**Exhibit 99.1**

** **
| Company Contacts:                                |                    | Investor Relations: |
|--------------------------------------------------|-------------------------|---------------------|
| Bob Marbut, Chairman & Co-CEO           | Kevin McGrath           |
| Roni Chaimovski, Vice-Chairman & Co-CEO | Cameron Associates      |
| Don Neville, EVP and CFO                         | Phone: (212) 245-8800   |
| Argyle Security, Inc.                       | kevin@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 Third Quarter 2008 Financial Results**

 

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

 

·                  Revenuesincreased by 13% to $31.7 million.

 

·                  Grossprofit declined by 27% to $4.7 million.

 

·                  $16.9million Goodwill Impairment Charge.

 

·                  EBITDAat ($18.1) million inclusive of $16.9 million Goodwill Impairment Charge.

 

·                  DilutedEPS of ($3.01), inclusive of $16.9 million Goodwill Impairment Charge comparedto $0.33 in 2007

 

**Business Highlights**

 

·                  ISIDetention Received over $22 million in New Contracts or Letters of Intentduring October 2008.

 

·                  Closes$25 million Senior Secured Debt Financing in October 2008.

 

SAN ANTONIO, TX November 14,2008 — Argyle Security, Inc. (OTC Bulletin Board: ARGL), (“Argyle”) aservice and solutions provider in the physical electronic security industry,today announced financial results for the three and nine months ended September 30,2008.

 

Revenues and gross profit for thethird quarter of 2008 were $31.7 million and $3.5 million, respectively,compared to $17.1 million of revenues and $3.7 million of gross profit in thethird quarter of 2007, which reflected two months of operations. The operatingloss was ($20.3) million for the three months ended September 30, 2008(including the $16.9 million non-cash goodwill impairment charge), compared toan operating income of $46,000 for the three months ended September 30,2007. Argyle’s net loss for the three months ended September 30, 2008 was 

 

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($18.4) million, or ($3.19) pershare (basic and diluted) (including the $16.9 million non-cash goodwillimpairment charge), compared to a net loss of ($116,000), or ($0.02) per share(basic and diluted), in the third quarter of 2007.

 

Revenues and gross profit for thenine months ended September 30, 2008 were $105.8 million and $16.0million, respectively, compared to $17.1 million of revenues and $3.7 millionof gross profit in the third quarter of 2007, which reflected two months ofoperations. The operating loss was ($21.4) million for the nine months ended September 30,2008, compared to an operating loss of ($0.5) million for the nine months endedSeptember 30, 2007. Argyle’s net loss for the nine months ended September 30,2008 was ($20.1) million, or ($3.51) per share (basic and diluted), compared toa net loss of ($15,000), or ($0.00) per share, for the nine months ended September 30,2007.

 

**Adjusted Pro Forma Results**

 

For the three months ended September 30,2008, Argyle’s adjusted pro forma revenues increased by 13%, to $31.7 million,compared to $28.0 million for the same period last year. Adjusted pro formarevenues in Argyle Corrections Group rose by 14.3% to $22.6 million, drivenlargely by favorable industry trends, retention and expansion of business withexisting customers, as well as new customers. Adjusted pro forma revenues inArgyle Commercial Security increased by 10.2% to $9.1 million. ArgyleCommercial Security has continued to make investments in its sales force, whichare expected to drive both contract and service revenues.

 

Adjusted pro forma gross profit decreasedby 27% to $4.7 million, or 15% of sales, compared to $6.5 million, or 23% ofsales, in the comparable period of 2007. The gross margin percentage in thethird quarter of 2008 was adversely impacted by higher than expected projectcost overruns and an increase in the price of raw materials within the Correctionssegment.  Commercial margins wereunaffected and were up slightly quarter over quarter.

 

Third-quarter gross margins inArgyle Corrections were negatively impacted by significant cost overruns onseveral very large correctional jobs within its detention contracting andsecurity electronics businesses, as well as material cost increases at itsprison furniture business. The cost overruns are primarily attributable to theCompany’s failure to adequately scale its project management infrastructure andmanagement, as necessary, due to the significant revenue growth in 2008.  The additional costs were primarily incurred because of our need toprovide unanticipated additional training to a large number of new employees,as well as training to expand the skills of our existing employees, and theunexpected overtime required on certain jobs.  These issues first became apparentin the first quarter of 2008, and were thought to largely to have been correctedin the second quarter of 2008. Argyle believes that margins will likely beginto improve during the fourth quarter, primarily due to the operationalimprovements that have been implemented and the cost reduction initiativeundertaken during the fourth quarter.

 

Adjusted pro forma operatingexpenses were $23.4 million, up 388% from $4.8 million in the third quarter of2007. In the third quarter of 2008, Argyle recognized a $16.9 million non-cashgoodwill impairment charge related to its previous acquisitions.   The Company also incurred higher-than-expectedlegal and accounting fees related to being a public company. Adjusted 

 

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operating income in the thirdquarter of 2008 was ($18.7) million, or (59%) of sales, compared to $1.7million, or 6% of sales, in the third quarter of 2007.

 

Pro forma adjusted EBITDA was ($18.1)million, or (57%) of adjusted pro forma revenues, which includes $16.9 millionof non-cash goodwill write-down, compared to the third quarter 2007 pro formaadjusted EBITDA of $2.1 million, or 8% of revenues. In the third quarter of2008, adjusted pro forma net income was ($17.3) million, or ($3.01) per dilutedshare, compared to adjusted pro forma net income of $2.2 million, or $0.33 perdiluted share, in the prior-year period.

 

For the nine months ended September 30,2008, Argyle’s pro forma revenues increased by 47% to $107.5 million, comparedto $73.1 million in the same period of 2007. Gross profit increased by 15% to$20.1 million, or 19% of sales, compared to $17.4 million, or 24% of sales, inthe nine-month period of 2007.

 

EBITDA decreased 397% to ($14.6)million for the nine months ended September 30, 2008, compared to $4.9million for the same period last year. The comparable EBITDA margin was (14%),compared to 7% last year. Net income for the nine months ended September 30,2008 was ($17.0) million, or ($2.96) per diluted share, compared to net incomeof $2.4 million, or ($0.38) per diluted share in the comparable period lastyear.

 

**Backlog**

 

As of September 30, 2008, netbacklog for the Company was $56.1 million, which included Argyle Corrections’backlog of $41.5 million and Argyle Commercial Security’s backlog of $14.6 million.New project bookings for ISI Detention, the Company’s largest business unit,exceeded $22 million in October, which was more than its bookings year to datethrough September.

 

Beginning in 2008, Argyle had optedto disclose net backlog only for Argyle Corrections (and after the eliminationof intercompany revenues), and following long standing practice, such backloghad contained verbal commitments in addition to signed contracts and letters ofintent.  To more consistently followindustry practice whereby companies disclose contract revenue backlog forpercentage-of-completion contracts, the Company has changed its policy toinclude backlog related to its Argyle Commercial segment and to exclude PDI’sbacklog because, unlike the other business units in Argyle Corrections, it doesnot account for its contracts on a percentage-of-completion basis.  Additionally, the Company will include onlythose projects for which it has executed contracts and letters of intent.  As a result of this new policy, a comparisonof current backlog information to historical backlog information may not beuseful.

 

**Argyle Reports Material Weakness andImpairment to Goodwill**

 

Managementannounced that it has identified several internal control deficiencies thatresulted in a material weakness in its revenue recognition processes. Thedeficiency consists of inadequate levels of review of complex and judgmentalaccounting issues. To address the deficiency, among other things, Argyle is inthe process of implementing its remediation plan for the deficiencies 

 

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andmaterial weakness, including making personnel changes, implementing additionaloversight and approval processes to ensure updating of expenses and theaccuracy of its results. Management does not anticipate that it will benecessary to restate any of its previously reported financial statements.

 

It was also reported that, based ona combination of factors, including the current economic environment, Argyle’soperating results and a sustained decline in Argyle’s market capitalization,management has concluded that there were sufficient indicators which requiredus to perform a goodwill impairment analysis as of September 30, 2008. Wehave not completed this analysis due to the complexities involved indetermining the implied fair value of the goodwill of each of Argyle SecurityUSA’s business units. However, based on the work performed to date, we haveconcluded that an impairment loss is probable and can be reasonably estimated.

 

Accordingly, Argyle has taken a$16.9 million non-cash goodwill impairment charge during the third quarter offiscal 2008, representing our best estimate of the impairment loss. Managementexpects to finalize our goodwill impairment analysis during the fourth quarterof fiscal 2008. It is possible that adjustments to the goodwill impairmentcharge would need to be made when the goodwill impairment test is completed.Any adjustments to the preliminary estimates as a result of completing thisevaluation will be recorded in Argyle’s financial statements for the quarterand fiscal year ended December 31, 2008, which are expected to be includedin its Annual Report on Form 10-K to be filed with the SEC on or about March 31,2009.

 

**Management Overview**

 

BobMarbut, Chairman and Co-CEO of Argyle, stated, “In light of the unpredictableand uncertain economic times facing us, we are very pleased with our continuedrevenue growth during the quarter, with overall revenues increasing 13% andrevenues in the Argyle Corrections Group up 15%. However, we’ve also continuedto encounter some substantial internal challenges in the quarter, resulting inproject cost overruns and an EBITDA margin that was well below ourexpectations.  Over the past two months, we’ve taken a number of steps tostrengthen our infrastructure in order to deal with both operational-managementand financial-control issues that have been identified as causes of theproblems.  Management has put a heavy emphasis on the development ofpeople, systems and structure.  In conjunction with these endeavors, ourtop three priorities are 1) the generation of profitable sales, 2) theconversion of revenues into cash and 3) the prudent management of cash. Webelieve that these efforts, combined with our healthy cash condition, willposition us well to take advantage of market opportunities when the economyimproves.”

 

Sam Youngblood, President of ArgyleSecurity USA, said, “We believe that we are now in position to improve ourEBITDA because of the phase-out or elimination of three significant factorswhich have contributed to margin erosion. First, the task of hiring andtraining our workers to meeting the changing demands of our customers wasgreater and more costly than expected; however, we believe that such investmentwill benefit us and our customers going forward. Second, we are still seeingthe lasting negative cost effects resulting from a new venture which wasultimately more costly and riskier than anticipated.

 

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Finally, during the last six months,PDI was dramatically affected by the rising cost of raw materials from asingle-source supplier, and such costs were not able to be passed on to itscustomers. We now purchase our raw materials from multiple vendors and havebeen able to implement new pricing procedures to allow greater flexibility fordealing with the volatility in the commodities market.” he stated.

 

Ron Chaimovski, Vice-Chairman andCo-CEO of Argyle, added, “These are uncertain economic times, and Argyle’s teamis working to navigate through this downturn while remaining focused onmaintaining and further strengthening our business model. We are very aware ofthe challenges ahead, but are cautiously optimistic that our plan will allow usto continue our growth. There has been continued growth in the correctionsmarket and we believe that this trend will continue despite greater attentionby local, state and federal governments on spending commitments. The amount ofnew bookings received in October is encouraging.  We also believe that a slower pace ofacquisitive growth during 2009 will enable us to concentrate on fixing theoperational issues discovered during the past six months.”

 

**Argyle Updates Provides Final Guidance for2008**

 

Argyle expects full-year 2008revenues to be at the mid-range of the previously forecasted range of $128 to$142 million. Argyle now expects an EBITDA margin of approximately (10%) forthe full-year 2008, which is significantly below previous guidance ofapproximately 7%, and is attributable to the $16.9million in non-cash goodwill impairment charge, eroded gross margins in theCorrections segment, and higher-than-expected legal and accounting fees.  Excluding the non-cash goodwill impairment chargeand non-cash compensation expense, our expected EBITDA margin is approximately3.5% for the 2008.

 

**Conference Call Information**

 

Argyle Security will host aninvestor conference call at 10:00 a.m. ET, on November 18, 2008 todiscuss its results. Interested parties should call 888-713-4213 (domestic) or617-213-4865 (international) at least five minutes before the scheduled starttime; the passcode is 89962604. This call may also be accessed via the Internetat:

 

www.argylesecurity.com

 

For those who are unavailable tolisten to the live broadcast, a replay will be available through December 5,2008 and can be accessed by dialing 888-286-8010 (domestic), and 617-801-6888(international). The pass code is 84546898.

 

**About Argyle Security, Inc.**

 

Formedin 2005 and headquartered in San Antonio, TX, Argyle’s goal is to become aleading global provider of services and solutions in the physical electronicsecurity industry through an integrated buildup strategy. In July 2007,Argyle acquired ISI Security Group, Inc. In February 2008, Argylecreated Argyle Security USA, which encompasses ISI Security Group’s operations 

 

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inboth the corrections and commercial sectors, also including the assets andoperations acquired as a result of the PDI, Com-Tec and Fire Quest acquisitionsduring 2008. 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. Argylecurrently has two reporting segments: “Argyle Corrections” and “ArgyleCommercial Security”.

 

ArgyleCorrections is the controlling entity for business units consisting of ISI,PDI, Com-Tec and MCS and is one of the nation’s largest providers of detentionequipment products and service solutions, as well as turnkey, electronicsecurity systems. These systems include unique engineering competencies andproprietary software products. Currently, MCS-Commercial Fire &Security is the only business unit comprising Argyle Commercial Security.Argyle Commercial Security focuses on the commercial security sector andprovides turnkey, electronic security systems to the commercial market.

 

Pleasevisit http://www.argylesecurity.com or http://www.argylesecurityusa.com foradditional information on Argyle and Argyle Security USA.

 

**Disclosure Regarding Non-GAAPFinancial Measures**

 

Since Argyle acquired ISI SecurityGroup, Inc. (which is now a part of Argyle Security USA) in July 2007and Fire Quest, PDI and Com-Tec during January 2008, the Company does notbelieve a comparison of the results of operations and cash flows for the threemonths ended September 30, 2008 versus September 30, 2007 isbeneficial to stockholders. In order to assist investors in betterunderstanding the changes in its business between the three months ended September 30,2007 and September 30, 2008, Argyle has provided adjusted pro formaresults as if the acquisitions occurred on January 1, 2008 and January 1,2007, respectively. Argyle derived the adjusted pro forma results of operationsfrom (i) the unaudited consolidated financial statements of Com-Tec forthe three months ended September 30, 2007, (ii) the unauditedfinancial statements of Peterson for the three months ended September 30,2007, (iii) the unaudited financial statements of Fire Quest for the threemonths ended September 30, 2007 and (iv) the unaudited consolidatedfinancial statements of Argyle for the three months ended September 30,2008 and 2007.

 

Adjusted pro forma net income is analternative view of performance used by management, and we believe thatinvestors’ understanding of our performance is enhanced by disclosing thisperformance measure. We report adjusted pro forma net income in order topresent the results of our major operations — the construction, installation,marketing and sale of various electronic security systems for commercialaccounts and detention hardware (including security doors and frames, jailfurniture, security glazing, and other security-based systems) and electroniccontrol systems for correctional facilities — prior to considering certainincome statement elements, principally amortization of intangible assets. Wehave defined 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 appreciation rights. Theadjusted pro forma net income measure is not, and should not be viewed as, asubstitute for U.S. GAAP net income.

 

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EBITDA (earnings before interest,taxes, depreciation and amortization) is used by management as a performancemeasure for benchmarking against the Company’s peers and competitors. TheCompany believes EBITDA is useful to investors, because it is frequently usedby securities analysts, investors and other interested parties to evaluatecompanies in the security industry. EBITDA is not a recognized term under GAAP.Argyle computes EBITDA using the same consistent method from quarter toquarter. Following the attached financial statements is a reconciliation ofEBITDA to net loss.

 

The presentation of Adjusted ProForma Results and EBITDA is not intended to be considered in isolation or as asubstitute for the financial information prepared and presented in accordancewith GAAP.

 

**Safe Harbor**

 

Certainstatements in this press release constitute forward-looking statements withinthe meaning of the Private Securities Litigation Reform Act of 1995, asamended. When used in this press release, words such as “will,” “believe,” “expect,”“anticipate,” “encouraged,” “foresees,” “forecasts,” “estimates” and similarexpressions, as they relate to the company or its management, as well asassumptions made by and information currently available to the company’smanagement identify forward-looking statements. Such forward-looking statementsinclude statements regarding Argyle’s expectation regarding revenue, profit andincome results for the fiscal year ended December 31, 2008 and the timingof filing of the company’s Form 10-K for the fiscal year ended December 31,2008. Actual results could differ materially from those contained in theforward-looking statements and are based on current expectations that involve anumber of risks and uncertainties, including, but not limited to, the timing ofclosing our books and issuing final financial results. These forward-lookingstatements are based on current expectations or beliefs, including, but notlimited to, statements concerning the company’s operations and financialperformance and condition, including, without limitation, statements regardingArgyle’s expected fiscal year 2008 revenues, profit and income results.Similarly, statements herein that describe the Argyle’s business strategy,outlook, objectives, plans, intentions or goals also are forward-lookingstatements. All such forward-looking statements are subject to certain risksand uncertainties that could cause actual results to differ materially fromthose in forward-looking statements. Additional information concerningforward-looking statements is contained under the heading of risk factorslisted from time to time in the company’s filings with the U.S. Securities andExchange Commission. The forward-looking statements included in this press releaseare made only as of the date of this press release and Argyle undertakes noobligation to update the forward-looking statements to reflect subsequentevents or circumstances.

 

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**Argyle Security, Inc**

**Reconciliation of GAAP Net Income to Adjusted Net Income**

(inthousands)

 
| ** **                                                                                 | ** ** | **Three Months Ended** | ** **  | **Nine Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------------------|-------------|---------------------------------|------------|
| ** **                                                                                 | ** ** | **September 30,**           | ** **  | **September 30,**          | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                 | ** ** | **2008**                         | ** **  | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| **GAAP net income (loss)**                                                                 | ** ** | **$**                            | **(18,367** | **)**                           | **$**      | **(116** | **)** | **$** | **(20,121** | **)** | **$** | **(15** | **)** |
| Pro forma adjustments - addbacks (reductions)                                              |       |                             |        |                            |       |   |   |   |   |
| Argyle salary expense (increase) for  management team in 2007                              |       | —                           |        | (74                             | )          | — |   | (518 | ) |
| SARS expense reduction for 2007                                                            |       | —                           |        | 1,363                           |       | — |   | 1,363 |   |
| Non-cash compensation expense (increase)  for 2007                                         |       | —                           |        | (141                            | )          | — |   | (424 | ) |
| Depreciation expense (increase) on revalued  assets in 2007                                |       | —                           |        | (56                             | )          | — |   | (214 | ) |
| Amortization of intangible expense  (increase) in cost of goods sold for 2008 and 2007     |       | —                           |        | (721                            | )          | (37 | ) | (3,285 | ) |
| Amortization of intangible expense  (increase) in operating expenses for 2008 and 2007     |       | —                           |        | (211                            | )          | (20 | ) | (1,079 | ) |
| Reduction in rent expense for 2008 and 2007                                                |       | —                           |        | 34                              |       | 6 |   | 104 |   |
| Interest income increase / (reduction) for  2008 and 2007                                  |       | —                           |        | (109                            | )          | — |   | (763 | ) |
| Interest expense (increase) / reduction for  2008 and 2007                                 |       | —                           |        | 56                              |       | (39 | ) | 1,454 |   |
| Income / (loss) from predecessor - Argyle  Security USA for 2007                           |       | —                           |        | 946                             |       | — |   | 450 |   |
| Income / (loss) from predecessor -  Firequest for 2007                                     |       | —                           |        | 79                              |       | — |   | 239 |   |
| Income / (loss) from predecessor - PDI for  2007                                           |       | —                           |        | 112                             |       | — |   | 425 |   |
| Income / (loss) from predecessor - Com-Tec  for January 2008 and 2007                 |       | —                           |        | 136                             |       | 44 |   | 288 |   |
| Provision (benefit) for income taxes on pro  forma adjustments for 2008 and 2007           |       | —                           |        | (430                            | )          | 33 |   | 902 |   |
| **Pro forma net income (loss)**                                                            | ** ** | **$**                            | **(18,367** | **)**                           | **$**      | **868** | ** ** | **$** | **(20,134** | **)** | **$** | **(1,073** | **)** |
| Amortization of intangible expense in cost  of goods sold for 2008 and 2007                |       | 1,218                            |        | 1,282                           |       | 3,784 |   | 3,846 |   |
| Amortization of intangible expense in  operating expenses for 2008 and 2007                |       | 434                              |        | 434                             |       | 1,301 |   | 1,301 |   |
| Provision (benefit) for income taxes on pro  forma adjustments for 2008 and 2007           |       | (628                             | )           | (354                            | )          | (1,933 | ) | (1,658 | ) |
| **Adjusted pro forma net income (loss)**                                                   | ** ** | **$**                            | **(17,343** | **)**                           | **$**      | **2,230** | ** ** | **$** | **(16,982** | **)** | **$** | **2,416** | ** ** |
| Interest, net                                                                              |       | 939                              |        | 419                             |       | 2,559 |   | 2,064 |   |
| Depreciation expense                                                                       |       | 543                              |        | 384                             |       | 1,659 |   | 1,064 |   |
| Taxes, net                                                                                 |       | (2,260                           | )           | (936                            | )          | (1,867 | ) | (610 | ) |
| **Pro forma EBITDA**                                                                       | ** ** | **$**                            | **(18,121** | **)**                           | **$**      | **2,097** | ** ** | **$** | **(14,631** | **)** | **$** | **4,934** | ** ** |
| ** **                                                                                 | ** ** | ** **                       | ** **  | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **GAAP weighted average common shares  outstanding - basic**                               | ** ** | **5,799,342**                    | ** **  | **5,436,200**                   | ** ** | **5,796,605** | ** ** | **5,002,003** | ** ** |
| Restricted stock                                                                           |       | —                           |        | 30,000                          |       | — |   | — |   |
| **Pro forma and adjusted pro forma weighted  average common shares outstanding - basic**   | ** ** | **5,799,342**                    | ** **  | **5,466,200**                   | ** ** | **5,796,605** | ** ** | **5,002,003** | ** ** |
|                                                                                       |       |                             |        |                            |       |   |   |   |   |
| **GAAP weighted average common shares  outstanding - diluted**                             | ** ** | **5,799,342**                    | ** **  | **5,436,200**                   | ** ** | **5,796,605** | ** ** | **5,002,003** | ** ** |
| Restricted stock                                                                           |       | —                           |        | 125,000                         |       | — |   | 95,000 |   |
| Stock warrants                                                                             |       | —                           |        | 1,089,946                       |       | — |   | 1,068,504 |   |
| Convertible debt                                                                           |       | —                           |        | 192,500                         |       | — |   | 192,500 |   |
| **Pro forma and adjusted pro forma weighted  average common shares outstanding - diluted** | ** ** | **5,799,342**                    | ** **  | **6,843,646**                   | ** ** | **5,796,605** | ** ** | **6,358,007** | ** ** |

 

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**Argyle Security, Inc**

**Adjusted Pro Forma Consolidated Statements of Operations**

**(unaudited)**

(inthousands except share data)

 
| ** **                                                                                                          | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                          | ** ** | **September 30,**           | ** ** | **September 30,** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **                                                                                                          | ** ** | **2008**                         | ** ** | **2007** | ** ** | **Change** | ** ** | **Change** | ** ** |
| Revenues:                                                                                                           |       |                             |       |   |   |   |   |   |   |
| Contract revenues                                                                                                   |       | $                                | 22,583     |   | $ | 15,383 |   | $ | 7,200 |   | 47 | % |
| Contract revenues - related party                                                                                   |       | 2,906                            |       | 8,132 |   | (5,226 | ) | -64 | % |
| Service and other revenues                                                                                          |       | 6,211                            |       | 4,520 |   | 1,691 |   | 37 | % |
| Total revenues                                                                                                      |       | 31,700                           |       | 28,035 |   | 3,665 |   | 13 | % |
| Cost of revenues:                                                                                                   |       |                             |       |   |   |   |   |   |   |
| Contract costs                                                                                                      |       | 21,951                           |       | 18,311 |   | 3,640 |   | 20 | % |
| Service and other costs, excluding  amortization of intangibles                                                     |       | 5,013                            |       | 3,219 |   | 1,794 |   | 56 | % |
| Total cost of revenues                                                                                              |       | 26,964                           |       | 21,530 |   | 5,434 |   | 25 | % |
| Gross profit                                                                                                        |       | 4,736                            |       | 6,505 |   | (1,769 | ) | -27 | % |
| Operating expenses:                                                                                                 |       |                             |       |   |   |   |   |   |   |
| Salaries and related expense, including  stock-based compensation of $226 in 2008 and $142 in 2007                  |       | 3,068                            |       | 2,185 |   | 883 |   | 40 | % |
| Consulting fees and outside services                                                                                |       | 916                              |       | 445 |   | 471 |   | 106 | % |
| Depreciation                                                                                                        |       | 523                              |       | 340 |   | 183 |   | 54 | % |
| Other general and administrative expenses                                                                           |       | 1,965                            |       | 1,822 |   | 143 |   | 8 | % |
| Goodwill impairment                                                                                                 |       | 16,928                           |       | — |   | 16,928 |   | 0 | % |
| Amortization of intangible assets                                                                                   |       | —                           |       | — |   | — |   | 0 | % |
| Total operating expenses                                                                                            |       | 23,400                           |       | 4,792 |   | 18,608 |   | 388 | % |
| Operating income                                                                                                    |       | (18,664                          | )          | 1,713 |   | (20,377 | ) | -1190 | % |
| Other income (expense):                                                                                             |       |                             |       |   |   |   |   |   |   |
| Interest income                                                                                                     |       | 58                               |       | 60 |   | (2 | ) | -3 | % |
| Interest expense                                                                                                    |       | (997                             | )          | (479 | ) | (518 | ) | 108 | % |
| Total other income (expense)                                                                                        |       | (939                             | )          | (419 | ) | (520 | ) | 124 | % |
| Income (loss) before provision for income  taxes                                                                    |       | (19,603                          | )          | 1,294 |   | (20,897 | ) | -1615 | % |
| Provision (benefit) for income taxes                                                                                |       | (2,260                           | )          | (936 | ) | (1,324 | ) | 141 | % |
| Net income (loss)                                                                                                   |       | $                                | (17,343    | ) | $ | 2,230 |   | $ | (19,573 | ) | -878 | % |
| Deferred interest, net of taxes, subject to  possible redemption                                                    |       | —                           |       | — |   | — |   | 0 | % |
| Dividends on convertible preferred  stockholders                                                                    |       | 115                              |       | — |   | — |   | 0 | % |
| Net income (loss) allocable to holders of  non-redeemable common stock                                              |       | $                                | (17,458    | ) | $ | 2,230 |   | $ | (19,573 | ) | -878 | % |
|                                                                                                                |       |                             |       |   |   |   |   |   |   |
| EBITDA Calculation:                                                                                                 |       |                             |       |   |   |   |   |   |   |
| Interest, net                                                                                                       |       | $                                | 939        |   | $ | 419 |   | $ | 520 |   | 124 | % |
| Depreciation                                                                                                        |       | 543                              |       | 384 |   | 159 |   | 41 | % |
| Taxes, net                                                                                                          |       | (2,260                           | )          | (936 | ) | (1,324 | ) | 141 | % |
| EBITDA                                                                                                              |       | $                                | (18,121    | ) | $ | 2,097 |   | $ | (20,218 | ) | -964 | % |
|                                                                                                                |       |                             |       |   |   |   |   |   |   |
| Weighted-average number of shares of  commomn stock outstanding exclusive of shares subject to possible redemption: |       |                             |       |   |   |   |   |   |   |
| Basic                                                                                                               |       | 5,799,342                        |       | 5,466,200 |   | 333,142 |   | 6 | % |
| Diluted                                                                                                             |       | 5,799,342                        |       | 6,843,646 |   | (1,044,304 | ) | -15 | % |
| Net income (loss) per share allocable to  holders of non-redeemable common stock:                                   |       |                             |       |   |   |   |   |   |   |
| Basic                                                                                                               |       | $                                | (3.01      | ) | $ | 0.41 |   | $ | (3.42 | ) | -834 | % |
| Diluted                                                                                                             |       | $                                | (3.01      | ) | $ | 0.33 |   | $ | (3.34 | ) | -1012 | % |
|                                                                                                                     |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

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**Argyle Security, Inc**

**Adjusted Pro Forma Consolidated Statements of Operations**

**(unaudited)**

(inthousands except share data)

 
| ** **                                                                                                          | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                          | ** ** | **September 30,**          | ** ** | **September 30,** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **                                                                                                          | ** ** | **2008**                        | ** ** | **2007** | ** ** | **Change** | ** ** | **Change** | ** ** |
| Revenues:                                                                                                           |       |                            |       |   |   |   |   |   |   |
| Contract revenues                                                                                                   |       | $                               | 74,200     |   | $ | 37,919 |   | $ | 36,281 |   | 96 | % |
| Contract revenues - related party                                                                                   |       | 15,131                          |       | 21,299 |   | (6,168 | ) | -29 | % |
| Service and other revenues                                                                                          |       | 18,191                          |       | 13,923 |   | 4,268 |   | 31 | % |
| Total revenues                                                                                                      |       | 107,522                         |       | 73,141 |   | 34,381 |   | 47 | % |
| Cost of  revenues:                                                                                                  |       |                            |       |   |   |   |   |   |   |
| Contract costs                                                                                                      |       | 73,415                          |       | 45,589 |   | 27,826 |   | 61 | % |
| Service and other costs, excluding  amortization of intangibles                                                     |       | 14,025                          |       | 10,162 |   | 3,863 |   | 38 | % |
| Total cost of revenues                                                                                              |       | 87,440                          |       | 55,751 |   | 31,689 |   | 57 | % |
| Gross profit                                                                                                        |       | 20,082                          |       | 17,390 |   | 2,692 |   | 15 | % |
| Operating expenses:                                                                                                 |       |                            |       |   |   |   |   |   |   |
| Salaries and related expense, including  stock-based compensation of $975 in 2008 and $425 in 2007                  |       | 10,056                          |       | 6,968 |   | 3,088 |   | 44 | % |
| Consulting fees and outside services                                                                                |       | 2,501                           |       | 1,052 |   | 1,449 |   | 138 | % |
| Depreciation                                                                                                        |       | 1,583                           |       | 932 |   | 651 |   | 70 | % |
| Other general and administrative expenses                                                                           |       | 5,304                           |       | 4,568 |   | 736 |   | 16 | % |
| Goodwill impairment                                                                                                 |       | 16,928                          |       | — |   | 16,928 |   | 0 | % |
| Amortization of intangible assets                                                                                   |       | —                          |       | — |   | — |   | 0 | % |
| Total operating expenses                                                                                            |       | 36,372                          |       | 13,520 |   | 22,852 |   | 169 | % |
| Operating income                                                                                                    |       | (16,290                         | )          | 3,870 |   | (20,160 | ) | -521 | % |
| Other income (expense):                                                                                             |       |                            |       |   |   |   |   |   |   |
| Interest income                                                                                                     |       | 136                             |       | 171 |   | (35 | ) | -20 | % |
| Interest expense                                                                                                    |       | (2,695                          | )          | (2,235 | ) | (460 | ) | 21 | % |
| Total other income (expense)                                                                                        |       | (2,559                          | )          | (2,064 | ) | (495 | ) | 24 | % |
| Income (loss) before provision for income  taxes                                                                    |       | (18,849                         | )          | 1,806 |   | (20,655 | ) | -1144 | % |
| Provision (benefit) for income taxes                                                                                |       | (1,867                          | )          | (610 | ) | (1,257 | ) | 206 | % |
| Net income (loss)                                                                                                   |       | $                               | (16,982    | ) | $ | 2,416 |   | $ | (19,398 | ) | -803 | % |
| Deferred interest, net of taxes, subject to  possible redemption                                                    |       | —                          |       | — |   | — |   | 0 | % |
| Dividends on convertible preferred  stockholders                                                                    |       | 201                             |       | — |   | — |   | 0 | % |
| Net income (loss) allocable to holders of  non-redeemable common stock                                              |       | $                               | (17,183    | ) | $ | 2,416 |   | $ | — |   | 0 | % |
|                                                                                                                |       |                            |       |   |   |   |   |   |   |
| EBITDA Calculation:                                                                                                 |       |                            |       |   |   |   |   |   |   |
| Interest, net                                                                                                       |       | $                               | 2,559      |   | $ | 2,064 |   | $ | 495 |   | 24 | % |
| Depreciation                                                                                                        |       | 1,659                           |       | 1,064 |   | 595 |   | 56 | % |
| Taxes, net                                                                                                          |       | (1,867                          | )          | (610 | ) | (1,257 | ) | 206 | % |
| EBITDA                                                                                                              |       | $                               | (14,631    | ) | $ | 4,934 |   | $ | (19,565 | ) | -397 | % |
|                                                                                                                |       |                            |       |   |   |   |   |   |   |
| Weighted-average number of shares of  commomn stock outstanding exclusive of shares subject to possible redemption: |       |                            |       |   |   |   |   |   |   |
| Basic                                                                                                               |       | 5,796,605                       |       | 5,002,003 |   | 794,602 |   | 16 | % |
| Diluted                                                                                                             |       | 5,796,605                       |       | 6,358,007 |   | (561,402 | ) | -9 | % |
| Net income (loss) per share allocable to  holders of non-redeemable common stock:                                   |       |                            |       |   |   |   |   |   |   |
| Basic                                                                                                               |       | $                               | (2.96      | ) | $ | 0.48 |   | $ | (3.44 | ) | -718 | % |
| Diluted                                                                                                             |       | $                               | (2.96      | ) | $ | 0.38 |   | $ | (3.34 | ) | -880 | % |
|                                                                                                                     |            |                                 |            |  |  |  |  |  |  |  |  |  |  |

 

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