**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 March 31,
                2007.**








or




o
            **Transition
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934**





F**or
                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 May 8, 2007.














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




**Part
                I.**
            **Financial
                Information**Item
                1. Consolidated Financial Statements (unaudited)Consolidated
                Balance SheetsConsolidated
                Statements of OperationsConsolidated
                Statement of Stockholders’ EquityConsolidated
                Statement of Cash FlowsNotes
                to Consolidated Financial StatementsItem
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of OperationsItem
                3. Quantitative and Qualitative Disclosures About Market RiskItem
                4. Controls and ProceduresItem
                4T. 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










**PART
      I - FINANCIAL INFORMATION**




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




**Argyle
      Security Acquisition Corporation**


(a
      development stage company)




**Consolidated
      Balance Sheet** s




March
                31, 2007
              (unaudited)
            
            December
                31,
              2006**ASSETS****Current
                assets**:Cash
            
            $
            122,990
            
            $
            694,115Cash
                and cash equivalents, held in trust
            
            
            29,715,406
            
            
            29,453,449Prepaid
                expenses
            
            
            73,333
            
            
            7,333**Total
                current assets**
            
            
            29,911,729
            
            
            30,154,897Property
                and equipment, net
            
            
            4,358
            
            
            4,901Deferred
                income taxes
            
            
            5,677
            
            
            27,932Deferred
                transaction costs
            
            
            673,465
            
            
            493,583Other
                assets
            
            
            5,630
            
            
            -**Total
                assets**
            
            $
            30,600,859
            
            $
            30,681,313**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Current
                liabilities:**Accrued
                expenses
            
            $
            590,898
            
            $
            624,129Deferred
                underwriting costs
            
            
            1,176,921
            
            
            1,162,183Accrued
                income taxes
            
            
            5,064
            
            
            118,855**Total
                current liabilities**
            
            
            1,772,883
            
            
            1,905,167Common
                stock, subject to possible redemption - 764,627 shares at $7.50 per
                share
            
            
            5,738,206
            
            
            5,738,206Deferred
                interest attributable to common stock subject to possible redemption
                (net
                of taxes)
            
            
            225,911
            
            
            175,747**Stockholders’
                Equity:**Preferred
                stock — $.0001 par value; 1,000,000 shares authorized; 0 shares issued and
                outstanding
            
            
            -
            
            
            -Common
                stock—$.0001 par value; 89,000,000 shares authorized; issued and
                outstanding: 4,781,307 at March 31, 2007 and December 31, 2006 (including
                764,627 shares of common stock subject to possible
                redemption)
            
            
            478
            
            
            478Additional
                paid-in capital
            
            
            22,646,782
            
            
            22,696,946Retained
                earnings during the development stage
            
            
            216,599
            
            
            164,769**Total
                stockholders’ equity**
            
            
            22,863,859
            
            
            22,862,193**Total
                liabilities and stockholders’ equity**
            
            $
            30,600,859
            
            $
            30,681,313




See
      notes to unaudited financial
      statements




1




**Argyle
      Security Acquisition Corporation**


(a
      development stage company)




**Unaudited
      Consolidated Statements of Operations**




**For
                  the period****from
                  June 22,****Three
                  Months****Ended**
              
              **2005
                  (inception)****through
                  March 31,****March
                  31, 2007**
              
              **March
                  31, 2006**
              
              **2007****Operating
                  expenses**
              
              $
              290,703
              
              $
              321,706
              
              $
              1,322,936**Other
                  income and expense**Bank
                  interest
              
              
              3,778
              
              
              586
              
              
              24,020Interest
                  on cash and cash equivalents held in trust
              
              
              380,811
              
              
              216,904
              
              
              1,712,898Interest
                  expense
              
              
              (14,737
              )
              
              (466
              )
              
              (79,141
              )Total
                  other income and expense
              
              
              369,852
              
              
              217,024
              
              
              1,657,777Income/(loss)
                  before provision for income taxes
              
              
              79,149
              
              
              (104,682
              )
              
              334,841Provision
                  for income taxes
              
              
              27,319
              
              
              -
              
              
              118,242**Net
                  income/(loss)**
              
              
              51,830
              
              
              (104,682
              )
              
              216,599Deferred
                  interest attributable to common stock subject to possible redemption
                  (net
                  of taxes)
              
              
              50,164
              
              
              43,359
              
              
              225,911**Net
                  income/(loss) allocable to holders of non-redeemable common
                  stock**
              
              $
              1,666
              
              $
              (148,041
              )
              $
              (9,312
              )**Net
                  income/(loss) per share - basic and diluted**
              
              $
              0.01
              
              $
              (0.03
              )
              $
              0.06Weighted
                  average number of shares outstanding - basic and diluted
              
              
              4,781,307
              
              
              3,550,663
              
              
              3,465,547**Net
                  income/(loss) per share exclusive of shares and related interest
                  subject
                  to possible redemption - basic and diluted**
              
              $
              0.00
              
              $
              (0.05
              )
              $
              (0.00
              )Weighted
                  average number of shares outstanding exclusive of shares subject
                  to
                  possible redemption -- basic and diluted
              
              
              4,016,680
              
              
              3,032,416
              
              
              2,962,875




See
      notes
      to unaudited financial statements




2





Argyle
      Security Acquisition Corporation


(a
      development stage company)




**Unaudited
      Consolidated Statements of Stockholders’ Equity**




RetainedEarningsAdditional
            
            During
                the
            
            TotalCommon
                  Stock
            
            Paid-in
            
            Development
            
            Stockholders'Shares
            
            Amount
            
            Capital
            
            Stage
            
            EquityStock
                issuance on June 23, 2005 at $.027
            
            
            937,500
            
            $
            94
            
            $
            24,906
            
            
            
            
            $
            25,000Net
                loss
            
            
            
            
            
            
            
            
            
            
            $
            (7,743
            )
            
            (
                7,743
            )**Balances**,
                at December 31, 2005
            
            
            937,500
            
            $
            94
            
            $
            24,906
            
            $
            (7,743
            )
            $
            17,257Stock
                issuance on January 24, 2006 at $8
            
            
            125,000
            
            
            12
            
            
            999,988
            
            
            
            
            
            1,000,000Stock
                issuance on January 30, 2006 at $8
            
            
            3,625,000
            
            
            362
            
            
            28,999,638
            
            
            
            
            
            29,000,000Stock
                issuance on January 30, 2006 at $8
            
            
            75,046
            
            
            8
            
            
            600,360
            
            
            
            
            
            600,368Proceeds
                from issuance of option to underwriters
            
            
            
            
            
            
            
            
            100
            
            
            
            
            
            100Expenses
                of offerings
            
            
            
            
            
            
            
            
            (2,145,230
            )
            
            
            
            
            (2,145,230
            )Less:
                Proceeds subject to possible redemption of764,627 shares and associated deferred interest
            
            
            
            
            
            
            
            
            (5,913,953
            )
            
            
            
            
            (5,913,953
            )Stock
                based compensation
            
            
            
            
            
            
            
            
            130,632
            
            
            
            
            
            130,632Officer
                and director option exercise
            
            
            18,761
            
            
            2
            
            
            505
            
            
            
            
            
            507Net
                income
            
            
            
            
            
            
            
            
            
            
            
            172,512
            
            
            172,512**Balances**,
                at December 31, 2006
            
            
            4,781,307
            
            $
            478
            
            
            22,696,946
            
            
            164,769
            
            
            22,862,193Increase
                in deferred interest attributable to common stock subject to possible
                redemption (net of taxes)
            
            
            
            
            
            
            
            
            (50,164
            )
            
            
            
            
            (50,164
            )Net
                income
            
            
            
            
            
            
            
            
            
            
            
            51,830
            
            
            51,830Balances,
                at March 31, 2007
            
            
            4,781,307
            
            $
            478
            
            $
            22,646,782
            
            $
            216,599
            
            $
            22,863,859




See
      notes
      to unaudited financial statements




3





**Argyle
      Security Acquisition Corporation**


(a
      development stage company)




**Unaudited
      Consolidated Statement of Cash Flows**





Three
                Months Ended
            
            For
                the period
              from
                June 22, 2005 (inception)
              through
              March 31,March
                31,2007
            
            March
                31, 2006
            
            2007**Cash
                flows from operating activities**Net
                income/(loss)
            
            $
            51,830
            
            $
            (104,682
            )
            $
            216,599**Adjustment
                to reconcile net loss to net cash****used
                in operating activities:**Stock
                based compensation
            
            
            -
            
            
            130,632
            
            
            130,632Depreciation
                expense
            
            
            543
            
            
            -
            
            
            2,162Increase
                in prepaid expenses
            
            
            (66,000
            )
            
            (75,833
            )
            
            (73,333
            )Increase/(decrease)
                in accrued expenses
            
            
            (46,140
            )
            
            59,032
            
            
            135,867Interest
                earned on cash and cash equivalents, held in trust
            
            
            (380,811
            )
            
            (216,904
            )
            
            (1,712,898
            )Accrued
                interest on deferred underwriting costs
            
            
            14,737
            
            
            -
            
            
            78,675(Increase)/decrease
                in deferred income tax asset
            
            
            22,255
            
            
            -
            
            
            (5,677
            )Increase/(decrease)
                in accrued income taxes
            
            
            (113,790
            )
            
            -
            
            
            5,064Interest
                income released from the trust
            
            
            -
            
            
            -
            
            
            600,000Tax
                payment released from the trust
            
            
            118,854
            
            
            -
            
            
            118,854Net
                cash used in operating activities
            
            
            (398,522
            )
            
            (207,755
            )
            
            (504,055
            )**Cash
                flows from investing activities:**Purchases
                of investments held in trust
            
            
            (70,374,678
            )
            
            (89,100,875
            )
            
            (389,094,886
            )Maturity
                of investments held in trust
            
            
            70,374,678
            
            
            60,379,512
            
            
            360,373,523Purchase
                of property and equipment
            
            
            -
            
            
            (6,106
            )
            
            (6,520
            )Transaction
                costs
            
            
            (160,088
            )
            
            -
            
            
            (218,431
            )Increase
                in other assets
            
            
            (5,630
            )
            
            -
            
            
            (5,630
            )Net
                cash used in investing activities
            
            
            (165,718
            )
            
            (28,727,469
            )
            
            (28,951,944
            )**Cash
                flows from financing activities**Gross
                proceeds from public offering and private placement
            
            
            -
            
            
            30,600,368
            
            
            30,600,368Offering
                costs
            
            
            (6,885
            )
            
            (866,003
            )
            
            (1,046,986
            )Proceeds
                from issuance and exercises of options
            
            
            -
            
            
            607
            
            
            607Repayment
                of notes payable, stockholders
            
            
            -
            
            
            (155,000
            )
            
            (155,000
            )Proceeds
                from notes payable, stockholders
            
            
            -
            
            
            -
            
            
            155,000Proceeds
                from sale of common stock to founding stockholders
            
            
            -
            
            
            -
            
            
            25,000Net
                cash provided by/(used in) financing activities
            
            
            (6,885
            )
            
            29,579,972
            
            
            29,578,989**Net
                increase/(decrease) in cash**
            
            
            (571,125
            )
            
            644,748
            
            
            122,990**Cash**,
                beginning of period
            
            
            694,115
            
            
            9,608
            
            
            -**Cash**,
                end of period
            
            $
            122,990
            
            $
            654,356
            
            $
            122,990Supplemental
                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
            
            $
            1,098,245Supplemental
                schedule of non-cash investing activities:Accrual
                of deferred transaction costs
            
            $
            173,950
            
            $
            -
            
            $
            455,034




See
      notes
      to unaudited financial statements




4





**Argyle
      Security Acquisition Corporation**


(a
      development stage company)




**Notes
      to Unaudited Consolidated Financial Statements**


**March
      31, 2007**




**Note
      1 - Basis of Presentation**




The
      financial statements of Argyle Security Acquisition Corporation (the “Company”
or “Argyle”) as of March 31, 2007, for the three months ended March 31, 2007 and
      2006, and for the period from June 22, 2005 (inception) to March 31, 2007
      (cumulative), 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 a full fiscal year. The audited
      balance sheet as of December 31, 2006 does not include all of the information
      and footnotes required by U.S. generally accepted accounting principles for
      complete financial statement presentation.




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,
      2006, as filed with the U.S. Securities and Exchange Commission.





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




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





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





Of
      the
      proceeds from the Offerings, approximately $28.7 million was deposited into
      a
      trust account (“Trust Account”) until the earlier of (i) the consummation of the
      first business combination or (ii) the distribution of the Trust Account as
      described below. The amount in the Trust Account includes up to approximately
      $1.4 million of contingent underwriting compensation, contingent private
      placement fees and associated interest which will be paid to the underwriters
      if
      a business combination is consummated. (See Note 8 regarding an agreement which
      impacts the underwriters costs.) The remaining proceeds may be used to pay
      for business, legal and accounting due diligence on prospective acquisitions
      and
      continuing general and administrative expenses.




On
      December 8, 2006, Argyle, Argyle’s wholly-owned subsidiary ISI Security Group,
      Inc. (Merger Subsidiary) and ISI Detention Contracting Group, Inc. (ISI) entered
      into a merger agreement pursuant to which the Merger Subsidiary will merge
      into
      ISI, and ISI will become a wholly-owned subsidiary of Argyle. Pursuant to the
      merger agreement, Argyle will pay ISI’s security holders an aggregate merger
      consideration of $38.7 million, consisting of $18,200,000 and 1,180,000 shares
      of Argyle’s common stock (valued at approximately $8.8 million, based on the
      closing price of the common stock on April 16, 2007) and the assumption of
      approximately $6.0 million of long-term debt and up to $9,000,000 that may
      be
      outstanding pursuant to a revolving credit line, of which approximately $5.7
      million was outstanding as of April 16, 2007.





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




5




With
      respect to the first business combination which is approved and consummated,
      any
      holder of shares sold in the Public Offering, other than the Initial
      Stockholders and their nominees (the “Public Stockholders”) who voted against
      the business combination may demand that the Company redeem his or her shares.
      The per share redemption price will equal $7.50 per share (see Note 8) plus
      interest earned thereon in the trust account, net of taxes payable and $600,000
      of interest income which was released from the trust account in September 2006
      to fund our working capital. Public Stockholders holding up to 19.99% of the
      aggregate number of shares sold in this offering and the private placement
      may
      seek redemption of their shares in the event of a business combination.
      Accordingly, amounts classified as common stock subject to possible redemption
      of approximately $5.7 million, and the associated deferred interest of
      approximately $226,000 have been reflected in the accompanying balance
      sheet.




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




There is no assurance that the Company will be able to successfully complete
      a
      business combination within the time frame discussed above. That factor and
      the
      Company's declining cash available outside of the trust account raise
      substantial doubt about the Company's ability to continue as a going concern.
      To
      address some of its liquidity needs, in April 2007, the Company entered into
      a
      $300,000 bridge loan with its Co-Chief Executive Officers, directors and
      certain consultants. (See Note 9.) Even after considering such financing, the
      Company anticipates that the costs to consummate the acquisition will greatly
      exceed its available cash outside of the trust account. The Company expects
      these costs would ultimately be borne by the combined company from the funds
      held in the trust account if the proposed acquisition is completed. If it is
      not
      completed, the costs would be subject to the potential indemnification
      obligations of Argyle's officers and directors of the trust account related
      to
      expenses incurred for vendors or service providers. If these obligations are
      not
      performed or are inadequate, it is possible that vendors or service providers
      could seek to recover these expenses from the trust account, which could
      ultimately deplete the trust account and reduce a stockholder's current pro
      rata
      portion of the trust account upon liquidation.




*Cash
      and cash equivalents*




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





*Income
      taxes*





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




*Recently
      issued accounting pronouncements*




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




6




We
      adopted the FASB’s Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes, an interpretation of FASB Statement No. 109”, (“FIN 48”),
      effective January 1, 2007.  FIN 48 clarifies the accounting for uncertainty
      in income taxes recognized in financial statements and requires the
      impact of a tax position to be recognized in the financial statements if
      that position is more likely than not of being sustained by the taxing
      authority. The adoption of FIN 48 did not have an effect on our consolidated
      financial position or results of operations.





*Transaction
      costs*





The
      Company has capitalized approximately $.7 million related to the ISI
      acquisition. These costs are primarily composed of attorney and accountants’
fees and bankers’ fees regarding the fairness opinion.





*Use
      of estimates*




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




*Basis
      of presentation*




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





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





**Note
      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 and Stock-Based Compensation**




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




7




On
      January 30, 2006 the underwriters exercised a portion of 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 (or $0.027 per share). The compensation cost, recorded in operating
      expenses, resulting from these share-based payments was $130,632 at January
      30, 2006, using the Black-Scholes pricing model. This model was developed for
      use in estimating the fair value of traded options that have no vesting
      restrictions and are fully transferable. The fair value of the options was
      estimated at the measurement date using the following assumptions:




·
            Weighted
                average volatility factor of 0.10;




·
            No
                expected dividend payments;




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




·
            A weighted
                average expected life of 0.13
                years.





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





As
      of
      March 31, 2007, 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 in the Public Offering. 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:




8




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




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




·
            the
                warrants are held in a discretionary
                account;




·
            the
                warrants are exercised in an unsolicited transaction;
                or




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




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




As
      of March 31, 2007, 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. No shares of preferred stock are
      currently issued or outstanding.





**Note 8
      - Agreement with Underwriters**





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





**Note
      9 - Subsequent Event**





On
      April
      16, 2007, Argyle’s officers and directors, an affiliate of Bob Marbut, Argyle’s
      Chairman and Co-Chief Executive Officer, and certain of Argyle’s consultants,
      pursuant to a note and warrant acquisition agreement, loaned Argyle an aggregate
      of $300,000 and in exchange received promissory notes in the aggregate principal
      amount of $300,000 and warrants to purchase an aggregate of 37,500 shares of
      Argyle’s common stock. Pursuant to the agreement, the holders of the warrants
      may not exercise or transfer the warrants until Argyle consummates a business
      combination and were granted demand and piggy-back registration rights with
      respect to the shares of common stock underlying the warrants. The warrants
      are
      exercisable at $5.50 per share of common stock and expire on January 24, 2011.
      The warrants also may be exercised on a net-share basis by the holders of the
      warrants. The promissory notes bear interest at a rate of 4% per year and are
      repayable 30 days after Argyle consummates a business combination.





**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.




9




**Overview**
 
 Argyle
        Security Acquisition Corporation is a Delaware corporation incorporated on
        June
        22, 2005 in order to serve as a vehicle for the acquisition of an operating
        business through a merger, capital stock exchange, asset acquisition or other
        similar business combination. We intend to leverage the industry experience
        of
        our executive officers by focusing our efforts on identifying a prospective
        target business in the security industry. We believe that businesses involved
        in
        this industry represent attractive acquisition targets for a number of reasons,
        including the increase in global demand for integrated security-related products
        and services since September 11, 2001, the development of new technology
        which
        has the potential to expand applications and the trend towards integrated
        networked solutions.
  On
          December 8, 2006, Argyle, Argyle’s wholly-owned subsidiary ISI Security Group,
          Inc. (the "Merger Subsidiary") and ISI Detention Contracting Group, Inc.
          (ISI)
          entered into a merger agreement pursuant to which the Merger Subsidiary
          will
          merge into ISI and ISI will become a wholly-owned subsidiary of Argyle.
          ISI is a
          provider of security solutions to commercial, governmental, and correctional
          customers. As a security solutions provider, ISI has the ability to interview
          a
          customer that needs security for a project and determine that customer’s needs
          in light of the products and technology available within the customer’s budget.
          ISI, using its expertise in the security industry, then develops security
          systems that answer the customer’s needs using hardware and software that is
          available in the marketplace from third party vendors, as well as its own
          proprietary software. ISI participates in the perimeter security, access
          control
          and video and design consultation segments in the correctional sector through
          its ISI-Detention and MCS-Detention subsidiaries and in the
          commercial/industrial/educational sectors through its MCS-Commercial subsidiary.
          In addition, the MCS-Commercial operation is also engaged in providing
          its
          sectors with fire detection security system solutions.
 
 If
          the
          merger is consummated, Argyle will pay ISI’s security holders an aggregate of
          $18,200,000 and 1,180,000 shares of Argyle’s common stock (valued at
          approximately $8.8 million, based on the closing price of the common stock
          on
          April 16, 2007). In addition, Argyle will assume approximately $6,000,000
          of
          long term debt (not including capitalized leases) and up to $9,000,000
          pursuant
          to a line of credit (of which approximately $5.7 million was outstanding
          as of
          April 16, 2007). The total aggregate merger considerations is approximately
          $38.7 million. The merger agreement contains representations and warranties
          by
          Argyle and ISI and representations and warranties to be made by ISI’s
          stockholders upon closing of the merger. ISI also makes certain covenants
          relating to the conduct of its business between the time the merger agreement
          was signed and the consummation of the merger, including that it will not
          take
          certain actions without the permission of Argyle and that Argyle will have
          access to ISI’s records. The parties to the merger agreement also make covenants
          relating to confidentiality, non-solicitation and non-competition. In addition,
          after the consummation of the merger, Argyle has agreed to file a registration
          statement for the resale of the shares issued by Argyle in connection with
          the
          merger. The closing of the merger is subject to certain conditions, including
          the approval of the merger and the equity incentive plan described in the
          proxy
          statement by Argyle’s stockholders.
 
 Pursuant
          to our certificate of incorporation, the merger is subject to the approval
          of
          our stockholders. Argyle has filed a preliminary proxy statement with the
          SEC
          relating to the merger.
  **Critical
        Accounting Policies**
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities at the date of the financial statements and the reported amounts
        of
        expenses during the reporting period. Actual results could differ from these
        estimates.
 
 Deferred
        income taxes are provided for temporary differences between the carrying
        amount
        of assets and liabilities for financial reporting purposes and the amounts
        for
        tax purposes. Valuation allowances are provided against the deferred tax
        asset
        amounts when the realization is uncertain.
  Argyle
        purchases U.S. Treasury Bills and money market investments and holds these
        investments to maturity. The investments are recorded at market value which
        approximates their carrying amount and includes accrued interest.
  Argyle
        must seek stockholder approval to effect any  business combination. Argyle
        will proceed with a business combination only if a majority of the shares
        of
        common stock voted by the public stockholders are voted in favor of the business
        combination, and public stockholders owning less than 20% of the shares sold
        in
        the offering exercise their redemption rights and vote against the business
        combniation. Public stockholders voting against the combination may demand
        that
        Argyle redeem his or her shares at a redemption price of $7.50 per share
        plus
        interest earned thereon in the trust account, net of taxes payable and $600,000
        of interest income which was released from the trust account in September
        2006 , if an acquisition is consummated. Accordingly, Argyle has classified
        the contingent shares at $7.50 and related deferred interest outside of
        permanent equity and liabilities in the mezzanine area on the balance
        sheet.
 
 **Results
        of Operations**
 
 Argyle’s
        trust account earned interest of $380,811 for the three months ended March
        31,
        2007 as compared to $216,904 for the first quarter of 2006. The increase
        in
        interest income was due to the trust not being funded until the closing of
        our
        initial public offering at the end of January 2006 and increased investment
        returns.
 
 Overall,
        for the quarter ended March 31, 2007, Argyle incurred $164,484 of
        consulting and professional fees, $35,003 of franchise tax, $22,000 of
        insurance expense, $16,552 of rent expense, $24,020 of investor relations
        expense and other operating costs of $28,644. For the quarter ended March
        31, 2006, Argyle incurred $112,824 of consulting and professional fees, $130,632
        of stock compensation expense, $27,949 of franchise taxes, $14,667 of insurance
        expense, $10,808 of rent expense and other operating costs of
        $24,826.
 
 The
        46%
        increase in consulting and professional fees was primarily the result of
        higher
        audit fees in the first quarter of 2007 and, to a lesser extent, higher
        accounting and legal fees.
  Franchise
        tax expense increased 25% in the first quarter of 2007 as compared to the
        same
        period in 2006 as the Company expects to pay a larger annual amount for
        2007.
 
 Insurance
        expense increased 50% in the first quarter of 2007 as compared to the same
        period in 2006 as the Company’s directors’ and officers’ insurance policy was
        only effective for two months of the first quarter in 2006. Similarly, rent
        expense increased 53% in the first quarter of 2007 as the Company’s lease was
        effective for only two months of the first quarter of 2006.
 
 In
        late
        2006, the Company retained an investor relations firm, which received the
        fee indicated above in the first quarter of 2007.
 
 On
        February 1, 2006, Argyle’s officers and directors exercised options and
        purchased 18,761 shares of common stock for an aggregate cost of $507. The
        compensation cost associated with these options of $130,632 was recorded
        in the
        first quarter of 2006 and was computed using the Black-Scholes pricing
        model.
 
 The
        provisions for tax in the first quarter of 2007 is a result of the net income
        earned in the quarter.
  **Liquidity
        and Capital Resources**
  On
        January 24, 2006, Argyle completed a private placement of 125,000 units to
        its
        executive officers and their affiliates and received net proceeds of
        approximately $0.9 million. On January 30, 2006, Argyle consummated its initial
        public offering of 3,700,046 units (which included 75,046 units sold as part
        of
        the underwriter’s over-allotment option). Each unit in both the private
        placement and the public offering consisted of one share of common stock
        and one
        redeemable common stock purchase warrant. Each warrant entitles the holder
        to
        purchase from Argyle one share of Argyle’s common stock at an exercise price of
        $5.50 per share commencing on the later of the completion of a business
        combination or January 24, 2007 and expiring January 24, 2011. Argyle’s common
        stock and warrants started trading separately as of March 2, 2006.
  10
  The
        net
        proceeds from the sale of Argyle’s units, after deducting certain offering
        expenses of approximately $2.4 million, including underwriting discounts
        of
        approximately $1.8 million, were approximately $28.2 million. Approximately
        $27.3 million of the proceeds from the initial public offering and the private
        placement was placed in a trust account for Argyle’s benefit. Except for
        reimbursement of taxes payable and $600,000 in interest from the trust account
        that was released to Argyle in September 2006 for working capital, Argyle
        will
        not be able to access the amounts held in the trust until it consummates
        a
        business combination. The approximate $29.7 million held in trust as of March
        31, 2007 includes up to approximately $1.4 million of underwriters' and
        placement agent’s compensation and related interest from Argyle’s private
        placement and initial public offering that will be paid to the underwriters
        and
        placement agent only in the event of a business combination. On March 14,
        2007,
        the underwriters from Argyle's initial public offering agreed to forfeit
        any and
        all rights or claims to a prorata portion of the deferred underwriting costs
        and
        associated interest with respect to any shares of common stock which are
        redeemed in connection with our proposed acquisition. As a result, the deferred
        underwriting and offering costs have been reduced by approximately $0.3 million,
        and common stock subject to possible redemption has been increased by $0.3
        million. The trust account earned interest income of approximately $0.4 million
        during the quarter ended March 31, 2007. The amounts held outside of the
        trust
        account are available to be used by Argyle to provide for business, legal
        and
        accounting due diligence on prospective acquisitions and continuing general
        and
        administrative expenses. As of March 31, 2007, Argyle had approximately $0.1
        million outside the trust account to fund its working capital
        requirements.
  Argyle
        expects to use up to approximately $20.5 million (including Argyle and ISI
        transaction costs) of the net proceeds of the initial public offering to
        acquire
        ISI. After paying off any expenses relating to the identification and evaluation
        of prospective acquisition candidates, the structuring, negotiation and
        consummation of the business combination and paying for the redemption of
        the
        stock of any of Argyle’s stockholders who choose to exercise their redemption
        rights, any residual proceeds from Argyle’s initial public offering will be used
        by Argyle as working capital.
  Argyle
        anticipates that it will incur total transaction costs of approximately $1.3
        million. Such costs do not include transaction costs of approximately $1.0
        million to be incurred by ISI (related primarily to anticipated attorney,
        brokerage and accounting fees) which Argyle will not be obligated to pay
        in the
        event a business combination is not consummated. Of the $1.3 million of
        Argyle-anticipated transaction costs, approximately $0.4 million relate to
        certain Giuliani Capital Advisors’ advisory fees which are contingent upon the
        closing of the transaction. Approximately $0.7 million of the $0.9 million
        in
        non-contingent anticipated costs had been incurred and recorded as of March
        31,
        2007. The $0.9 million primarily relates to Loeb and Loeb legal expenses,
        fees
        for Giuliani Capital Advisors’ fairness opinion, accountants and valuation
        consultants’ fees, roadshow expenses, printer fees and other miscellaneous
        expenses. Argyle’s cash outside the trust and accrued expenses as of March 31,
        2007 was approximately $0.1 million and $0.6 million, respectively. Argyle
        expects to incur the remaining anticipated non-contingent transaction costs
        of
        $0.2 million during the second quarter of 2007. Additionally, recurring monthly
        operating expenses of approximately $75,000 per month will continue to accrue
        after March 31, 2007. In January 2007, Argyle renewed its directors and
        officers’ insurance policy, incurring a premium of $88,000.
  On
        April
        16, 2007, Argyle’s officers and directors, an affiliate of Bob Marbut, Argyle’s
        Chairman and Co-Chief Executive Officer, and certain of Argyle’s consultants,
        pursuant to a note and warrant acquisition agreement, loaned Argyle an aggregate
        of $300,000 and in exchange received promissory notes in the aggregate principal
        amount of $300,000 and warrants to purchase an aggregate of 37,500 shares
        of
        Argyle’s common stock. Pursuant to the agreement, the holders of the warrants
        may not exercise or transfer the warrants until Argyle consummates a business
        combination and were granted demand and piggy-back registration rights with
        respect to the shares of common stock underlying the warrants. The warrants
        are
        exercisable at $5.50 per share of common stock and expire on January 24,
        2011.
        The warrants also may be exercised on a net-share basis by the holders of
        the
        warrants. The promissory notes bear interest at a rate of 4% per year and
        are
        repayable 30 days after Argyle consummates a business combination.
  Argyle
        anticipates that the costs to consummate the acquisition will greatly exceed
        its
        available cash outside of the trust, even after the financing discussed above.
        Argyle has not sought and does not anticipate seeking any fee deferrals.
        Argyle
        expects these costs would ultimately be borne by the combined company from
        the
        funds held in trust if the proposed ISI acquisition is completed. If the
        acquisition is not completed, the costs would be subject to the potential
        indemnification obligations of Argyle’s officers and directors to the trust
        account related to expenses incurred for vendors or service providers. If
        these
        obligations are not performed or are inadequate, it is possible that vendors
        or
        service providers could seek to recover these expenses from the trust account,
        which could ultimately deplete the trust account and reduce a stockholder’s
        current pro rata portion of the trust account upon liquidation.
  11
  Upon
        going public in late January 2006, Argyle has focused its attention on the
        search for a target business in the security industry. The expenses related
        to
        this effort are primarily comprised of certain monthly consulting fees paid
        to
        parties identified below for the research and investigation of potential
        target
        companies, and professional fees and travel expenses associated with
        targets that are no longer being pursued. Argyle
        has recorded these expenses as either part of the disclosed consulting and
        professional fees, or as travel expenses which are classified as other operating
        costs. The costs directly associated with the ISI acquisition, excluding
        the
        recurring monthly consulting fees which are expensed, have been capitalized
        as
        transaction costs. Two of Argyle’s consultants work exclusively on the research,
        investigation and targeting of security companies for potential future
        acquisitions, while one of the other consultants spends approximately one-half
        of his time on acquisitions. Argyle believes that the amounts recorded as
        expenses associated with its search during 2006 and the first quarter of
        2007
        were approximately $0.25 million. Additionally, transaction costs associated
        with the ISI acquisition of approximately $0.7 million have been capitalized
        as
        of March 31, 2007, and approximately $0.2 million of additional noncontingent
        transaction costs associated with the ISI acquisition are
        anticipated.
  From
        January 1, 2006 to March 31, 2007, Argyle has incurred total operating expenses
        of approximately $1.3 million and transaction costs which have been capitalized
        of approximately $0.7 million. This total of approximately $2.0 million is
        greater than the total of $1,370,000 disclosed as being available to the
        Company
        after its initial public offering in its Registration Statement on Form S-1
        relating to the initial public offering. This approximate $0.6 million
        difference is primarily attributable to the following: approximately $0.2
        million of franchise taxes, $0.13 million of non-cash stock compensation
        expense, a fairness opinion fee of $0.2 million and various expenses, primarily
        legal and accounting, which were greater than those estimated in the Form
        S-1.
        Argyle expects to incur an additional estimated $0.2 million in non-contingent
        transaction costs (primarily legal and accounting feees) as well as its
        recurring monthly expenses until the merger is consummated.
  Argyle’s
        accrued expenses, as of March 31, 2007, which includes accruals of approximately
        $455,000 for deferred acquisition costs, totaled $590,898. The amount is
        primarily comprised of an accrual to the state of Delaware for franchise
        taxes
        in the amount of approximately $35,000 and accruals for professional fees,
        associated with attorneys, accountants and bankers and related expenses of
        approximately $540,000.
  Assuming
        the completion of the ISI acquisition, Argyle will assume approximately $6.0
        million in long-term debt, in addition to the $9.0 million ISI line of credit
        which had an outstanding balance of approximately $5.7 million as of April
        16,
        2007. Argyle anticipates that the $6.0 million in long-term debt will be
        due
        eighteen months after completion of the acquisition and that there will be
        no
        prepayment penalties. The line of credit matures in October 2008 with interest
        payable quarterly and is secured by certain tangible and intangible assets.
        The
        line of credit agreement contains certain financial covenants as well as
        restrictive and affirmative convenants. Additionally, Argyle will assume
        the
        capital lease obligation related to ISI’s offices in San Antonio, Texas, which
        had a balance of approximately $2.1 million as of March 31, 2007. At closing,
        Argyle will pay certain ISI obligations totaling approximately $2.0 million
        as
        of March 31, 2007, relating to ISI*MCS and notes payable to ISI shareholders.
        Argyle will also assume the current liabilities relating to accounts payable,
        accrued liabilities and billings in excess of costs and estimated earnings
        on
        incomplete contracts.
  As
        of
        February 1, 2006, Argyle entered into a lease for Argyle’s office space in San
        Antonio, Texas and began to pay a base rental of approximately $5,500 per
        month.
        The lease was originally scheduled to terminate on January 31, 2007; however,
        it
        was amended to extend the termination date by six months. In connection with
        its
        operations, in March 2006, Argyle paid an outstanding obligation to a consultant
        for approximately $53,000 and is currently paying approximately $24,000 per
        month in consulting fees for services assisting Argyle in the identification
        of
        a target business, securities compliance and administration. The consulting
        agreements entered into thus far may be terminated by either party for any
        reason upon 15 days notice.
  Presently,
        Argyle is utilizing four consultants on a monthly basis. Alan Wachtel and
        Graham
        Wallis perform research and investigation of target companies in the security
        industry and assist in the performance of due diligence on potential acquisition
        candidates for potential future acquisitions. Cindy Kittrell is the office
        manager and performs associated administrative functions. Mark Mellin is
        a
        financial consultant who assists Argyle in its SEC reporting responsibilities,
        accounting matters and also assists in the investigation and due diligence
        of
        potential acquisition candidates.
  12
  Off
        Balance Sheet
        Arrangements
  Argyle
        does not have any off-balance sheet arrangements.
  **Contractual
          Obligations**
  We
          do not
          have any long term debt, capital lease obligations, purchase obligations
          or
          other long term liabilities. However, as discussed above, we have an operating
          lease commitment with the landlord of our office facilities at a monthly
          rental
          of approximately $5,500 through July 2007.





**ITEM
      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. As of March 31, 2007, we have not consummated a business combination,
      and until such time we will 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
      March 31, 2007 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.





**ITEM
      4T. CONTROLS AND PROCEDURES**





Not
      Applicable.




13





**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, 2006, which could materially
      affect our business, financial condition or future results. The risks described
      in our Annual Report on Form 10-K are not the only risks facing our Company.
      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 and/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
 
 4.1(1)
              Warrant
                  to Purchase Common Stock between the Company and Wesley
                  Clark
 4.2(1)
              Warrant
                  to Purchase Common Stock between the Company and John J.
                  Smith
 4.3(1)
              Warrant
                  to Purchase Common Stock between the Company and Bob
                  Marbut
 4.4(1)
              Warrant
                  to Purchase Common Stock between the Company and Ron
                  Chaimovski
 4.5(1)
              Warrant
                  to Purchase Common Stock between the Company and Graham
                  Wallis
 4.6(1)
              Warrant
                  to Purchase Common Stock between the Company and Alan
                  Wachtel
 4.7(1)
              Warrant
                  to Purchase Common Stock between the Company and Argyle Global
                  Opportunities, L.P.
 10.1(1)
              Note
                  and Warrant Acquisition Agreement between the Company and Wesley
                  Clark
 10.2(1)
              Note
                  and Warrant Acquisition Agreement between the Company and John
                  J.
                  Smith
 10.3(1)
              Note
                  and Warrant Acquisition Agreement between the Company and Bob
                  Marbut
 10.4(1)
              Note
                  and Warrant Acquisition Agreement between the Company and Ron
                  Chaimovski
   14
  10.5(1)
              Note
                  and Warrant Acquisition Agreement between the Company and Graham
                  Wallis
 10.6(1)
              Note
                  and Warrant Acquisition Agreement between the Company and Alan
                  Wachtel
 10.7(1)
              Note
                  and Warrant Acquisition Agreement between the Company and Argyle
                  Global
                  Opportunities, L.P.
 10.8(1)
              Note
                  made by the Company in favor of Wesley
                  Clark
 10.9(1)
              Note
                  made by the Company in favor of John J.
                  Smith
 10.10(1)
              Note
                  made by the Company in favor of Bob
                  Marbut
 10.11(1)
              Note
                  made by the Company in favor of Ron
                  Chaimovski
 10.12(1)
              Note
                  made by the Company in favor of Graham
                  Wallis
 10.13(1)
              Note
                  made by the Company in favor of Alan
                  Wachtel
 10.14(1)
              Note
                  made by the Company in favor of Argyle Global Opportunities,
                  L.P.
 10.15(2)
              Letter
                  Agreement between Argyle Security Acquisition Corporation, Rodman
&
                  Renshaw, LLC and I-Bankers Securities,
                  Inc.
 31.1
              Certification
                  of the Co-Chief Executive Officer (Principal Financial Officer)
                  pursuant
                  to Rule 13a-14(a) of the Securities Exchange Act, as
                  amended
 31.2
              Certification
                  of the Co-Chief Executive Officer and (Principal Executive Officer)
                  pursuant to Rule 13a-14(a) of the Securities Exchange Act, as
                  amended
 32.1
              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
                  .


_________________


(1)
            Incorporated
                by reference to the Company’s Current Report on Form 8-K dated April 16,
                2007


(2)
            Incorporated
                by reference to the Company’s Current Report on Form 8-K dated March 14,
                2007





15





**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 CORPORATIONMay
                15, 2007
            By:
            /s/Bob
                MarbutBob
                MarbutCo-Chief
                Executive Officer
              (Principal
                Accounting and Financial Officer)





May
                15, 2007
            By:
            /s/ Ron
                ChaimovskiRon
                ChaimovskiCo-Chief
                Executive Officer
              (Principal
                Executive Officer)




16




**Exhibit
      Index**


Exhibit
                  No.
              Description
 
 4.1(1)
              Warrant
                  to Purchase Common Stock between the Company and Wesley
                  Clark
 4.2(1)
              Warrant
                  to Purchase Common Stock between the Company and John J.
                  Smith
 4.3(1)
              Warrant
                  to Purchase Common Stock between the Company and Bob
                  Marbut
 4.4(1)
              Warrant
                  to Purchase Common Stock between the Company and Ron
                  Chaimovski
 4.5(1)
              Warrant
                  to Purchase Common Stock between the Company and Graham
                  Wallis
 4.6(1)
              Warrant
                  to Purchase Common Stock between the Company and Alan
                  Wachtel
 4.7(1)
              Warrant
                  to Purchase Common Stock between the Company and Argyle Global
                  Opportunities, L.P.
 10.1(1)
              Note
                  and Warrant Acquisition Agreement between the Company and Wesley
                  Clark
 10.2(1)
              Note
                  and Warrant Acquisition Agreement between the Company and John
                  J.
                  Smith
 10.3(1)
              Note
                  and Warrant Acquisition Agreement between the Company and Bob
                  Marbut
 10.4(1)
              Note
                  and Warrant Acquisition Agreement between the Company and Ron
                  Chaimovski
 10.5(1)
              Note
                  and Warrant Acquisition Agreement between the Company and Graham
                  Wallis
 10.6(1)
              Note
                  and Warrant Acquisition Agreement between the Company and Alan
                  Wachtel
 10.7(1)
              Note
                  and Warrant Acquisition Agreement between the Company and Argyle
                  Global
                  Opportunities, L.P.
 10.8(1)
              Note
                  made by the Company in favor of Wesley
                  Clark
 10.9(1)
              Note
                  made by the Company in favor of John J.
                  Smith
 10.10(1)
              Note
                  made by the Company in favor of Bob
                  Marbut
 10.11(1)
              Note
                  made by the Company in favor of Ron
                  Chaimovski
 10.12(1)
              Note
                  made by the Company in favor of Graham
                  Wallis
 10.13(1)
              Note
                  made by the Company in favor of Alan
                  Wachtel
 10.14(1)
              Note
                  made by the Company in favor of Argyle Global Opportunities,
                  L.P.
 10.15(2)
              Letter
                  Agreement between Argyle Security Acquisition Corporation, Rodman
&
                  Renshaw, LLC and I-Bankers Securities,
                  Inc.
 31.1
              Certification
                  of the Co-Chief Executive Officer (Principal Financial Officer)
                  pursuant
                  to Rule 13a-14(a) of the Securities Exchange Act, as
                  amended
 31.2
              Certification
                  of the Co-Chief Executive Officer and (Principal Executive Officer)
                  pursuant to Rule 13a-14(a) of the Securities Exchange Act, as
                  amended
 32.1
              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
                  .


_________________


(1)
            Incorporated
                by reference to the Company’s Current Report on Form 8-K dated April 16,
                2007


(2)
            Incorporated
                by reference to the Company’s Current Report on Form 8-K dated March 14,
                2007





17