ARGAN INC - Quarter Report: 2007 April (Form 10-Q)

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

 

 

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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 MD 20850

(Address of Principal Executive Offices) (Zip Code)

(301) 315-0027

(Registrant’s telephone number, including area code)

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer þ

 

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ARGAN, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
		April 30,			January 31,
		2007			2007
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	32,640,000		$	25,393,000
Accounts receivable, net of allowance for doubtful accounts of $213,000
at 4/30/07 and $137,000 at 1/31/2007			23,266,000			23,030,000
Receivable from affiliated entity			146,000			155,000
Investments available for sale			1,705,000			2,283,000
Escrowed cash			15,196,000			15,031,000
Estimated earnings in excess of billings			4,136,000			12,003,000
Current deferred tax asset			959,000			-
Inventories, net of reserves of $116,000 at 04/30/2007 and $104,000
at 01/31/2007			2,640,000			2,387,000
Prepaid expenses and other current assets			1,018,000			643,000
TOTAL CURRENT ASSETS			81,706,000			80,925,000
Property and equipment, net of accumulated depreciation of
$2,656,000 at 4/30/2007 and $2,379,000 at 1/31/2007			3,070,000			3,250,000
Other assets			276,000			313,000
Goodwill			23,981,000			23,981,000
Other intangible assets, net			10,597,000			12,661,000
TOTAL ASSETS		$	119,630,000		$	121,130,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	42,755,000		$	44,248,000
Due to affiliates			35,000			7,000
Accrued expenses			6,326,000			5,873,000
Estimated loss on uncompleted contracts			189,000			-
Billings in excess of cost and earnings			17,769,000			15,705,000
Current portion of long-term debt			2,583,000			2,586,000
TOTAL CURRENT LIABILITIES			69,657,000			68,419,000
Deferred income tax liability			1,382,000			1,471,000
Other liabilities			31,000			14,000
Long-term debt			6,069,000			6,715,000
TOTAL LIABILITIES			77,139,000			76,619,000
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.10 per share; 500,000 shares authorized;
no shares issued and outstanding			-			-
Common stock, par value $0.15 per share;
12,000,000 shares authorized; 11,097,245 shares
issued at 4/30/2007 and 1/31/2007 and 11,094,012
shares outstanding at 4/30/2007 and 1/31/2007			1,664,000			1,664,000
Warrants outstanding			849,000			849,000
Additional paid-in capital			57,199,000			57,190,000
Accumulated other comprehensive loss			(22,000	)		(8,000	)
Accumulated deficit			(17,166,000	)		(15,151,000	)
Treasury stock at cost; 3,233 shares at 4/30/2007 and 1/31/2007			(33,000	)		(33,000	)
TOTAL STOCKHOLDERS' EQUITY			42,491,000			44,511,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	119,630,000		$	121,130,000

 

 

 

 

ARGAN, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
		Three Months ended April 30,
		2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(2,015,000	)	$	(18,000	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and other amortization			324,000			247,000
Amortization of debt issuance costs			-			129,000
Amortization of purchased intangibles			2,064,000			331,000
Deferred income taxes			(1,048,000	)		(39,000	)
Non-cash stock option compensation expense			14,000			-
Gain on sale of property and equipment			(1,000	)		(2,000	)
Changes in operating assets and liabilities:
Accounts receivable, net			(236,000	)		(1,039,000	)
Restricted cash for surety bond			(165,000	)		-
Estimated earnings in excess of billings			7,867,000			505,000
Inventories, net			(253,000	)		140,000
Prepaid expenses and other current assets			(375,000	)		(24,000	)
Accounts payable and accrued expenses			(1,040,000	)		620,000
Billings in excess of estimated earnings			2,064,000			31,000
Due to (from) affiliates			37,000			(110,000	)
Estimated loss on uncompleted contracts			189,000			-
Other			(6,000	)		12,000
Net cash provided by operating activities			7,420,000			783,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments			575,000			-
Proceeds from sale of property and equipment			1,000			3,000
Purchases of property and equipment			(100,000	)		(273,000	)
Net cash provided by (used in) investing activities			476,000			(270,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt			2,112,000			1,605,000
Principal payments on debt			(2,761,000	)		(2,030,000	)
Net cash used in financing activities			(649,000	)		(425,000	)
NET INCREASE IN CASH AND CASH EQUIVALENTS			7,247,000			88,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			25,393,000			5,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	32,640,000		$	93,000
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes is as follows:
Interest		$	244,000		$	128,000
Income taxes		$	1,131,000		$	8,000
Non-cash investing and financing activities are as follows:
Net increase in unrealized investment loss		$	3,000		$	-
Net decrease in fair value of interest rate swaps		$	(17,000	)	$	-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		Estimated Useful Life			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
Amortized intangible assets:
Contractual Customer Relationships			5-7 years		$	2,854,000		$	1,589,000		$	1,265,000
Customer Relationships - GPS			1-2 years			6,678,000			2,602,000			4,076,000
Proprietary Formulas			3 years			1,813,000			1,660,000			153,000
Non-Compete Agreement			5 years			2,334,000			1,002,000			1,332,000
Trade Name - GPS			15 years			3,643,000			96,000			3,547,000
Unamortized intangible assets:
Trade Name			Indefinite			224,000			--			224,000
Total other intangible assets					$	17,546,000		$	6,949,000		$	10,597,000
Goodwill			Indefinite		$	23,981,000		$	--		$	23,981,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		Power Industry Services			Nutraceutical Products			Telecom Infrastructure Services			Other			Consolidated
Net sales		$	43,354,000		$	4,949,000		$	2,129,000		$	--		$	50,432,000
Cost of sales			43,245,000			4,166,000			1,843,000			--			49,254,000
Gross profit			109,000			783,000			286,000			--			1,178,000
Selling, general and administrative expenses			2,552,000			1,170,000			358,000			481,000			4,561,000
Loss from operations			(2,443,000	)		(387,000	)		(72,000	)		(481,000	)		(3,383,000	)
Interest expense			(167,000	)		(35,000	)		(2,000	)		--			(204,000	)
Other income, net			626,000			--			--			7,000			633,000
Loss before income taxes		$	(1,984,000	)	$	(422,000	)	$	(74,000	)	$	(474,000	)		(2,954,000	)
Income tax benefit															939,000
Net loss														$	(2,015,000	)
Depreciation and amortization		$	53,000		$	144,000		$	123,000		$	4,000		$	324,000
Amortization of intangibles		$	1,733,000		$	305,000		$	26,000			--		$	2,064,000
Goodwill		$	16,476,000		$	6,565,000		$	940,000			--		$	23,981,000
Total Assets		$	97,684,000		$	15,995,000		$	4,246,000		$	1,705,000		$	119,630,000
Fixed asset additions		$	4,000		$	85,000		$	11,000		$	--		$	100,000

 

 

		Nutraceutical Products			Telecom Infrastructure Services			Other			Consolidated
Net sales		$	5,829,000		$	3,133,000		$	--		$	8,962,000
Cost of sales			4,386,000			2,323,000			--			6,709,000
Gross profit			1,443,000			810,000			--			2,253,000
Selling, general and administrative expenses			1,087,000			414,000			475,000			1,976,000
Income (loss) from operations			356,000			396,000			(475,000	)		277,000
Interest expense and amortization of subordinated debt issuance costs			(127,000	)		(19,000	)		(115,000	)		(261,000	)
Other income, net			--			2,000			--			2,000
Income (loss) before income taxes		$	229,000		$	379,000		$	(590,000	)		18,000
Income tax expense												(36,000	)
Net loss											$	(18,000	)
Depreciation and amortization		$	134,000		$	112,000		$	130,000		$	376,000
Amortization of intangibles		$	305,000		$	26,000		$	--		$	331,000
Goodwill		$	6,565,000		$	940,000		$	--		$	7,505,000
Total assets		$	17,959,000		$	5,165,000		$	549,000		$	23,673,000
Fixed asset additions		$	96,000		$	177,000		$	--		$	273,000

 

 

 

 

 

 

 

	•		cyclical changes in demand for our products and services;
	•		cyclical nature of the individual markets in which our customers operate;
	•		That the dollar amount of our backlog, as stated at any given time, is not indicative of our future earnings;
	•		delays or difficulties related to our projects including additional costs, reductions in revenues or the payment of liquidated damages;
	•		the effect of our percentage-of-completion accounting policies;
	•		changes in the estimates and assumptions we use to prepare our financial statements;
	•		our ability to obtain surety bonds or other means of credit support for projects;
	•		our ability to obtain waivers or amendments with our lenders or sureties, or to collateralize letters of credit or surety bonds upon non-compliance with covenants in our Credit Facility or surety indemnity agreements;
	•		compliance with certain debt covenants, which as a result, may interfere with our ability to successfully execute our business plan;
	•		our indebtedness, which could adversely affect our financial condition and impair our ability to fulfill our obligations under our financing arrangements;
	•		various legal, regulatory and litigation risk including but not limited to, class action lawsuits, regulatory activities and associated periodic reviews of the SEC and Public Company Accounting Oversight Board;
	•		the nature of our contracts, particularly fixed-price contracts;
	•		the failure to meet schedule or performance requirements of our contracts;
	•		our dependence on subcontractors;
	•		possible cost escalations associated with our fixed-price contracts;
	•		our ability to obtain new contracts for large-scale projects and the timing of the performance of these contracts;
	•		The effect on our reputation and financial exposure due to the failure of our partners to perform their contractual obligations;
	•		our dependence on a few significant customers;
	•		delays and/or defaults in customer payments;
	•		potential professional liability, product liability, warranty and other potential claims, which may not be covered by insurance;
	•		the presence of competitors with greater financial resources and the impact of competitive products, services and pricing;
	•		work stoppages and other labor problems;
	•		our liquidity position;
	•		a determination to write-off a significant amount of our intangible assets;
	•		our ability to successfully identify, integrate and complete acquisitions;
	•		our failure to attract and retain qualified personnel;
	•		our ability to retain key members of our management;
	•		our competitors’ ability to develop or otherwise acquire equivalent or superior technology;
	•		general economic conditions;
	•		future changes in accounting standards or interpretations;
	•		inability to maintain an effective system of internal control, which could result in inaccurate reporting of our financial results or an inability to prevent fraud;
	•		provisions in our articles of incorporation and by-laws and rights agreement could make it more difficult to acquire us and may reduce the market price of our common stock;
	•		changes in the U.S. economy and global markets as a result of terrorists’ actions;
	•		increases in employee-related costs and expenses including healthcare and other employee benefits such as unemployment insurance and workers’ compensation; and
	•		our dependency on technology in our operations and the possible impact of system and information technology interruptions.

 

 

 

 

 

 

 

 

 

		Three months Ended April 30,
		2007			2006
Net sales
Power industry services		$	43,354,000		$	--
Nutraceutical products			4,949,000			5,829,000
Telecom infrastructure services			2,129,000			3,133,000
Net sales			50,432,000			8,962,000
Cost of sales
Power industry services			43,245,000			--
Nutraceutical products			4,166,000			4,386,000
Telecom infrastructure services			1,843,000			2,323,000
Gross profit			1,178,000			2,253,000
Selling, general and administrative expenses			4,561,000			1,976,000
(Loss) income from operations			(3,383,000	)		277,000
Interest expense			(204,000	)		(261,000	)
Other income, net			633,000			2,000
(Loss) income before income taxes			(2,954,000	)		18,000
Income tax benefit (expense)			939,000			(36,000	)
Net loss		$	(2,015,000	)	$	(18,000	)
Basic and diluted loss per share		$	(0.18	)	$	--
Weighted average shares outstanding - basic and diluted			11,094,000			3,814,000

 

 

 

 

 

		Three Months Ended April 30,
		2007			2006
		unaudited			unaudited
Net sales					(Pro forma)
Power industry services		$	43,354,000		$	10,156,000
Nutraceutical products			4,949,000			5,829,000
Telecom infrastructure services			2,129,000			3,133,000
Net sales			50,432,000			19,118,000
Cost of sales
General Power Services			43,245,000			10,039,000
Nutraceutical products			4,166,000			4,386,000
Telecom infrastructure services			1,843,000			2,323,000
Gross profit			1,178,000			2,370,000
Selling and general and administrative expenses			4,561,000			2,614,000
Loss from operations		$	(3,383,000	)	$	(244,000	)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		Three months ended April 30,
		2007			2006
Net loss		$	(2,015,000	)	$	(18,000	)
Interest expense and amortization of Subordinated debt issuance costs			204,000			261,000
Tax (benefit) expense			(939,000	)		36,000
Depreciation and amortization			324,000			247,000
Amortization of intangible assets			2,064,000			331,000
EBITDA		$	(362,000	)	$	857,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	ARGAN, INC.
June 12, 2007	By:	/s/ Rainer Bosselmann
		Rainer Bosselmann
		Chairman of the Board and Chief Executive Officer

June 12, 2007	By:	/s/ Arthur F. Trudel
		Arthur F. Trudel
		Senior Vice President, Chief Financial Officer and Secretary