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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
December [7], 2006
Date of Report (Date of earliest event reported)
ELECTRONIC CONTROL SECURITY INC.
(Exact name of registrant as specified in its charter)
New Jersey 0-30810 22-2138196
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
790 Bloomfield Avenue, Building C, Suite 1
Clifton, New Jersey 07012
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (973) 574-8555
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligations of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
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ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On December [7], 2006 Electronic Control Security Inc. (the "Company") and
Hyundai Syscomm Corp., a California corporation ("Hyundai"), entered into a
Memorandum of Understanding pursuant to which the parties have agreed to enter
into the following transactions (collectively, the "Transactions"):
o A sub-contract from Hyundai or one of its affiliates to the Company
(the "Systems Sub-Contract") to provide up to two million dollars
($2,000,000) of video surveillance systems (the "Systems") specified
and integrated according to the specifications to be provided in the
sub-contract.
o A sub-contract from Hyundai or one of its affiliates to the Company
(the "Asian Sub-Contract," and, together with the Systems
Sub-Contract, the "Sub-Contracts") to provide security worthy assets
in Asia on terms beneficial to both parties. Under the MOU Hyundai
agreed to guaranty Company gross revenues on or prior to June 30, 2008
of at least twenty three million dollars ($23,000,000) from the Asia
Sub-Contract, provided that the Company performs its Asia Sub-Contract
obligations in a timely and efficient manner.
o The issuance to Hyundai over time of up to fifty percent (50%) of the
common stock, par value $0.001 (the "Common Stock") of the Company,
with the timing and amount of the issuance of shares being tied to the
gross profit generated from the Sub-Contracts. Unless otherwise agreed
by the parties in the definitive agreements, the Company would be
credited with seventy percent (70%) of such gross profits and Hyundai
would be credited with thirty percent (30%) of such gross profits.
Hyundai may at its election take its thirty percent (30%) of Gross
Profits in the form of cash or in the form of the Company's Common
Stock valued at fifty eight cents ($.58) per share ("Sub-Contract
Shares"); provided, however, that Sub-Contract Shares credited to
Hyundai would only be issued to Hyundai if, after giving effect to
their issuance and the Funding Shares (as defined below), Hyundai
would own fifty percent (50%) or less of the outstanding shares of the
Company's Common Stock. Any Sub-Contract Shares credited to Hyundai
but not issued because of the fifty percent (50%) limitation set forth
in the preceding proviso, would be promptly issued to Hyundai as the
Company's outstanding shares of Common Stock increase so that, to the
extent credited to Hyundai, Hyundai shall retain its fifty percent
(50%) ownership interest of the Company's Common Stock.
o The provision by Hyundai to the Company of up to $1.2 million (the
"Repurchase Funding") in order for the Company to repurchase its
outstanding Senior Secured Convertible Debentures issued in January
2006. Under the terms of the Repurchase Funding, the Company would
issue 4.8 million shares of Common Stock (the "Funding Shares") to
Hyundai in consideration for its provision of the Repurchase Funding.
The consummation of the Transactions is contingent upon, among other
things, the execution of definitive agreements, the Company obtaining waivers
from the holders of its outstanding warrants and convertible debentures with
respect to any anti-dilution rights contained therein that might otherwise be
triggered as a result of the transaction. The Company is also required to obtain
the consent of the holders of the convertible debentures to its proposed
repurchase of such securities and release of the lien previously granted as
security for payment.
The MOU calls for the parties to enter into an escrow agreement as soon as
practicable, but in no event later than December 22, 2006. At such time the MOU
calls for the Company to place the Funding Shares in escrow. The MOU further
calls for the Repurchase Funding to be placed in escrow, and for the Funding
Shares and the Repurchase Funding proceeds to then be distributed, upon the
Company obtaining the waivers and consents discussed above.
The MOU also contemplates that the parties would enter into a registration
rights agreement as of the consummation of the Transactions, and that the
Company would register the resale of the Funding Shares as soon as practicable
following the closing.
The foregoing description is qualified in its entirety by the MOU, a copy
of which has been filed as Exhibit 99.1 hereto.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
None.
(b) Pro Forma Financial Information.
None.
(c) Exhibits.
99.1 Memorandum of Understanding, dated as of December 7, 2006, by and between
the Company and Hyundai Syscomm Corp.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this Current Report on Form 8-K to be
signed on its behalf by the undersigned thereunto duly authorized.
Date: December [8], 2006 ELECTRONIC CONTROL SECURITY INC.
By: /s/ Arthur Barchenko
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Arthur Barchenko, Chief Executive Officer