Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
______________
 
FORM 8-K
 
CURRENT REPORT
 
PURSUANT TO SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
 
Date of Report (Date of earliest event reported): May 2, 2007
 
ARGYLE SECURITY ACQUISITION CORPORATION
(Exact Name of Registrant as Specified in Charter)

Delaware
  
000-51639
  
20-3101079
(State or Other Jurisdiction of Incorporation)
  
(Commission File Number)
  
(IRS Employer Identification No.)
 

200 Concord Plaza, Suite 700 San Antonio, TX
 
78216
(Address of Principal Executive Offices)
  
(Zip Code)
 
Registrant’s telephone number, including area code: (210) 828-1700
 
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of registrant under any of the following provisions:
 
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
x
Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17 CFR 240.14a-12(b))
 
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) 
 
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 

 
ITEM 8.01. OTHER EVENTS
 
Stockholder Presentation
 
Commencing May 2, 2007, Argyle Security Acquisition Corporation (“Argyle”) intends to hold presentations for its stockholders regarding its proposed acquisition of ISI Detention Contracting Group, Inc. (“ISI”), as described in Argyle’s Form 8-K dated December 8, 2006. The presentation is attached as Exhibit 99.1 and is incorporated by reference herein.
 
Argyle and its directors and executive officers may be deemed to be participants in the solicitation of proxies for the special meeting of Argyle stockholders to be held to approve the acquisition of ISI. Argyle’s stockholders are advised to review Argyle’s registration statement on Form S-4, as amended, preliminary proxy statement and definitive proxy statement, when available, in connection with Argyle’s solicitation of proxies for the special meeting to approve the acquisition because these documents will contain important information. The definitive proxy statement will be mailed to stockholders as of a record date to be established for voting on the acquisition. Stockholders will also be able to obtain a copy of the definitive proxy statement, without charge, by directing a request to: Bob Marbut, Argyle Security Acquisition Corporation, 200 Concord Plaza, Suite 700, San Antonio, TX 78216. The registration statement on Form S-4, as amended, preliminary proxy statement and definitive proxy statement, when available, can also be obtained, without charge, at the Securities and Exchange Commission’s internet site (http://www.sec.gov).
 
Non-GAAP Financial Measures
 
The presentation attached as Exhibit 99.1 contains disclosure of disclosure of EBITDA and backlog (including "Total Backlog") for certain periods, which may be deemed to be non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. As used in this presentation, adjusted EBITDA reflects the removal from the calculation of EBITDA of certain expenses that Argyle and ISI agreed should not reduce EBITDA. The companies do not expect these expenses to continue after the closing of the merger. Management believes that adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, is an appropriate measure of evaluating operating performance and liquidity, because it reflects the resources available for strategic opportunities including, among others, investments in the business and strategic acquisitions. Management believes that the backlog, or unearned revenues on projects that have been booked, is an appropriate measure of evaluating operating performance, because it reflects future potential revenues. Total Backlog is the aggregate backlog of ISI's three operating divisions, before intercompany eliminations. Adjusted EBITDA or backlog may not be comparable to similarly titled measures reported by other companies. Neither EBITDA nor backlog is a recognized term under U.S. GAAP, and EBITDA and backlog should be considered in addition to, and not as substitutes for, or superior to, operating income, cash flows, revenues, or other measures of financial performance prepared in accordance with generally accepted accounting principles. Neither adjusted EBITDA nor backlog is a completely representative measure of either the historical performance or, necessarily, the future potential of ISI.
2

ISI Financial Results

ISI had revenues of $18.9 million and $13.4 million for the quarters ended March 31, 2007 and March 31, 2006, respectively, representing a $5.5 million increase, or 41%. EBITDA was $1.6 million and $1.0 million for the quarters ended March 31, 2007 and March 31, 2006, respectively. This represents an increase from March 31, 2006 to March 31, 2007 of $0.6 million, or 60%.

Management has historically utilized Earning Before Interest Taxes Depreciation and Amortization (“EBITDA”) as a tool for analyzing segment performance. The calculation is simply Operating Income (Loss) Before Taxes plus interest, taxes, depreciation and amortization expenses. EBITDA is the bench mark used by management for budgeting, performance evaluation and employee compensation. Below are the EBITDA results for years ended December 31, 2004 through December 31, 2006 along with the first quarter ended March 31, 2006 and 2007.

Also included in the table are the adjustments to EBITDA determined in accordance with the merger agreement between Argyle and ISI.
3


EBITDA by Operating Segment
                          
        
 Income <Loss>
  
 EBITDA
            
Adjusted
  
Operating Segments  
Revenue
  
Before Taxes
  
Adjustments(1) 
  
EBITDA
  
Adjustments(2)
  
EBITDA
  
ISI
                               
December 31, 2006
  
$
21,779,768
    
(3,386,287
)
$
4,387,066
  
$
1,000,779
  
$
900,000
  
$
1,900,779
  
December 31, 2005
  
$
10,995,182
    
(3,729,293
)
$
3,736,423
  
$
7,130
  
$
295,620
  
$
302,750
  
December 31, 2004
  
$
14,756,861
    
(4,874,310
)
$
640,227
  
$
(4,234,083
)
$
5,285,259
  
$
1,051,176
  
March 31, 2007 *
  
$
6,112,050
    
(538,780
)
$
1,100,430
  
$
561,650
  
$
118,625
  
$
680,275
  
March 31, 2006 *
  
$
4,294,326
    
(1,258,161
)
$
1,067,714
  
$
(190,447
)
$
224,275
  
$
33,828
  
                                       
MCS Detention
                                      
December 31, 2006
  
$
13,434,569
    
1,501,650
  
$
164,964
  
$
1,666,614
  
$
0
  
$
1,666,614
  
December 31, 2005
  
$
10,891,378
    
1,804,103
  
$
182,914
  
$
1,987,017
  
$
0
  
$
1,987,017
  
December 31, 2004
  
$
11,031,267
    
2,261,763
  
$
201,954
  
$
2,463,717
  
$
0
  
$
2,463,717
  
March 31, 2007 *
  
$
3,857,781
    
336,627
  
$
72,810
  
$
409,437
  
$
0
  
$
409,437
  
March 31, 2006 *
  
$
4,193,566
    
929,299
  
$
29,933
  
$
959,232
  
$
0
  
$
959,232
  
                                       
MCS Commercial
                                      
December 31, 2006
  
$
22,537,827
    
1,189,050
  
$
273,991
  
$
1,463,041
  
$
0
  
$
1,463,041
  
December 31, 2005
  
$
17,347,927
    
215,872
  
$
262,640
  
$
478,512
  
$
0
  
$
478,512
  
December 31, 2004
  
$
14,386,858
    
(328,095
)
$
431,357
  
$
103,262
  
$
0
  
$
103,262
  
March 31, 2007 *
  
$
8,882,374
    
388,056
  
$
85,514
  
$
473,570
  
$
0
  
$
473,570
  
March 31, 2006 *
  
$
4,902,958
    
(61,472
)
$
62,410
  
$
938
  
$
0
  
$
938
  
                                       
Total Company
                                      
December 31, 2006
  
$
57,752,164
    
(695,587
)
$
4,826,021
  
$
4,130,434
  
$
900,000
  
$
5,030,434
  
December 31, 2005
  
$
39,234,487
    
(1,709,318
)
$
4,181,977
  
$
2,472,659
  
$
295,620
  
$
2,768,279
  
December 31, 2004
  
$
40,174,986
    
(2,940,642
)
$
1,273,538
  
$
(1,667,104
)
$
5,285,259
  
$
3,618,155
  
March 31, 2007 *
  
$
18,852,205
    
185,903
  
$
1,258,754
  
$
1,444,657
  
$
118,625
  
$
1,563,282
  
March 31, 2006 *
  
$
13,390,850
    
(390,334
)
$
1,160,057
  
$
769,723
  
$
224,275
  
$
993,998
  
 
4
Note 1: EBITDA Adjustments
                 
 Total
  
             
Interest
       
 EBITDA
  
Operating Segments  
 Depreciation
  
 Amortization
  
Expense
  
Other(3)
  
 Adjustments
  
ISI
                           
December 31, 2006
  
$
218,753
  
$
349,446
  
$
3,814,885
  
$
3,982
  
$
4,387,066
  
December 31, 2005
  
$
210,436
  
$
349,446
  
$
3,174,891
  
$
1,650
  
$
3,736,423
  
December 31, 2004
  
$
199,507
  
$
38,813
  
$
343,588
  
$
58,319
  
$
640,227
  
March 31, 2007 *
  
$
103,058
  
$
87,362
  
$
897,067
  
$
12,943
  
$
1,100,430
  
March 31, 2006 *
  
$
65,242
  
$
87,361
  
$
915,111
  
$
0
  
$
1,067,714
  
                                 
MCS Detention
                                
December 31, 2006
  
$
163,580
  
$
0
  
$
180
  
$
1,204
  
$
164,964
  
December 31, 2005
  
$
181,936
  
$
0
  
$
0
  
$
978
  
$
182,914
  
December 31, 2004
  
$
176,724
  
$
0
  
$
0
  
$
25,230
  
$
201,954
  
March 31, 2007 *
  
$
63,148
  
$
0
  
$
0
  
$
9,662
  
$
72,810
  
March 31, 2006 *
  
$
29,933
  
$
0
  
$
0
        
$
$29,933
  
                                 
MCS Commercial
                                
December 31, 2006
  
$
258,991
  
$
0
  
$
15,000
  
$
0
  
$
273,991
  
December 31, 2005
  
$
259,640
  
$
0
  
$
3,000
  
$
0
  
$
262,640
  
December 31, 2004
  
$
256,477
  
$
0
  
$
174,880
  
$
0
  
$
431,357
  
March 31, 2007 *
  
$
74,372
  
$
0
  
$
0
  
$
11,142
  
$
85,514
  
March 31, 2006 *
  
$
62,410
  
$
0
  
$
0
  
$
0
  
$
62,410
  
                                 
Total Company
                                
December 31, 2006
  
$
641,324
  
$
349,446
  
$
3,830,065
  
$
5,186
  
$
4,826,021
  
December 31, 2005
  
$
652,012
  
$
349,446
  
$
3,177,891
  
$
2,628
  
$
4,181,977
  
December 31, 2004
  
$
632,708
  
$
38,813
  
$
518,468
  
$
83,549
  
$
1,273,538
  
March 31, 2007 *
  
$
240,578
  
$
87,362
  
$
897,067
  
$
33,747
  
$
1,258,754
  
March 31, 2006 *
  
$
157,585
  
$
87,361
  
$
915,111
  
$
0
  
$
1,160,057
  
 
5
Note 2: Adjustments accepted by Argyle merger agreement
       
        
 Special
            
   
 
  
 Management
  
 ISI*MCS
  
 Total
  
 Operating Segments
  
Other(4)
  
 Bonus
  
 Fees
  
 Adjustments
  
ISI
                      
December 31, 2006
  
$
500,000
  
$
0
  
$
400,000
  
$
900,000
  
December 31, 2005
  
$
0
  
$
0
  
$
295,620
  
$
295,620
  
December 31, 2004
  
$
79,616
  
$
5,150,539
  
$
55,104
  
$
5,285,259
  
March 31, 2007 *
  
$
0
  
$
0
  
$
118,625
  
$
118,625
  
March 31, 2006 *
  
$
95,000
  
$
0
  
$
129,275
  
$
224,275
  
                           
MCS Detention
                          
December 31, 2006
  
$
0
  
$
0
  
$
0
  
$
0
  
December 31, 2005
  
$
0
  
$
0
  
$
0
  
$
0
  
December 31, 2004
  
$
0
  
$
0
  
$
0
  
$
0
  
March 31, 2007 *
  
$
0
  
$
0
  
$
0
  
$
0
  
March 31, 2006 *
  
$
0
  
$
0
  
$
0
  
$
0
  
                           
MCS Commercial
                          
December 31, 2006
  
$
0
  
$
0
  
$
0
  
$
0
  
December 31, 2005
  
$
0
  
$
0
  
$
0
  
$
0
  
December 31, 2004
  
$
0
  
$
0
  
$
0
  
$
0
  
March 31, 2007 *
  
$
0
  
$
0
  
$
0
  
$
0
  
March 31, 2006 *
  
$
0
  
$
0
  
$
0
  
$
0
  
                           
Total Company
                          
December 31, 2006
  
$
500,000
  
$
0
  
$
400,000
  
$
900,000
  
December 31, 2005
  
$
0
  
$
0
  
$
295,620
  
$
295,620
  
December 31, 2004
  
$
79,616
  
$
5,150,539
  
$
55,104
  
$
5,285,259
  
March 31, 2007 *
  
$
0
  
$
0
  
$
118,625
  
$
118,625
  
March 31, 2006 *
  
$
95,000
  
$
0
  
$
129,275
  
$
224,275
  
                           
Note 3:
                          
Taxes and the gain \ loss on sale of assets
                  
                           
Note 4:
                          
ISI - December 31, 2006:
                          
Health insurance resulting from extra ordinary claims
        
150,000
  
Employee embezzlement resulting in a binding settlement
            
 repayment agreement due to mediation.
        
350,000
  
Total - ISI - December 31, 2006
              
500,000
  
                           
ISI - December 31, 2004
                          
 Loss from sale of building
              
79,616
  
                           
* Unaudited
                          
 
6
 
The total backlog for ISI for the quarters ended March 31, 2007 and March 31, 2006 was $103.1 million and $50.9 million, respectively. The increase from March 31, 2006 to 2007 of $52.2 million represents a 103% growth in the backlog.
 
ISI Backlog
  
                           
   
 ISI
  
 MCS
  
  MCS
  
Total
  
Intercompany
  
 Net
  
Date
  
  Detention
  
 Detention
  
Commercial
  
Backlog
  
Eliminations
  
  Backlog
  
December 31, 2003
    
15,026,144
    
10,085,849
    
6,646,742
    
31,758,735
  
$
(5,042,596
)
$
26,716,139
  
December 31, 2004
  
$
14,308,348
  
$
6,829,299
  
$
8,870,082
  
$
30,007,729
  
$
(4,166,421
)
$
25,841,308
  
December 31, 2005
  
$
33,522,159
  
$
14,697,586
  
$
9,410,114
  
$
57,629,859
  
$
(12,190,414
)
$
45,439,445
  
December 31, 2006
  
$
52,341,110
  
$
21,557,283
  
$
9,672,964
  
$
83,571,357
  
$
(17,316,943
)
$
66,254,414
  
March 31, 2007 *
  
$
68,177,375
  
$
25,256,802
  
$
9,705,159
  
$
103,139,336
  
$
(19,242,534
)
$
83,896,802
  
March 31, 2006 *
  
$
29,555,893
  
$
11,927,281
  
$
9,431,516
  
$
50,914,690
  
$
(9,914,789
)
$
40,999,901
  
                                       
* Unaudited
                                      
 
 
Item 9.01 Financial Statements and Exhibits.
 
  Exhibit No.  Description 
     
99.1
Presentation dated May 2007
 
7

 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
     
Dated: May 2, 2007  ARGYLE SECURITY ACQUISITION CORPORATION
 
 		  
 		  
 
  By:   /s/ Bob Marbut
 
Bob Marbut
  Chairman and Co-Chief Executive Officer
 
8


 
EXHIBIT INDEX
 
Exhibit No.  Description 
     
99.1
Presentation dated May 2007

9