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EX-32 - EXHIBIT 32 - DETONICS SMALL ARMS LTDex32.htm
EX-31 - EXHIBIT 31 - DETONICS SMALL ARMS LTDex31.htm


10-Q
 
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 incorporation or organization)
(IRS Employer ID No.)

14508 SE 51st, Bellevue, WA  98006
(Address and zip code of principal executive offices)

Registrant's telephone number, including area code:  (425) 746-6761
 

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 together with the report of independent certified public accountants, is incorporated by reference.
 


 
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PART I - FINANCIAL INFORMATION

Item 1:
Financial Statements

See Appendix A

Item 2:
Management's Discussion and Analysis of the Financial Condition and Results of Operations

No royalties or other income were booked in the third quarter of 2009.

The partnership originally had licensed the manufacturing and sale of its products to Detonics Manufacturing Corporation (DMC) a subsidiary of Energy Sciences Corporation, (ESC).  DMC, ESC and the Partnership entered Chapter 11 bankruptcy proceedings on April 29, 1986.  In late 1987, the Bankruptcy Court approved a sale of all of DMC's assets to a new entity, formed by outside third parties, called New Detonics Manufacturing Corporation, (NDMC). By subsequent majority vote of the limited partners of the Partnership, a new license was entered into between the Partnership and NDMC, which called for royalties to begin in late 1991 at the rate of 4% of gross sales.  No partnership income was expected before that time.
 
On May 13, 1988, ESC's bankruptcy was dismissed and all remaining assets were repossessed by the sole secured creditor of ESC, the firm of Murphy & Elgot.  These assets are primarily amounts owed to ESC by the partnerships and the rights to produce products owned by the partnerships.  The general partners had discussions with Mr. Murphy, (who was also counsel for ESC and the partnerships), on the elimination of most or all the debt owed by the Partnership to ESC, (and, therefor to Murphy & Elgot).

As previously reported, the general partners learned in late 1991 that production of firearms at NDMC was suspended in 1991.  The general partners have subsequently been advised that Murphy & Elgot, the sole secured creditors of the original DMC, have moved to have the "soft" assets (the name "Detonics" and the right to manufacture the Detonics designs) which were assigned to NDMC by the Bankruptcy Court be returned to Murphy & Elgot and Moore. This occured in September 1992.  Mr. Murphy passed away in 1997. The general partners have had discussions with Mr. Elgot regarding future attempts to recommercialize the products and he indicated he would approve any recommercialization plan that the general partners would be able to obtain.  The general partners had been discussing such plans with a third party.  Royalty amounts of 5% of gross sales have been verbally agreed to, but no written agreement had been prepared or signed as of December 31, 2002.  It was learned in April 2003 that this plan would not take place. Mr. Ahern continued to explore other financing sources and the partnership has signed a three year agreement with Mr. Ahern giving him the exclusive right to seek funding or a partner to reestablish production. There can be no guarantee that it will be possible to arrange for production of any of the Partnership's products.

Mr.Ahern was successful in finding a backer and a new company named Detonics USA LLC was formed (not owned by the partnership) The partnership signed a license agreement with Detonics USA LLC which involves a royalty of about 5% of gross sales of each of the partnership's products manufactured and sold, appropriately divided among all the firearms partnerships and shared with Mark Elgot and Richard Moore in the ratio of 35% to Elgot and Moore combined and 65% to the partnership(s) whose products have been sold.

Detonics USA was subsequently purchased by Double Nickel LLC in late 2007 and operates as a division of that company.  The partnership payments have been changed to a flat $25.00 per Detonics and 1911A gun sold and $5.00 per non-Detonics gun sold. Since Double Nickel has made some significant changes to the origional Detonics design, it is possible that the partnership payments will be renegotiated in the future.

The split between the partnership and Mark Elgot and Richard Moore remains the same 65%/35%.  There can be no assurance that Double Nickel will succeed and that royalties will be paid.

None of the partnership's firearms designs is yetin production by Double Nickel.

 
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Sid Woodcock, co-General Partner of the partnership is no longer affiliated with Double Nickel. Michel Maes, also co-General and Managing Partner of the partnership, is a co-owner of an electronics company.  Mr. Maes is not a stock holder and has not played an active role in Double Nickel LLC.


PART II - OTHER INFORMATION

Item 1:
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 injunction action against the Partnership and Messrs. Maes and Steffey 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.

On October 16, 1989 the U.S. Bankruptcy Court ordered the conversion of the partnership's Chapter 11 to a Chapter 7.  On May 11, 1990, the partnership filed an amended motion to dismiss the Chapter 7.  The motion was granted on June 21, 1990 and the partnership is no longer in bankruptcy.

In March 1993, the partnership received a "Notice of Beginning of Administrative Proceeding" from the Internal Revenue Service.  The issue was 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.  In July, 1993, the general partners received notification from the IRS that they did not intend to make any changes as a result of that Administrave Proceeding.  The IRS has the right to bring the subject up again.

Item 2:
Changes In Securities: None

Item 3:
Defaults Upon Senior Securities: None

Item 4:
Submission Of Matters To A Vote Of Security Holders: None

Item 5:
Other Information: None

Item 6:
Exhibits, Financial Statement Schedules, and Reports on Form 8-K

 
a)
Documents filed as part of this Report: Unaudited financial statement.

 
b)
Reports on Form 8-K: None.

Item 9:
Disagreements on Accounting and Financial Disclosure Matters
 
DSAL has no independent accountant at present, in accordance with Rule 3-11 of Regulation S-X
 
Item 9A
Controls and Procedures

 
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The Partnership's disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that are filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summerized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.  Disclosure controls and procedures include, without limitation, controls and proceedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management including its principal executive and principal financial officers, or persons performing similar functions (the Managing General Partner), as appropriate to allow timely decisions regarding required disclosure.

The Managing General Partner has reviewed the effectiveness of the Partnership's disclosure controls and procedures as of the end of the period covered by this Form 10-Q report and have concluded that the disclosure controls and proceedures are effective.

There were no changes in our internal control over financial reporting during the three months ended Sept.30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

9B
Other Information

None

 
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Appendix A

DETONICS SMALL ARMS LIMITED
BALANCE SHEET
Sept.30, 2009
(UNAUDITED)
 
 
ASSETS
     
Cash
  $ 0  
Royalties Receivable
    0  
TOTAL CURRENT ASSETS
  $ 0  
         
Intangible Assets Less Amortization
    0  
Receivable from Affiliates Less Allowance
    0  
TOTAL ASSETS
  $ 0  
         
         
LIABILITIES AND PARTNERS' EQUITY
       
Accounts Payable
  $ 0  
Taxes Payable
    0  
TOTAL CURRENT LIABILITIES
    0  
         
Payable to Affiliates
    672,769  
         
TOTAL LIABILITIES
    672,769  
         
Partners' Capital
       
      (672,769 )
TOTAL LIABILITIES
       
AND PARTNER'S EQUITY
    0  


DETONICS SMALL ARMS LIMITED
STATEMENT OF INCOME
FOR THE QUARTER ENDING
Sept.30, 2009
(UNAUDITED)


Royalty Revenue
  $ 0  
         
Expenses
    0  
Net Income (Loss)
  $ 0  
 
NOTE: The products owned by the Partnership were licensed to New Detonics Manufacturing Corporation (NDMC).  Under the terms of that license, royalties were not scheduled to be paid to the Partnership until late 1991.  NDMC suspended production of all firearms and the license with NDMC has been terminated.  A new intellectual property use agreement was signed with Double Nickel LLC/Detonics in late 2007.
 
 
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DETONICS SMALL ARMS LIMITED
STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDING
Sept.30, 2009
(UNAUDITED)


Net Cash Provided By Operating Activities
  $ 0  
         
Net Cash Used By Investing Activities
    0  
         
Net Cash Provided By Financing Activities
    0  
Net Increase In Cash
  $ 0  
         
Cash At Beginning Of Period
  $ 0  
Cash At End Of Period
  $ 0  


SIGNATURES

Pursuant to the Requirements 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.

 
DETONICS SMALL ARMS LIMITED
 
(Registrant)
   
11/5/09
/S/  Michel E. Maes, Managing General Partner
(Date)
(Signature)
 
 
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