**UNITED
      STATES**




**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-Q**




x
            **Quarterly
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934**
                **For
                  the quarterly period ended June 30,
                  2006.**




or




o
            **Transition
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934**
                **For
                  the transition period from _________________to
                  ______________.**






**Commission
      File Number: 000-51639**




**Argyle
      Security Acquisition Corporation**


(Exact
      name of registrant as specified in its charter)




**Delaware**
            
            **20-3101079**(State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            
            (I.R.S.
                Employer
              Identification
                No.)


**200
      Concord Plaza, Suite 700, San Antonio, TX 78216**


(Address
      of Principal Executive Offices including Zip Code)





**(210)
      828-1700**


(Registrant’s
      Telephone Number, Including Area Code)




Indicate
      by check mark whether the Registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Exchange Act 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 ý  No 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 Filero
            Accelerated
                Filero
            Non-Accelerated
                Filerý




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes ý  No o




There
      were 4,781,307 shares of the Registrant’s common stock issued and outstanding as
      of August 11, 2006.












**Argyle
      Security Acquisition Corporation Index to Form 10-Q**




**Part
                I.**
            **Financial
                Information**Item
                1. Financial Statements (unaudited)Item
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of OperationsItem
                3. Quantitative and Qualitative Disclosures About Market
                RiskItem
                4. Controls and Procedures**Part
                II.**
            **Other
                Information**Item
                1. Legal ProceedingsItem
                1A. Risk FactorsItem
                2. Unregistered Sales of Equity Securities and Use of
                ProceedsItem
                3. Defaults Upon Senior SecuritiesItem
                4. Submission of Matters to a Vote of Security HoldersItem
                5. Other InformationItem
                6. ExhibitsSIGNATURES








**ITEM
      1 - FINANCIAL STATEMENTS (UNAUDITED)**




**Argyle
      Security Acquisition Corporation**


(a
      development stage company)




**Balance
      Sheet**





June
                30, 2006
              (unaudited)
            
            December
                31, 2005**ASSETS****Current
                assets**:Cash
            
            $
            474,748
            
            $
            9,608Cash
                and cash equivalents, held in trust
            
            
            29,291,422
            
            
            -Prepaid
                expenses
            
            
            51,334
            
            
            -Other
                assets, deferred offering costs
            
            
            -
            
            
            294,745**Total
                current assets**
            
            
            29,817,504
            
            
            304,353Property
                and equipment, net of accumulated depreciation of $532
            
            
            5,988
            
            
            -**Total
                assets**
            
            $
            29,823,492
            
            $
            304,353**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Current
                liabilities:**Accrued
                expenses
            
            $
            118,348
            
            $
            132,096Notes
                payable - stockholders
            
            
            -
            
            
            155,000Deferred
                underwriting costs
            
            
            1,404,379
            
            
            -**Total
                liabilities**
            
            
            1,522,727
            
            
            287,096Common
                stock, subject to possible redemption - 764,627 shares at $7.14 per
                share
                and associated deferred interest of $113,954
            
            
            5,573,389
            
            
            -**Stockholders’
                Equity:**Preferred
                stock — $.0001 par value; 1,000,000 shares authorized; 0 shares issued and
                outstanding
            
            
            -
            
            
            -Common
                stock—$.0001 par value; 89,000,000 shares authorized; issued and
                outstanding: 4,781,307 at June 30, 2006 (including 764,627 shares
                of
                common stock subject to possible redemption) and 937,500 at December
                31,
                2005
            
            
            478
            
            
            94Additional
                paid-in capital
            
            
            22,765,623
            
            
            24,906Deficit
                accumulated during the development stage
            
            
            (38,725
            )
            
            (7,743
            )**Total
                stockholders’ equity**
            
            
            22,727,376
            
            
            17,257**Total
                liabilities and stockholders’ equity**
            
            $
            29,823,492
            
            $
            304,353




See
      notes
      to unaudited financial statements







**Argyle
      Security Acquisition Corporation**


(a
      development stage company)




**Unaudited
      Statements of Operations**





**Three
                months ended June****30,
                2006**
            
            **Inception
                through June 30,****2005**
            
            **Six
                months**
              **ended**
              **June
                30, 2006**
            
            **Inception
                through**
              **June
                30, 2006****Operating
                expenses**
            
            $
            257,743
            
            $
            88
            
            $
            579,449
            
            $
            584,481**Other
                income and expense**Bank
                interest income
            
            
            5,650
            
            
            -
            
            
            6,236
            
            
            6,236Interest
                on cash and cash equivalents held in trust
            
            
            353,155
            
            
            -
            
            
            570,059
            
            
            570,059Interest
                expense
            
            
            (27,362
            )
            
            -
            
            
            (27,828
            )
            
            (30,539
            )Total
                other income and expense
            
            
            331,443
            
            
            -
            
            
            548,467
            
            
            545,756Income/(Loss)
                before provision for income taxes
            
            
            73,700
            
            
            (88
            )
            
            (30,982
            )
            
            (38,725
            )Provision
                for income taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Net
                income/(loss)**
            
            
            73,700
            
            
            (88
            )
            
            (30,982
            )
            
            (38,725
            )Deferred
                interest, attributable to common stock subject to possible
                redemption
            
            
            70,595
            
            
            -
            
            
            113,954
            
            
            113,954**Net
                income/(loss) allocable to holders of non-redeemable common
                stock**
            
            $
            3,105
            
            $
            (88
            )
            $
            (144,936
            )
            $
            (152,679
            )**Net
                income/(loss) per share - - basic and diluted**
            
            $
            0.02
            
            $
            (0.00
            )
            $
            (0.01
            )
            $
            (0.02
            )


Weighted
                average number of shares outstanding - - basic and diluted
            
            
            4,781,307
            
            
            937,500
            
            
            4,169,385
            
            
            2,501,594**Net
                income/(loss) per share exclusive of shares and related interest
                subject
                to possible redemption - - basic and diluted**
            
            $
            0.00
            
            $
            (0.00
            )
            $
            (0.04
            )
            $
            (0.07
            )Weighted
                average number of shares outstanding exclusive of shares subject
                to
                possible redemption - - basic and diluted
            
            
            4,016,680
            
            
            937,500
            
            
            3,527,267
            
            
            2,190,836




See
      notes
      to unaudited financial statements









Argyle
      Security Acquisition Corporation


(a
      development stage company)




**Unaudited
      Statements of Stockholders’ Equity**






DeficitPaid-in
            
            AccumulatedCapital
            
            During
                the
            
            TotalCommon
                Stock
            
            in
                Excess
            
            Development
            
            Stockholders'Shares
            
            Amount
            
            of
                Par
            
            Stage
            
            EquityStock
                issuance on June 23, 2005 at $.027
            
            
            937,500
            
            $
            94
            
            $
            24,906
            
            
            
            
            $
            25,000Net
              loss
            
            
            
            
            
            
            
            
            
            
            $
            (7,743
            )
            
            (
                7,743
            )**Balances**,
                at December 31, 2005
            
            
            937,500
            
            $
            94
            
            $
            24,906
            
            $
            (7,743
            )
            $
            17,257Stock
                issuance on January 24, 2006 at $8
            
            
            125,000
            
            
            12
            
            
            999,988
            
            
            -
            
            
            1,000,000Stock
                issuance on January 30, 2006 at $8
            
            
            3,625,000
            
            
            362
            
            
            28,999,638
            
            
            -
            
            
            29,000,000Stock
                issuance on January 30, 2006 at $8
            
            
            75,046
            
            
            8
            
            
            600,360
            
            
            -
            
            
            600,368Proceeds
                from issuance of option to underwriters
            
            
            -
            
            
            -
            
            
            100
            
            
            -
            
            
            100Expenses
                of offerings
            
            
            -
            
            
            -
            
            
            (2,417,117
            )
            
            -
            
            
            (2,417,117
            )Less:
                Proceeds subject to possible redemption of 764,627 shares and associated
                deferred interest
            
            
            -
            
            
            -
            
            
            (5,573,389
            )
            
            -
            
            
            (5,573,389
            )Stock
                based compensation
            
            
            -
            
            
            -
            
            
            130,632
            
            
            -
            
            
            130,632Officer
                and director option exercise
            
            
            18,761
            
            
            2
            
            
            505
            
            
            -
            
            
            507Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (30,982
            )
            
            (30,982
            )**Balances**,
                at June 30, 2006
            
            
            4,781,307
            
            $
            478
            
            $
            22,765,623
            
            $
            (38,725
            )
            $
            22,727,376






See
      notes
      to unaudited financial statements







**Argyle
      Security Acquisition Corporation**


(a
      development stage company)




**Unaudited
      Statement of Cash Flows**


Six
                months ended June 30, 2006
            
            Inception
                through June 30, 2005
            
            Inception
                through June 30, 2006**Cash
                flows from operating activities**Net
                loss
            
            $
            (30,982
            )
            $
            (88
            )
            $
            (38,725
            )**Adjustment
                to reconcile net loss to net cash **provided
                by operating activities:****Stock
                based compensation
            
            
            130,632
            
            
            -
            
            
            130,632Depreciation
                expense
            
            
            532
            
            
            -
            
            
            532Increase
                in prepaid expenses
            
            
            (51,334
            )
            
            -
            
            
            (51,334
            )Increase
                in accrued expenses
            
            
            114,253
            
            
            -
            
            
            118,348Interest
                earned on cash and cash equivalents, held in trust
            
            
            (570,059
            )
            
            -
            
            
            (570,059
            )Interest
                expense on deferred underwriting costs
            
            
            27,362
            
            
            -
            
            
            27,362Net
                cash used in operating activities
            
            
            (379,596
            )
            
            (88
            )
            
            (383,244
            )**Cash
                flows from investing activities:**Purchases
                of investments held in trust
            
            
            (178,921,809
            )
            
            -
            
            
            (178,921,809
            )Maturity
                of investments held in trust
            
            
            150,200,446
            
            
            -
            
            
            150,200,446Purchase
                of property and equipment
            
            
            (6,520
            )
            
            -
            
            
            (6,520
            )Net
                cash used in investing activities
            
            
            (28,727,883
            )
            
            -
            
            
            (28,727,883
            )**Cash
                flows from financing activities**Gross
                proceeds from public offering and private placement
            
            
            30,600,368
            
            
            -
            
            
            30,600,368Offering
                costs
            
            
            (873,356
            )
            
            (50,000
            )
            
            (1,040,100
            )Proceeds
                from issuance and exercises of options
            
            
            607
            
            
            -
            
            
            607Repayment
                of notes payable, stockholders
            
            
            (155,000
            )
            
            -
            
            
            (155,000
            )Proceeds
                from notes payable, stockholders
            
            
            -
            
            
            125,000
            
            
            155,000Proceeds
                from sale of common stock to founding stockholders
            
            
            -
            
            
            25,000
            
            
            25,000Net
                cash provided by financing activities
            
            
            29,572,619
            
            
            100,000
            
            
            29,585,875**Net
                increase in cash**
            
            
            465,140
            
            
            99,912
            
            
            474,748**Cash**,
                beginning of period
            
            
            9,608
            
            
            -
            
            
            -**Cash**,
                end of period
            
            $
            474,748
            
            $
            99,912
            
            $
            474,748Supplemental
                disclosure of cash flow informationCash
                paid for interest
            
            $
            3,177
            
            $
            -
            
            $
            3,177Supplemental
                schedule of non-cash financing activities:Accrual
                of deferred underwriting costs
            
            $
            1,377,017
            
            $
            -
            
            $
            1,377,017




See
      notes
      to unaudited financial statements







**Argyle
      Security Acquisition Corporation**


(a
      development stage company)




**Notes
      to Unaudited Financial Statements**


**June
      30, 2006**





**Note
      1 - Basis of Presentation**




The
      financial statements of Argyle Security Acquisition Corporation (the “Company”)
      as of June 30, 2006, for the three and six months ended June 30, 2006, for
      the
      period from June 22, 2005 (inception) to June 30, 2006 (cumulative) and for
      the
      period from inception to June 30, 2005, are unaudited. In the opinion of
      management, all normal recurring adjustments considered necessary for a fair
      presentation have been included. Operating results for the interim periods
      presented are not necessarily indicative of the results to be expected for
      the
      year ending December 31, 2006.




The
      statements and related notes have been prepared pursuant to the rules and
      regulations of the U.S. Securities and Exchange Commission. Accordingly, certain
      information and footnote disclosures normally included in financial statements
      prepared in accordance with generally accepted accounting principles have been
      omitted pursuant to such rules and regulations. These financial statements
      should be read in conjunction with the financial statements that were included
      in the Company’s Annual Report on Form 10-K for the year ended December 31,
      2005, as filed with the U.S. Securities and Exchange Commission.





**Note
      2 - Organization, business operations and summary of significant accounting
      policies**




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





As
      of
      June 30, 2006, the Company had not completed an acquisition and was still in
      the
      development stage. All activity through June 30, 2006 relates to the Company’s
      formation, its initial public offering and initiation of its search for a target
      business.





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





Of
      the
      proceeds from the Offerings, approximately $28.7 million was deposited into
      a
      trust account (“Trust Account”) until the earlier of (i) the consummation of the
      first business combination or (ii) the distribution of the Trust Account as
      described below. The amount in the Trust Account includes approximately $1.3
      million of contingent underwriting compensation and $45,000 of contingent
      private placement fees which will be paid to the underwriters if a business
      combination is consummated, but which will be forfeited if public stockholders
      elect to have their shares redeemed for cash if a business combination is not
      consummated. The remaining proceeds may be used to pay for business, legal
      and
      accounting due diligence on prospective acquisitions and continuing general
      and
      administrative expenses.







The
      Company, after signing a definitive agreement for the acquisition of a target
      business, will submit such transaction for stockholder approval. The Company
      will proceed with a business combination only if a majority of the shares of
      common stock voted by the public stockholders are voted in favor of the business
      combination and public stockholders owning less than 20% of the aggregate shares
      sold in this offering and the private placement exercise their redemption
      rights. The officers and directors of the Company (“Initial Stockholders”), have
      agreed to vote their 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 purchased in the Private
      Placement and any shares they acquire in the aftermarket in favor of the
      business combination. After consummation of the Company’s first business
      combination, these voting agreements will no longer be applicable.





With
      respect to the first business combination which is approved and consummated,
      any
      holder of shares sold in the Public Offering, other than the Initial
      Stockholders and their nominees (the “Public Stockholders”) who voted against
      the business combination may demand that the Company redeem his or her shares.
      The per share redemption price will equal $7.14 per share plus interest earned
      thereon in the Trust Account, net of taxes payable. 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. Accordingly, an amount classified as common stock subject to
      possible redemption and the associated deferred interest has been reflected
      in
      the accompanying balance sheet.




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





*Cash
      and cash equivalents*




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





*Income
      taxes*





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




*Recently
      issued accounting pronouncements*




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





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







*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.




**Note
      3 - Offerings**




*Public
      Offering*




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





*Private
      Placement*




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





**Note
      4 - Notes Payable to Stockholders**




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




**Note
      5 - Stockholders' Equity**




On
      July
      13, 2005 the Company granted to its officers, directors and their respective
      affiliates certain options, which were exercisable only in the event the
      underwriters exercised the over allotment option, to purchase that number of
      shares enabling them to maintain their 20% ownership interest 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 30, 2006 the underwriters exercised the over allotment option in the
      amount of 75,046 units. On February 1, 2006 the officers and directors exercised
      their options and purchased 18,761 units for an aggregate cost of $507. The
      compensation cost resulting from these share-based payments was $130,632 at
      January 30, 2006 using the Black-Scholes pricing model. This model was developed
      for use in estimating the fair value of traded options that have no vesting
      restrictions and are fully transferable. The fair value of the options was
      estimated at the measurement date using the following assumptions:







§  Weighted
      average volatility factor of 0.10;


§  No
      expected dividend payments;


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


§  A weighted
      average expected life of 0.13 years.





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





As
      of
      June 30, 2006, no officer or director of the Company holds options to purchase
      the Company’s securities.




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





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




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




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







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


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


§  the
      warrants are held in a discretionary account;


§  the
      warrants are exercised in an unsolicited transaction; or


§  the
      arrangements to pay the commission is not disclosed to warrant holders at the
      time of exercise.




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




As
      of
      June 30, 2006, 3,825,046 shares of common stock were reserved for issuance
      upon
      exercise of redeemable warrants and 375,000 shares of common stock were reserved
      for issuance pursuant to the underwriters’ unit purchase option described
      above.





**Note
      7 - 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
      8 - Income Taxes**





The
      provision for income taxes for the period from January 1, 2006 through June
      30,
      2006 is as follows:





January
                1, 2006
              Through
              June
                30, 2006Current
                tax expense
            
            $
            (16,806
            )Deferred
                tax benefit
            
            
            26,962Less:
                Valuation allowance
            
            
            (10,156
            )$
            0





The
      Company recorded a $16,806 provision for its current taxable income and a
      valuation allowance against its net deferred tax assets in the amount of
      $10,156. The valuation allowance is the result of an evaluation of the
      uncertainty associated with the realization of the benefit of these tax
      assets.











**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF
      OPERATIONS**





**Forward
      Looking Statements**





This
      Quarterly Report on Form 10-Q 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 unaudited Financial Statements
      and related Notes thereto included elsewhere in this report.




**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.





**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 are presently focusing
      on
      several potential business combinations and, during the second quarter and
      continuing through early August 2006, we have reviewed and/or had discussions
      with a number of potential target businesses regarding a possible business
      combination.





**Results
      of Operations for the six-month period ended June 30, 2006**





We
      incurred a net loss of $30,982 for the six-month period ended June 30, 2006
      before the deduction of $113,954 of interest income attributable to common
      stock
      subject to possible redemption. We incurred a net loss of $88 for the period
      from inception (June 22, 2005) through June 30, 2005.





Our
      trust
      account earned interest of $570,059 for the six months ended June 30, 2006.
      Until we enter into a business combination, we will not generate operating
      revenues. We had no funds in trust as of June 30, 2005.








For
      the
      six months ended June 30, 2006, we incurred $249,831 of consulting and
      professional fees, $130,632 of stock compensation, $73,991 of franchise taxes,
      $36,667 of insurance expense, $27,430 of rental expense pursuant to our lease
      of
      office space and other operating costs of $60,898.





**Results
      of Operations for the three-month period ended June 30,
      2006**





We
      earned
      net income of $73,700 for the three-month period ended June 30, 2006 before
      the
      deduction of $70,595 of interest income attributable to the common stock subject
      to possible redemption. . We incurred a net loss of $88 for the period from
      inception (June 22, 2005) through June 30, 2005.





Our
      trust
      account earned interest of $353,155 for the three months ended June 30, 2006
      and
      our funds outside of the trust account earned interest of $5,650.





For
      the
      three months ended June 30, 2006, we incurred $138,159 of consulting and
      professional fees, $46,042 of franchise taxes, $22,000 of insurance expense,
      $16,622 of rental expense and other operating costs of $34,920.





**Liquidity
      and Capital Resources**





On
      January 24, 2006, the Company completed a private placement of 125,000 units
      to
      its executive officers and their affiliates and received net proceeds of
      approximately $900,000. 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
      per
      share commencing on the later of the completion of a business combination or
      January 24, 2007 and expires January 24, 2011. 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 $2.4 million, including underwriting discounts of approximately
      $1.8 million, were approximately $28.2 million. Approximately $27.3 million
      of
      the proceeds from the initial public offering and the private placement was
      placed in a trust account for our benefit. Except for reimbursement of taxes
      payable as a result of interest income earnings from the trust account and
      $600,000 in interest from 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 $29.3 million currently
      held in trust includes approximately $1.4 million of underwriter’s and placement
      agent’s compensation from our private placement and initial public offering that
      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. As of June 30, 2006, we had
      approximately $475,000 outside the trust account to fund our working capital
      requirements.





We
      expect
      to 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 or, if any stockholders choose to redeem their shares, to pay such
      stockholders the redemption amount due to them.




Assuming
      the release of the full amount of interest we are entitled to receive from
      the
      trust account, we believe we will have sufficient funds outside of the trust
      account to operate through the next twelve months, 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.








As
      of
      February 1, 2006 we entered into a lease for our office space and began to
      pay a
      base rental of approximately $5,500 per month. The lease terminates on January
      31, 2007. In connection with our operations, in March 2006, we paid an
      outstanding obligation to a consultant for approximately $53,000 and are
      currently paying approximately $24,000 per month in consulting fees for services
      assisting us in the identification of a target business and with securities
      compliance. The consulting agreements entered into thus far may be terminated
      by
      either party for any reason upon 15 days notice.




**Off-Balance
      Sheet Arrangements**




We
      do not
      have any off-balance sheet arrangements.




**ITEM
      3.**  **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 account are to be invested only in
      money market funds meeting certain conditions under Rule 2a-7 promulgated under
      the Investment Company Act of 1940 or United States treasury bills. Given our
      limited risk in our exposure to money market funds and treasury bills, we do
      not
      view the interest rate risk to be significant.




**ITEM
      4. CONTROLS AND PROCEDURES**




An
      evaluation of the effectiveness of our disclosure controls and procedures as
      of
      June 30, 2006 was made under the supervision and with the participation of
      our
      management, including our Co-Chief Executive Officers (one of whom serves as
      our
      principal financial officer). Based on that evaluation, our Co-Chief Executive
      Officers concluded that our disclosure controls and procedures are effective
      as
      of the end of the period covered by this report to ensure that information
      required to be disclosed by us in reports that we file or submit under the
      Securities Exchange Act of 1934 is recorded, processed, summarized and reported
      within the time periods specified in Securities and Exchange Commission rules
      and forms. During the most recently completed fiscal quarter, there has been
      no
      significant change in our internal control over financial reporting that has
      materially affected, or is reasonably likely to materially affect, our internal
      control over financial reporting.









PART
      II - OTHER
      INFORMATION




**ITEM
      1. LEGAL PROCEEDINGS**




None.




**ITEM
      1A. RISK FACTORS**




In
      addition to the other information set forth in this report, you should carefully
      consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual
      Report on Form 10-K for the year ended December 31, 2005, which could materially
      affect our business, financial condition or future results. The risks described
      in our Annual Report on Form 10-K and below are not the only risks facing our
      Company.




We
        would
        also like to make you aware of the following additional risk factors that
        holders of our securities should consider:
 
 **If
        we liquidate, the procedures we must follow under Delaware law are
        time-consuming and may result in residual liability for our
        stockholders**
  If
        we do
        not consummate a business combination by the later of July 24, 2007, or January
        24, 2008 in the event that a letter of intent, an agreement in principle
        or a
        definitive agreement to complete a business combination was executed but
        not
        consummated by July 24, 2007, then, pursuant to Article SIXTH of our second
        amended and restated certificate of incorporation, and in accordance with
        Section 281(b) of the Delaware General Corporation Law , we will adopt a
        plan of
        dissolution, and as soon as reasonably possible after dissolution, make
        liquidating distributions to our stockholders.
  Under
        the
        Delaware General Corporation Law, stockholders may be held liable for claims
        by
        third parties against a corporation to the extent of distributions received
        by
        them in a dissolution. To mitigate against this possibility, we ask our vendors
        and potential target businesses to waive any right, title, interest or claim
        of
        any kind in or to any monies held in the trust account. As a result of this,
        we
        believe that the claims that could be made against us are limited and the
        likelihood that any claim would result in any liability extending to the
        trust
        account is small. If we wind up our affairs in compliance with either Section
        280 or 281(b) of the Delaware General Corporation Law following a dissolution,
        pursuant to Section 282 of the Delaware General Corporation Law, the potential
        liability of our stockholders will be limited to the lesser of the stockholder’s
        pro-rata share of any claim or the amount distributed to the stockholder.
        As we
        do not anticipate seeking dissolution under the complex procedures of Section
        280, we expect that, in accordance with Section 281(b), we will seek stockholder
        approval of a plan of dissolution to provide for our payment, based on facts
        known to us at such time, of existing and pending claims, and claims that
        may be potentially brought against us within the subsequent 10 years. We
        estimate the costs associated with the implementation and completion of such
        a
        plan of dissolution and liquidation to be approximately $50,000 to $75,000,
        which would be funded by any funds not held in our trust account and funds
        released to us to fund working capital.
  The
        procedures required for us to liquidate under the Delaware General Corporation
        Law, or a vote to reject any plan of dissolution and distribution by our
        stockholders, may result in substantial delays in the liquidation of our
        trust
        account to our public stockholders as part of our plan of dissolution and
        distribution.
 
 **We
          may choose to redeem our outstanding warrants at a time that is
          disadvantageous to our warrant holders.**
 
 Subject
          to there being a current prospectus under the Securities Act of 1933 , we
          may redeem all our outstanding warrants at any time after they become
          exercisable at a price of $.01 per warrant, upon a minimum of 30 days
          prior written notice of redemption, if and only if, the last sale price of
          our common stock equals or exceeds $11.50 per share for any 20 trading days
          within a 30 trading day period ending three business days before we send
          the notice of redemption. Calling all of our outstanding warrants for
          redemption could force the warrant holders:
 
 ·
              to
                  exercise the warrants and pay the exercise price for such warrants at
                  a time when it may be disadvantageous for the holders to do
                  so, ·
              to
                  sell the warrants at the then current market price when they might
                  otherwise wish to hold the warrants, or ·
              to
                  accept the nominal redemption price which, at the time the warrants
                  are called for redemption, is likely to be substantially less than
                  the market value of the warrants. 
 **Our
          warrant holders may not be able to exercise their warrants, which may create
          liability for us.**


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


**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**




None.




**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




None.




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**




None.




**ITEM
      5. OTHER INFORMATION**




None.




**ITEM
      6. EXHIBITS**


**Exhibit
                No.**
            
            **Description**10.1(1)
            
            Lease
                between the Company and Frost National Bank, Trustee For A Designated
                Trust31.1
            
            Certification
                of the Co-Chief Executive Officer (Principal Financial Officer) pursuant
                to Rule 13a-14(a) of the Securities Exchange Act, as
                amended31.2
            
            Certification
                of the Co-Chief Executive Officer and (Principal Executive Officer)
                pursuant to Rule 13a-14(a) of the Securities Exchange Act, as
                amended32.1
            
            Certification
                of the Co-Chief Executive Officers pursuant to 18 U.S.C. 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                .99.1(2)
            
            Consulting
                Agreement with Alan Wachtel99.2(2)
            
            Consulting
                Agreement with Mark Mellin99.3(2)
            
            Consulting
                Agreement with Point Management
                Associates


(1)
      Incorporated by reference to our Current Report on Form 8-K dated April 20,
      2006.


(2)
      Incorporated by reference to our Current Report on Form 8-K dated May 1,
      2006.







**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly authorized.




ARGYLE
                SECURITY ACQUISITION CORPORATIONAugust
                11, 2006
            By:
            /s/Bob
                MarbutBob
                MarbutCo-Chief
                Executive Officer (Principal Accounting and Financial
                officer)





By:
            /s/ Ron
                ChaimovskiRon
                ChaimovskiCo-Chief
                Executive Officer (Principal Executive
                Office)