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Special Purpose Entities | 12 Months Ended
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Jan. 31, 2014
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Special Purpose Entities | NOTE 3 – SPECIAL PURPOSE ENTITIES Consolidation of the Moxie Project Entities Moxie Energy, LLC (“Moxie”), a Delaware limited liability company, formed a pair of wholly-owned limited liability companies in order to sponsor the development of two natural gas-fired power plant projects (the “Moxie Projects”). The strategy of Moxie was to build the corresponding power plants in the Marcellus Shale region of Pennsylvania near the natural gas source, eliminating the need to transport natural gas via pipelines over long distances to supply the power production plants. The Moxie Project entities, Moxie Liberty LLC (“Moxie Liberty”) and Moxie Patriot LLC (“Moxie Patriot”) together referred to as the “Moxie Project Entities,” were engaged in the lengthy process of planning, obtaining permits and arranging financing for 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 included in the GPS group of companies and wholly owned by Argan) supported the development of these two projects with loans that were made in order to cover most of the costs of the development efforts. GPI was authorized by the Company’s board of directors to extend loans to the Moxie Project Entities that could total up to $10 million. Moxie supported the arrangement by providing GPI with a first priority lien and security interest in all of the assets of the Moxie Project Entities, limited recourse guarantees of all of the obligations of the entities, and first priority liens on its membership interests in the two entities. The admission of any additional investor that would change the control of Moxie or either of the Moxie Project Entities required 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. Primarily due to the Moxie Project Entities 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”). Despite not having an ownership interest in the Moxie Project Entities, 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 Company included the accounts of the VIEs of Moxie in its consolidated financial statements for the years ended January 31, 2013 and 2012. The loss (net of income tax benefit) associated with the Moxie Project Entities incurred prior to the deconsolidation of the entities described below, and therefore included in the consolidated results of operations for the year ended January 31, 2014, was approximately $77,000. The losses (net of income tax benefit) associated with the Moxie Project Entities and included in the consolidated results of operations for the years ended January 31, 2013 and 2012 totaled $1,448,000 and $302,000, respectively. Deconsolidation of the Moxie Project Entities During the year ended January 31, 2014, Moxie reached agreements for the purchase of its membership interests in the Moxie Project Entities by affiliates of Panda Power Funds (“Panda”). The consummation of the purchase of each Moxie Project Entity was contingent upon Panda securing permanent financing for the corresponding project. In order to support the continuing progress of each project, Panda 1) provided collateral supporting the rights of Moxie Liberty and Moxie Patriot to connect to the electricity grid, 2) made equipment deposit payments to the manufacturer of the natural gas-fired turbines, and 3) commenced payments to GPS under the corresponding engineering, procurement and construction contracts after the Moxie Project Entities provided GPS with limited notices-to-proceed. The equipment deposit funding was provided by Panda under secured loans. The membership interest purchase agreements required the Moxie Project Entities to continue to conduct the remaining development activities. However, the rights of the Moxie Project Entities to conduct any activities that deviated from the development plans were subject to the approval of Panda. Also, GPI consented to the secured lending arrangements with Panda and agreed to equal priority regarding claims (neither party had a priority of payment over or was subordinate to the other) and the methods for sharing the proceeds of any debt payments made by the Moxie Project Entities. In addition, the Moxie Project Entities entered into separate engineering, procurement and construction contracts with GPS for the Liberty and Patriot Power Projects (the “EPC Contracts”). With the completion of the agreements described above, the power to direct the economic activities of the Moxie Project Entities that most affected their economic performance shifted. GPI was no longer the primary beneficiary of either of the VIEs. Panda became the primary source of financial support for the pre-construction phase of the related projects, providing significant financing in order to secure connections to the electricity grid and to pay for the natural gas-fired turbines, the most significant equipment components of the power plants. Through the EPC Contracts, GPS transitioned into its typical role of engineering, procurement and construction contractor where it is subject to the direction of the owner of the projects. Panda funded payments made to GPS in order to cover certain costs incurred under the EPC Contracts. Further, the identification of sources and structuring of the permanent financing for the Moxie Projects were activities directed and completed primarily by Panda. As a result, the Company ceased the consolidation of the Moxie Project Entities during the current fiscal year. The elimination of the accounts of Moxie Project Entities from the Company’s consolidated financial statements, including the accumulated net losses of these VIEs, resulted in pre-tax gains recognized by GPI which totaled $2,444,000. Development Success Fees Associated with the Moxie Project Entities In August and December 2013, respectively, Panda completed the purchase of and permanent financing for Moxie Liberty and Moxie Patriot and renamed the project entities Panda Liberty LLC (“Panda Liberty”) and Panda Patriot LLC (“Panda Patriot”). Also, GPS received full notices-to-proceed under the EPC Contracts. In connection with the closings, GPI received cash from the Moxie Project Entities in the aggregate amount of $37,863,000, including the receipt of the development success fees in the total amount of $27,052,000 which has been included in the revenues of the power industry services segment for the year ended January 31, 2014 and the repayment of notes receivable and accrued interest in the aggregate amount of $10,811,000. From the dates of deconsolidation through the dates of purchase of the Moxie Project Entities by Panda, GPI earned interest income on its notes receivable in the aggregate amount of $952,000. This amount was included in other income in the consolidated statement of operations for the year ended January 31, 2014. As GPI was not relieved of its responsibility to provide working capital funding for the Moxie Projects (its primary responsibility under the related development agreement) until the closing of their purchases by Panda, and as the Moxie Projects did not have the means to pay development success fees until the financial closings occurred, the development success fees related to each Moxie Project were not earned or realizable until GPI received payment of the fees at the closing of each purchase. Management concluded that the earnings process related to the development success fees was completed on the closing dates which occurred in December 2013 and August 2013 for Moxie Patriot and Moxie Liberty, respectively. Accordingly, we recognized the fees related to each project at the time of the corresponding closing. Construction Joint Ventures During the current year, GPS assigned the EPC Contracts to two separate joint ventures that were formed in order to perform the work for the applicable project and to spread the bonding risk of each project. The joint venture partner for both projects is a large, heavy civil contracting firm. The joint venture agreements provide that GPS has the majority interest in any profits, losses, assets and liabilities that may result from the performance of the EPC Contracts. However, if the joint venture partner is unable to pay its share of any losses, GPS would be fully liable for those losses incurred under the EPC Contracts. GPS has no significant commitments under these arrangements beyond those related to the completion of the EPC Contracts. The joint venture partners will dedicate resources that are necessary to complete the projects and will be reimbursed for their costs. GPS expects to perform most of the activities of the EPC Contracts. Due to the financial control of GPS, the accounts of the joint ventures were included in the consolidated financial statements for the year ended January 31, 2014.

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