UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

                                   (Mark One)



[ X ]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

For the fiscal year ended     December  31, 1997

                                       or

[    ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number:  0-28946


                       Electro-Optical Systems Corporation

             (Exact name of registrant as specified in its charter)

       Delaware                                          75-2254748
(State of incorporation)                   (I.R.S. Employer Identification No.)

                    36 Nason St, Maynard, Massachusetts 01754
               (Address of principal executive offices) (Zip Code)

                                 (978) 461-1773
              (Registrant's telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:   None

Securities registered pursuant to Section 12(g) of the Act:   None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of  Registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated by reference to Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [X] No [ ]



The aggregate market value of the Registrant's  Common Stock,  $.0001 par value,
held by  non-affiliates of the registrant as of March 13, 1998 was $20.6 million
based on the price of $3.4375 on that date on the NASDAQ National Market.  As of
March 13, 1998,  5,989,696 shares of the Registrant's  Common Stock,  $.0001 par
value, were issued and outstanding to such affiliates.   A total of
approximately 21 million shares are issued and outstanding.

After March 13, 1998 the  aggregate  market value of shares of Common Stock held
by nonaffiliates of the Registrant  cannot be determined since there has been no
market for such common stock.  For purposes of this  computation,  all executive
officers, directors and 10% beneficial owners of the Registrant are deemed to be
affiliates. Such determination should not be deemed to be an admission that such
directors,  officers or 10%  beneficial  owners are in fact,  affiliates  of the
Registrant.



<PAGE>





                                     Part I


Item 1.   Business

Information contained in this Report contains forward-looking statements such as
statements of the Company's plans, objectives, expectations and intentions, that
can  often be  identified  by the use of  forward-looking  terminology,  such as
"may," "will," "expect,"  "anticipate,"  "believe,"  "plan," "intend,"  "could,"
"estimates,"  "is  being"  or  "goal"  or other  variations  of  these  terms or
comparable  terminology.  Such statements,  which include statements relating to
the anticipated growth of the market for biometric verification  equipment,  the
Company's  ability to develop and market new products and the Company's  ability
to enter new markets,  and other matters are subject to risks and  uncertainties
that could cause actual results to differ materially from those anticipated. The
cautionary  statements made in this Report should be read as being applicable to
all  forward-looking  statements  wherever  they  appear  in  this  Report.  The
forward-looking  statements  contained  herein speak only as of the date of this
Report.  EOSC  expressly  disclaims  any  obligation or  undertaking  to release
publicly any updates or revisions to any such statement or reflect any change in
EOSC's  expectations  or any change in events,  conditions or  circumstances  on
which any such  statement is based.  Factors that could cause or  contribute  to
such differences include those discussed in the risk factors set forth in Item 7
below (the "Risk Factors") as well as those discussed elsewhere herein.

Recent Developments

On March 13,1998,  Electro-Optical Systems Corp. (EOSC or the Company) suspended
operations  because of a temporary  restraining order obtained by the Securities
and Exchange Commission ("SEC") as part of its investigation of the Company. See
Item  3,  Legal  Proceedings.  Although  the  temporary  restraining  order  was
eventually  lifted as part of the  settlement  with the SEC, the Company has not
been able to recommence  operations  because of a lack of capital to operate the
business.  The  Company  had been  negotiating  additional  financing  with U.S.
Milestone prior to the commencement of the "SEC Litigation" ( as defined in Item
3, Legal Proceedings).  In light of the circumstances,  however, such funding is
expected to be unavailable.  While exploring  alternative financing sources, the
Company has had difficulty obtaining financing due to the uncertainty created by
the SEC  investigation.  If the Company is unable to secure adequate  financing,
the Company's ability to complete the development of its proposed product and to
manufacture the product for  distribution in the commercial  market is extremely
doubtful.

Due to the  Company's  lack of  capital,  the  Company  is not able to engage an
independent  public  accountant to complete an audit of the Company's  financial
statements for the fiscal year ending December 31, 1997. The Company had engaged
an  independent  public  accountant  to  complete  an  audit  for its  financial
statements  for the fiscal year ending  December 31, 1996 and December 31, 1995,
which was included as an exhibit to the  Company's  periodic  report on Form 8-K
filed  February  13,  1998.   Nonetheless,   the  Company's  independent  public
accountant  has  resigned as of September  18,  1998,  which was reported on the
periodic  report on Form 8-K,  filed  September  25, 1998. As such, no review or
update of those  financial  statements  has  occurred  and such  statements  are
current  only up to the date  stated on the  report.  The  Company is  presently
searching for a new  independent  public  accountant,  but does not expect to be
able to  complete  an audit of its  financial  statements  until  and  unless it
receives adequate financing, which is extremely doubtful.

A class action lawsuit, case number 98CIV.6403,  Alan Fellman, et al., on behalf
of himself and all others situated vs. Electro  Optical  Systems Corp.,  Charles
Weaver,  et al in September 10, 1998 by shareholders who purchased the Company's
stock from December 18, 1997 to March 27, 1998  inclusive,  and who are claiming
damage in the United States District Court,  Southern  District of New York. The
Company  presently  has no capital,  no  operations  and no source of additional
financing.  Nonetheless,  the Company  intends to defend its position,  however,
given its present financial  situation,  the Company's ability to defend against
this action this action will be extremely limited.

Overview

The Company is a development stage company, that designs,  develops,  tests, and
produces  fingerprint  biometric  systems  that can be used to secure  access to
computer based information systems as well as provide access control in a number
of other applications.

The Company's  biometric  system  verifies the user by scanning her  fingerprint
into a digital  image,  processing  the image to  extract  fingerprint  minutiae
information  and then converts the minutia data into  templates  for  comparison
with the  users  stored  template.  Once a  positive  comparison  is  made,  the
information  on the  user  is  then  passed  to the  host  system.  This  system
automatically  (without the use of an operator)  verifies the user,  reducing or
eliminating  the need for  passwords  in  multi-user  environments.  The  device
verifies the user in less than a second,  enabling controlled access to data and
a secure audit trail of the end user for each document seen and/or modified.

The medical and financial markets are beginning to require verification of users
who  access  specific  records  because of the  public's  privacy  and  security
concerns.  EOSC is  developing  fingerprint  based  biometric  systems for these
markets.  The  Company's  sales will be  primarily  to VARs and OEMs.  EOSC will
supply  biometric  devices and software to VARs that can be used in  conjunction
with their own products.  The OEM applications  will use modules in which EOSC's
core verification technology will be used with little or no modification.



EOSC is building on its core technology base, which includes proprietary optics,
digital video systems, image processors, and fingerprint verification algorithms
to produce a quality biometric fingerprint system. The Company has applied for a
patent on EOSC's unique optical  system,  which is a key element in the product.
Other key elements of this proprietary technology will be patented.

The core biometric technology can be used, unaltered,  for a series of biometric
fingerprint products that the Company plans to introduce in the future.

The Company was  incorporated  as a Delaware  company in October  1996 under the
name of  Curbstone  Acquisition  Corp.  The Company was renamed  Electro-Optical
Systems  Corp.  in  December  1997  in  conjunction   with  the  merger  of  WTS
Transnational Corporation, a Massachusetts corporation.


Industry Background

There is a convergence  towards using  biometrics  by many  technology  markets.
Biometrics is an enabling technology which can be used to authenticate or verify
the  user,  define  level of  privilege,  maintain  privacy,  strengthen  system
integrity and provide  non-repudiation  of  transactions or receipt of data. The
electronic  information  security market,  computer aided  manufacturing  market
(including time and attendance),  financial  transaction  market (point of sale,
ATM,  commodities) and the original  physical  security markets are establishing
nearly identical biometric system requirements.

The  security  and   identification   industry  consists  of  several  different
technologies,  each at various  stages in their  respective  life cycles.  Those
technologies include:

Card Technologies

Bar code

PHOTO Id

Magnetic Stripe

Smart Card (Integrated Circuit - IC)

PIN (Personal Identification Number) and Token Technologies

ATM Card

Numeric Key Pad

Time Sensitive Code Card

Biometric Information Technologies

Fingerprint

Typing Rhythm

Retina Scan

Voice Recognition

Hand Topology

Signature Dynamics

These technologies can either stand-alone or be combined to create hybrids, such
as Magnetic  Stripe and PIN, used today for ATM bank  transactions.  Smart Cards
can be used  with  fingerprint  verification  systems  for  point  of sale  user
verification.  Most future applications will use hybrids and will likely include
application or private label specific encryption.


Markets

Information systems (IS) security has become increasingly  important to business
organizations  because a growing amount of their control systems have moved from
manual procedures to IS-based  procedures.  This migration of financial records,
engineering  documentation,   acquisition  plans,  customer  records,  time  and
attendance,  shop flow records,  employee information,  and other functions into
IS-based systems has accelerated with organizational  downsizing,  the spread of
personal   computers,   and  the  introduction  of  mid-range  or  client-server
technology. The migration to open desktop computing and client-server technology
has  temporarily  outpaced  the  creation  and  deployment  of  business-quality
security and auditing products.  The development of security solutions for these
new environments is expected to be faster than in previous paradigm shifts. This
faster response will occur because the level of security awareness and knowledge
among managers, IS specialists,  auditors, and end users is now much higher than
it was in the early  1980s,  when IS  security  was widely  introduced  into the
mainframe environment for the first time.

The  medical,   financial,   telecommunications  and  insurance  industries  are
searching  for a  cost-effective  solution  over privacy and security of digital
based information.  At conferences such as card Tech/Secure Tech and privacy and
American  Business  these  industries  engage  in  discussions  seeking  new and
improved  techniques for improving the security over access to computerized data
records.  Since  1993  there has been  significant  activity  in  United  States
Congress  related to the privacy of medical and  financial  records.  Many bills
require the ability to audit the actual  user,  thereby  motivating  medical and
financial companies to seek new and improved  administrative control over access
to records.

The information  security and access control  markets have  identified  security
needs,  which  can be met  by  biometric  technology.  In  the  past,  biometric
solutions  have been cost  prohibitive.  Current  investment  in  technology  is
reducing the cost and increasing the utility of biometric  systems.  The company
believes that lower cost is opening these markets to biometric solutions.

The Company's  market  research  concluded that many  businesses or institutions
have a specific need to verify and secure the identity of individuals conducting
on-line data  transactions  or gaining  access to  databases,  especially  where
financial  transactions  are  conducted  or  sensitive  information  is  stored.
Typically  within  the  enterprise,   businesses  and  institutions  to  prevent
unauthorized  transactions  and  access  to  databases  use  password  security.
However,  this method does not  guarantee  that the  identity of the  individual
entering  the  password  and  conducting  the  transactions  is the  same as the
identity  of  the  individual  authorized  to  use  that  password.   For  those
applications and databases where it is required,  fingerprint identification can
offer a higher level of verification and security.

Almost as important as the added  security,  biometrics has the capability to be
an empowering tool. It can reduce the time and effort to log-on to a system.  By
identification of the user, the application  software has the ability to quickly
present menus and windows configured for the user.

The  development of application  software that enables  biometrics as a security
option, or a password substitute, is necessary to stimulate recurring demand for
secure IS in particular secure electronic commerce.

Security  is  an  important   factor  in  IS  decisions,   and  it  affects  the
marketability  of other IS products  and  services.  Security was the number one
requirement in a recent Standish Group survey of more than 900  businesses.  The
Standish  Demand  Assessment  and  Tracking  Service  survey of 11 key IS system
features  indicates  that  security  is  firmly  established  as a  key  feature
requirement.

The Company believes that if the price of biometric solutions comes down and the
multiplicity  of  passwords,  PINs  and  code  cards  go up,  there  will  be an
increasing rate of migration to biometric systems.


Products

Workstation Fingerprint Reader

If the Company can  recommence  operations,  adequate  financing is obtained and
development proceeds according to plan, EOSC's initial product is expected to be
an integrated  verification  fingerprint reader for computer based data security
applications.   The  prototype  reader  has  the  ability,  through  fingerprint
biometrics, to verify the user, eliminating the need for passwords in multi-user
user environments.  The system verifies the user in less than a second, enabling
controlled  access  to data  and a secure  audit  trail of the end user for each
document seen and/or modified.

Other Products and Applications

The Company  believes that the installation of advanced  biometric  verification
systems will accelerate the adoption of this technology for other  applications.
The core biometric technology developed for the workstation  verification reader
can be used, unaltered,  for a series of biometric fingerprint products that the
Company  plans to  introduce  in the  future.  See "Risk  Factors -  Development
Market;   Uncertainty  of  Market   Acceptance"  and   "Uncertainty  of  Product
Development."


Product Development

Prior to suspending  operations,  the Company's product development efforts were
focused on  developing  new products for the computer  data  security and access
control  system  markets.  The Company  was  developing  biometric  verification
systems,  based upon the  Company's  current  technology,  to meet computer data
security requirements.  The Company was also developing improvements to its core
technology and the company plans to produce product  improvements based on them.
This development effort is being funded by private  investment.  There can be no
assurance that the Company will be able to develop systems on a timely basis, if
at all, or that if developed,  the system will be commercially  successful.  See
"Risk Factors - Uncertainty of Product Development."

The  Company  had a core  team  of  engineers  that  were  responsible  for  the
development of key technologies  (optics,  cameras,  processors,  algorithms and
software) and the concept development and design of the Company's products.





The  Company  had  relied on a number of  consulting  firms and  consultants  to
provide industrial design and other engineering capabilities needed. This allows
the Company to staff tasks quickly and cost  effectively  if adequate  financing
could be obtained.  The Company's goal would be to bring these  capabilities  in
house  as the  Company  grows  to the  point  where  it can  support  them  on a
continuous base.


Marketing and Sales

If the Company can  recommence  operations,  adequate  financing is obtained and
development  proceeds according to plan the Company plans to sell and market its
products through the use of a number of indirect sales and marketing  techniques
in an attempt to stimulate  demand for its products  and  services.  The Company
plans to market its products into vertical markets through value-added resellers
(VARs) and Original Equipment  Manufactures (OEMs). The Company plans to utilize
small  internal  sales  and  marketing  staff.  It  plans  to  use  manufactures
representatives in areas where appropriate.  See Risk Factors "Dependence on New
and Uncertain  Markets" and  "Dependence on  collaborative  partners for product
distribution."


Customer Service and Support

If operations  can be  recommenced  the Company plans to provide a high level of
VAR  support to assist in the  installation  and  integration  of the  Company's
products into the VARs application software and their customers' Intranets.  The
Company  plans  to  offer a  number  of  customer  support  services,  including
applications support, training, and software upgrades.


Regulatory Issues and Industry Standards

Regulatory  or  legislative  activities,  in the U.S.  and  elsewhere,  that are
potentially  bringing  biometrics  to the forefront  and should  improve  market
conditions for the biometric industry in general include:

Privacy legislation

Voter registration

Health care legislation

Passport control/border security

Welfare fraud legislation

Drivers license/ID

The  United  States  over the past five  years  has been in a period of  intense
congressional and state  legislative and executive branch privacy activity.  The
1998 European  Union Data  Directive  deadline and the  likelihood of continuing
technological  and  organizational  threats to privacy  suggest privacy will not
soon fade as a consumer issue. For the business community,  this means continued
close attention to privacy  developments,  continued work on  industry-wide  and
company privacy policies and principles, and perhaps most importantly, continued
and  strengthened  commitment  to handling  personal  information  in a way that
convinces  decision  makers that the  business  community is a  responsible  and
trustworthy information steward.

An  examination  of both  the  current  state  of  privacy  legislation  and the
Administrations  privacy  proposals  leaves  little  doubt  that there will be a
sector-by-sector approach to privacy. Proposed legislation addresses information
privacy  issues  either by type of record (such as  financial  record or medical
record), or by type of record subject (such as SSA account holders or children),
or by type of user (such as Internet consumer).

In March 1998, a committee of the National Research Council released its report,
for the Record:  Protecting  Electronic Health Information proposing practices n
which  could  serve as  guidelines  for  Health  and  Human  Services  (HHS) for
improving the privacy and security of electronic patient records.  The Committee
recommended that hospitals, doctors offices, and insurance firms adopt technical
and organizational security safeguards:

          Provide employees with unique identifiers and discipline employees who
         share identifiers or leave records unattended;

          Use additional  access  controls to restrict  employees from obtaining
         information  that is unnecessary for their jobs and utilize  electronic
         audits;

          Use special software encrypted passwords, dedicated modem lines,
          and/or firewalls; and

          Encrypt information.

The committee also encouraged  consideration of updating industry  standards for
protecting electronic health records.

The U.S. 103rd Congress  produced  approximately  100 bills and executive branch
initiatives  that involved  business-privacy  issues.  These included  access to
public records information,  comprehensive telecommunication reform (including a
privacy mandate for the FCC) and health record reform legislation.

The  need to  provide  appropriate  Information  System  (IS)  and  OLTP  system
protection in  heterogeneous  computing  environments has increased the sense of
urgency for adopting security standards of all types: de facto, national, and

international.  There are major economic incentives for IS system manufacturers,
software   companies,   and   multinational  IS  users  to  promote   consistent
international  security  standards that foster  interoperability  on a worldwide
scale.

Commercial  companies  seem to be less worried about secrecy and more  concerned
about authorizing access and changes to information. This emphasis on access and
change  authorization  is a natural  extension of the  management  and financial
control objectives that are fundamental to good business practices.

Proprietary  APIs have  slowed  the  growth of  biometrics  for a wide  range of
applications  where a vendor  would  like to use an out of the box  system  from
anyone. An application vendor cannot be expected to write to every device on the
market  there are simply too many of them and  they're not widely  deployed.  As
APIs become  available,  the biometric  verification  system  vendors will write
system software to interface with (standard) APIs. A good example of the success
of this approach for other technologies is the computer mouse.


Intellectual Property

Proprietary protection of the Company's products,  technology,  and processes is
essential to its business. The Company's policy is to protect its technology by,
among  other  things,  filing or causing  to be filed  patent  applications  for
technology that it considers  important to the development of its business.  The
Company  has filed one  patent  application  for its unique  optical  design and
intends to file additional patents,  where appropriate,  relating to technology,
new products and product improvements. The use of patents to protect proprietary
positions  for  electronic  and  optical  systems is well  founded  within  this
industry.  There  can  be no  assurance,  however,  that  patents  will  provide
meaningful  proprietary  protection  to the  Company,  given the  uncertain  and
complex   legal  and   factual   questions   relating   to  their   breadth  and
enforceability.

The  Company  also  relies  upon  trade   secrets,   know-how,   and  continuing
technological  internal  and  external  advances  to develop  and  maintain  its
competitive  position.  To maintain  the  confidentiality  of trade  secrets and
proprietary information,  the Company maintains a policy of requiring employees,
consultants,   and  collaborators  to  execute   confidentiality  and  invention
assignment  agreements  upon  commencement  of a relationship  with the Company.
These  Agreements  are  designed  both to enable  the  Company  to  protect  its
proprietary  information by controlling  the disclosure and use of technology to
which it has rights  and to  provide  ownership  in the  Company of  proprietary
technology developed by the Company.  There can be no assurance;  however,  that
these  agreements  will  provide  meaningful   proprietary  protection  for  the
Company's trade secrets in the event of  unauthorized  use or disclosure of such
information.

EOSC's technical strengths are in optics,  digital cameras, image processing and
algorithms.  Competitive  advantage will be created by the development of unique
optical,  application specific integrated circuits (ASIC), application software,
and algorithms.  See Risk Factors - "Limited Protection of Intellectual property
rights."


Competition

There are a number of competitors  who are developing and producing  fingerprint
biometric products.  Competitive information on companies with existing products
and those  companies  currently in the  development  stage is available from two
primary  sources:  PIN  (a US  publication)  and  The  Biometric  Reports  (a UK
publication). While both of these sources list companies developing or marketing
fingerprint   identification  devices,  a  few  of  the  competitors  are  large
companies,  most  of the  competitors  are  small  and  privately  owned.  It is
difficult  to obtain  data on either  their  financial  condition  or  marketing
strategies.  Several  companies  provide  similar  equipment and software.  They
include Sony Corporation,  Digital  Biometrics Inc.,  Identix Inc.,  Identicator
Technologies,  Inc., Digital Persona.,  Mytec, Inc., American Biometric Company,
Printrak International Inc. Mytec, Inc., and the National Registry, Inc. Identix
Inc.  and  Digital  Biometrics  Inc.  are  US  public  companies.  Most  of  the
competitors are small privately held companies.

The  industry is an  emergent  industry  and the  financial  performance  of the
companies reflect it.

EOSC also faces competition from  non-biometric  technologies such as PINs, Time
Sensitive Code Cards and Smart Cards.


Manufacturing

If operations can be recommenced , the Company plans to establish  manufacturing
operations  that  consist  primarily  of  assembly,  test,  burn-in  and quality
control.  The  Company  plans  to  rely  on  outside  manufacturers  to  produce
sub-assembly  components  including its optic lens,  printed circuit boards, and
other components for the ultimate  finished  product.  The Company believes that
for the expected  demand of its  products,  these  components  should be readily
available  and that it should  not be  reliant  on any  single  manufacturer  or
supplier for its components.

The  Company  plans to  purchase  a major  portion  of the parts and  peripheral
components for its products. Most parts and materials are readily available from
several supply sources.

The Company intends to produce its products at its U.S. facility.

Employees

On March 13,  1998,  the date of the SEC  action,  the  Company  had 7 full time
employees,  of whom 4 were engaged in product  development and manufacturing and
the remaining 3 in sales and marketing,  general and administrative.  As of July
31, 1998, the Company had 3 full time employees.


Item 1 (a).       Executive Officers of the Company

         The Executive Officers of the Company are as follows:

         Name                       Age     Position

         Charles B. Weaver          57      President, Chairman of the Board,
                                            and Chief Executive Officer

         James F Callahan           47      Vice President Manufacturing

         George G. Clarke           46      Vice President Marketing

Charles B. Weaver,  President,  Chairman of the Board and Chief  Executive
Officer.  Charles B. Weaver was a founder of WTS  Transnational,  Inc. the
Predecessor  Company to the registrant,  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.

James F.  Callahan,  Vice President  Manufacturing.  Prior to becoming Vice
President  Manufacturing  in 1994 of WTS Transnational,  Inc., Mr. Callahan was
responsible for Production  Control at American  Surgical  Technologies  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.


Item 2.   Properties

As of December  31, 1997,  the Company had  facilities  in Acton,  Massachusetts
where it leased and occupied a total of approximately 6,000 square feet of space

The  description of the lease terms is  incorporated by reference from Note 5 to
the Consolidated Financial Statements.  On the June 25, 1998, the company ceased
operations  at this facility and  negotiated a termination  of the lease with no
further financial obligations or penalties.

The Company is currently  using  facilities in Maynard,  Massachusetts  where it
leases as a tenant at will and occupies 800 square feet of space.


Item 3.   Legal Proceedings

A class action lawsuit, case number 98CIV.6403,  Alan Fellman, et al., on behalf
of himself and all others situated vs. Electro  Optical  Systems Corp.,  Charles
Weaver,  et al in September 10, 1998 by shareholders who purchased the Company's
stock from December 18, 1997 to March 27, 1998  inclusive,  and who are claiming
damage in the United States District Court,  Southern  District of New York. The
Company  presently  has no capital,  no  operations  and no source of additional
financing.  Nonetheless,  the Company  intends to defend its position,  however,
given its present financial  situation,  the Company's ability to defend against
this action this action will be extremely limited.

The Company is a defendant in an action commenced by the Securities and Exchange
Commission  (SEC) in the United States District Court for the Southern  District
of New York on March  13,  1998  captioned  SEC v.  Cavanaugh,  et al.  (the SEC
Litigation).  In the SEC  Litigation,  the SEC alleges that various  defendants,
including  the Company,  engaged in a pattern of conduct  having the purpose and
effect  of  manipulating  the price of the  common  stock of the  Company  since
December  1997 when  Curbstone  Acquisition  Corporation  (Curbstone),  a public
company having no operations, acquired WTS Transnational Corp. (WTS) and changed
its name to Electro-Optical Systems Corporation.  Those other defendants accused
of  manipulation  include,  inter alia, the former  controlling  shareholders of
Curbstone;  the former financial adviser of the Company,  U.S.  Milestone Corp.,
and affiliates who had arranged the acquisition of WTS by Curbstone; and William
Levy, a lawyer for U.S.  Milestone  Corp.  who formerly  acted as lawyer for the
Company.  No  officer,  director  or  employee  of the  Company  is  named  as a
defendant.  The  complaint  alleges  violations  of Sections 5 and 17 (a) of the
Securities Act of 1933 and Section 10(b) of the Securities  Exchange Act of 1934
and Rule 10b-5 promulgated  thereunder against all of the defendants,  including
the Company. The Court entered an ex parte temporary  restraining order on March
13, 1998 that froze the assets of all of the defendants,  including the Company,
and enjoined the defendants from raising additional funds. In addition,  trading
of the Company's  stock over the OTC bulletin board was frozen for ten days. The
Company plans to request reinstatement.

After the  commencement  of a  hearing  on the SEC's  motion  for a  preliminary
injunction, and prior to the Court issuing its opinion on April 23,1998, the SEC
and the  Company  agreed to a  stipulation  entered  as an order of the Court on
April 15,  1998,  pursuant  to which:  (i) the SEC  withdrew  its  motion  for a
preliminary injunction against the Company;

(ii) the temporary  restraining  order against the Company was dissolved;  (iii)
the Company is free to expend  existing funds on reasonably  necessary  business
expenses,  excepting  payments  of any  deferred  salary to  management  and any
payment to any other defendant; and (iv) the Company will provide the SEC with a
summary of its expenditures on a periodic basis.

The Company has no continuing  association  with any of the other  defendants in
the SEC Litigation who are alleged to have carried out the alleged  manipulative
scheme and  expressly  disassociates  itself  from the  alleged  conduct of such
defendants.  The former  controlling  shareholders of Curbstone no longer have a
controlling  position in the Company and have no  influence  over the  Company's
ongoing  affairs.  U.S.  Milestone  and its  principals  are no longer acting as
financial  advisers  to the  Company and have no  influence  over the  Company's
ongoing  affairs,  except to the  extent  that it  claims  to have an  ownership
interest in  approximately  2.1 million shares of the Company's common stock. An
additional  2,108,482  were purchased in a private  transaction  arranged by U S
Milestones  and  857,081  shares  are  held  by  business  acquaintances  of U S
Milestones  received  in  connection  with the reverse  acquisition  and related
financing.  Mr. Levy is no longer engaged as a counsel to the Company and has no
influence over the Company's ongoing affairs,  except to the extent that he owns
500,000 shares of the Company's common stock. None of the other defendants is an
officer, director, employee or advisor to the Company.

The Company  understands that the SEC's  investigation of the matters alleged in
the  complaint  in the  SEC  Litigation  is  ongoing.  The  Company  intends  to
co-operate with this investigation.  The President ,Charles Weaver, has asserted
his right against  self-incrimination in response to questions raised by the SEC
pertaining to its investigation.

The Company  seeks to continue  the  development  of its  principal  product,  a
fingerprint identification device having a variety of potential security-related
applications.  The Company is exploring alternatives for additional financing in
order to achieve its business  objectives.  Before the  commencement  of the SEC
Litigation,  the Company had  anticipated  that U.S.  Milestone would provide or
arrange for up to $3 million in  additional  financing.  In light of the current
circumstances,  such financing is expected to be unavailable.  If the Company is
unable to obtain  adequate  additional  financing,  its ability to continue as a
going concern or to survive in its present state is extremely doubtful.


Item 4.   Submission of Matters to a vote of Security Holders

No matters  were  submitted  to a vote of  security  holders  after the  reverse
acquisition of the Company of December 18, 1997.


                                     Part II


Item 5.   Market for Registrants Common Equity and Related Stockholder Matters

Market Information - The Company's Common Stock, $.0001 par value (Common Stock)
was quoted on the NASDAQ OTCBB under the symbol (EOSC.) The following table sets
forth the high and low  sales  prices  for the  Company's  Common  Stock for the
periods indicated. No trading has occurred since the trading on the NASDAQ OTCBB
of the Common Stock was frozen on March 13, 1998.

                                                      High            Low

     December 18 -    December 31, 1997               7.00            .47
     January 1   -    March 31, 1998                  6.593          3.19
     April 1     -    July 31, 1997                   N/A            N/A

Number of holders- As of December 31, 1997, there were approximately 204 holders
of record of the Company's common stock,  including multiple  beneficial holders
at depositories,  banks and brokers listed as a single holder in the street name
or each respective depository, bank or broker.

Dividend  Policy - The Company has never  declared or paid cash dividends on its
capital  stock and does not plan to pay any cash  dividends  in the  foreseeable
future. The Company's current policy is to retain all of its earnings to finance
future growth.

Recent Sales of Unregistered Securities - The following information is furnished
with regard to all securities  issued by the Registrant within fiscal 1997 which
were not registered under the Securities Act.

Prior  to the  consummation  of the  Company's  acquisition  of  WTS  (the  "WTS
Acquisition")  in exchange for 15,488,120  shares of the Company's common stock,
the Company (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,  the Company  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,  the Company has 21,084,818  outstanding  shares of common
stock.  The  Company had  arranged a $300,000  bridge  loan  (convertible  note)
through US  Milestone in  anticipation  of a  $3,000,000  investment.  There are
currently  no  other  options,   warrants,   or  other  convertible   securities
outstanding.

The  securities  issued  in such  transactions  were not  registered  under  the
Securities Act, as amended,  in reliance upon the exemptions  from  registration
set forth in Section 3(b) and 4(2) of the Securities  Act,  relating to sales by
an issuer not involving any public offering. None of the foregoing transactions,
either individually or in the aggregate, involved a public offering.


Item 6.   Selected Financial Data

The following table contains certain selected consolidated financial data of WTS
prior to the transaction  and to the Company post  transaction on a consolidated
basis  and  is  qualified  in  its  entirety  by  the  more  detailed  Unaudited
Consolidated  Financial  Statements included herein.  This information  provided
herein has not been  audited by  independent  public  accountants.  Although the
Company does not expect any  material  changes,  there can be no assurance  that
such  changes  will not occur if the Company is able to appoint new  independent
public  accountants  to  complete  the  audit.  This  data  should  be  read  in
conjunction  with "Item 7.  Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations"  and the Unaudited  Consolidated  Financial
Statements appearing elsewhere herein.



        Unaudited Consolidated Balance Sheet and Statements of Operations



Consolidated Statement of Operations Data:

                                                                December 31
<TABLE>

                                                1994          1995           1996            1997
<S>                                             <C>           <C>            <C>             <C>
                                               (Dollars in thousands, except per share data)

Revenues                                      $1,360          $672           $  -            $  -
Cost of revenues                                 884           373              -               -

Gross margin                                     476           299              -               -

Operating expenses:
    Research and development                       -             -            205              88
Selling and marketing                             41           162            131               7
General and administrative                       468           389            123             259

Total operating expenses                         509           551            459             354

Income (loss) from operations                    (33)         (252)          (459)           (354)
Interest and other income
    (expense), net                                (1)          (-)              -               -

Income (loss) before
    income taxes                                 (32)         (252)          (459)           (354)
Provision for income taxes                         -             -              -               -

  Net income (loss)                           $  (32)       $ (252)        $ (459)         $ (354)

Net income (loss) per
    common and common
    equivalent share                          $ (.01)      $ (.08)        $ (.04)        $ (0.02)

Weighted average number
    of common and common
    equivalent shares
    outstanding                                2,201         3,057         10,901          21,083


Consolidated Balance Sheet Data:
(Dollars in thousands)



                                                1994          1995           1996            1997

Working capital                                  $72         $(297)         $(643)          $(149)
Total assets                                     203            21              -             584
Stockholders' equity
    (deficit)                                     91          (284)          (643)           (121)

</TABLE>

Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations

The following  discussion and analysis should be read in conjunction  with "Item
1.  Business,"  "Item 6.  Selected  Financial  Data,"  the  Company's  Unaudited
Consolidated   Financial  Statements  and  Notes  thereto  and  the  information
described under the caption "Risk Factors" below.


Overview

Curbstone  Acquisition  Corp.  created   Electro-Optical   Systems  Corp.
(EOSC)  through  the  acquisition  of  WTS
Transnational,  Inc.  (WTS) on December 18, 1997 by acquiring  all the issued
and  outstanding  shares of WTS. At the completion of the acquisition,
Curbstone  changed its name to  "Electro-Optical  Systems Corp." and the OTC
Bulletin Board symbol  changed to (EOSC) from  ("CBSO").  The  management of
Curbstone  resigned in favor of the management of WTS.

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 acquirer (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 $835,000.

The  Unaudited  Consolidated  Balance  Sheet  as of  December  31,  1997 and the
Unaudited  Combined Statement of Operations for the year ended December 31, 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,  1995 and 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 December 31, 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  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  Combined  Financial
Information.

The 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.

WTS started  business  as an  engineering  consulting  company in 1990 and began
developing biometric fingerprint  technology and systems. In 1994, on a contract
basis. WTS produced and shipped 20 fingerprint  biometric reader systems in 1995
fulfilling a contract from a biometric  company.  In 1995 WTS started to develop
its own fingerprint  biometric core technology based on its strengths in optics,
cameras,   and  image   processing.   It  recognized  the  potential  for  these
technologies  and has been  exploring  ways to exploit  this  technology  and to
attract  investors to continue  development  and  commercialization  of products
based on these core technologies.

As a  development  stage  company the company  will not have  Revenue  until the
launch of its initial product.

Prior to the  commencement of the SEC Litigation,  the Company  anticipated that
U.S.  Milestone  would  provide  or arrange  for up to $3 million in  additional
financing. In light of the current circumstances,  such financing is expected to
be  unavailable.  The Company seeks to continue the development of its principal
product,  a  fingerprint  identification  device  having a variety of  potential
security-related   applications.  The  Company  is  exploring  alternatives  for
additional financing in order to achieve its business objectives. If the Company
is unable to obtain adequate additional  financing,  its ability to complete the
development  of  its  proposed  product  and  to  manufacture  the  product  for
availability in the commercial market is doubtful.


Reverse Acquisition

Prior  to the  consummation  of the  Company's  acquisition  of  WTS  (the  "WTS
Acquisition") in exchange for 15,488,120 shares of Electro-Optical Systems Corp.
(EOSC)  common  stock,  EOSC  (then  named  Curbstone   Acquisition  Corp.)  had
outstanding  3,488,217  shares of common stock. On December 18, 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
$0.47 which  generated  $500,000 in gross proceeds to the Company.  In addition,
the Company issued  1,054,241 shares of its common stock on December 18, 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  securities
outstanding.


Results of Operations

For the periods  indicated,  the  following  table sets forth the  percentage of
revenues represented by the respective line items in the Company's  consolidated
statement of operations:

                                                   Year Ended
                                                   December 31,

                                           1995        1996        1997

Revenues                                  100.00%       -           -
Cost of revenues                           55.53        N/A         N/A

    Gross margin                           44.47        N/A         N/A

Operating expenses:
    Research and development                0.00        N/A         N/A
    Selling and marketing                  24.09        N/A         N/A
    General and administrative             57.78        N/A         N/A

               Total operating expenses    81.87        N/A         N/A


Income from operations                    (37.40)       N/A         N/A
Interest and other income, net              (.01)       N/A         N/A

Income before income taxes                (37.41)       N/A         N/A

Provision for income taxes                   0.00       N/A         N/A

    Net income                           (34.41%)       N/A         N/A



Fiscal Year Ended December 31, 1997 Compared to Fiscal Year Ended December 31,
1996

Revenues.   The Company generated no revenues in fiscal 1997.

Gross  Margin.  The Company  produced no goods for sale in either  fiscal 1996
or fiscal 1997,  therefore had no cost of sales.

Research and  Development  Expenses.  Research  and  development  expenses  were
$88,000 in fiscal  1997 the  decrease in research  and  development  expenses in
fiscal 1997 was  primarily  due to the  reduction of  engineering  personnel and
outside consultants working on the development of new products.

Selling and Marketing Expenses. Selling and marketing expenses were
approximately $7,000 in fiscal 1997.

General and Administrative  Expenses.  General and administrative  expenses were
$260,000 in fiscal 1997. The increase in general and administrative  expenses in
fiscal 1997 was primarily  attributable  to an increase in personnel and related
costs as well as  additional  overhead  costs as the  headcount  for the Company
increased.  The Company  anticipates that general and administrative  costs will
continue to increase in anticipation of continued growth in fiscal 1998.

Litigation Expenses. The Company incurred no litigation expenses in fiscal 1997.

Interest Income.  None.

Provision for Income Taxes.  None.


Liquidity and Capital Resources

Since inception, WTS, and now the Company, has funded its operations and capital
expenditures through internally generated cash flow, and proceeds from a private
offering.  In December 1997 and January 1998,  the Company  received total gross
proceeds  of $1.0  million  from a private  offering  of its Common  Stock.  The
Company also received $300,000 in the form of a note payable bearing interest at
7% per annum.  See "Item 5. Market for  Registrant's  Common  Equity and Related
Stockholder Matters."

Prior to the  commencement  of the SEC  Litigation,  the Company had anticipated
that U.S.  Milestone  would provide or arrange for  approximately  $3 million in
additional financing.  Currently,  the additional financing is unavailable.  The
Company  seeks  to  continue  the  development  of  its  principal   product,  a
fingerprint identification device having a variety of potential security-related
applications.  The Company is exploring alternatives for additional financing in
order to achieve  its  business  objectives.  If the Company is unable to obtain
adequate  additional  financing,   its  ability  to  complete  the  development,
manufacturing and marketing of its proposed product. is uncertain.

On December 31, 1997,  the Company had working  capital of $(149,000)  including
approximately  $455,000  in cash  and cash  equivalents.  As of the date of this
filing the Company has a net deficit in working capital.

During the fiscal year ended  December 31, 1997,  the Company's net cash used in
operating activities was approximately $415,000.  During that period, net income
and depreciation and amortization  expenses were essentially zero. There were no
inventories or accounts receivable.

During the fiscal year ended  December 31, 1997,  net cash provided by financing
activities was approximately $877,000,  primarily attributable to the receipt of
net  proceeds  of  approximately  $835,000  from  the  private  offering  of the
Company's  common stock and  approximately  $42,000 of proceeds from convertible
notes.

The Company does not currently have any significant capital commitments.


Recent Accounting Pronouncements

In March 1997,  the Financial  Accounting  Standards  Board issued SFAS No. 128,
"Earnings  Per Share," which  established  new  standards  for  calculating  and
presenting  earnings per share.  The Company will adopt this new standard in its
fiscal 1998  financial  statements,  which will require the reporting of diluted
earnings per share and basic  earnings per share,  as defined.  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.


Risk Factors

This  Report  contains   forward-looking   statements  that  involve  risks  and
uncertainties,   such  as  statements  of  the  Company's   plans,   objectives,
expectations  and  intentions.  The  cautionary  statements  made in this Report
should be read as being applicable to all  forward-looking  statements  wherever
they appear in this Report. The Company's actual results could differ materially
from those  discussed  herein.  Factors that could cause or  contribute  to such
differences  include those discussed below, as well as those discussed elsewhere
in this Report.

Uncertainty of SEC investigation,  no operations, lack of financing. The Company
has not had  operations  since March 13,  1998,  due to a temporary  restraining
order obtained  against the Company by the SEC as part of its  investigation  of
the  Company  and its former  directors  and  officers.  Although  the order was
eventually lifted as part of a settlement with the SEC, the Company has not been
able to recommence  operations  because of a lack of financing.  The Company had
been  negotiating   additional  financing  with  U.S.  Milestone  prior  to  the
commencement of the SEC Litigation. In light of the circumstances, however, such
funding is expected to be  unavailable.  While exploring  alternative  financing
sources,  the Company has had difficulty  obtaining financing due to uncertainty
created  by the  ongoing  SEC  litigation.  If the  Company  is unable to secure
adequate  financing,  the Company's  ability to complete the  development of its
proposed  product  and  to  manufacture  the  product  for  distribution  in the
commercial market is extremely doubtful.

Developing Market; Uncertainty of Market Acceptance.  Rapid technological change
and evolving  industry  requirements  characterize  the market for the Company's
products. The Company believes that its future success will depend in large part
upon its ability to enhance its existing  core  technology  and to  successfully
develop new products that meet  regulatory  and customer  requirements  and gain
market  acceptance.  There can be no assurance that the Company's  products will
not be rendered obsolete by new industry standards or changing technology.

Limited  Operating  History,  Accumulated Net Losses.  From its  commencement of
business in 1990, the Company has been  principally  engaged in  organizational,
development and marketing activities. Through December 31, 1997, the Company has
reported an accumulated  net loss of  approximately  $1,063,933 and has had only
limited revenues.  The Company has incurred  additional losses from December 31,
1997 to date.  There is no  assurance  that the Company  will be able to achieve
significant revenues or any net income in the future.

NASDAQ SmallCap Market  Eligibility and Maintenance  Requirements;  Delisting of
Securities from the NASDAQ SmallCap Market.  EOSC was listed as a defendant in a
stock  manipulation  lawsuit on March 13th,  1998. The Company was delisted from
the NASDAQ  SmallCap Market at that time. The Company plans to apply to have its
stock relisted.  If the Common Stock were excluded from the SmallCap Market,  it
would adversely  affect the prices of such securities and the ability of holders
to sell them.  The Board of Governors of the National  Association of Securities
Dealers,  Inc.  ("NASD") has  established  certain  standards  for the continued
listing of a security on the SmallCap Market.  Additional investment funding may
be required to meet these Maintenance Requirements.

Significant   Fluctuations  and   Unpredictability  of  Operating  Results.  The
Company's success will depend upon its ability to enhance its existing products,
and to develop new products to meet regulatory and customer  requirements and to
achieve market  acceptance.  The  enhancement  and development of these products
will be subject to all of the risks  associated  with new  product  development,
including   unanticipated   delays,   expenses,   technical  problems  or  other
difficulties  that could result in the abandonment or substantial  change in the
commercialization of these enhancements or new products. Given the uncertainties
inherent with product  development and  introduction,  there can be no assurance
that  the  Company  will  be  successful  in  introducing  products  or  product
enhancements,  including  products that meet FAA certification  standards,  on a
timely basis, if at all, or that the Company will be able to market successfully
these products and product enhancements once developed.

Lengthy Sales Cycle.  The Company expects sales effort with potential  customers
to be extended over several years. Customers may initially purchase one or a few
units for extensive  testing and evaluation  before making a decision  regarding
volume  purchases  and,  in certain  circumstances,  the  Company  may provide a
potential  customer with a  demonstration  unit for beta testing and  evaluation
free of charge.  Delays in  anticipated  purchase  orders  could have a material
adverse  effect on the  Company's  business and financial  condition.  See "Risk
Factors-Significant  Fluctuations and Unpredictability of Operating Results" and
Item 1." Business-Marketing and Sales."

Uncertainty of Product  Development.  The Company's success will depend upon its
ability to enhance  its core  technology,  and to develop  new  products to meet
customer  requirements  and to achieve market  acceptance.  The  enhancement and
development  of these  products  will be subject to all of the risks  associated
with  new  product  development,   including  unanticipated  delays,   expenses,
technical problems or other difficulties that could result in the abandonment or
substantial  change  in  the  commercialization  of  these  enhancements  or new
products.   Given  the  uncertainties  inherent  with  product  development  and
introduction,  there can be no assurance  that the Company will be successful in
introducing products or product  enhancements,  on a timely basis, if at all, or
that the Company will be able to market  successfully these products and product
enhancements once developed.

Rapid Technological  Change.  Rapid  technological  change and evolving industry
requirements  characterize  the market for the Company's  products.  The Company
believes  that its future  success will depend in large part upon its ability to
enhance its existing core  technology and to  successfully  develop new products
that meet regulatory and customer requirements and gain market acceptance. There
can be no assurance that the Company's products will not be rendered obsolete by
new industry standards or changing technology.

Competition.  The markets for the Company's products are highly competitive. The
Company's  systems  compete against Optical and Silicon based sensors as well as
other   competing   technologies,    including   Card   Technologies,   Personal
Identification  Numbers (PIN) or passwords,  and Token Technologies.  Certain of
the Company's  competitors have substantially greater  manufacturing,  marketing
and financial resources than the Company. In addition,  other major corporations
have recently  announced  their intention to enter the  verification  market and
currently have systems in development.  None of the Company's products have been
certified  by any testing  agency such as the  International  Computer  Security
Association.  Competitors may develop  superior  products or products of similar
quality for sale at the same or lower prices.  Other  technical  innovations may
impair the Company's  ability to market its products.  There can be no assurance
that the  Company  will be able to compete  successfully  with  existing  or new
competitors. See "Item 1. Business-Competition."

Limited  Protection of  Intellectual  Property  Rights.  The  Company's  success
depends  significantly  upon  proprietary  technology.  The Company  relies on a
combination   of  patent,   copyright,   trademark   and  trade   secret   laws,
non-disclosure   agreements  and  other  contractual  provisions  to  establish,
maintain and protect its  proprietary  rights,  all of which afford only limited
protection. The Company has pending one patent application in the United States.
In  addition,  for certain  foreign  countries  the  Company has pending  patent
applications  that  correspond to the subject matter of the United States patent
application.  There  can  be no  assurance  that  any of  the  Company's  patent
applications will be granted, that any patent or patent application will provide
significant  protection for the Company's  products and technology,  or that the
Company's  current  or future  products,  processes  or  technology  will not be
challenged under patents held by competitors or potential competitors. Moreover,
there can be no assurance that foreign  intellectual  property laws will protect
the Company's intellectual property rights. In the absence of significant patent
protection, the Company may be vulnerable to competitors who attempt to copy the
Company's products, processes or technology.

Risks  Associated  with  Possible  Acquisitions.  The Company  intends to pursue
potential  acquisitions  of  businesses,  products and  technologies  that could
complement or expand the Company's business.  There can be no assurance that the
Company will be able to identify any appropriate  acquisition candidate.  If the
Company identifies an acquisition candidate,  there can be no assurance that the
Company  would  be  able  to  successfully  negotiate  the  terms  of  any  such
acquisition,  finance such  acquisition  or integrate  such  acquired  business,
products or  technologies  into the  Company's  existing  business and products.
Furthermore,   the  negotiation  of  potential   acquisitions  as  well  as  the
integration of an acquired  business could cause diversion of management's  time
and  resources,  and require the Company to use working  capital to consummate a
potential  acquisition.  There  can be no  assurance  that a given  acquisition,
whether  or not  consummated,  would not have a material  adverse  effect on the
Company's  business or financial  condition.  If the Company  consummates one or
more significant  acquisitions in which consideration  consists of Common Stock,
stockholders of the Company could suffer significant dilution of their interests
in the Company. See "Risk Factors-Management of Growth."

Concentration of Ownership;  Control by Management. As of December 31, 1997, the
Company's  executive  officers,  directors and their  affiliates  and members of
their immediate families beneficially owned approximately 57% of the outstanding
shares of Common Stock,  excluding  shares issuable upon exercise of options and
warrants. As a result, these stockholders,  if acting together,  will be able to
exert  substantial   influence  over  actions  requiring  stockholder  approval,
including  the  election of  directors,  amendments  to the  Company's  Restated
Certificate  of  Incorporation,  mergers,  sales of  assets  or  other  business
acquisitions or dispositions.


Item 8.   Financial Statements and Supplementary Data

The consolidated  Financial Statements and Supplementary Data of the Company are
listed under Part IV, Item 14, in this Report. This information provided therein
has not been audited by  independent  public  accountants.  Although the Company
does not  expect  any  material  changes,  there can be no  assurance  that such
changes will not occur if the Company is able to appoint new independent  public
accountants to complete the audit.


Item 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure


               The Company's independent public accountant,  Arthur Andersen LLP
  ("AA")  resigned as of September 28, 1998,  which was reported on the periodic
  report filed September 25, 1998. AA's reports on the financial  statements for
  the  Registrant's  fiscal  years  ended  December  31, 1996 and the year ended
  December 1995 included an  explanatory  paragraph  regarding the  Registrant's
  ability to continue as a going  concern.  AA did not complete its audit of the
  Registrant's financial statements for the fiscal year ended December 31, 1997.
  The  foregoing  notwithstanding,  the reports of AA did not contain an adverse
  opinion or a disclaimer of opinion, and were not modified as to audit scope or
  accounting principles.  There were no disagreements between the Registrant and
  AA during Fiscal 1995, Fiscal 1996 and the subsequent periods on any matter of
  accounting  principles  or  practices,   financial  statement  disclosure,  or
  auditing  scope or  procedure,  which  disagreements,  if not  resolved to the
  satisfaction  of AA,  would have  caused AA to make  reference  to the subject
  matter of the  disagreements  in connection with its reports.  This change was
  reported on a Form 8-K, filed September 25, 1998.

                                    PART III


Item 10.  Directors and Executive Officers of the Registrant


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 the Company's  (previously
named  Curbstone  Acquisition  Corp) common stock,  the Company 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,  the Company
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,  the Company has  outstanding  21,084,818
shares of common  stock;  there are  currently  no options,  warrants,  or other
convertible securities outstanding.

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 following table lists the executives and directors of the Company:

<TABLE>

                                                                                   Amount and
                                                                  Position         Nature of          Percent
                                                                    with          Beneficial            of
Name                                  Age         Since          Registrant        Ownership           Class
<S>                                   <C>         <C>            <C>              <C>                 <C>

Charles B. Weaver                      57          1997          President,       7,430,155          35.24%
                                                                 CEO

James Callahan                         47          1997          VP                 547,082           2.60%
                                                                 Manufacturing
</TABLE>

Charles 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.

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.

Item 11.  Executive Compensation

Post-merger

The following table sets forth certain information  concerning annual, long term
and other  compensation  received during the fiscal year ended December 31 1997,
by officers of the Company.

<TABLE>

                                                                                     Long
Name and Principal               Fiscal                                               Term               All
Position                          year            Salary             Bonus       Compensation           Other
<S>                              <C>              <C>                <C>         <C>                    <C>

Charles B. Weaver
President, CEO                    1997            $9,000              N/A             N/A                N/A

James Callahan
VP Manufacturing                  1997            $5,962              N/A             N/A                N/A
</TABLE>


Post-merger  Compensation  of  Directors - There was no regular  meetings of the
Board of Directors and no director of the Registrant  received any  compensation
during the fiscal year ended December 31, 1997.

Post-merger Employment Contracts/Stock Incentive Plans - No employment contracts
or stock  incentive  plans were adopted or granted by the Registrant  during the
fiscal year ended December 31, 1997.

Pre-merger

Pre-merger Compensation of Officers - No executive officer of Curbstone received
any compensation during the fiscal year ended December 31, 1997.

Pre-merger Employment  Contracts/Stock Incentive Plans - No employment contracts
or stock  incentive  plans were adopted or granted by the Registrant  during the
fiscal year ended December 31, 1997.

Pre-merger  Compensation  of  Directors  - There was no regular  meetings of the
Board of Directors and no director of the Registrant  received any  compensation
during the fiscal year ended December 31, 1997.


Item 12.  Security Ownership of Certain Beneficial Owners and Management

The  following  tables  set  forth  information,  to  the  extent  known  by the
Registrant,  as to the persons and  companies who owned  beneficially  more than
five  percent  (5%)  of the  outstanding  shares  of  the  Common  Stock  of the
Registrant  at the close of business on December  31, 1997,  and the  beneficial
ownership of the  Registrant,  as a group, as of such date. The number of shares
held by each Director is set forth in Item 10 herein above.

<TABLE>
                                                  Amount and Nature of
                  Name and Address                Beneficial Ownership         Percent of Class
                  <S>                             <C>                          <C>

                  Charles B. Weaver               7,430,155                    35.24%
                  36 Nason  Street
                  Maynard,  MA 01754

                  US Milestone                    2,108,481                    10.00%
                  417 Surf Avenue
                  Stanton Island, NY 10307

                  AGIRA Trading, Ltd.             1,054,241                     5.00%
                  Morgan & Morgan Trust Corp. LTD
                  Pasea Estate
                  PO Box Road Town Tortola
                  British Virgin Islands

                  Optimum Fund                    1,054,241                     5.00%
                  George Town
                  Grand Cayman
                  Cayman Island BWI

                  All Directors and              10,878,162                    51.59%
                  Officers as a Group
</TABLE>

Item 13.  Certain Relationships and Related Transactions

None.

                                     PART IV


Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

The following documents are filed as part of this report:

  (1)     Financial Statements                                            Page

          Consolidated Balance Sheets as of December 31,
          1996 and 1997                                                   F-1

          Consolidated Statements of Operations for the years ended
          December 31, 1994, 1995, 1996 and 1997                          F-2

          Consolidated Statements of Stockholders' Equity (Deficit) for
          the years ended December 31, 1990 through 1997                  F-3

          Consolidated Statements of Cash Flows for the years ended
          December 31, 1995, 1996 and 1997                                F-4

          Notes to Consolidated Financial Statements                      F-5


    (2) Financial Statement Schedules

          Supplemental  schedules  are not  provided  because of the  absence of
          conditions  under  which they are  required  or because  the  required
          information  is given in the financial  statements  or notes  thereto.
          This information  provided therein has not been audited by independent
          public accountants.  Although the Company does not expect any material
          changes, there can be no assurance that such changes will not occur if
          the Company is able to appoint new independent  public  accountants to
          complete the audit.

     (3)  Listing of Exhibits

Exhibit                             Reference
 No

     *3.1       Restated  Certificate of Incorporation.

      3.2       By-laws of the  Company  (incorporated  herein by  reference  to
                exhibit 4.2 of the Form S-8 filed November 6, 1996).

     *4.1       Specimen Certificate for shares of
                the Company's Common Stock

     *10.3      Convertible note between the Company
                and Agira trading.

      *27       Financial Data Schedule

                                     * Filed herewith

     (4)Reports on Form 8-K . The following  report was filed on Form 8-K by the
        Company during the last quarter of the period reported by this report.

        (i) A  report  on Form  8-K  filed  December  22,  1997,  reporting  the
        acquisition of WTS Transactional Corporation, as amended on February 13,
        1998.



<PAGE>
                                   SIGNATURES



Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                            ELECTRO-OPTICAL SYSTEMS CORP.



Dated:   October 2, 1998              By /s/Charles B. Weaver
                                               Charles B. Weaver
                                               President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the  following  persons on behalf of the Company and in
the capacities and on the dates indicated.

Signature                   Title                                Date


/s/Charles B. Weaver     Principal Executive &             October 2, 1998
Charles B. Weaver        Financial Officer


<PAGE>




                          ELECTRO-OPTICAL SYSTEMS CORP.

                           A Development Stage Company

                      Unaudited Consolidated Balance Sheets
<TABLE>

                                                                          Year Ended December 31,
                                                                            1996             1997
                                                                         Audited        Unaudited
<S>                                                                      <C>            <C>
ASSETS

    Current Assets:

    Cash and Cash Equivalents                                           $      -         $454,537

    Due From Officer                                                           -          100,969

       Total Current Assets                                                    -          555,506

    Property:

    Office Equipment                                                      14,654            8,356

    Accumulated Depreciation                                             (14,654)            (232)


    Net Property                                                               -            8,124

    Other Assets:

    Deposits                                                                   -           19,940

       Total Other Assets                                                      -           19,940

    TOTAL ASSETS                                                               -          583,570


LIABILITIES & STOCKHOLDERS' DEFICIT

    Current Liabilities:

    Notes Payable                                                          7,000            8,236

    Accounts Payable                                                     333,972          267,533

    Accrued Payroll and Taxes                                            212,326          325,751

    Accrued Expenses                                                      90,000          103,003


       Total Current Liabilities                                         643,298          704,523

    Stockholders' Equity:

    Common Stock                                                         100,309            2,109

    Capital in Excess of Par                                                   -          975,100

    Accumulated Deficit                                                 (743,607)      (1,098,162),

       Total Stockholders' Deficit                                      (643,298)        (120,953)



    TOTAL LIABILITIES AND STOCKHOLDER'S

    DEFICIT                                                            $       -      $   583,570


</TABLE>


The  accompanying  notes are an integral  part of these  unaudited  consolidated
financial statements.









                                            F-1

<PAGE>




                          ELECTRO-OPTICAL SYSTEMS CORP.


                 Unaudited Consolidated Statements of Operations


<TABLE>

                                                                           Year Ended December 31,

                                                         1994              1995             1996              1997
<S>                                                <C>                  <C>              <C>               <C>



INCOME

    Revenues                                       $ 1,359,605         $ 672,472         $      -          $      -

    Cost of Revenues                                   883,558           373,392                -                 -

    Gross Profit                                       476,047           299,080                -                 -

OPERATING EXPENSES

    Research and Development                                 -              -             205,239            87,709

    Sales and Marketing                                 41,392           161,981          131,237             7,045

    General and Administrative                         467,842           388,586          122,586           259,801

    Total Operating Expenses                           509,234           550,567          459,062           354,555

    Other Income (Expense)                               1,446               (79)               -                 -



    NET LOSS                                        $  (31,741)       $ (251,566)      $ (459,062)        $(354,555)

</TABLE>


The  accompanying  notes are an integral  part of these  unaudited  consolidated
financial statements.

                                       F-2


                          ELECTRO-OPTICAL SYSTEMS CORP.


       Unaudited Consolidated Statements of Stockholders' Equity (Deficit)

<TABLE>
                                        Deficit
                                                                            Accumulated in the
                                      Common stock                            Development stage
                                      Number of
                                      shares                par value          Total

<S>                                   <C>                   <C>             <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                  66
    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          100,309             32,500          (743,607)         (643,298)
  Reversal of no par value common
     stock                          (32,500)          (100,309)         (100,309)
  Recording of par value
     ($.0001) of shares
     issued to EOSC              15,488,122              1,549            98,760                      100,309
 Conversion of WTS note
     Payable                         41,900             41,900

 Conversion of Notes Payable      1,054,241                105           499,895           500,000

 Sale of common stock             1,054.241                105           334,895           335,000

Issuance of common to
   US Milestone
   pending sale to
   third parties                  3,488.215                350              (350)

Net Loss                           (354,555)          (354,555)

Balance at December 31,1997      21,084,818              2,109           975,100
</TABLE>

The  accompanying  notes are an integral  part of these  unaudited  consolidated
financial statements.

                                       F-3

<PAGE>






                          ELECTRO-OPTICAL SYSTEMS CORP.


                 Unaudited Consolidated Statements of Cash Flows
<TABLE>

                                                               Year Ended December 31,

                                                          1995              1996             1997

<S>                                                 <C>               <C>              <C>


Cash Flows from Operating Activities:

Net Loss                                            $ (251,566)       $ (459,062)      $ (354,555)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
    Compensation expense                                     -               215                -
    Depreciation                                         7,300             4,254              232
    Changes in assets and liabilities:
      Accounts receivable                               51,432                 -                -
      Accounts receivable n Officer                          -                 -         (100,969)
      Accounts payable                                 132,843           141,789          (66,439)
      Accrued payroll and taxes                         75,230           137,096          113,425
      Other accrued expenses                           (35,852)           51,593           13,003
      Increase (Decrease) in other Assets                  299             8,179          (19,940)
                                                     ---------         ---------           ------

Net cash provided by (used in)
operating activities                                   (20,314)         (115,936)        (415,243)
                                                        ------           -------          -------


Cash Flows from Investing Activities:

    Purchase of office equipment                             -                 -           (8,356)

Net cash provided by (used in)
    investing activities                                     -                 -           (8,356)
                                                                                            -----

Cash Flows from Financing Activities:

    Proceeds  from notes payable                             -             7,000           43,136
    Conversion of notes payable to common stock              -                 -                -
    Sale of common stock, net                                6           100,000                -
    Issuance of common stock, net                            -                 -          835,000
                                                      --------          --------         --------

Net cash provided by (used in)
financing activities                                         6           107,000          878,136
                                                             -          --------         --------


Net Increase (Decrease) in Cash                        (20,308)           (8,936)         454,537

Cash and Cash Equivalents,
Beginning of Period                                     29,244             8,936                -
                                                        ------          --------         --------

Cash & Cash Equivalents,
End of Period                                         $  8,936          $      -         $454,537
</TABLE>


The accompanying notes are an integral part of these unaudited consolidated
financial statements.

                                       F-4


                          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  acquirer  (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  $835,000
          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,   uncertainty  in
          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 $1,098,000 since inception.
          The Company has a working  capital deficit as of June 30, 1998, 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.

          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.

          (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:

                                       F-5



<PAGE>

<TABLE>

                                           Significant             Percentage of                  Percentage of
                                            Customers            Customer Revenues             Accounts Receivable
                                                                   A            B              A               B
           Years Ended December 31,
           <S>                             <C>                  <C>            <C>
                     1997                       *                 *             -              *               -
                     1996                       *                 *             -              *               -
                     1995                       2                73%           27%             -               -
                     1994                       1               100%            -
</TABLE>


                    * The Company had no  revenues in the year ended  December
                      31, 1996 and 1997 and had no accounts receivable at
                      December 31, 1996 and 1997.

          (d)       Disclosure of Fair Value of Financial Instruments

                    The Company's  financial  instruments consist mainly of cash
                    and cash equivalents,  accounts receivable,  account 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 an estimated useful life of three years.

          (f)       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 weighted
                    average  shares  of  EOSC  are  calculated  based  upon  the
                    exchange  ratio of 336.83  shares of Curbstone for one share
                    of EOSC as of December 18, 1997.

          (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

          During  1996,   the  Company   issued   $7,000  of  notes  payable  to
          individuals,  of  which  $5,000  was  to a  member  of  the  Board  of
          Directors. These notes were paid in full in the first quarter of 1998.
          During 1997 the Company  issued  $41,900  convertible  notes  payable.
          These notes were converted into common stock on December 18, 1997 upon
          the  consummation  of the  "Acquisition"  In February 1998 the Company
          issued  $300,000  note  payable to a common  stockholder.  The note is
          payable on demand and bears interest at 7%.


(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.

                                       F-6


(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 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.  There was no rent expense during 1997. In June 1998 the
          Company terminated the facilities lease agreement.


(6)       ACCRUED EXPENSES

          Accrued  expenses in the  accompanying  balance  sheets consist of the
          following at December 31, 1995, 1996 and 1997

                                          1995              1996      1997

          Payroll and payroll-related  $   58,637      222,326     $ 325,751
          Accrued consulting                5,000        5,000       100,000
          Other                            50,000       75,000         3,000
                                       $  113,637   $  302,326    $  428,751


(7)          SUBSEQUENT EVENTS

The Company is a defendant in an action commenced by the Securities and Exchange
Commission  (SEC) in the United States District Court for the Southern  District
of New York on March  13,  1998  captioned  SEC v.  Cavanaugh,  et al.  (the SEC
Litigation).  In the SEC  Litigation,  the SEC alleges that various  defendants,
including  the Company,  engaged in a pattern of conduct  having the purpose and
effect  of  manipulating  the price of the  common  stock of the  Company  since
December  1997 when  Curbstone  Acquisition  Corporation  (Curbstone),  a public
company having no operations, acquired WTS Transnational Corp. (WTS) and changed
its name to Electro-Optical Systems Corporation.  Those other defendants accused
of  manipulation  include,  inter alia, the former  controlling  shareholders of
Curbstone;  the former financial adviser of the Company,  U.S.  Milestone Corp.,
and affiliates who had arranged the acquisition of WTS by Curbstone; and William
Levy, a lawyer for U.S.  Milestone  Corp.  who formerly  acted as lawyer for the
Company.  No  officer,  director  or  employee  of the  Company  is  named  as a
defendant.  The  complaint  alleges  violations  of Sections 5 and 17 (a) of the
Securities Act of 1933 and Section 10(b) of the Securities  Exchange Act of 1934
and Rule 10b-5 promulgated  thereunder against all of the defendants,  including
the Company. The Court entered an ex parte temporary  restraining order on March
13, 1998 that froze the assets of all of the defendants,  including the Company,
and enjoined the defendants from raising additional funds. In addition,  trading
of the Company's  stock over the OTC bulletin board was frozen for ten days. The
company plans to request reinstatement

                                       F-7



<PAGE>


After the  commencement  of a  hearing  on the SEC's  motion  for a  preliminary
injunction,  on April 14, 1998,  the SEC and the Company agreed to a stipulation
entered as an order of the Court on April 15, 1998,  pursuant to which:  the SEC
withdrew its motion for a preliminary  injunction against the Company;  (ii) the
temporary restraining order against the Company was dissolved; (iii) the Company
is free to expend  existing  funds on reasonably  necessary  business  expenses,
excepting  payments of any deferred  salary to management and any payment to any
other defendant; and (iv) the Company will provide the SEC with a summary of its
expenditures on a periodic basis.

The Company has no continuing  association  with any of the other  defendants in
the SEC Litigation who are alleged to have carried out the alleged  manipulative
scheme and  expressly  disassociates  itself  from the  alleged  conduct of such
defendants.  The former  controlling  shareholders of Curbstone no longer have a
controlling  position in the Company and have no  influence  over the  Company's
ongoing  affairs.  U.S.  Milestone  and its  principals  are no longer acting as
financial  advisers  to the  Company and have no  influence  over the  Company's
ongoing  affairs,  except to the  extent  that it  claims  to have an  ownership
interest in  approximately  2.1 million shares of the Company's common stock. An
additional  2,108,482  were purchased in a private  transaction  arranged by U S
Milestones  and  857,081  shares  are  held  by  business  acquaintances  of U S
Milestones  received  in  connection  with the reverse  acquisition  and related
financing.  Mr. Levy is no longer engaged as a counsel to the Company and has no
influence over the Company's ongoing affairs,  except to the extent that he owns
500,000 shares of the Company's common stock. None of the other defendants is an
officer, director, employee or advisor to the Company.



The Company  understands that the SEC's  investigation of the matters alleged in
the complaint in the SEC Litigation is ongoing. The Company intends to cooperate
fully with this investigation

                                       F-8


<PAGE>





                          ELECTRO-OPTICAL SYSTEMS CORP.

                           CURBSTONE ACQUISITION CORP.



                               NOTES TO UNAUDITED
                         PRO FORMA FINANCIAL STATEMENTS


(XX)      BALANCE SHEET ADJUSTMENTS

          The adjustments to the balance sheet comprise the following:


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
                                      
      $   848,041
Accumulated deficit-
     Elimination of Curbstone accumulated deficit             $   100,508
                                                    



(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.

                                       F-9