**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**





**[X]
      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND**


**EXCHANGE
      ACT OF 1934**





For
      the
      fiscal year ended December 31, 2005





OR





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


**EXCHANGE
      ACT OF 1934**





For
      the
      transition period from ________________ to ________________






CommissionFile Number:
                **000-51639****Argyle
                Security Acquisition Corporation.**(Name
                of issuer as specified in its
                charter)Delaware
            
            20-3101079(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            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)
                828-1700Securities
                registered pursuant to Section 12(b)
                of the Act: NoneSecurities
                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 o  No x





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 o  No x





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 Filer x





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: $0 (Since as of its most recently completed
      second fiscal quarter the company was not public and its outstanding shares
      were
      all held by affiliates, the value as of that date was $0).





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 March 22,
      2006.





**DOCUMENTS
      INCORPORATED BY REFERENCE: NONE**











TABLE
                OF CONTENTSPart
                IItem
                1.
            BusinessItem
                1A.
            Risk
                FactorsItem
                1B.
            Unresolved
                Staff CommentsItem
                2.
            PropertiesItem
                3.
            Legal
                ProceedingsItem
                4.
            Submission
                of Matters to a Vote of Security HoldersPart
                IIItem
                5.
            Market
                for Common Equity, Related Stockholder Matters and IssuerPurchases
                of Equity SecuritiesItem
                6.
            Selected
                Financial DataItem
                7.
            Management's
                Discussion and Analysis of Financial Condition andResults
                of OperationsItem
                7A.
            Quantitative
                and Qualitative Disclosures About Market RiskItem
                8.
            Financial
                Statements and Supplementary DataItem
                9.
            Changes
                In and Disagreements With Accountants on Accounting andFinancial
                DisclosureItem
                9A.
            Controls
                and ProceduresItem
                9B.
            Other
                InformationPart
                IIIItem
                10.
            Directors
                and Executive Officers of the RegistrantItem
                11.
            Executive
                CompensationItem
                12.
            Security
                Ownership of Certain Beneficial Owners and Managementand
                Related Stockholder MattersItem
                13.
            Certain
                Relationships and Related TransactionsItem
                14.
            Principal
                Accountant Fees and ServicesPart
                IVItem
                15.
            Exhibits
                and Financial Statement Schedules









**PART
      I**





**Item
      1. Business**





**Overview**




Argyle
      Security Acquisition Corporation (“We”, “Us”, “Our” or the “Company”) is a
      recently organized 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. We do not have any specific business combination under consideration, though
      we
      have had discussions with several target businesses regarding a possible business
      combination.





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.





The
      net
      proceeds from the sale of our units, after deducting certain offering expenses
      of approximately $2,387,706, including underwriting discounts of approximately
      $1,836,022, were approximately $28,212,662. 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 $600,000 in interest that is
      earned on the funds contained in the trust account that may be released to
      us to
      be used as working capital, we will not be able to access the amounts held
      in
      the trust until we consummate a business combination. The trust account also
      contains $1,377,016 of the underwriter’s compensation which will be paid to them
      only in the event of a business combination. 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 private placement and 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.




We
      may
      target businesses operating 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.




We
      may
      acquire a target business in or related to one or more of the foregoing segments
      of the security industry; although we are not limited in the areas of the
      security industry in which we may acquire a target business.




**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.




2


**Effecting
      a business combination**




*General*




We
      are
      not presently engaged in, and we will not engage in, any substantive commercial
      business for an indefinite period of time 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.




*We
      have not identified a target business*




To
      date,
      we have not selected any target business with which to seek a business
      combination. Our officers and directors are currently engaged in discussions
      on
      our behalf with representatives of other companies regarding the possibility
      of
      a potential merger, capital stock exchange, asset acquisition or other similar
      business combination with us. To the extent we effect a business combination
      with a financially unstable company or an entity in its early stage of
      development or growth, including entities without established records of sales
      or earnings, we may be affected by numerous risks inherent in the business
      and
      operations of financially unstable and early stage or potential emerging growth
      companies. Although our management will endeavor to evaluate the risks inherent
      in a particular target business, we cannot assure our stockholders that we
      will
      properly ascertain or assess all significant risk factors.




*Sources
      of target businesses*




We
      anticipate that target business candidates will be brought to our attention
      from
      various unaffiliated sources, including investment bankers, venture capital
      funds, private equity funds, leveraged buyout funds, management buyout funds
      and
      other members of the financial community who are aware that we are seeking
      a
      business combination partner via public relations and marketing efforts, direct
      contact by management or other similar efforts, who may present solicited or
      unsolicited proposals. Our officers and directors, as well as their affiliates,
      may also bring to our attention target business candidates. While our officers
      and directors make no commitment as to the amount of time they will spend trying
      to identify or investigate potential target businesses, they believe that the
      various relationships they have developed over their careers, together with
      their direct inquiry, will generate a number of potential target businesses
      that
      will warrant further investigation. In no event, will we pay any of our existing
      officers, directors or stockholders, or any entity with which they are
      affiliated any finder’s fee or other compensation for services rendered to us
      prior to or in connection with the consummation of a business combination.
      In
      addition, none of our officers or directors will receive any finder’s fees,
      consulting fees or any similar fees from any third party in connection with
      any
      business combination involving us, other than any compensation or fees that
      may
      be received for any services provided following such business combination.
      We
      may pay fees or compensation to third parties for their efforts in introducing
      us to potential target businesses; however we have no current arrangement or
      agreement to do so.




*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 will have virtually
      unrestricted flexibility in identifying and selecting a prospective target
      business in the security industry. In evaluating a prospective target business,
      our management will conduct the necessary business, legal and accounting due
      diligence on such target business and will consider, among other factors, the
      following:




·
            Financial
                condition and results of operation;


·
            Growth
                potential;


·
            Experience
                and skill of management and availability of additional
                personnel;


·
            Existing
                sales and marketing channels;


·
            Key
                customer relationships and
                goodwill;


·
            Capital
                requirements;


·
            Competitive
                position;


·
            Barriers
                to entry into the security and related
                industries;


·
            Stage
                of development of the products, processes or
                services;


·
            Degree
                of current or potential market acceptance of the products, processes
                or
                services;


·
            Proprietary
                features and degree of intellectual property or other protection
                of the
                products, processes or services;


·
            Regulatory
                environment of the industry; and


·
            Costs
                associated with effecting the business
                combination.




3


These
      criteria are not intended to be exhaustive. Any evaluation relating to the
      merits of a particular business combination will be based, to the extent
      relevant, on the above factors, as well as other considerations deemed relevant
      by our management in effecting a business combination consistent with our
      business objective. In evaluating a prospective target business, we will conduct
      an extensive due diligence review which will encompass, among other things,
      meetings with incumbent management, where applicable, and inspection of
      facilities, as well as review of financial and other information which will
      be
      made available to us.




The
      time
      and costs required to select and evaluate a target business and to structure
      and
      complete the business combination cannot presently be ascertained with any
      degree of certainty. Any costs incurred with respect to the identification
      and
      evaluation of a prospective target business with which a business combination
      is
      not ultimately completed will result in a loss to us and reduce the amount
      of
      capital available to otherwise complete a business combination. However, we
      will
      not pay any finder’s or consulting fees to our officers or directors, or any of
      their respective affiliates, for services rendered to or in connection with
      a
      business combination.




*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 may acquire a target business whose fair market value significantly
      exceeds 80% of our net assets. To this end, we may seek to raise additional
      funds through a private offering of debt or equity securities if such funds
      are
      required to consummate such a business combination although we have not entered
      into any such arrangement and do not currently anticipate effecting such a
      financing arrangement. 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 such 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. If our board is not able to independently determine the fair market
      value
      of a target business, we will obtain an opinion from an unaffiliated,
      independent investment banking firm which is a member of the National
      Association of Securities Dealers, Inc. with respect to the satisfaction of
      such
      criteria. Since any opinion, if obtained, would merely state that the fair
      market value meets the 80% of net assets threshold, it is not anticipated that
      copies of such opinion would be distributed to our stockholders, although copies
      will be provided to stockholders who request it. We will not be required to
      obtain an opinion from an investment banking firm as to the fair market value
      if
      our board of directors independently determines that the target business has
      sufficient fair market value. However, we have agreed not to consummate a
      business combination with an entity which is affiliated with any of our officers
      or directors or any of their respective affiliates unless we obtain a fairness
      opinion from an independent investment banking firm.




*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
      we expect certain of our management, particularly Messrs. Marbut and Chaimovski,
      to remain associated with us following a business combination, it is likely
      that
      the management of the target business at the time of the business combination
      will remain in place, and we may employ other personnel following the business
      combination. Although we intend to closely scrutinize the management of a
      prospective target business when evaluating the desirability of effecting a
      business combination, we cannot assure our stockholders that our assessment
      of
      the target business’ management will prove to be correct. In addition, we cannot
      assure our stockholders that the future management will have the necessary
      skills, qualifications or abilities to manage a public company. Furthermore,
      the
      future role of our officers and directors, if any, in the target business cannot
      presently be stated with any certainty. Moreover, our current management will
      only be able to remain with the combined company after the consummation of
      a
      business combination if they are able to negotiate and agree to mutually
      acceptable employment terms in connection with any such combination, which
      terms
      would be disclosed to stockholders in any proxy statement relating to such
      transaction. While it is possible that one or more of our directors will remain
      associated in some capacity with us following a business combination, it is
      unlikely that any of them will devote their full efforts to our affairs
      subsequent to a business combination. Moreover, we cannot assure our
      stockholders that our officers and directors will have significant experience
      or
      knowledge relating to the operations of the particular target
      business.




4


The
      terms
      of any employment or consulting arrangements of our current management with
      the
      combined company post-business combination will be determined at the time
      management negotiates the terms of the business combination or after the
      business combination depending upon the transaction. Since our current
      management will be negotiating the terms of the business combination as well
      as
      the terms of their employment or consulting arrangements, our current management
      may have a conflict of interest in negotiating terms favorable to the company
      and at the same time negotiating terms in their employment or consulting
      arrangements that are favorable to them.




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.




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, the initial public
      offering 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 the business combination is approved and completed. The actual
      per-share redemption price will be equal to the amount in the trust account
      (excluding amounts held for the benefit of the underwriters) inclusive of any
      interest (calculated as of two business days prior to the consummation of the
      proposed business combination (net of taxes payable and up to $600,000 of
      interest that that may be released from the trust account for working capital
      purposes)), divided by the number of shares sold in the initial public offering.
      Without taking into any account interest earned on the trust account, the
      initial per-share redemption price would be approximately $7.14, or $0.86 less
      than the per-unit offering price of $8.00. 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 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.




5


*Liquidation
      if no business combination*




If
      we do
      not complete a business combination within 18 months after our initial public
      offering (July 30, 2007), or within 24 months (January 30, 2008) if the
      extension criteria described below have been satisfied, we will be dissolved
      and
      will 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 the portion of
      the
      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 (less any portion of the interest released to us), the initial per-share
      liquidation price to the holders of the 3,700,046 shares entitled to participate
      in liquidation distributions would be $7.76 or $0.24 less than the per-unit
      offering price of $8.00. 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. 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 refused 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 $7.76, plus interest (net
      of
      taxes payable and any portion of the 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**




In
      identifying, evaluating and selecting a target business, we may encounter
      intense competition 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:




6


·
            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. We do not intend to have any full time employees prior to the
      consummation of a business combination.




**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.




7




**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
      $1,377,017 held for the benefit of the co-managers and any interest earned
      thereon (net of taxes payable and any portion of the interest released to us)),
      the per-share liquidation price to our public stockholders will be $7.76, plus
      interest, if any (net of taxes payable and up to $600,000 of the interest earned
      on the trust account which is released to us to fund working capital), 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 will not be 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 businesses
      that has not been identified, 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 $7.76 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 $7.76, plus interest, if any (net of taxes
      payable and up to $600,000 of interest earned on the trust account which is
      released to us to fund working capital), 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.
      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 approximately $7.76, plus interest (less
      any portion of the interest released to us), due to claims of such
      creditors.




8


***Since
      we have not currently selected any target business with which to complete a
      business combination, investors are unable to currently ascertain the merits
      or
      risks of the target business’ operations.***




Since
      we
      have not yet identified a prospective target business, investors have no current
      basis to evaluate the possible merits or risks of the target business’
operations. To the extent we complete a business combination with a financially
      unstable company or an entity in its development stage, we may be affected
      by
      numerous risks inherent in the business operations of those entities. Although
      our management will endeavor to evaluate the risks inherent in a particular
      target business, we cannot assure our stockholders that we will properly
      ascertain or assess all of the significant risk factors.




***Because
      there are numerous companies with business plans similar to ours seeking to
      effectuate business combinations, it may be more difficult for us to do
      so.***




Since
      August 2003, based upon publicly available information, approximately 40
      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 four companies have consummated
      a
      business combination, while seven 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. We may, therefore, 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 March 22, 2006 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.




9


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




Our
      officers and directors and their respective affiliates collectively own 22.61%
      of our issued and outstanding shares of 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.




***We
      will be dependent upon interest earned on the trust account to fund our search
      for a target company and consummation of a business
      combination.***




As
      of
      March 28, 2006, we have only approximately $650,000 outside the trust account
      to
      fund our working capital requirements. We will be dependent upon sufficient
      interest being earned on the proceeds held in the trust account to provide
      us
      with the additional working capital we will need to search for a target company
      and consummate a business combination. While we are entitled to a portion of
      the
      interest earned on the trust account (net of taxes payable), up to a maximum
      of
      $600,000, if interest rates were to decline substantially, we may not have
      sufficient funds available to complete a business combination. In such event,
      we
      would need to borrow funds from our insiders or others or be forced to
      liquidate.




***Our
      ability to successfully effect a business combination and to be successful
      afterward will be totally dependent upon the efforts of our key personnel,
      some
      of whom may join us following a business combination and whom we would have
      only
      a limited ability to evaluate. It is also possible that one or more of our
      current officers and directors will resign upon the consummation of a business
      combination.***




Our
      ability to successfully effect a business combination will be totally dependent
      upon the efforts of our key personnel. The future role of our key personnel
      following a business combination, however, cannot presently be fully
      ascertained. Although we expect our executive officers, Bob Marbut and Ron
      Chaimovski, to remain associated with us following a business combination,
      we
      may employ other personnel following the business combination. Moreover, our
      current management will only be able to remain with the combined company after
      the consummation of a business combination if they are able to negotiate and
      agree to mutually acceptable employment terms as part of any such combination,
      which terms would be disclosed to stockholders in any proxy statement relating
      to such transaction. If we were to acquire a target business in an all-cash
      transaction, it would be more likely that current members of management would
      remain with the combined company if they chose to do so. If a business
      combination were structured as a merger whereby the stockholders of the target
      business were to control the combined company following a business combination,
      it may be less likely that our current management would remain with the combined
      company, unless it had been negotiated as part of the transaction via the
      acquisition agreement, an employment agreement or other arrangement. In making
      the determination as to whether current management should remain with us
      following the business combination, management will analyze the experience
      and
      skill set of the target business’ management and negotiate as part of the
      business combination that certain members of current management remain, if
      it is
      believed to be in the best interests of the combined company post-business
      combination. The terms of any employment or consulting arrangements of our
      current management with the combined company post-business combination will
      be
      determined at the time management negotiates the terms of the business
      combination, or after the business combination depending upon the transaction.
      Since our current management will be negotiating the terms of the business
      combination as well as the terms of their employment or consulting arrangements,
      our current management may have a conflict of interest in negotiating terms
      favorable to the company and at the same time negotiating terms in their
      employment or consulting arrangements that are favorable to them. While we
      intend to closely scrutinize any additional individuals we engage after a
      business combination, we cannot assure our stockholders that our assessment
      of
      these individuals will prove to be correct. These individuals may be unfamiliar
      with the requirements of operating a public company, as well as United States
      securities laws, which could cause us to have to expend time and resources
      helping them become familiar with such laws. This could be expensive and
      time-consuming and could lead to various regulatory issues which may result
      in
      our operations becoming less efficient.




10


***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.




***If
      we seek to effect a business combination with an entity that is directly or
      indirectly affiliated with one or more of our officers or directors, conflicts
      of interest could arise.***




Our
      officers and directors either currently have or may in the future have
      affiliations with companies in the security industry. If we were to seek a
      business combination with a target company with which one or more of our
      officers or directors is affiliated, conflicts of interest could arise in
      connection with negotiating the terms of and completing the business
      combination. If conflicts arise, they may not necessarily be resolved in our
      favor.




Our
      two
      officers are currently affiliated with Electronics Line 3000 Ltd., a company
      engaged in the intrusion protection security industry. Although our management
      does not contemplate engaging in a business combination with Electronics Line
      3000 and has not spoken to any other member of the management of Electronics
      Line 3000 regarding such a business combination, we would not be prohibited
      from
      entering into a transaction with Electronics Line 3000 if we determined that
      a
      transaction with Electronics Line 3000 would be in our best interests. If a
      business combination with Electronics Line 3000 became a possibility, Messrs.
      Marbut and Chaimovski would recuse themselves from voting on or negotiating
      the
      transaction for us or Electronics Line 3000. In addition, we would obtain the
      opinion of an independent investment banking firm as to the fairness of the
      transaction from a financial point of view. Even with those protections,
      however, our officers would have a conflict of interest. Such conflict may
      influence the selection of the company with which they are affiliated as a
      target and may also influence the way the transaction is structured. For
      example, even though they would not be directly involved in the negotiation
      of
      the terms of the transaction, they could influence the negotiation of the terms
      of the business combination through their influence on the other directors
      and
      officers of both us and Electronics Line 3000. In addition, in the event of
      such
      a business combination, there is no guarantee that Messrs. Marbut and Chaimovski
      would not act in a way that was more beneficial to them than our stockholders
      from a financial point of view.




***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, the initial public
      offering 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.




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, 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.***




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.***




We
      have
      approximately $27,300,000 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 identified any prospective target business, 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.




12


***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:





·
            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.




**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 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.***




14


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.




***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 sell and 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.




15


***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.***




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.




**Item
      1B. Unresolved Staff Comments**





None.





**Item
      2. Description of Property**




We
      maintain our executive offices at 200 Concord Plaza, Suite 700, San Antonio,
      Texas and began making payments in February 2006. The payments
      are approximately
      $5,500 per month. We plan to enter into a lease agreement with the landlord
      in
      the near future.





**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, 2005, there were no
      matters submitted to a vote of security holders.




16


**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 March 22, 2006 and the Company’s Common Stock and
      Warrants for the period from March 2, 2006 through March 22, 2006. 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 (January 30 through March 22)
            
            $
            7.55
            
            $
            7.33
            
            $
            1.28
            
            $
            0.93
            
            $
            8.75
            
            $
            7.90





**Number
      of Holders of Common Stock.**





The
      number of holders of record of our Common Stock on March 22, 2006 was six,
      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, 2005. 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:




**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.




17


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.




We
      incurred a total of $1,836,022 in underwriting discounts and commissions and
      placement agent fees, of which $1,377,017 has been placed in the trust account.
      Such portion of the underwriter’s compensation 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 $2,387,706. 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 approximately $28,212,662, of which
      approximately $27,344,346 (or $7.14 per unit sold in the offering) was deposited
      into a trust account and 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, except that we may use up to $600,000 of the interest
      earned on the trust account to fund our working capital prior to a business
      combination. As of March 22, 2006, there was approximately $28,900,000 held
      in
      the trust account, which includes deferred underwriting fees of
      1,377,017.





**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
      statements 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.”




18






**Year****Ended December 31,****2005****Statement
                of Operations Data:**Total
                revenue
            
            $
            -Operating
                expenses
            
            
            7,743Net
                loss
            
            
            (7,743
            )Basic
                and diluted net loss per share
            
            $
            (.01
            )







**As****of December 31,****2005****Balance
                Sheet Data:**Cash
            
            $
            9,608Working
                capital deficit
            
            
            (277,488
            )Total
                assets
            
            
            304,353Total
                stockholders’ equity
            
            $
            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.





**Overview**




Argyle
      Security Acquisition Corporation is a recently organized 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. We do not have any specific
      business combination under consideration, though
      we
      have had discussions with several target businesses regarding a possible business
      combination.





**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 those
      estimates.





Management
              does not believe that any recently issued, but not yet effective, accounting
              standards if currently adopted would have a material effect on the
              accompanying
              financial statements.





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





We
      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.
      We had no income in 2005. Until we enter into a business combination, we will
      not have revenues and will continue to incur losses due to management’s expenses
      relating to locating a target business to acquire.





19


**Liquidity
      and Capital Resources**





On
      January 24, 2006, the Company completed a private placement or 125,000 units
      to
      its executive officers and their affiliates on such date 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.





The
      net
      proceeds from the sale of our units, after deducting certain offering expenses
      of approximately $2,387,706, including underwriting discounts of approximately
      $1,836,022, were approximately $28,212,662. 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 $600,000 in interest that is
      earned on the funds contained in the trust account that may be released to
      us to
      be used as working capital, we will not be able to access the amounts held
      in
      the trust until we consummate a business combination. The trust account also
      contains $1,377,016 of the underwriter’s compensation which will be paid to them
      only in the event of a business combination. 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. From June 22, 2005 (the date of our inception) through
      December 31, 2005, we had operating expenses of approximately $8,000 and
      deferred offering costs of approximately $295,000. For January 2006, we had
      operating expenses of approximately $138,000 and offering costs of approximately
      $257,000, exclusive of the $1,836,022 in underwriting discounts. The net
      proceeds deposited into the trust fund remain on deposit in the trust account
      earning interest. Other than $600,000 in interest which we may use to fund
      working capital, the amounts held in the trust account may only be used by
      us
      upon the consummation of a business combination. As of December 31, 2005, we
      had
      no amount held in the trust account and as of March 22, 2006 there was
      approximately $28,900,000 held in the trust account, which includes deferred
      underwriting fees of 1,377,017. Additionally, a s
      of
      March 28, 2006, we have approximately $650,000 outside the trust account to
      fund
      our working capital requirements.





We
      will
      use substantially all of the net proceeds of the initial public offering to
      acquire a target business, including identifying and evaluating prospective
      acquisition candidates, selecting the target business, and structuring,
      negotiating and consummating the business combination. To the extent that our
      capital stock is used in whole or in part as consideration to effect a business
      combination, the proceeds held in the trust account as well as any other net
      proceeds not expended will be used to finance the operations of the target
      business.





Assuming
      the release of the full amount of the interest we are entitled to receive from
      the trust account, we believe we will have sufficient available funds outside
      of
      the trust account to operate through January 31, 2008, assuming that a business
      combination is not consummated during that time. We do not believe we will
      need
      to raise additional funds in order to meet the expenditures required for
      operating our business. However, we may need to raise additional funds through
      a
      private offering of debt or equity securities if such funds are required to
      consummate a business combination that is presented to us. We would only
      consummate such a financing simultaneously with the consummation of a business
      combination.





Commencing
      on February 1, 2006 we began incurring a fee of approximately $5,500 per month
      for office space. As discussed above, we plan on entering into a formal
      agreement relating to the lease of space in the near future. In connection
      with
      our operations, in March 2006,we paid an outstanding obligation to a consultant
      for approximately $53,000 and will be paying approximately $21,000 per month
      in
      consulting fees for the services of three individuals who are assisting us
      in
      locating a target business and with securities compliance.





**Off-Balance
      Sheet Arrangements**





We
      have
      never entered into any off-balance sheet financing arrangements and have never
      established any special purpose entities. We have not guaranteed any debt or
      commitments of other entities or entered into any options on non-financial
      assets.





20


**Contractual
      Obligations**





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





**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, 2005 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. This report will also contain a statement that our independent
      registered public accountants have issued an attestation report on management's
      assessment of such internal controls and conclusion on the operating
      effectiveness of those controls.





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 are currently
      performing 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 begin in 2006 and continue in 2007 for documenting, evaluating and
      monitoring our internal control over financial reporting is consistent with
      the
      objectives of Section 404 of the Act.




**Item
      9B. Other Information**





None


21





**PART
      III**





**Item
      10. Directors and Executive Officers of the Company**




Our
      current directors and executive officers are as follows:




**Name**
            **Age**
            **Position**Bob
                Marbut
            70
            Chairman
                of the Board and Co-Chief Executive OfficerRon
                Chaimovski
            46
            Vice
                Chairman of the Board and Co-Chief Executive OfficerJohn
                J. Smith
            57
            DirectorWesley
                Clark
            60
            Director




*Bob
      Marbut* has been
      our Chairman of the Board and Co-Chief Executive Officer since our 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 a Manager 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, 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
      to 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 our 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
      our Vice Chairman of the Board and Co-Chief Executive Officer since our
      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.




*John
      J. Smith* has been
      one of our directors since our 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, to include: 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.




22


*Wesley
      Clark* joined
      our 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, Mr. 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, Mr. 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. Mr. 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. Mr. 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.




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.




These
      individuals will play a key role in identifying, evaluating, and selecting
      target businesses, and structuring, negotiating and consummating our business
      combination. 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.




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 we will not
      have
      any operating activities until such time as we enter into a business
      combination, we have not made the determination of whether anyone is an audit
      committee financial expert. Mr. Clark and Mr. Smith are considered
      independent.





**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. Our
      executive officers and directors and persons who own more than 10% of our common
      stock were not subject to the Section 16(a) filing requirements in the fiscal
      year ended December 31, 2005 since our registration statement did not become
      effective until January 24, 2006.





**Item
      11. Executive Compensation**




No
      executive officer has received any cash compensation for services rendered,
      and,
      except for an option to purchase a number of shares of our common stock as
      would
      maintain the respective ownership percentages of such officers in the event
      that
      the underwriters’ over-allotment option was exercised at an exercise price of
      $0.027 per share, no compensation of any kind, including finder’s and consulting
      fees, will be paid to our officers and directors, or any of their respective
      affiliates, for services rendered prior to or in connection with a business
      combination. However, these individuals will 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. Such individuals may be paid consulting, management
      or
      other fees from target businesses subsequent to a business combination, with
      any
      and all amounts being fully disclosed to stockholders, to the extent then known,
      in the proxy solicitation materials furnished to the stockholders. 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 our board of
      directors, which includes persons who may seek reimbursement, or a court of
      competent jurisdiction if such reimbursement is challenged. Because none of
      our
      directors may be deemed to be “independent,” we will generally not have the
      benefit of independent directors examining the propriety of expenses incurred
      on
      our behalf and subject to reimbursement.




23





**Option
      Grants in Last Fiscal Year**




The
      following table contains information concerning the stock option grants made
      to
      the named executive officers from inception to date. No stock appreciation
      rights were granted to these individuals during such year.




**Individual
                Grant****Name**
            
            **Number
                of**
              **Securities**
              **Underlying**
              **Options**
              **Granted**
            
            
            **%
                of Total**
              **Options**
              **Granted
                to**
              **Employees
                in**
              **Fiscal
                Year**
            
            
            **Exercise**
              **or
                Base**
              **Price
                ($/Sh)**
            
            **Expiration**
              **Date**
            
            **Grant
                Date**
              **Present
                Value**Bob
                Marbut
            
            86,094
            (1)
            
            67%
            
            
            
            $.027
            
            (2)
            
            $
            601,797
            (3)Ron
                Chaimovski
            
            43,047
            
            
            33%
            
            
            
            $.027
            
            (2)
            
            $
            300,899
            (3)


——————


1.
            Includes
                options to purchase 43,047 shares of common stock granted to Argyle
                Joint
                Venture over which Mr. Marbut has voting and dispositive power and
                options to purchase 43,047 shares of common stock granted to Argyle
                New
                Ventures, L.P., the general partner of which is an entity owned by
                Mr. Marbut.


2.
            The
                options were exercisable for three days beginning on the day that
                the
                underwriters partially exercised their over-allotment option, and
                then
                only to the extent necessary to maintain the stockholders’ 20% in our
                common stock. A portion of the options were exercised on February
                1, 2006.
                Since the underwriters exercised only a portion of the over-allotment
                option, the unexercised portion of the options has
                terminated.


3.
            We
                estimated the fair value for these options at the date of grant using
                a
                Black-Scholes option pricing model with the following assumptions:
                weighted-average volatility factor of 0.10; no expected dividend
                payments;
                weighted-average risk-free interest rates in effect of 5.0%; and
                a
                weighted-average expected life of 0.13 years. Based upon the above
                methodology, the per share weighted-average fair value of the options
                would be $6.99.





**Compensation
      of Directors**





Each
      of
      our non-executive directors was granted an option
      to
      purchase a number of shares of our common stock as would maintain their
      respective ownership percentages of the officers and directors, and their
      respective affiliates who own our securities, in the event that the
      underwriters’ over-allotment option was exercised at an exercise price of $0.027
      per share.





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





The
      following table sets forth, as of March 22, 2006, 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.





24


**Name
                and Address of Beneficial Owner(1)**
            **Amount
                and**
              **Nature
                of**
              **Beneficial**
              **Ownership**
            **Approximate
                Percentage of**
              **Outstanding
                Common Stock**Bob
                Marbut
            372,659(2)
            7.79%Argyle
                Joint Venture
            278,910(3)
            5.83%Ron
                Chaimovski
            310,159
            6.49%Wesley
                Clark
            71,720
            1.50%John
                J. Smith
            47,813
            1.00%Amaranth
                LLC (4)
              Amaranth
                Advisors L.L.C.
              Nicholas
                M. Maounis
              c/o
                Amaranth Advisors L.L.C.
              One
                American Lane
              Greenwich,
                Connecticut 06831
            450,000
            9.41%Sapling,
                LLC (5)
              Fir
                Tree Recovery Master Fund, L.P.
              535
                Fifth Avenue
              31stFloor
              New
                York, New York 10017
            273,476
            5.72%Jack
                Silver (6)
              STAR
                Capital LLC
              660
                Madison Avenue
              New
                York, New York 10021
            250,000
            5.23%All
                directors and executive officers as a group
              (4
                individuals)
            1,081,261
            22.61%


———————




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


(2)
            Consists
                of 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 and Fir Tree Master Recovery Fund
                is
                derived from a Schedule 13G dated January 30, 2006 filed by such
                entities
                with the Securities and Exchange Commission. Each person has shared
                voting
                and dispositive power with respect to each shares of our common stock
                owned. Amaranth Advisors L.L.C. is the trading advisor for Amaranth
                LLC,
                andNicholas
                M. Maounis is the managing member of Amaranth Advisors
                L.L.C.


(5)
            The
                information relating toAmaranth
                LLC, Amaranth Advisors L.L.C., and Nicholas M. Maounisis
                derived from a Schedule 13G dated January 25, 2006 filed by such
                stockholders with the Securities and Exchange Commission. Sapling
                may
                direct the voting and disposition of 186,610 shares of our common
                stock
                and Fir Tree Master Recovery Fund may direct the voting and disposition
                of
                86,866 shares of our common stock. 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.


(6)
            The
                information relating to Jack Silver is derived from a Schedule 13G
                dated
                January 25, 2006 filed by Mr. Silver with the Securities and Exchange
                Commission.





25





**Equity
      Compensation Plan Information**




The
      following table sets forth aggregate information regarding our equity
      compensation plans in effect as of December 31, 2005:




**Plan category**
            
            
            
            **Number of securities to**
              **be issued upon exercise**
              **of outstanding options**
              **(a)**
            
            **Weighted-**
              **average**
              **exercise**
              **price of**
              **outstanding**
              **options**
              **(b)**
            
            **Number of securities**
              **remaining available for**
              **future issuance under**
              **equity compensation plans**
              **(c)**Equity
                compensation plans approved by security holders
            
            
            0
            
            
            
            0
            
            
            
            0Equity
                compensation plans not approved by security holders(1)
            
            
            135,938
            
            
            
            $0.027
            
            
            
            0Total
            
            
            135,938
            
            
            
            $0.027
            
            
            
            0


(1)
            On
                July 13, 2005, we issued options to our officers, directors and their
                affiliates options to purchase a number of shares of our common stock
                as
                would be necessary to maintain their percentage ownership in us after
                the
                offering in the event the underwriters in our initial public offering
                exercised their over-allotment option. Such options were exercisable
                at
                $0.027 per share only if and only to the extent that the over-allotment
                option was exercised. On February 1, 2006, we issued 18,761 shares
                of our
                common stock upon exercise of these options. The remainder of the
                options
                expires unexercised.







**Item
      13. 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.




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.




26


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.




Other
      than reimbursable out-of-pocket expenses payable to our officers and directors,
      and except for the option to purchase a number of shares of our common stock
      as
      would maintain the respective ownership percentages of the officers and
      directors, and their respective affiliates who own our securities, in the event
      that the underwriters’ over-allotment option was exercised (which option was
      partially exercised upon the partial exercise of the over-allotment option,
      and
      the remainder of which has expired unexercised), no compensation or fees of
      any
      kind, including finders and consulting fees, will be paid to any of our officers
      or directors or to any of their respective affiliates for services rendered
      to
      us prior to or with respect to the business combination.





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





During
      the fiscal year ended December 31, 2005, our principal independent auditor
      was Goldstein
      Golub Kessler LLP ,
      the
      services of which were provided in the following categories and amount:





**AUDIT
      FEES**





The
      aggregate fees billed by Goldstein
      Golub Kessler LLP for
      professional services rendered for the audit of the Company's balance sheet
      at
      January 30, 2006 included in our Current Report on Form 8-K, for the audit
      of
      our annual financial statements for the fiscal year ended December 31, 2005
      and
      for services performed in connection with the Company's registration statement
      on Form S-1 initially filed in 2005, were $47,460.





**AUDIT
      RELATED FEES**





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**





There
      were no fees billed by Goldstein
      Golub Kessler LLP for
      professional services rendered during the fiscal year ended December 31, 2005
      for tax compliance, tax advice, and tax planning.





**ALL
      OTHER FEES**





There
      were no fees billed by Goldstein
      Golub Kessler LLP for
      other professional services rendered during the fiscal year ended December
      31,
      2005.





**PRE-APPROVAL
      OF SERVICES**





We
      do not
      have an Audit Committee. The Board of Directors does not have any pre-approval
      policies in place.





27


**PART
      IV**





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





(a) (1)
      Financial Statements





Balance
      Sheets as of December 31, 2005


Statement
      of Operations for the period from June 22, 2005 (inception) to December 31,
      2005


Statement
      of Stockholders’ Equity for the period from June 22, 2005 (inception) to
      December 31, 2005


Statement
      of Cash Flows for the period from June 22, 2005 (inception) to December 31,
      2005





(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(2)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)31.1
            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 January 30, 2006.




28


**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
                30, 2006
            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
                30, 2006
            By:/s/Bob
                MarbutBob Marbut, Chairman of the Board and Co-Chief Executive Officer
                (Principal accounting and financial officer)March
                30, 2006
            By:/s/Ron
                ChaimovskiRon Chaimovski, Co-Chairman of the Board and Co-Chief Executive Officer
                (Principal Executive Officer)March
                30, 2006
            By:/s/Wesley
                ClarkWesley Clark, DirectorMarch
                30, 2006
            By:/s/John
                J. SmithJohn J. Smith, Director




29


**ARGYLE** **SECURITY** **ACQUISITION
        CORPORATION**
 (a
        corporation in the development stage)
  
  **FINANCIAL
        STATEMENTS**
 **December
        31, 2005**
  **INDEX
        TO FINANCIAL STATEMENTS**
  Page**Report
                  of Independent Registered Public Accounting Firm**
              F-2**Financial
                  Statements**Balance
                  Sheet
              F-3Statement
                  of Operations
              F-4Statement
                  of Stockholders’ Equity
              F-5Statement
                  of Cash Flows
              F-6Notes
                  to Financial Statements
              F-7
                  - F-12
  F-1
 **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 To
        the
        Board of Directors and Stockholders
 Argyle
        Security Acquisition Corporation
 
 We
        have
        audited the accompanying balance sheet 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 audit provides 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 KESSLER LLP**
 New
        York,
        New York
 
 February
        3, 2006
 
 F-2
 **ARGYLE
        SECURITY ACQUISITION CORPORATION**
 (a
        corporation in the development stage)
 
 **BALANCE
        SHEET**
 December
                    31,2005**Assets**Current
                    assets**-** cash
                
                $
                9,608Other
                    assets, deferred offering costs
                
                
                294,745Total
                    assets
                
                $
                304,353**LIABILITIES
                    AND STOCKHOLDERS' EQUITY****Current
                    liabilities**Accrued
                    expenses
                
                $
                132,096Notes
                    payable, stockholders
                
                
                155,000Total
                    liabilities
                
                
                287,096**Stockholders'
                    equity**Preferred
                    stock, $.0001 par value, authorized 1,000,000shares;
                    none issued
                
                
                —Common
                    stock, $.0001 par value, authorized 89,000,000 shares;issued
                    and outstanding  937,500
                
                
                94Paid-in
                    capital in excess of par
                
                
                24,906Deficit
                    accumulated during the development stage
                
                
                (7,743
                )Total
                    stockholders' equity
                
                
                17,257Total
                    liabilities and stockholders' equity
                
                $
                304,353
  *See
        accompanying notes to the financial statements.*
  F-3
 **ARGYLE
        SECURITY ACQUISITION CORPORATION**
 (a
        corporation in the development stage)
 
 **STATEMENT
        OF OPERATIONS**
 **For
                        the period From June 22, 2005 (inception)
                        to December 31, 2005****Formation
                        and operating costs**
                    
                    $
                    7,743**Net
                        loss**
                    
                    
                    (7,743
                    )**Weighted-average
                        shares outstanding (basic and diluted)**
                    
                    
                    937,500**Net
                        loss per share (basic and diluted)**
                    
                    $
                    (0.01
                    )
 *See
        accompanying notes to financial statements.*
  F-4
 **ARGYLE
          SECURITY ACQUISITION CORPORATION**
 (a
          corporation in the development stage)
 
 **STATEMENT
          OF STOCKHOLDERS' EQUITY**
 
 **For
          the period from June 22, 2005**
 **(inception)
          to December 31, 2005**
 
 Paid-in
                      Capital in Excess ofPar
                  
                  Deficit
                      Accumulated During the DevelopmentStage
                  Total
                      Stockholders'EquityCommon
                      StockShares
                  
                  AmountStock
                      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
                  )
                  $
                  17,257
  *See
          accompanying notes to financial statements.*
 F-5
 **ARGYLE
        SECURITY ACQUISITION CORPORATION**
 (a
        corporation in the development stage)
 
 **STATEMENT
        OF CASH FLOWS**
  For
                      the period from June 22, 2005 (inception) to December 31, 2005**Cash
                      flows from operating activities**Net
                      loss
                  
                  $
                  (7,743
                  )**Adjustment
                      to reconcile net loss to net cash****provided
                      by operating activities:**Increase
                      in accrued expenses
                  
                  
                  4,096Net
                      cash used in operating activities
                  
                  
                  (3,647
                  )**Cash
                      flows from financing activities**Proceeds
                      from notes payable, stockholders
                  
                  
                  155,000Proceeds
                      from sale of common stock
                  
                  
                  25,000Payments
                      made for deferred offering costs
                  
                  
                  (166,745
                  )Net
                      cash provided by financing activities
                  
                  
                  13,255**Net
                      increase in cash**
                  
                  
                  9,608**Cash**,
                      beginning of period
                  
                  
                  0**Cash**,
                      end of period
                  
                  $
                  9,608Supplemental
                      schedule of non-cash financing activities:Accrual
                      of costs of public offering
                  
                  $
                  128,000
 *See
        accompanying notes to financial statements.*
  F-6
 **ARGYLE
        SECURITY ACQUISITION CORPORATION**
 (a
        corporation in the development stage)
 **NOTES
        TO FINANCIAL STATEMENTS**
   Note
        1 -
        Organization, business operations and summary of significant accounting
        policies
  Argyle
        Security Acquisition Corporation (the “Company”) was incorporated in Delaware on
        June 22, 2005 as a blank check company to acquire, through merger, capital
        stock
        exchange, asset acquisition or other similar business combination, a business
        in
        the security industry.
  At
December
        31, 2005, the Company had not yet commenced any operations. All activity
        through December 31, 2005 relates to the Company’s formation, a private
        placement and initial public offering described below. The Company has selected
        December 31 as its fiscal year-end.
  The
        Company, after signing a definitive agreement for the acquisition of a target
        business, will submit such transaction for stockholder approval. The officers
        and directors of the Company (“Initial Stockholders”), have agreed to vote their
        937,500 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 purchasedin the Private Placement  (as defined in Note 6) and any shares
        they acquire in the aftermarket in favor of the business combination. After
        consummation of the Company’s first business combination, all of these voting
        safeguards will no longer be applicable.
  With
        respect to the first business combination which is approved and consummated,
        any
        holder of shares sold in the Public Offering (as defined in Note 6), 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 $7.14 per share plus
        interest earned thereon (less taxes payable and up to $600,000 of the interest
        earned on the trust account that may be released to the Company) in the Trust
        Account (as defined in Note 6). Accordingly, Public Stockholders holding
        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.
  The
        Company’s Certificate of Incorporation provides for mandatory liquidation of the
        Company, without stockholder approval, in the event that the Company does
        not
        consummate a business combination within 18 months from the date of consummation
        of the Public Offering, or 24 months from the consummation of the Public
        Offering if certain extension criteria have been satisfied. The Initial
        Stockholders 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.
  F-7
 **ARGYLE
          SECURITY ACQUISITION CORPORATION**
 (a
            corporation in the development stage)
 **NOTES
            TO FINANCIAL STATEMENTS**
  *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*
  The
        Company recorded a deferred income tax asset of approximately $2,600 for
        the tax
        effect of net operating loss carryforwards and temporary differences,
        aggregating $7,743. In recognition of the uncertainty regarding the ultimate
        amount of income tax benefits to be derived, the Company has recorded a full
        valuation allowance at December 31, 2005.
  The
        effective tax rate differs from the statutory rate of 34% due to the increase
        in
        the valuation allowance.
  *Recently
        issued accounting pronouncements*
  Management
        does not believe that any recently issued, but not yet effective, accounting
        standards if currently adopted would have a material effect on the accompanying
        financial statements.
  *Loss
        per common share*
  Loss
        per
        share is computed by dividing net loss by the weighted-average number of
        shares
        of common stock outstanding during the period. Shares of common stock issuable
        upon exercise of options are excluded from the computation since their effect,
        for the periods presented, are anti-dilutive.
  *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
        expenses during the reporting period. Actual results could differ from those
        estimates.
  F-8
 **ARGYLE
          SECURITY ACQUISITION CORPORATION**
 (a
          corporation in the development stage)
 **NOTES
          TO FINANCIAL STATEMENTS**
  **Note 2
        - Notes Payable to Stockholders**
  The
        Company issued unsecured promissory notes to the Officers of the Company
        totaling $155,000, from June 23, 2005 to November 22, 2005. The Notes had
        an
        interest rate of 4% per annum, were outstanding at December 31, 2005 and
        were paid in full with proceeds from the Public Offering, including interest
        of
        $3,177. The fair value of the notes payable approximates the
        carrying amount due to their short-term nature.
  **Note 3
          - 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.
  **Note 4
          - Stock split**
  On
          November 23, 2005, the Company effected a three-for-ten reverse split of
          its
          shares of common stock. All references in the accompanying financial statements
          to the number of shares of common stock and loss per share have been
          retroactively restated to reflect this transaction.
  **Note 5
            - Subsequent Events**
  On
            January 24, 2006, the Company sold 3,700,046 units 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 underwriters were granted an option to purchase
            an
            additional 543,750 units within 45 days of the effective date of the
            registration statement to cover any over-allotments. The underwriters
            exercised
            the option with respect to 75,046 units on January 27, 2006 and were
            issued such
            units on January 30, 2006. The warrants are redeemable 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 we send the notice of redemption.
  The
              registration statement for the Company’s initial public offering (the “Public
              Offering”) was declared effective on January 24, 2006. The Company completed
              a
              private placement (the “Private Placement”) of an aggregate of 125,000 units,
              identical to the units sold in the Public Offering, on such date and
              received
              net proceeds of $892,500. The Company consummated the Public Offering
              on January
              30, 2006 and received net proceeds of $27,320,262. 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.
 F-9
 .
  ****ARGYLE
        SECURITY ACQUISITION CORPORATION****
 (a
          corporation in the development stage)
 **NOTES
          TO FINANCIAL STATEMENTS**
  Of
        the
        proceeds of the Offerings, $28,721,363 is being held in a trust account (“Trust
        Account”) and invested 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 includes $1,332,017 of contingent
        underwriting compensation and $45,000 of contingent private placement fees
        (collectively the “Discount”) which will be paid to the underwriters if a
        business combination is consummated, but which will be forfeited if a business
        combination is not consummated. The remaining proceeds not held in the trust
        account may be used to pay for business, legal and accounting due diligence
        on
        prospective acquisitions and continuing general and administrative
        expenses.
 The
              following represents the condensed balance sheet information derived from
              the company’s January 30, 2006 financial statements which were filed on February
              7, 2006 in the Company’s Current Report on Form 8-K/A. Such balance sheet
              includes the effects of the consummation of the Company’s public offering
              and private placement.
 
 **CONDENSED
                        BALANCE SHEET****Assets:**
                    
                    JANUARY
                        30, 2006Cash
                    
                    $
                    777,880Cash
                        held in the trust account
                    
                    
                    28,721,363Prepaid
                        expenses
                    
                    
                    100,000Total
                        assets
                    
                    $
                    29,599,243**Liabilities
                        and stockholders' equity:**Total
                        liabilities - deferred underwriting fees
                    
                    $
                    1,377,017Common
                        stock subject to redemption
                    
                    
                    5,459,435Stockholders'
                        equity
                    
                    
                    22,762,791Total
                        liabilities and stockholders' equity
                    
                    $
                    29,599,243
  F-10
 
  On
          July
          13, 2005 the Company granted to its officers, directors and their respective
          affiliates certain
          options, which are exercisable only in the event the underwriters exercise
          the
          over-allotment option, to purchase that number of shares enabling them
          to
          maintain their 20% ownership interest without regard to 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 27, 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 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 is $6.99 per share. The options have no intrinsic
          value.
          The exercise price of each option is $0.027 per share. All options vest
          immediately at the measurement date and expire three days thereafter.
          Compensation expense was recognized in January 2006.
 The
        following summarizes information about stock options outstanding at January
        30,
        2006:
  **Options
                  Outstanding**
              
              **Options
                  Exercisable****Exercise
                  Price**
              
              **Number
                  Outstanding**
              
              **Weighted-
                  average Remaining**
                **Contractual
                  Life**
              
              **Weighted-average
                  Exercise Price**
              
              **Number
                  Exercisable**
              
              **Weighted-average
                  Exercise Price**$0.027
              
              135,938
              
              48
                  days
              
              $0.027
              
              18,761
              
              $0.027
  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.
   F-11


**ARGYLE
          SECURITY ACQUISITION CORPORATION**
 (a
          corporation in the development stage)
 **NOTES
          TO FINANCIAL STATEMENTS**
  In
        January 2006, the Company sold to the co-managersfor
        $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 expire January 24, 2011. The options and
        the
        187,500 units, the 187,500 shares of common stock and the 187,500 warrants
        underlying such units, and the 187,500 shares of common stock underlying
        such
        warrants, 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.
  The
        Company accounted for these purchase options in January 2006 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 is 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 is
        based on information currently available to management. The volatility estimate
        is derived using historical data of public companies in the proposed industry.
        The Company believes the volatility estimate calculated from these companies
        is
        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 for each warrant exercised more than one
        year
        after January 24, 2006, 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 is not disclosed to warrant
                  holders at
                  the time of exercise.
  At
        January 30, 2006, 4,200,046 shares of common stock were reserved for issuance
        upon exercise of redeemable warrants.
  F-12