**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-K**


**ANNUAL
      REPORT**


**PURSUANT
      TO SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





**xANNUAL
      REPORT PURSUANT
      TO SECTION 13 OR 15(d) OF THE SECURITIES AND**


**EXCHANGE
      ACT OF 1934**





For
      the
      fiscal year ended December 31, 2006





OR





**o
      TRANSITION REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND**


**EXCHANGE
      ACT OF 1934**





For
      the
      transition period from ________________ to ________________





**Argyle
      Security Acquisition Corporation**


(Name
      of
      issuer as specified in its charter)




Delaware
              
              20-3101079(State
                  or other jurisdiction
                  of
                incorporation
                  or 
                  organization)
              
              (I.R.S.
                  Employer
                Identification
                  No.)200
                  Concord Plaza Suite 700 San Antonio,
                  TX
              
              78216(address
                  of principal executive
                  offices)
              
              (Zip
                  Code)




Registrant’s
        telephone number, including area code:  (210)
        828-1700
 
 Securities
        registered pursuant to Section 12(b) of the Act: None


Securities
      registered pursuant to Section 12(g) of the Act:





**Common
      Stock, $.0001 par value**


(Title
      of
      Class)





**Common
      Stock Purchase Warrants**


(Title
      of
      Class)





**Units
      consisting of one share of Common Stock and one**


**Common
      Stock Purchase Warrant**


(Title
      of
      Class)





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes o  No x


Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.


Yes x No o





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities 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
o


Indicate
      by check mark if disclosure of delinquent filers pursuant to item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of the registrant's knowledge in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange. (Check one):





Large
                Accelerated Filer o
            Accelerated
                Filer o
            Non-Accelerated
                Filerx


Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes x  No
o





State
      the
      aggregate market value of the voting and non-voting stock held by non-affiliates
      of the Issuer as of the last business day of the registrant’s most recently
      completed second fiscal quarter: $26,714,332.





Indicate
      the number of shares outstanding of each of the Registrant's classes of common
      stock, as of the latest practicable date: 4,781,307 at February 28,
      2007





**DOCUMENTS
      INCORPORATED BY REFERENCE: NONE**









TABLE
      OF
      CONTENTS




Part
                IItem
                1.
            
            Business
            1Item
                1A.
            
            Risk
                Factors
            9Item
                1B.
            
            Unresolved
                Staff Comments
            19Item
                2.
            
            Description
                of Property
            19Item
                3.
            
            Legal
                Proceedings
            19Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            19Part
                IIItem
                5.
            
            Market
                for Registrant's Common Equity, Related Stockholder Matters and Issuer
                Purchases
                of Equity Securities
            20Item
                6.
            
            Selected
                Financial Data
            22Item
                7.
            
            Management's
                Discussion and Analysis of Financial Condition and Results
                of Operations
            22Item
                7A.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            26Item
                8.
            
            Financial
                Statements and Supplementary Data
            26Item
                9.
            
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            26Item
                9A.
            
            Controls
                and Procedures
            26Item
                9B.
            
            Other
                Information
            27Part
                IIIItem
                10.
            
            Directors,
                Executive Officers and Corporate Governance
            28Item
                11.
            
            Executive
                Compensation
            30Item
                12.
            
            Security
                Ownership of Certain Beneficial Owners and Management and
                Related Stockholder Matters
            31Item
                13.
            
            Certain
                Relationships and Related Transactions and Director
                Independence
            32Item
                14.
            
            Principal
                Accounting Fees and Services
            33Part
                IVItem
                15.
            
            Exhibits
                and Financial Statement Schedules
            34




i




**PART
      I**




**Item
      1. Business**





**Overview**




Argyle
      Security Acquisition Corporation (“We”, “Us”, “Our” or “Argyle”) is a Delaware
      corporation incorporated on June 22, 2005 in order to serve as a vehicle for
      the
      acquisition of an operating business through a merger, capital stock exchange,
      asset acquisition or other similar business combination. We intend to leverage
      the industry experience of our executive officers by focusing our efforts on
      identifying a prospective target business in the security industry. We believe
      that businesses involved in this industry represent attractive acquisition
      targets for a number of reasons, including the increase in global demand for
      integrated security-related products and services since September 11, 2001,
      the
      development of new technology which has the potential to expand applications
      and
      the trend towards integrated networked solutions.





On
      January 24, 2006, the Company completed a private placement of 125,000 units
      to
      Ron Chaimovski, one of our Co-Chief Executive Officers, and Argyle New Ventures,
      LP, an entity controlled by Bob Marbut, our other Co-Chief Executive Officer,
      and received net proceeds of $892,500. On January 30, 2006, we consummated
      our
      initial public offering of 3,700,046 units (which includes 75,046 units sold
      as
      part of the underwriter’s over-allotment option). Each unit in both the private
      placement and the public offering consisted of one share of common stock and
      one
      redeemable common stock purchase warrant. Each warrant entitles the holder
      to
      purchase from us one share of our common stock at an exercise price of $5.50.
      Our common stock and warrants started trading separately as of March 2, 2006.





In
      2006,
      the net proceeds from the sale of our units in the public offering and
      private placement, after deducting certain offering expenses of approximately
      $2,424,001, including underwriting discounts of approximately $1,836,022, were
      approximately $28,176,367. Approximately $27,344,346 of the proceeds from the
      initial public offering and the private placement was placed in a trust account
      for our benefit. Except for income taxes payable and $600,000 in interest that
      was earned on the funds contained in the trust account that was released to
      us
      for working capital, we are not able to access the amounts held in the trust
      account until we consummate a business combination. The trust account also
      contains $1,377,016 of the underwriter’s compensation plus associated interest
      which will be paid to them only in the event of a business combination. On
      March
      14, 2007, the underwriters from the Company's initial public
      offering agreed to forfeit any and all rights or claims to a pro-rata
      portion of the deferred underwriting costs and associated interest with respect
      to any shares of common stock which are redeemed in connection with our proposed
      acquisition. As a result, the deferred underwriting and offering costs discussed
      above have been reduced by approximately $.3 million and common stock subject
      to
      possible redemption has been increased by $.3 million. (See Redemption Rights
      under Part 1 and Note 9 to the Company's financial statements.)




The
      amounts held outside of the trust account are available to be used by us to
      provide for business, legal and accounting due diligence on prospective
      acquisitions and continuing general and administrative expenses. The net
      proceeds deposited into the trust fund remain on deposit in the trust account
      earning interest. In connection with the initial public offering and the private
      placement, our officers and directors placed all the shares owned by them before
      the initial public offering into an escrow account. Except in certain
      circumstances, the shares held in escrow may not be released prior to January
      24, 2009.




The
      prospectus provided to purchasers of our securities in our initial public
      offering indicated that we would target businesses in one or more of the
      following segments of the security industry:




·
            The
                development, sale or distribution of software solutions for security
                systems;





·
            The
                development, manufacture, sale or distribution of components to be
                used in
                security systems;





·
            Consultation
                on the design of security systems;





·
            The
                development, manufacture, construction, assembly, sale or distribution
                of
                security or surveillance systems;
                and





·
            The
                development, manufacture, sale, distribution or assembly of electronic
                devices that restrict, deny or grant access to areas using technology
                such
                as biometrics and other coded
                means.




Products
      comprising a part of the foregoing segments include, but are not limited
      to:





·
            Perimeter
                Security




Perimeter
      security systems permit the monitoring, limiting and controlling of access
      by
      unauthorized personnel to specific regions or areas.  High-end perimeter
      systems are sophisticated in nature and are used by correctional facilities,
      military installations, power companies, ports, airports, refineries, chemical
      plants, and other high-security installations.





·
            Video
                Surveillance/Recording/Motion Analytics Systems and Video Monitoring
                Services




1




These
      systems include video cameras, recording capabilities (which can be equipment
      or
      software based) and intelligent video motion analysis capabilities (which can
      be
      equipment or software based).




Video
      monitoring services relate to real-time and/or archived video recording and
      remote viewing security services for commercial, governmental, and residential
      facilities.





·
            Access
                Control Systems




Access
      control systems control and permit the entry of authorized persons to all or
      selected areas of commercial, industrial, educational, and governmental
      facilities based upon access code, card, and/or biometric identification of
      individuals.  These systems match data against a software database of
      authorized persons, their access time/day schedules, and the level of access
      needed to different parts of a facility.  These systems are often linked to
      video surveillance systems to record comings/goings and denials of access and
      to
      corporate HR IT systems.





·
            Intrusion
                Systems




Intrusion
      systems detect attempts of unauthorized people to enter facilities and illegally
      remove the contents of such facilities, activate audible/visual alarms and
      communicate these events to monitoring/response services that are either on
      site
      or remotely located.





·
            Security
                Management and Command and Control
                Systems




The
      deployment of multiple security systems creates the need for a system that
      can
      manage and control these systems through a single database. In response to
      this
      need, security management and control systems integrate the management, control
      and display of various security systems, video, outdoor (such as perimeter
      security) systems, and indoor (such as access control and intrusion alarm)
      systems, into a single, real-time database, and support real-time decision
      making and wide area command and control. These systems improve the response
      to
      real-time security events by sharing video and geographical information between
      the control center and security personnel acting in the field.





·
            Threat
                Analysis




Threat
      analysis entails the provision of consulting services to corporations,
      organizations, and governmental bodies to develop systems and procedures to
      best
      protect people and/or facilities from defined threats to their
      security.




Although
      we focused on businesses in the foregoing areas, we were not limited in the
      areas of the security industry in which we could acquire a target business.





On
      December 8, 2006, Argyle, Argyle’s wholly-owned subsidiary ISI Security Group,
      Inc. (the "Merger Subsidiary") and ISI Detention Contracting Group, Inc. (ISI)
      entered into a merger agreement pursuant to which the Merger Subsidiary will
      merge into ISI and ISI will become a wholly-owned subsidiary of Argyle. ISI
      is a
      provider of security solutions to commercial, governmental, and correctional
      customers. As a security solutions provider, ISI has the ability to interview
      a
      customer that needs security for a project and determine that customer’s needs
      in light of the products and technology available within the customer’s budget.
      ISI, using its expertise in the security industry, then develops security
      systems that answer the customer’s needs using hardware and software that is
      available in the marketplace from third party vendors, as well as its own
      proprietary software. ISI participates in the perimeter security, access control
      and video and design consultation segments in the correctional sector through
      its ISI-Detention and MCS-Detention subsidiaries and in the
      commercial/industrial/educational sectors through its MCS-Commercial subsidiary.
      In addition, the MCS-Commercial operation is also engaged in providing its
      sectors with fire detection security system solutions.





If
      the
      merger is consummated, Argyle will pay ISI’s security holders an aggregate of
      $16,300,000 and 1,180,000 shares of Argyle’s common stock (valued at $8,708,400,
      based on the closing price of the common stock on February 28, 2007). In the
      event that ISI’s adjusted earnings before interest, taxes, depreciation and
      amortization (EBITDA) for the year ended December 31, 2006 are greater than
      $4,500,000 and its backlog of orders at February 28, 2007 is greater than
      $80,000,000 (including inter-company amounts), Argyle will pay the stockholders
      of ISI an additional $1,900,000. Argyle anticipates that the calculation
      of the February 28, 2007 backlog will be finalized in late March or
      early April 2007.  In
      addition, Argyle will assume approximately $6,000,000 of long term debt (not
      including capitalized leases) and up to $9,000,000 pursuant to a line of credit
      (of which approximately $5,000,000 was outstanding as of December 31, 2006).
      The
      merger agreement contains representations and warranties by Argyle and ISI
      and
      representations and warranties to be made by ISI’s stockholders upon closing of
      the merger. ISI also makes certain covenants relating to the conduct of its
      business between the time the merger agreement was signed and the consummation
      of the merger, including that it will not take certain actions without the
      permission of Argyle and that Argyle will have access to ISI’s records. The
      parties to the merger agreement also make covenants relating to confidentiality,
      non-solicitation and non-competition. In addition, after the consummation of
      the
      merger, Argyle has agreed to file a registration statement for the resale of
      the
      shares issued by Argyle in connection with the merger. The closing of the merger
      is subject to certain conditions, including the approval of the merger and
      the
      equity incentive plan described below by Argyle’s
      stockholders.




2




Pursuant
      to our certificate of incorporation, the merger is subject to the approval
      of
      our stockholders. Argyle has filed a preliminary proxy statement/prospectus
      with
      the SEC relating to the merger.




**Government
      regulation**




As
      the
      communications industry continues to evolve, governments may increasingly
      regulate products that monitor and record voice, video and data transmissions
      over public communications networks. For example, certain products sold in
      the
      United States to law enforcement agencies which interface with a variety of
      wireline, wireless and Internet protocol networks, must comply with the
      technical standards established by the Federal Communications Commission, and
      certain products sold in Europe must comply with the technical standards
      established by the European Telecommunications Standards Institute, or
      ETSI.




In
      addition, companies involved in the security industry often sell products to
      federal, state or local governments, as well as to foreign governments.
      Government contracts often contain provisions that give the governments that
      are
      party to those contracts certain rights and remedies not typically found in
      private commercial contracts, including provisions enabling the governments
      to:
      (i) terminate or cancel existing contracts for convenience; (ii) in the case
      of
      the United States government, suspend the contracting company from doing
      business with a foreign government or prevent the company from selling its
      products in certain countries; (iii) audit and object to the company’s
      contract-related costs and expenses, including allocated indirect costs; and
      (iv) change specific terms and conditions in the company’s contracts, including
      changes that would reduce the value of its contracts. In addition, many
      jurisdictions have laws and regulations that deem government contracts in those
      jurisdictions to include these types of provisions, even if the contract itself
      does not contain them.




**Effecting
      a business combination**




*General*




We
      are
      not presently engaged in, and we will not engage in, any substantive commercial
      business until we enter into a business combination. We intend to utilize
      cash derived from the proceeds of the private placement consummated on January
      24, 2006 and the initial public offering of our securities consummated on
      January 30, 2006, our capital stock, debt or a combination of these in effecting
      a business combination.




*If
      we
      do not consummate the acquisition of ISI, we may seek another target business
      to
      acquire, assuming that we have sufficient time to do so*





If
      we do
      not acquire ISI pursuant to the merger of ISI into our subsidiary, we will
      seek
      an alternative business combination. As provided in our charter, we are
      required, by July 30, 2007, to consummate a business combination or enter a
      letter of intent, agreement in principle or definitive agreement, in which
      case
      we would be allowed an additional six months to complete the transactions
      contemplated by such agreement. Under our Second Amended and
      Restated Certificate of Incorporation as currently in effect, if we do not
      acquire at least majority control of a target business by January 30, 2008,
      we
      will dissolve and distribute to our public stockholders the amount in the trust
      account plus any remaining net assets.




In
      any
      liquidation, the funds held in the trust account, plus any interest earned
      thereon (net of taxes payable), together with any remaining out-of-trust net
      assets, will be distributed pro rata to our common stockholders who hold shares
      issued in our initial public offering.




*Selection
      of a target business and structuring of a business combination*




Subject
      to the requirement that our initial business combination must be with a target
      business with a collective fair market value that is at least 80% of our net
      assets at the time of such acquisition, our management had virtually
      unrestricted flexibility in identifying and selecting a target business. In
      evaluating a prospective target business, our management conducted business,
      legal and accounting due diligence on such target business and considered,
      among
      other factors, the following:




3




·
            Business
                Sectors Served: Highest priority given to video surveillance, access
                control and perimeter/outdoor




·
            Markets
                Served: Highest priority given to U.S. and European
                companies




·
            Channels
                Served: Highest priority given to security IT/IP integrators and
                security
                value added resellers




·
            Products
                Offered to Include One or More of the Following: Part of a solutions
                strategy, competitively positioned, scalable, favorable obsolescence
                factor, strong brand equity




·
            Annual
                Sales: At least $20 million




·
            Gross
                Margin: If video or access control - 50%, if perimeter/outdoor, or,
                if
                intrusion protection - 40%




·
            Operating
                Margin: 10% or more, or the potential to reach 10% in the next 12-18
                months




·
            Annual
                Cash Flow: At least $1.5 million




·
            Relative
                Competitive Advantage: Clear competitive advantage in at least one
                key
                area




·
            R&D
                Capability: Ability to continuously integrate into company’s other
                offerings, ability to add value to Argyle’s other targeted sectors and
                companies, in-house R&D leadership or management
                capability




·
            Management
                Capabilities: Strong in at least one key functional
                area




·
            Location:
                Located so as to be cost effective in interacting/communicating with
                Argyle management




·
            Relative
                Attractiveness: To investors and to other targeted
                companies




·
            Opportunities/Potential:
                For revenue growth, for improving margin percentages, for synergies
                with
                other target sectors/companies, to improve/expand offerings, for
                channel
                expansion




·
            Target
                Company’s Culture: Senior management supportive of Argyle vision and
                strategy, customer focused, senior management familiar with and supportive
                of a solutions strategy




Argyle
      anticipates that it will incur total transaction costs of approximately $1.3
      million in connection with the acquisition of ISI. Such costs do not include
      those transaction costs of approximately $1.0 million to be incurred by ISI
      (related primarily to anticipated attorney, brokerage and accounting fees).
      Of
      the $1.3 million of Argyle anticipated transaction costs, approximately $.4
      million relate to certain Giuliani Capital Advisors’ advisory fees which are
      contingent upon the closing of the transaction. Approximately $.5 million of
      the
      $.9 million in non-contingent anticipated costs had been incurred and recorded
      as of December 31, 2006. The $.9 million primarily relates to Loeb and Loeb
      legal expenses, fees for Giuliani Capital Advisors’ fairness opinion,
      accountants' and valuation consultants’ fees, road show expenses, printer fees
      and other miscellaneous expenses. Argyle’s cash outside the trust and accrued
      expenses as of December 31, 2006 was approximately $.7 million and $.6 million,
      respectively. Argyle expects to incur the remaining anticipated non-contingent
      transaction costs of $.4 million over the first two quarters of 2007.
      Additionally, recurring monthly operating expenses of approximately $75,000
      per
      month will continue to accrue after December 31, 2006, and in January 2007,
      Argyle renewed its directors and officers insurance policy, incurring a premium
      of $88,000.





Our
      Board
      of Directors has discussed and preliminarily approved a $300,000 bridge loan
      from our Co-Chief Executive Officers, directors and consultants.  The terms
      and conditions of the bridge loan have not yet been negotiated
      and the documentation for the bridge loan has not yet been completed. 
We anticipate that this bridge financing will close in late March or April
      2007.




4




As
      a
      result of the foregoing, Argyle anticipates that the costs to consummate the
      acquisition will greatly exceed its available cash outside of the trust even
      after considering the proposed financing described above. Argyle expects
      these costs would ultimately be borne by the combined company from the funds
      held in trust if the proposed ISI acquisition is completed. If the acquisition
      is not completed, they would be subject to the potential indemnification
      obligations of Argyle’s officers and directors to the trust account related to
      expenses incurred for vendors or service providers. If these obligations are
      not
      performed or are inadequate, it is possible that vendors or service providers
      could seek to recover these expenses from the trust account, which could
      ultimately deplete the trust account and reduce a stockholder’s current pro rata
      portion of the trust account upon liquidation.




*Fair
      market value of target business*




The
      target business that we acquire must have a collective fair market value equal
      to at least 80% of our net assets at the time of such acquisition, including
      any
      amount held in the trust fund subject to the redemption rights described below,
      although we could acquire a target business whose fair market value
      significantly exceeds 80% of our net assets. If we were to acquire a target
      whose fair market value significantly exceeded 80% of our net assets, we could
      seek to raise additional funds through a private offering of debt or equity
      securities. However, if we did enter into such an arrangement, it would only
      be
      consummated simultaneously with the consummation of the business combination.
      The fair market value of a target business will be determined by our board
      of
      directors based upon standards generally accepted by the financial community,
      such as actual and potential sales, earnings and cash flow and book value.





Based
      on
      the financial analysis of ISI generally used to approve the transaction,
      Argyle’s Board of Directors determined that this requirement was met and
      exceeded. To determine the value of ISI, the Board of Directors first determined
      that as of September 30, 2006, Argyle had $28,402,813 in net assets (total
      assets minus total liabilities). The consideration being paid to ISI’s security
      holders, is, at minimum, $16,300,000 and 1,180,000 shares of Argyle’s common
      stock. Based on the closing price of Argyle’s common stock on October 27,
      2006, the trading day before the term sheet was signed, the fair market
      value of the common stock to be issued to ISI’s stockholders is $8,496,000
      ($7.20 per share), for a total consideration of $24,796,000, which is over
      87%
      of Argyle’s net assets at the time that the letter of intent was executed.
      Therefore, the 80% test was satisfied.




*Possible
      lack of business diversification*




Our
      initial business combination must be with a target business which satisfies
      the
      minimum valuation standard at the time of such acquisition, as discussed above.
      Accordingly, for an indefinite period of time, the prospects for our future
      viability may be entirely dependent upon the future performance of the business.
      Unlike other entities which may have the resources to complete several business
      combinations of entities operating in multiple industries, or multiple areas
      of
      a single industry, it is probable that we will not have the resources to
      diversify our operations or benefit from the possible spreading of risks or
      offsetting of losses. By consummating a business combination with only a single
      entity, our lack of diversification may:




·
            Subject
                us to numerous economic, competitive and regulatory developments,
                any or
                all of which may have a substantial adverse impact upon the particular
                industry in which we may operate subsequent to a business combination;
                and




·
            Result
                in our dependency upon the development or market acceptance of a
                single or
                limited number of products, processes or
                services.




*Limited
      ability to evaluate the target business’ management*





Although
      Argyle closely examined the management of ISI, Argyle cannot assure you that
      its
      assessment of ISI’s management will prove to be correct, or that future
      management will have the necessary skills, qualifications or abilities to manage
      its business successfully. Assuming Argyle acquires ISI, all of the serving
      management of ISI will be involved with the management of ISI post acquisition
      and will for the most part run its day to day operations. Argyle’s current Board
      of Directors will remain directors of Argyle subsequent to the
      acquisition.




Following
      the acquisition of ISI, Argyle has agreed that it will negotiate employment
      agreements with Sam Youngblood, Don Carr, Mark McDonald and Tim Moxon. Other
      than the agreement that the term of the employment agreements will be five
      years
      for Mark McDonald and two years for the others, and that Sam Youngblood and
      Don
      Carr must be directors of ISI post merger, the agreements have not yet been
      negotiated, meaning that the employment agreements currently in place with
      those
      parties will remain in full force and effect until the new agreements take
      effect. It is also anticipated that Argyle’s current Co-Chief Executive
      Officers, Bob Marbut and Ron Chaimovski, will enter into employment agreements
      with Argyle post merger, though the terms of such agreements have not yet been
      determined. All the employment agreements will be approved by the Compensation
      Committee of Argyle’s Board of Directors that will be formed after the closing
      of the merger.




5




Following
      a business combination, we may seek to recruit additional managers to supplement
      the incumbent management of the target business. We cannot assure our
      stockholders that we will have the ability to recruit additional managers,
      or
      that additional managers will have the requisite skills, knowledge or experience
      necessary to enhance the incumbent management.




*Opportunity
      for stockholder approval of business combination*




Prior
      to
      the completion of a business combination, we will submit the transaction to
      our
      stockholders for approval, even if the nature of the acquisition is such that
      it
      would not ordinarily require stockholder approval under applicable state law.
      In
      connection with seeking stockholder approval of a business combination, we
      will
      furnish our stockholders with proxy solicitation materials prepared in
      accordance with the Securities Exchange Act of 1934, which, among other matters,
      will include a description of the operations of the target business and audited
      historical financial statements of the target business based on United States
      generally accepted accounting principles. The SEC is currently reviewing a
      registration statement on Form S-4 (including a preliminary proxy statement
      that
      will be provided to the holders of Argyle’s common stock in connection with the
      vote on the merger) that we filed with the SEC relating to the acquisition
      of
      ISI.




In
      connection with the vote required for any business combination, all of our
      officers and directors have agreed to vote their respective shares of common
      stock owned by them immediately prior to the initial public offering and the
      private placement in accordance with the majority of the shares of common stock
      voted by the public stockholders. Our officers and directors, and their
      respective affiliates who own our securities, have agreed to vote all the shares
      of our common stock acquired in the private placement or in the aftermarket
      in
      favor of any transaction that our officers negotiate and present for approval
      to
      our stockholders. We will proceed with the business combination only if a
      majority of the shares of common stock of the public stockholders are voted
      in
      favor of the business combination and public stockholders owning less than
      20%
      of the shares sold in the initial public offering and the private placement
      exercise their redemption rights.




*Redemption
      rights*




At
      the
      time we seek stockholder approval of any business combination, we will offer
      each public stockholder the right to have such stockholder’s shares of common
      stock redeemed for cash if the stockholder votes against the business
      combination and elects to exercise the stockholder’s redemption rights and the
      business combination is approved and completed. The actual per-share redemption
      price will be equal to the amount in the trust account, which includes interest
      (calculated as of two business days prior to the consummation of the proposed
      business combination (net of taxes payable, $45,000 of private placement fees
      plus associated interest and $600,000 of interest that was released from
      the trust account for working capital purposes), divided by the number of shares
      sold in the initial public offering and the private placement. Including
      interest earned on the trust account, net of taxes payable, as of December
      31,
      2006, the per share redemption amount would be approximately $7.66. The
      underwriters from our initial public offering recently agreed to reduce their
      underwriting compensation on a pro-rata basis for dissenting stockholders.
      As of
      December 31, 2006, the redemption amount was $.36 (including interest) higher
      than it would otherwise have been due to that agreement; the $.36
      increase is reflected in the $7.66 redemption price previously discussed.
      Because the initial per-share redemption price is lower than the $8.00 per-unit
      offering price and may be lower than the market price of the common stock on
      the
      date of redemption, there may be a perceived disincentive on the part of public
      stockholders to exercise their redemption rights.




An
      eligible stockholder may request redemption at any time after the mailing to
      our
      stockholders of the proxy statement and prior to the vote taken with respect
      to
      a proposed business combination at a meeting held for that purpose, but the
      request will not be granted unless the stockholder votes against the business
      combination and elects to exercise the stockholder’s redemption rights and the
      business combination is approved and completed. If a stockholder votes against
      the business combination but fails to properly exercise his, her or its
      redemption rights, such stockholder will not have his, her or its shares of
      common stock redeemed for its pro rata distribution of the trust account. Any
      request for redemption, once made, may be withdrawn at any time up to the date
      of the meeting. It is anticipated that the funds to be distributed to
      stockholders entitled to redeem their shares who elect redemption will be
      distributed promptly after completion of a business combination. Public
      stockholders who redeem their stock for their share of the trust account still
      have the right to exercise the warrants that they received as part of the units.
      We will not complete any business combination if public stockholders owning
      20%
      or more of the shares sold in the initial public offering and the private
      placement, exercise their redemption rights.




6




*Liquidation
      if no business combination*




If
      we do
      not complete a business combination by July 30, 2007, or by January 30, 2008
      if
      the extension criteria described below have been satisfied, we will dissolve
      and
      distribute to all of our public stockholders, in proportion to their respective
      equity interests, an aggregate sum equal to the amount in the trust account,
      inclusive of any interest (net of taxes payable and $600,000 of interest
      released to us), plus any remaining net assets. Our officers and directors,
      and
      their respective affiliates who own our securities, have waived their rights
      to
      participate in any liquidation distribution with respect to shares of common
      stock owned by them immediately prior to the initial public offering, including
      those acquired in the private placement. There will be no distribution from
      the
      trust account with respect to our warrants, which will expire
      worthless.




If
      we are
      unable to consummate a business combination and expend all of the net proceeds
      of the initial public offering, other than the proceeds deposited in the trust
      account, and without taking into account interest, if any, earned on the trust
      account, the initial per-share liquidation price to the holders of the 3,700,046
      shares entitled to participate in liquidation distributions was $7.76, or $0.24
      less than the per-unit offering price of $8.00. Including interest earned on
      the
      trust account net of income taxes and the $600,000 of interest income released
      to us, as of December 31, 2006, the per share liquidation amount would be
      approximately $7.93. The proceeds deposited in the trust account could, however,
      become subject to the claims of our creditors, which could be prior to the
      claims of our public stockholders. Each member of our board of directors has
      agreed, pursuant to agreements with us, that if we liquidate prior to the
      consummation of a business combination, they will be personally liable to pay
      debts and obligations to vendors that are owed money by us for services rendered
      or products sold to us in excess of the net proceeds of the initial public
      offering not held in the trust account at that time, but only to the extent
       necessary  to ensure  that such loss,  liability,
 claim,  damage or expense does not reduce the amount in the trust
      account. It is our intention that all vendors, prospective target businesses
      and
      other entities that we engage will execute agreements with us waiving any right
      to the monies held in the trust account. If any third party refuses to execute
      an agreement waiving such claims, we would perform an analysis of the
      alternatives available to us and evaluate if such engagement would be in the
      best interest of our stockholders, if such third party refused to waive such
      claims. Examples of possible instances where we may engage a third party that
      had refused to execute a waiver include the engagement of a third party
      consultant whose particular expertise or skills are believed by management
      to be
      superior to those of other consultants that would agree to execute a waiver,
      or
      in cases where management does not believe it would be able to find a provider
      of required services willing to provide the waiver. We cannot assure our
      stockholders, however, that they would be able to satisfy those obligations.
      Further, they will not be personally liable to pay debts and obligations to
      prospective target businesses if a business combination is not consummated
      with
      such prospective target businesses, or for claims from any other entity other
      than vendors. Accordingly, we cannot assure our stockholders that the actual
      per-share liquidation price will not be less than $7.93, plus interest (net
      of
      taxes payable and the $600,000 of interest released to us), due to claims of
      creditors.




If
      we
      enter into either a letter of intent, an agreement in principle or a definitive
      agreement to complete a business combination prior to July 30, 2007, but are
      unable to complete the business combination by such date, then we will have
      an
      additional six months in which to complete the business combination contemplated
      by the letter of intent, agreement in principle or definitive agreement. If
      we
      are unable to do so by January 30, 2008, we will then liquidate. Upon notice
      from us, the trustee of the trust account will commence liquidating the
      investments constituting the trust account and will turn over the proceeds
      to
      our transfer agent for distribution to our public stockholders.




Our
      public stockholders shall be entitled to receive funds from the trust account
      only in the event of our liquidation or if the stockholders seek to redeem
      their
      respective shares for cash upon a business combination which the stockholder
      voted against and which is actually completed by us. In no other circumstances
      shall a stockholder have any right or interest of any kind to or in the trust
      account.




**Competition**




Should
      the acquisition of ISI not be consummated, we may encounter intense competition
      in connection with identifying, evaluating and selecting another target business
      from other entities having a business objective similar to ours. Many of these
      entities are well established and have extensive experience identifying and
      effecting business combinations directly or through affiliates. Many of these
      competitors possess greater technical, human and other resources than we do
      and
      our financial resources will be relatively limited when contrasted with those
      of
      many of these competitors. While we believe there are numerous potential target
      businesses that we could acquire with the net proceeds of the initial public
      offering, our ability to compete in acquiring a certain sizable target business
      will be limited by our available financial resources. This inherent competitive
      limitation gives others an advantage in pursuing the acquisition of a target
      business. Further:




7




·
            Our
                obligation to seek stockholder approval of a business combination
                and to
                obtain the necessary financial information to be included in the
                proxy
                statement to be sent to stockholders in connection with such business
                combination may delay or prevent the completion of a
                transaction;




·
            Our
                obligation to redeem for cash shares of common stock held by our
                public
                stockholders in certain instances may reduce the resources available
                to us
                for a business combination; and




·
            Our
                outstanding warrants, and the future dilution they potentially represent,
                may not be viewed favorably by certain target
                businesses.




Any
      of
      these factors may place us at a competitive disadvantage in successfully
      negotiating a business combination. Our management believes, however, that
      to
      the extent that a target business is a privately held entity, our status as
      a
      well-financed public entity may give us a competitive advantage over entities
      having a similar business objective as ours in acquiring a target business
      on
      favorable terms.




If
      we
      succeed in effecting a business combination, there will be, in all likelihood,
      intense competition from competitors of the target business. We cannot assure
      our stockholders that, subsequent to a business combination, we will have the
      resources or ability to compete effectively.




**Employees**




We
      have
      two officers, both of whom are also members of our board of directors. These
      individuals are not obligated to contribute any specific number of hours per
      week and intend to devote only as much time as they deem necessary to our
      affairs. The amount of time they will devote in any time period will vary based
      on the availability of suitable target businesses to investigate, although
      we
      expect each of them to devote an average of approximately 10 hours per week
      to
      our business until a target business is acquired. We do not intend to have
      any
      full time employees prior to the consummation of a business combination. We
      have, however, hired four consultants to assist with securities compliance,
      the
      acquisition process and administration.




**Periodic
      reporting and financial information**




We
      have
      registered our units, common stock and warrants under the Securities Exchange
      Act of 1934, as amended, and have reporting obligations, including the
      requirement that we file annual and quarterly reports with the SEC. In
      accordance with the requirements of the Securities Exchange Act of 1934, our
      annual reports will contain financial statements audited and reported on by
      our
      independent accountants.




We
      will
      not acquire a target business if audited financial statements based on United
      States generally accepted accounting principles cannot be obtained for such
      target business. Additionally, our management will provide stockholders with
      the
      foregoing financial information as part of the proxy solicitation materials
      sent
      to stockholders to assist them in assessing each specific target business we
      seek to acquire. Our management believes that the requirement of having
      available financial information for the target business may limit the pool
      of
      potential target businesses available for acquisition.




We
      will
      be required to comply with the internal control requirements of the
      Sarbanes-Oxley Act for the fiscal year ending December 31, 2007. A target
      business may not be in compliance with the provisions of the Sarbanes-Oxley
      Act
      regarding adequacy of their internal controls. The development of the internal
      controls of any such entity to achieve compliance with the Sarbanes-Oxley Act
      may increase the time and costs necessary to complete any such
      acquisition.




8




**Item
      1A. Risk Factors**




**Risks
      associated with our business**




***We
      are a development stage company with a limited operating history and,
      accordingly, our stockholders will not have any basis on which to evaluate
      our
      ability to achieve our business objective.***




Since
      we
      have a limited operating history and no business operations, our stockholders
      will have no basis upon which to evaluate our ability to achieve our business
      objective, which is to acquire an operating business. We will not generate
      any
      revenues until, at the earliest, after the consummation of a business
      combination.




***If
      we are forced to liquidate before a business combination, our public
      stockholders will receive less than $8.00 per share upon distribution of the
      trust account and our warrants will expire worthless.***




If
      we are
      unable to complete a business combination and are forced to liquidate our assets
      (which will include the full amount in the trust account, including
      the amounts held for the benefit of the co-managers and any interest earned
      thereon (net of taxes payable and the $600,000 of interest released to us)),
      the
      per-share liquidation price to our public stockholders, as of December 31,
      2006,
      was approximately $7.93. The initial per shares liquidation amount of $7.76
      was
      less than the initial per share offering amount of our units because of the
      expenses of the initial public offering, our general and administrative expenses
      and the anticipated costs of seeking a business combination. Furthermore, there
      will be no distribution with respect to our outstanding warrants and,
      accordingly, the warrants will expire worthless if we liquidate before the
      completion of a business combination.




***Our
      Stockholders are not entitled to protections normally afforded to investors
      of
      blank check companies.***




Since
      the
      net proceeds of the initial public offering and the private placement are
      intended to be used to complete a business combination with a target business,
      we may be deemed to be a “blank check” company under the United States
      securities laws. However, since we have net tangible assets in excess of
      $5,000,000, we are exempt from rules promulgated by the SEC to protect investors
      of blank check companies, such as Rule 419. Accordingly, investors will not
      be
      afforded the benefits or protections of those rules.




***If
      third parties bring claims against us, the proceeds held in trust could be
      reduced and the per-share liquidation price received by stockholders could
      be
      less than $7.93 per share.***




Our
      placing of funds in trust may not protect those funds from third party claims
      against us. Although we will seek to have vendors, prospective target businesses
      or other entities we hire or do business with execute agreements with us waiving
      any right, title, interest or claim of any kind in or to any monies held in
      the
      trust account for the benefit of our public stockholders, there is no guarantee
      that they will execute such agreements or, even if they execute such agreements,
      that they would be prevented from bringing claims against the trust account.
      If
      any third party refused to execute an agreement waiving such claims to the
      monies held in the trust account, we would perform an analysis of the
      alternatives available to us and evaluate if such engagement would be in the
      best interest of our stockholders. Examples of possible instances where we
      may
      engage a third party that has refused to execute a waiver include the engagement
      of a third party consultant whose particular expertise or skills are believed
      by
      management to be significantly superior to those of other consultants that
      would
      agree to execute a waiver or in cases where management is unable to find a
      provider of required services willing to provide the waiver. In addition, there
      is no guarantee that such entities will agree to waive any claims they may
      have
      in the future as a result of, or arising out of, any negotiations, contracts
      or
      agreements with us and will not seek recourse against the trust account for
      any
      reason. Accordingly, the proceeds held in trust could be subject to claims
      which
      could take priority over the claims of our public stockholders and the per-share
      liquidation price could be less than the liquidation price of $7.93 as of
      December 31, 2006, which takes into consideration interest earned through that
      date, income taxes payable and the $600,000 of interest released to us, due
      to
      claims of such creditors. If we are unable to complete a business combination
      and are forced to liquidate, our officers and directors, severally, in
      accordance with their respective beneficial ownership interests in us, will
      be
      personally liable to ensure that the proceeds in the trust account are not
      reduced by the claims of various vendors or other entities that are owed money
      by us for services rendered or contracted for or products sold to us, but only
      to the extent  necessary  to ensure  that such loss,
 liability,  claim,  damage or expense does not reduce the amount
      in the trust account. However, we cannot assure our stockholders that they
      will
      be able to satisfy those obligations. Further, they will not be personally
      liable to pay debts and obligations to prospective target businesses, if a
      business combination is not consummated with a prospective target business,
      or
      for claims from any entity other than vendors.




9




***In
      the event we do not acquire ISI, because there are numerous companies with
      business plans similar to ours seeking to effectuate business combinations,
      it
      may be more difficult for us to identify another target
      business.***




Since
      August 2003 and through February 2007, based upon publicly available
      information, approximately 87 similarly structured blank check companies
      have completed initial public offerings, and numerous others have filed
      registration statements for initial public offerings. Of these companies,
      only 20 companies have consummated a business combination, while 22
      (not including Argyle) other companies have announced they have entered into
      a
      definitive agreement for a business combination, but have not consummated such
      business combination. While, like us, some of those companies have specific
      industries in which they must complete a business combination, a number of
      them
      may consummate a business combination in any industry they choose. In the event
      that we are unable to consummate the acquisition of ISI, we may be subject
      to
      competition from these and other companies seeking to consummate a business
      plan
      similar to ours, which, as a result, would increase demand for privately-held
      and publicly-held companies to combine with companies structured similarly
      to
      ours. Further, the fact that only a few of such companies have completed a
      business combination or entered into a definitive agreement for a business
      combination, may be an indication that there are only a limited number of
      attractive target businesses available to such entities, or that many privately
      held or publicly held, target businesses may not be inclined to enter into
      business combinations with publicly held blank check companies like us. We
      cannot assure our stockholders that we will be able to successfully compete
      for
      an attractive business combination. Additionally, because of this competition,
      we cannot assure our stockholders that we will be able to effectuate a business
      combination within the required time periods. If we are unable to find a
      suitable target business within such time periods, we will be forced to
      liquidate.





***We
      may issue shares of our capital stock or debt securities to complete a business
      combination, which would reduce the equity interest of our stockholders and
      likely cause a change in control of our ownership.***




Our
      certificate of incorporation authorizes the issuance of up to 89,000,000 shares
      of common stock, par value $.0001 per share, and 1,000,000 shares of preferred
      stock, par value $.0001 per share. As of February 28, 2007 there are 80,018,647
      authorized but unissued shares of our common stock available for issuance (after
      appropriate reservation for the issuance of shares upon full exercise of our
      outstanding warrants and the purchase option granted to Rodman & Renshaw,
      LLC, the representative of the underwriters) and all of the 1,000,000 shares
      of
      preferred stock available for issuance. We may issue a substantial number of
      additional shares of our common stock or preferred stock, or a combination
      of
      common and preferred stock, to complete a business combination. The issuance
      of
      additional shares of our common stock or any number of shares of our preferred
      stock:




·
            May
                significantly reduce the equity interest of current
                stockholders;





·
            Will
                likely cause a change in control if a substantial number of our shares
                of
                common stock are issued, which may affect, among other things, our
                ability
                to use our net operating loss carry forwards, if any, and most likely also
                result in the resignation or removal of our present officers and
                directors; and





·
            May
                reduce the prevailing market prices for our common
                stock.




Similarly,
      if we issue debt securities, it could result in:





·
            Default
                and foreclosure on our assets if our operating cash flow after a
                business
                combination were insufficient to pay our debt
                obligations;





·
            Acceleration
                of our obligations to repay the indebtedness even if we have made
                all
                principal and interest payments when due if the debt security contained
                covenants that required the maintenance of certain financial ratios
                or
                reserves and any such covenant were breached without a waiver or
                renegotiation of that covenant;





·
            Our
                immediate payment of all principal and accrued interest, if any,
                if the
                debt security was payable on demand;
                and





·
            Our
                inability to obtain additional financing, if necessary, if the debt
                security contained covenants restricting our ability to obtain additional
                financing while such security was
                outstanding.





If
      we
      consummate the acquisition of ISI, we agreed to issue 1,180,000 of our shares
      of
      common stock to the stockholders of ISI as partial consideration for the
      acquisition.




***Our
      officers and directors control a substantial interest in us and, thus, may
      influence certain actions requiring a stockholder
      vote.***




10




Our
      officers and directors and their respective affiliates collectively own 22.61%
      of our issued and outstanding shares of common stock (and following the
      acquisition of ISI, the management teams of Argyle and ISI will collectively
      and
      beneficially own 29.8% of our outstanding common stock), which could permit
      them
      to effectively influence the outcome of all matters requiring approval by our
      stockholders at such time, including the election of directors and approval
      of
      significant corporate transactions, following the consummation of our initial
      business combination.




In
      addition, our board of directors is divided into three classes, each of which
      will generally serve for a term of three years with only one class of directors
      being elected in each year. It is unlikely that there will be an annual meeting
      of stockholders to elect new directors prior to the consummation of a business
      combination, in which case all of the current directors will continue in office
      at least until the consummation of the business combination. If there is an
      annual meeting, as a consequence of our “staggered” board of directors, only a
      minority of the board of directors will be considered for election, and our
      officers and directors, because of their ownership position, will have
      considerable influence regarding the outcome. Accordingly, our officers and
      directors will continue to exert control at least until the consummation of
      a
      business combination.




***Our
      officers and directors will allocate their time to other businesses, thereby
      causing conflicts of interest in their determination as to how much time to
      devote to our affairs. This could have a negative impact on our ability to
      consummate a business combination.***




Our
      officers and directors are not required to commit their full time to our
      affairs, which may result in a conflict of interest in allocating their time
      between our operations and other businesses. We do not intend to have any
      full-time employees prior to the consummation of a business combination. Our
      executive officers are engaged in several other business endeavors and are
      not
      obligated to contribute any specific number of hours per week to our affairs.
      While it is our executive officers’ intention to devote substantial business
      time to identifying potential target businesses and consummating a business
      combination, their other business affairs could require them to devote more
      substantial amounts of time to such affairs, thereby limiting their ability
      to
      devote time to our affairs. This could have a negative impact on our ability
      to
      consummate a business combination.




***Our
      officers and directors are now, and may in the future become, affiliated with
      entities engaged in business activities similar to those intended to be
      conducted by us and, accordingly, may have conflicts of interest in determining
      to which entity a particular business opportunity should be
      presented.***




Our
      officers are, and our officers and directors may in the future become,
      affiliated with entities engaged in business activities similar to those
      intended to be conducted by us. Additionally, our officers and directors may
      become aware of business opportunities which may be appropriate for presentation
      to us as well as the other entities with which they are or may be affiliated.
      Further, Bob Marbut is currently the Executive Chairman of Electronics Line
      3000
      Ltd. and the Executive Chairman of SecTecGlobal, Inc. and Ron Chaimovski is
      the
      Vice Chairman of Electronics Line 3000 Ltd.  Electronics Line 3000 Ltd. is
      an intrusion protection security company and SecTecGlobal, Inc. is a sales
      and
      marketing subsidiary of Electronics Line 3000 Ltd. Due to these existing
      affiliations, they may have fiduciary obligations to present potential business
      opportunities to those entities prior to presenting them to us which could
      cause
      additional conflicts of interest. Accordingly, they may have conflicts of
      interest in determining to which entity a particular business opportunity should
      be presented.




***All
      of our officers and directors own shares of our common stock which will not
      participate in liquidation distributions and, therefore, our officers and
      directors may have a conflict of interest in determining whether or not a
      particular target business is appropriate for a business
      combination.***




All
      of
      our officers and directors own shares of our common stock that were issued
      prior
      to our initial public offering, but have waived their right to receive
      distributions with respect to those shares upon our liquidation upon our failure
      to complete a business combination. Each of our officers and directors has
      agreed to vote all shares purchased in the private placement and in the open
      market in favor of any proposal to approve a business combination negotiated
      by
      our officers. The shares and warrants owned by our officers and directors and
      their affiliates will be worthless if we do not consummate a business
      combination. The personal and financial interests of our officers and directors
      may influence their motivation in identifying and selecting a target business
      and completing a business combination in a timely manner. Consequently, our
      directors’ and officers’ discretion in identifying and selecting a suitable
      target business may result in a conflict of interest when determining whether
      the terms, conditions and timing of a particular business combination are
      appropriate and in our stockholders’ best interest.




***Our
      officers and directors will not receive reimbursement for any out-of-pocket
      expenses incurred by them to the extent that such expenses exceed the available
      proceeds not deposited in the trust account, unless the business combination
      is
      consummated and, therefore, they may have a conflict of interest in determining
      whether or not a particular target business is appropriate for a business
      combination and in the public stockholders’ best
      interest.***




11




Our
      officers and directors, will not receive reimbursement for any out-of-pocket
      expenses incurred by them to the extent that such expenses exceed the available
      proceeds not deposited in the trust account and the portion of the interest
      on
      the trust account released to us (which, because interest rates are unknown,
      may
      be insufficient to fund all of our working capital requirements) unless the
      business combination is consummated. The financial interest of our officers
      and
      directors could influence their motivation in selecting a target business and,
      thus, there may be a conflict of interest when determining whether or not a
      particular business combination is in the stockholders’ best
      interest.




***Our
      initial business combination will be with a single target business, which may
      cause us to be solely dependent on a limited number of
      services.***




As
      of
      December 31, 2006, we have approximately $29.5 million held in the trust account
      with which to complete a business combination. Our initial business combination
      must be with a business with a collective fair market value of at least 80%
      of
      our net assets at the time of such acquisition. There is no limitation on our
      ability to raise funds privately or through loans that would allow us to acquire
      a company with a fair market value in excess of 80% of our net assets at the
      time of the acquisition; however, we have no current plans or agreements to
      enter into any such financing arrangements. The prospects for our success may
      be:





·
            Solely
                dependent upon the performance of a limited number of services,
                or





·
            Dependent
                upon the development or market acceptance of a single or limited
                number of
                products or services.




In
      this
      case, we may not be able to diversify our operations or benefit from the
      possible spreading of risks or offsetting of losses, unlike other entities
      which
      may have the resources to complete several business combinations in different
      industries or different areas of a single industry.




***We
      may be unable to obtain additional financing, if required, to complete a
      business combination or to fund the operations and growth of the target
      business, which could compel us to restructure the transaction or abandon a
      particular business combination.***




Although
      we believe that the net proceeds of the initial public offering and the private
      placement will be sufficient to allow us to consummate a business combination,
      as we have not yet completed an acquisition, we cannot ascertain the capital
      requirements for any particular transaction. If we have insufficient funds,
      either because of the size of the business combination or the depletion of
      the
      available net proceeds in search of a target business (including interest earned
      on the trust account released to us), or because we become obligated to redeem
      for cash a significant number of shares from dissenting stockholders, we will
      be
      required to seek additional financing. We cannot assure our stockholders that
      such financing would be available on acceptable terms, if at all. To the extent
      that additional financing proves to be unavailable when needed to consummate
      a
      particular business combination, we would be compelled to restructure the
      transaction or abandon that particular business combination and seek an
      alternative target business candidate. In addition, it is possible that we
      could
      use a portion of the funds not in the trust account to make a deposit, down
      payment or fund a “no-shop” provision with respect to a particular proposed
      business combination, although we do not have any current intention to do so.
      In
      the event that we were ultimately required to forfeit such funds (whether as
      a
      result of our breach of the agreement relating to such payment or otherwise),
      we
      may not have a sufficient amount of working capital available outside of the
      trust account to conduct due diligence and pay other expenses related to finding
      a suitable business combination without securing additional financing. If we
      were unable to secure additional financing, we would most likely fail to
      consummate a business combination in the allotted time and would be forced
      to
      liquidate. In addition, if we consummate a business combination, we may require
      additional financing to fund the operations or growth of the target business.
      The failure to secure additional financing could result in our inability to
      effectuate our business plan for the development or growth of the target
      business. None of our officers, directors or stockholders is required to provide
      any financing to us in connection with or after a business
      combination.




***If
      we are deemed to be an investment company, we may be required to institute
      burdensome compliance requirements, and our activities may be restricted, which
      may make it difficult for us to complete a business
      combination.***




If
      we are
      deemed to be an investment company under the Investment Company Act of 1940,
      our
      activities may be restricted, including:




12




·
            Restrictions
                on the nature of our investments;
                and





·
            Restrictions
                on the issuance of securities,




which
      may
      make it difficult for us to complete a business combination.




In
      addition, we may have imposed upon us burdensome requirements,
      including:





·
            Registration
                as an investment company;





·
            Adoption
                of a specific form of corporate structure;
                and





·
            Reporting,
                record keeping, voting, proxy and disclosure requirements and other
                rules
                and regulations.




We
      do not
      believe that our anticipated principal activities will subject us to the
      Investment Company Act of 1940. To this end, the proceeds held in trust may
      only
      be invested by the trustee in Treasury Bills issued by the United States with
      maturity dates of 180 days or less or in money market funds meeting certain
      conditions under Rule 2a-7 promulgated under the Investment Company Act of
      1940.
      By restricting the investment of the proceeds to these instruments, we intend
      to
      meet the requirements for the exemption provided in Rule 3a-1 promulgated under
      the Investment Company Act of 1940. If we were deemed to be subject to the
      act,
      compliance with these additional regulatory burdens would require additional
      expense that we have not allotted for.




***Our
      directors may not be considered “independent” under the policies of the North
      American Securities Administrators Association, Inc.***




Under
      the
      policies of the North American Securities Administrators Association, Inc.,
      an
      international organization devoted to investor protection, because each of
      our
      directors owns shares of our securities and may receive reimbursement for
      out-of-pocket expenses incurred by him in connection with activities on our
      behalf, such as identifying potential target businesses and performing due
      diligence on suitable business combinations, state securities administrators
      could take the position that such individuals are not “independent.” If this
      were the case, they would take the position that we would not have the benefit
      of independent directors examining the propriety of expenses incurred on our
      behalf and subject to reimbursement. Additionally, there is no limit on the
      amount of out-of-pocket expenses that could be incurred, and there will be
      no
      review of the reasonableness of the expenses by anyone other than our board
      of
      directors, which would include persons who may seek reimbursement, or a court
      of
      competent jurisdiction if such reimbursement is challenged. Although we believe
      that all actions taken by our directors on our behalf will be in our best
      interests, whether or not they are deemed to be “independent,” we cannot assure
      our stockholders that this will actually be the case. If actions are taken,
      or
      expenses are incurred that are actually not in our best interests, our revenues
      and profits could be reduced, and the price of our stock held by the public
      stockholders could decrease.




***Because
      one of our officers resides outside of the United States and, after the
      consummation of a business combination, a significant portion of our assets
      may
      be located outside of the United States, it may be difficult for investors
      to
      enforce their legal rights against such individual or such
      assets.***




Ron
      Chaimovski, our Vice Chairman and Co-Chief Executive Officer, resides outside
      of
      the United States and, after the consummation of a business combination, a
      significant portion of our assets may be located outside of the United States.
      As a result, it may not be possible for investors in the United States to
      enforce their legal rights, to effect service of process upon Mr. Chaimovski,
      or
      to enforce judgments of United States courts predicated upon civil liabilities
      and criminal penalties of our directors and officers under Federal securities
      laws.




***Because
      we may acquire a company located outside of the United States, we may be subject
      to various risks of the foreign jurisdiction in which we ultimately
      operate.***




If
      we
      acquire a company that has sales or operations outside the United States, we
      could be exposed to risks that negatively impact our future sales or
      profitability following a business combination. Additionally, if the acquired
      company is in a developing country or a country that does not have a fully
      market-oriented economy, our operations may not develop in the same way, or
      at
      the same rate, as might be expected in the United States, or another country
      with an economy similar to the market-oriented economies of member countries
      which are members of the Organization for Economic Cooperation and Development,
      or the OECD. The OECD is an international organization helping governments
      through the economic, social and governance challenges of a globalized economy.
      The additional risks we may be exposed to if the target business we acquire
      is
      located outside of the United States include, but are not limited
      to:




13





·
            Tariffs
                and trade barriers;





·
            Regulations
                related to customs and import/export
                matters;





·
            Regulations
                related to product functionality;





·
            Tax
                issues, such as tax law changes and variations in tax laws as compared
                to
                the United States;





·
            Government
                instability;





·
            An
                inadequate banking system;





·
            Currency
                fluctuations;





·
            Foreign
                exchange controls;





·
            Restrictions
                on the repatriation of profits or payment of
                dividends;





·
            Crime,
                strikes, riots, civil disturbances, terrorist attacks,
                wars;





·
            Nationalization
                or expropriation of property;





·
            Law
                enforcement authorities and courts that are weak or inexperienced
                in
                commercial matters;





·
            Rapid
                inflation;





·
            Local
                labor law changes and mandated increases in social welfare costs;
                and





·
            Deterioration
                of political relations with the United
                States.





***Argyle
      may choose to redeem its outstanding warrants at a time that is
      disadvantageous to the warrant*** **** ***holders.***





Subject
      to there being a current prospectus under the Securities Act of 1933,
      Argyle may redeem all of its outstanding warrants at any time after they become
      exercisable at a price of $.01 per warrant, upon a minimum of 30 days
      prior written notice of redemption, if and only if, the last sale price of
      Argyle’s common stock equals or exceeds $11.50 per share for any 20 trading
      days within a 30 trading day period ending three business days before
      Argyle sends the notice of redemption. Calling all of Argyle’s outstanding
      warrants for redemption could force the warrant holders:





·
            To
                exercise the warrants and pay the exercise price for such warrants at
                a time when it may be disadvantageous for the holders to do
                so;





·
            To
                sell the warrants at the then current market price when they might
                otherwise wish to hold the warrants;
                or





·
            To
                accept the nominal redemption price which, at the time the warrants
                are called for redemption, is likely to be substantially less than
                the market value of
                the warrants.





***Argyle’s
      warrant holders may not be able to exercise their warrants, which may create
      liability for Argyle.***




Holders of
      the warrants Argyle issued in its initial public offering and private placement
      will be able to receive shares upon exercise of the warrants only if (i) a
      current registration statement under the Securities Act of 1933 relating to
      the shares of its common stock underlying the warrants is then
      effective and (ii) such shares are qualified for sale or exempt from
      qualification under the applicable securities laws of the states in which
      the various holders of warrants reside. Although Argyle has agreed to use
      its best efforts to maintain a current registration statement covering the
      shares underlying the warrants to the extent required by federal securities
      laws, and Argyle intends to comply with such agreement, Argyle cannot
      assure that it will be able to do so. In addition, some states may not
      permit Argyle to register the shares issuable upon exercise of its warrants
      for sale. The value of the warrants will be greatly reduced if a
      registration statement covering the shares issuable upon the exercise of
      the warrants is not kept current or if the securities are not qualified, or
      exempt from qualification, in the states in which the holders of
      warrants reside. Holders of warrants who reside in jurisdictions in which
      the shares underlying the warrants are not qualified and in which there is
      no exemption will be unable to exercise their warrants and would either
      have to sell their warrants in the open market or allow them to expire
      unexercised. If and when the warrants become redeemable by Argyle, Argyle
      may exercise its redemption right even if Argyle is unable to qualify the
      underlying securities for sale under all applicable state securities laws.
      Since Argyle’s obligations in this regard are subject to a “best efforts”
standard, it is possible that, even if Argyle is able to successfully assert
      a
      defense to a claim by warrant holders due to the impossibility of registration,
      a court may impose monetary damages on Argyle to compensate warrant holders
      due
      to the change in circumstances that led to Argyle being unable to fulfill its
      obligations.





***Argyle
      does not have an Audit Committee composed solely of independent directors and
      therefore*** **** ***Argyle’s
      financial statements have not been subject to independent
      review.***





Argyle
      does not have an audit committee. Pursuant to SEC regulations, the entire Board
      of Directors of a company without an audit committee acts as the audit
      committee. Two of the members of Argyle’s Board of Directors are also officers
      of Argyle and therefore not independent. Therefore, Argyle does not have solely
      independent directors reviewing its financial statements, making it more
      difficult for Argyle to discover if there was any fraud in connection with
      the
      preparation of its financial statements.




14




**Risks
      associated with the security industry**




***It
      is difficult to forecast the timing of revenues in the security industry, and
      it
      is likely that any business we acquire will have significant variation in
      revenues from period to period.***




It
      is
      difficult to forecast the timing of revenues in the security industry because
      the development period for a customized system or solution may be lengthy,
      customers often need a significant amount of time to evaluate products before
      purchasing them and, in the case of governmental customers, sales are dependent
      on budgetary and other bureaucratic processes. The period between initial
      customer contact and a purchase by a customer varies greatly, and could be
      a
      year or more. During the evaluation period, customers may defer or scale down
      proposed orders of products or systems for various reasons, including: (i)
      changes in budgets and purchasing priorities; (ii) a reduced need to upgrade
      existing systems; (iii) deferrals in anticipation of enhancements or new
      products; (iv) introduction of products by competitors; and (v) lower prices
      offered by competitors.




***If
      we are unable to respond to the technological, legal, financial or other changes
      in the security industry and changes in our customers’ requirements and
      preferences, we will not be able to effectively compete with our
      competitors.***




Once
      we
      enter into a business combination, if we are unable, for technological, legal,
      financial or other reasons, to adapt in a timely manner to changing market
      conditions, customer needs or regulatory requirements, we could lose customers.
      Changes in customer requirements and preferences, the introduction of new
      products and services embodying new technologies, and the emergence of new
      industry standards and practices could render the existing products of the
      company we acquire obsolete. Our success will depend, in part, on our ability
      to:





·
            Enhance
                products and services;





·
            Anticipate
                changing customer requirements by designing, developing, and launching
                new
                products and services that address the increasingly sophisticated
                and
                varied needs of customers;





·
            Respond
                to technological advances and emerging industry standards and practices
                on
                a cost-effective and timely basis; and


·
            Respond
                to changing regulatory requirements in a cost effective and timely
                manner.




The
      development of additional products and services involves significant
      technological and business risks and requires substantial expenditures and
      lead
      time. If we fail to introduce products with new technologies in a timely manner,
      or adapt our products to these new technologies, we will not be able to
      effectively compete with our competitors. We cannot assure our stockholders
      that, even if we are able to introduce new products or adapt our products to
      new
      technologies, that our products would gain acceptance among our
      customers.




***The
      market in certain segments of the security industry is still not fully
      developed, and, if we acquire a business operating in one of those segments,
      and
      if the market for our products does not expand as we expect after acquiring
      a
      business, our business will not generate the growth and/or profits that
      stockholders expect.***




The
      market in certain segments of the security industry, including, but not limited
      to, outdoor perimeter protection (an area often ignored previously but, since
      the onset of greatly escalated global terrorism, is getting much greater
      attention, much of it linked to governmental subsidies or funding), video
      analytics (newly emerging technology linked with concerns about escalating
      global terrorism) and  digital video (emerging from under the shadow of
      less costly and more accepted analog video), is still emerging. If we acquire
      a
      business in one of these segments, our growth will be dependent on, among other
      things, the size and pace at which the markets for our products and/or services
      develop. If the market for our products or services decreases, remains constant
      or grows slower than we anticipate, we will not be able to generate the growth
      and/or profits that stockholders expect.




***Intellectual
      property infringement claims are not uncommon in the security industry and,
      after acquiring a business, we may be involved in costly litigation that
      substantially reduces our profitability.***




Any
      allegation of infringement of intellectual property against us could be time
      consuming and expensive to defend or resolve, result in substantial diversion
      of
      management resources, cause product shipment delays, or force us to enter into
      royalty or license agreements rather than dispute the merits of such an
      allegation. If holders of intellectual property rights initiate legal
      proceedings against us, we may be forced into protracted and costly litigation.
      We may not be successful in defending such litigation and we may not be able
      to
      procure any required royalty or license agreements on acceptable terms, or
      at
      all.




15




***If
      a business we acquire does business internationally, we may face labor,
      political, currency and other risks.***




Any
      business we acquire may involve the sale of products internationally.
      International sales may be impacted by, among other things:





·
            Regulatory
                limitations imposed by foreign governments and insurance
                industry-sponsored bodies (similar to Underwriter’s Laboratories in the
                United States),





·
            Price
                increases due to fluctuations in currency exchange
                rates,





·
            Political,
                military and terrorist risks,





·
            Disruptions
                or delays in shipments caused by customs brokers or government
                agencies,





·
            Unexpected
                changes in regulatory requirements, tariffs, customs, duties and
                other
                trade barriers, and





·
            Potentially
                adverse tax consequences resulting from changes in tax
                laws.




Any
      of
      the foregoing factors may result in reduced earnings and/or
      profits.




***If
      a business we acquire exports products to foreign countries, and we are unable
      to maintain required licenses, we may be prevented from exporting our products,
      reducing our revenues and profits.***




We
      may be
      required to obtain export licenses to the extent we wish to ship products to
      certain countries. We may not be successful in obtaining or maintaining the
      licenses and other authorizations required to export our products from
      applicable governmental authorities. Our failure to receive or maintain any
      required export license or authorization could hinder our ability to sell our
      products, reducing our revenues and profits.




***Government
      contracts generally contain rights and remedies which could reduce the value
      of
      such contracts, or result in losses for a business we
      acquire.***




Companies
      involved in the security industry often sell products to federal, state or
      local
      governments, as well as to foreign governments. Government contracts often
      contain provisions that give the governments that are party to those contracts
      certain rights and remedies not typically found in private commercial contracts,
      including provisions enabling the governments to: (i) terminate or cancel
      existing contracts for convenience; (ii) in the case of the U.S. government,
      suspend the contracting company from doing business with a foreign government
      or
      prevent the company from selling its products in certain countries; (iii) audit
      and object to the company’s contract-related costs and expenses, including
      allocated indirect costs; and (iv) change specific terms and conditions in
      the
      company’s contracts, including changes that would reduce the value of its
      contracts. In addition, many jurisdictions have laws and regulations that deem
      government contracts in those jurisdictions to include these types of
      provisions, even if the contract itself does not contain them. If a government
      terminates a contract with a target business for convenience, we may not be
      able
      to recover our incurred or committed costs, any settlement expenses or profit
      on
      work completed prior to the termination. If a government terminates a contract
      for default, we may not recover those amounts and, in addition, we may be liable
      for any costs incurred by a government in procuring undelivered items and
      services from another source. Further, an agency within a government may share
      information regarding our termination with other government agencies. As a
      result, our on-going or prospective relationships with such other government
      agencies could be impaired.




***If
      a target business has government contracts, we could be required to comply
      with
      various regulations relating to government contracts, which could prevent us
      from operating in the most economically efficient
      manner.***




A
      target
      business with which we seek a business combination may be required to comply
      with domestic and foreign laws and regulations relating to the formation,
      administration and performance of government contracts. These laws and
      regulations affect how such an entity does business with government agencies
      in
      various countries and may impose added costs on its business. For example,
      in
      the United States, we could be subject to the Federal Acquisition Regulations,
      which comprehensively regulate the formation, administration and performance
      of
      federal government contracts, and to the Truth in Negotiations Act, which
      requires certification and disclosure of cost and pricing data in connection
      with contract negotiations. We could be subject to similar regulations in
      foreign countries as well.




***Governments
      are increasingly regulating the security industry, and such additional
      regulations could lead to increased operating costs for any business we
      acquire.***




16




As
      the
      communications industry continues to evolve, governments may increasingly
      regulate products that monitor and record voice, video and data transmissions
      over public communications networks. For example, certain products sold in
      the
      United States to law enforcement agencies which interface with a variety of
      wireline, wireless and Internet protocol networks, must comply with the
      technical standards established by the Federal Communications Commission
      pursuant to CALEA, and certain products sold in Europe must comply with the
      technical standards established by ETSI. The adoption of new laws or regulations
      governing the use of products or changes made to existing laws or regulations
      could cause a decline in the use of our products and could result in increased
      expenses for the business we acquire, particularly if we are required to modify
      or redesign our products to accommodate these new or changing laws or
      regulations.




**Risks
      associated with the Acquisition of ISI**





***The
      combined company’s working capital could be reduced if stockholders exercise
      their redemption rights.***




Pursuant
      to Argyle’s Second Amended and Restated Certificate of Incorporation, holders of
      shares purchased in Argyle’s initial public offering (other than Argyle’s
      initial stockholders) may vote against the acquisition and demand that
      Argyle redeem their shares into pro rata portions of the trust account, net
      of
      taxes payable, as of the record date. Argyle and ISI will not consummate the
      acquisition if holders of 765,009 or more shares exercise these redemption
      rights. To the extent the acquisition is consummated and holders have demanded
      to so redeem their shares, there will be a corresponding reduction in the amount
      of funds available to the combined company following the acquisition. As of
      December 31, 2006, assuming the acquisition is approved, the maximum amount
      of
      funds that could be disbursed to Argyle’s stockholders upon the exercise of
      their redemption rights is approximately $5.9 million.




***If
      outstanding warrants are exercised, the underlying common shares will be
      eligible for future resale in the public market. “Market overhang” from the
      warrants results in dilution and has an adverse effect on the common stock’s
      market price.***




Outstanding
      warrants and unit purchase options to purchase an aggregate of 4,200,046 shares
      of common stock issued in connection with Argyle’s initial public offering will
      become exercisable after consummation of the ISI acquisition. If they are
      exercised, a substantial number of additional shares of Argyle common stock
      will
      be eligible for resale in the public market, which could adversely affect the
      market price.




***Registration
      rights held by Argyle’s initial stockholders who purchased shares prior to
      Argyle’s initial public offering may have an adverse effect on the market price
      of Argyle’s common stock.***




Argyle’s
      initial stockholders who purchased common stock prior to its initial public
      offering are entitled to demand that Argyle register the resale of their shares
      at any time after they are released from escrow. If such stockholders exercise
      their registration rights with respect to all of their shares, there will be
      an
      additional 1,081,261 shares of common stock eligible for trading in the public
      market. The presence of these additional shares may have an adverse effect
      on
      the market price of Argyle’s common stock.




***Argyle’s
      directors and officers have interests in the acquisition that are different
      from
      yours, because if the acquisition is not approved, their shares may become
      worthless.***




In
      considering the recommendation of Argyle’s Board of Directors to vote to approve
      the acquisition, you should be aware that Argyle’s directors, officers and
      original stockholders have agreements or arrangements that provide them with
      interests in the acquisition that differ from, or are in addition to, those
      of
      Argyle stockholders generally. Argyle’s original stockholders, including its
      directors and officers, are not entitled to receive any of the funds that would
      be distributed upon liquidation of the trust account. Therefore, if the
      acquisition is not approved, these original shares may become worthless. The
      personal and financial interests of directors and officers may have influenced
      their motivation in identifying and selecting a target business and in timely
      completion of a business combination. Consequently, their discretion in
      identifying and selecting a suitable target business may result in a conflict
      of
      interest when determining whether the terms, conditions and timing of a
      particular business combination are appropriate and in the best interests of
      Argyle’s stockholders.





***Because
      Argyle does not intend to pay dividends on its common stock, stockholders will
      benefit from an investment in Argyle’s common stock only if it appreciates in
      value.***




17




Argyle
      has never declared or paid any cash dividends on its shares of common stock.
      Post acquisition, Argyle currently intends to retain all future earnings, if
      any, for use in the operations and expansion of the business. As a result,
      Argyle does not anticipate paying cash dividends in the foreseeable future.
      Any
      future determination as to the declaration and payment of cash dividends will
      be
      at the discretion of Argyle’s Board of Directors and will depend on factors
      Argyle’s Board of Directors deems relevant, including among others, Argyle’s
      results of operations, financial condition and cash requirements, business
      prospects, and the terms of Argyle’s credit facilities and other financing
      arrangements. It is likely that the debt financing arrangements Argyle puts
      into
      place in connection with the acquisition will prohibit Argyle from declaring
      or
      paying dividends without the consent of its lenders. Accordingly, realization
      of
      a gain on stockholders’ investments will depend on the appreciation of the price
      of Argyle’s common stock. There is no guarantee that Argyle’s common stock will
      appreciate in value.




***Argyle’s
      securities are quoted on the Over-the-Counter Bulletin Board, which may limit
      the liquidity and price of its securities more than if the securities were
      quoted or listed on the Nasdaq market.***




Argyle’s
      securities are quoted on the Over-the-Counter Bulletin Board, a NASD-sponsored
      and operated inter-dealer automated quotation system. Quotation of Argyle’s
      securities on the Over-the-Counter Bulletin Board will limit the liquidity
      and
      price of its securities more than if the securities were quoted or listed on
      Nasdaq.





***Argyle
      has agreed in the merger agreement that it will negotiate employment agreements
      with ISI’s management post business combination.***





Although
      the merger agreement contains certain terms relating to the employment
      agreements to be negotiated between Argyle and ISI’s management (the specified
      terms relate to the term of the employment agreements and that certain members
      of management will remain on the Board of Directors of post merger ISI), Argyle
      has agreed in the merger agreement that it will negotiate employment agreements
      with ISI’s management post business combination. Therefore, Argyle’s
      stockholders will not have the benefit of knowing what compensation arrangements
      will be post business combination when voting for the merger. In addition,
      by
      not negotiating agreements prior to the merger, it is possible that some or
      all
      of ISI’s management may decide to seek employment at a company that will provide
      them with definitive terms of employment now.





***Failure
      to complete the acquisition could reduce the market price of Argyle’s common
      stock and may make it*** **** ***more
      difficult for Argyle to attract another acquisition candidate, resulting,
      ultimately, in the disbursement*** **** ***of
      the trust proceeds, causing some investors to experience a loss on their
      investment.***




If
      the
      acquisition is not completed for any reason, Argyle may be subject to a number
      of material risks, including:





·
            The
                market price of its common stock may decline to the extent that the
                current market price of its common stock reflects a market assumption
                that
                the acquisition will be
                consummated;





·
            Costs
                related to the acquisition, such as legal and accounting fees and
                the
                costs of the fairness opinion, must be paid even if the acquisition
                is not
                completed; and





·
            Charges
                will be made against earnings for transaction-related expenses, which
                could be higher than expected.





If
      the
      market price of our securities declines after we fail to consummate the
      acquisition of ISI, persons who purchased our securities after the merger was
      announced will have lost money investing in our securities, making future
      investment in our securities by such persons less likely. Since most of the
      fees
      that we incur from our service providers in connection with the merger with
      ISI
      must be paid even if we do not consummate the transaction, it is unlikely that
      we will have sufficient funds outside of the trust to locate and research a
      second target business. In addition, since Argyle will have to take charges
      to
      earnings for transaction-related expenses even if a transaction is not
      consummated, Argyle will be a less attractive candidate to a potential target
      business than another entity that would not have to take such charges. All
      of
      these items make it less likely that Argyle will be able to consummate a
      business combination with a target business if the merger with ISI is not
      consummated. If an alternative target could not be found, Argyle would be
      required to dissolve and liquidate after the applicable time periods had
      lapsed.





***Argyle’s
      Board of Directors has had Limited Ability to Evaluate the Target Business’
Management.*** ****




18




Although
      Argyle closely examined the management of ISI, Argyle cannot assure you that
      its
      assessment of ISI’s management will prove to be correct, or that future
      management will have the necessary skills, qualifications or abilities to manage
      its business successfully. Essentially, all of the serving management of ISI
      will be involved with the management of the Merger Subsidiary, will remain
      with
      the combined company, and will for the most part run its day to day operations.
      Argyle’s current Board of Directors will remain directors of Argyle subsequent
      to the acquisition.





**Item
      1B. Unresolved Staff Comments**





None.





**Item
      2. Description of Property**




Argyle
      maintains executive offices at Concord Plaza, Suite 700, San Antonio, TX 78216.
      The base rental cost for this space is approximately $5,500 per month. Argyle
      considers its current office space adequate for current operations.





**Item
      3. Legal Proceedings**




To
      the
      knowledge of management, there is no litigation currently pending or
      contemplated against us or any of our officers or directors in their capacity
      as
      such.





**Item
      4. Submission of Matters to a Vote of Security Holders**





During
      the fourth quarter of our fiscal year ended December 31, 2006, there were no
      matters submitted to a vote of security holders.




19




**PART
      II**





**Item
      5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities**





The
      Company’s common stock, warrants and units, are quoted on the Over the Counter
      Bulletin Board under the symbols “ARGL,” “ARGLW,” and “ARGLU,” respectively. The
      Units have been quoted on the Bulletin Board since January 30, 2006 and the
      common stock and warrants since March 2, 2006. Our securities did not trade
      on
      any market or exchange prior to January 30, 2006. The following table sets
      forth
      the high and low sales information for the Company’s Units for the period from
      January 30, 2006 through February 28, 2007 and the Company’s Common Stock and
      Warrants for the period from March 2, 2006 through February 28, 2007. The
      Over-the-Counter Bulletin Board quotations reflect inter-dealer prices, are
      without retail markup, markdowns or commissions, and may not represent actual
      transactions.




**Common
                Stock**
            
            **Warrants**
            
            **Units****High**
            
            **Low**
            
            **High**
            
            **Low**
            
            **High**
            
            **Low**First
                Quarter 2006
            
            7.55
            
            7.25
            
            1.35
            
            0.93
            
            8.85
            
            7.90Second
                Quarter 2006
            
            7.45
            
            7.22
            
            1.56
            
            1.02
            
            8.86
            
            8.00Third
                Quarter 2006
            
            7.30
            
            7.14
            
            1.08
            
            0.88
            
            8.30
            
            8.00Fourth
                Quarter 2006
            
            7.45
            
            7.15
            
            1.55
            
            0.75
            
            8.80
            
            7.94First
                Quarter 2007 (through February 28, 2007)
            
            7.44
            
            7.35
            
            1.10
            
            0.80
            
            8.50
            
            8.14




**Number
      of Holders of Common Stock.**





The
      number of holders of record of our Common Stock on February 28, 2007 was five,
      which does not include beneficial owners of our securities.





**Dividends.**





There
      were no cash dividends or other cash distributions made by us during the fiscal
      year ended December 31, 2006. Future dividend policy will be determined by
      our
      Board of Directors based on our earnings, financial condition, capital
      requirements and other then existing conditions. It is anticipated that cash
      dividends will not be paid to the holders of our common stock in the foreseeable
      future.





**Recent
      Sales of Unregistered Securities.**




On
      June 23, 2005 we issued shares of our common stock to the following persons
      for
      an aggregate offering price of $25,000 or $0.027 per share:




**Stockholders**
            
            **Number
                of Shares**Argyle
                Joint Venture
            
            
            296,875Argyle
                New Ventures, L.P.
            
            
            296,875Ron
                Chaimovski
            
            
            296,875John
                J. Smith
            
            
            46,875




Such
      shares were issued pursuant to the exemption from registration contained in
      Section 4(2) of the Securities Act as they were sold to sophisticated, wealthy
      individuals. No underwriting discounts or commissions were paid with respect
      to
      such sales.




On
      July 13, 2005, the aforementioned stockholders were issued options to purchase
      such additional number of shares as would maintain their respective percentage
      ownership in the event the over-allotment option granted to the underwriters
      in
      our initial public offering was exercised. The maximum number of shares that
      each stockholder could purchase pursuant to this option was:





20




**Stockholders**
            
            **Maximum
                Number of Shares**Argyle
                Joint Venture
            
            
            43,047Argyle
                New Ventures, L.P.
            
            
            43,047Ron
                Chaimovski
            
            
            43,047John
                J. Smith
            
            
            6,797




The
      exercise price of these options was $0.027 per share. On September 23, 2005,
      Messrs. Marbut and Chaimovski, along with their affiliated entities,
      transferred an aggregate of 70,313 of their shares and a pro rata portion of
      their over-allotment options to Wesley Clark in connection with his appointment
      to the board of directors. On January 30, 2006, the underwriters exercised
      a
      portion of their over-allotment option and on February 1, 2006, the stockholders
      indicated exercised their option for an aggregate of 18,761 shares of our common
      stock and we received $506.55 in connection with such exercise. The underwriters
      terminated their right to exercise the remainder of the overallotment option
      and
      the remainder of the options terminated unexercised. Such securities were issued
      pursuant to the exemption from registration contained in Section 4(2) of the
      Securities Act as they were issued to sophisticated, wealthy individuals. No
      underwriting discounts or commissions were paid with respect to such securities.




On
      January 24, 2006, we sold 125,000 units to Ron Chaimovski and Argyle New
      Ventures, L.P. for an aggregate purchase price of $1,000,000, or $8.00 per
      unit.
 Each unit consists of one share of common stock and a warrant to purchase
      one share of common stock, exercisable at $5.50 per share.  The securities
      were sold in reliance on the exemption from registration contained in Section
      4(2) of the Securities Act since they were sold to sophisticated, wealthy
      individuals.  We paid Rodman & Renshaw, LLC a placement fee of $60,000
      in connection with this placement.




On
      January 30, 2006, we sold a warrant to purchase 187,500 units to the two
      co-managing underwriters in the offering for an aggregate of $100. The exercise
      price per unit is $8.80, and each unit consists of one share of common stock
      and
      a warrant to purchase one share of common stock, exercisable at $5.50 per share.
      The securities were sold in reliance on the exemption from registration
      contained in Section 4(2) of the Securities Act since they were sold to the
      underwriters in our initial public offering. No underwriting discounts or
      commissions were paid with respect to such securities.





**Use
      of Proceeds**





On
      January 24, 2006, we consummated a private placement of 125,000 units. On
      January 30, 2006, we consummated our initial public offering of 3,700,046 units
      (which includes 75,046 units sold pursuant to the exercise of a portion of
      the
      underwriter’s over-allotment option). Each unit consists of one share of common
      stock and one redeemable common stock purchase warrant. Each warrant entitles
      the holder to purchase from us one share of our common stock at an exercise
      price of $5.50. The units were sold at an offering price of $8.00 per unit,
      generating total gross proceeds of $30,600,368. Rodman & Renshaw, LLC acted
      as lead underwriter. The securities sold in our initial public offering were
      registered under the Securities Act of 1933 on a registration statement on
      Form
      S-1 (No. 333-126569). The Securities and Exchange Commission declared the
      registration statement effective on January 24, 2006.





At
      the
      time of our offering, we incurred a total $1,836,022 in underwriting
      discounts and commissions and placement agent fees, $1,377,017 of which was
      placed in the trust account and will only be paid to the underwriters in the
      event that we consummate a business combination. The total expenses in
      connection with the sale of our units in the private placement and the initial
      public offering were $2,424,001. On
      March
      14, 2007, the underwriters from the Company's initial public offering agreed
      to
      forfeit any and all rights or claims to a pro-rata portion of the deferred
      underwriting costs and associated interest with respect to any shares of common
      stock which are redeemed in connection with our proposed acquisition. As a
      result, the deferred underwriting and offering costs have been reduced by
      approximately $.3 million and common stock subject to possible redemption has
      been increased by $.3 million. (See Redemption Rights under Part 1 and Note
      9 to
      the Company's financial statements.) No expenses of the offering were
      paid to any of our directors or officers or any of their respective affiliates.
      We did, however, repay Argyle New Ventures, an affiliate of Bob Marbut, and
      Ron
      Chaimovski for loans they made to us prior to the consummation of the private
      placement and the initial public offering. The aggregate amount of principal
      and
      interest on such loans that we repaid was $158,177. All the funds held in the
      trust account have been invested in either Treasury Bills or Money Market
      Accounts.





After
      deducting the underwriting discounts and commissions, placement agent fees
      and
      the offering expenses, the total net proceeds to us from the private placement
      and the initial public offering were $28,176,367, of which $27,344,346 was
      deposited into the trust account for our benefit (exclusive of the amounts
      for
      the benefit of the undewriters discussed above). The remaining proceeds are
      available to be used to provide for business, legal and accounting due diligence
      on prospective business combinations and continuing general and administrative
      expenses. The amounts held in the trust account may only be used by us upon
      the
      consummation of a business combination, with the exception of amounts due for
      income taxes and $600,000 of the interest earned on the trust account, which
      was
      released to us in September 2006 to fund our working capital. As of December
      31,
      2006, there was approximately $29.5 million held in the trust
      account.





21





**Repurchases
      of Equity Securities.**





None





**Item
      6. Selected Financial Data**





The
      selected financial data presented below summarizes certain financial data which
      has been derived from and should be read in conjunction with our financial
      statement and footnotes thereto included in the section beginning on page F-1.
      See also “Item 7. Management’s Discussion and Analysis of Financial Condition
      and Results of Operations.”




**Year
                  Ended December 31,**
              ********
              ****
              **2006**
              ****
              **2005****Statement
                  of Operations Data:**Operating
                  expenses
              
              $
              1,024,490
              
              $
              7,743Other
                  income
              
              
              1,287,925
              
              
              -Income/(loss)
                  before provision for income taxes
              
              
              263,435
              
              
              (7,743
              )Provision
                  for income taxes
              
              
              90,923
              
              
              -Net
                  income/(loss)
              
              
              172,512
              
              
              (7,743
              )Deferred
                  interest (net of taxes), attributable to common stock subject to
                  possible
                  redemption
              
              
              175,747
              
              
              -Net
                  (loss) allocable to holders of non-redeemable common stock
              
              $
              (3,235
              )
              $
              (7,743
              )Net
                  income/(loss) per share - - basic and diluted
              
              
              0.04
              
              
              (0.01
              )Weighted
                  average number of shares outstanding - - basic and diluted
              
              
              4,477,861
              
              
              937,500Net
                  (loss) per share exclusive of shares and related interest subject
                  to
                  possible redemption - - basic and diluted
              
              
              (0.00
              )
              
              (0.01
              )Weighted
                  average number of shares outstanding exclusive of shares subject
                  to
                  possible redemption - - basic and diluted
              
              
              3,773,985
              
              
              937,500




**As
                  of December 31,****2006**
              
              **2005****Balance
                  Sheet Data:**Cash
              
              $
              694,115
              
              $
              9,608Working
                  capital (deficit)
              
              
              28,249,730
              
              
              (277,488
              )Total
                  assets
              
              
              30,681,313
              
              
              304,353Total
                  stockholders’ equity
              
              $
              22,862,193
              
              $
              17,257




**Item
      7. Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations**





**Forward
      Looking Statements**





This
      Annual Report on Form 10-K includes forward-looking statements within the
      meaning of Section 27A of the Securities Act of 1933, as amended, and Section
      21E of the Securities Exchange Act of 1934, as amended. We have based these
      forward-looking statements on our current expectations and projections about
      future events. These forward-looking statements are subject to known and unknown
      risks, uncertainties and assumptions about us that may cause our actual results,
      levels of activity, performance or achievements to be materially different
      from
      any future results, levels of activity, performance or achievements expressed
      or
      implied by such forward-looking statements. In some cases, you can identify
      forward-looking statements by terminology such as “may,” “should,” “could,”
“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or
      the negative of such terms or other similar expressions. Factors that might
      cause or contribute to such a discrepancy include, but are not limited to,
      those
      described in our other Securities and Exchange Commission filings. The following
      discussion should be read in conjunction with our Financial Statements and
      related Notes thereto included elsewhere in this report.





22


**Overview**





Argyle
      Security Acquisition Corporation is a Delaware corporation incorporated on
      June
      22, 2005 in order to serve as a vehicle for the acquisition of an operating
      business through a merger, capital stock exchange, asset acquisition or other
      similar business combination. We intend to leverage the industry experience
      of
      our executive officers by focusing our efforts on identifying a prospective
      target business in the security industry. We believe that businesses involved
      in
      this industry represent attractive acquisition targets for a number of reasons,
      including the increase in global demand for integrated security-related products
      and services since September 11, 2001, the development of new technology which
      has the potential to expand applications and the trend towards integrated
      networked solutions.





**Critical
      Accounting Policies**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      expenses during the reporting period. Actual results could differ from these
      estimates.





Deferred income taxes are provided for temporary differences
      between the carrying amount of assets and liabilities for financial reporting
      purposes and the amounts for tax purposes. Valuation allowances are provided
      against the deferred tax asset amounts when the realization is
      uncertain.




Argyle purchases U.S. Treasury Bills and money market
      investments and holds these investments to maturity. The investments are
      recorded at market value which approximates their carrying amount, which
      includes interest accrued through that date.




Argyle must seek stockholder approval to effect any 
business combination. Argyle will proceed with a business
      combination only if a
      majority of the shares of common stock voted by the public stockholders are
      voted in favor of the business combination, and public stockholders owning
      less
      than 20% of the shares sold in the offering exercise their conversion rights
      and
      vote against the business combniation. Public stockholders voting against the
      combination may demand that Argyle redeem his or her shares at a redemption
      price of $7.52 per share plus interest earned thereon in the trust account,
      net
      of taxes payable, if an acquisition is consummated. Accordingly, Argyle has
      classified the contingent shares at $7.52 and related deferred interest outside
      of permanent equity and liabilities in the mezzanine area on the balance
      sheet.








**Results
      of Operations for the Year Ended December 31, 2006**





Argyle
      reported net income of $172,512 for the year ended December 31, 2006, before
      the
      deduction of $175,747 of interest income, net of taxes, attributable to common
      stock subject to possible redemption. Argyle incurred a net loss of $7,743
      for
      the period from inception (June 22, 2005) through December 31,
      2005.





Argyle’s
      trust account earned interest of $1,332,087 for the year ended December 31,
      2006, and its funds outside the trust account earned interest of $20,242. Until
      Argyle enters into a business combination, it will not generate operating
      revenues. Argyle had no funds in trust as of December 31, 2005.





For
      the
      year ended December 31, 2006, Argyle incurred expenses of $469,943 for
      consulting and professional fees, $130,632 for stock compensation, $148,516
      for
      franchise taxes, $82,411 for insurance expense, $61,467 for rental expense
      pursuant to Argyle’s lease of office space and other operating costs of
      $131,521.





The
      consulting and professional fees of $469,943 for the year ended December 31,
      2006 relate primarily to monthly consulting fees that, cumulatively, totaled
      approximately $288,000, legal fees of approximately $52,000, auditing, tax
      and
      accounting fees of approximately $103,000 and bankers’ fees and expenses of
      approximately $25,000.





On
      February 1, 2006, Argyle’s officers and directors exercised options and
      purchased 18,761 shares of common stock for an aggregate cost of $507. The
      compensation cost associated with these options of $130,632 was recorded in
      the
      first quarter of 2006 and was computed utilizing the Black-Scholes pricing
      model.





The
      franchise tax expense of $148,516 for the year ended December 31, 2006 was
      due
      to the state of Delaware, and approximately $145,000 of this amount was paid
      in
      the first quarter of 2007.





The
      insurance expense of $82,411 for the year ended December 31, 2006 relates to
      the
      amortization of the prepaid directors and officers insurance policy which was
      acquired in January 2006.





The
      other
      operating costs of $131,520 for the year ended December 31, 2006 relate
      primarily to travel expenses of approximately $48,000, computer server hosting
      expense of approximately $21,000, communications expenses of approximately
      $12,000, stock transfer fees of $13,000, office supplies and expenses of
      approximately $6,000 and other miscellaneous costs of approximately
      $31,000.





23


**Results
      of Operations for the Period from June 22, 2005 (inception) to December 31,
      2005**





Argyle
      had a net loss of $7,743 for the period ended December 31, 2005 as a result
      of
      formation and operating costs. Additionally, deferred offering costs of
      approximately $295,000 were incurred in 2005. These costs consisted of
      professional fees of approximately $203,000, road show and travel expenses
      of
      approximately $25,000, and regulatory and filing fees of approximately $67,000.
      Argyle had no income in 2005.





**Liquidity
      and Capital Resources**





On
      January 24, 2006, Argyle completed a private placement of 125,000 units to
      its
      executive officers and their affiliates and received net proceeds of
      approximately $.9 million. On January 30, 2006, Argyle consummated its initial
      public offering of 3,700,046 units (which included 75,046 units sold as part
      of
      the underwriter’s over-allotment option). Each unit in both the private
      placement and the public offering consisted of one share of common stock and
      one
      redeemable common stock purchase warrant. Each warrant entitles the holder
      to
      purchase from Argyle one share of Argyle’s common stock at an exercise price of
      $5.50 per share commencing on the later of the completion of a business
      combination or January 24, 2007 and expiring January 24, 2011. Argyle’s common
      stock and warrants started trading separately as of March 2, 2006.





The
      net
      proceeds from the sale of Argyle’s units, after deducting certain offering
      expenses of approximately $2.4 million, including underwriting discounts of
      approximately $1.8 million, were approximately $28.2 million. Approximately
      $27.3 million of the proceeds from the initial public offering and the private
      placement was placed in a trust account for Argyle’s benefit. Except for
      reimbursement of taxes payable and $600,000 in interest from the trust account
      that was released to Argyle in September 2006 for working capital, Argyle will
      not be able to access the amounts held in the trust until it consummates a
      business combination. The approximate $29.5 million held in trust as of December
      31, 2006 includes approximately $1.4 million of underwriters' and placement
      agent’s compensation and related interest from Argyle’s private placement and
      initial public offering that will be paid to the underwriters and placement
      agent only in the event of a business combination. On
      March
      14, 2007, the underwriters from the Company's initial public
      offering agreed to forfeit any and all rights or claims to a pro-rata
      portion of the deferred underwriting costs and associated interest with respect
      to any shares of common stock which are redeemed in connection with our proposed
      acquisition. As a result, the deferred underwriting and offering costs have
      been
      reduced by approximately $.3 million and common stock subject to possible
      redemption has been increased by $.3 million. (See Redemption Rights under
      Part
      1 and Note 9 to the Company's financial statements.)The trust account
      earned interest income of approximately $1.3 million during the year ended
      December 31, 2006. The amounts held outside of the trust account are available
      to be used by Argyle to provide for business, legal and accounting due diligence
      on prospective acquisitions and continuing general and administrative expenses.
      As of December 31, 2006, Argyle had approximately $.7 million outside the trust
      account to fund its working capital requirements.





Argyle
      expects to use up to approximately $20.5 million (including Argyle and ISI
      transaction costs) of the net proceeds of the initial public offering to acquire
      ISI. After paying off any expenses relating to the identification and evaluation
      of prospective acquisition candidates, the structuring, negotiation and
      consummation of the business combination and paying for the redemption of the
      stock of any of Argyle’s stockholders who choose to exercise their redemption
      rights, any residual proceeds from Argyle’s initial public offering will be used
      by the company as working capital.





Argyle
      anticipates that it will incur total transaction costs of approximately $1.3
      million. Such costs do not include transaction costs of approximately $1.0
      million to be incurred by ISI (related primarily to anticipated attorney,
      brokerage and accounting fees). Of the $1.3 million of Argyle anticipated
      transaction costs, approximately $.4 million relate to certain Giuliani Capital
      Advisors’ advisory fees which are contingent upon the closing of the
      transaction. Approximately $.5 million of the $.9 million in non-contingent
      anticipated costs had been incurred and recorded as of December 31, 2006. The
      $.9 million primarily relates to Loeb and Loeb legal expenses, fees for Giuliani
      Capital Advisors’ fairness opinion, accountants and valuation consultants’ fees,
      road show expenses, printer fees and other miscellaneous expenses. Argyle’s cash
      outside the trust and accrued expenses as of December 31, 2006 was approximately
      $.7 million and $.6 million, respectively. Argyle expects to incur the remaining
      anticipated non-contingent transaction costs of $.4 million over the first
      two
      quarters of 2007. Additionally, recurring monthly operating expenses of
      approximately $75,000 per month will continue to accrue after December 31,
      2006
      and, in January 2007, Argyle renewed its directors and officers’ insurance
      policy, incurring a premium of $88,000.





Our
      Board
      of Directors has discussed and preliminarily approved a $300,000 bridge loan
      from our Co-Chief Executive Officers, directors and consultants.  The terms
      and conditions of the bridge loan have not yet been negotiated
      and the documentation for the bridge loan has not yet been completed. 
We anticipate that this bridge financing will close in late March or April
      2007.





24


Argyle
      anticipates that the costs to consummate the acquisition will greatly exceed
      its
      available cash outside of the trust, even after the proposed financing discussed
      above. Argyle
      expects these costs would ultimately be borne by the combined company from
      the
      funds held in trust if the proposed ISI acquisition is completed. If the
      acquisition is not completed, the costs would be subject to the potential
      indemnification obligations of Argyle’s officers and directors to the trust
      account related to expenses incurred for vendors or service providers. If these
      obligations are not performed or are inadequate, it is possible that vendors
      or
      service providers could seek to recover these expenses from the trust account,
      which could ultimately deplete the trust account and reduce a stockholder’s
      current pro rata portion of the trust account upon liquidation.





Upon
      going public in late January 2006, Argyle has focused its attention on the
      search for a target business in the security industry. The expenses related
      to
      this effort are primarily comprised of certain monthly consulting fees paid
      to parties identified below for the research and investigation of potential
      target companies, and professional fees and travel expenses associated with
      targets which are no longer being pursued. Argyle has recorded these expenses
      as
      either part of the disclosed consulting and professional fees, or as travel
      expenses which are classified as other operating costs. The costs directly
      associated with the ISI acquisition, excluding the recurring monthly consulting
      fees which are expensed, have been capitalized as transaction costs. Two of
      Argyle’s consultants work exclusively on the research, investigation and
      targeting of security companies, while one of the other consultants spends
      approximately one-half of his time on acquisitions. Argyle believes that the
      amounts recorded as expenses associated with its search during 2006 were
      approximately $.2 million. Additionally, transaction costs associated with
      the
      ISI acquisition of approximately $.5 million were capitalized during 2006,
      and
      approximately $.4 million of additional non-contingent transaction costs
      associated with the ISI acquisition are anticipated. In the prospectus related
      to Argyle’s initial public offering, Argyle estimated legal, accounting and
      other expenses attendant to the structuring and negotiation of a business
      combination, and the preparation and filing of the related proxy statement
      of
      $.15 million and due diligence of prospective target businesses of $.225
      million. The majority of the difference is related primarily to the cost of
      a
      fairness opinion from Giuliani Capital Advisors and legal fees which are
      accumulating at a higher rate than those estimated in the Form S-1.





Argyle’s
      accrued expenses, as of December 31, 2006, which includes accruals for deferred
      acquisition costs, totaled $624,129. The amount is primarily comprised of an
      accrual to the state of Delaware for franchise taxes in the amount of
      approximately $145,000 and accruals for professional fees, associated with
      attorneys, accountants and bankers and related expenses of approximately
      $440,000. The franchise tax and banker fees are not specifically disclosed
      in
      the use of proceeds section of Argyle’s Registration Statement on Form S-1
      related to its initial public offering, but expenses for legal and accounting
      are disclosed.





Assuming
      the completion of the ISI acquisition, Argyle will assume approximately $6.0
      million in long term debt, in addition to the $9.0 million ISI line of credit
      which had an outstanding balance of approximately $5.0 million as of December
      31, 2006. Argyle anticipates that the $6.0 million in long term debt
      will be due eighteen months after completion of the acquisition and that
      there will be no prepayment penalties. The line of credit matures
      in October 2008 with interest payable quarterly and is secured by certain
      tangible and intangible assets. The line of credit agreement
      contains certain financial covenants as well as restrictive and affirmative
      convenants. Additionally, Argyle will assume the capital lease obligation
      related to ISI’s offices in San Antonio, Texas, which had a balance of
      approximately $2.1 million as of December 31, 2006. At closing, Argyle will
      pay
      certain ISI obligations totaling approximately $1.9 million as of December
      31,
      2006, relating to ISI*MCS and notes payable to ISI shareholders. Argyle will
      also assume the current liabilities relating to accounts payable, accrued
      liabilities and billings in excess of costs and estimated earnings on incomplete
      contracts.




As
      of
      February 1, 2006, Argyle entered into a lease for Argyle’s office space in San
      Antonio, Texas and began to pay a base rental of approximately $5,500 per month.
      The lease was originally scheduled to terminate on January 31, 2007; however,
      it
      was amended to extend the termination date by six months. In connection with
      its
      operations, in March 2006, Argyle paid an outstanding obligation to a consultant
      for approximately $53,000 and is currently paying approximately $24,000 per
      month in consulting fees for services assisting Argyle in the identification
      of
      a target business, securities compliance and administration. The consulting
      agreements entered into thus far may be terminated by either party for any
      reason upon 15 days notice.





Presently,
      Argyle is utilizing four consultants on a monthly basis. Alan Wachtel and Graham
      Wallis perform research and investigation of target companies in the security
      industry and assist in the performance of due diligence on potential acquisition
      candidates. Cindy Kittrell is the office manager and performs associated
      administrative functions. Mark Mellin is a financial consultant who assists
      Argyle in its SEC reporting responsibilities, accounting matters and also
      assists in the investigation and due diligence of potential acquisition
      candidates.




25


**Off
      Balance Sheet Arrangements**





Argyle
      does not have any off-balance sheet arrangements.





**Contractual
      Obligations**





We
      do not
      have any long term debt, capital lease obligations, purchase obligations or
      other long term liabilities. However, as discussed above, we have an operating
      lease commitment with the landlord of our office facilities at a monthly rental
      of approximately $5,500 through July 2007.





**Item
      7A. Quantitative and Qualitative Disclosures About Market Risk**





Market
      risk is the sensitivity of income to changes in interest rates, foreign
      exchanges, commodity prices, equity prices, and other market-driven rates or
      prices. We are not presently engaged in and, if a suitable business target
      is
      not identified by us prior to the prescribed liquidation date of the trust
      fund,
      we may not engage in, any substantive commercial business. Accordingly, we
      are
      not and, until such time as we consummate a business combination, we will not
      be, exposed to risks associated with foreign exchange rates, commodity prices,
      equity prices or other market-driven rates or prices. The net proceeds of our
      initial public offering held in the trust fund have been invested only in money
      market funds meeting certain conditions under Rule 2a-7 promulgated under the
      Investment Company Act of 1940. Given our limited risk in our exposure to money
      market funds, we do not view the interest rate risk to be significant.





**Item
      8. Financial Statements and Supplementary Data**





Financial
      statements are attached hereto beginning on Page F-1.





**Item
      9. Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure**





None.





**Item
      9A. Controls and Procedures**





An
      evaluation of the effectiveness of our disclosure controls and procedures as
      of
      December 31, 2006 was made under the supervision and with the participation
      of
      our management, including our co-chief executive officers (one of whom serves as
      our principal financial officer). Based on that evaluation, our co-chief
      executive officers concluded that our disclosure controls and procedures are
      effective as of the end of the period covered by this report to ensure that
      information required to be disclosed by us in reports that we file or submit
      under the Securities Exchange Act of 1934 is recorded, processed, summarized
      and
      reported within the time periods specified in Securities and Exchange commission
      rules and forms. During the most recently completed fiscal quarter, there has
      been no significant change in our internal control over financial reporting
      that
      has materially affected, or is reasonably likely to materially affect, our
      internal control over financial reporting.





**Compliance
      with Section 404 of the Sarbanes-Oxley Act of 2002**





Pursuant
      to Section 404 of the Sarbanes-Oxley Act of 2002 (the Act), beginning with
      our
      Annual Report on Form 10-K for the fiscal year ending December 31, 2007, we
      will
      be required to furnish a report by our management on our internal control over
      financial reporting. This report will contain, among other matters, an
      assessment of the effectiveness of our internal control over financial reporting
      as of the end of our fiscal year, including a statement as to whether or not
      our
      internal control over financial reporting is effective. This assessment must
      include disclosure of any material weaknesses in our internal control over
      financial reporting identified by management. If we identify one or more
      material weaknesses in our internal control over financial reporting, we will
      be
      unable to assert that our internal control over financial reporting is
      effective.





Management
      acknowledges its responsibility for internal controls over financial reporting
      and seeks to continually improve those controls. In order to achieve compliance
      with Section 404 of the Act within the prescribed period, we have begun the
      system and process documentation and evaluation needed to comply with Section
      404, which is both costly and challenging. We believe our process, which will
      be
      performed primarily in 2007 as our first acquisition is not yet complete, will
      be consistent with the objectives of Section 404 of the Act.





26





**Item
      9B. Other Information**





None




27




**PART
        III**


**Item
      10. Directors, Executive Officers and Corporate Governance**




Our
      current directors and executive officers are as follows:




**Name**
            
            **Age**
            
            **Position**Bob
                Marbut
            
            71
            
            Chairman
                of the Board and Co-Chief Executive OfficerRon
                Chaimovski
            
            47
            
            Vice
                Chairman of the Board and Co-Chief Executive OfficerJohn
                J. Smith
            
            58
            
            DirectorWesley
                Clark
            
            61
            
            Director




*Bob
      Marbut* has been
      Argyle’s Chairman of the Board and Co-Chief Executive Officer since Argyle’s
      inception. From November 2004 to the present, Mr. Marbut has been the Executive
      Chairman of Electronics Line 3000 Ltd., an intrusion protection security
      company, and from July 2002 to the present he has been the Executive Chairman
      of
      SecTecGLOBAL, Inc., a sales and marketing subsidiary of Electronics Line 3000
      Ltd., and was the Chief Executive Officer of SecTecGLOBAL from July 2002 to
      February 2006. From October 2001 to the present, Mr. Marbut has served as the
      Managing Director of Argyle Global Opportunities, LP, an investment partnership
      which owns a 41% interest in Electronics Line 3000 Ltd. From January 2001 to
      January 2003, Mr. Marbut served as the Chairman of Hearst-Argyle Television,
      Inc., a non-network owned television group and, from August 1997 to January
      2001, served as its Chairman and Co-Chief Executive Officer. From January 1995
      to August 1997, Mr. Marbut was the co-founder, Chairman and controlling partner
      of Argyle Television, Inc., which became a Nasdaq traded company and was merged
      with Hearst Broadcasting in August 1997 to form Hearst-Argyle Television, Inc.
      From 1993 to 1995, Mr. Marbut founded and was the Chief Executive Officer of
      Argyle Television Holding, Inc., a private television group that was sold in
      1995. From August 1970 through 1990, Mr. Marbut served as the President and
      Chief Executive Officer of Harte-Hanks Communications, Inc., and concurrently
      as
      its Chief Operating Officer from April 1973 to September 1984, and as
      Vice-Chairman in 1991. During the period that Mr. Marbut was CEO, Harte-Hanks
      developed from a family-owned newspaper company into a Fortune 500 company
      listed on the New York Stock Exchange that Mr. Marbut took private in 1984
      in a
      management buyout that he led. In addition to the Board of Directors of
      Electronics Line 3000 Ltd., Mr. Marbut currently serves on the boards of
      directors of Hearst-Argyle Television, Tupperware Corporation and Valero Energy
      Corporation. Mr. Marbut, through control of the general partner of Argyle Joint
      Venture, manages Argyle Joint Venture, one of Argyle’s stockholders which was
      formed to make equity investments in companies. Mr. Marbut is the sole investor
      and manager of Argyle New Ventures, which manages Mr. Marbut’s personal family
      investments. He has a Masters of Business Administration degree with Distinction
      from Harvard University and was a registered engineer in the State of California
      and holds a Bachelors of Industrial Engineering from Georgia Tech.




*Ron
      Chaimovski* has been
      Argyle’s Vice Chairman of the Board and Co-Chief Executive Officer since
      Argyle’s inception. Mr. Chaimovski has served as the Vice Chairman of
      Electronics Line 3000 Ltd. since May 2005 and as a partner in Argyle Global
      Opportunities, LP since January 2001. From October 1998 to August 2001 Mr.
      Chaimovski served as the Israeli Economic Minister to North America. From 1991
      to 1998, Mr. Chaimovski was a partner in an Israeli law firm. Mr. Chaimovski
      was
      the co-founder of Transplan Enterprises Group, an investment group, and served
      as its Co-Chairman from 1993 to 1998. Mr. Chaimovski served in the Israeli
      Navy
      from 1977 to 1983 in various command roles, including those of combat officer
      and flotilla commander. Mr. Chaimovski, through entities controlled by him
      or
      his spouse, owns limited partnership interests in Argyle Joint Venture. Mr.
      Chaimovski is a member of the Israeli Bar. Mr. Chaimovski received an LLB from
      Tel Aviv University and an LLM from the University of London.




*Wesley
      Clark* joined
      Argyle’s Board of Directors in September 2005. Since March 2003, he has been the
      Chairman and Chief Executive Officer of Wesley K. Clark & Associates, a
      business services and development firm based in Little Rock, Arkansas. In
      February 2006, Gen. Clark joined Rodman & Renshaw Holdings, LLC, which
      controls Rodman & Renshaw, LLC, one of the co-managing underwriters in the
      initial public offering, as Chairman of the Board and as a member of their
      Advisory Board. From March 2001 to February 2003 he was the Managing Director
      of
      the Stephens Group Inc., an emerging company development firm. From July 2000
      to
      March 2001 he was a consultant for Stephens Group Inc. Prior to that time,
      Gen.
      Clark served as the Supreme Allied Commander of NATO and Commander-in-Chief
      for
      the United States European Command and as the Director of the Pentagon’s
      Strategic Plans and Policy operation. Gen. Clark retired from the United States
      Army as a four-star general in July 2000 after 38 years in the military and
      received many decorations and honors during his military career. Gen. Clark
      is a
      graduate of the United States Military Academy and studied as a Rhodes Scholar
      at the Magdalen College at the University of Oxford.




28




*John
      J. Smith* has been
      one of Argyle’s directors since Argyle’s inception. He has been the Director of
      Security for the Bank of New York since February 2000. At the Bank of New York,
      Mr. Smith directs and supervises a worldwide security program that encompasses
      the investigation and prevention of fraud-related activities, as well as the
      physical protection of corporate assets, employees, customers and executives.
      Mr. Smith retired from the United States Secret Service in January 2000 after
      24
      years of service. He held a variety of positions in field offices and
      headquarters, culminating with his appointment as the Special Agent in Charge
      of
      the New York Field Office, the Service’s largest and busiest office. During his
      career, Mr. Smith was assigned to the Vice Presidential Protective Division,
      the
      Presidential Protective Division and as the Special Assistant to the Treasury
      Secretary. He served as the security coordinator for several high profile
      protective venues, including: the U.S. delegation attending the Olympic Games
      in
      Barcelona, Spain, 1992; the Presidential Inaugural activities of 1993; the
      dedication of the Holocaust Museum, Washington, DC, 1994; and the visit of
      Pope
      John Paul II to New York, 1995. In 1996, he supervised the protective detail
      assigned to Presidential Candidate Robert Dole. Mr. Smith holds bachelors and
      masters degrees in Criminal Justice from West Chester University in West
      Chester, Pennsylvania.




Our
      board
      of directors is divided into three classes with only one class of directors
      being elected in each year and each class serving a three-year term. The term
      of
      office of the first class of directors, consisting of John J. Smith, will expire
      at our first annual meeting of stockholders. The term of office of the second
      class of directors, consisting of Wesley Clark, will expire at the second annual
      meeting. The term of office of the third class of directors, consisting of
      Bob
      Marbut and Ron Chaimovski, will expire at the third annual meeting.




None
      of
      these individuals has been a principal of or affiliated with a public company
      or
      blank check company that executed a business plan similar to our business plan
      and none of these individuals is currently affiliated with such an entity.
      However, we believe that the skills and experience of these individuals, their
      collective access to acquisition opportunities and ideas, their contacts, and
      their transaction expertise should enable them to successfully identify and
      effect a business combination although we cannot assure our stockholders that
      they will, in fact, be able to do so.




Argyle’s
      Board of Directors is divided into three classes, with only one class of
      directors being elected in each year and each class serving a three-year term.
      The term of office of the first class of directors, consisting of John J. Smith,
      will expire at Argyle’s first annual meeting of stockholders. The term of office
      of the second class of directors, consisting of Wesley Clark, will expire at
      the
      second annual meeting. The term of office of the third class of directors,
      consisting of Bob Marbut and Ron Chaimovski, will expire at the third annual
      meeting.




The
      Board
      of Directors has not determined whether anyone on the Board is an “audit
      committee financial expert,” as such term is defined by SEC rules. Since the
      Board does not have a separately designated Audit Committee and Argyle will
      not
      have any operating activities until such time as Argyle enters into a business
      combination (meaning that its financial statements are relatively simple),
      Argyle’s Board of Directors did not feel it was necessary to determine if anyone
      on Argyle’s Board of Directors was an audit committee financial expert. Argyle’s
      Board of Directors will make a determination if there is an audit committee
      financial expert on its Board of Directors after a business combination with
      a
      target business is consummated.




**Director
      Independence**




Argyle’s
      Board of Directors has not determined if any of its directors qualifies as
      independent, although Argyle’s management believes that Gen. Clark and Mr. Smith
      would qualify as independent directors under the rules of the American Stock
      Exchange because they do not currently own a large percentage of Argyle’s stock,
      are not currently employed by Argyle, have not been actively involved in the
      management of Argyle and do not fall into any of the enumerated categories
      of
      people who cannot be considered independent in the American Stock Exchange
      Rules. Argyle’s Board of Directors will make a determination about independence
      after the business combination is consummated. Argyle does not have an audit
      committee, nominating committee or compensation committee and therefore the
      entire Board of Directors performs those functions for Argyle.




**Compensation
      Committee Interlocks and Insider Participation**




During
      the last fiscal year, no officer and employee of Argyle, and no former officer
      of Argyle, during the last completed fiscal year, participated in deliberations
      of Argyle’s Board of Directors concerning executive officer compensation. Bob
      Marbut and Ron Chaimovski are each officers and directors of SecTecGlobal and
      Electronics Line 3000 Ltd.




29




**Code
      of Ethics**





We
      currently do not have a formal code of ethics. Upon consummation of a business
      combination, we intend to adopt a code of ethics that applies to our principal
      executive officer, principal financial officer, principal accounting officer
      or
      controller or persons performing similar functions.





**Section
      16(a) Beneficial Ownership Reporting Compliance**




Section
      16(a) of the Securities Exchange Act requires our directors, executive officers
      and persons who own more than 10% of our common stock to file reports of
      ownership and changes in ownership of our common stock with the Securities
      and
      Exchange Commission. Directors, executive officers and persons who own more
      than
      10% of our common stock are required by Securities and Exchange Commission
      regulations to furnish to us copies of all Section 16(a) forms they file.





Based
      solely on our review of such forms furnished to us and written representations
      from certain reporting persons, we believe that all filing requirements
      applicable to our executive officers, directors and greater than 10% beneficial
      owners were complied with during 2006.





**Item
      11. Executive Compensation**




**Executive
      Compensation**




In
      2006,
      no compensation of any kind, including finders and consulting fees, was paid
      to
      any of our officers or directors, or any of their respective affiliates, nor
      will any compensation of any kind be paid to such persons for services rendered
      prior to or in connection with a business combination. However, our officers
      and
      directors have been and will continue to be reimbursed for any out-of-pocket
      expenses incurred in connection with activities on our behalf, such as
      identifying potential target businesses and performing due diligence on suitable
      business combinations. There is no limit on the amount of these out-of-pocket
      expenses, and there will be no review of the reasonableness of the expenses
      by
      anyone other than Argyle’s directors, or a court of competent jurisdiction if
      such reimbursement is challenged.




Since
      we
      do not currently have an operating business, our officers do not receive any
      compensation for their service to us; and, since we have no other employees,
      we
      do not have any compensation policies, procedures, objectives or programs in
      place. We will adopt appropriate compensation policies, procedures, objectives
      or programs after a merger with a target business is consummated and our
      management team has had the opportunity to fully understand the operations
      of
      the business. However, it is anticipated that, after closing, the compensation
      for our senior executives will be comprised of four elements: a base salary,
      an
      annual performance bonus, equity and benefits.




In
      developing salary ranges, potential bonus payouts, equity awards and benefit
      plans, it is anticipated that our Compensation Committee (when formed after
      a
      business combination) will take into account: 1) competitive compensation among
      comparable companies and for similar positions in the market, 2) relevant ways
      to incentivize and reward senior management for improving shareholder value
      while building Argyle into a successful company, 3) individual performance,
      4)
      how best to retain key executives, 5) Argyle’s overall performance and its
      various key component entities, 6) our ability to pay and 7) other factors
      deemed to be relevant at the time.




Argyle
      and ISI senior management have discussed Argyle’s above mentioned planned
      process for executive compensation after the merger is complete and the four
      compensation components. Specific compensation plans for ISI’s key executives,
      assuming the acquisition of ISI is completed, will be negotiated and established
      by the Compensation Committee after closing.




**Compensation
      Committee Interlocks and Insider Participation**




Argyle’s
      Board of Directors does not have a compensation committee and the entire Board
      of Directors performs the functions of a compensation committee.




No
      member
      of the Compensation Committee has a relationship that would constitute an
      interlocking relationship with executive officers or directors of the Company
      or
      another entity, except that Bob Marbut and Ron Chaimovski are each officers
      and
      directors of SecTecGlobal and Electronics Line 3000 Ltd.




30




**Compensation
      Committee Report**




Argyle’s
      Board of Directors does not have a compensation committee and the entire Board
      of Directors performs the functions of a compensation committee.




The
      Board
      of Directors has reviewed and discussed the discussion and analysis of Argyle’s
      compensation which appears above with management, and, based on such review
      and
      discussion, the Board of Directors determined that the above disclosure be
      included in this Annual Report on Form 10-K.




The
      members of the Board of Directors are:




Bob
      Marbut


Ron
      Chaimovski


John
      J.
      Smith


Wesley
      Clark





**Item
      12. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters**





The
      following table sets forth, as of February 28, 2007, certain information
      regarding beneficial ownership of our common stock by each person who is known
      by us to beneficially own more than 5% of our common stock. The table also
      identifies the stock ownership of each of our directors, each of our officers,
      and all directors and officers as a group. Except as otherwise indicated, the
      stockholders listed in the table have sole voting and investment powers with
      respect to the shares indicated.





Shares
      of
      common stock which an individual or group has a right to acquire within 60
      days
      pursuant to the exercise or conversion of options, warrants or other similar
      convertible or derivative securities are deemed to be outstanding for the
      purpose of computing the percentage ownership of such individual or group,
      but
      are not deemed to be outstanding for the purpose of computing the percentage
      ownership of any other person shown in the table.





**Name
                and Address of Beneficial Owner(1)**
            
            **Amount
                and**
              **Nature
                of**
              **Beneficial**
              **Ownership**
            
            **Approximate
                Percentage of**
              **Outstanding
                Common Stock**Bob
                Marbut
            
            651,569(2)
            
            13.6%Argyle
                Joint Venture
              200
                Concord Plaza, Suite 700
              San
                Antonio, Texas 78216
            
            278,910(3)
            
            5.8%Ron
                Chaimovski
            
            310,159
            
            6.5%Wesley
                Clark
            
            71,720
            
            1.5%John
                J. Smith
            
            47,813
            
            1.0%Sapling,
                LLC (4)
              Fir
                Tree Recovery Master Fund, L.P.
              Fir
                Tree, Inc.
              535
                Fifth Avenue
              31stFloor
              New
                York, New York 10017
            
            292,976
            
            6.1%Jonathan
                M. Glaser(5)
              Daniel
                Albert David
              Roger
                Richter
              Pacific
                Assets Management, LLC
              Pacific
                Capital Management, Inc.
              JMG
                Triton Offshore Fund, Ltd.
            
            247,751
            
            5.2%All
                directors and executive officers as a group
              (4
                individuals)
            
            1,081,261
            
            22.61%




31


(1)
      The
      business address of each of the individuals and entities is 200 Concord Plaza,
      Suite 700, San Antonio, Texas 78216.




(2)
      Includes 372,659 shares of common stock held by Argyle New Ventures, LP which
      is
      controlled by Mr. Marbut.




(3)
      Mr.
      Marbut has voting and dispositive power over the shares held by Argyle Joint
      Venture.




(4)
      The
      information relating to Sapling, Fir Tree Master Recovery Fund and Fir Tree,
      Inc. is derived from a Schedule 13G dated December 31, 2006 filed by such
      entities with the Securities and Exchange Commission. Sapling may direct the
      voting and disposition of 200,241 shares of Argyle’s common stock, Fir Tree
      Master Recovery Fund may direct the voting and disposition of 92,735 shares
      of
      Argyle’s common stock and Fir Tree, Inc. as their investment manager has voting
      and dispositive power over all of such securities. The sole member of both
      Sapling and Fir Tree Master Recovery Fund is Fir Tree Value Master Fund, LP
      and
      their investment manager is Fir Tree, Inc. Jeffrey Tannenbaum is the President
      of Sapling, LLC and Fir Tree, Inc.




(5)
      The
      information relating to the indicated stockholders is derived from a Schedule
      13G, dated December 8, 2006, filed by such persons with the Securities and
      Exchange Commission. The principal business address of Jonathan M. Glaser is
      11601 Wilshire Boulevard, Suite 2180, Los Angeles, CA 90025. The principal
      business address of Daniel Albert David, Pacific Assets Management, LLC and
      Pacific Capital Management, Inc. is 100 Drakes Landing, Suite 207, Greenbrae,
      CA
      94904. The principal business address of Roger Richter is One Sansome Street,
      39th Floor, San Francisco, CA 94104. The principal business address of JMG
      Triton Offshore Fund, Ltd. is Citco Building, Wickhams Cay, P.O. Box 662, Road
      Town, Tortola, BVI. Each person has shared voting and dispositive power with
      respect to each share of Argyle’s common stock owned. Pacific Assets Management,
      LLC is the investment adviser to JMG Triton Offshore Fund, Ltd. and Pacific
      Capital Management, Inc. is a member of Pacific Assets Management, LLC. Mr.
      Glaser, Mr. David and Mr. Richter are control persons of Pacific Capital
      Management, Inc. and Pacific Assets Management, LLC.





Argyle
      had no options outstanding as of fiscal year end.





**Item
      13. Certain Relationships and Related Transactions, and Director Independence**





**Certain
      Relationships and Related Transactions**




On
      June
      23, 2005, we issued an aggregate of 937,500 shares of our common stock to the
      individuals and entities set forth below for $25,000 in cash, at a purchase
      price of $0.027 per share, as follows:




**Name**
            ****
            **Number
                of Shares**
            ****
            **Relationship
                to Us**Argyle
                Joint Venture
            
            296,875
            
            The
                general partner is an entity controlled by Bob Marbut, our Co-Chief
                Executive Officer, and Mr. Chaimovski, our other Co-Chief Executive
                Officer, owns interests in certain of its limited
                partnersBob
                Marbut
            
            296,875
            
            These
                shares are owned by Argyle New Ventures, L.P., whose general partner
                is
                owned by Mr. Marbut, our Chairman and Co-Chief Executive
                OfficerRon
                Chaimovski
            
            296,875
            
            Vice
                Chairman and Co-Chief Executive OfficerJohn
                J. Smith
            
            46,875
            
            Director




On
      July
      13, 2005, we issued the aforementioned stockholders options to purchase such
      additional number of shares as would be necessary to maintain their percentage
      ownership in us after the offering in the event the underwriters exercise the
      over-allotment option. Such options are exercisable at $0.027 per share only
      if
      and only to the extent that the over-allotment option is exercised. On September
      23, 2005, Messrs. Marbut and Chaimovski, along with their affiliated
      entities, transferred an aggregate of 70,313 of their shares and a pro rata
      portion of their over-allotment options to Wesley Clark in connection with
      his
      appointment to the board of directors. On January 30, 2006, the underwriters
      exercised a portion of their over-allotment option and on February 1, 2006,
      the
      stockholders indicated exercised their option for an aggregate of 18,761 shares
      of our common stock and we received $506.55 in connection with such exercise.
      The remainder of the options terminated unexercised. The holders of the majority
      of these shares owned prior to our private placement and initial public offering
      will be entitled to make up to two demands that we register these shares. The
      holders of the majority of the shares issued prior to the private placement
      and
      initial public offering may elect to exercise these registration rights at
      any
      time after the date on which these shares of common stock are released from
      escrow, which, except in limited circumstances, is not before January 24, 2009.
      In addition, these stockholders have certain “piggy-back” registration rights on
      registration statements filed subsequent to the date on which these shares
      of
      common stock are released from escrow. We will bear the expenses incurred in
      connection with the filing of any such registration statements.




32




On
      June
      23 and July 6, 2005, Mr. Chaimovski and Argyle New Ventures, L.P., an entity
      controlled by Mr. Marbut, advanced a total of $125,000 to us to cover expenses
      related to our initial public offering. Such loans were payable with 4% annual
      interest on the earlier of June 30, 2006 or the consummation of our initial
      public offering. In November 2005, these stockholders loaned us an additional
      $30,000 pursuant to 4% promissory notes due the earlier of November 15, 2006
      or
      the consummation of the initial public offering. These loans were paid off
      subsequent to the closing of our initial public offering.




Argyle
      New Ventures, LP, an entity controlled by Bob Marbut, and Ron Chaimovski
      purchased 125,000 units, consisting of 125,000 shares of our common stock and
      warrants to purchase 125,000 shares of our common stock, from us on January
      24,
      2006 at a purchase price of $8.00 per unit in a private placement. We granted
      them demand and “piggy-back” registration rights with respect to the 125,000
      shares, the 125,000 warrants and the 125,000 shares underlying the warrants
      at
      any time commencing on the date we announce that we have entered into a letter
      of intent with respect to a proposed business combination. The demand
      registration may be exercised by the holders of a majority of such units. We
      will bear the expenses incurred in connection with the filing of any such
      registration statements.




We
      will
      reimburse our officers and directors for any reasonable out-of-pocket business
      expenses incurred by them in connection with certain activities on our behalf
      such as identifying and investigating possible target businesses and business
      combinations. There is no limit on the amount of accountable out-of-pocket
      expenses reimbursable by us, which will be reviewed only by our board of
      directors or a court of competent jurisdiction if such reimbursement is
      challenged.




Our
      Board
      of Directors does not have any policies or procedures that it follows in
      connection to transactions it undertakes with related parties. The determination
      of any policies or procedures will be made after we consummate a business
      combination. Other than the repayment of expenses, Argyle has had no
      transactions with related parties since its initial public
      offering.




**Director
      Independence**




Argyle’s
      Board of Directors has not determined if any of its directors qualifies as
      independent, although Argyle’s management believes that Gen. Clark and Mr. Smith
      would qualify as independent directors under the rules of the American Stock
      Exchange, because they do not currently own a large percentage of Argyle’s
      stock, are not currently employed by Argyle, have not been actively involved
      in
      the management of Argyle and do not fall into any of the enumerated categories
      of people who cannot be considered independent in the American Stock Exchange
      Rules. Argyle’s Board of Directors will make a determination about independence
      after the business combination is consummated. Argyle does not have an audit
      committee, nominating committee or compensation committee and therefore the
      entire Board of Directors performs those functions for Argyle.





**Item
      14. Principal Accounting Fees and Services**





Ernst
      & Young LLP audited our financial statements for the year ended December 31,
      2006. Goldstein
      Golub Kessler LLP acted as our principal accountant from our inception through
      April 18, 2006.   Through September 30, 2005, Goldstein Golub Kessler
      LLP had a continuing relationship with American Express Tax and Business
      Services Inc. (TBS), from which it leased auditing staff who were full time,
      permanent employees of TBS and through which its partners provide non-audit
      services. Subsequent to September 30, 2005, this relationship ceased and
      Goldstein Golub Kessler LLP established a similar relationship with RSM
      McGladrey, Inc. Goldstein Golub Kessler LLP has no full time employees and
      therefore, none of the audit services performed were provided by permanent
      full-time employees of Goldstein Golub Kessler LLP. Goldstein Golub Kessler
      LLP
      manages and supervises the audit and audit staff, and is exclusively responsible
      for the opinion rendered in connection with its examination.





**Audit
      Fees**





Fees
      for
      audit services provided by Ernst & Young LLP totaled $132,878 in 2006,
      including fees associated with the audit of the annual financial statements
      for
      the fiscal year ended December 31, 2006, the reviews of the Company’s quarterly
      reports on Form 10-Q, and for services performed in connection with the
      Company’s Form S-4 filing in December 2006.





Fees
      for
      audit services provided by Goldstein Golub Kessler LLP totaled $47,460 in 2005,
      including fees associated with the audit of the annual financial statements
      for
      the fiscal year ended December 31, 2005, the audit of the Company’s balance
      sheet at January 30, 2006 included in the Current Report on Form 8-K, and for
      services performed in connection with the Company’s registration statement on
      Form S-1 initially filed in 2005. In addition, fees of $6,000 were billed in
      2006 related to the audit for the fiscal year ended December 31,
      2005.




33





**Audit-Related
      Fees**





Fees
      for
      audit-related services provided by Ernst & Young LLP totaled $28,500 in
      2006. Audit-related services principally include due diligence in connection
      with acquisitions.





Other
      than the fees described under the caption “Audit Fees” above, Goldstein Golub
      Kessler LLP did not bill any fees for services rendered to us during fiscal
      year
      2005 for assurance and related services in connection with the audit or review
      of our financial statements.





**Tax
      Fees**





Fees
      for
      tax services provided by Ernst & Young LLP, including tax compliance, tax
      advice, and tax planning, totaled $11,015 in 2006.





There
      were no fees billed by Goldstein Golub Kessler LLP for tax services in 2005,
      however, RSM McGladrey, Inc. did charge us $3,264 for tax compliance
      services in 2006.





**All
      Other Fees**





There
      were no fees billed by Ernst & Young LLP or Goldstein Golub Kessler LLP for
      other professional services rendered during the fiscal years ended December
      31,
      2006 or 2005.





**Pre-Approval
      of Services**





We
      do not
      have an audit committee. As a result, our board of directors performs the duties
      of an audit committee. Our board of directors evaluates and approves in advance
      the scope and cost of the engagement of an auditor before the auditor renders
      the audit and non-audit services. We do not rely on pre-approval policies and
      procedures.





**PART
      IV**





**Item
      15. Exhibits and Financial Statement Schedules**





(a)  (1)
      Consolidated Financial Statements





Consolidated Balance
      Sheets


Consolidated Statement
      of Operations


Consolidated Statement
      of Stockholders’ Equity


Consolidated Statement
      of Cash Flows





(2) Schedules





None.





(b)
      Exhibits





The
      following Exhibits are filed as part of this report


**Exhibit
                No.**
            
            **Description**3.1
            
            Second
                Amended and Restated Certificate of Incorporation (1)3.2
            
            By-laws(1)4.1
            
            Specimen
                Unit Certificate(1)4.2
            
            Specimen
                Common Stock Certificate (1)4.3
            
            Specimen
                Warrant Certificate(1)4.4
            
            Form
                of Warrant Agreement between American Stock Transfer & Trust Company
                and the Registrant(1)4.5
            
            Form
                of Unit Purchase Option to be granted to Rodman & Renshaw,
                LLC(1)




34


10.1
            
            Form
                of Letter Agreement among the Registrant, Rodman & Renshaw, LLC and
                Argyle Joint Venture (1)10.2
            
            Form
                of Letter Agreement among the Registrant, Rodman & Renshaw, LLC and
                Argyle New Ventures L.P. (1)10.3
            
            Form
                of Letter Agreement among the Registrant, Rodman & Renshaw, LLC and
                John J. Smith(1)10.4
            
            Form
                of Letter Agreement among the Registrant, Rodman & Renshaw, LLC and
                Ron Chaimovski(1)10.5
            
            Form
                of Letter Agreement among the Registrant, Rodman & Renshaw, LLC and
                Bob Marbut(1)10.6
            
            Form
                of Letter Agreement among the Registrant, Rodman & Renshaw, LLC and
                Wesley Clark(1)10.7
            
            Form
                of Investment Management Trust Agreement between American Stock Transfer
                & Trust Company and the Registrant(1)10.8
            
            Form
                of Stock Escrow Agreement between the Registrant, American Stock
                Transfer
                & Trust Company and the pre-offering stockholders
                (1)10.9
            
            Form
                of Registration Rights Agreement among the Registrant and the pre-offering
                stockholders(1)10.10
            
            Form
                of Voting Agreement by John J. Smith and Wesley
                Clark(1)10.11
            
            Letter
                Agreement between Argyle Security Acquisition Corporation, Rodman
&
                Renshaw, LLC and I-Bankers Securities, Inc. dated March 14, 2007.
                (2)


10.12
              
              Warrant
                  Clarification Agreement between the Company and American Stock
                  Transfer
                  & Trust Company, dated August 10, 2006 (3)10.13
              
              Unit
                  Purchase Option Clarification Agreement between the Company and
                  I-Bankers,
                  Inc., dated August 10, 2006 (3)10.14
              
              Unit
                  Purchase Option Clarification Agreement between the Company and
                  Rodman
                  & Renshaw, LLC, dated August 10, 2006 (3)10.15
              
              Letter
                  Agreement between Argyle Security Acquisition Corporation, Rodman
&
                  Renshaw, LLC and I-Bankers Securities, Inc. (4)10.16
              
              Merger
                  Agreement by and among Argyle Security Acquisition Corporation,
                  ISI
                  Security Group, Inc. and ISI Detention Contracting, Inc.
                  (5)10.17
              
              Lease
                  between the Company and Frost National Bank, Trustee For A Designated
                  Trust (6)


21.1
            
            List
              of Subsidiaries31.1
            
            Certification
                of the Co-Chief Executive Officer (Principal Financial Officer) pursuant
                toRule 13a-14(a) of
                the Securities Exchange Act, as amended31.2
            
            Certification
                of the Co-Chief Executive Officer and (Principal Executive Officer)
                pursuant toRule 13a-14(a) of
                the Securities Exchange Act, as amended32.1
            
            Certification
                of the Co-Chief Executive Officers pursuant to18
                U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002.





(1)
            Incorporated
                by reference to the Registrant’s Registration Statement on Form S-1 (File
                No. 333-124601).


(2)
              Incorporated
                  by reference to the Registrant’s Current Report on Form 8-K dated March
                  14, 2007.
  (3)
                Incorporated
                    by reference to the Registrant’s Quarterly Report on Form 10-Q for the
                    quarter ended September 30, 2006.
  (4)
                Incorporated
                    by reference to the Registrant’s Current Report on Form 8-K dated March
                    14, 2007.
  (5)
                Incorporated
                    by reference to the Registrant’s Current Report on Form 8-K dated December
                    8, 2006.
  (6)
                Incorporated
                    by reference to the Registrant’s Current Report on Form 8-K dated April
                    20, 2006.


35





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15 (d) of the Securities Exchange Act
      of
      1934, the Registrant had duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.


ARGYLE
                SECURITY ACQUISITION CORPORATIONMarch
                19, 2007
            By:
            /s/ Bob
              MarbutBob
                Marbut, Co-Chief Executive Officer




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.


March
                19, 2007
            By:
            /s/Bob
              MarbutBob
                Marbut, Chairman of the Board and Co-Chief Executive Officer (Principal
                accounting and financial officer)




March
                19, 2007
            By:
            /s/Ron
              ChaimovskiRon
                Chaimovski, Co-Chairman of the Board and Co-Chief Executive Officer
                (Principal Executive Officer)




March
                19, 2007
            By:
            /s/Wesley
              ClarkWesley
                Clark, Director




March
                19, 2007
            By:
            /s/John
              J. SmithJohn
                J. Smith, Director




36




Index
      to
      Consolidated Financial Statements





Page**Report
                of Independent Registered Public Accounting Firm**
            F-2**Report
                of Independent Registered Public Accounting Firm**
            F-3**Financial
                Statements**Consolidated
                Balance Sheet
            F-4Consolidated
                Statements of Operations
            F-5Consolidated
                Statements of Stockholders’ Equity
            F-6Consolidated
                Statements of Cash Flows
            F-7Notes
                to Consolidated Financial Statements
            F-8
                - F-12





F-1




**Report
      of Independent Registered
      Public Accounting Firm**


The
        Board
        of Directors and Stockholders
 Argyle
        Security Acquisition Corporation
 
 We
        have
        audited the accompanying consolidated balance sheet of Argyle Security
        Acquisition Corporation (the Company) (a development stage company) as of
        December 31, 2006, and the related consolidated statements of operations,
        stockholders’ equity, and cash flows for the year then ended, and for the period
        June 22, 2005 (inception) through December 31, 2006. These financial statements
        are the responsibility of the Company’s management. Our responsibility is to
        express an opinion on these financial statements based on our audits. The
        financial statements as of December 31, 2005, and for the period June 22,
        2005 (inception) through December 31, 2005, were audited by other auditors
        whose report dated February 3, 2006, expressed an unqualified opinion on
        those
        statements. The financial statements for the period June 22, 2005 (inception)
        through December 31, 2005 include no revenues and net loss of $7,743. Our
        opinion on the statements of operations, stockholders’ equity, and cash flows
        for the period June 22, 2005 (inception) through December 31, 2006, insofar
        as it relates to amounts for prior periods through December 31, 2005, is
        based solely on the report of other auditors.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. We were not engaged to perform
        an
        audit of the Company’s internal control over financial reporting. Our audit
        included consideration of internal control over financial reporting as a
        basis
        for designing audit procedures that are appropriate in the circumstances,
        but
        not for the purpose of expressing an opinion on the effectiveness of the
        Company’s internal control over financial reporting. Accordingly, we express no
        such opinion. An audit also includes examining, on a test basis, evidence
        supporting the amounts and disclosures in the financial statements, assessing
        the accounting principles used and significant estimates made by management,
        and
        evaluating the overall financial statement presentation. We believe that
        our
        audit and the report of other auditors provide a reasonable basis for our
        opinion.
 
 In
        our
        opinion, based on our audit and the report of other auditors, the financial
        statements referred to above present fairly, in all material respects, the
        financial position of Argyle Security Acquisition Corporation at December
        31,
        2006, and the results of its operations and its cash flows for the year then
        ended and the period from June 22, 2005 (inception) through December 31,
        2006, in conformity with U.S. generally accepted accounting
        principles.
  The
        accompanying consolidated financial statements have been prepared assuming
        that
        Argyle Security Acquisition Corporation will continue as a going concern.
        As
        more fully described in Note 1, the Company has a working capital deficiency
        (excluding funds held in trust) and must consummate an acquisition by July
        30,
        2007 (or by January 30, 2008 if certain extension criteria have been satisfied)
        or be dissolved. These conditions raise substantial doubt about the Company’s
        ability to continue as a going concern. (Management’s plans in regard to these
        matters also are described in Note 1.) The 2006 financial statements do not
        include any adjustments to reflect the possible future effects on the
        recoverability and classification of assets or the amounts and classification
        of
        liabilities that may result from the outcome of this uncertainty.
  /s/
                  Ernst & Young LLPSan Antonio, TexasMarch 15, 2007


F-2


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Stockholders


Argyle
      Security Acquisition Corporation





We
      have
      audited the accompanying balance sheets of Argyle Security Acquisition
      Corporation (a corporation in the development stage) as of December 31, 2005,
      and the related statements of operations, stockholders' equity and cash flows
      for the period from June 22, 2005 (inception) to December 31, 2005. These
      financial statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of Argyle Security Acquisition
      Corporation as of December 31, 2005, and the results of its operations and
      its
      cash flows for the period from June 22, 2005 (inception) to December 31, 2005
      in
      conformity with United States generally accepted accounting
      principles.




/s/
      Goldstein Golub Kessler LLP





**GOLDSTEIN
      GOLUB
      KESSLERLLP**


New
      York,
      New York





February
      3, 2006




F-3




**Argyle
      Security Acquisition Corporation**


(a
      development stage company)




**Consolidated
      Balance Sheet**


December
                  31,2006
              
              2005**ASSETS****Current
                  assets**:Cash
              
              $
              694,115
              
              $
              9,608Cash
                  and cash equivalents, held in trust
              
              
              29,453,449
              
              
              -Prepaid
                  expenses
              
              
              7,333
              
              
              -**Total
                  current assets**
              
              
              30,154,897
              
              
              9,608Deferred
                  income taxes
              
              
              27,932
              
              
              -Property
                  and equipment, net of accumulated depreciation of $1,619
              
              
              4,901
              
              
              -Deferred
                  offering costs
              
              
              -
              
              
              294,745Deferred
                  transaction costs
              
              
              493,583
              
              
              -**Total
                  assets**
              
              $
              30,681,313
              
              $
              304,353**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  liabilities:**Accrued
                  expenses
              
              $
              624,129
              
              $
              132,096Notes
                  payable - stockholders
              
              
              -
              
              
              155,000Deferred
                  underwriting costs
              
              
              1,162,183
              
              
              -Accrued
                  income taxes
              
              
              118,855
              
              
              -**Total
                  current liabilities**
              
              
              1,905,167
              
              
              287,096Common
                  stock, subject to possible redemption - 764,627 shares at $7.50
                  per
                  share
              
              
              5,738,206
              
              
              -Deferred
                  interest attributable to common stock subject to possible redemption
                  (net
                  of taxes of $90,536)
              
              
              175,747
              
              
              -**Stockholders’
                  Equity:**Preferred
                  stock — $.0001 par value; 1,000,000 shares authorized;0
                  shares issued and outstanding
              
              
              -
              
              
              -Common
                  stock—$.0001 par value; 89,000,000 shares authorized; issuedand
                  outstanding: 4,781,307 at December 31, 2006 (including 764,627 shares
                  of common stock subject to possible redemption) and 937,500 at
                  December
                  31, 2005
              
              
              478
              
              
              94Additional
                  paid-in capital
              
              
              22,696,946
              
              
              24,906Retained
                  earnings/(deficit accumulated) during the development
                  stage
              
              
              164,769
              
              
              (7,743
              )**Total
                  stockholders’ equity**
              
              
              22,862,193
              
              
              17,257**Total
                  liabilities and stockholders’ equity**
              
              $
              30,681,313
              
              $
              304,353




See
      notes
      to financial statements




F-4


**Argyle
      Security Acquisition Corporation**


(a
      development stage company)




**Consolidated
      Statements of Operations**


Year
                  Ended December 31, 2006
              
              Inception
                  (June 22, 2005) through December 31, 2005
              
              Inception
                  (June 22, 2005) through December 31, 2006**Operating
                  expenses**
              
              $
              1,024,490
              
              $
              7,743
              
              $
              1,032,233**Other
                  income and expense**Bank
                  interest income
              
              
              20,242
              
              
              -
              
              
              20,242Interest
                  on cash and cash equivalents held in trust
              
              
              1,332,087
              
              
              -
              
              
              1,332,087Interest
                  expense
              
              
              (64,404
              )
              
              -
              
              
              (64,404
              )Total
                  other income and expense
              
              
              1,287,925
              
              
              -
              
              
              1,287,925Income/(Loss)
                  before provision for income taxes
              
              
              263,435
              
              
              (7,743
              )
              
              255,692Provision
                  for income taxes
              
              
              90,923
              
              
              -
              
              
              90,923**Net
                  income/(loss)**
              
              
              172,512
              
              
              (7,743
              )
              
              164,769Deferred
                  interest attributable tocommon
                  stock subject to possible redemption (net of taxes)
              
              
              175,747
              
              
              -
              
              
              175,747**Net
                  (loss) allocable to holders****of
                  non-redeemable common stock**
              
              $
              (3,235
              )
              $
              (7,743
              )
              $
              (10,978
              )**Net
                  income/(loss) per share - - basic and diluted**
              
              $
              0.04
              
              $
              (0.01
              )
              $
              0.05Weighted
                  average number of sharesoutstanding
                  - - basic and diluted
              
              
              4,477,861
              
              
              937,500
              
              
              3,253,327**Net
                  (loss) per share exclusive of shares and related interest subject
                  to
                  possible redemption - - basic and diluted**
              
              $
              (0.00
              )
              $
              (0.01
              )
              $
              (0.00
              )Weighted
                  average number of shares outstanding exclusive of shares subject
                  to
                  possible redemption -basic and diluted
              
              
              3,773,985
              
              
              937,500
              
              
              2,792,907




See
      notes
      to financial statements




F-5


Argyle
      Security Acquisition Corporation


(a
      development stage company)




**Consolidated
      Statements of Stockholders’ Equity**


Retained
                  Earnings/(DeficitPaid-in
              
              Accumulated)Capital
              
              During
                  the
              
              TotalCommon
                  Stock
              
              in
                  Excess
              
              Development
              
              Stockholders'Shares
              
              Amount
              
              of
                  Par
              
              Stage
              
              EquityStock
                  issuance on June 23, 2005 at $.027
              
              
              937,500
              
              $
              94
              
              $
              24,906
              
              
              
              
              $
              25,000Net
                  loss
              
              
              
              
              
              
              
              
              
              
              $
              (7,743
              )
              
              (7,743
              )**Balances**,
                  at December 31, 2005
              
              
              937,500
              
              $
              94
              
              $
              24,906
              
              $
              (7,743
              )
              $
              17,257Stock
                  issuance on January 24, 2006 at $8
              
              
              125,000
              
              
              12
              
              
              999,988
              
              
              -
              
              
              1,000,000Stock
                  issuance on January 30, 2006 at $8
              
              
              3,625,000
              
              
              362
              
              
              28,999,638
              
              
              -
              
              
              29,000,000Stock
                  issuance on January 30, 2006 at $8
              
              
              75,046
              
              
              8
              
              
              600,360
              
              
              -
              
              
              600,368Proceeds
                  from issuance of option to underwriters
              
              
              -
              
              
              -
              
              
              100
              
              
              -
              
              
              100Expenses
                  of offerings
              
              
              -
              
              
              -
              
              
              (2,145,230
              )
              
              -
              
              
              (2,145,230
              )Less:
                  Proceeds subject to possible redemption of 764,627 shares and associated
                  deferred interest
              
              
              -
              
              
              -
              
              
              (5,913,953
              )
              
              -
              
              
              (5,913,953
              )Stock
                  based compensation
              
              
              -
              
              
              -
              
              
              130,632
              
              
              -
              
              
              130,632Officer
                  and director option exercise
              
              
              18,761
              
              
              2
              
              
              505
              
              
              -
              
              
              507Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              172,512
              
              
              172,512**Balances**at
                  December 31, 2006
              
              
              4,781,307
              
              $
              478
              
              $
              22,696,946
              
              $
              164,769
              
              $
              22,862,193




See
      notes
      to financial statements





F-6


**Argyle
      Security Acquisition Corporation**


(a
      development stage company)




**Consolidated
      Statements of Cash Flows**


Year
                  ended
                December
                  31,
                2006
              
              Inception
                through
                December
                  31,
                2005
              
              Inception
                through
                December
                  31,
                2006**Cash
                  flows from operating activities**Net
                  income/(loss)
              
              $
              172,512
              
              $
              (7,743
              )
              $
              164,769**Adjustment
                  to reconcile net loss to net cash provided by operating
                  activities:**Stock
                  based compensation
              
              
              130,632
              
              
              -
              
              
              130,632Depreciation
                  expense
              
              
              1,619
              
              
              -
              
              
              1,619Increase
                  in prepaid expenses
              
              
              (7,333
              )
              
              -
              
              
              (7,333
              )Increase
                  in accrued expenses
              
              
              177,910
              
              
              4,096
              
              
              182,006Interest
                  earned on cash and cash equivalents, held in trust
              
              
              (1,332,087
              )
              
              -
              
              
              (1,332,087
              )Accrued
                  interest on deferred underwriting costs
              
              
              63,938
              
              
              -
              
              
              63,938Increase
                  in deferred income tax asset
              
              
              (27,932
              )
              
              -
              
              
              (27,932
              )Increase
                  in accrued income taxes
              
              
              118,855
              
              
              -
              
              
              118,855Interest
                  income released from the trust
              
              
              600,000
              
              
              -
              
              
              600,000Net
                  cash provided by (used in) operating activities
              
              
              (101,886
              )
              
              (3,647
              )
              
              (105,533
              )**Cash
                  flows from investing activities:**Purchases
                  of investments held in trust
              
              
              (318,720,208
              )
              
              -
              
              
              (318,720,208
              )Maturity
                  of investments held in trust
              
              
              289,998,845
              
              
              -
              
              
              289,998,845Purchase
                  of property and equipment
              
              
              (6,520
              )
              
              -
              
              
              (6,520
              )Transaction
                  costs
              
              
              (58,343
              )
              
              -
              
              
              (58,343
              )Net
                  cash used in investing activities
              
              
              (28,786,226
              )
              
              -
              
              
              (28,786,226
              )**Cash
                  flows from financing activities**Gross
                  proceeds from public offering and private placement
              
              
              30,600,368
              
              
              -
              
              
              30,600,368Offering
                  costs
              
              
              (873,356
              )
              
              (166,745
              )
              
              (1,040,101
              )Proceeds
                  from issuance and exercises of options
              
              
              607
              
              
              -
              
              
              607Proceeds
                  from notes payable, stockholders
              
              
              -
              
              
              155,000
              
              
              155,000Repayment
                  of notes payable, stockholders
              
              
              (155,000
              )
              
              -
              
              
              (155,000
              )Proceeds
                  from sale of common stock to founding stockholders
              
              
              -
              
              
              25,000
              
              
              25,000Net
                  cash provided by financing activities
              
              
              29,572,619
              
              
              13,255
              
              
              29,585,874**Net
                  increase in cash**
              
              
              684,507
              
              
              9,608
              
              
              694,115**Cash**,
                  beginning of period
              
              
              9,608
              
              
              -
              
              
              -**Cash**,
                  end of period
              
              $
              694,115
              
              $
              9,608
              
              $
              694,115Supplemental
                  disclosure of cash flow informationCash
                  paid for interest
              
              $
              3,177
              
              $
              -
              
              $
              3,177Supplemental
                  schedule of non-cash financing activities:Accrual
                  of deferred underwriting costs
              
              $
              1,098,245
              
              $
              -
              
              $
              1,098,245Accrual
                  of costs of public offering
              
              $
              6,885
              
              $
              128,000
              
              $
              6,885Supplemental
                  schedule of non-cash investing activities:Accrual
                  of deferred transaction costs
              
              $
              435,240
              
              $
              -
              
              $
              435,240




See
      notes
      to financial statements





F-7





**Argyle
      Security Acquisition Corporation**


(a
      development stage company)




**Notes
      to Consolidated Financial Statements**


**December
      31, 2006**





**Note
      1 - Background, formation and summary of significant accounting
      policies**




The
      Company was incorporated in Delaware on June 22, 2005 as a blank check company
      formed to acquire, through merger, capital stock exchange, asset acquisition
      or
      other similar business combination, a business in the security
      industry.





The
      Company completed a private placement (the “Private Placement”) on January 24,
      2006 and received net proceeds of approximately $900,000. Also on January 24,
      2006, the registration statement for the Company’s initial public offering (the
“Public Offering”) was declared effective. The Company consummated the Public
      Offering on January 30, 2006 and received net proceeds of approximately $27.3
      million. The Company’s management has broad discretion with respect to the
      specific application of the net proceeds of the Private Placement and the Public
      Offering (collectively the “Offerings”), although substantially all of the net
      proceeds of the Offerings are intended to be generally applied toward
      consummating a business combination with a target company. As used herein,
      a
“target business” shall include an operating business in the security industry
      and a “business combination” shall mean the acquisition by the Company of a
      target business.





Of
      the
      proceeds from the Offerings, approximately $28.7 million was deposited into
      a
      trust account (“Trust Account”) until the earlier of (i) the consummation of the
      first business combination or (ii) the distribution of the Trust Account as
      described below. The amount in the Trust Account as of December 31, 2006
      included approximately $1.4 million total of contingent underwriting
      compensation, contingent private placement fees and associated interest which
      will be paid to the underwriters if a business combination is consummated.
      (See
      Note 9 for a subsequent event which impacts the underwriters costs.) The
      remaining proceeds may be used to pay for business, legal and accounting due
      diligence on prospective acquisitions and continuing general and administrative
      expenses.




On
      December 8, 2006, Argyle, Argyle’s wholly-owned subsidiary ISI Security Group,
      Inc. (referred to in this document as the Merger Subsidiary) and ISI entered
      into a merger agreement pursuant to which the Merger Subsidiary will merge
      into
      ISI, and ISI will become a wholly-owned subsidiary of Argyle. Pursuant to the
      merger agreement, Argyle will pay ISI’s security holders an aggregate of
      $16,300,000 and 1,180,000 shares of Argyle’s common stock (valued at $8,708,400,
      based on the closing price of the common stock on February 28, 2007). In the
      event that ISI’s earnings before interest, taxes, depreciation and amortization
      (EBITDA) for the year ended December 31, 2006 are greater than $4,500,000 and
      its backlog of orders at February 28, 2007 is greater than $80,000,000
      (including inter-company amounts), Argyle will pay the stockholders of ISI
      an
      additional $1,900,000. The calculations of EBITDA and the February 28, 2007
      backlog will be initially calculated by ISI and such calculations will be
      presented to Argyle. Argyle will verify the calculations and, if they are not
      accurate, object to the calculations. Pursuant to the merger agreement, if
      there
      is a dispute over the calculation of (i) EBITDA that cannot be resolved between
      the parties, the parties will engage a third party accountant to resolve the
      dispute, and (ii) the February 28, 2007 backlog, then ISI and Argyle must
      negotiate a resolution to the dispute among themselves. The calculation of
      ISI’s
      EBITDA is subject to an adjustment of $900,000 relating to certain events that
      Argyle and ISI agreed should not reduce the EBITDA calculation. Argyle
      anticipates that the calculation of February 28, 2007 backlog will be finalized
      in late March or early April 2007. In addition, Argyle will assume approximately
      $6,000,000 of long term debt (not including capitalized leases) and up to
      $9,000,000 pursuant to a line of credit (of which approximately $5,000,000
      was
      outstanding as of December 31, 2006).





The
      Company will proceed with the combination only if a majority of the shares
      of
      common stock voted by the public stockholders are voted in favor of the business
      combination and public stockholders owning less than 20% of the aggregate shares
      sold in this offering and the private placement exercise their redemption
      rights. The officers and directors of the Company (“Initial Stockholders”), have
      agreed to vote their 956,261 founding shares of common stock in accordance
      with
      the vote of the majority in interest of all other stockholders of the Company
      with respect to any business combination and to vote the 125,000 shares of
      common stock included in the units they purchased in the Private
      Placement and any shares they acquire in the aftermarket in favor of the
      business combination. After consummation of the Company’s first business
      combination, these voting agreements will no longer be applicable.




F-8





With
      respect to the first business combination which is approved and consummated,
      any
      holder of shares sold in the Public Offering, other than the Initial
      Stockholders and their nominees (the “Public Stockholders”) who voted against
      the business combination may demand that the Company redeem his or her shares.
      The per share redemption price will equal $7.50 per share (see Note 9) plus
      interest earned thereon in the Trust Account, net of taxes payable and $600,000
      of interest income which was released from the Trust Account in September,
      2006
      to fund our working capital. Public Stockholders holding up to 19.99% of the
      aggregate number of shares sold in this offering and the private placement
      may
      seek redemption of their shares in the event of a business combination.
      Accordingly, amounts classified as common stock subject to possible redemption
      of approximately $5.7 million, and the associated deferred interest of
      approximately $176,000 have been reflected in the accompanying balance
      sheet.




The
      Company’s Certificate of Incorporation provides for liquidation of the Company
      in the event that the Company does not consummate a business combination within
      18 months from the date of consummation of the Public Offering (July 30, 2007),
      or 24 months from the consummation of the Public Offering (January 30, 2008)
      if
      certain extension criteria have been satisfied. The Initial Stockholders have
      waived their right to liquidation distributions with respect to the shares
      of
      common stock owned by them prior to the Public Offering. Accordingly, in the
      event of such a liquidation, the amount in the Trust Account will be distributed
      to the holders of the shares sold in the Public Offering.




There is no assurance that the Company will be able to successfully complete
      a
      business combination within the time frame discussed above. That factor and
      the
      Company's declining cash available outside of the Trust Account raise
      substantial doubt about the Company's ability to continue as a going concern.
      To
      address some of the Company's liquidity needs, the Company's Board of Directors
      has discussed and preliminarily approved a $300,000 bridge loan from our
      Co-Chief Executive Officers, directors and consultants. The terms and conditions
      of the bridge loan have not yet been negotiated and the documentation for the
      bridge loan has not yet been completed. The Company anticipates that the bridge
      financing will close in late March or April 2007. Even after considering such
      proposed financing, the Company anticipates that the costs to consummate the
      acquisition will greatly exceed its available cash outside of the Trust Account.
      The Company expects these costs would ultimately be borne by the combined
      company from the funds held in the Trust Account if the proposed acquisition
      is
      completed. If it is not completed, the costs would be subject to the potential
      indemnification obligations of Argyle's officers and directors of the Trust
      Account related to expenses incurred for vendors or service providers. If these
      obligations are not performed or are inadequate, it is possible that vendors
      or
      service providers could seek to recover these expenses from the Trust Account,
      which could ultimately deplete the Trust Account and reduce a stockholder's
      current pro rata portion of the Trust Account upon liquidation.





*Cash
      and cash equivalents*




The
      Company considers all highly liquid investments with original maturities of
      three months or less to be cash equivalents.





*Income
      taxes*





Deferred
      income taxes are recorded based on enacted statutory rates to reflect the tax
      consequences in future years of the differences between the tax bases of assets
      and liabilities and their financial reporting amounts. Deferred tax assets
      which
      will generate future tax benefits are recognized to the extent that realization
      of such benefits through future taxable earnings or alternative tax strategies
      in the foreseeable short term future is more likely than not.




*Recently
      issued accounting pronouncements*




In
      December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
      No.
      123 (revised 2004), "Share based payment" ("SFAS 123(R)"). SFAS 123(R) requires
      all share-based payments to employees, including grants of employee stock
      options, to be recognized in the financial statements based on their fair
      values. The Company adopted SFAS 123(R) on January 1, 2006.





In
      June,
      2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes” (FIN 48), an interpretation of Statement of Financial Accounting
      Standards No. 109, “Accounting for Income Taxes” (FAS 109).  FIN 48
      clarifies the accounting for uncertainty in income taxes by prescribing a
      recognition threshold for tax positions taken or expected to be taken in a
      tax
      return.  FIN 48 is effective for fiscal years beginning after December 15,
      2006.  We are currently evaluating the impact FIN 48 will have on our
      financial position or results of operations.





*Transaction
      costs*





The
      Company has capitalized approximately $.5 million related to the ISI
      acquisition. These costs are primarily composed of attorney and accountants’
fees and bankers’ fees regarding the fairness opinion.





*Use
      of estimates*




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      income and expenses during the reporting period. Actual results could differ
      from those estimates.




*Basis
      of presentation*




The
      consolidated financial statements include the
      accounts of the Company and our wholly-owned subsidiary, ISI Security Group,
      Inc. All significant intercompany transactions are eliminated in the
      consolidation process.




F-9




**Note
      2 - Offerings**




*Public
      Offering*




On
      January 30, 2006, the Company sold 3,700,046 units (which includes 75,046 units
      sold by the underwriters pursuant to a partial exercise of their over-allotment
      option) to the public at a price of $8.00 per unit. Each unit consists of one
      share of the Company’s common stock, $0.0001 par value, and one redeemable
      common stock purchase warrant (“warrant”). Each warrant entitles the holder to
      purchase from the Company one share of common stock at an exercise price of
      $5.50 commencing the later of the completion of a business combination with
      a
      target business or January 24, 2007 and expiring January 24, 2011. The warrants
      are redeemable by the Company at a price of $.01 per warrant upon 30 days notice
      after the warrants become exercisable, only in the event that the last sale
      price of the common stock is at least $11.50 per share for any 20 trading days
      within a 30 trading day period ending three business days before a notice of
      redemption is delivered.





*Private
      Placement*




On
      January 24, 2006, the Company sold to its officers an aggregate of 125,000
      units
      identical to the units sold in the Public Offering at a price of $8.00 per
      unit.





**Note
      3 - Notes Payable to Stockholders**




In
      2005,
      the Company issued unsecured promissory notes to the officers of the Company
      totaling $155,000. The Notes had an interest rate of 4% per annum and were
      paid
      in full with proceeds from the Public Offering, including aggregate interest
      of
      $3,177.




**Note
      4 - Stockholders' Equity and Stock-Based Compensation**




On
      July
      13, 2005 the Company granted to its officers, directors and their respective
      affiliates certain options, which were exercisable only in the event the
      underwriters exercised the over allotment option, to purchase that number of
      shares enabling them to maintain their 20% ownership interest in the company
      (without taking into account the units they purchased in the private placement).
      The measurement date was deemed to be January 30, 2006, the date the over
      allotment was exercised because the number of options to be issued was not
      known
      until that date.




On
      January 30, 2006 the underwriters exercised the over allotment option in the
      amount of 75,046 units. On February 1, 2006 the officers and directors exercised
      their options and purchased 18,761 units for an aggregate cost of $507. The
      compensation cost, recorded in operating expenses, resulting from these
      share-based payments was $130,632 at January 30, 2006 using the Black-Scholes
      pricing model. This model was developed for use in estimating the fair value
      of
      traded options that have no vesting restrictions and are fully transferable.
      The
      fair value of the options was estimated at the measurement date using the
      following assumptions:




·
            Weighted
                average volatility factor of 0.10;




·
            No
                expected dividend payments;




·
            Weighted
                average risk-free interest rate of
                5%;




·
            A weighted
                average expected life of 0.13
                years.





The
      fair
      value of each option was $6.99 per share. The exercise price of each option
      was
      $0.027 per share. All options vested immediately at the measurement date and
      no
      further options may be exercised. Compensation expense was recognized
      immediately and recorded as an operating expense.





As
      of
      December 31, 2006, no officer or director of the Company holds options to
      purchase the Company’s securities.




The
      Company’s officers and their respective affiliates purchased an aggregate
      of 125,000 units in the Private Placement, but have waived their right to
      liquidation distributions with respect to the shares of common stock included
      in
      such units. Accordingly, in the event of such a liquidation, the amount in
      the
      Trust Account will be distributed to the holders of the shares sold in the
      Public Offering.





The
      Company sold to the underwriters for $100, options to purchase up to an
      aggregate of 187,500 units. The units issuable upon exercise of these options
      are identical to those sold on January 24, 2006. These options will
      be exercisable at $8.80 per unit commencing on the later of the
      consummation of a business combination or one year from January 24, 2006, and
      expiring January 24, 2011. The options to purchase the 187,500 units and the
      Securities underlying such units have been deemed compensation by the National
      Association of Securities Dealers (“NASD”) and are therefore subject to a
      180-day lock-up pursuant to Rule 2710(g) (1) of the NASD Conduct Rules.
      Additionally, these options may not be sold, transferred, assigned, pledged
      or
      hypothecated for a one-year period (including the foregoing 180-day period)
      following January 24, 2006. However, these options may be transferred to any
      underwriter and selected dealer participating in the offering and their bona
      fide officers or partners.




F-10




The
      Company accounted for these purchase options as a cost of raising capital and
      included the instrument as equity in its financial statements. Accordingly,
      there is no net impact on the Company’s financial position or results of
      operations, except for the recording of the $100 proceeds from the sale. The
      Company has estimated, based upon a Black Scholes model, that the fair value
      of
      the purchase options on the date of sale was approximately $3.40 per unit,
      (a
      total value of approximately $637,500) using an expected life of five years,
      volatility of 44%, and a risk-free rate of 5%. However, because the Company’s
      units do not have a trading history, the volatility assumption was based on
      information currently available to management. The volatility estimate was
      derived using historical data of public companies in the proposed industry.
      The
      Company believes the volatility estimate calculated from these companies was
      a
      reasonable benchmark to use in estimating the expected volatility of our units;
      however, the use of an index to estimate volatility may not necessarily be
      representative of the volatility of the underlying securities. Although an
      expected life of five years was used in the calculation, if the Company does
      not
      consummate a business combination within the prescribed time period and it
      liquidates, the options will become worthless.




The
      Company has engaged Rodman & Renshaw, LLC (the "Representative"), on a
      non-exclusive basis, as its agent for the solicitation of the exercise of the
      warrants. To the extent not inconsistent with the guidelines of the NASD and
      the
      rules and regulations of the Securities and Exchange Commission, the Company
      has
      agreed to pay the Representative for bona fide services rendered a commission
      equal to 5% of the exercise price, if the exercise was solicited by the
      Representative. In addition to soliciting, either orally or in writing, the
      exercise of the warrants, the Representative’s services may also include
      disseminating information, either orally or in writing, to warrant holders
      about
      the Company or the market for the Company’s securities, and assisting in the
      processing of the exercise of the warrants. No compensation will be paid to
      the
      Representative upon the exercise of the warrants if:





·
            the
                market price of the underlying shares of common stock is lower than
                the
                exercise price;




·
            the
                holder of the warrants has not confirmed in writing that the
                representative solicited the
                exercise;




·
            the
                warrants are held in a discretionary
                account;




·
            the
                warrants are exercised in an unsolicited transaction;
                or




·
            the
                arrangements to pay the commission are not disclosed to warrant
                holders at the time of exercise.




**Note
      5 - Common stock reserved for issuance**




As
      of December 31, 2006, 3,825,046 shares of common stock were reserved for
      issuance upon exercise of redeemable warrants and 375,000 shares of common
      stock
      were reserved for issuance pursuant to the underwriters’ unit purchase option
      described above.





**Note
      6 - Preferred Stock**




The
      Company is authorized to issue 1,000,000 shares of preferred stock with such
      designations, voting and other rights and preferences, as may be determined
      from
      time to time by the Board of Directors. No shares of preferred stock are
      currently issued or outstanding.





**Note
      7 - Income Taxes**





Significant
      components of our deferred tax assets (liabilities) at December 31, 2006 and
      2005 are as follows:





**2006**
            
            **2005**Net
                Operating Losses
            
            
            -
            
            
            922Stock-Based
                Compensation
            
            
            44,415
            
            
            -Other
                - net
            
            
            (16,483
            )
            
            1,711Subtotal
            
            
            27,932
            
            
            2,633Deferred
                tax asset valuation allowance
            
            
            -
            
            
            (2,633
            )Net
                deferred tax assets
            
            
            27,932
            
            
            -





F-11




The
      components of income tax expense for the years ended December 31, 2006 and
      2005
      are as follows:




**2006**
            
            **2005**Federal:Current
            
            
            118,855
            
            
            -Deferred
                - net
            
            
            (27,932
            )
            
            -Total
            
            
            90,923
            
            
            -





A
      reconciliation of income tax expense and the amount computed by applying the
      statutory federal income tax rate (34%) to income before income taxes for the
      years ended December 31, 2006 and 2005 are as follows:





**2006**
            
            **2005**Taxes
                computed at federal statutory rate
            
            
            89,568
            
            
            (2,633
            )Increases
                (decreases) in income taxes resulting from:Change
                in valuation allowance
            
            
            (2,633
            )
            
            2,633Other
            
            
            3,988Total
            
            
            90,923
            
            
            -





The
      change in the valuation allowance for 2006 is the result of the utilization
      of
      the 2005 net operating loss.




**Note
        8 - Office lease**
  The
        Company expensed approximately $61,000 in connection with its office lease
        during 2006. The lease was extended in January 2007 for six months and currently
        expires in July 2007.


**Note 9
      - Subsequent Events (Unaudited)**





On
      February 27, 2007, the Company’s Board of Directors discussed and
      preliminarily approved a $300,000 bridge loan from our Co-Chief Executive
      Officers, directors and consultants.  The terms and conditions of the
      bridge loan have not yet been negotiated and the documentation
      for the bridge loan has not yet been completed.  The Company anticipates
      that this bridge financing will close in late March or April
      2007.




On
      March 14, 2007, the underwriters from the
      Company's initial public offering agreed to forfeit any and all rights or claims
      to a pro-rata portion of the deferred underwriting costs and associated accrued
      interest with respsect to any shares of common stock that are redeemed in
      connection with the proposed acquisition. As a result of the agreement, the
      redemption price of our common stock, without considering interest earned in
      the
      trust, taxes payable and the $600,000 of interest released to the Company for
      working capital, increased by $.36 per share to $7.50 per share, and the amount
      of common stock subject to possible redemption increased by approximately $.3
      million to approximately $5.7 million. Additionally, the deferred underwriting
      cost liability was reduced by approximately $.3 million.


**Note
        10 - Quarterly Financial Data (Unaudited)**
  The
        unaudited consolidated results of operations by quarter are summarized
        below:
  Year
                  Ended December 31, 2006First
                Quarter
              
              Second
                Quarter
              
              Third
                Quarter
              
              Fourth
                QuarterNet
                  income /(loss)
              
              $
              (104,682
              )
              $
              73,700
              
              $
              102,047
              
              
              101,447Net
                  income /(loss) allocable toholders
                  of non-redeemable common stock
              
              
              (148,041
              )
              
              3,105
              
              
              63,060
              
              
              78,641Net
                  income /(loss) pershare
                  — basic
                  and diluted
              
              
              (0.03
              )
              
              0.02
              
              
              0.02
              
              
              0.02Net
                  income /(loss) per shareexclusive
                  of shares and related interestsubject
                  to possible redemption — basic and diluted
              
              
              (0.05
              )
              
              0.00
              
              
              0.02
              
              
              0.02
  Inception
                  (June 22, 2005) through December 31, 2005Second
                Quarter
              
              Third
                Quarter
              
              Fourth
                QuarterNet
                  loss
              
              $
              (88
              )
              $
              (4,449
              )
              $
              (3,206
              )Net
                  loss per share —basic
                  and diluted
              
              
              (0.00
              )
              
              (0.00
              )
              
              (0.00
              )




F-12