SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For fiscal year ended: December 31, 2001
Commission File Number: 2-71136
DETONICS SMALL ARMS LIMITED
(Exact name of registrant as specified in it's charter)
Washington 91-1150122
State or other Jurisdiction of (IRS Employer ID No.)
incorporation or organization
14508 SE 51st, Bellevue, WA 98006
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code: (425) 746-6761
Securities registered pursuant to Section 12(b) 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
DOCUMENTS INCORPORATED BY REFERENCE
Form S-1, Detonics Small Arms Limited, Commission File No. 2-71136, but
excluding the balance sheet of Detonics Small Arms Limited and Technology
Development Corporation together with the report of independent certified public
accountants, is incorporated by reference in Items 1, 5, 11 and 13.
Exhibit Index Pgs. 8-15
Page 1
Item 1: Description of Business
Detonics Small Arms Limited (hereinafter called the "Partnership"), is a
Washington State limited partnership organized as of January 28, 1981 for the
purpose of acquiring the rights in a group of related firearms products and
developing these products further to a point where they could be commercially
produced and marketed. The Partnership conducts no other business. Michel E.
Maes and Sidney H. Woodcock are General Partners, and may remain as General
Partners for the life of the Partnership unless removed pursuant to the
Partnership Agreement. The sale of the Limited Partnership Interests in the
Partnership were made pursuant to Registration Statement No. 2-71136 filed with
the Securities and Exchange Commission and declared effective on October 23,
1981. The purchasers of said Limited Partnership Interests for Phases 1, 2, 3,
4, 5 and 6 of the Partnership are the Limited Partners of the Partnership as of
December 31, 1981.
The Partnership's business is more fully described under the caption "Projects
of the Partnership" in the Prospectus forming a part of the Registration
Statement described above (Commission File No. 2-71136, hereinafter called the
"Prospectus"), which, except for the balance sheet and report of accountants
contained herein, is incorporated herein by this reference for all purposes.
The Partnership has no employees. The Partnership had originally licensed the
manufacture and sale of its products to Detonics Manufacturing Corporation,
(DMC), a subsidiary of Energy Sciences Corporation, (ESC). The Partnership has
subsequently licensed New Detonics Manufacturing Corporation, (NDMC), as more
fully described below in Items 3, 4, and 7. The principal products of the
partnership are four semi-automatic pistols, called the ScoreMaster,
ServiceMaster, Pocket Nine and Large Frame, and a Top Break Revolver. Only the
first three were manufactured and sold at DMC during the period from 1983 to
1986. The General Partners were informed that the ScoreMaster and ServiceMaster
were put back into production by NDMC in 1989, however, in March 1992 the
General Partners were informed production of all firearms had been suspended by
NDMC in late 1991. NDMC has abandonded production and ceased operations. In
1992, all manufacturing rights and other intangible assets were returned by NDMC
to the Bankruptcy Trustee and subsequently transfered to the sole secured
creditor of DMC, the lawfirm of Murphy & Elgot. Mr. Murphy passed away in 1997
and the firm's interest now belongs to Mr. Elgot. As of March 2002, none of the
Partnership's products are in production. With the cooperation of Mr. Elgot, the
General Partners are seeking a new licensee for those products. The General
Partners believe the products continue to be viable. As in the past, the primary
market for the partnership's products is believed to be law enforcement and
competitive target shooters. See Item 7 below.
Item 2: Properties
The Partnership does not have any principal plants or physical properties.
Item 3: Legal Proceedings
The staff of the Securities and Exchange Commission's Division of Enforcement
recommended to the Commission that it authorize the staff to file a civil
injunctive action against Energy Sciences Corporation, Michel E. Maes, and the
Partnership to require timely filing of reports with the commission. Such an
injunction was entered on June 25, 1986.
Page 2
All subsequent reports have been timely filed.
On April 29, 1986, Detonics Small Arms Limited filed a petition for
Reorganization under Chapter 11 of the Federal Bankruptcy Laws. The petition was
filed in the United States Bankruptcy Court for the Western District of
Washington, at Seattle, as Case No. 86-02989-Wll. Also, on April 29, 1986,
Energy Sciences Corporation and Detonics Manufacturing Corporation filed
petitions in the same court. The petitions were assigned Case No.'s 86-02994-Wll
and 86-02968-Wlll, respectively. Energy Sciences Corporation was dismissed from
Chapter 11 on May 13, 1988. ESC had financial dealings and intercompany accounts
with the partnership. The assets of ESC, which included amounts owed by the
partnership to ESC, were foreclosed upon by the sole secured creditor of ESC,
the law firm of Murphy & Elgot, but the full effect on the partnership has not
yet been determined: (See Item 7 below). In December 1986, Mr. Maes resigned as
Director and Officer of ESC and DMC and was replaced by owners of American
Sporting Arms Industries, (ASAI), pursuant to a buy-out offer. ASAI defaulted on
the purchase plan and on March 23, 1987, the Bankruptcy Court ordered the
appointment of a trustee for ESC, DMC and the partnership. On May 29, 1987, the
trustee ordered the removal of all management personnel connected with ASAI and
appointed a new manager, Mr. Van der Weij. In August 1987, the sale of all
assets of DMC to New Detonics Manufacturing Corporation (NDMC) was approved by
the DMC Creditors Committee and the Bankruptcy Court. NDMC defaulted on certain
agreements and on September 11, 1992 all remaining assets of DMC were
transferred by the Bankruptcy Court to the sole secured creditor, Murphy &
Elgot. On October 16, 1989 the United States Bankruptcy Court ordered that the
partnership's Chapter 11 be converted to a Chapter 7. The general partners of
the partnership filed an ammended motion to dismiss the Chapter 7. This motion
was granted on June 21, 1990 and the partnership is no longer in bankruptcy.
On March 5, 1993, the General Partners received a "Notice Of Beginning Of
Administrative Proceeding" from the Internal Revenue Service for the year 1991.
The issue is a possible finding that the partnership "burned out" and is subject
to recapture. The General Partners are of the position that the products and the
partnership remain viable. The General Partners were subsequently notified by
the IRS that the IRS intends to make no change for 1991. The General Partners
have not been contacted by the IRS regarding other years.
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Market Price of and Dividends on the Registrant's Common
Equity Related Security Holder Matters
(a) There is no market for the Securities of the
Registrant.
(b) There are 577 investor limited partners as of
December 31, 2001.
(c) The partnership does not pay dividends. Royalties,
based on a percentage of gross sales of the partnership products produced and
sold by a licensee of the partnership's products are to be paid to the
partnership. Such royalties, if any, will be distributed to the partners, less
reserves and payments for partnership operating, maintenance and reporting
expenses as determined by the General Partners. Under terms of the license
agreement presently in place, royalties were not scheduled to be accrued until
late 1991, to be paid in 1992. NDMC, the licensee, has abandonded production and
therefore no royalties are being paid. (See Item 7).
Page 3
Item 6: Selected Financial Data
Detonics Small Arms Limited is a Limited Partnership and the partners hold
partnership interests rather than stock. A summary of financial activity for
2001 is as follows:
Royalty Revenues $ 0.00
Other Revenues 0.00
Loss from Continuing Operations 0.00
Net Income per Partnership Unit 0.00
Total Assets 0.00
Long Term Obligations $ 664,924.69
Royalty Payments per Partnerhip Unit 0.00
Item 7: Management's Discussion and Analysis of the Financial
Condition and Results of Operation
The partnership owns the proprietary rights to certain products which had been
licensed first to Detonics Manufacturing Corporation (DMC) and subsequently to
New Detonics Manufacturing Corporation (NDMC). NDMC abandonded the manufacturing
rights and the Partnership's products are currently not being manufacture or
under license. The partnership conducts no operations itself and its revenues
are expected to be solely from royalty income. Under the terms of the license
with NDMC, royalties were scheduled to be accrued or paid in early 1992.
However, since production has been suspended in late 1991 by NDMC no royalties
were accrued. Any sales that occured at NDMC prior to 1992 were not subject to
royalties. Therefore, the partnership received and booked no income for the
year. The partnership had no operating expenses for the year and no interest
expense was accrued due to the uncertainty of intercompany relationships and
future transactions between entities. This proceedure was concurred in by the
present sole creditor, Murphy & Elgot.
On May 13, 1988, ESC's bankruptcy was dismissed and all remaining ESC assets
were repossessed by the sole secured creditor of ESC, Murphy, Elgot & Moore, as
represented by Mr. Thomas Murphy. These assets are primarily amounts owed to
ESC, and now in turn to Murphy & Elgot, by various partnerships, including this
partnership. The General Partners expect to settle the matter by payment to
Murphy & Elgot of a small percentage of the partnership's overall royalty cash
flow, if any.
The partnership's success had been dependant on the ability of NDMC, located in
Phoenix, Arizona, to manufacture and sell the partnership's products. NDMC's
abandonment of production was unexpected and no reason for the decision was
given to the Partnership. The Partnership has begun the process of seeking a new
licensee, however this effort is dependent on the very limited personal
resources of the General Partners. While several preliminary contacts have been
made, they have not yet resulted in substantive negotiations and there is no
assurance that they will. As of March 2002, the General Partners have continued
substantive conversations with a specific potential licensee. This potential
licensee would be third party company formed by a California businessman to
enter the firearms manucaturing and sales business. He will be joined in this
endevor by a noted firearms writer who is currently in the business of
manufacturing and selling firearms accessories. These individuals are currently
attempting to obtain financing to
Page 4
produce the partnership's products, and the general partners have been informed,
as of March 2002, that such financing should be available soon. Should such
financing become available, the partnership expects to negotiate a license with
the new group. There can be no assurance that funds will actually be obtained or
that a license satesfactory to the partnership will be concluded.
Since firearms designs are historically very long lived and the reputation of
Detonics appears to remain good, the General Partners are committed to resuming
production, if possible. However, at present, there can be no assurance that the
partnership will be able to find a new licensee or that it will receive any
royalties.
Item 8: Financial Statements and Supplementary Data
(a) Unaudited financial statements, submitted in accordance
with Reg. 210.3-11 of Regulation S-X, are attached as Exhibit 1 and are herein
incorporated by reference.
Item 9: Disagreements on Accounting and Financial Disclosure
Matters:
Detonics Small Arms Limited has no independent accountant at present.
PART III
Item 10: Directors and Executive Officers of the Registrant
The Partnership has no directors or officers. Management of the Partnership is
vested in the General Partners. The name of each present General Partner of the
Partnership, the nature of other positions held by him, and his educational
background is below:
Michel E. Maes, age 64, graduated from the University of Washington in Physics
in 1959. He subsequently did post-graduate work in various phases of physics. He
was an engineer of the Boeing Company from 1959 to 1961; an engineer and later
Director of Advanced Projects for Rocket Research Corporation, from 1961 to
1966; President of Explosives Corporation of America and Chairman of the Board
of Petroleum Technology Corporation, both subsidiaries of Rocket Research
Corporation, from 1966 to 1971. Up until December 5, 1986, Mr. Maes served as
Chairman of the Board at ESC. Mr. Maes is now President of LINC Technology
Corporation, an electronics firm.
Sidney H. Woodcock, age 76, is an internationally recognized expert in the field
of nuclear reactor safeguards, and is a principal consultant to the United
States Nuclear Regulatory Commission in the area of counter-sabotage,
particularly as related to the application of explosives and explosive systems.
Mr. Woodcock has over thirty years of experience and was previously employed as
Director of Special Projects for Explosives Corporation of America, and as Chief
Range Officer, responsible for all explosive technology, for the Battelle
Northwest facility of Battelle Memorial Institute at Richland, Washington. From
1976 until 1985, Mr. Woodcock was President of Detonics Manufacturing
Corporation.
Item 11: Executive Compensation
The Partnership has no directors, officers or employees and thus pays no direct
compensation. The General Partners were paid a one-time management fee in 1982.
The General Partners and their affiliates received certain compensation as
described in the table "Compensation and Fees to General Partners and
Affiliates" in the Prospectus which is hereby incorporated by reference.
Item 12: Security Ownership of Certain Beneficial Owners and
Management
(a) The only outstanding voting securities of the Limited
Partnerships are those Limited Partnership interests owned by investors or their
successors in interest. No single person owns 5% or more.
(b) Security ownership of management
Title of Name of Beneficial Nature of Beneficial Percent
Class Owner Ownership of Class
General Sidney H. Woodcock Interest in Profits 2.5
Partner and Losses
Interest in Cash 2.5
available for Distrb.
General Michel E. Maes Interest in Profits 2.5
Partner and Losses
Interest in Cash 2.5
Available for Distrb.
(c) There are no agreements or arrangements known which
could affect control of the Partnership.
Item 13: Certain Relationships and Related Transactions
As described in the prospectus, Detonics Small Arms Limited was a party to
several contracts with affiliates of the Limited Partners which resulted in
compensation to the General Partners. See "Compensation and Fees to the General
Partners and Affiliates" and "Certain Transactions" in the Prospectus, which
hereby is incorporated herein by reference. Also see Item 7 above.
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
a) Documents filed as part of this Annual Report:
Unaudited financial statements, filed in accordance
with Reg. 210.3-11 of Regulation S-X.
b) Reports on Form 8-K: None
Page 5
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Registrant: Detonics Small Arms Limited
By: Date:
Michel E. Maes, General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacity and on the date indicated.
By: Date:
Michel E. Maes, General Partner
Supplemental Information to be furnished with Reports filed pursuant to Sections
15(d) of the Act by Registrants which have not registered securities pursuant to
Section 12 of the Act.
No annual reports or proxy materials have been or will be sent to security
holders.
Page 6
DETONICS SMALL ARMS LIMITED
BALANCE SHEET
DECEMBER 31, 2001 AND 2000
(UNAUDITED)
12/31/01 12/31/00
ASSETS
Current Assets:
Cash $ .00 .00
Royalties Receivable .00 .00
------------ ------------
TOTAL CURRENT ASSETS $ .00 .00
Intangible Assets Less Amortization .00 .00
------------ ------------
TOTAL ASSETS .00 .00
LIABILITIES AND PARTNERS' CAPITAL:
Accounts Payable .00 .00
------------ ------------
TOTAL CURRENT LIABILITIES $ .00 .00
Payable to Affiliates 672,769.01 672,769.01
Partners Capital (Deficit) (672,769.01) (672,769.01)
------------ ------------
TOTAL LIABILITIES & PARTNERS' CAPITAL .00 .00
The accompanying notes are an intergral part of the financial statements
Page 7
DETONICS SMALL ARMS LIMITED
STATEMENT OF INCOME
FOR THE YEAR ENDING
DECEMBER 31, 2001, 2000, & 1999
(UNAUDITED)
12/31/01 12/31/00 12/31/99
Revenue
Royalty Revenue $ .00 .00 .00
Other Revenue .00 .00 .00
--------- -------- --------
TOTAL REVENUE .00 .00 .00
Costs and Expenses:
Bank Charges .00 .00 .00
Commissions .00 .00 .00
Operating Expense .00 .00 .00
Professional Fees .00 .00 .00
Promotion .00 .00 .00
Supplies .00 .00 .00
Taxes .00 .00 .00
TOTAL COSTS AND EXPENSES .00 .00 .00
--------- -------- --------
Net Income (Loss) .00 .00 .00
The accompanying notes are an integral part of the financial statements
Page 8
DETONICS SMALL ARMS LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDING
DECEMBER 31, 2001, 2000, & 1999
(UNAUDITED)
12/31/01 12/31/00 12/31/99
Net Cash From Operating Activities $ .00 .00 .00
Net Cash Used By Investing Activities .00 .00 .00
Net Cash From Financing Activities .00 .00 .00
Net Increase In Cash .00 .00 .00
Cash At Begining Of Period .00 .00 .00
Cash At End Of Period .00 .00 .00
Page 9
DETONICS SMALL ARMS LIMITED
STATEMENT OF PARTNERS' CAPITAL
FOR THE YEAR ENDING
DECEMBER 31, 2001, 2000, & 1999
(UNAUDITED)
12/31/01 12/31/00 12/31/99
Contributions by Partners 0.00 0.00 0.00
Capital Withdrawals 0.00 0.00 0.00
Syndication Costs 0.00 0.00 0.00
Accumulated Surplus (Deficit) (672,769.01) (672,769.01) (672,769.01)
Net Income (Loss) 0.00 0.00 0.00
-------------- -------------- --------------
Partners' Capital (Deficit) (672,769.01) (672,769.01) (672,769.01)
The accompanying notes are an integral part of the financial statements
Page 10
DETONICS SMALL ARMS LIMITED
(a Washington State limited partnership)
NOTES TO THE FINANCIAL STATEMENTS
1. Partnership Organization and Operations
Detonics Small Arms Limited, a Washington State limited partnership ("the
partnership"), was formed on January 28, 1981 for the purpose of raising certain
capital through the public offering of Limited Partnership interests (4,250
units; $1,000 per unit), and acquiring the rights to and conducting research and
development with respect to a group of small arms products. Subsequently, the
Partnership commenced limited manufacturing and marketing activities for certain
products. The Partnership shall continue for a period of thirty (30) years from
the date of organization unless the Partnership is sooner dissolved according to
the provisions of the Amended Certificate of Limited Partnership and Agreement.
The Partnership has two general partners and limited partners comprised of
certain investor groups.
The Partnership entered the production stage. Development of the small arms
products was completed. For admission to the Partnership, an investor is
assigned to a group (one group is associated with each phase), based on the
timing of receipt of the contribution. 4,250 limited partnership units are
outstanding. The units of the Partnership are nonassessable.
Partners' Capital
Initial contributions aggregating $4,250,000.00 were made by the Limited
Partners in 1981. The General Partners have not and will not make any capital
contributions. Partners share in income or loss of the partnership as set forth
below.
Allocation of Income, Loss and Cash Distributions
The loss attributable to the research and development efforts of each phase was
allocated to the partners included in such phase as follows:
Limited Partners, pro rata 95%
General Partners 5%
All income and/or loss attributable to the operations after the research
and development program has been completed, including revenues derived
from the sale or other disposition of any rights or interest, shall be
allocated as follows:
Limited Partners, all groups, pro rata 95%
General Partners 5%
Page 11
The Limited Partners shall receive one hundred percent of the cash
available for distribution, until such time as the Limited Partners
have received in distribution an amount equal to the cumulative capital
contributions received from Limited Partners.
After the Limited Partners have received cash distributions in an amount
equal to the cumulative capital contributions received from Limited
Partners, the General Partners will receive one hundred percent of the
cash available for distribution, until such time as the General Partners
have received an amount equal to five percent of the cumulative capital
contributions received from Limited Partners. Thereafter, the cash
available for distribution shall be allocated as follows:
Limited Partners, all groups, pro rata 95%
General Partners 5%
Upon dissolution of the Partnership, proceeds of the liquidation will be
applied in accordance with the terms of the Amended Certificate and
Agreement of Limited Partnership in the following order of priority:
1) To the payment of liabilities of the Partnership and
expenses of liquidation;
2) To the setting up of any reserves which the General
Partners may deem reasonably necessary for any contingent
or unforeseen liabilities or obligations of the
Partnership, or of the General Partners, arising out of or
in connection with the Partnership;
3) To the repayment of the Limited Partners' contributions to
the capital of the Partnership, plus an amount equal to
six percent of the capital contributions per annum
cumulative, less the sum of prior distributions to
investors from cash available for distribution;
4) Any balance then remaining shall be apportioned among all
the partners as follows:
Limited Partners, pro rata 95%
General Partners 5%
Page 12
Pursuant to the terms of the Partnership Agreement, the General Partners
are not required to contribute to the Partnership any deficit in their
capital accounts which exist after application of proceeds of
liquidation as set forth above.
2. Significant Accounting Policies
Basis of Reporting
The records of the Partnership are maintained using the accrual method
of accounting. A substantial portion of the transactions of the Limited
Partnership have been with the entities affiliated with the General
Partners.
Inventories
The partnership has no inventories.
Property and Equipment
The partnership has no tangable properties.
Other Assets
Other assets include capitalized organization and patent costs; these
assets are carried at cost and amortized using the straight-line method.
Offering Costs
Offering costs, including sale commissions to brokers for sales of
limited partnership interests were charged directly to the respective
partners' capital account.
Income Taxes
The Partnership is not a tax-paying entity. No provision is made in
these financial statements for federal and state income taxes.
Research and Development Expenses
Research and development costs paid or accrued under terms of a contract
with an affiliated company were charged to expense in the period in
which the obligation was incurred.
Page 13
Net Loss Attributable to Limited Partners Units
The net loss attributable to each $1,000 limited partnership unit
represents the loss for the period allocated to limited partners divided
by the number of partnership units outstanding at the end of the period.
The net loss allocated to specific individual units will vary from the
amount shown depending on the group to which a limited partner has been
assigned.
3. Amounts Owed to Affiliated Companies
The Partnership owes amounts to affiliates for work done by such
affiliates on its behalf. These amounts have been subject to interest
and possible foreclosure.
Due to the filing of Chapter 11 by the Partnership's affiliate, and by
the Partnership, and due to the cessation of commercial activity
relating to the Partnership's products, all accrual of interest and
right of foreclosure has been suspended since 1987. The Chapter 11
proceeding of the Partnership's affiliate was dismissed on May 13, 1988.
However, as of March 2001, no final settlement has been reached with the
former secured creditors of the Partnership's affiliate regarding
the debt owed by the Partnership.
4. Transactions with Related Parties
A substantial portion of the transactions of the Partnership have been,
and are anticipated in the future to be, with the General Partners and
their affiliates. Significant transactions with these parties are
summarized in the following paragraph.
Non-recurring management fees to the General Partners of $106,250 (2.5%
of the limited partners' contributions), were incurred in 1981. The
fees represent compensation to the General Partners for organization of
the Partnership and for expense incurred in connection with the offering
of the limited partnership units. The fees were allocated to
organization and offering costs.
An affiliate of the General Partners entered into a fixed price research
and development contract with the Partnership. The affiliate received
$3,500,000 in cash in 1981 as payment for conducting all present and
future research and development for phases 1-6 of the partnership. The
affiliate's costs for performing the research and development activities
included certain general and administrative and overhead costs allocated
by its parent company, an affiliate of the General Partners.
The Partnership granted to an affiliate of the General Partners, the
option to acquire a non-exclusive license to use any products developed
by the Partnership for a period defined in the option agreement and an
option to acquire an exclusive license to said products within 90 days
after termination of the non-exclusive license. The Partnership
received $1,000 in 1981 in return for the aforementioned options.
Substantially all operating costs of this affiliate have been allocated
to the Partnership under this agreement.
The Partnership was charged for manufacturing, marketing,and general and
administrative expenses incurred on behalf of the affiliates of the
General Partners. Amounts due to and from affiliated companies are
comprised of such charges by affiliates and costs incurred by affiliates
on the Partnership's behalf, net of reimbursements and advances made by
the Partnership.
The General Partners have provided management, research and development
and other technical services to affiliates which provided services to
the Partnership. The General Partners were compensated by the
affiliated companies for such services.
5. Commitments and Contingencies
The Partnership has entered into agreements with several individuals to
obtain title to inventions and designs relating to the small arms
products the Partnership is developing. Pursuant to the terms of the
agreements, the individuals will be entitled to royalties of .5% of
sales made directly by the Partnership, 5% of any royalties received by
the Partnership under licensing agreements associated with the products,
and 5% of any amounts received by the Partnership from the sale,
assignment or transfer of the rights to the products.
Page 14