**Exhibit 99.1**

 
| **Company Contacts:**                            | ** ** | **Investor  Relations:** |
|--------------------------------------------------|------------|--------------------------|
| Bob Marbut, Chairman & Co-CEO           |       | Amy Glynn, CFA           |
| Roni Chaimovski, Vice-Chairman & Co-CEO |       | Cameron Associates       |
| Don Neville, CFO                                 |       | Phone: (212) 554-5464    |
| Argyle Security, Inc.                       |       | amy@cameronassoc.com     |
| Phone: (212) 245-2700 (NY)                       |       |                     |
| Phone: (210) 828-1700 (TX)                       |       |                     |
| Phone:  001-972-545-212-911 (Tel Aviv)           |       |                     |
|                                             |       |                     |
| ** **                                       | ** ** | **Media Relations:**     |
|                                             |       | Deanne Eagle             |
|                                             |       | Cameron Associates       |
|                                             |       | Phone: (212) 554-5463    |
|                                             |       | deanne@cameronassoc.com  |

** **

**ARGYLE SECURITY, INC. ANNOUNCES**

**SECOND QUARTER 2008 FINANCIAL RESULTS**

 

**Second Quarter 2008 Adjusted Pro FormaFinancial Highlights vs. Second Quarter 2007**

 

·                  **RevenuesIncreased by 66% to $36.5 Million**

·                  **GrossProfit Rose by 25% to $7.3 Million**

·                  **EBITDAEssentially Flat with Q2 2007 at $1.7 Million**

·                  **DilutedEPS of ($0.01), Compared to $0.02**

 

**Business Highlights**

 

·                  **InApril, Secured $15 Million in Financing to Pursue Strategic Growth Initiatives**

·                  **NewManagement Appointees in Argyle Corrections to Support Larger Scale and Growth**

·                  **Com-TecTechnology Integration Completed in August**

 

**San Antonio, TX – August 14, 2008**– Argyle Security, Inc. (OTC BB:ARGL), (“Argyle”) a service and solutionsprovider in the physical electronic security industry, today announcedfinancial results for the three and six months ended June 30, 2008.

 

**Adjusted Pro Forma Results(1)**

 

For the three months ended June 30, 2008, Argyle’s pro formarevenues increased by 66%, to $36.5 million, compared to $21.9 million for thesame period last year.  Pro forma revenues in Argyle Corrections Grouprose by 94% to****$28.8 million, driven largely byfavorable industry trends, retention and expansion of business with existingcustomers, as well as new customers.  

 

----

 

Pro forma revenues in Argyle Commercial Security Group increased by9%.  Argyle Commercial Security hascontinued to make investments in its sales force, which are expected to driveboth contract and service revenues in the commercial market.  Based on favorable conditions in ArgyleCommercial Security’s target markets of petrochemical, energy infrastructureand healthcare, Argyle Commercial Security believes it is well-positioned for astrong second half of 2008.

 

Adjusted pro forma gross profit increased by 25% to $7.3 million, or20.1% of sales, compared to $5.9 million, or 26.7% of sales, in the comparableperiod of 2007.  Similar to the first quarter of 2008, the gross marginpercentage in the second quarter of 2008 was adversely impacted by theinclusion of Com-Tec’s revenues and expenses into Argyle Corrections, asCom-Tec is currently engaged in a significant project that has margins wellbelow Argyle Security’s corporate average.

 

Second quarter margins in Argyle Corrections were also impacted bycertain operational inefficiencies in its security electronics business.  These issues first became apparent in thefirst quarter of 2008, and have largely been corrected.  Argyle believes it should see margins improveduring the balance of the year, primarily due to the operational improvementsthat have been made within its security electronics business, as well as theexpected benefit from lower-cost technology integration.

 

Adjusted pro forma operating expenses were $6.3 million, up 41% from$4.5 million in the second quarter of 2007.  In the second quarter of2008, Argyle incurred higher than expected legal and accounting fees related tobeing a public company.  Adjustedoperating income in the second quarter of 2008 was $1.0 million, or 2.8% ofsales, compared to $1.4 million, or 6.3% of sales, in the second quarter of2007.    Pro forma adjusted EBITDA of $1.7 million, or 4.5% ofadjusted pro forma revenues, was essentially flat with second quarter 2007 proforma adjusted EBITDA of $1.7 million, or 7.8% of revenues.  In the second quarter of 2008, adjusted proforma net income was $36,000, or ($0.01) per diluted share, compared toadjusted pro forma net income of $122,000, or $0.02 per diluted share, in theprior-year period.

 

For the six months ended June 30, 2008, Argyle’s pro formarevenues increased by 68% to $75.8 million, compared to $45.1 million in thesame period of 2007. Gross profit increased by 41% to $15.3 million, or 20.2%of sales, compared to $10.9 million, or 24.1% of sales, in the first six monthsof 2007.

 

EBITDA rose 23% to $3.5 million, compared to $2.8 million for the sametwo quarters last year. The comparable EBITDA margin was 4.6%, compared to6.2%.  Net income for the six monthsended June 30, 2008 was $359,000, or $0.04 per diluted share, compared tonet income of $186,000, or $0.03 per diluted share in the prior-year period.

 

**Actual Results**

 

Revenues and gross profit for the second quarter of 2008 were $36.5million and $6.1 million,respectively. Argyle recognized no revenues or gross profit in the secondquarter of 2007.  The operating loss was $679,000 for the three monthsended June 30, 2008, compared to an operating loss of $230,000 for thethree months ended June 30, 2007.   Argyle’s net loss for thethree 

 

----

 

months ended June 30, 2008 was $1.0 million, or ($0.19) per share(basic and diluted), compared to net income of $50,000, or $0.00 per share(basic and diluted), in the second quarter of 2007.

 

Revenues and gross profit for the six months ended June 30, 2008were $74.1 million and $12.5 million, respectively; Argyle recognized norevenues or gross profit for the six months ended June 30, 2007. Argyle’soperating loss was $1.1 million for the six months ended June 30, 2008,compared to an operating loss of $520,000 for the six months ended June 30,2007. Argyle’s net loss for the six months ended June 30, 2008 was $1.8million, or ($0.32) per share (basic and diluted), compared to net income of$101,000, or $0.00 per share, for the six months ended June 30, 2007.

 

**Backlog**

 

As of June 30, 2008, net backlog for Argyle Corrections Group was$70.5 million, compared to pro forma net backlog of $100.1 million as of June 30,2007.  The pro forma net backlog number assumes that the acquisitions ofCom-Tec and PDI were completed on January 1, 2007.

 

Beginning in 2008, Argyle Security opted to disclose net backlog onlyfor Argyle Corrections Group (and after the elimination of intercompanyrevenues).

 

**Management Overview**

 

Bob Marbut, Chairman and Co-CEO of Argyle Security, stated, “We arevery pleased with our revenue growth in the quarter, with overall revenues up 66%and revenues in the Corrections Group up 94%. This level of growth largely reflects the robust market conditions inthe corrections sector, but also our ability to deliver superior products andservices to an expanding customer base.

 

“However, we also had some challenges in the quarter, resulting in anEBITDA margin that was below our expectations. We started to strengthen the infrastructure of our security electronicsbusiness in the first quarter, but it took more time than we had expected todevelop the people, systems and structure necessary to support our significantgrowth. But, as a result of the actions that have been taken, we believe thatwe will be in a position to achieve the margin run rates that we had targetedfor the last half of 2008,” he concluded.

 

Sam Youngblood, President of Argyle Security USA, continued, “Webelieve that with the operational issues now rectified, we have the properinfrastructure in place to support our current and future growth.  We have committed additional managementresources to ensure that we are running at optimal efficiency.  Most notably, we have appointed Mike Petersonas COO of Argyle Corrections Group, and we are also providing morecomprehensive training to all of our supervisory personnel.   With tighter management controls and bettertraining, we believe we can drive more profitable revenue growth.  We also expect to realize significantcostsavings by integrating Com-Tec’s lower-cost technologies across Argyle USA,which was largely completed in August of this year.  We believe this will be reflected in ourmargins starting in the fourth quarter of this year.”

 

Ron Chaimovski, Vice-Chairman and Co-CEO of Argyle Security, added, “Inthe face of challenging economic times, our primary focus for driving newbusiness in Argyle Commercial 

 

----

 

Security Group is on those industries where security is not an option,but a necessity – petrochemical, infrastructure, such as ports, utilitycompanies, and waste and water treatment plants, and healthcare.  Our plan remains to expand our nationalfootprint in the commercial market, through a combination of organic growth andacquisitions.  As the market is highlyfragmented and ripe for consolidation, there is an abundance of acquisitioncandidates which may become available to Argyle.  We continue to evaluate opportunities thatmake good strategic sense for Argyle and could be acquired for the right price.”

 

**Argyle Updates Guidance for 2008**

 

Based on its strong first-half performance and robust market conditionsin the corrections industry, Argyle expects full-year 2008 revenues to be atthe top end of the previously forecasted range of $128 to $142 million.  Argyle now expects EBITDA margins ofapproximately 7% for the full-year 2008, which is below previous expectationsfor 9 to 10%, and due to 1) margin erosion in the security electronicsbusiness, 2) higher than expected legal and accounting fees and 3) non-cashcompensation expense. However, as the previously listed items were primarilyconcentrated in the first half of the year, Argyle does expect to achieve anEBITDA margin run rate of approximately 9% in the second half of 2008.

 

**Conference Call Information**

 

Argyle Security will host an investor conference call at 10:00 a.m.ET, today, August 14, 2008 to discuss its results.  Interestedparties should call 888-713-4213 (domestic) or 617-213-4865 (international) atleast five minutes before the scheduled start time; the passcode is 89962604.This call may also be accessed via the Internet at:

 

www.argylesecurity.com

 

For those whoare unavailable to listen to the live broadcast, a replay will be availablethrough August 28, 2008 and can be accessed by dialing 888-286-8010(domestic), and 617-801-6888 (international). The pass code is 84546898.

 

**Disclosure Regarding Non-GAAP FinancialMeasures**

 

(1) Adjusted Pro Forma Results

 

Since Argyle Security acquired ISI Security Group (which is now a partof Argyle Security USA) in July 2007 and FireQuest, Peterson and Com-Tecin January 2008, the Company does not believe a comparison of the resultsof operations and cash flows for the three months ended June 30, 2008versus June 30, 2007 is beneficial to stockholders. In order to assistinvestors in better understanding the changes in its business between the threemonths ended June 30, 2007 and June 30, 2008, Argyle Security hasprovided adjusted pro forma results as if the acquisitions occurred on January 1,2008 and January 1, 2007, respectively.  Argyle Security derived theadjusted pro forma results of operations from (i) the unauditedconsolidated financial statements of Com-Tec for the three months ended June 30,2007, (ii) the unaudited financial statements of Peterson for the threemonths ended June 30, 2007, (iii) the unaudited financial statementsof FireQuest for the three months ended June 30, 2007 and (iv) theunaudited consolidated financial statements of the Company for the three monthsended June 30, 2008 and 2007.

 

----

 

Adjusted pro forma net income is an alternative view of performanceused by management, and we believe that investors’ understanding of ourperformance is enhanced by disclosing this performance measure. We reportadjusted pro forma net income in order to present the results of our majoroperations — the construction, installation, marketing and sale of variouselectronic security systems for commercial accounts and detention hardware(including security doors and frames, jail furniture, security glazing, andother security-based systems) and electronic control systems for correctionalfacilities — prior to considering certain income statement elements,principally amortization of intangible assets. **We havedefined adjusted pro forma net income as net income before the impact ofpurchase accounting for acquisitions, acquisition-related costs, discontinuedoperations and one-time expenses associated with stock appreciationrights.  The adjusted pro forma netincome measure is not, and should not be viewed as, a substitute for U.S. GAAPnet income.**

 

EBITDA (earnings before interest, taxes, depreciation and amortization)is used by management as a performance measure for benchmarking against theCompany’s peers and competitors. The Company believes EBITDA is useful toinvestors, because it is frequently used by securities analysts, investors andother interested parties to evaluate companies in the security industry. EBITDAis not a recognized term under GAAP.  Argyle and ISI compute EBITDA usingthe same consistent method from quarter to quarter.  Following theattached financial statements is a reconciliation of EBITDA to net loss.

 

The presentation of Adjusted Pro Forma Results and EBITDA is notintended to be considered in isolation or as a substitute for the financialinformation prepared and presented in accordance with GAAP.

 

**About Argyle Security, Inc.**

 

Formed in 2005 and headquartered in San Antonio, TX, Argyle Security’sgoal is to become a leading global provider of services and solutions in thephysical electronic security industry through an integrated buildupstrategy.  Argyle’s channel focus is Video Surveillance, Access Control,Perimeter Protection, Intrusion Protection, Fire Detection and Threat Analysis,serving selected commercial, governmental and residential markets.

 

In July 2007, Argyle acquired ISI Security Group.  In February 2008,Argyle formed Argyle Security USA, which encompasses the former ISI SecurityGroup’s operations in both the corrections and commercial sectors, plus thePDI, Com-Tec and FireQuest acquisitions.  Argyle Security, Inc.currently has two reporting segments: Argyle Corrections Group and ArgyleCommercial Security Group.

 

Argyle Corrections Group is the controlling entity for ISI, PDI,Com-Tec and MCS.  Argyle Corrections Group is one of the nation’s largestproviders of detention equipment products and service solutions, as well asturnkey, electronic security systems.  These systems include uniqueengineering competencies and proprietary software products.  ArgyleCommercial Security Group focuses on the commercial security sector andprovides turnkey, electronic security systems to the commercial market. Currently, MCS-Commercial Fire & Security is the only member in ArgyleCommercial Security Group.

 

----

 

Please visit http://www.argylesecurity.com/ orhttp://www.argylesecurityusa.com/   for additional information onArgyle Security and Argyle Security USA.

 

**Safe Harbor**

 

Certain statements in this press release constitute “forward-lookingstatements” as defined in the Private Securities Litigation Reform Act of 1995,as amended. When used in this press release, words such as “will,” “believe,” “expect,”“anticipate,” “encouraged,” “estimate,” “intend,” “plan,” “project,” “target,” “can,”“could,” “may,” “should,” “would,” and similar expressions, as they relate tothe company or its management, as well as assumptions made by and informationcurrently available to the company’s management identify forward-lookingstatements. You are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statements are not guarantees of futureperformance and actual results of operations, financial condition andliquidity, and developments in the industry may differ materially from thosemade in or suggested by the forward-looking statements contained herein. Theseforward-looking statements are subject to numerous risks, uncertainties andassumptions. The forward-looking statements herein speak only as of the datestated herein and might not occur in light of these risks, uncertainties, andassumptions. The company undertakes no obligation and disclaims any obligationto publicly update or revise any forward-looking statements, whether as aresult of new information, future events, or otherwise. Additional informationconcerning forward looking statements is contained under the heading of riskfactors listed from time to time in the company’s filings with the U.S.Securities and Exchange Commission.

 

*Financial Statements to Follow*

 

----

** **

**Argyle Security, Inc**

**Reconciliation of GAAP Net Income to AdjustedNet Income**

(in thousands)

 
| ** **                                                                             | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                             | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                                                             | ** ** | **2008**                         | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** |
| **GAAP net income (loss)**                                                             | ** ** | **$**                            | **(1,020** | **)**                          | **$**      | **50** | ** ** | **$** | **(1,754** | **)** | **$** | **101** | ** ** |
| Pro forma adjustments - addbacks  (reductions)                                         |       |                             |       |                           |       |   |   |   |   |
| Argyle salary expense (increase) for  management team in 2007                          |       | —                           |       | (222                           | )          | — |   | (444 | ) |
| Non-cash compensation expense (increase)  for 2007                                     |       | —                           |       | (141                           | )          | — |   | (283 | ) |
| Depreciation expense (increase) on revalued  assets in 2007                            |       | —                           |       | (80                            | )          | — |   | (158 | ) |
| Amortization of intangible expense  (increase) in cost of goods sold for 2008 and 2007 |       | —                           |       | (1,274                         | )          | (37 | ) | (2,564 | ) |
| Amortization of intangible expense  (increase) in operating expenses for 2008 and 2007 |       | —                           |       | (426                           | )          | (21 | ) | (868 | ) |
| Reduction in rent expense                                                              |       | —                           |       | 53                             |       | 6 |   | 70 |   |
| Interest income increase / (reduction) for  2008 and 2007                              |       | —                           |       | (330                           | )          | — |   | (654 | ) |
| Interest expense (increase) / reduction for  2008 and 2007                             |       | —                           |       | 1,151                          |       | (39 | ) | 1,398 |   |
| Income / (loss) from predecessor - Argyle  Security USA for 2007                       |       | —                           |       | (619                           | )          | — |   | (496 | ) |
| Income / (loss) from predecessor -  Firequest for 2007                                 |       | —                           |       | 80                             |       | — |   | 160 |   |
| Income / (loss) from predecessor - PDI for  2007                                       |       | —                           |       | 157                            |       | — |   | 313 |   |
| Income / (loss) from predecessor - Com-Tec  for January 2008 and 2007                  |       | —                           |       | 190                            |       | 44 |   | 152 |   |
| Provision (benefit) for income taxes on pro  forma adjustments for 2008 and 2007       |       | —                           |       | 480                            |       | 32 |   | 1,331 |   |
| **Pro forma net income (loss)**                                                        | ** ** | **$**                            | **(1,020** | **)**                          | **$**      | **(931** | **)** | **$** | **(1,769** | **)** | **$** | **(1,942** | **)** |
| Amortization of intangible expense in cost  of goods sold for 2008 and 2007            |       | 1,276                            |       | 1,274                          |       | 2,565 |   | 2,564 |   |
| Amortization of intangible expense in  operating expenses for 2008 and 2007            |       | 427                              |       | 426                            |       | 868 |   | 868 |   |
| Provision (benefit) for income taxes on pro  forma adjustments for 2008 and 2007       |       | (647                             | )          | (647                           | )          | (1,305 | ) | (1,304 | ) |
| **Adjusted pro forma net income (loss)**                                               | ** ** | **$**                            | **36**     | ** **                     | **$**      | **122** | ** ** | **$** | **359** | ** ** | **$** | **186** | ** ** |
| Interest, net                                                                          |       | 802                              |       | 865                            |       | 1,620 |   | 1,646 |   |
| Depreciation expense                                                                   |       | 626                              |       | 334                            |       | 1,116 |   | 680 |   |
| Taxes, net                                                                             |       | 186                              |       | 393                            |       | 393 |   | 326 |   |
| **Pro forma EBITDA**                                                                   | ** ** | **$**                            | **1,650**  | ** **                     | **$**      | **1,714** | ** ** | **$** | **3,488** | ** ** | **$** | **2,838** | ** ** |

 

----

 

**Argyle Security, Inc**

**Pro Forma Consolidated Statements of Operations (unaudited)**

(inthousands except share data)

 
| ** **                                                                                                         | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                         | ** ** | **June 30,**                | ** ** | **% of** | ** ** | **June 30,** | ** ** | **% of** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **                                                                                                         | ** ** | **2008**                         | ** ** | **Revenue** | ** ** | **2007** | ** ** | **Revenue** | ** ** | **Change** | ** ** | **Change** | ** ** |
| Revenues:                                                                                                          |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Contract revenues                                                                                                  |       | $                                | 24,711     |   | 68 | % | $ | 10,730 |   | 49 | % | $ | 13,981 |   | 130 | % |
| Contract revenues - related party                                                                                  |       | 5,282                            |       | 14 | % | 7,365 |   | 34 | % | (2,083 | ) | -28 | % |
| Service and other revenues                                                                                         |       | 6,513                            |       | 18 | % | 3,836 |   | 17 | % | 2,677 |   | 70 | % |
| Total revenues                                                                                                     |       | 36,506                           |       | 100 | % | 21,931 |   | 100 | % | 14,575 |   | 66 | % |
| Cost of revenues:                                                                                                  |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Contract costs                                                                                                     |       | 24,424                           |       | 67 | % | 13,465 |   | 61 | % | 10,959 |   | 81 | % |
| Service and other costs, including  amortization of intangibles ($1,276 for 2008 and $1,274 for 2007)              |       | 6,018                            |       | 16 | % | 3,885 |   | 18 | % | 2,133 |   | 55 | % |
| Total cost of revenues                                                                                             |       | 30,442                           |       | 83 | % | 17,350 |   | 79 | % | 13,092 |   | 75 | % |
| Gross profit                                                                                                       |       | 6,064                            |       | 17 | % | 4,581 |   | 21 | % | 1,483 |   | 32 | % |
| Operating expenses:                                                                                                |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Salaries and related expense, including stock-based  compensation of $191 in 2008 and $142 in 2007                 |       | 3,410                            |       | 9 | % | 2,294 |   | 10 | % | 1,116 |   | 49 | % |
| Consulting fees and outside services                                                                               |       | 637                              |       | 2 | % | 311 |   | 1 | % | 326 |   | 105 | % |
| Depreciation                                                                                                       |       | 598                              |       | 2 | % | 289 |   | 1 | % | 309 |   | 107 | % |
| Other general and administrative expenses                                                                          |       | 1,671                            |       | 5 | % | 1,581 |   | 7 | % | 90 |   | 6 | % |
| Amortization of intangible assets                                                                                  |       | 427                              |       | 1 | % | 426 |   | 2 | % | 1 |   | 0 | % |
| Total operating expenses                                                                                           |       | 6,743                            |       | 18 | % | 4,901 |   | 22 | % | 1,842 |   | 38 | % |
| Operating loss                                                                                                     |       | (679                             | )          | -2 | % | (320 | ) | -1 | % | (359 | ) | 112 | % |
| Other income (expense):                                                                                            |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                                                                    |       | 52                               |       | 0 | % | 51 |   | 0 | % | 1 |   | 2 | % |
| Interest expense                                                                                                   |       | (854                             | )          | -2 | % | (916 | ) | -4 | % | 62 |   | -7 | % |
| Total other income (expense)                                                                                       |       | (802                             | )          | -2 | % | (865 | ) | -4 | % | 63 |   | -7 | % |
| Income (loss) before provision for income  taxes                                                                   |       | (1,481                           | )          | -4 | % | (1,185 | ) | -5 | % | (296 | ) | 25 | % |
| Provision (benefit) for income taxes                                                                               |       | (461                             | )          | -1 | % | (254 | ) | -1 | % | (207 | ) | 81 | % |
| Net income (loss)                                                                                                  |       | $                                | (1,020     | ) | -3 | % | $ | (931 | ) | -4 | % | $ | (89 | ) | 10 | % |
| Deferred interest, net of taxes, subject to  possible redemption                                                   |       | —                           |       | 0 | % | — |   | 0 | % | — |   | 0 | % |
| Dividends on convertible preferred  stockholders                                                                   |       | 86                               |       | 0 | % | — |   | 0 | % | — |   | 0 | % |
| Net income (loss) allocable to holders of  non-redeemable common stock                                             |       | $                                | (1,106     | ) | -3 | % | $ | (931 | ) | -4 | % | $ | (89 | ) | 10 | % |
|                                                                                                               |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Weighted-average number of shares of common  stock outstanding exclusive of shares subject to possible redemption: |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                              |       | 5,799,342                        |       |   |   | 5,799,342 |   |   |   | 0 |   | 0 | % |
| Diluted                                                                                                            |       | 5,799,342                        |       |   |   | 5,799,342 |   |   |   | 0 |   | 0 | % |
| Net income (loss) per share allocable to  holders of non-redeemable common stock:                                  |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                              |       | $                                | (0.19      | ) |   |   | $ | (0.16 | ) |   |   | $ | (0.03 | ) | 19 | % |
| Diluted                                                                                                            |       | $                                | (0.19      | ) |   |   | $ | (0.16 | ) |   |   | $ | (0.03 | ) | 19 | % |

 

----

 

**Argyle Security, Inc**

**Pro Forma Consolidated Statements of Operations(unaudited)**

(inthousands except share data)

 
| ** **                                                                                                         | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                         | ** ** | **June 30,**              | ** ** | **% of** | ** ** | **June 30,** | ** ** | **% of** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **                                                                                                         | ** ** | **2008**                       | ** ** | **Revenue** | ** ** | **2007** | ** ** | **Revenue** | ** ** | **Change** | ** ** | **Change** | ** ** |
| Revenues:                                                                                                          |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Contract revenues                                                                                                  |       | $                              | 51,617     |   | 68 | % | $ | 22,536 |   | 50 | % | $ | 29,081 |   | 129 | % |
| Contract revenues - related party                                                                                  |       | 12,225                         |       | 16 | % | 13,166 |   | 29 | % | (941 | ) | -7 | % |
| Service and other revenues                                                                                         |       | 11,979                         |       | 16 | % | 9,402 |   | 21 | % | 2,577 |   | 27 | % |
| Total revenues                                                                                                     |       | 75,821                         |       | 100 | % | 45,104 |   | 100 | % | 30,717 |   | 68 | % |
| Cost of revenues:                                                                                                  |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Contract costs                                                                                                     |       | 51,464                         |       | 68 | % | 27,278 |   | 60 | % | 24,186 |   | 89 | % |
| Service and other costs, including amortization  of intangibles ($2,565 for 2008 and $2,564 for 2007)              |       | 11,577                         |       | 15 | % | 9,506 |   | 21 | % | 2,071 |   | 22 | % |
| Total cost of revenues                                                                                             |       | 63,041                         |       | 83 | % | 36,784 |   | 82 | % | 26,257 |   | 71 | % |
| Gross profit                                                                                                       |       | 12,780                         |       | 17 | % | 8,320 |   | 18 | % | 4,460 |   | 54 | % |
| Operating expenses:                                                                                                |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Salaries and related expense, including  stock-based compensation of $749 in 2008 and $283 in 2007                 |       | 6,987                          |       | 9 | % | 4,783 |   | 11 | % | 2,204 |   | 46 | % |
| Consulting fees and outside services                                                                               |       | 1,586                          |       | 2 | % | 606 |   | 1 | % | 980 |   | 162 | % |
| Depreciation                                                                                                       |       | 1,060                          |       | 1 | % | 591 |   | 1 | % | 469 |   | 79 | % |
| Other general and administrative expenses                                                                          |       | 3,340                          |       | 4 | % | 2,746 |   | 6 | % | 594 |   | 22 | % |
| Amortization of intangible assets                                                                                  |       | 868                            |       | 1 | % | 868 |   | 2 | % | — |   | 0 | % |
| Total operating expenses                                                                                           |       | 13,841                         |       | 18 | % | 9,594 |   | 21 | % | 4,247 |   | 44 | % |
| Operating loss                                                                                                     |       | (1,061                         | )          | -1 | % | (1,274 | ) | -3 | % | 213 |   | -17 | % |
| Other income (expense):                                                                                            |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                                                                    |       | 78                             |       | 0 | % | 111 |   | 0 | % | (33 | ) | -30 | % |
| Interest expense                                                                                                   |       | (1,698                         | )          | -2 | % | (1,757 | ) | -4 | % | 59 |   | -3 | % |
| Total other income (expense)                                                                                       |       | (1,620                         | )          | -2 | % | (1,646 | ) | -4 | % | 26 |   | -2 | % |
| Income (loss) before provision for income  taxes                                                                   |       | (2,681                         | )          | -4 | % | (2,920 | ) | -6 | % | 239 |   | -8 | % |
| Provision (benefit) for income taxes                                                                               |       | (912                           | )          | -1 | % | (978 | ) | -2 | % | 66 |   | -7 | % |
| Net income (loss)                                                                                                  |       | $                              | (1,769     | ) | -2 | % | $ | (1,942 | ) | -4 | % | $ | 173 |   | -9 | % |
| Deferred interest, net of taxes, subject to  possible redemption                                                   |       | —                         |       | 0 | % | — |   | 0 | % | — |   | 0 | % |
| Dividends on convertible preferred  stockholders                                                                   |       | 86                             |       | 0 | % | — |   | 0 | % | — |   | 0 | % |
| Net income (loss) allocable to holders of  non-redeemable common stock                                             |       | $                              | (1,855     | ) | -2 | % | $ | (1,942 | ) | -4 | % | $ | 173 |   | -9 | % |
|                                                                                                               |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Weighted-average number of shares of common  stock outstanding exclusive of shares subject to possible redemption: |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                              |       | 5,795,221                      |       |   |   | 5,799,342 |   |   |   | (4,121 | ) | 0 | % |
| Diluted                                                                                                            |       | 5,795,221                      |       |   |   | 5,799,342 |   |   |   | (4,121 | ) | 0 | % |
| Net income (loss) per share allocable to  holders of non-redeemable common stock:                                  |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                              |       | $                              | (0.32      | ) |   |   | $ | (0.33 | ) |   |   | $ | 0.01 |   | -4 | % |
| Diluted                                                                                                            |       | $                              | (0.32      | ) |   |   | $ | (0.33 | ) |   |   | $ | 0.01 |   | -4 | % |

 

----

 

**Argyle Security, Inc**

**Adjusted Pro Forma Consolidated Statements of Operations(unaudited)**

(inthousands except share data)

 
| ** **                                                                                                         | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                         | ** ** | **June 30,**                | ** ** | **% of** | ** ** | **June 30,** | ** ** | **% of** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **                                                                                                         | ** ** | **2008**                         | ** ** | **Revenue** | ** ** | **2007** | ** ** | **Revenue** | ** ** | **Change** | ** ** | **Change** | ** ** |
| Revenues:                                                                                                          |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Contract revenues                                                                                                  |       | $                                | 24,711     |   | 68 | % | $ | 10,730 |   | 49 | % | $ | 13,981 |   | 130 | % |
| Contract revenues - related party                                                                                  |       | 5,282                            |       | 14 | % | 7,365 |   | 34 | % | (2,083 | ) | -28 | % |
| Service and other revenues                                                                                         |       | 6,513                            |       | 18 | % | 3,836 |   | 17 | % | 2,677 |   | 70 | % |
| Total revenues                                                                                                     |       | 36,506                           |       | 100 | % | 21,931 |   | 100 | % | 14,575 |   | 66 | % |
| Cost of revenues:                                                                                                  |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Contract costs                                                                                                     |       | 24,424                           |       | 67 | % | 13,465 |   | 61 | % | 10,959 |   | 81 | % |
| Service and other costs, excluding  amortization of intangibles                                                    |       | 4,742                            |       | 13 | % | 2,611 |   | 12 | % | 2,131 |   | 82 | % |
| Total cost of revenues                                                                                             |       | 29,166                           |       | 80 | % | 16,076 |   | 73 | % | 13,090 |   | 81 | % |
| Gross profit                                                                                                       |       | 7,340                            |       | 20 | % | 5,855 |   | 27 | % | 1,485 |   | 25 | % |
| Operating expenses:                                                                                                |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Salaries and related expense, including  stock-based compensation of $191 in 2008 and $142 in 2007                 |       | 3,410                            |       | 9 | % | 2,294 |   | 10 | % | 1,116 |   | 49 | % |
| Consulting fees and outside services                                                                               |       | 637                              |       | 2 | % | 311 |   | 1 | % | 326 |   | 105 | % |
| Depreciation                                                                                                       |       | 598                              |       | 2 | % | 289 |   | 1 | % | 309 |   | 107 | % |
| Other general and administrative expenses                                                                          |       | 1,671                            |       | 5 | % | 1,581 |   | 7 | % | 90 |   | 6 | % |
| Amortization of intangible assets                                                                                  |       | —                           |       | 0 | % | — |   | 0 | % | — |   | 0 | % |
| Total operating expenses                                                                                           |       | 6,316                            |       | 17 | % | 4,475 |   | 20 | % | 1,841 |   | 41 | % |
| Operating income                                                                                                   |       | 1,024                            |       | 3 | % | 1,380 |   | 6 | % | (356 | ) | -26 | % |
| Other income (expense):                                                                                            |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                                                                    |       | 52                               |       | 0 | % | 51 |   | 0 | % | 1 |   | 2 | % |
| Interest expense                                                                                                   |       | (854                             | )          | -2 | % | (916 | ) | -4 | % | 62 |   | -7 | % |
| Total other income (expense)                                                                                       |       | (802                             | )          | -2 | % | (865 | ) | -4 | % | 63 |   | -7 | % |
| Income (loss) before provision for income  taxes                                                                   |       | 222                              |       | 1 | % | 515 |   | 2 | % | (293 | ) | -57 | % |
| Provision (benefit) for income taxes                                                                               |       | 186                              |       | 1 | % | 393 |   | 2 | % | (207 | ) | -53 | % |
| Net income (loss)                                                                                                  |       | $                                | 36         |   | 0 | % | $ | 122 |   | 1 | % | $ | (86 | ) | -70 | % |
| Deferred interest, net of taxes, subject to  possible redemption                                                   |       | —                           |       | 0 | % | — |   | 0 | % | — |   | 0 | % |
| Dividends on convertible preferred  stockholders                                                                   |       | 86                               |       | 0 | % | — |   | 0 | % | — |   | 0 | % |
| Net income (loss) allocable to holders of  non-redeemable common stock                                             |       | $                                | (50        | ) | 0 | % | $ | 122 |   | 1 | % | $ | (86 | ) | -70 | % |
|                                                                                                               |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| EBITDA Calculation:                                                                                                |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Interest, net                                                                                                      |       | $                                | 802        |   |   |   | $ | 865 |   |   |   | (63 | ) | -7 | % |
| Depreciation                                                                                                       |       | 626                              |       |   |   | 334 |   |   |   | 292 |   | 87 | % |
| Taxes, net                                                                                                         |       | 186                              |       |   |   | 393 |   |   |   | (207 | ) | -53 | % |
| EBITDA                                                                                                             |       | $                                | 1,650      |   |   |   | $ | 1,714 |   |   |   | $ | (64 | ) | -4 | % |
|                                                                                                               |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Weighted-average number of shares of common  stock outstanding exclusive of shares subject to possible redemption: |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                              |       | 5,799,342                        |       |   |   | 5,799,342 |   |   |   | 0 |   | 0 | % |
| Diluted                                                                                                            |       | 5,799,342                        |       |   |   | 7,061,764 |   |   |   | (1,262,422 | ) | -18 | % |
| Net income (loss) per share allocable to  holders of non-redeemable common stock:                                  |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                              |       | $                                | (0.01      | ) |   |   | $ | 0.02 |   |   |   | $ | (0.03 | ) | -141 | % |
| Diluted                                                                                                            |       | $                                | (0.01      | ) |   |   | $ | 0.02 |   |   |   | $ | (0.03 | ) | -150 | % |

 

----

 

**Argyle Security, Inc**

**Adjusted Pro Forma Consolidated Statements ofOperations**

**(unaudited)**

(in thousands except share data)

 
| ** **                                                                                                         | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                         | ** ** | **June 30,**              | ** ** | **% of** | ** ** | **June 30,** | ** ** | **% of** | ** ** | **$** | ** ** | **0-Jan** | ** ** |
| ** **                                                                                                         | ** ** | **2008**                       | ** ** | **Revenue** | ** ** | **2007** | ** ** | **Revenue** | ** ** | **Change** | ** ** | **Change** | ** ** |
| Revenues:                                                                                                          |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Contract revenues                                                                                                  |       | $                              | 51,617     |   | 68 | % | $ | 22,536 |   | 50 | % | $ | 29,081 |   | 129 | % |
| Contract revenues - related party                                                                                  |       | 12,225                         |       | 16 | % | 13,166 |   | 29 | % | (941 | ) | -7 | % |
| Service and other revenues                                                                                         |       | 11,979                         |       | 16 | % | 9,402 |   | 21 | % | 2,577 |   | 27 | % |
| Total revenues                                                                                                     |       | 75,821                         |       | 100 | % | 45,104 |   | 100 | % | 30,717 |   | 68 | % |
| Cost of revenues:                                                                                                  |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Contract costs                                                                                                     |       | 51,464                         |       | 68 | % | 27,278 |   | 60 | % | 24,186 |   | 89 | % |
| Service and other costs, excluding  amortization of intangibles                                                    |       | 9,012                          |       | 12 | % | 6,942 |   | 15 | % | 2,070 |   | 30 | % |
| Total cost of revenues                                                                                             |       | 60,476                         |       | 80 | % | 34,220 |   | 76 | % | 26,256 |   | 77 | % |
| Gross profit                                                                                                       |       | 15,345                         |       | 20 | % | 10,884 |   | 24 | % | 4,461 |   | 41 | % |
| Operating expenses:                                                                                                |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Salaries and related expense, including  stock-based compensation of $749 in 2008 and $283 in 2007                 |       | 6,987                          |       | 9 | % | 4,783 |   | 11 | % | 2,204 |   | 46 | % |
| Consulting fees and outside services                                                                               |       | 1,586                          |       | 2 | % | 606 |   | 1 | % | 980 |   | 162 | % |
| Depreciation                                                                                                       |       | 1,060                          |       | 1 | % | 591 |   | 1 | % | 469 |   | 79 | % |
| Other general and administrative expenses                                                                          |       | 3,340                          |       | 4 | % | 2,746 |   | 6 | % | 594 |   | 22 | % |
| Amortization of intangible assets                                                                                  |       | —                         |       | 0 | % | — |   | 0 | % | — |   | 0 | % |
| Total operating expenses                                                                                           |       | 12,973                         |       | 17 | % | 8,726 |   | 19 | % | 4,247 |   | 49 | % |
| Operating income                                                                                                   |       | 2,372                          |       | 3 | % | 2,158 |   | 5 | % | 214 |   | 10 | % |
| Other income (expense):                                                                                            |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                                                                    |       | 78                             |       | 0 | % | 111 |   | 0 | % | (33 | ) | -30 | % |
| Interest expense                                                                                                   |       | (1,698                         | )          | -2 | % | (1,757 | ) | -4 | % | 59 |   | -3 | % |
| Total other income (expense)                                                                                       |       | (1,620                         | )          | -2 | % | (1,646 | ) | -4 | % | 26 |   | -2 | % |
| Income (loss) before provision for income  taxes                                                                   |       | 752                            |       | 1 | % | 512 |   | 1 | % | 240 |   | 47 | % |
| Provision (benefit) for income taxes                                                                               |       | 393                            |       | 1 | % | 326 |   | 1 | % | 67 |   | 21 | % |
| Net income (loss)                                                                                                  |       | $                              | 359        |   | 0 | % | $ | 186 |   | 0 | % | $ | 173 |   | 93 | % |
| Deferred interest, net of taxes, subject to  possible redemption                                                   |       | —                         |       | 0 | % | — |   | 0 | % | — |   | 0 | % |
| Dividends on convertible preferred  stockholders                                                                   |       | 86                             |       | 0 | % | — |   | 0 | % | — |   | 0 | % |
| Net income (loss) allocable to holders of  non-redeemable common stock                                             |       | $                              | 273        |   | 0 | % | $ | 186 |   | 0 | % | $ | — |   | 0 | % |
|                                                                                                               |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| EBITDA Calculation:                                                                                                |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Interest, net                                                                                                      |       | $                              | 1,620      |   |   |   | $ | 1,646 |   |   |   | (26 | ) | -2 | % |
| Depreciation                                                                                                       |       | 1,116                          |       |   |   | 680 |   |   |   | 436 |   | 64 | % |
| Taxes, net                                                                                                         |       | 393                            |       |   |   | 326 |   |   |   | 67 |   | 21 | % |
| EBITDA                                                                                                             |       | $                              | 3,488      |   |   |   | $ | 2,838 |   |   |   | $ | 650 |   | 23 | % |
|                                                                                                               |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Weighted-average number of shares of common  stock outstanding exclusive of shares subject to possible redemption: |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                              |       | 5,795,221                      |       |   |   | 5,799,342 |   |   |   | (4,121 | ) | 0 | % |
| Diluted                                                                                                            |       | 6,641,411                      |       |   |   | 7,021,839 |   |   |   | (380,428 | ) | -5 | % |
| Net income (loss) per share allocable to  holders of non-redeemable common stock:                                  |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                              |       | $                              | 0.04       |   |   |   | $ | 0.03 |   |   |   | $ | 0.01 |   | 33 | % |
| Diluted                                                                                                            |       | $                              | 0.04       |   |   |   | $ | 0.03 |   |   |   | $ | 0.01 |   | 55 | % |

 

----