Variable Interest Entities

12 Months Ended

Jan. 31, 2013

Variable Interest Entities [Abstract]

VARIABLE INTEREST ENTITIES

NOTE 4 – 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 for the transport of natural gas over long distances to supply the power production plant. To date, the Moxie Projects have been engaged in the lengthy process of obtaining interconnect privileges and operating permits, completing an electricity supply contract, pursuing ownership for the completed plants and securing permanent financing for the projects.

In May 2012, Gemma Power, Inc. (“GPI,” an affiliate of GPS and wholly owned by Argan) agreed to the amendment and restatement of a development agreement with Moxie that was executed in May 2011. This arrangement has provided GPI with means to support the initial development of these two projects with loans and an opportunity to make equity investments to cover fully the anticipated costs of the development efforts. As amended and restated, it contemplates that GPI will extend loans to the Moxie Projects that may total up to $9 million. With the approval of the Company’s board of directors, GPI could increase the loan total to $10 million. Among other modifications to the arrangement, the maturity date for all current and future loans has been reset to no later than September 30, 2014. Earlier repayment of the loans for each Moxie Project shall occur in accordance with the agreement upon the closing of corresponding construction financing. Also, such financing, should it occur, shall cause the cash payment of certain development success fees from the Moxie Projects to both GPI and Moxie, provided that the terms of the corresponding construction financing do not require that the fees be paid in the form of subordinated notes. The Company’s commitment to provide project development financing shall expire no later than December 31, 2013.

As of January 31, 2013, GPI had provided approximately $5,479,000 to the Moxie Projects under short term initial development loans. In addition, accrued interest receivable was approximately $783,000. 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 success 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. Pursuant to the terms of the amended and restated development agreement, Moxie has provided GPS the right to provide construction services for the two projects under engineering, procurement and construction (“EPC”) contracts. As of January 31, 2012, the loan and accrued interest receivable balances included in the accounts of GPI were $1,500,000 and $94,000, respectively. See Note 19 for disclosure of a subsequent event relating to the contingent sale of one of the Moxie Projects.

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 believes 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 preferred development success fees and the possibility of GPS obtaining two large EPC contracts for the construction of the power plants. The net losses attributable to the Moxie Projects were $1,448,000 for the year ended January 31, 2013, and $302,000 for the period May 26, 2011 (the development commencement date) through January 31, 2012. Each net loss has been included in the consolidated statement of operations for the corresponding period.

The assets and liabilities of the Moxie Projects have been included in the Company’s consolidated balance sheets as of January 31, 2013 and 2012 as presented below.

	2013		2012
Cash and cash equivalents	$	190,000	$	75,000
Property, plant and equipment		5,309,000		1,469,000
Total assets	$	5,499,000	$	1,544,000
Accounts payable	$	334,000	$	27,000
Accrued expenses		747,000		224,000
Total liabilities	$	1,081,000	$	251,000

The balances for accrued expenses as of January 31, 2013 and 2012 represented amounts due to Moxie.