compared with the corresponding periods last year, are due to increased business activity in both of our business segments. Most significantly for GPS, construction efforts associated with its Sentinel project have provided in excess of 60% of the net revenues of the power industry services business segment for the current year. This power plant construction project, which is approximately 70% complete, includes the design, procurement and construction of an 800 megawatt gas-fired electricity peaking facility located in Southern California. The telecommunications infrastructure services segment earned a substantial portion of its net revenues for the three and nine months ended October 31, 2012 by providing outside plant services to the One Maryland Broadband Network project. This effort, sponsored by the State of Maryland for the deployment of a state-wide, high-speed, fiber optic network, intends to connect over 1,000 community anchor institutions in every county in the state while interconnecting and extending three independent information networks.

As of October 31, 2012, the value of our construction contract backlog was $236 million compared with a backlog value of $415 million as of January 31, 2012. Approximately 90% of our current backlog relates to two projects, the Sentinel project described above and a 49.9 megawatt biomass-fired power plant under construction in east Texas. The rest of the backlog amount primarily relates to a pair of wind-farm projects and a solar-powered energy facility.

Outlook

Current economic conditions in the United States reflect ongoing weakness in construction and many other industry sectors. Stubbornly high unemployment, the depressed state of the housing industry, reduced state and local government budgets and sluggish manufacturing activity have all contributed to significant reductions in construction spending in the United States from pre-recession levels. Affecting us more specifically, these factors have resulted in minimal new demands for electricity which in turn has resulted in power plant operators experiencing less urgency to build new electricity-generating power plants. In addition, the remaining instability in the financial markets may 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. Adding to an overall sense of economic uncertainty in the United States are concerns about the near-term future tax rates on income, long-term capital gains and dividends; the elimination of popular tax breaks for certain business industries; the expiration of tax incentives for certain types of investments including renewable energy projects; and drastic automatic federal spending cuts.

The power industry has not fully recovered from the recessionary decline in the demand for power in the United States. As it will likely take at least several years for power consumption to reach 2007 peak levels, certain existing power plants will continue to operate with spare capacity to produce electricity. Despite the reductions in the demand for power, certain regions of the country continued to add power generation facilities over the last several years, wind energy facilities in particular. The combination of these new electricity generation plants and excess power generation capacity elsewhere may obviate the need to build power plants during the expected recovery period for power demand.

The expected increase in momentum towards more environmentally friendly power generation facilities has not occurred at the pace expected prior to the latest recession. The federal government has failed to pass comprehensive energy legislation, including incentives or mandates for the retirement of existing coal burning power plants and caps on the volume of carbon emissions. At present, there is no bipartisan agreement regarding the approval of government incentives for sources of renewable power in either legislative house of Congress, certain of which are scheduled to expire at the end of the year. With the future availability of renewable energy tax incentives unknown, potential energy project developers and investors are hesitant to make commitments related to new renewable energy generation facilities. As a result, the likelihood of our booking additional wind and solar power projects next year is uncertain.

Although certain coal-fired power plants have been shut down and the demand for coal has been adversely affected by the inexpensive supply of natural gas in the United States, 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. New regulations regarding air pollution are being promulgated by states and the U.S. Environmental Protection Agency (the "EPA"). However, these measures are subject to a number of legal challenges. Earlier this year, a federal appeals court upheld the EPA's greenhouse gas regulations, affirming the EPA's finding that greenhouse gases such as carbon dioxide endanger public health and likely have been responsible for global warming. However, in August 2012, the same appeals court struck down an EPA rule that placed tight curbs on coal-fired power plant emissions across state lines.

We believe that it is likely that the soft demand for power will continue to limit the number of new energy plant construction opportunities through our fiscal year ending January 31, 2014. In addition, we expect that the new opportunities which do arise will continue to result in fierce competition among bidders. The reduction in the number of new commercial, industrial and infrastructure construction projects has created an extremely competitive bid environment in our construction sector. Certain of our competitors are global engineering and construction firms, substantially larger than us. On occasion, our relatively smaller size is evaluated to be a risk by potential project owners. Known competitors have reduced prices, willing to sacrifice margin in order to keep work crews busy. Other construction companies have entered our sector of the industry looking for new work at low margins. Although the power sector has been one of the primary drivers of the recovery of overall nonresidential construction spending in 2012, the strength has weakened in the last several months according to construction industry analysts.

However, we continue to believe that the long-term prospects for energy plant construction are extremely favorable. Major advances in horizontal drilling and the practice of hydraulic fracturing ("fracking") have led to a boom in natural gas supply, driving prices to historic lows. There is evidence that the abundant availability of cheap less carbon-intense natural gas represents a significant factor in the economic assessment of the future for coal-fired power plants. The EPA has demonstrated recent restraint in the amount of regulation contained in its initial federal fracking rules. It also appears that the presidential administration is evolving in its support for increased natural gas exploration and production. Hard to ignore in this economic environment marked by high unemployment rates are a series of reports describing the significant contributions that the nonconventional oil and gas exploration industry is making to capital spending and employment in this country. Earlier this year, for the first time since the U.S. Energy Information Agency began compiling monthly statistics, natural gas and coal had the same share (approximately 32%) of the country's net power generation. In July 2012, natural gas also supplied 32% of the nation's electrical power, up from 27% a year ago according to federal government data. For the nine months ended September 30, 2012, compared to the comparable period a year ago, the shares of net electrical power generation in this country represented by natural gas and other renewables (including wind, biomass and solar) increased by 26% and 13%, respectively, while the share represented by coal declined by 16%.

We also expect that continuing concerns about the safety, high cost and the construction cost overrun risk of nuclear power plants eventually will spur future development of renewable and cleaner gas-fired power generation facilities which should result in new power facility construction opportunities for us. The demand for electrical power in this country is expected to grow steadily over the long term. Certain sectors of the construction industry are reporting strong year-over-year improvements in spending, including lodging, education, office space and manufacturing. Recent manufacturing conditions in the United States have generally improved according to analysts as output accelerated, new orders increased and capacity utilization increased, although at a sluggish pace. Analysts also report that trend data for the current year shows the office sector continuing to recover as the net absorption of office space is positive. These developments suggest increasing demands for power in the future.

Increasing demands for electricity, the ample supply of natural gas, and the expected retirement of old coal, nuclear and oil powered energy plants, should result in gas-fired and renewable energy plants, like wind, biomass and solar, representing the substantial majority of new power generation additions in the future and an increased share of the power generation mix.

During this difficult time for the construction industry, particularly our sector, and until the recovery for our sector of the construction industry becomes more robust, 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 higher net revenues and favorable profit results for our fiscal year ending January 31, 2013 compared with the results for the year ended January 31, 2012. Despite the intensely competitive business environment, we are committed to the rational pursuit of new construction projects. This approach may result in a lower volume of new business bookings until the demand for new power generation facilities and the other construction industry sectors recover fully. We will strive to conserve cash and to maintain an overall strong balance sheet. However, we are seeing new business opportunities that include an opportunity to make an investment in the ownership of a new project, at least during the development phase of the project, in order to improve the probability of an EPC contract award (see additional discussion below). Because we believe in the strength of our balance sheet, we are willing to consider the opportunities that include reasonable and manageable risks.

Although the uncertain economic conditions do impair our forecasting visibility 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.

Moxie Energy Projects

As is common in our industry, general construction contractors execute certain contracts jointly with third parties through joint ventures, limited partnerships and limited liability companies for the purpose of completing a project for an owner such as a government agency or a commercial enterprise. These teaming arrangements are generally dissolved upon completion of the project. In May 2012, Gemma Power, Inc. ("GPI," an affiliate of GPS that is wholly owned by us) agreed to the amendment and restatement of a development agreement with Moxie Energy, LLC ("Moxie") which was executed last year, and which has provided GPI with an opportunity to support the initial development of two power plant projects with loans and the option to provide additional development loans and/or equity investments to cover anticipated future costs. Moxie has two natural gas-fired power plant projects under development in the Marcellus Shale region of Pennsylvania. The strategy of Moxie is to develop these power plants (the "Moxie Projects") near the natural gas source and to provide transmitted electricity to the power grid in the northeastern United States, eliminating the need to transport natural gas via pipeline from well to power production plant.

Through October 31, 2012, GPI had provided approximately $4.8 million in cash to the Moxie Projects under initial development loans. Moxie has supported the arrangement by providing GPI with a series of liens, security interests, guarantees and development fee preferences (see Note 3 to the accompanying condensed consolidated financial statements) which, together with the loans, provide us with substantial financial control over the Moxie Projects. Under the amended and restated development agreement, Moxie has provided us with the right to provide construction services for the two projects under engineering, procurement and construction contracts ("EPC Contracts").

We have evaluated the Moxie Projects to be variable interest entities under current accounting guidance ("VIEs"). Despite not having an ownership interest in the Moxie Projects, we have concluded that GPI is currently the primary beneficiary of these VIEs due primarily to the significance of GPI's loans to the entities, the risk that GPI could absorb significant losses if the development projects are not successful, the opportunity for GPI to receive development success fees and the possibility of GPI obtaining two large EPC contracts for the construction of the power plants. Accordingly, the assets, liabilities and financial results of the Moxie Projects have been included in our accompanying condensed consolidated financial statements.

To date, the activities of the Moxie Projects have been focused on 1) securing the necessary permits to build and operate the power plants and to transmit the electricity produced there to users, 2) obtaining financing for the remaining costs of development, 3) completing an electricity supply agreement with a customer and 4) engaging energy plant operators in negotiations for the purchase of the projects. The completion of negotiations and agreements that would assure our construction of the power plants may not occur until the end of our fourth quarter. The commencement and completion of the Moxie Projects are dependent upon financing and are subject to numerous regulatory permitting processes. Applications for permits may be opposed by individuals or environmental groups, resulting in delays and possible non-issuance of the permits. There are no assurances that Moxie will obtain financing for the Moxie Projects, or that the necessary permits will be obtained in order to allow construction work to proceed as scheduled. Failure to complete the planned development of the Moxie Projects as anticipated could result in a write-off adjustment related to the balance of construction project costs which was included in property and equipment in the amount of approximately $4.7 million as of October 31, 2012. Such an adjustment could have a material adverse impact on our operating results for a future reporting period.

Discontinued Operations

On March 11, 2011, we completed the sale of substantially all of the assets of Vitarich Laboratories, Inc. ("VLI"), a wholly-owned subsidiary that represented our nutritional products business, 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 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. Subsequently, VLI was paid approximately $1,737,000 cash from the escrow amount as purchased inventory was used in production by NBTY and purchased accounts receivable balances were collected. Amounts received from the escrow account were recorded as sale proceeds upon receipt. In December 2011 and pursuant to the terms of the asset sale agreement, the funds remaining in the escrow account were returned to NBTY.

The financial results of this business through April 30, 2012 have been presented as discontinued operations in the accompanying condensed consolidated financial statements, including legal costs associated with this business. Such costs incurred subsequent to April 30, 2012 have been reflected in the operating results of continuing operations; costs were not material for the three and nine months ended October 31, 2012. The loss on discontinued operations (incurred during the first quarter) for the nine months ended October 31, 2012 was $285,000. Last year, due to the gain on the disposal of this business in the amount of $1,286,000 recorded during the period, we reported income from discontinued operations for the nine months ended October 31, 2011 in the amount of $118,000.

Comparison of the Results of Operations for the Three Months Ended October 31, 2012 and 2011

The following schedule compares the results of our operations for the three months ended October 31, 2012 and 2011. Except where noted, the percentage amounts represent the percentage of net revenues from continuing operations for the corresponding quarter.

                                                     2012                             2011
Net revenues
Power industry services                   $ 70,527,000          94.7 %     $ 41,269,000          94.7 %
Telecommunications infrastructure
services                                     3,959,000           5.3 %        2,328,000           5.3 %

Net revenues                                74,486,000         100.0 %       43,597,000         100.0 %

Cost of revenues **
Power industry services                     58,173,000          82.5 %       35,248,000          85.4 %
Telecommunications infrastructure
services                                     3,177,000          80.2 %        1,882,000          80.8 %

Cost of revenues                            61,350,000          82.4 %       37,130,000          85.2 %

Gross profit                                13,136,000          17.6 %        6,467,000          14.8 %
Selling, general and administrative
expenses                                     3,780,000           5.1 %        2,735,000           6.3 %

                                             9,356,000          12.5 %        3,732,000           8.5 %
Other income (expense), net                    (11,000 )           *             33,000           0.1 %

Income from continuing operations
before income taxes                          9,345,000          12.5 %        3,765,000           8.6 %
Income tax expense                           3,632,000           4.8 %        1,460,000           3.3 %

Income from continuing operations         $  5,713,000           7.7 %     $  2,305,000           5.3 %

Income (loss) on discontinued
operations                                $         -             -  %     $   (293,000 )        (0.7 )%

Net income                                $  5,713,000           7.7 %     $  2,012,000           4.6 %

* Less than 0.1%.

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

Net Revenues

Power Industry Services

The net revenues of the power industry services business increased by $29.2 million to $70.5 million for the three months ended October 31, 2012 compared with net revenues of $41.3 million for the third quarter last year. The net revenues of this business represented approximately 95% of consolidated net revenues from continuing operations for both the three months ended October 31, 2012 and the three months ended October 31, 2011.

The operating results of this business for the current quarter reflected favorable performance on seven construction projects, including a gas-fired peaking power plant in Southern California, a biomass-fired power plant located in East Texas for which we received the full notice to proceed in May 2012, three wind farms and two solar-panel installation projects. The net revenues associated with the gas-fired project represented over 63% of this segment's net revenues for the current quarter. This project is scheduled for completion during the summer of calendar year 2013.

The financial results for this business last year reflected a transition period for us between major projects. In the period December 2010 to October 2011, we substantially completed three energy plant construction projects. Substantial work on new projects did not commence until the latter half of the fiscal year ended January 31, 2012. As a result, the net revenues of our power industry services business last year were adversely impacted, particularly during the first three quarters of the fiscal year.

Telecommunications Infrastructure Services

Primarily due to the new business discussed below, the net revenues of the telecommunications services business of SMC increased by 70% to $4.0 million for the three months ended October 31, 2012 compared with net revenues in the amount of $2.3 million for the three months ended October 31, 2011.

Historically, a major portion of this segment's revenue-producing activity has been performed pursuant to task or work orders issued under master agreements with SMC's major customers. For the three months ended October 31, 2012, approximately 33% of SMC's net revenues were derived from outside plant services provided for the One Maryland Broadband Network project. As identified above, this effort is sponsored by the State of Maryland for the deployment of a state-wide, high-speed, fiber optic network. Our largest customer in this project is Howard County, Maryland, a key partner with the state representing a . . .