SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For fiscal year ended: December 31, 2002
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 2003, 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. All subsequent
reports have been timely filed.
Page 2
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, 2002.
(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 2002 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 2003, 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
manufacturing 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 have been attempting to
Page 4
obtain financing to produce the partnership's products, and the general
partners have been informed, as of March 2002, that such financing would be
available soon. As of March 2003, the financing arrangements have not yet
been completed, and there can be no assurance that they will be. Should
such financing become available, the partnership expects to negotiate a
license with the new group. There can be no assurance that funds from any
source 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 65, 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 77, 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.
Page 5
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 6
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: /s/ Michel E. Maes Date: 03-17-2003
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: /s/ Michel E. Maes Date: 03-17-2003
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 7
DETONICS SMALL ARMS LIMITED
BALANCE SHEET
DECEMBER 31, 2002 AND 2001
(UNAUDITED)
12/31/02 12/31/01
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 8
DETONICS SMALL ARMS LIMITED
STATEMENT OF INCOME
FOR THE YEAR ENDING
DECEMBER 31, 2001, 2000, & 1999
(UNAUDITED)
12/31/02 12/31/01 12/31/00
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 9
DETONICS SMALL ARMS LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDING
DECEMBER 31, 2002, 2001, & 2000
(UNAUDITED)
12/31/02 12/31/01 12/31/00
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 10
DETONICS SMALL ARMS LIMITED
STATEMENT OF PARTNERS' CAPITAL
FOR THE YEAR ENDING
DECEMBER 31, 2002, 2001, & 2000
(UNAUDITED)
12/31/02 12/31/01 12/31/00
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 11
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%
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%
Page 12
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%
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.
Net Loss Attributable to Limited Partners Units
Page 13
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