ARGAN INC - Quarter Report: 2013 April (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended April 30, 2013

or

For the Transition Period from                     to                     

Commission File Number 001-31756

(Exact Name of Registrant as Specified in Its Charter)

One Church Street, Suite 201, Rockville, Maryland 20850

(Address of Principal Executive Offices) (Zip Code)

(301) 315-0027

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  x    No  ¨

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

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

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

Common stock, $0.15 par value, 13,974,327 shares as of June 3, 2013.

Table of Contents

ARGAN, INC. AND SUBSIDIARIES

FORM 10-Q QUARTERLY REPORT

APRIL 30, 2013

INDEX

- 2 -

Table of Contents

ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these condensed consolidated financial statements.

- 3 -

Table of Contents

ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

- 4 -

Table of Contents

ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of the condensed consolidated financial statements.

- 5 -

Table of Contents

ARGAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2013

(Unaudited)

NOTE 1—DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Description of the Business

Argan, Inc. (“Argan”) conducts continuing operations through its wholly owned subsidiaries, Gemma Power Systems, LLC and affiliates (“GPS”), which provide the substantial portion of consolidated net revenues, and Southern Maryland Cable, Inc. (“SMC”). Argan and these consolidated subsidiaries are hereinafter referred to as the “Company.” Through GPS, the Company provides a full range of engineering, procurement, construction, commissioning, maintenance and consulting services to the power generation and renewable energy markets for a wide range of customers including public utilities and independent power project owners. The combination of GPS and its consolidated variable interest entities represents our power industry services business segment. Through SMC, the services of the telecommunications infrastructure services segment include project management, construction, installation and maintenance provided to commercial, local government and federal government customers primarily in the mid-Atlantic region.

Basis of Presentation

The consolidated financial statements include the accounts of Argan, its wholly-owned subsidiaries and any variable interest entities for which GPS is deemed to be the primary beneficiary (see Note 2 below). The Company’s fiscal year ends on January 31. All significant inter-company balances and transactions have been eliminated in consolidation. In Note 14, the Company has provided certain financial information relating to the operating results and assets of its industry segments based on the manner in which management disaggregates the Company’s financial reporting for purposes of making internal operating decisions.

The condensed consolidated balance sheet as of April 30, 2013, the condensed consolidated statements of operations for the three months ended April 30, 2013 and 2012, and the condensed consolidated statements of cash flows for the three months ended April 30, 2013 and 2012 are unaudited. The condensed consolidated balance sheet as of January 31, 2013 has been derived from audited financial statements. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, which are of a normal and recurring nature, considered necessary to present fairly the financial position of the Company as of April 30, 2013 and the results of its operations and its cash flows for the interim periods presented. The results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.

These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The accompanying condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements, the notes thereto (including the summary of significant accounting policies), and the independent registered public accounting firm’s report thereon that are included in the Company’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended January 31, 2013 on April 12, 2013.

Fair Values

The carrying value amounts presented in the condensed consolidated balance sheets for the Company’s cash and cash equivalents, accounts receivable, notes receivable and accounts payable are reasonable estimates of their fair values due to the short-term nature of these instruments. The fair value amounts of business segments (as needed for purposes of determining indications of impairment to the carrying value of goodwill) are determined using an average of valuations based on market multiples and discounted cash flows, and consideration of our market capitalization.

- 6 -

Table of Contents

NOTE 2—VARIABLE INTEREST ENTITIES

Moxie Energy, LLC (“Moxie”), a Delaware limited liability company, has been sponsoring the development of two natural gas-fired power plants located in the Marcellus Shale natural gas region of Pennsylvania. The strategy of Moxie is to develop these power plants (the “Moxie Projects,” both of which are limited liability companies wholly owned by Moxie) near the natural gas source and to provide electricity to the power grid in the northeastern United States, eliminating the need to transport natural gas via pipeline over long distances to supply the power production plants. The Moxie Projects have been engaged in the lengthy process of planning the construction, ownership and operation of the power plants.

Under a development agreement with Moxie, as amended and restated, Gemma Power, Inc. (“GPI,” an affiliate of GPS that is wholly owned by Argan) has supported the development of these two projects with loans that are being made in order to cover most of the costs of the development efforts. As of April 30, 2013, GPI had provided approximately $7,863,000 to the Moxie Projects under short-term development loans, which are due by September 30, 2014 and accrue interest at an annual rate of 20%. GPI has been authorized by the Company’s board of directors to extend loans to the Moxie Projects that could total up to $10 million, as currently contemplated by the agreement. Moxie has supported the arrangement by providing GPI with a first priority lien and security interest in all of the assets of the Moxie Projects, limited recourse guarantees of all of the obligations of the projects to GPI, and first priority liens on its membership interests in the two projects. The admission of any additional investor that would change the control of Moxie or either of the Moxie Projects would be subject to the prior approval of GPI. Pursuant to the development agreement, Moxie provided GPI with the right to receive development success fees and granted GPS the right to provide construction services for the two projects under engineering, procurement and construction contracts.

In April 2013, the Company announced that Moxie had reached an agreement for the purchase of its membership interest in one of the Moxie Projects, Moxie Liberty LLC (“Moxie Liberty”), by a third party investor. The consummation of the purchase of Moxie Liberty is contingent upon the investor securing permanent financing for the project, which shall occur no later than August 2, 2013. In addition, the investor made several commitments in order to support the continuing progress of this project. These include commitments 1) to provide collateral in the form of cash or letters of credit supporting Moxie Liberty’s securing the right to connect to the electricity grid, 2) to make equipment deposit payments to the manufacturer of the natural gas-fired turbines, and 3) to commence payments to GPS under the corresponding engineering, procurement and construction contact. The equipment deposit funding will be provided by the investor under secured loans bearing annual interest of 10%. The investor has stated that it does not require additional funding in order to fulfill these commitments. The membership interest purchase agreement requires Moxie Liberty to continue to conduct the remaining development activities. However, the rights of Moxie Liberty to conduct any activities that deviate from the development plan are subject to the approval of the investor.

In April 2013, the Company also announced that GPI consented to Moxie Liberty’s secured lending arrangement with the investor and agreed to equal priority with the investor regarding claims (neither party shall have a priority of payment over or be subordinate to the other) and the method for sharing the proceeds of any debt payments made by Moxie Liberty. Finally, in late April 2013, GPS and Moxie Liberty entered into an engineering, procurement and construction contract for the Liberty Generating Station (the “EPC Contract”). The contract confirmed that earlier in the month Moxie Liberty had provided GPS with a limited notice to proceed with the commencement of certain work covered by the EPC Contract. The total price of the effort contemplated by the EPC Contract shall become fixed so long as full notice to proceed with construction is received by GPS by July 1, 2013.

Primarily due to the Moxie Projects not having sufficient equity investment to permit the entities to finance their activities without additional financial support, these entities were considered to be variable interest entities (“VIEs”) under current accounting guidance. Despite not having an ownership interest in the Moxie Projects, the Company concluded that GPI was the primary beneficiary of these VIEs due substantially 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 intent of the parties for GPI to be awarded large contracts for the construction of the two power plants. Accordingly, the Company included the accounts of the Moxie Project VIEs in its consolidated financial statements for the year ended January 31, 2013.

During April 2013, the power to direct the economic activities of Moxie Liberty that most affect its economic performance shifted to the third party investor through the completion of the agreements described above. GPI is no longer the primary source of financing for Moxie Liberty. The primary source of financing for the pre-construction phase is the investor who is providing significant financing in order to secure connection to the electricity grid and to pay for the natural gas-fired turbines, the most significant equipment components of the power plant. Through the EPC Contract, GPS has transitioned into its typical role of engineering, procurement and construction contractor where it is subject to the direction of the project owner, in this case Moxie Liberty, and where the investor is making payments directly to GPS in order to cover certain pre-construction costs incurred under the EPC Contract.

- 7 -

Table of Contents

Further, the identification of sources and closing of the permanent financing for the Moxie Liberty project are activities being directed and completed primarily by the investor.

As a result, the Company has ceased the consolidation of Moxie Liberty. The elimination of the accounts of Moxie Liberty from the Company’s consolidated financial statements resulted in a gain which was recorded in the three month period ended April 30, 2013 in the amount of $1,120,000. This consolidation accounting did not eliminate GPI’s note receivable from Moxie Liberty in the amount of $4,125,000 and corresponding accrued interest of $571,000. Accordingly, the total amount of $4,696,000, which approximated the Company’s amount of maximum exposure to loss as of April 30, 2013, was included in prepaid expenses and other assets in the condensed consolidated balance sheet. This balance, along with any development success fees related to the Moxie Liberty project, will be paid to GPI at the closing of the membership purchase agreement.

The Company will continue to consolidate the accounts of the other Moxie Project, Moxie Patriot LLC, until GPI is no longer considered to be the primary beneficiary (see Note 16 for subsequent events related to Moxie Patriot). Net operating losses associated with the Moxie Project entities (before corresponding income tax benefit) and included in the consolidated results of operations for the three months ended April 30, 2013 and 2012 were $261,000 and $281,000, respectively. The condensed consolidated balance sheets as of April 30, 2013 and January 31, 2013 included the following amounts related to the consolidated VIEs.

The balances for accrued expenses as of April 30, 2013 and January 31, 2013 represented amounts due to Moxie.

NOTE 3—CASH AND CASH EQUIVALENTS

The Company holds cash on deposit at Bank of America in excess of federally insured limits. Management does not believe that the risk associated with keeping deposits in excess of federal deposit limits represents a material risk.

NOTE 4—ACCOUNTS RECEIVABLE

Amounts retained by project owners under construction contracts and included in accounts receivable at April 30, 2013 and January 31, 2013 were approximately $17.0 million and $20.2 million, respectively. Such retainages represent amounts withheld by construction project owners until a defined phase of a contract or project has been completed and accepted by the customer. The lengths of retention periods may vary, but for material amounts they typically range between nine months and three years.

The allowance for doubtful accounts at both April 30, 2013 and January 31, 2013 was approximately $5.5 million. In fiscal year 2010, a substantial portion of the accounts receivable from the owner of a partially completed construction project was written down against the allowance to $5.5 million, the amount of the net proceeds remaining from a public auction of the facility. As the amount that the Company may ultimately receive in a distribution of the auction proceeds, if any, is not known at this time, the remaining account receivable amount was fully reserved. The amounts of the provision for accounts receivable losses for the three months ended April 30, 2013 and 2012 were not material.

NOTE 5—COSTS, ESTIMATED EARNINGS AND BILLINGS ON UNCOMPLETED CONTRACTS

The Company’s billing practices are governed primarily by the contract terms of each project based on the achievement of milestones, pre-agreed schedules or progress towards completion approved by the project owner. Billings do not necessarily correlate with net revenues recognized under the percentage-of-completion method of accounting. Contract costs include all direct costs, such as material and labor, and those indirect costs related to contract performance such as payroll taxes, insurance, job supervision and equipment charges. The amounts of costs and estimated earnings in excess of billings are expected to be billed and collected in the normal course of business.

- 8 -

Table of Contents

Unapproved change orders, which represent contract variations for which the Company has project owner approval for scope changes but not for the price associated with the scope changes, are reflected in net revenues when it is probable that the applicable costs will be recovered through a change in the contract price. There were no significant unapproved favorable change orders as of April 30, 2013.

The tables below set forth the aggregate amounts of costs incurred and earnings accrued on uncompleted contracts compared with the billings for those contracts through April 30, 2013 and January 31, 2013, and reconcile the net amounts of billings in excess of costs and estimated earnings to the amounts included in the condensed consolidated balance sheets at those dates.

NOTE 6—PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at April 30, 2013 and January 31, 2013 consisted of the following:

Depreciation expense amounts related to continuing operations for property, plant and equipment were approximately $129,000 and $117,000 for the three months ended April 30, 2013 and 2012, respectively. The costs of maintenance and repairs for continuing operations totaled $66,000 and $92,000 for the three months ended April 30, 2013 and 2012, respectively. The Company also uses equipment and occupies facilities under non-cancelable operating leases and other rental agreements. Rent included in the selling, general and administrative expenses of continuing operations was $35,000 and $112,000 for the three months ended April 30, 2013 and 2012, respectively. Rent incurred on construction projects and included in the costs of revenues of continuing operations were $1,017,000 and $3,293,000 for the three months ended April 30, 2013 and 2012, respectively.

NOTE 7—OTHER INTANGIBLE ASSETS

The Company’s intangible assets, other than goodwill, consisted of the following amounts at April 30, 2013 and January 31, 2013:

- 9 -

Table of Contents

Amortization expense was $61,000 for each of the three month periods ended April 30, 2013 and 2012.

NOTE 8—FINANCING ARRANGEMENTS

The Company maintains financing arrangements with Bank of America (the “Bank”). The financing arrangements, as amended, provide a revolving loan with a maximum borrowing amount of $4.25 million that is available until May 31, 2015, with interest at LIBOR plus 2.25%. The Company may obtain standby letters of credit from the Bank for use in the ordinary course of business not to exceed $10.0 million. There were no borrowings outstanding under the Bank financing arrangements as of April 30, 2013 or January 31, 2013.

The Company has pledged the majority of its assets to secure the financing arrangements. The Bank’s consent is required for acquisitions, divestitures and cash dividends. The Bank requires that the Company comply with certain financial covenants at its fiscal year-end and at each of its fiscal quarter-ends (using a rolling 12-month period) including covenants that (1) the ratio of total funded debt to EBITDA not exceed 2 to 1, (2) the fixed charge coverage ratio be not less than 1.25 to 1, and (3) the ratio of senior funded debt to EBITDA not exceed 1.50 to 1.

The amended financing arrangements also contain an acceleration clause which allows the Bank to declare outstanding borrowed amounts due and payable if it determines in good faith that a material adverse change has occurred in the financial condition of the Company or any of its subsidiaries. If the Company’s performance results in noncompliance with any of its financial covenants, or if the Bank seeks to exercise its rights under the acceleration clause referred to above, management would seek to modify the financing arrangements. However, there can be no assurance that the Bank would not exercise its rights and remedies under the financing arrangements including accelerating the payment of any outstanding senior debt. At April 30, 2013 and January 31, 2013, the Company was in compliance with the financial covenants of its amended financing arrangements. Management believes that the Company will continue to comply with its financial covenants under the financing arrangements.

NOTE 9—STOCK-BASED COMPENSATION

In June 2011, the stockholders approved the adoption of the 2011 Stock Plan (the “Stock Plan”) including 500,000 shares of the Company’s common stock reserved for issuance thereunder. The Stock Plan, which will expire in July 2021, served to replace the Argan, Inc. 2001 Stock Option Plan (the “Option Plan”) which expired in July 2011. As was the case under the Option Plan, the Company’s Board of Directors may make awards under the Stock Plan to officers, directors and key employees. Awards may include incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”), and restricted or unrestricted stock. ISOs granted under the Stock Plan shall have an exercise price per share at least equal to the common stock’s market value per share at the date of grant, a seven or ten-year term, and typically shall become fully exercisable one year from the date of grant. NSOs may be granted at an exercise price per share that differs from the common stock’s market value per share at the date of grant, may have up to a ten-year term, and become exercisable as determined by the Company’s board of directors, typically one year from the date of award. At April 30, 2013, there were 495,000 shares of the Company’s common stock reserved for issuance under the two plans, including approximately 10,500 shares of the Company’s common stock available for awards under the Stock Plan.

A summary of activity under the Option and Stock Plans for the three months ended April 30, 2013 is presented below:

- 10 -

Table of Contents

A summary of the change in the number of non-vested options to purchase shares of common stock for the three months ended April 30, 2013 is presented below:

Compensation expense amounts related to stock options were $436,000 and $236,000 for the three months ended April 30, 2013 and 2012, respectively. At April 30, 2013, there was $844,000 in unrecognized compensation cost related to outstanding stock options. The Company expects to recognize the compensation expense for these awards within the next twelve months. There were no stock options exercised during the three months ended April 30, 2013. At April 30, 2013, the aggregate market value of the shares of common stock subject to outstanding and exercisable stock options exceeded the aggregate exercise price of such options by approximately $3,224,000 and $3,178,000, respectively.

The fair value of each stock option granted in the three-month period ended April 30, 2013 was estimated on the date of award using the Black-Scholes option-pricing model based on the following weighted average assumptions.

In June 2011, the Company awarded 5,000 shares of restricted stock to an employee. The aggregate market value of the shares is being amortized over the two-year vesting period to compensation expense, which was approximately $6,000 for each of the three month periods ended April 30, 2013 and 2012.

The Company also had outstanding warrants to purchase shares of the Company’s common stock, exercisable at a per share price of $7.75, that were issued in connection with the Company’s private placement in April 2003. Warrants covering 160,000 shares of the Company’s common stock were converted in the year ended January 31, 2013, including warrants converted to 4,000 shares in the three months ended April 30, 2012. There were no remaining warrants outstanding as of January 31, 2013.

NOTE 10—INCOME TAXES

The Company’s income tax expense amounts related to continuing operations for the three months ended April 30, 2013 and 2012 differed from the expected income tax expense amounts computed by applying the federal corporate income tax rate (35% and 34% for the three month periods ended April 30, 2013 and 2012, respectively) to the income from continuing operations before income taxes as shown in the table below.

For the three months ended April 30, 2013 and 2012, the favorable tax effects of permanent differences related primarily to the tax benefit of the domestic manufacturing deduction for the periods.

- 11 -

Table of Contents

As of April 30, 2013 and January 31, 2013, the amounts presented in the condensed consolidated balance sheet for accrued expenses included accrued income taxes of approximately $3,310,000 and $1,362,000, respectively.

The Company’s condensed consolidated balance sheets as of April 30, 2013 and January 31, 2013 also included net deferred tax assets in the amounts of approximately $1,499,000 and $1,639,000, respectively, resulting from future deductible temporary differences. The Company’s ability to realize its deferred tax assets depends primarily upon the generation of sufficient future taxable income to allow for the utilization of the Company’s deductible temporary differences and tax planning strategies. If such estimates and assumptions change in the future, the Company may be required to record additional valuation allowances against some or all of the deferred tax assets resulting in additional income tax expense in the consolidated statement of operations. At this time, based substantially on the strong earnings performance of the Company’s power industry services business segment, management believes that it is more likely than not that the Company will realize benefit for its deferred tax assets.

The Company is subject to income taxes in the United States of America and in various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to federal, state and local income tax examinations by tax authorities for its fiscal years ended on or before January 31, 2009.

NOTE 11—EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN

Basic earnings (loss) per share amounts for the three months ended April 30, 2013 and 2012 were computed by dividing income (loss) by the weighted average number of shares of common stock that were outstanding during the applicable period.

Diluted earnings per share amounts for the three months ended April 30, 2013 and 2012 were computed by dividing the corresponding income amounts by the weighted average number of outstanding common shares for the applicable period plus 151,000 shares and 282,000 shares representing the total dilutive effects of outstanding stock options and warrants during the periods, respectively. The diluted weighted average number of shares outstanding for the three months ended April 30, 2013 and 2012 excluded the effects of options to purchase approximately 240,000 and 388,000 shares of common stock, respectively, because such anti-dilutive common stock equivalents had exercise prices that were in excess of the average market price of the Company’s common stock during the applicable period.

Diluted loss per share for the three months ended April 30, 2012 was computed by dividing the loss amount by the weighted average number of outstanding common shares for the period. The effects of outstanding options and warrants to purchase shares of common stock were not reflected in the computation as the loss made the common stock equivalents anti-dilutive for the period.

The earnings per share amounts for continuing operations attributable to the stockholders of Argan for the three months ended April 30, 2013 and 2012 were based on the amounts of income from continuing operations, excluding the net income or loss attributable to the noncontrolling interest, of $6,410,000 and $4,723,000, respectively.

NOTE 12—LEGAL CONTINGENCIES

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

Altra Matters

GPS was the contractor for engineering, procurement and construction services related to an anhydrous ethanol plant in Carleton, Nebraska (the “Project”). The Project owner was ALTRA Nebraska, LLC (“Altra”). In November 2007, GPS and Altra agreed to a suspension of the Project while Altra sought to obtain financing to complete the Project. By March 2008, financing had not been arranged which terminated the construction contract prior to completion of the Project. In March 2008, GPS filed a mechanic’s lien against the Project in the approximate amount of $23.8 million, which amount included sums owed to subcontractors/suppliers of GPS and their subcontractors/suppliers. Several other claimants also filed mechanic’s liens against the Project.

- 12 -

Table of Contents

In August 2009, Altra filed for bankruptcy protection. Proceedings resulted in a court-ordered liquidation of Altra’s assets. The incomplete plant was sold at auction in October 2009. Remaining net proceeds of approximately $5.5 million are being held by the bankruptcy court and have not been distributed to Altra’s creditors.

The court separated the lien action into two phases relating to the priority of the claims first and the validity and amount of each party’s lien claim second. In November 2011, the court held that the claim of the project lender is superior to the lien claim of GPS. Fact discovery related to the second phase was completed in January 2012, but the court has continued to stay this action pending the final resolution of the claim against the Company’s payment bond that is discussed below.

Delta-T Corporation (“Delta-T”) was a major subcontractor to GPS on the Project. In January 2009, GPS and Delta-T executed a Project Close-Out Agreement (the “Close-Out”) which settled all contract claims between the parties and included a settlement payment in the amount of $3.5 million that GPS made to Delta-T. In the Close-Out, Delta-T also agreed to prosecute any lien claims against Altra, to assign to GPS the first $3.5 million of any resulting proceeds and to indemnify and defend any claims against GPS related to the Project. In addition, GPS received a guarantee from Delta-T’s parent company in support of the indemnification commitment. Delta-T assigned its lien rights related to the Project to GPS which advised the parties that it would be pursuing only the assigned lien rights of Delta-T, amounting to approximately $21.2 million, for the remainder of this action.

In April 2009, a subcontractor (“DCR”) to Delta-T received an arbitration award in its favor against Delta-T in the amount of approximately $6.8 million (the “Judgment Award”). In December 2009, the Judgment Award was confirmed in federal district court in Florida. In April 2009, DCR also filed suit in the District Court of Thayer County, Nebraska, in order to recover its claimed amount of $6.8 million, as amended, from a payment bond issued to Altra on behalf of GPS. Delta-T did not pay or satisfy any portion of the award and it abandoned its defense of the surety company.

In December 2011, DCR filed a separate lawsuit against GPS relating to the Project in the District Court of Thayer County, Nebraska, that alleged claims against GPS for failure to furnish the surety bond upon request and unjust enrichment. DCR claimed that, to the extent that the bonding company was successful in asserting a notice defense to DCR’s claim, GPS was liable for DCR’s damages for failing to furnish the bond when requested. DCR’s unjust enrichment claim alleged that GPS received payments from Altra that exceeded the scope of GPS’s work on the Project and should have been paid to lower tier subcontractors such as DCR; its complaint sought damages in the amount of $6.1 million plus interest, costs and attorney fees.

In August 2012, the applicable parties executed settlement agreements that resulted in the dismissal of the claims against GPS and its surety company, with prejudice, and the assignment of DCR’s mechanics lien claim against the escrowed Altra Project sales proceeds to GPS. In connection with these settlements, GPS agreed to make cash payments to DCR. GPS made these payments that totaled $1,875,000 in August 2012. The payments were funded, in part, by a cash payment received during the year from Delta-T’s parent company in the amount of $275,000. The net amount of $1,600,000 was included as a charge to the cost of revenues of GPS in July 2012. Subsequent to the execution of the settlement agreements and the payments made by GPS, DCR’s former counsel filed notice of a charging lien, claiming that DCR is indebted to counsel in excess of $1.8 million in fees and costs. In addition, a subcontractor to DCR on the Altra Project filed a motion asking the court to set aside the dismissals or, in the alternative, to reconsider them. In October 2012, the court vacated the prior orders of dismissal and permitted DCR’s former counsel and former subcontractor to file complaints. A trial for the charging lien and subcontractor claims was held in April 2013. The court ordered the parties to submit post-trial briefs which will conclude in August 2013, and then the parties will await the court’s verdict.

The Company intends to vigorously pursue the enforcement of the settlement agreements and the pursuit of the lien claims against the Altra Project assigned to GPS. Due to the uncertainty of the ultimate outcomes of these legal proceedings, assurance cannot be provided by the Company that it will be successful in these efforts. However, management does not believe that resolution of the matters discussed above will result in additional loss with material negative effect on the Company’s consolidated operating results in a future reporting period. No additional provision for loss related to these matters was recorded in the consolidated statement of operations for the three months ended April 30, 2013. If new facts become known in the future indicating that it is probable that a loss has been incurred by GPS and the amount of additional loss can be reasonably estimated by GPS, the impacts of the change will be reflected in the consolidated financial statements at that time.

Tampa Bay Nutraceutical Company

On or about September 19, 2007, Tampa Bay Nutraceutical Company, Inc. (“TBN”) filed a civil action in the Circuit Court of Florida for Collier County against Vitarich Laboratories, Inc. (“VLI”, see Note 18). The current causes of action relate to an order for product issued by TBN to VLI in June 2007 and allege (1) breach of contract; (2) fraudulent misrepresentation; and (3) various warranty breaches, among other allegations. TBN alleges compensatory damages in excess of $42 million.

- 13 -

Table of Contents

The Company has vigorously defended this litigation. Since 2011, the parties were engaged primarily in legal activity concerning TBN’s failure to provide proper discovery responses to VLI. In August 2012, the court ordered TBN to pay to VLI, by September 17, 2012, a sanction award in the amount of $295,000 covering the costs and expenses incurred by VLI as a result of TBN’s repeated disobedience of court orders. As TBN failed to do so, the court issued a final judgment in favor of VLI, ordering that TBN’s pleadings in this matter be stricken and dismissing all of plaintiff’s claims with prejudice. However, in September 2012, TBN filed an appeal in the Florida’s Second District Court of Appeal for reconsideration of the sanction award decision. VLI has responded and it is expected that oral arguments will be presented to the court in calendar 2013.

Although the Company believes it has meritorious arguments, it is impracticable to assess the likelihood of an unfavorable ultimate outcome in this matter or to estimate a likely range of damages, if there are any ultimately awarded by the court. The Company has maintained that it is reasonably possible that the ultimate resolution of the litigation with TBN could result in a material adverse effect on the results of operations of the Company for a future reporting period. However, if the dismissal of the claims of TBN is upheld by the District Court, the operating results of a future reporting period may reflect the favorable effects of the reversal of the accrued liability that the Company has established for expected legal fees.

NOTE 13—MAJOR CUSTOMERS

During the three months ended April 30, 2013 and 2012, the majority of the Company’s net revenues from continuing operations related to engineering, procurement and construction services that were provided by GPS to the power industry. Net revenues from power industry services accounted for approximately 94% and 91% of consolidated net revenues from continuing operations for the three months ended April 30, 2013 and 2012, respectively.

The Company’s significant customer relationships for the three months ended April 30, 2013 included two power industry service customers which accounted for approximately 45% and 44% of consolidated net revenues from continuing operations, respectively. The Company’s significant customer relationships during the three months ended April 30, 2012 included three power industry service customers which accounted for approximately 47%, 19% and 14%, respectively, of consolidated net revenues from continuing operations for the period.

NOTE 14—SEGMENT REPORTING

The Company’s reportable segments, power industry services and telecommunications infrastructure services, are organized in separate business units with different management teams, customers, technologies and services. The business operations of each segment are conducted primarily by the Company’s wholly-owned subsidiaries – GPS and SMC, respectively. Presented below are summarized operating results and certain financial position data of the Company’s reportable continuing business segments for the three months ended April 30, 2013 and 2012. The “Other” columns include the Company’s corporate and unallocated expenses.

- 14 -

Table of Contents

For comparison, presented below are summarized operating results and certain financial position data of the Company’s reportable continuing business segments for the three months ended April 30, 2012. As above, the “Other” column includes the Company’s corporate and unallocated expenses.

NOTE 15—DISPOSITION OF DISCONTINUED OPERATIONS

VLI, a wholly owned subsidiary representing the Company’s nutritional products business segment, completed the sale of substantially all of its assets to an unrelated party in March 2011. The financial results of this business through April 30, 2012 were presented as discontinued operations in the accompanying condensed consolidated financial statements, which included primarily 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 months ended April 30, 2013.

NOTE 16—SUBSEQUENT EVENTS

In May 2013, the Company announced that GPI had entered into a consent and inter-creditor agreement in connection with the design and construction of an 820 megawatt gas-fired power plant in Lycoming County, Pennsylvania. GPI has been funding Moxie Patriot LLC (“Moxie Patriot”) in the development of this power-plant project and has advanced approximately $3.7 million in working capital funding to the project as of April 30, 2013. The Company also disclosed that Moxie had entered into an agreement with a third party investor for the purchase of Moxie’s membership interest. The investor, who is the same investor as the one under contract to purchase Moxie Liberty, agreed to provide advances for certain preconstruction costs. The consummation of the purchase of Moxie Patriot is contingent upon the third party investor securing permanent financing for the project. Although a complete analysis has not been conducted, these events may form the basis for a determination in a future reporting period that Moxie Patriot should be deconsolidated. In addition, should the third party investor consummate the purchase of Moxie Patriot, GPS would design and build the plant under an engineering, procurement and construction contract. Also, GPI would receive development success fees and repayment of the working capital advances plus accrued interest from the proceeds of the sale.

- 15 -

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion summarizes the financial position of Argan, Inc. and its subsidiaries as of April 30, 2013, and the results of their operations for the three months ended April 30, 2013 and 2012, 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, 2013 that was filed with the Securities and Exchange Commission on April 12, 2013 (the “2013 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 2013 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. The combination of GPS and its consolidated variable interest entities represent 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 April 30, 2013, there were no restrictions with respect to inter-company payments from GPS or SMC to the holding company.

Overview

For the three months ended April 30, 2013 (the first quarter of our fiscal year 2014), consolidated net revenues from continuing operations were $46.6 million which represented a decrease of $17.1 million from net revenues from continuing operations of $63.7 million for the first quarter of last year. The net revenues of both of our operating segments, power industry services and telecommunications infrastructure services, declined in the current quarter by 24% and 52%, respectively, to $43.8 million and $2.9 million, respectively. The net revenues of the segments for the first quarter last year were $57.7 million and $6.0 million, respectively.

As our large gas-fired power plant construction project moves through its final phases, the quarterly net revenues associated with this project have declined, representing the primary factor in the reduction of our net revenues for the current quarter. We expect to complete this construction project in the second quarter which represented approximately 44% of our consolidated net revenues for the three months ended April 30, 2013. The approaching completion of this project also adversely affected our cash flows during the current quarter as the amounts of billings in excess of net revenues and accounts payable associated with this project declined. Our balance of billings in excess of costs and estimated earnings decreased by $11.9 million during the three months ended April 30, 2013, and the balance of accounts payable and accrued expenses decreased by $4.3 million during the same period, both declines representing uses of cash.

- 16 -

Table of Contents

These changes more than offset net income of $6.9 million for the current quarter and the cash provided by a decline in accounts receivable in the amount of $5.6 million. As a result, net cash in the amount of $3.6 million was used in the operating activities of continuing operations during the three months ended April 30, 2013.

However, net income attributable to our stockholders for the three months ended April 30, 2013 rose to $6.4 million, or $0.45 per diluted share, compared with net income attributable to our stockholders of $4.4 million, or $0.32 per diluted share, for the three months ended April 30, 2012. Favorable progress in the commissioning phase of peaking power plant project discussed above resulted in revisions to the estimates of costs expected to be incurred through completion and to an increase in the profitability of this job. The increase in the our overall gross profit percentage for the current quarter to 28% compared with the overall percentage of 16% for the three months ended April 30, 2012 reflected the project-to-date effect of the profitability improvement. In addition, we recognized a pre-tax gain in the approximate amount of $1.1 million during the current quarter in connection with the deconsolidation of the variable interest entity as discussed below.

Moxie Energy Projects

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 early in the year ended January 31, 2012, and which has provided GPI with an opportunity to support the development of two power plant projects with funding for working capital.

Moxie has two natural gas-fired power plant projects under development located in the Marcellus Shale natural gas region of Pennsylvania. The strategy of Moxie is to develop these power plants (the “Moxie Projects”) near the natural gas source and to provide electricity to the power grid in the northeastern United States, eliminating the need to transport natural gas via pipeline over long distances to supply the power production plants. The Moxie Projects have been engaged in the lengthy process of planning and obtaining permits and financing for the construction, ownership and operation of the power plants.

Under the development agreement with Moxie, as amended and restated, GPI has supported the development of the two projects with loans that were made in order to cover most of the costs of the development efforts. As of April 30, 2013, GPI had provided approximately $7,863,000 to the Moxie Projects under short-term development loans, which accrue interest at an annual rate of 20%. GPI has been authorized by the Company’s board of directors to extend loans to the Moxie Project entities that could total up to $10 million, as currently contemplated by the agreement. Moxie has supported the arrangement by providing GPI with a series of liens, security interests, guarantees and development fee preferences (see Note 2 to the accompanying condensed consolidated financial statements) which, together with the loans, provided us with substantial financial control over the Moxie Projects. Pursuant to the development agreement, Moxie provided GPI with the right to receive development success fees and granted GPS the right to provide construction services for the two projects under engineering, procurement and construction contracts.

We evaluated the Moxie Projects to be variable interest entities (“VIEs”) under current accounting guidance as of January 31, 2013 and 2012. Despite not having an ownership interest in the Moxie Projects, we concluded that GPI was the primary beneficiary of these VIEs due substantially to the significance of GPI’s loans to the entities, the risk that GPI could absorb significant losses if the development projects were not successful, the opportunity for GPI to receive development success fees and the intent of the parties for GPS to be awarded large contracts for the construction of the two power plants. Accordingly, the assets, liabilities and financial results of the Moxie Projects were included in our consolidated financial statements for the year ended January 31, 2013.

In early April 2013, we announced that Moxie had reached an agreement for the purchase of its membership interest in one of the Moxie Projects, Moxie Liberty LLC (“Moxie Liberty”), by a third party investor. The consummation of the purchase of Moxie Liberty is contingent upon the investor securing permanent financing for the project, which shall occur no later than August 2, 2013. In addition, the investor made several commitments of cash in order to support the continuing progress of this project. These include commitments 1) to provide collateral for the support of Moxie Liberty’s bid to connect to the electricity grid, 2) to make equipment deposit payments to the manufacturer of the natural gas-fired turbines, and 3) to commence payments to GPS under the corresponding engineering, procurement and construction contact. The equipment deposit funding will be provided by the investor under secured loans bearing annual interest of 10%. The investor has stated that it does not require additional funding in order to fulfill these commitments. The membership interest purchase agreement requires Moxie Liberty to continue to conduct the remaining development activities. However, the rights of Moxie Liberty to conduct any activities that deviate from the development plan are subject to the approval of the investor. We also announced that GPI consented to Moxie Liberty’s secured lending arrangement with the investor and agreed to equal priority with the investor regarding claims (neither party shall have a priority of payment over or be subordinate to the other) and the method for sharing the proceeds of any debt payments made by Moxie Liberty.

- 17 -

Table of Contents

In late April 2013, GPS and Moxie Liberty entered into an engineering, equipment procurement and construction contract for the Liberty Generating Station (the “EPC Contract”) which confirmed that earlier in the month Moxie Liberty had provided GPS with a limited notice to proceed with the commencement of certain work covered by the EPC Contract. The total price of the effort contemplated by the EPC Contract shall become fixed so long as full notice to proceed with construction is received by GPS by July 1, 2013. The addition of the contract value for this power plant project raised our construction project backlog to $517 million as of April 30, 2013 compared with a backlog amount of $180 million as of January 31, 2013.

During April 2013, the power to direct the economic activities of Moxie Liberty that most affect its economic performance shifted to the third party investor through the execution of the agreements described above. GPI is no longer the primary source of financing for Moxie Liberty. The primary source of financing for the pre-construction phase is the outside investor who is providing significant financing in order to secure connection to the electricity grid and to pay for the natural gas-fired turbines, the most significant equipment components of the power plant. Through the EPC Contract, GPS has transitioned into its typical role of engineering, procurement and construction contractor where it is subject to the direction of the project owner, in this case Moxie Liberty. The investor has begun to make payments directly to GPS in order to cover certain pre-construction costs incurred under the EPC Contract. Further, the identification of sources and closing of the permanent financing for the Moxie Liberty project are activities being directed and completed primarily by the investor.

As a result, we discontinued the inclusion of Moxie Liberty in our condensed consolidated financial statements for the current quarter. The elimination of the accounts of Moxie Liberty from our condensed consolidated financial statements resulted in a gain for us which was recorded in the three month period ended April 30, 2013 in the amount of $1,120,000. This consolidation accounting resulted in the inclusion of GPI’s note receivable from Moxie Liberty, and the corresponding accrued interest, in our condensed consolidated balance sheet as of April 30, 2013. Accordingly, the aggregate amount of $4,696,000, which approximated our amount of maximum exposure to loss as of April 30, 2013, was included in prepaid expenses and other assets in the condensed consolidated balance sheet. This balance will be paid to GPI at the closing of the membership purchase agreement as well as any development success fees related to the Moxie Liberty project which would be recorded at that time.

The Company will continue to consolidate the accounts of the other Moxie Project, Moxie Patriot LLC, until GPI is no longer considered to be the primary beneficiary (see Note 16 to the accompanying condensed consolidated financial statements for subsequent events related to Moxie Patriot). Net losses associated with the operations of the Moxie Project entities (before corresponding income tax benefit) and included in the consolidated results of operations for the three months ended April 30, 2013 and 2012 were $261,000 and $281,000, respectively.

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 all contributed to significant reductions in construction spending in the United States from pre-recession levels. Although we are technically in the midst of an overall economic recovery, the progress is sluggish, particularly in the construction sectors. Adding to an overall sense of economic uncertainty in the United States are concerns about the inability of the federal government to agree on a comprehensive budget plan and the effects of 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. In fact, electrical power generation in the United States declined in 2012 for the second year in a row. As it will likely take at least several more years for power consumption to reach pre-recession 2007 peak levels, certain existing power plants will continue to operate with spare capacity to produce electricity tempering the need for new power plants.

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. 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. Due to concerns that energy tax credit and grant programs would be expiring permanently, there was a rush to complete wind and solar projects by December 31, 2012. However, at present, there is no bipartisan agreement regarding the long-term future of government incentives for sources of renewable power in either legislative house of Congress. With the future long-term availability of renewable energy tax incentives unknown and the development pipeline depleted, potential energy project developers and investors are making very few commitments related to new renewable energy generation facilities. As a result, the likelihood of our booking additional wind and solar power projects this year is uncertain.

- 18 -

Table of Contents

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 the end of our current fiscal year. 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, presumably 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.

Nevertheless, 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. Early last 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. For calendar year 2012 compared with 2011, the amount of net electrical power generation in this country provided by natural gas and non-hydro renewables (including wind, biomass and solar) increased by 21% and 13%, respectively, while the net power generation represented by coal declined by 12%.

We also expect that continuing concerns about the safety, high cost and 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. Finally, the demand for electrical power in this country is expected to grow slowly but steadily over the long term.

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. 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, as we see future 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 assure the award of the related EPC contract, we may consider the pursuit of them. 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.

In this economic environment, we are very pleased with the opportunity to design and construct the Moxie Project power plants, Liberty and Patriot. Assuming the consummation of the purchase of the Moxie Projects as discussed above, our performance of efforts for these projects should provide a stable base of business activity for the next 2 ¹/₂ to 3 ¹/₂ years. However, the completion of the power plants currently under construction while we progress through the pre-construction phase of the Moxie Liberty project will likely result in annual net revenues for the three remaining quarters of the current fiscal year ending January 31, 2014 that are below the levels for the prior year ended January 31, 2013. Nonetheless, our current year net income should reflect the expected favorable execution of completing construction projects and the potential recognition of development success fees to be earned upon the consummation of the purchase of each Moxie Project by an investor.

- 19 -

Table of Contents

Discontinued Operations

In March 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 (see Note 15 to the accompanying condensed consolidated financial statements). However, we continue to incur legal costs associated with the defense of claims made against VLI prior to the disposition. The financial results of this business through April 30, 2012 (approximately one year after the asset sale) have been presented as discontinued operations in the accompanying condensed consolidated financial statements, including the legal costs associated with this business. The loss reported for the discontinued operations for the three months ended April 30, 2012 was $285,000. Such costs incurred subsequent to that date, including costs incurred during the three months ended April 30, 2013, were not material and have been reflected in the operating results of continuing operations.

Comparison of the Results of Operations for the Three Months Ended April 30, 2013 and 2012

The following schedule compares the results of our operations for the three months ended April 30, 2013 and 2012. Except where noted, the percentage amounts represent the percentage of net revenues from continuing operations for the corresponding quarter.