Argyle Security Inc (fka ARGL)

[Bobwins]

I like ARGL but haven't been able to buy any shares under the ask.

So I gave up but thought I would give holders and interested the benefit of a phone call I made to the company. Talked with Matthew Kempke?, who is the company's attorney but acting as their IR person.

He returned my phone call and was very helpful. I asked about the earnings in affiliate that dominated the Q2 P&L with earnings of 3.3million vs the total net profits of 3.7million. I asked what it was and was it sustainable. He said it was a jv they formed to work on a new medical prison facility located in Stockton Ca. I immediately commented that Stockton had declared bankruptcy but he said the funds were escrowed and represented an effort by California to comply with a court order to improve prison conditions. So this facility is located in Stockton but was built by the state. He said the whole industry has been waiting for California to spend the money to comply. However, he said that Stockton is now done. I didn't ask if there would be any contribution in Q3. He did mention that they have started another project within the company but didn't compare the impact to the Stockton JV.

ARGL says it is one of the biggest providers of equipment and services to the prison industry. They do everything from providing electronic surveillance equipment to fabricating steel bars for prisons. They are a large, full service security firm that is MUCH bigger than most of the penny stocks we research. Total revs were 17 million in Q2 and so that means they will be pushing $70million in total revs for 2013.

I asked why they posted their financials on otcmarkets after several years of non reporting. He mentioned the CEO had right sized the company and brought them to profitability. I think they are interested in highlighting the improved financials for ARGL and the new CEO may be interested in improving liquidity for himself and insiders who hold stock or options.

He mentioned that a hedge fund owns over 70% of the company. They have been patiently waiting for 4 years. The company has provided them some liquidity on their investment by repurchasing the preferred stock. The hedge fund is the only holder of the preferred. The A shares have been completely liquidated and the B shares will likely be liquidated over time. This will reduce cash but also reduce potential share count and minimize the need for the hedge fund to sell into the public markets and reduce the share price.

I was impressed by the fundamentals behind ARGL. The company is profitable, even without the JV contribution and has two good qtrs in the books. Will be interesting to see Q3 and see if the positive trends continue. I am a little concerned about future prospects of local and state governments spending, given their poor financial condition. But maybe like California, there will be court mandated spending to improve conditions and security.

I tried for a couple of weeks to buy shares but never got a nibble. I have moved on to other stock candidates but thought I would post what I consider a very positive talk with you.

Good luck. Bobwins