Variable Interest Entities

3 Months Ended

Apr. 30, 2012

Variable Interest Entities [Abstract]

VARIABLE INTEREST ENTITIES

NOTE 2—VARIABLE INTEREST ENTITIES

Moxie Energy, LLC (“Moxie”), a Delaware limited liability company, 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,” both of which are limited liability companies wholly owned by Moxie) 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. The Moxie Projects have been engaged in the lengthy process of obtaining interconnect privileges and operating permits and pursuing project development capital.

In November 2011, Gemma Power, Inc. (“GPI,” an affiliate of GPS that is wholly owned by Argan) agreed to the amendment of a development agreement with Moxie that was executed earlier last year. This arrangement has provided GPI with an opportunity to support the initial development of these two projects with loans and the option to provide additional development loans and/or equity investments to cover the anticipated costs of the development efforts.

As of April 30, 2012, GPI had provided approximately $2.3 million to the Moxie Projects under short-term initial development loans. 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. At the time that either of the project entities secures construction and working capital financing, GPI shall be paid certain preferred development fees. 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. In return for GPI’s providing the initial development loans described above, Moxie will provide GPI with the right to provide construction services for the two projects under EPC Contracts.

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 are considered to be variable interest entities under current accounting guidance (“VIEs”). A company is deemed to be the primary beneficiary of a VIE and must consolidate the entity if the company has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. Despite not having an ownership interest in the Moxie Projects, the Company has 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. Net losses associated with the Moxie Project entities were $176,000 for the quarter ended April 30, 2012, and have been included in the condensed consolidated statement of operations for current quarter. The condensed consolidated balance sheets as of April 30, 2012 and January 31, 2012 included the following amounts related to the VIEs.

	April 30,		January 31,
	2012		2012
Cash and cash equivalents	$	22,000	$	75,000
Construction project costs		2,413,000		1,469,000
Total assets	$	2,435,000	$	1,544,000
Accounts payable	$	20,000	$	27,000
Due to Moxie		443,000		224,000
Total liabilities	$	463,000	$	251,000

Subsequent to April 30, 2012, the development agreement was amended and restated. See Note 16 for a description of the changes.