SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------------
FORM 8-K/A *
Amendment No. 1 to
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------------------------------
Date of Report (Date of earliest event reported)
December 18, 1997
Electro-Optical Systems Corp.
-----------------------------
(Exact name of Registrant as specified in its charter)
Delaware 33-26344 75-2254748
- ---------------------------- ----------- -------------------
(State or other jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
20 Main Street Acton, MA 01720
------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 263-9115
--------------
Electro-Optical Systems Corp.
422 Gleason Road, Stow, Massachusetts 01775;
(Former address of the Company)
Formerly Curbstone Acquisition Corp.
4180 La Jolla Village Drive, Suite 500, La Jolla, California 92037
(Former name or address, if changed since last report)
- --------------------------------------------------------------------------------
* This Report amends the Registrant's Report on Form 8-K originally filed on
December 18, 1997 with the Securities and Exchange Commission.
<PAGE>
Item 1. Changes in Control of Registrant
and
Item 2. Acquisition or Disposition of Assets
Acquisition of WTS Transnational, Inc. and Change in Control of the Registrant
On December 5, 1997, the Registrant executed a definitive Agreement for Exchange
of Stock (the "Acquisition Agreement") with WTS Transnational Inc., a
Massachusetts corporation ("WTS"). Pursuant to the Acquisition Agreement the
Registrant acquired all of the issued and outstanding stock of WTS in exchange
for 15,488,120 shares of the Registrant's common stock.
The acquisition was completed on December 18, 1997 whereupon the Registrant
changed its name to "Electro-Optical Systems Corp. ("Electro" or the "Company").
Concurrently with the closing of the acquisition the OTC Bulletin Board symbol
was changed to "EOSC." Additionally, in accordance with the Acquisition
Agreement the management of Curbstone resigned in favor of the management of
WTS.
Current Capital Structure
Prior to the consummation of the Company's acquisition of WTS (the "WTS
Acquisition") in exchange for 15,488,120 shares of Electro common stock, Electro
(then named Curbstone Acquisition Corp.) had outstanding 3,488,217 shares of
common stock. On December 19, 1997, Curbstone issued 1,054,240 shares of its
common stock to foreign investors in a private placement under Regulation S (the
"Private Placement") at a per share price of $.47 which generated $500,000 in
gross proceeds to the Company. In addition, Electro issued 1,054,241 shares of
its common stock on December 19, 1997 in full repayment of a $500,000 loan
advance made to WTS in November of 1997 (the "Loan Payment"). As of February 17,
1998, Electro has outstanding 21,084,818 shares of common stock; there are
currently no options, warrants, or other convertible securities outstanding.
Control of the Company
As part of the WTS Acquisition, 15,488,120 shares of the Company's Common Stock
were issued to the shareholders of WTS in exchange for their shares of WTS. The
15,488,120 shares issued represent approximately 73% of the total shares of
Common Stock which the Company presently has outstanding, and by virtue of the
share exchange, the former shareholders of WTS presently have voting control at
the shareholder level of the Company. To the knowledge of the management, no
shareholder agreement(s) exist amongst the former shareholders or any other
shareholders of the Company with respect to any arrangements or understandings
relating to the election of directors or other matters. The largest former WTS
shareholder, Charles B. Weaver, acquired in excess of 35% of the Common Stock of
the Company in the WTS Acquisition and he could be deemed to control the Company
by virtue of his share ownership and role in management.
The former directors and officers of Curbstone who may be deemed to have
relinquished control of the Company at the time of the WTS Acquisition via their
resignations are as follows:
Thomas R. Brooksbank Director, President of Curbstone
George G. Chachas Director, Secretary of Curbstone
Business
Prior to the Company's acquisition of WTS, the Registrant was organized with a
view toward the search for, location of and combination of the Registrant with a
privately-held business enterprise. The Registrant had no business operations,
except for the activities of its officers, directors and consultants in
searching for a potential combination partner. At the time of the WTS
Acquisition, the Company had limited assets and no
1
<PAGE>
operating income. The registrant's sole business activity at the present time is
the business acquired from WTS Transnational, Inc. Prior to its acquisition by
Electro and as currently operated, WTS is a development stage company focused on
preparing to introduce state-of-the-art fingerprint biometric systems for the
information security and access control markets. Audited financial statements
for Electro-Optical Systems Corp. (formerly WTS Transnational, Inc.) for the
three years ended December 31, 1996 are included under Item 7 of this filing.
The Company has developed and is in the process of commencing production of
fingerprint biometric systems for the information security and access control
market segments. After final field testing is completed, the Company presently
expects to initiate its first commercial shipment of product in the third
quarter, although there can be no assurance that the products will not begin to
ship somewhat later than presently projected. The Company believes that its
systems will meet the highest level security requirements of the information
security and access control markets at an affordable cost.
The Company believes that its systems are differentiated from its competition by
virtue of the capacity to supply a product with a significantly lower
cost/performance ratio which offers a less expensive field maintenance solution.
Management believes that its product cost and approach will enable the
Registrant to sell its systems effectively to commercial markets, creating a new
widespread demand for its products. The Company's goal is to provide a range of
products that will set the standard in automated biometric identification.
The Company believes its products will have a higher overall quality of
performance at a lower cost than current systems on the market. The Company
utilizes proprietary optical systems, electronics, algorithms and software. The
system uses a commercially proven fingerprint extraction and matching algorithm.
The Company's primary mission is to change the way people interact with
information technology systems on an economical basis. The Company's goal is to
eliminate the use of passwords or personal identification numbers and the
significant administrative costs associated with these, and replace them with
biometric verification of the individual using its "Notarization System." Log-on
is accomplished without having to remember a password, nor make periodic changes
to that password, while providing authentication of the individual user for
security and privacy of transactions and records. Once the individual is known,
the system can be programmed to configure itself to the individual or client
company's needs or desires. Security is improved by the creation of a changing
random length encryption based on the minutia data of the individual's
fingerprints.
Management
The following table sets forth the names and ages of the Company's current
Officers and Directors. Officers are generally elected to serve until the
meeting of the Board of Directors following the next Annual Meeting of
Shareholders or until their successors have been elected and have qualified. The
former officers and directors of Curbstone resigned at the time of the WTS
Acquisition, and certain of the officers of WTS became officers of the Company
at the time. The Current Report on Form 8-K dated December 18, 1997 previously
filed to announce the WTS Acquisition included as current directors or officers
of the Company the names of former directors of WTS who have been asked to serve
as directors of the Company and who have, effective January 21, 1998 accepted
the offered positions to become Directors and the names of two individuals who
have not yet accepted full-time positions with the Company. Pending their
acceptance or the election or appointment of additional individuals to serve,
their names have been omitted from the table below. Steve Price, one of the
individuals who has not accepted a full time position will work with EOSC's
management in a consulting capacity.
2
<PAGE>
Name Age Position
- ----------------------------------------------------------------------
Charles B. Weaver 56 President, Director, Chairman of the Board,
and Chief Executive Officer
Martin C. Goldman 71 Secretary, Director
James Callahan 47 Vice President Manufacturing
George G. Clarke 46 Vice President Marketing
Philip V. Holberton 55 Chief Financial Officer, Treasurer
Avi Fogel 40 Director
George B. Parrent Jr. 66 Director
CHARLES B. WEAVER, President, CEO and Chairman of the Board. Charles B. Weaver
is the President of the Company and was the founder of WTS Transnational, Inc.
in 1990. Prior to founding WTS, Mr. Weaver held positions of Business Area
Manager and Program Manager for the Honeywell Electro-Optics Division of
Honeywell, Inc. during his 15 years tenure. Prior to joining Honeywell
Electro-Optics, he was a Senior Systems Engineer for Texas Instruments. He holds
a Bachelor of Arts degree in Physics from Oklahoma City University and
participated in Graduate Studies in Physics at Texas A&M.
MARTIN GOLDMAN has served as a Director, Corporate Counsel, and Clerk of WTS
Transnational, Inc. since 1990. Mr. Goldman is a partner in the law offices of
Goldman & Goldman, with law practices in Lynn and Swampscott, Massachusetts. Mr.
Goldman received a Doctorate Degree from Boston University Law School and a
Masters of Law in Taxation from Northeastern University.
JAMES CALLAHAN, Vice President Manufacturing. Prior to becoming Vice President
Manufacturing in 1994 of WTS Transnational, Inc., Mr. Callahan was Production
Control Supervisor of Corning OCA, Inc. (1992-1994) and Materials Manager of
Autograhix, Inc. (1990-1992). Prior thereto, he spent 18 years at Honeywell's
Electro-Optics Division in a number of manufacturing related positions.
GEORGE G. CLARKE, Vice President of Marketing & Sales. Prior to joining the
company in February 1998, Mr. Clarke was Regional Manager - Marketing & Sales
since 1991 and National Account Manager (1988-1991) of Goddard Technology a
developer of imaging systems and software products. Mr. Clarke has a BS degree
from the University of Toronto, Canada.
PHILIP V. HOLBERTON, Chief Financial Officer. In 1995, Mr Holberton founded
Holberton and Company, an advisory firm specializing in financial matters,
strategic planning, development and evaluation of business plans. He also served
as CFO of ACCESS Radiology Corporation for ten months during 1997. Prior to
founding his firm, Mr. Holberton was the Vice President of Finance and
Administration, and Chief Financial Officer for Cambridge NeuroScience, Inc.
(1991-1995), Vice President of Finance and Treasurer for General Cinema
Theatres, Inc. (1985-1991). Mr. Holberton is a CPA and received his BA degree
from Franklin & Marshall College and has served as an adjunct faculty member at
Boston University.
AVI FOGEL has served as a director of WTS since December 1995. He currently is a
founder and President of COMMHOME Systems, Inc., a company engaged in Intranet
Systems. Prior to founding COMMHOME Systems, Inc. in January 1997, he was Vice
President of Marketing for Digital Equipment's Network Division since 1995.
Prior to joining Digital, Mr. Fogel founded LANNET Data Communications' North
American subsidiary LANNET Inc. in 1989 and served as its President and Chief
Executive Officer. Mr.
3
<PAGE>
Fogel holds a BS in Electrical Engineering from the Technion, Israeli Institute
of Technology, Haifa, Israel.
GEORGE PARRENT JR., Ph.D. has served as a Director of WTS Transnational, Inc.
since 1990. He is currently President of IISI, a company engaged in imaging
technology. Prior to founding IISI in 1989, Dr. Parrent was Manager of Advanced
Systems at the Electro-Optics Division of Honeywell Inc. since 1986. Dr. Parrent
holds a B.S. in Mathematics from Bradley University, a MS in Physics from Boston
University and a Ph.D. in Physics from the University of Manchester, England.
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
Report of Independent Public Accountants
Balance Sheets as of December 31, 1995 and 1996
Statements of Operations for each of the three years in the
period ended December 31, 1996 and the period from
inception (October 9, 1990) through December 31, 1996
Statement of Stockholders' Deficit for the period from
inception (October 9, 1990) through December 31, 1996
Statement of Cash Flows for each of the three years in the
period ended December 31, 1996 and the period from
inception (October 9, 1990) through December 31, 1996
(b) Pro Forma Financial Information
Unaudited Pro Forma Balance Sheet as of September 31, 1997
Unaudited Pro Forma Statement of Operations for the year ended
December 31, 1996
Unaudited Pro Forma Statement of Operations for the nine
months ended September 30, 1997
Notes to Unaudited Pro Forma Financial Statements
(c) Exhibits
Exhibit 1. Agreement Concerning the Exchange of Stock Between Curbstone
Acquisition Corp. and Shareholders of WTS Transnational, Inc. dated December 5,
1997 (filed as Exhibit 1 to the Company's 8-K dated December 18, 1997 and
incorporated herein by reference).
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
February 17, 1998 ELECTRO-OPTICAL SYSTEMS CORP.
/s/ CHARLES B. WEAVER
- -----------------------
Charles B. Weaver
President and Chief Executive Officer
4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Electro-Optical Systems Corp.:
We have audited the accompanying balance sheets of Electro-Optical Systems Corp.
(formerly WTS Transnational Inc., a Massachusetts corporation in the development
stage) as of December 31, 1995 and 1996, and the related statements of
operations, stockholders' deficit and cash flows for each of the three years in
the period ended December 31, 1996 and for the period from inception (October 9,
1990) to December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Electro-Optical Systems Corp.
as of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 and for
the period from inception (October 9, 1990) to December 31, 1996, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1 to the
financial statements, the Company has suffered recurring operating losses since
inception and has a working capital deficit as of December 31, 1996. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also discussed
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Arthur Andersen LLP
Boston, Massachusetts
February 13, 1998
1
<PAGE>
ELECTRO-OPTICAL SYSTEMS CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1995 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,936 $ -
Accounts receivable - -
Other current assets - -
------------ ------------
Total current assets 8,936 -
------------ ------------
MACHINERY AND EQUIPMENT, AT COST
Machinery and equipment 14,654 14,654
Less--Accumulated depreciation 10,400 14,654
------------ ------------
4,254 -
------------ ------------
OTHER ASSETS 8,179 -
------------ ------------
Total assets $ 21,369 $ -
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable $ - $ 7,000
Accounts payable 192,183 333,972
Accrued expenses 113,637 302,326
------------ ------------
Total current liabilities 305,820 643,298
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' DEFICIT:
Common stock, no par value-
Authorized--200,000 shares
Issued and outstanding--9,400 shares at December 31, 1995 94 100,309
and 32,500 shares at December 31, 1996
Deficit accumulated in the development stage (284,545) (743,607)
------------ ------------
Total stockholders' deficit (284,451) (643,298)
------------ ------------
$ 21,369 $ -
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
ELECTRO-OPTICAL SYSTEMS CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
from Inception
(October 9,
1990) to
Year Ended December 31, December 31,
1994 1995 1996 1996
<S> <C> <C> <C> <C>
CONSULTING REVENUES $ 1,359,605 $ 672,472 $ - $ 2,121,541
OPERATING EXPENSES
Cost of revenues 883,558 373,392 - 1,256,950
Research and development - - 205,239 205,239
Selling and marketing 41,392 161,981 131,237 334,610
General and administrative 467,842 388,586 122,586 1,069,716
------------ ------------ ------------- ------------
Total operating expenses 1,392,792 923,959 459,062 2,866,515
------------ ------------ ------------- ------------
LOSS FROM OPERATIONS (33,187) (251,487) (459,062) (744,974)
OTHER INCOME (EXPENSE), NET 1,446 (79) - 1,367
------------ ------------ ------------- ------------
Net loss $ (31,741) $ (251,566) $ (459,062) $ (743,607)
============ ============ ============= ============
PRO FORMA NET LOSS PER COMMON SHARE
Basic $ (.01) $ (.08) $ (.04)
=========== =========== ============
Diluted $ (.01) $ (.08) $ (.04)
=========== =========== ============
PRO FORMA WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic 2,200,623 3,056,732 10,901,366
============ ============ =============
Diluted 2,200,623 3,056,732 10,901,366
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ELECTRO-OPTICAL SYSTEMS CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
Accumulated in
Common Stock the
Number Development
of Shares Par Value Stage Total
<S> <C> <C> <C> <C>
INCEPTION, OCTOBER 9, 1990 - $ - $ - $ -
Issuance of common stock 5,400 54 - 54
Net loss - - (77) (77)
--------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1990 5,400 54 (77) (23)
Net income - - 13 13
--------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1991 5,400 54 (64) (10)
Net income - - 204 204
--------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1992 5,400 54 140 194
Net loss - - (1,378) (1,378)
--------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1993 5,400 54 (1,238) (1,184)
Issuance of common stock 3,400 34 - 34
Net loss - - (31,741) (31,741)
--------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1994 8,800 88 (32,979) (32,891)
Issuance of common stock 600 6 - 6
Net loss - - (251,566) (251,566)
--------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1995 9,400 94 (284,545) (284,451)
Issuance of common stock for services 21,475 215 - 215
Issuance of common stock 1,625 100,000 100,000
Net loss - - (459,062) (459,062)
--------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1996 32,500 $ 100,309 $ (743,607) $ (643,298)
========= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ELECTRO-OPTICAL SYSTEMS CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
from inception
(October 9,
1990) through
Year Ended December 31, December 31,
1994 1995 1996 1996
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (31,741) $ (251,566) $ (459,062) $ (743,607)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities-
Compensation expense - - 215 269
Depreciation 3,100 7,300 4,254 14,654
Changes in assets and liabilities-
Accounts receivable (51,432) 51,432 - -
Other current assets (887) 887 - -
Accounts payable 58,156 132,843 141,789 333,972
Accrued expenses 74,259 39,378 188,689 302,326
---------- ----------- ----------- -----------
Net cash provided by (used in) 51,455 (19,726) (124,115) (92,306)
operating activities ---------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (14,654) - - (14,654)
Decrease (increase) in other assets (7,591) (588) 8,179 -
---------- ----------- ----------- -----------
Net cash provided by (used in) (22,245) (588) 8,179 (14,654)
investing activities ---------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock 34 6 100,000 100,040
Proceeds from note payable - - 7,000 7,000
---------- ----------- ----------- -----------
Net cash provided by financing 34 6 107,000 107,040
activities ---------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH 29,244 (20,308) (8,936) -
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - 29,244 8,936 -
---------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 29,244 $ 8,936 $ - $ -
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ELECTRO-OPTICAL SYSTEMS CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Electro-Optical Systems Corp. (the Company), formerly WTS Transnational
Corporation Inc. (WTS), is a development stage company which is
developing for commercial use state-of-the-art fingerprint biometric
systems for the information security and access control market. Revenues
generated by the Company in 1994 and 1995 were for consulting services
provided to other companies.
On December 18, 1997, Curbstone Acquisition Corporation (Curbstone)
acquired the outstanding stock of WTS in exchange for 15,488,120 shares
of Curbstone's common stock or 73% of Curbstone. For accounting purposes,
the acquisition is treated as a recapitalization of Curbstone with WTS as
the acquiror (reverse acquisition). In connection with the acquisition,
the Company changed its name to Electro-Optical Systems Corporation
(EOSC). Prior to the acquisition, Curbstone had no operating business. As
a result of the acquisition, the Company's primary business is the
business of WTS. In connection with the acquisition, EOSC issued
2,108,481 shares of common stock to certain investors resulting in net
proceeds of approximately $850,000 to the Company.
The Company is subject to risks common to rapidly growing,
technology-based companies, including a limited operating history,
dependence on key personnel, rapid technological change, competition from
substitute products and larger companies, successful development and
marketing of commercial products and services, and raising capital.
The Company has not completed the development of its products and has
suffered recurring losses of approximately $744,000 since inception. The
Company has a working capital deficit as of December 31, 1996, and is
dependent on raising additional capital to satisfy its ongoing capital
needs and to continue the development of its products. Management
continues to pursue additional funding arrangements; however, no
assurance can be given that such financing will in fact be available to
the Company. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. If the Company is unable to
obtain financing on acceptable terms in order to maintain operations
through fiscal year 1998, it could be forced to curtail or discontinue
its operations. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
The accompanying financial statements reflect the application of the
accounting policies as described below.
(a) Revenue Recognition
The Company recognized consulting revenue as services were
rendered.
6
<PAGE>
ELECTRO-OPTICAL SYSTEMS CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Continued)
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
(c) Concentrations of Credit Risk and Significant Customers
Statement of Financial Accounting Standards (SFAS) No. 105,
Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, requires disclosure of any
significant off-balance-sheet and credit risk concentrations. The
Company has no significant off-balance-sheet concentration of
credit risk such as foreign exchange contracts, option contracts
or other foreign hedging arrangements. The Company maintains its
cash and cash equivalents with several financial institutions and
its accounts receivable balances are all domestic. The Company
received revenues of greater than 10% of total revenues for the
years ended December 31, 1994 and 1995 and has amounts due to the
Company of greater than 10% of accounts receivable as of December
31, 1995 as follows:
<TABLE>
<CAPTION>
Significant Percentage of Percentage of
Customers Customer Revenues Accounts Receivable
A B A B
<S> <C> <C> <C> <C> <C>
Years Ended December 31,
1996 * * - * -
1995 2 73% 27% - -
1994 1 100% -
</TABLE>
* The Company had no revenues in the year ended December 31,
1996 and had no accounts receivable at December 31, 1996.
(d) Disclosure of Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and
cash equivalents, accounts receivable, accounts payable and notes
payable. The carrying amounts of the Company's cash and cash
equivalents, accounts receivable, accounts payable and notes
payable approximate fair value due to the short-term nature of
these instruments.
(e) Depreciation
The Company provides for depreciation through charges to
operations using the straight-line method of depreciation over the
estimated useful life of three years.
7
<PAGE>
ELECTRO-OPTICAL SYSTEMS CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Continued)
(f) Pro forma Net Loss per Common Share
In March 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 128, Earnings per Share, which established new
standards for calculating and presenting earnings per share. Basic
net loss per share is computed by dividing net loss by the
weighted average common shares outstanding during the year.
Diluted net loss per common share is the same as basic net loss
per share as the Company has no potentially dilutive common
shares. The pro forma weighted average shares of EOSC are
calculated based upon the exchange ratio of 336.83 shares of
Curbstone for one share of EOSC.
(g) Management Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(h) Research and Development Costs
Research and development costs have been charged to operations as
incurred.
(2) NOTES PAYABLE
In May through December 1996, the Company issued $7,000 of notes payable
to individuals, of which $5,000 was to a member of the Board of
Directors. The notes are payable on demand and bear interest at 8%.
(3) INCOME TAXES
For the period from inception (October 9, 1990) through December 18, 1997
(the date of the merger), the Company elected for federal and state
income tax purposes to be treated as an S corporation. Under this
election, the taxable income of the Company is reported by the
stockholders of the Company on their personal tax returns. Accordingly,
the accompanying statements of operations do not include a provision for
federal or state income taxes.
(4) STOCKHOLDERS' DEFICIT
In 1990 and 1994, the Company issued a total of 8,800 shares of common
stock to its founders. In July 1995, the Company issued 600 shares of
stock to employees. In January 1996, the Company issued
8
<PAGE>
ELECTRO-OPTICAL SYSTEMS CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Continued)
1,625 shares of common stock resulting in net proceeds of $100,000.
Additionally, the Company issued 21,475 shares of common stock to
employees for services previously performed for the Company.
(5) COMMITMENTS AND CONTINGENCIES
The Company leased certain operating facilities which expired in October
1996. In December 1997, the Company entered into a new operating
facility lease which expires in December 2000. The future minimum lease
payments are as follows:
For the year ended December 31,
1998 $ 63,000
1999 64,600
2000 67,800
-----------
$ 195,400
===========
Rent expense charged to operations for the year ended December 31, 1994,
1995 and 1996 was approximately $53,000, $82,000 and $66,000,
respectively.
(6) ACCRUED EXPENSES
Accrued expenses in the accompanying balance sheets consist of the
following:
December 31,
1995 1996
Payroll and payroll-related $ 58,637 $ 222,326
Accrued consulting 5,000 5,000
Other 50,000 75,000
---------- ----------
$ 113,637 $ 302,326
========== ==========
9
<PAGE>
ELECTRO-OPTICAL SYSTEMS CORP.
CURBSTONE ACQUISITION CORP.
NOTES TO UNAUDITED
PRO FORMA FINANCIAL STATEMENTS
OVERVIEW
On December 18, 1997, Curbstone Acquisition Corporation (Curbstone)
acquired Electro Optical Systems Corp. (EOSC), formerly WTS Transnational
Inc., in which Curbstone acquired the outstanding stock of EOSC in
exchange for 15,488,120 shares of Curbstone's common stock or 73% of
Curbstone. In connection with the acquisition, the Company changed its
name to Electro-Optical Systems Corporation. Prior to the acquisition,
Curbstone had no operating business. EOSC is a development stage company
which is developing for commercial use state-of-the-art systems for the
information and security and access control market segments. As a result
of the acquisition, the Company's primary business is the business of
WTS. For accounting purposes, the acquisition is treated as a
recapitalization of Curbstone with WTS as the acquiror (reverse
acquisition).
The number of shares of common stock that each holder of the WTS capital
stock received in the acquisition was determined by multiplying the
number of shares of WTS capital stock held by each holder by the exchange
ratio 336.83. In connection with the acquisition, EOSC issued 2,108,481
shares of common shares to certain investors resulting in net proceeds of
approximately $850,000.
The following Unaudited Pro Forma Combined Balance Sheet as of September
30, 1997 and the Unaudited Pro Forma Combined Statement of Operations for
the year ended December 31, 1996 and the nine months ended September 30,
1997 give effect to the acquisition accounted for under the reverse
acquisition purchase method of accounting. The financial information for
the year ended December 31, 1996 for Curbstone have been derived from the
financial statements of Curbstone which have been audited by McBride and
Reeves, CPA's. The financial information for the year ended December 31,
1996 for EOSC have been derived from the financial statements of EOSC
which have been audited by Arthur Andersen LLP. The unaudited financial
statements as of September 30, 1997 and for the nine months ended
September 30, 1997 have been derived from the unaudited financial
statements of EOSC and Curbstone, respectively. In the opinion of
management, the unaudited financial statements have been prepared on the
same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the financial position and results of
operations for such period.
The Unaudited Pro Forma Combined Financial Information is based on the
historical financial statements of EOSC and Curbstone under the
assumptions and adjustments set forth in the accompanying Notes to the
Unaudited Pro Forma Combined Financial Information. The Unaudited
10
<PAGE>
ELECTRO-OPTICAL SYSTEMS CORP.
CURBSTONE ACQUISITION CORP.
NOTES TO UNAUDITED
PRO FORMA FINANCIAL STATEMENTS
(Continued)
Pro Forma Combined Balance Sheet assumes that the acquisition was
consummated on September 30, 1997, and the Unaudited Pro Forma Combined
Statement of Operations assumes that the acquisition was consummated on
January 1, 1996.
The Pro Forma adjustments are based on the reverse acquisition method of
accounting, which provides that the net assets of the acquired company
(Curbstone) be recorded at their historical cost, which approximates fair
value.
The Unaudited Pro Forma Combined Financial Statements may not be
indicative of the results that actually would have occurred if the
acquisition had been in effect on the dates indicated or which may be
obtained in the future. The Unaudited Pro Forma Combined Financial
Statements should be read in conjunction with the historical financial
statements and accompanying notes of Curbstone and EOSC.
11
<PAGE>
ELECTRO-OPTICAL SYSTEMS CORP.
CURBSTONE ACQUISITION CORP.
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Historical Adjustments Pro forma
EOSC Curbstone (B) Combined
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ - $ 567 $ 850,000 $ 850,567
Accounts receivable - - - -
Other current assets - - - -
------------ ------------ ----------- ------------
Total current assets - 567 850,000 850,567
------------ ------------ ----------- ------------
MACHINERY AND EQUIPMENT, NET - - - -
OTHER ASSETS - - - -
------------ ------------ ----------- ------------
Total assets $ - $ 567 $ 850,000 $ 850,567
============ ============ =========== ============
LIABILITIES
CURRENT LIABILITIES:
Notes payable $ 50,900 $ - $ - $ 50,900
Accounts payable 387,990 - - 387,990
Accrued expenses 395,232 450 - 395,682
------------ ------------ ----------- ------------
Total current liabilities 834,122 450 - 834,572
------------ ------------ ----------- ------------
STOCKHOLDERS' DEFICIT:
Common stock 100,309 521 (98,549) 2,281
Additional paid-in capital - 100,104 848,041 948,145
Retained deficit (934,431) (100,508) 100,508 (934,431)
------------ ------------ ----------- ------------
Total stockholders' equity (834,122) 117 850,000 15,995
------------ ------------ ----------- ------------
$ - $ 567 $ 850,000 $ 850,567
============ ============ =========== ============
</TABLE>
12
<PAGE>
ELECTRO-OPTICAL SYSTEMS CORP.
CURBSTONE ACQUISITION CORP.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Historical Adjustments Pro forma
EOSC Curbstone (C) Combined
<S> <C> <C> <C> <C>
REVENUES $ - $ - $ - $ -
EXPENSES
Cost of revenues - - - -
Research and development 1,063 - - 1,063
Selling and marketing - - - -
General and administrative 189,760 4,371 - 194,131
------------- ------------ ------------ -------------
Total operating expenses 190,823 4,371 - 195,194
------------- ------------ ------------ -------------
Net loss $ (190,823) $ (4,371) $ - $ (195,194)
============= ============ ============ =============
Net loss per share $ (.02) $ - $ - $ (.01)
============ ============ ============ ============
Weighted average shares outstanding (C) 10,946,978 3,488,217 2,108,481 16,543,676
============= ============ ============ =============
</TABLE>
13
<PAGE>
ELECTRO-OPTICAL SYSTEMS CORP.
CURBSTONE ACQUISITION CORP.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Historical Adjustments Pro forma
EOSC Curbstone (C) Combined
<S> <C> <C> <C> <C>
CONSULTING REVENUES $ - $ - $ - $ -
EXPENSES
Cost of revenues - - - -
Research and development 205,239 - - 205,239
Selling and marketing 131,237 - - 131,237
General and administrative 122,586 80,112 - 202,698
------------- ------------ ------------ -------------
Total operating expenses 459,062 80,112 - 539,174
------------- ------------ ------------ -------------
Net loss $ (459,062) $ (80,112) $ - $ (539,174)
============= ============ ============ =============
Net loss per share $ (.04) $ (.02) $ - $ (.03)
============ =========== ============ ============
Weighted average shares outstanding (C) 10,901,366 3,488,217 2,108,481 16,498,064
============= ============ ============ =============
</TABLE>
14
<PAGE>
ELECTRO-OPTICAL SYSTEMS CORP.
CURBSTONE ACQUISITION CORP.
NOTES TO UNAUDITED
PRO FORMA FINANCIAL STATEMENTS
(A) BASIS OF PRESENTATION
The unaudited Pro Forma Combined Balance Sheet assumes that the
acquisition and the issuance of 2,108,481 shares of common stock were
consummated on September 30, 1997, and the Unaudited Pro Forma Combined
Statement of Operations for the year ended December 31, 1996 and the nine
months ended September 30, 1997 assumes that the acquisition was
consummated on January 1, 1996. The acquisition has been accounted for in
the accompanying Unaudited Pro Forma Combined Financial Information under
the reverse acquisition purchase method of accounting.
(B) BALANCE SHEET ADJUSTMENTS
The adjustments to the balance sheet comprise the following:
<TABLE>
<S> <C>
Cash-
Proceeds from issuance of 2,108,481 shares of common stock resulting
in net proceeds of approximately $850,000 $ 850,000
===========
Common Stock-
Reversal of EOSC no par value common stock $ (100,309)
Recording of par value ($.0001) of 15,488,120 shares issued to EOSC 1,549
Recording of par value ($.0001) from the issuance of 2,108,481 shares 211
-----------
$ (98,549)
===========
Additional paid-in capital-
Elimination of Curbstone accumulated deficit $ (100,508)
Recording of Curbstone additional paid in capital of newly issued
shares 98,760
Recording of additional paid in capital from the issuance of 2,108,481 849,789
shares -----------
$ 848,041
===========
Accumulated deficit-
Elimination of Curbstone accumulated deficit $ 100,508
===========
</TABLE>
(C) ADJUSTMENTS TO STATEMENTS OF OPERATIONS
For purposes of computing pro forma net loss per share, the pro forma
weighted average common shares of EOSC reflects (i) the conversion of
shares of EOSC common stock into Curbstone Stock at a conversion ratio
of 336.83 and (ii) the issuance of 2,108,481 shares of common stock.
15
